Talking Macro and Charts with Jurrien Timmer (FvF Ep. 163)

In the latest episode of Facts vs Feelings, hosts Ryan Detrick, Chief Market Strategist, and Sonu Varghese, VP, Global Macro Strategist, sit down with Jurrien Timmer, Fidelity's Director of Global Macro, to break down the current cyclical and secular bull markets, how AI compares to past transformative periods, what rising rates have meant for valuations, and why international equities are becoming more attractive. They also touch on the role of gold and Bitcoin, how to think about barbell strategies, and what history teaches about market narratives. 

Key Takeaways

• Market Setup: Today’s environment features a cyclical bull market on top of a long-running secular bull market, similar to past periods like 1994 and the late 1990s.
• Interest Rates & Valuations: The 2022 market drop came largely from PE compression as rates jumped from near zero to 5%, while earnings actually grew.
• Historical Parallels: Timmer highlights similarities between today and both the late 1960s (loose fiscal policy, sticky inflation) and late 1990s (tech-driven excitement).
• Barbell Approach: A mix of mega-cap leaders and undervalued international equities may help manage concentration risk, especially as Europe and Japan boost payouts and trade at lower valuations.
• Gold & Bitcoin: Timmer views both as scarce, diversifying assets that hedge against periods when bonds may struggle, especially in potential fiscal-dominance environments.
• Small Caps vs. Large Caps: Small caps show mixed performance due to both traditional domestic exposure and speculative, unprofitable tech tied to AI.

Connect with Ryan:

• LinkedIn: Ryan Detrick

• X: @ryandetrick

Connect with Sonu:

• LinkedIn: Sonu Varghese

• X: @sonusvarghese

Connect with Jurrien Timmer:

• LinkedIn: Jurrien Timmer

• X: @TimmerFidelity

Questions about the show? We’d love to hear from you! factsvsfeelings@carsongroup.com

Disclosure: Jurrien Timmer is not affiliated with CWM, LLC. Opinions expressed by our guests may not be representative of CWM, LLC.

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#FactsVsFeelings #MarketInsights #InvestingPodcast #MacroOutlook #GlobalMarkets #AssetAllocation #CarsonGroup

Transcript

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SPEAKER_02 0:00

Welcome to the Facts versus Feelings Podcast. I'm your host, Ryan Dietrich. And I'm joined by my co-host, Sonu Varghis. Cutting through the noise each week with Ryan Dietrich, Chief Market Strategist, and Sonu Varghis, VP Global Macro Strategist, taking out the boring and helping investors focus on what really matters. A quick note before we start the show. Investment advisory services offered through CWM LLC, an SEC registered investment advisor. Carson Partners, a division of CWMLLC, is a nationwide partnership of advisors. Hi everyone, welcome to a very special episode of Carson's Facts versus Feelings, episode 163, Ryan and Sonu here. Sono we're joined by um someone I've looked up to for a long time. I know someone we've wanted to have on our podcast for a very long time, Yurian Timmer over at Fidelity, the director of Global Macro. Yurian, thank you so much for joining us.

SPEAKER_00 0:56

Thank you for having me. It's a pleasure.

SPEAKER_02 0:59

So there's I mean I think I've got like 50 questions. I think Sonny's got another 50. Uh you know, we'll just dive in. You know, let's I think it's fascinating. You were born in Aruba and you grew grew up in Aruba. When did you come to the United States? And kind of how did that um growing up in that part of the world form kind of your view really of global macro right now?

SPEAKER_00 1:19

Yeah, I've so I'm um wasn't. How's your tan?

SPEAKER_02 1:22

How's your tan? Uh yeah, you're a little where you live, right? You're in Boston, right? You're a little white looking. That's okay. I'm white, trust me. It's all right.

SPEAKER_00 1:27

My tan is non-existent. Um I was born and raised in Aruba on the island of Aruba, uh, born there in 1962, and uh of Dutch parents, so I'm a Dutch citizen. Well, I'm I'm a dual citizen now of the U.S. and the EU. Um, but my parents were there for like 35 years, and I grew up there. Uh it was pretty wonderful. You know, Aruba was not the overdeveloped place that it is now. It was just a quiet, sleepy little island. Uh, and it was a very diverse background, you know. Um, and so I think it really did help me um have a worldview rather than sort of a provincial view. Um and so, you know, I too I have two older brothers, and typically if you're Dutch and grow up in Aruba, you end up going to uh the university in Holland because it's cheaper, the quality is good, and that's where people's family and relatives are. Uh of course I had to be different. I ended up uh wanting to go to the States. Uh I met many, many American tourists on the beach in Aruba, and I just I was a little intimidated by the Dutch culture. Uh I'm not anymore, but I just you know the Dutch can be kind of weird sometimes. But and the Americans were very welcoming, embracing, and so I really like that. And so I went to college um in the States instead of in Holland. I went to Babson College in 1981, um, graduated in 85, and I've been in the States ever since.

SPEAKER_02 2:55

So do you go to Holland often? You ever get over to Amsterdam? Do you get to do that?

SPEAKER_00 2:58

Um yeah, so my my middle brother lives in Amsterdam, my oldest brother still lives in Aruba, uh, but my parents live in The Hague, and they are 91 and 98 years old. Um and so obviously at that age we try to see them as often as possible. So I'm in Holland uh probably three, four times a year. Uh, and usually if I'm in in Europe for business, which I am a lot, you know, I'll kind of like do a weekend in Holland on the way back or on the way out. Um and so we were just all there in October for their 70th wedding anniversary. Um they even got like a medal from the mayor of The Hague because not many people make it to 70.

SPEAKER_02 3:41

So amazing. So one more for me, so and then jump in. So here's my quick Holland story. So I'm I had a roommate uh at Xavier University in Cincinnati. He was Dutch, uh, played soccer and tennis. Uh so that was Rob, great friend. Anyway, um, so I went and studied abroad in Europe, like you do 25 years ago when I was younger in college, and we went out in Amsterdam one night. Now we're in college, we went out. You can imagine all those shenanigans that got into. We woke up the next morning, a bunch of us crammed in a hostel. We looked at the door, Urian, and all of our shoes were lined up perfectly. We're all like, well, that's kind of weird because the condition we were in when we got home, that doesn't make any sense. We were robbed. It was an inside job. We all were robbed, and they lined all of our shoes up right by the door, and all our money. I mean, this is before cell phones and all that stuff. It was looking back, it's kind of a funny story now. And at the time it was pretty scary. So that's my Amsterdam story. I'm sure everyone has one. Um, yeah, that's that. But uh just want to point out, I don't know, just thought a funny story to break some ice. Uh Sony, what do you want to start with some fun here? Let's get going.

SPEAKER_01 4:39

You know, since you mentioned Holland, I have to ask if you're a Dutch soccer fan or if you're looking forward to the World Cup next year.

SPEAKER_00 4:45

Uh yeah, I'm an occasional fan. My oldest brother is a total fanatic. Like he has encyclopedic knowledge of soccer the way I have of the markets. Um, but it's funny, there is uh a soccer uh player called Jurian Timber with a B. Timber with an MB instead of two M's. So it sounds almost the same. And he is also from the islands, and so I get people on Twitter saying, Oh, you know, you've nice uh job at Arsenal or whatever, you know. So it's kind of a funny story.

SPEAKER_01 5:18

I must say my favorite soccer team is actually the Dutch soccer team ever since I started watching soccer about 30 years ago. Right. So yeah, and so both for the World Cup. So we'll be supporting the Dutch, which I have no connection to. And I have been to Amsterdam, but absolutely no connection to. But anyway, I I guess we get started. Um, I're in, you know, thank you so much for being here. I love your, you know, I think what you do is unique because a lot of us, you know, a lot of people out there put charts and things like that, but you I feel like you use them to create a narrative and figure out what is the message of the market, right? What is the market telling us? So let's just stop there. What is the market telling us right now? What is the narrative of the market?

SPEAKER_00 5:58

Yeah, so so you you're all right. I I consider myself a storyteller, basically, and um one of the things I I try to do is take all the complexities and all the noise and the signal that we all are fed on a daily basis, and I try to distill it into uh a working narrative that you know a hundred billion dollar PM sitting in the office next to me uh will uh value, but also you know, the average investor uh that's calling one of our uh uh phone reps can understand because the work goes really very demographically to the entire um you know spectrum of of uh of levels of of sophistication and understanding. And so, you know, right now I try to root everything in market history. So I have charts going back thousands of years, hundreds of years. And so when we are in a particular phase of the market cycle, I try to uh describe, okay, like where are we relative to where you know we would be in history? And so um I look at market trends, of course, I look at cycles, I look at the market cycle, the secular trend, the role uh or influence from interest rates and monetary policy, fiscal policy. And so what we have right now is a bull market, clearly, that is not only cyclical, but also secular. Uh the cyclical bull market started in late 2022 after uh the very sort of violent rate reset, if you will, um, you know, from the slumber of zero interest rates uh leading up to COVID and through COVID, and then that inflation uh genie getting out of the bottle, and then the Fed having to really respond to that, uh, and also respond to the fiscal impulse, which was probably not well understood at the time in terms of how what kind of demand shock that would create. And so we had the rate reset in 2022. Bond yields went from 1% to 5%. That is going to do a number on equity valuations because um, and one of the things I learned early in my career is that you know interest rates really matter, even if you're a stock jockey, that they still matter because if you value equities, you need to use an interest rate to discount those future cash flows into a present value, and that present value is what you should want to pay for uh a stock or a stream of cash flows. And so when the discount rate or the cost of capital goes from you know basically zero to five, that's gonna leave a mark, and that's exactly what happened. So the SP fell 28% in 2022, the PE fell like 33%. So it was all valuation earnings actually rose 8% that year. Um and so one of the things I do when that happens is I look at history. I'm saying, okay, what can we learn from history? History doesn't repeat, but it sure does rhyme on occasion. And the first thing I noticed was, okay, well, this kind of feels like 1994 when Alan Greenspan rose raised rates out of the blue. Um and I was in the markets at the time, you know, I've been in I've been in this business 40 years, so I've seen a few cycles. Um, and um, and then I start doing overlays. I was like, okay, what's different, what's the same? And of course, there's always things that are different, but more was the same than different. Um, and then um Greenspan back in the day uh achieved the soft landing, uh, and then he gave back some of the rate hikes in 1995. That's also when Netscape went public, and so the internet boom was born. Uh, you fast forward to 2022-23, uh Jay Powell delivered the soft landing. You know, remember we were all um obsessed about the yield curve at the time, um, and we can talk about that as well. But the soft landing came in November of 2022, uh, Chat GPT was launched, and so you can see the parallels, even though they're different. Um, and since then, since uh October 13, 2022, uh the SP is up 100%. Uh, so that's a nice cyclical bull market. And uh obviously fiscal policy is a big part of that. You know, the the Trump administration, the Republican Party, uh what that does to you know animal spirits in the economy. Of course, the AI boom is a huge feature of this. Um, and we are now, at least by my estimate, in year 16 of a secular bull market. So you have a cyclical bull market on top of a secular bull market, and I think that's why you're seeing the kind of momentum that we're seeing here in the markets. And even after like a scary, not scary day, but after some down days last week, you know, the market came roaring back today. That that's fairly typical of bull markets. And and you know, again, with history, you kind of can read the tea leaves and say, okay, you know, this this feels like something I've seen before and what happened then, et cetera, et cetera. So that's kind of how I sum up the market cycle. And of course, the monetary side is of help. You know, the Fed is is cutting rates, um, maybe not as much as the market would like. Um, but you know, the 10-year treasury yield is at 412, so that's very benign. When it goes up to towards five, that's a big problem for the stock market. Um, but right now things are fairly quiet. And the thing that we're focused on most, and that the question I'm getting asked the most is uh are we in a bubble? Uh that's what everybody is asking. And my short answer, my my somewhat flippant answer is well, if that's the question everyone's asking, the answer is no, because that's not how bubbles work, right? Bubbles are chaotic, irrational things, and you can't you can't use your linear mind to understand them because uh if if if the market was that linear, you wouldn't you would never have bubbles. So uh that's my short answer there.

SPEAKER_02 11:55

So just so everyone knows we are recording this on November 11th, Veterans Day. So thank you to all the veterans out there for sure. And this so you're in this, this will come out about two weeks, just so I think uh just so you know. So I love the I just looked to my left because this is my CMT. I know you have a CMT, chartered market technician. I was the 499th CMT. It looks like it was October 17, 2025. That's kind of crazy. So I've been a CMT for 20 years now. Um, you know, looking at your career, you started in fixed income. I'm gonna assume you weren't always kind of a charts person. What kind of pulled you or gravitated you toward using charts? I love what you said. You said you're a storyteller. Literally, when people ask me what I do, storyteller is one of the first words that I use because I love to create charts to tell stories. I love looking at history, I love looking at sentiment. I know you do all those things also. What gravitated you to charts over the years, though?

SPEAKER_00 13:01

Um, I I'm just a visual person. Uh, you know, when you when you roam the floors here of my building here at uh on where our asset management is located, you know, some people consume information through like numbers and tables, and and I do as well, of course. Um uh but some consume it through charts. And even before I landed at Fidelity, I've been here 30 years now, um, and I was working on a fixed income desk for a Dutch bank in New York, um, I just couldn't help, like I'm I'm just a visual person. Like it just speaks to you one way or the other. Um and I started, and I'm always, you know, always been a storyteller. My my father is a brilliant writer, and and so I I kind of that combination of charts and wanting to tell a story kind of I even started back then. Um, and then Fidelity came looking for uh the most narrow position you could possibly imagine, a a chartist in the fixed income group, right?

SPEAKER_02 14:02

So boy.

SPEAKER_00 14:03

So there's charts and then there's bond charts, and there's only so much you can do if that's all you do. But you know, it was Fidelity. I was ready to make a change. So I took the job and I quickly sort of pivoted towards multi-asset and later multidiscipline, uh, and we can talk about that. But but you know, Fidelity has a legendary chart room, and Fidelity's former uh leader Ned Johnson, he personally hired me actually. He was my last interview. Um, and you know, we would spend hours every week just pouring over charts in the chart room, and the charts in the chart room are done so precisely, right? Semi-log scales, um, the lighting, the grid lines are just you know, just so they're just works of art. And so he really was sort of a mentor in how to display quantitative information. Um, and uh so that was really uh an instructive period for me to to take my charting to the next level.

SPEAKER_02 15:05

Do they have like a no food drink policy in that room? I would assume, because I'm kind of messy. I don't think you want me in there eating. How's that work in there?

SPEAKER_01 15:11

I think I had a coffee, but I was there a couple of years ago. I may have, you know, but uh a lot of them are on the wall. I must say, like on location, being in the exchanges is something is really cool, like the NYC or this. I'm in Chicago with the SIBO. Yeah, it's there's something neat about being there, especially the SIBO because it's still open outcry and things like that. It's still a hybrid exchange, right? But that chart room, I must say, is one of my favorite places to be on location anywhere within the world of finance. It's so cool.

SPEAKER_00 15:39

I I by the way, I was on the in the bond pits of the SIBO, not not working, but when I worked for the Dutch Bank, uh they owned, probably still do, uh bank called LaSalle National Bank, which was right right there. Um and so I would go every few months and um and uh we would work with with a broker, and so I got to go kind of hang out on the on the pits, and it was so you know, it was like you know, trading places. It was like so cool.

SPEAKER_01 16:05

There's so much energy there.

SPEAKER_00 16:07

Yeah, yeah.

unknown 16:07

Yes.

SPEAKER_01 16:08

Uh I love what you said about the bull market and how you sort of uh differentiated between the cyclical bull market and the secular bull market, which you said like 16 years ago or thereabouts, right? Uh I imagine bull markets don't die just of old age. But what brings bull markets to an end?

SPEAKER_00 16:29

So um secular bull markets come to an end. Well, we've only had a few, right? So we had the 20s uh that ended up in a bubble, and bubbles tend to just implode on themselves. Uh so that was one. The the 50s and 60s was another one, and that one was essentially ended by inflation, right? So in the second half of the 60s, we had very loose fiscal policy, like year after year, chronic deficits kind of sounds familiar. Um, and and there were many similarities with the late 60s and uh really the the post-COVID period. Um and monetary policy was way too loose as well. So back then, and I and I actually studied the Fed going back like to the 40s to the 60s, uh, really fascinating to read kind of the blow by blow of what was happening and the political meddling and all that stuff. But but monetary policy was too loose because you know uh policymakers were still traumatized by the Great Depression, the war, you know, deflation. So the policymakers didn't even really think about interest rates in real terms. Seems like ridiculous right now. And so um so they were kind of asleep at the wheel, if you will. And that combination of fiscal and monetary loose policy eventually created, you know, the great inflation. And of course, we had the Vietnam War, we had guns and butter, and there's some similarities there with COVID. I mean, COVID wasn't a war, but it was like a war on COVID, so there was a lot of deficit spending. But anyway, so that, and then in 1968, which was the final peak of that secular bull, we had a bit of a speculative bubble with retail investors or traders, kind of the the day traders of the of the time, because we had the glamour stocks and like the space stocks and the electronics stock, you know. Any company with the word tronics in its name would just trade to a 50 multiple, whether it did anything or not. And so that bubble burst. It was not a big one, but it was a bubble. And so, and then fast forward to the late 90s, of course, and that was a bubble. Um, from the 1998 low after long-term capital to the 2000 peak, the big growers in the SP, like the top 50 names, for instance, uh, they went from a PE of 20 to a PE of 40, while the rest of the market stayed at 20. So that was clearly a bubble, and that bubble imploded on itself. So right now we're in year 16. They tend to last 18, but uh, you don't want to, it's not an exact science, right? It's a sample size of three. So we don't want to read too much into that. But right now, you know, you have fiscal, uh, loose fiscal policy, monetary policy is neutral. Um, you obviously have a very compelling, juicy story around AI. Will that boom become a bubble? Will there be the overinvestment that we saw in 1999? We don't know the answers yet, but but that's typically, you know, it's it's always about valuation. Um, and it's either valuations being eroded by inflation or valuations becoming excessive and then it just implodes in on itself. But that's typically how how secular bull markets end. The cyclical ones, of course, followed the business cycle more. So you have you know an overheating economy, you get inflation, then the Fed has to tighten, and then you get the inventory corrections, and you know, a tightening Fed means an inverted curve, and then the banks stop lending. So that that's much more of a business cycle phenomenon.

SPEAKER_01 20:03

It's interesting that even I've been thinking about like there's so many parallels being drawn to the late 90s period for obvious reasons. But I've been looking at that 67, 68 period for you know fiscal, loose fiscal policy and then monetary policy too. And I don't want to say fed independence. I mean, that is a very nebulous phrase, but it just seems like there are so many parallels, interestingly, across both those secular bull markets that we've had, as you see, both the 60s and then the 90s too.

SPEAKER_00 20:31

And it's worth pointing out that you know, the meddling that we see uh with the Fed by the White House today is nothing new, right? It's like this is as as you know, this happens with every Fed, but sometimes it's a little quieter. Uh, not not every president has a social media platform. But in the 60s, whether it was Republican or Democrat, both Nixon and Kennedy, they were they were meddling and trying to influence monetary policy. And you know, when when you have a lot of debt to finance, you're gonna try to push rates down. And and the 1940s, which I thought was a very good parallel to the COVID um lockdowns or that period, uh, I think you know, really spoke volumes as well because the Fed was not yet independent back then. It happened in 1951. And the Fed's job literally was to make the wartime debt uh you know as fundable as possible. So the Fed uh uh capped long yields at 2.5%, capped T-bills at 3.8, and essentially um incentivized the banks to play the yield curve. You know, the the banks sold the Fed sold their T-bills to the Fed and bought long bonds, and and the and the social contract was the Fed said we're gonna honor PAR on those two and a half percent long bonds, and the banks just did that for years, and that's how the the war was was funded, basically. Um and of course, even though par was honored on in an in nominal terms, of course, you know, inflation uh was six percent while the yield was two and a half, so that did a number on real returns, but you know, that's another story. Yes, they would.

SPEAKER_02 22:14

Yes, they would. Um Yeah, so You joined Barry Ritholtz on the Masters in Business podcast last month. I listened to that, getting ready for this. And one thing I wanted to dive a little bit into. So Sonu and I manage our team at the Carson Investment Research Team. We manage almost $7 billion for our financial advisors and their clients. And one of the concepts you brought up was the idea of barbell. You talked with Barry, I'd love you to dive a little more, but like Mag 7 on one side and kind of the cheaper under love, maybe potentially EFA on the other side. We have some barbelled approaches as well. I don't know if you want to talk about portfolios, but just tell me about that barbelled approach, how you see people should potentially be investing here.

SPEAKER_00 22:51

Yes, um, it's a great question. And so one of the big things that I think about and my team here, so I work in the asset allocation uh group at Fidelity is you know, how do you manage tail risks, right? So generally, if you have a bell curve distribution of outcomes, by definition, generally you're somewhere between those two standard deviations. Otherwise, it wouldn't be a bell curve. Uh, but occasionally you go to the tails, either a left tail or a right till. And certainly over the last you know year with uh since the election, we've been kind of lurching from one till to the other, right? At first it was a bullish right till of you know deregulation, tax cuts, animal spirits, and then we had the left tilt of the tariff tantrum earlier this year, and now we're back on the right till in terms of the one big beautiful bill, the AI story. Um so how do you manage the tills? And one of the potential tills, so there's there's several, of course. One of them is that the very benign interest rate environment becomes less benign, right? So let's say the administration manages to flip the Fed, which very clearly is what it's trying to do, and the Fed were to drop rates to the 2% you just mentioned, um, you know, that would be below the inflation rate, the long end of the yield curve wouldn't like that, right? So you'd get a bare steepener. Um when stocks and bonds are valued similarly, right? So the the the PE on the on the 10-year yield, uh, so if you invert the yield of 4%, the PE is like 25. Uh the PE on the SP is 25, right? So if the risk-free asset uh becomes cheaper because the curve would bear steepen, the stock market has to respond through a lower PE in order to compete against the risk-free asset. So that is one till, and in an era of what we call fiscal dominance where fiscal policy is really going to dominate, um, that is a significant till risk that we need to manage. And that gets you into kind of in a 60-40 type of paradigm. You that gets you into a question of what do you do with the 40? Should the 40 be 40? Should it be 20? Uh, if it's 20, what do you put in the other bucket? Is it gold or bitcoin or alternatives? So that's one part of the till. Uh, but the other one, which is what you're referring to, is you know, obviously we have uh uh a booming stock market um uh not only this cycle, but secularly as well. And the US market has dominated the global landscape now. Not this year, the foreign markets are actually outperforming, but for the last 10-15 years, it's been all US all the time, the US exceptionalism, all that stuff. And that has created um uh a very you know good story in terms of returns, but it also has created a lot of concentration risk, right? So 10 top 10 stocks in the SP is over 40% of the index. Mag 7 alone is like 36, I think. Um, and when those stocks go up, it's great, right? Because it elevates the cap weighted SP beyond what we would other ex otherwise experience. And we see this, right? The the SP equal weighted, I think, is up like 7% for you to date, and the cap weighted is up 17%. Um and so if you're a passive investor or you use the SP as a general building block, uh that's going to make you very happy. But concentration risk can cut the other way as well. So if the AI boom ever gets overhyped and uh the players in that space, the big, big growers, go to PE levels that make no sense, right? And just to give you an example, uh back in the 1990s, you know, the the poster child of that internet boom turn bubble was Cisco Systems, right? They were providing the routers. And uh in 1998, when that bubble started, its PE was like 50, and in 2000, its PE was 215. All right. That's that's when I bought it.

SPEAKER_02 27:01

I was in college, I had no idea what I was doing. I think I bought it on like March 9th of 2000. Everybody just look at what Cisco did after that. Yeah. Live and learn.

SPEAKER_00 27:10

So if we take Nvidia, and I'm not a stock uh person, but you know, it's trading at a 50p, trailing P 35 forward. So it's nowhere near those levels. But you could imagine at some point that concentration risk will cut the other way. Well, either because it's a bubble or just that story has ended and the AI boom turns to the other to the downstream or the killer app site or whatever. Um, at that point, if those stocks ever go down, the index is going to go down. So, how do you hedge against an environment where your primary source of market beta uh is no longer there? You have to go to alpha or to get beta somewhere else, which I guess is saying the same thing. And so the the first inclination would be, okay, I go down cap in the US, you buy Russell too. Or you somehow figure out a way to get an equal weighted exposure instead of a cap-weighted exposure. But what I'm what I'm seeing now is that there's an easier way, I think, and that is that non-U.S. equities are now uh very competitive, uh, which is something they hadn't been until this year, right? So we we've always had conversations here about, okay, whether it's emerging markets or developed markets, it's the MSCI EFA index, um, they trade at a fraction of the PE of the U.S. So why don't we just put some money there? And I said, well, yeah, great, but until you have a catalyst in the form of the fundamentals, uh, the valuation is not going to get you anywhere, right? You can have a value trap. And so what's happening, especially in the developed world, um, so Europe and Japan, their earnings story is not as compelling as the US. They're not competing on that level. But companies there have become much smarter, much more savvy in unlocking shareholder value. And so what they're doing is that they are returning more of their earnings to shareholders via dividends and buybacks than they have ever done. And in the as in the process, uh the payout ratio for the IFA index, so dividends and buybacks as a share of earnings, is now the same as in the U.S. It's 75%. Um and the growth rate of that payout over the last five years is now actually better in EFA than in the U.S., even on a cap-weighted basis. And the PE is 15 versus 23. So you have equal fundamentals for much better valuation, and implicit in that your val your returns would be boosted if the dollar were to go down, which is a view that I hold. And so for me, a barbell of SP cap weighted and EFA is is a really good way to start kind of the conversation.

SPEAKER_01 30:03

It's very interesting. Diversification in terms of to diversify risk, right? But also to capture alpha to boost returns. So it's interesting, like for there's both two angles there, as opposed to usually diversification is just, oh, it's a risk management exercise. But now it's like, oh, I can actually hopefully boost returns potentially.

SPEAKER_00 30:22

Yeah, and you know, and it's worth remembering that, you know, and one of the reasons I look at long periods of market history and these secular waves is that you know, if the market normally goes up 10, 11%, and it goes up 60, 70% of the time, uh, well, it goes down 30 to 40% of the time, and nobody likes that, of course. And then then that's when we have to hold hands with our our customers so that they don't sell, because if they sell, uh they're gonna lose the compounding magic that the markets deliver. But there are periods where we kind of over harvest beta, right? That like the betas are so uh plentiful, like you know, for the last 15 years, it's been 15% instead of 10%. Um you have to keep that in mind because that does not um last forever. There are gonna be times when there's gonna be just less beta to be had. So over harvest now, and and you don't have to worry as much about the alpha because the betas are so rich. But there are going to be times when there's gonna be less beta and where the alpha really you know adds a significant amount of return uh to a portfolio. So that that's another way I think about these long cycles.

SPEAKER_01 31:36

Interesting. I have a question. You mentioned going down cap in the US, and I get like I think what we're kind of doing is diversifying our portfolios. We probably have a larger weight to MSEI EFA, developed markets, and I think most of the RA is doing something similar to what we do. And that's a new position, especially at the beginning of the year. That's what we did. But going down cap, I'm curious, like uh small caps have outperformed mid-caps. And you mentioned equal weight too. Equal weight seems to be it's so positive returns, it's not like it's negative, but it's underperforming the SP 500 for, you know, but it's also underperforming small caps. I'm curious why equal weight slash mid-caps are underperforming here.

SPEAKER_00 32:17

So I think the the small cap story is actually part of the AI story because you know you have small caps, you look at the Russell 2000 or what have you. There are like your typical small cap kind of domestically focused companies, and and you hope that someday the AI revolution creates so much productivity and efficiency that it goes downstream into the rest of the economy, not just us as persons, uh, but businesses, right? Just using smarter uh tools to gain productivity. And that's a very big part of the hope that uh the US and maybe other countries can actually outgrow this gigantic debt burden that we're in, because that should raise the non-inflationary speed limit for the economy. But another part of the small cap story are kind of like the non-profitable tech companies and other other plays um that make promises on AI uh but they don't really have anything to show for it yet, which is which is not a uh a slam against those companies. But you know, so there's a part of that universe that really has gotten bit up. Like you talk about the meme stocks, you talk about um uh you know the nonprofitable tech. Um and so I think part of the story with small caps is that. Uh and if you take that away, they probably don't look that different from the mid-cap section. Uh but really it comes down to margins, I think. So you look at margins for large caps, uh, whether it's the SP or the MSCI US, margins are like 15, 16 percent and rising. And those, of course, the the those are the big the big growers. For mid and small, margins are sort of doing nothing. And they're much smaller, they're like five, six, seven percent. And so ultimately companies with high and growing margins get rewarded as well they should. And they happen to be the really big companies with lots of skill and big moats, right? And uh they're they're they're hard to penetrate. And so that to me is kind of the the issue with going down cap. It's not an issue, but it's kind of binary, right? So if you take money out of the large caps, putting it into the small caps, you're really betting against large caps at that point. Um and I guess the same thing applies that if you sell US and buy international, but at least you have similar fundamentals, better valuations, there's a currency aspect of that. Um, and so I think it's it's a little bit lower-hanging fruit to go in that direction. That makes sense.

SPEAKER_02 35:00

Oh, good good stuff there. So, Yurian, I'm gonna change gears for a second. Uh, we're foodies on this podcast. I know you are as well. So you get to travel the country. Um, what are some of your favorite cities to visit when you hear, oh, I get to go there? Like you're excited because the food's good, or is there a restaurant that you can recommend that maybe is not so popular, but as you travel and you've tried a lot, uh what excites you when you get to get on the road there?

SPEAKER_00 35:24

Uh I know how much time do we have, right? Speaking to my heart now. Uh so um ever since COVID, I have been hanging my hat occasionally in Santa Barbara, California. Uh it was one of those things during COVID where all locked down, people are going to Florida. I'm like, I don't want to go to Florida. Let me I'm gonna go to Santa Barbara for no other reason. And I'm a cyclist, and Lance Armstrong used to train there for the True de France. So that the name was sort of implanted in my head. And the the food scene there, I mean, not that San Francisco or other cities, places in California aren't, but uh, I just fell in love with the food scene because everything that is on your plate is from like within a 50-mile radius, it's all organic, it's fresh. The avocados are perfect. Uh, you know, in the East Coast, whatever you buy in the winter, it's traveled like a thousand miles to get here, right? And so um, and and so even like a bad restaurant has good food because the ingredients are so fresh. And I I'll go to the farmer's market there, which is twice a week, and you see restaurateurs with big carts, and they're buying these incredible, like little gems that you you could like, they don't even look real, they look so perfect. And and then you know, there's a fish market there where everything is on the highest sustainability grade, right? Um, it's shipped in um uh from everywhere, including local. And so that that to me is my my food haven, if you will. But you know, in Europe there's great food. Um, uh there's a great like omakase place in Seattle. So whenever I get to go to Seattle, I'm like, okay, I'm going there. Um and so there's so many good places. But what happens is I I cook a lot. So people always ask me, what are your favorite places in Boston? I say, well, I don't have any because I travel so much that when I'm not traveling, I'm cooking at home.

SPEAKER_01 37:20

I I think I heard another podcast where you mentioned like you're a you're you're a bit of a chef yourself. I was curious, what do you enjoy cooking?

SPEAKER_00 37:27

Uh my my current favorite dish, which actually I'm making tomorrow for about 10 colleagues of mine here in the asset allocation group. I have a tradition where a couple times. Hold on, you might as well make a 12.

SPEAKER_02 37:38

You might want to make a 12 after what you're about to tell us. Make two more plates, we might show up.

SPEAKER_00 37:43

Uh so I have this tradition where in the spring and in the in the fall, I invite some of my colleagues over and uh we do like a plate at a plate at dinner and we and we chat and it's great. So my my current go-to dish for uh in terms of scaling, because you know I tend to have at least 10 people at the table. That's what my table fits, is uh and and a lot of these things I learned from TikTok videos. TikTok has great food videos. Um so like a puree of sweet potatoes. So you you you you cut them up, cook them with the lid on, with some butter and water and salt, and maybe some uh Thai chili and maybe some coconut milk, and then you puree it in the in the ninja blender, and that creates a very beautiful creamy base for a plate. And then I do like the the the simplest hack. I take leafy kale, I mean like the the most peasant of all the vegetables, uh I cut them into strips, toss them with olive oil, salt, and pepper, or even everything bagel seasoning goes really well, and I'll bake it at a high heat, like 450 degrees for 10 minutes, and it turns into these crispy, salty kale chips. And then I do uh a play on the Nobu uh black cod dish, but I'll use chile and sea bass, and I'll marinate it in sake, brown sugar, soy, um mirin, and I'm missing one. Uh there's one other. And miso, sorry, miso, how can I forget the miso? And I marinate that for 24 hours, put that in the broiler. So the key thing about cooking for large groups is you you don't want to be scrambling at the last minute, right? When the guests arrive, my kitchen is completely clean. And so the the fish is in the oven, uh, the kale is is resting in the oven, and the sweet potatoes are in a pot just simmering. And then you plate, put in some microgreens, and then a little sprinkle of like a balsamic glaze. And that that's my go-to dish right now.

SPEAKER_01 39:41

I'm starving now. I cut that out. Like I need to go out for lunch. I'm actually going out for lunch, but uh, I may pick a seafood dish. Now that you mention that sounds amazing. That that just sounds that made my day.

SPEAKER_02 39:56

Um, I don't even know where to go now because now I'm thinking about food too. You know, a couple more things. Uh you know, we'll get markets related. Uh you people like to talk about Bitcoin and gold. I saw Yurian, where you said they are different players on the same team. What are your kind of thoughts on Bitcoin and gold here?

SPEAKER_00 40:12

So my my macro thought, and I've I went down the Bitcoin rabbit hole about five uh almost six years ago, actually. Um, is that, you know, and again, there's a lot of crypto natives out there on social media, and they have very strong opinions and not incorrect necessarily, but but they are coming from that world and not from like our 60-40 TradFi world. And so I brought what I think was a unique perspective, say, okay, I'm looking at Bitcoin from a 60-40 type person. Like, does this fit anywhere? And if so, where? And what what asset, what bucket would it go in, and what bucket would it take funding from, right? And my conclusion was that because of its scarcity factor and its decentralization, that uh it looks like digital gold, which is now very like it's it's now a very common narrative to call it that, or exponential gold. But that's how I approached it. And uh at the time, of course, we were, this is during COVID, uh, we were in a financial repression mode, right? Where the Fed was dropping rates below inflation, doing QE, there was fiscal stimulus going on. And so uh that made bonds sort of an impaired asset class. I mean, we saw how impaired it was in 2022, and the correlation went from negative against stocks to positive. And when they go positive, you know, they stop being a good diversifier. It doesn't mean you shouldn't own bonds. I mean that the spread over inflation is positive. So they're a viable asset class, but you want something that's going to protect you not only when the 60 goes bad, but also when the 40 goes bad. And that asset class is gold, actually, because it is neither correlated to stocks or to bonds. And if you go back, you know, 100 years, the times when the bond market did the worst, uh, gold did the best. So it is a it is a hedge against uh rising rates or financial repression where real rates go negative. And then Bitcoin becomes a player on that team. And it's interesting when you look at correlations across all asset classes, uh gold and bitcoin are negatively correlated against each other, which is fascinating and you and it's counterintuitive because if they are the same on the same team, they should be positively correlated. But it's like they take turns. So they're different players on the same team playing at different times. And we see this, right? If you look at the sharp ratios for gold and bitcoin, they go in opposite directions. So there'll be a time when, like recently, where gold was running and Bitcoin was just sitting there doing nothing, and then you have times, for instance, in 2020 when Bitcoin was running and gold just sat there, did nothing. So to me, that that's like a little bucket in a portfolio. And this is just my own opinion. This is not investment advice. Where, but you know, if a 6040 is now like a 60 2020 or a 6040-10, uh, I still want the 60 to be equities, but I want it to be more global to deal with concentration risk in the Mag 7. And then on the 40 side, I don't want to have all 40 in bonds because I do think in an era of fiscal dominance, um, there is a chance that we'll have financial repression again, and then bonds become less appealing. So maybe it's 20, maybe it's 30, whatever. Um, and then that final bucket is for me again, not investment advice, but it's golden Bitcoin, and then other sort of cats and dogs, like alternatives, like long, long, short, managed futures, absolute return tips, you know, things like that. Uh, and to me, that's how I think about a diversified portfolio these days. That's fantastic.

SPEAKER_01 43:59

I I love how you connected all of that into like portfolio asset allocation, right? Uh which is what I like think we do. I have one question. I I mean you mentioned financial repression, so just bring the Fed into it. So when they started cutting last year in September of twenty twenty four, core inflation. Dismeasured by personal consumption expenditures index, about 2.8%. Fed funds rate was at five and a half, right? Somewhere around that. And you say, okay, this is definitely tight, right? There's room to cut. Now core inflation, core PC is about 2.9%. It seems stuck, right? Core CPI is at 3%. The Fed funds rate is at 4%. Do you think, and you mentioned, you know, a little while earlier that rates seem to be at neutral. I'm curious if you think the Fed should even be cutting right now. And then, you know, irrespective of our views, all of that, where do you think rates go from here? I know markets are expecting 3% rates, but markets are, you know, markets could be wrong, right? They were wrong in the beginning of last year. They were pricing in seven cuts, we didn't get that. I'm curious your thoughts on all that.

SPEAKER_00 45:04

Yeah, uh, it's a great question. So yeah, during COVID, inflation went from you know one and a half to nine using the CPI or about six using the core PCE. It's back to three, but it's been kind of two and a half, three for over a year. So it's really, it's really been stuck, right? And that's a problem because if you look at longer-term averages of inflation, you know, if the if the target is two and you go from two to nine, you need to go back below two to stay at two as a longer-term average. And we haven't done that, right? And it again, it looks like the late 60s, and not to sound too alarmist, but the same thing happened there uh during the Vietnam War. Inflation went from like two to six, back to two, and then it went back up, and that brought the longer averages up. So we're we're kind of stuck at three. Three is the new two. Um, and that three is not a problem for the stock market. If you look at valuations versus equity returns, two or three doesn't make any difference. Like it's still the sweet spot, right? 10% makes a difference, but not two or three. Um, and so what the Fed has been doing is uh it was quite restrictive at five and three eighths, uh, and that was two, three hundred basis points above inflation, which is typically where a Fed tightening cycle ends. And then it started tweaking. Uh so it did 100 basis points last year. As you said, uh long end of the curve did not like that, right? So the long end steepened by 100 basis points. Um and now uh that's quieted down. Long end is at 4.1. Uh obviously the jobs market has been soft, not contracting, but soft. Um, but inflation has been sticky. So I think the Fed is just calibrating, going from uh severely restrictive to moderately restrictive, whereas where it was last year to now kind of being closer to neutral, but not maybe not quite a neutral. So it has, you know, Fed has a dual mandate, right? Full employment, price stability. And the price stability would prevent them to go from neutral. But the employment side, which clearly has been soft-ish, is what I think is driving the needle towards going to neutral. So I think the two are offsetting each other, and that's why the Fed wants to do a slow grind back to neutral as long as the data supported. Um, and it was waiting for that data to support it, you know, six months ago, and the inflation numbers haven't changed, but the jobs numbers have, and I think that's what has caused uh Chair Powell to say, okay, let's do a couple more here. So they're at three and seven eighths. Inflation is at three. Um so they are, you know, and my my sense is a neutral rate is inflation plus a hundred basis points, you know, like our stock. And even the Fed's own summary of economic projections states that their sense of long run neutral is three percent. So two percent inflation, which is their target, and then they're never gonna say, well, you know what, maybe three is the new two. They can't say that. So 2% plus one plus 100 base point is three. And so that's why I think the sofa curve is at 3.1 as the terminal point. So I think that's the goal to get there. Um, but they will get there slowly or quickly, depending on how those two mandates are working. And in the meantime, of course, we have this um ideological uh divide now between kind of the the Fed people that uh are on the Trump side in terms of um, you know, like Stephen Moran saying, well, neutral is more like 2% because of immigration and this and that. Um and you know, it's it's kind of a clever argument to make because it all comes down to what our star is, and our star cannot be measured in real time. So no one can tell them that they're wrong because they cannot do the counterfactual. So it's all a theory. But that's gonna be a debate we're gonna have for a number of years. Like what is neutral? Uh obviously, the White House administration, the Treasury uh department wants lower rates because they have a lot of debt to finance. Uh, and then it's a question of how many people on the Fed are kind of the the status quo types that look at the dual mandate and this and that, and how many are are trying to talk the book, if you will, um of the Treasury. Uh and that that's gonna be a live conversation because as we all know, uh Jay Powell is retiring as chairman in May. So that's definitely something that's gonna keep uh keep popping up from time to time.

SPEAKER_01 49:44

I'm just amazed that rates they've reduced rates by 150 basis points, but the 30-year mortgage rate has barely it's say around 6.5%.

SPEAKER_00 49:52

Yeah, yeah.

SPEAKER_01 49:53

Right. And I think that speaks to the struggle, like probably for the administration, like, no, we need rates much lower to push that down. Yeah.

SPEAKER_02 50:00

Well, we could go all day. We probably need to uh wrap this up. Uh, Yuri and Timur, thank you so much for joining us. Thanks to Ian for putting this together. Uh one final question, kind of wrap it up, and you can take this how you want. You've been at Fidelity for 30 years. You know, we work with financial advisors, Carson Group, Fidelity, um, you know, a lot of a lot of synergies here. What are some things you've learned over those 30 years that kind of help you want to stay there for 30 years, but also just little tricks of the trade that you've learned to uh really build relationships with people?

SPEAKER_00 50:32

Yeah, so I have been here 30 years and um it's obviously a great company. Um you know, we're all playing for the same team here, uh, not to bring the Bitcoin narrative back, but we all have the same mission of uh you know, obviously benefiting our customers to help them say for retirement or what have you. Um but the company lets lets us do it uh in a way that kind of plays to our strengths, right? So I'm kind of doing something that's fairly unique. You know, I I publish on the weekend, I travel during the week to to go and and spread the gospel, if you will. It's a very counter like a counterlinear uh work week, if you will, but it's all cool because we're we're all working for the same mission. And I think that's one of the great things about this company, and it's very innovative. And in terms of the markets and the message, you know, having a long, I mean, this is one of the few professions other than maybe medical or legal, where uh, you know, there really is no um statute of limitations in terms of, okay, you've done this for so many years, it's time to time to pull the hook, you know, as long as so uh so it it gives me the the the benefit of a lot of experience when I look at market cycles saying, okay, I've been doing this for 40 years, uh, I've been through 12 bear markets, and one of the things I've learned is that they all look really, really scary when when they happen and you think the world's gonna end. And uh, but usually within a few years you're back at highs, and you know, never short the US or even the global, but especially the US dynamic uh economic story. And so just having that, I guess, comfort, if you will, that even if it takes a long time, it does eventually happen or it has eventually happened in the past, and just the benefit of having real-time experience, like you know, in 2022, thinking back to boy, I remember a green span in 94 like it was yesterday. And uh, you know, like you can read that in a book, you can ask chat GPT, but having actually lived through that uh is a adds a dimension to it.

SPEAKER_02 52:49

No, well that was that was great. This whole conversation was awesome. Yurian, thank you so much for joining the latest uh Carson's Facts versus Feelings. We greatly appreciate it. With all of that, everyone, I don't know how we're gonna top it next week, so no, it's just you and I next week. We're not gonna be able to top this. We'll be back next week with a regular podcast. But Yurian, one more time. Thank you so much and appreciate all the listeners out there. We'll be back next week. Thank you. Take care. Information provided on facts versus feelings with some of our geese and Ryan Dietrich are for general information only and are not intended to provide specific advice or recommendations for any individual. The statements and opinions of show guests may not be reflective of CWM LLC or its affiliates. Past performance is no guarantee of future results. All indices are unmanaged and may not be invested in directly. Investing involves risk, including possible loss of principal. No strategy assures success or protects against loss. To determine what may be appropriate for you, consult with your attorney, accountant, financial, or tax advisor prior to investing. Guests on facts versus feelings are not affiliated with CWM or L C.