On The Brink with Castle Island - Jurrien Timmer (Fidelity) on the global macro landscape (EP.58)

Episode Date: March 25, 2020

Jurrien Timmer, the Director of Global Macro at Fidelity Investments, joins the podcast. In this episode we discuss:  - Jurrien's career trajectory and how he became the Director of Global Macro at Fidelity - His views on the current crisis in the context of other dislocations he has seen in his 25+ year career - Perspectives on the unprecedented interventions that we are seeing from the Federal government - The outlook for Gold, Bitcoin and other store of value assets - A best and worst case scenario for a recovery.  Follow Jurrien:  - https://www.linkedin.com/in/jurrien-timmer-fidelity/ - https://twitter.com/TimmerFidelity

This week's episode is brought to you by Zen Ledger, one of our portfolio companies, actually. Zen Ledger is the best software to get your crypto taxes done fast and easy. They have friendly customer service by phone, email, or chat, and it's the easiest place to get your crypto taxes done. If you use a CPA, you can invite them and they can be part of your process. You can also do tax loss harvesting or get a full audit report. And as a special offer for our listeners, you can use the coupon code Castle 15 to get 15% off. That's Zenledger. I.O. Go check it out. On today's episode, we were fortunate enough to spend some time with a former

colleague of ours, Urien Timmer, the director of global macro at Fidelity. Many of you will recognize Urienne from his appearances on CNBC in a variety of other media outlets. In this conversation, we touched on a range of topics, including the unprecedented steps that the Federal Reserve is taking during this time of crisis. We also talked about the performance in the outlook for store of value assets like gold and potentially Bitcoin and other digital currencies. We spent some time talking about the potential scenarios that could play out over the next few weeks and months based on some of the policy responses that are being proposed. And Urien's just about as knowledgeable as anyone when it comes to the global macro picture. We were really lucky to spend some time with him.

I really enjoyed this conversation, and I think you will too. Brought down by bad mortgage investments, Lehman, which has 25,000 employees, will be liquidated. The federal government loans, American International Group, AIG, $85 billion. This is a different kind of market. And the Fed is a slag. The federal government is stepping it to stabilize Fannie Mae and Freddie Mac, the two mortgage giants that have been threatened by the housing crisis. The Bank of England has pumped 75 billion pounds more into Britain's ailing economy with a new round of quantitative easing. And print a couple trillion dollars and all of a sudden people start to worry.

So out of this worry, we have something called the Bitcoin. Bikoyan, thanks so much for joining us on the podcast today. Yeah. And we'd love to just start off. How are you coping with the COVID-19? Just personally, you're working from home, obviously. Has there been a significant change to the way you do business? It's a little surreal because I already have a job where the lines are a little blurred between

kind of my private life and my public life just because I'm on the road a lot and I do a lot of client events and a lot of media. I travel a lot during the week. And then on the weekends, every single weekend without fail for the last got probably 20 years, I've written. I publish on some days internally and it goes to the outside world as well. But so I have this routine where every Saturday I do a complete download of all my indicators, all my charts, and then on Sunday I write.

And that's a really good structure. It's kind of unconventional. It's countercyclical. I'm not really in the office that much during the week. So what's now happening is that now, of course, I'm grounded. I'm not traveling anywhere. And I'm not at the office either. So I'm just kind of constantly at home kind of just working behind the computer.

there's a lot of triaging, a lot of videos and webcasts and rapid response articles to write. It's a little surreal that I'm just kind of doing the same thing without any really lines into sand. But it's all good. These are the times where we can really be there for the millions of customers that we have. When you add up all the Fidelity's customers who kind of touch the company in one way or the other, we have 33 million customers. And I'm not obviously in contact with all of them, but these are times where the most important things for investors to do is to not panic and do something that is inconsistent with your

overall plan. And so that kind of handholding is part of the job and these are the times to do it. To your question about how my life has changed, you know, it's interesting. I have a son who is in college in Dublin, and I have a daughter who just graduated last year, who is a nurse in the ICU of one of the big Boston hospitals. And so they're like he's opposite. So my son now, he has online classes because the classes are closed. His dorm is basically empty, but he decided he wants to stay. He loves Dublin. So he's sort of doing one thing with a lot of free time on his hands. And my daughter, her ICU, the hospital has two ICU and her ICU is now the COVID ICU. So she's, is literally on the front lines of the COVID pandemic here in Boston. So it's quite interesting

to see the contrast. That's so nerve-wracking. Well, thank you to her for all the work that she's doing. The people that are in those positions are just doing an unbelievable job. So you're in as Director of Global Macroid Fidelity. There's obviously a lot to talk about in terms of what's happening in the market here. But we'd love to start the listeners with just a little bit background on your career. And what's the path that led you to this position that you're in right now. Most people probably recognize you from seeing you on CNBC. This is the position that I kind of either fell into or self-created in a way. And it's a good lesson that I bestow on friends who are much younger, who are in college or getting started

professionally, is that careers are in many ways about self-reinvention. And I started in the business 35 years ago. I was in New York for 10 years. I worked for a Dutch bank. I ran a bomb desk there. Fidelity hired me 25 years ago. And actually, literally a few days ago, I got the email congratulating me on 25 years. So it's 25 years almost to the day at Fidelity. But I started as a technical analyst, the one who looks at charts. Actually, the former chairman, Mr. Johnson, personally hired me 25 years ago to work in the chart room.

Anyone else who went to work for Fidelity, he was not really that closely involved with the hiring, but the chart room was. his baby and he was going to make sure that whoever was working there and spending time with him was personally vetted. And so that's how I started. And then I started in the bond market and then I just expanded the skill set to the multi-asset world, equities, commodities, currencies. Then I came to the realization that fidelity is not really, I mean, everyone uses charts, but most people, most portfolio managers think more in fundamental terms. And I realized that I was limiting my audience and my skill set by only looking at the price action in charts. And so I started

dabbling in the fundamental side, earnings, valuations, cross-market correlations. And so I started speaking the language of the portfolio managers. And as a result, I just sort of became more of a general investment strategist. And then I think in the late 90s, the head of our technical research department who was always going around every month doing these indicator reviews, and the chairman was there, and all the portfolio managers were there. And this was sort of like a total download of everything you need to know about the markets beyond individual security selection. He decided to retire.

And I decided to just kind of put myself in his spot without anyone actually telling me that I could do that. And I just started doing these indicator reviews. and then I sort of became him. And then I was tapped in 07 to start up a multi-asset class fund, kind of an asset allocation fund. And the timing was very unfortunate because that was, we launched literally the month of the peak in 07 before the financial crisis. And so I ran that for seven years.

It did okay, but it was just the performance was inconsistent just because it was such a crazy market like we're seeing now. And then I started doing the media stuff, and then I was told, you can either do the media or you can be a PM, but not both, because there's all kinds of compliance issues. And probably for the third or fourth time, I reinvented myself. And now I've been on TV like 400 times. I've become sort of the face of fidelity. And half my job is working with the portfolio managers in our global asset allocation group, helping them understand market trends and asset allocation choices. and then the other half, I kind of take it out to the people, if you will, either in the media or like on a podcast like this or directly to our clients via client events.

And it's a nice symbiotic relationship because one role keeps me sharp for the other one, and they kind of feed off of each other. So I don't think this job description ever existed in fidelity. So it's just something that I fell into or took advantage of when the opportunities happened. That's great. Well, that's such a good blessing. and just when you are in the right place at the right time, knowing how to take advantage of those

opportunities. And it sounds like you've done that. And that chart room is one of my favorite pieces of fidelity. It's still there, I believe. Yes. An excellent room, just covered in charts. It must have been a great place to cut your teeth. Indeed.

And some of those charts, the floor and ceiling ones are actually ones that I created way, way back long 25 years ago. Wow. That's amazing. So for those in the audience who might not be familiar, so what does it actually entail to lead global macro? What's a day in the life look like these days outside of the crisis maybe before what just happened? I'm basically trying to understand the world from a top-down perspective. So we have hundreds of analysts who look at company-by-company specifics. They're kicking the tires of all these companies, industries, they're looking at who has the earnings growth, what's evaluation.

I don't do any of that. So I try to kind of find a narrative, if you will. In a way, I'm a storyteller. I'm trying to find the story in the market. What is really the narrative? Because there are so much noise. There's so much information overload on the internet, in the traditional media. And it's easy to get overwhelmed by the sound bites and then sort of miss the force for the trees.

And so I'm trying to find what are really the core of three or four things that we need to know about that are really driving markets here. and it's a very eclectic, holistic process. I mean, I'm not an artist, obviously, but it is kind of a creative process. So it really comes down to coming up with a thesis, if you will, of, okay, this is what's driving markets, and therefore that means this and that for asset allocation choices, for timing,

short-term, long-term, and then you have periods of time where that narrative is unfolding, and then there are times where that narrative gets shocked to its core, and obviously COVID-19 is exactly one of those game changers. And so then it's a question of, okay, what does this mean? And then I do a lot of historical analysis. I'm kind of a student of market history, if you will.

And so when we drop 20%, now it's 35%, but when we drop 20%, I go dig under the hood and say, okay, how many times does that happen? What were the circumstances? What was the difference between that market, stopping at 20 and going back up like it did in late, 2018 or not stopping in 20 and keep going down until it's down 30 or 40 or what have you. And oftentimes I don't have the answers because these things are unknowable in real time.

But I help my colleagues at least gain some context saying, okay, you know, we just had a crazy day. And market's down 10%. Then it's up 10%. Here are the charts. This is what the last time it happened. For instance. And I'll give you a real time example just yesterday or on Sunday.

I was comparing this epic decline we've just seen or our scene to the crash of 87 and also that big selling crescendo in 08 just to draw the parallels and the contrast. And then people can make their own conclusions, but I'm at least helping with the historical context so that our portfolio managers and our clients can try to make some sense of this. So that's kind of what I mean by global macro. And again, it's kind of a creative, holistic, eclectic exercise because I will look at technicals, fundamentals, anything. And whatever I feel will help draw the narrative of what's going on and what that might mean. That makes a lot of sense. And certainly right now, we're living in a time where there are a lot of narrative. So we're effectively dealing with, at least as I think about it,

four crises that are playing out maybe simultaneously right now. You have a global health crisis. You have a financial crisis, potentially a devastating recession coming up here, and then maybe even a geopolitical realignment with China asserting itself more on a global scale. And so you've been in this world for 25 years. How does this stack up in terms of the various dislocations? And have you ever seen one with so many different angles happening at once? There are definitely multiple dimensions. And even on a good day, figuring out the market puzzle is a three-dimensional puzzle, right? Because prices at the intersection of earnings, interest rates, credit spreads, or the equity risk premium, and valuation. And so that is a multi-dimensional game of chess, if you will. And you can figure out earnings

perfectly, but if you don't know what the valuation haircut is on where the market is trading now, you could totally miss it. You know, like 2000 to 2002 was the dot-com bubble. That was a mild a recession, but the valuations were at bubble extremes. And the earning side ended up being a mirage. Remember, these were like the WorldCom Enron days where there was a lot of shady accounting going on. And so what should have been a pretty mild, not even a bare market, ended up being a 53% bloodbath because the PE was above 30 and ended up in the mid-teens. And so every cycle has its own story, like the 73-74 recession, not that I was paying attention back then, that was a totally different beast. At that point, we had stagflation, Nixon put in price

controls, we had the oil embargo on top of that. And on top of that, because the inflation was sort of the boogeyman in those days, the Fed actually kept raising rates throughout the entire bare market until October 1974 when the S&P was down 48%. And only when they took their foot off the brakes was the market able to rally. So every cycle has multiple dimensions to it. But this one, of course, we have the health crisis. And it is first and foremost a health crisis. But then we had the oil price war between Russia and Saudi Arabia. That collapsed to price of oil down to the low 20s. And even though the S&P energy sector is less than 3% of the S&P, it was at least a few weeks ago, 12% of the high-yield bond market for energy.

And so that became then contagious to the commodity markets as well as the credit markets and therefore also the TIPS markets, which trade off of inflation. So all of a sudden something that should have been a one-off earnings hit and basically nothing more other than the health dimension, of course, became this completely contagious systematic event. And I have to tell you, even though there are many differences between now and 08, especially in terms of the leverage in the system,

from a market contagion perspective, it feels an awful lot like it. And that's why I'm actually using 08 as one of the analogs in terms of how to frame this. And like you said, the geopolitical, you know, we were already had put globalism on hold or on notice, if you will, with the trade war. And now the coronavirus, I think, is another nil in the coffin in terms of globalization

and going from a globalization regime to a de-globalization regime. And that has potential impact on inflation, on profit margins, therefore valuations. And then on top of that, it's not really known yet, but there's a possibility that if companies end up getting rescued by the government, because they've shut down or what have you, that maybe there will be a condition on that, that companies won't be able to do buybacks anymore in the future, or at least that the credit markets are so dislocated that buybacks become uneconomical for companies. And so that's another angle because share buybacks over the past 10 years, I've done a deep dive on this. They've, I think most of them are benign. They're just a way for

companies that generate excess free cash flow to return cash flow to shareholders, which is what shareholders want. They want income. But they've also kind of inflated the earnings per share metric by, in my opinion, 15 to 20 percent. And therefore, they understate the true PE ratio, right? Because if you overstate earnings, you're understating the PE. So if that regime somehow either shifts or diminishes, what does that mean for valuations and earnings? And growth going forward. And then there's yet another angle. I say there's so there, I mean, it's like you can draw a mind map and you can go in all kinds of directions here. But the other one is, we've been talking about MMT, modern monetary theory for a while, but it was kind of a distant

academic concept that, okay, well, first the Fed has to go back to zero and you have to have a bad recession that then necessitates aggressive fiscal expansion. Then you need the Fed to become less independence so that they can become a willing monetization arm of the fiscal side. And all of these things would require a lot of different outcomes and they would take a long time to happen. And here, all of a sudden, in a matter of a few weeks, we're literally at the threshold of MMT right now. We are looking at possibly 15 to 20 percent of GDP deficits and the Fed is throwing everything at this and they will likely monetize most, if not all of this. So all the sudden, what does an MMT regime mean for inflation, for precious metals, for Bitcoin, for

growth versus values? So there are a lot of different permutations here. There's so many things there in what you said. And one of the things I'd love to dig a little bit deeper on is you talk about some of the frameworks in the context of stock repurchases that may be the way that we evaluate earnings, our frameworks might have to evolve. And you've said that stocks are oversold. I think you a few days ago were on TV talking about that. Do you think that the framework for how we even think about whether or not these pullbacks represent an oversold market will have to evolve as well? I mean, there are others out there talking about historical Schiller PE ratios and saying that we could, you know, if you use that framework, maybe we're not oversold. Maybe we could pull back.

Are we entering a new valuation norm potentially with some of the moves and some of the interventions that are happening here? I think there's probably two. Besides that, so when I refer to the market as historically oversold, which I think it is, I'm referring to the technicals. So last week, I look at the number of new 52-week highs minus new 52-week lows or number of stocks above their 50-day moving average or 200-day moving average or below. Using those metrics, the market is about as oversold as it ever gets. And actually, the number of new highs versus new lows, we're at minus 80%, which is

as bad as 2008, October of 2008, when we had that big crescendo of selling, and almost as bad as the Great Depression. And that doesn't mean that the lows are in necessarily, because certainly in October of 2008, they weren't in. But it's basically a crash, right? And so what I glean from that is that we basically just had a three-week crash in the market, just like we did in September and October of 2008, just like we did in 87. And the fact that we were this oversold, show, shows that the selling has been indiscriminate, which means that it's either been ETF plumbing-type issues or it's been risk parity folks getting out because for a few weeks the bond market was not really doing what it normally does relative to stocks. And so

there was a massive degrossing as it's called or de-risking or liquidation. A lot of it forced. That's why all of a sudden gold started going down and set up on one-day utility stocks, which should be a safe paving. We're down more than the S&P, down 10% or so. And so that speaks to the plumbing side, and it speaks to the idea that there was a lot of force selling going on. And again, that doesn't mean the bottom is in, but to me it tells me that a momentum low or an internal bottom is being formed.

And it wouldn't surprise me at all if that low was actually yesterday. And again, that doesn't mean we can't go lower from here, but if we do go lower, I think it will be on much less momentum because all of that forced selling that is completely indiscriminate. I mean, everything goes. That's what the last three weeks were like. And I think we've reached an important milestone on that. And then there's the valuation side, right?

I've never really been a huge fan of the Schiller cape. I prefer a five-year cape because a five-year generally spans a business cycle and 10 years seems somewhat arbitrary. But that's the question of what's priced in, right? And we're down 35%. Some of the earnings numbers I'm starting to see are in line with that, some of the GDP numbers even. But this becomes a hard thing to figure out,

because if you look at the DCF, discounted cash flow model, which is my favorite way to do valuation more so than a Schiller cape, is that it really now depends on the depth, the duration of the downturn, and then the shape of the recovery. So we need to know these three things. And this is why the news that,

I saw yesterday that the number of COVID cases in Italy, at least on a rate of change basis, is now peaking. That's potentially good news. Obviously, it's good news for Italy, but it's people are estimated that the U.S. is about two weeks behind Italy. And so that means that we could be seeing our peak in the growth rate right around early April, which is also when earnings season starts. And we could see some real tape bombs on the earnings front. And so my sense is, is that at that point, we'll really start to get a handle for the depth, the duration, and the recovery. And this is where the DCF comes in, because what the DCF does that the Schiller Cape does not do is that it incorporates interest rates and longer-dated out-year earnings. So interest

rates are very important as our inflation. And we have an old rule call, well, we don't, but there's an old standard called the rule of 20 that Peter Lynch actually taught me many years ago. You take 20, you subtract the inflation rate, and that's what your fair value P.E. is. And we know that P.E.s inversely correlate to inflation. So a Schiller Cape doesn't really incorporate that, but a DCF does. And so once we get to a sense of where the outer year earnings will recover to, and I don't think they will fully recover because we're going to get a massive hit, and then we'll get some kind of V, but it won't be, there will be a gap in there, and that needs to be paid for through a lower price, which is already happening. And so that's kind of how I think of the valuation

puzzle. That's helpful. That makes a ton of sense. This downturn might be a little bit different than other downturns in the sense that public policy is such a prevalent force here. And some of the decisions that are being made right now will have a tremendous effect on what this downturn looks like. And so obviously we didn't have you on the podcast to talk about your views necessarily on public policy, but just given the state of how dependent we are on some of these decisions being made, Are there things that you believe we should be implementing as a country? How do you believe the policy side of this is shaping up? I'm actually encouraged by the policy response.

So remember in 2008, Ben Bernanke and the Fed, as well as Congress with the TARP, they put a lot out there, but it took a long time to get that going. I mean, the Fed started with its liquidity programs. That was probably November 2008. I mean, after the market was down 50% already. And then we had the whole tarp drama where they couldn't agree. And then the market went down the most in one day since the Great Depression. And then they were like, oh, yeah, okay, and we get it.

And then they put in the $800 billion or whatever the number was. And now the Fed has sort of dusted off all of its alphabet soups of programs, and it has redeployed them really with stunning speed. So kudos to the Fed for being proactive and not saying, one thing one day where, okay, we're going to do QE, but we're going to limit it to so many dollars and then kind of dig in your heels. They right away a few days later said, okay, we'll do unlimited QE if we need to. And we all know, and other central bank chairs have said this in the past, including Christine Lagarde at the ECB, is that when you reach the zero lower bound,

it has to be an integrated fiscal monetary response. And I think everyone seems to get this now. even the Germans are kind of making exceptions to their fiscal protocols. And so what I'm hearing in Washington, even though they haven't worked out a deal yet, but my sense is that there will be a $2 trillion deal, and maybe it'll be another one a few weeks from now. And so that combination of fiscal and monetary, where you lever up both sides and you get to a $4 trillion rescue, I think is what we need to do,

because even though Fed QE is not going to create a vaccine, or it's not going to make the economy pick up. And actually, that would be the opposite of what we're trying to do with these lockdowns. So even though they won't do that, but what this policy response can do is bridge the gap so that people can and companies can look over the abyss to the other side. I mean, we're going in the abyss. We're already there. And we're going to see this.

What jobless claims on Thursday could be more than two million. But it's getting the markets to the other side. and again, bringing it back to the discounted cash flow model, DCF has a five-year earning stream. And the market just needs to see past the abyss to the other side. And companies also and people as well. And hopefully the policy response is fast enough and robust enough that we can do that. How do you think about people just getting back to work?

And is the market taking a view on how long this is going to last? Is there a certain duration that is priced into this market that would be, be negatively impacted with a further extended lockdown? I don't know. That's a very good question. I do get the sense that if this is not resolved in, let's say, a quarter in terms of people going back to their normal routine, that it can have devastating longer term consequences where people will just change their behavior in a more permanent way.

And you lose jobs that basically will take years and years to come back like it did after the financial crisis as opposed to only a few weeks where restaurants will close and they just won't be able to reopen. And so I do think that there is a significant time pressure to get to the other side of this abyss quickly and to carry over companies and workers with essentially this rescue package so that layoffs can only be furloughs and they don't have to turn into permanent layoffs. So I do think that there is a timing element where this needs to be a sharp, short V and not an L, because then you're going to lose economic output in a more permanent way. And that was the lesson from 08 is because that was a triple bubble of corporate leverage,

household leverage, and banking leverage. And everyone got the margin call in one way or the other, right? Homeowners got it through foreclosure. And then they couldn't get a mortgage and the banks wouldn't lend any way. and then they were regulated, people's credit scores, went to hell. And so that took a long time to recover from. And I think if I was on the policymaking front here, and I think that this is what Powell and others are recognizing, is that this has to be a fast, shock and awe type of response

to prevent that very long-till risk from emerging. So when you think about some of these massive interventions that are taking place right now with the Fed engaging in asset purchases, at levels that are well beyond what they've ever done before, purchasing investment-grade securities in the primary and secondary market, purchasing ETFs, intending to purchase commercial mortgage-backed securities. One question that will come up with a lot of fans of our podcast is more and more of this quantitative easing, does this really set the stage for store value assets coming out of this? And curious, if you have a perspective, one, on just how some of these store value assets,

whether that be an actual store of value like gold or maybe an option value on the emergence of a digital store of value with Bitcoin, how they performed or maybe did not perform as a better way to say it over the past couple of weeks. And then what those look like from a profile perspective coming out of something like this. So in this context, I'm not an expert on digital currencies by any means, but I do believe that Bitcoin and other digital currencies, they play probably many different roles, but one of them is essentially a store value, a form of digital gold, if you will. And so in that sense, I look at gold a lot. I look at the gold miners, and I look at this MMT scenario where the fiscal side is spending a lot of money, and it's being monetized by the Fed

and around the world by other central banks. And gold is a very attractive. asset class in that kind of scenario. So if you look back historically and you look at long-term trends in commodity prices, the relative performance of financial assets to real assets, or you look at the S&P priced in gold instead of in paper money, and you look at growth to value, they follow these long cycles. And in the commodity world, we call the Kondayatyev cycle, which gets really nerdy. But it's a very, very super, super cycle spanning multiple decades. And And that super cycle, if you look at it on a 10-year rate of change basis, it correlates to the super cycle in inflation, in the money supply, growth the value, stocks to bonds,

commodities to financial assets. And it's a hard cycle to pinpoint because it's a 50 to 60-year cycle. So you can be off by many years. You know, if you think there's an inflection point coming. But we are at these levels where there's a lot of harmony in the price patterns and where you could argue that we had to be near or low, and especially now that we're getting into this brave new world of massive deficits and unlimited QE,

if the government is successful in bringing inflation back, which ultimately is the goal, maybe not explicitly, but implicitly, of any government who has very high debt to GDP ratios, you want inflation to devalue your debt so that essentially the bondholders are paying you back with devalued dollars. So in that environment, you would want inflation. So if the government is successful in eventually bringing back inflation and maybe

de-globalization or destruction in the oil patch will do that, who knows, then certainly gold, physical assets, commodities, digital assets, I think will outperform many other asset classes. And if you want to go down the rabbit hole even a little bit further, back in the late 40s, during and following World War II, the Fed was not yet independent. That came in 1951. And one of its explicit roles was to monetize wartime debt. I mean, that was one of the things that the Fed did. And it did exactly that. And to prevent interest rates from rising, it put a cap on treasury yields of about two and a half percent. And it would do QE whenever rates were threatening to go above it. So QE is not a new thing. It was happening 80 years ago. And what the Fed actually was able to do was to keep nominal rates around two and a half, even though at different times inflation would spike well north of that. And so obviously, if you do the math, that means that real rates went sharply negative from time to time. And if it's one thing we've learned by studying the price of gold is that it's inversely correlated to real rates.

So if real rates go negative, gold goes up. And that's basically, I think, what we're going to be looking at in the coming years because no one can afford higher interest rates when you have debt to GDP, counting households, banks, and corporates and government, we have debt to GDP of over 350% of GDP. So no one can tolerate higher rates in that environment, which means that probably interest rates will remain repressed. And therefore, real rates will go negative and get more negative. which is exactly what the government needs to pay back its debt. And that's nirvana for hard assets, especially gold and probably by extension, digital assets as well. It'll be interesting to see if you get asked more and more in some of these appearances about your views on digital assets and Bitcoin. It seems like obviously we're in the early innings of this technology. It was just created in late 2008. So we don't really have any data points to see how it performs under such market conditions. And like the infrastructure isn't even there.

But it'll be interesting. I was just going to add one comment. What we did see, though, in the last few weeks is exactly the same thing that we saw in 2008, although Bitcoin wasn't part of the equation back then. But in 2008, what always happens is at the beginning of a bear market, the stuff that kind of the crappy stuff goes down and the good stuff stays up. So minvol or very low beta, high quality dividend growers, they outperform. And then when the margin calls hit and the selling becomes four,

Then the good stuff goes down just as much, if not more, than the bad stuff. And it's the old adage that if you can't sell what you want, you sell what you can. And that's the whole point about forced selling. And in 2008, we saw that. So gold all of a sudden got hammered because even though that was considered a safe haven, when the margin calls come and you've got money sitting in gold, it becomes a source of liquidity. And we saw the exact same thing a couple weeks ago, right? Gold moved around violently. It went down a lot. Bitcoin, I think, went down 50% in the day, I think. And so no asset class that is a potential source of funding is immune. But if you look past that and you have money left to buy, those can be real opportunities. And we just see it in the last two days that

gold's way up and the gold miners are up and Bitcoin is up 5% today. So there are opportunities. but no asset class other than cash is immune. And we've seen that in the last few weeks. Everyone just wanted cash and in dollars, dollar cash. And everything else was fair again. Yeah, I think that's a great point. I want to talk more about the dollar being the apex predator of money right now for better or worse. I think it's interesting just to build and maybe finish off your point there around some of the margin issues.

It's especially prevalent in Bitcoin because this is a 24-7 market where you can have people, liquidating positions on a Sunday night in anticipation for a market open on a Monday. So we've especially seen these whipsawes in the Bitcoin market in these trading venues are for the most part very immature. So you see all sorts of things, but some of them going down. So it's just been fascinating to watch. And I think that market is becoming more and more institutional. So it'll be interesting to see how it evolves. Even mature markets like the S&P and the credit markets have been very illiquid. I mean, if you look at the depth of book on the CME for, or eminifutures, for instance.

It's like December of 18. When the selling starts, the bits disappear. So it's not just a Bitcoin issue. It's even the S&P 500. That's a great point. So you mentioned the dollar, and it seems to me like the opposite of de-dollarization is happening here. Do you think at all that we're going to have massive dollar shortages,

liquidity issues, and at some point a big dollar spike could lead to discussions around maybe a second plaza accord? Just how do you think about this in terms of the strutely? strength of the dollar on a geopolitical basis going forward here? What we do see in the last few weeks is that the dollar has gone vertical, whether you're looking at the DXY or the JPMorgan broad dollar index, which tends to be the one I look at. And I mean, the DXY is up like nine points in a week. It's not a good sign, you know, because that tends to be a big driver for tightening financial conditions as are widening credit spreads, of course, as are falling stock

prices. And the Fed is aware of this. That's why it reopened its basis swap lines in Japanese yen, in euros. But at times like this, the world is short dollars. I mean, like EM countries are always short dollars anyway, because they tend to trade in dollars and they tend to borrow in dollars. So they're naturally short the dollar. I mean, there's talk about if China rebuilds from what is in all likelihood a pretty steep recession even there, it needs to pay for stuff. in dollars because that's the reserve currency. And so how is it going to do that? Is it going to sell treasuries for instance? So there's a lot of questions, but certainly the folks in the White House, nor at the Fed, like a strong dollar, I mean, there's no secret to that. And there's been talk

over the years of de-dollarization, the U.S. running such a bad fiscal house that China and others will go to gold or some kind of basket to create a competing reserve currency. I think times like this show that it's a nice theoretical construct, but at the end of the day, the dollar really is still the reserve currency of the world. I think something like 60, 65 percent of trade takes place in dollars. I mean, we do see countries like Russia and China buying more and more gold, but ultimately, if you're in a globalized economy, even if there is a trend towards more de-globalization, as long as trade happens in dollars and as long as the demographics are what they are, and we can talk about that later as well, I think there will always be demand for dollars,

and it's just up to the Fed to offset that with supply. So I don't know that there's any regime change that's going to happen in terms of the Bretton Woods, two or another Plaza Accord. My sense is that once this crisis starts to pass, the dollar will start to come down again. But one other thing is when you look at debt levels, and I hear this all the time, right? I mean, the question I can always count on when I'm on the road in front of clients is how can we possibly sustain these debt levels. And my answer always is, if we were the only country in the world that did it, we wouldn't be able to because nobody would fund our deficits unless you're Japan who self-funds it, but we're not, at least not yet. But the issue is that everyone else is

doing the same thing, Europe, China, Japan, they all have 350% debt to GDP and it's all rising very quickly. So in many ways, even though we are running up these dead levels, we're still kind of the cleanest dirty shirt, if you will. And so that's always a counter argument to this notion of we're kind of perching over a cliff in terms of where we are fiscal. That makes a ton of sense. Just about out of time here, but we'd love to wrap up with what is the best case economic recovery? What does that look like here over the next coming weeks and months? So the best case is that we get this shock and off double bazooka, as I call it. That was on CNBC a two-thirds days ago happening on the fiscal side.

And I'm like, the market was down 3,000 points, whatever it was. And I said, the market needs not a single bazooka, but a double bazooka, a fiscal monetary. And it looks like we're getting it. And as long as the fiscal side is deployed rapidly, kind of you take the chance that maybe someone steal some of the money or, you know, it doesn't all end up in the places where it needs to go. But you'd rather do that than having it sit around for a month before it gets to the right place. As long as we get that, and both companies and employees can sort of, like I said, peer over the abyss and say, okay, this really sucks. But at least I'm getting a check, I'm getting unemployment benefits, or if I'm employer, I'm getting essentially paid to keep people on the payroll or at least only temporarily furlough them.

That's the best case scenario. And then you get the V-bottom, earnings stake at $20, $30 per share, hit for a quarter of a quarter of, to unimaginable levels, but then they come right back, maybe not to the same level as quickly as we would like, but certainly the trajectory will be there. And then in the meantime, they develop a vaccine and it's now summer and those temperatures are warmer. And I think if the markets can see that path, then they can look past the next two quarters. And I think that's the best case scenario. And I guess the worst case would essentially be the inverse of that. No vaccine, no double barreled action and this just lasts a lot longer?

The worst case is that the empty streets essentially stay empty because whatever's breaking now will stay broken as opposed to being put back together in terms of, like I said, if you're a restaurant, when you close and you fire everyone and you just go do something else, that restaurant's never coming back or at least it won't for maybe several years. So you want those restaurants to open up in three months or in two months, not in five years. That will be the worst case scenario. Yaron, well, this has been great. Thanks for being so generous with your time. I know you have a lot of people asking you to express your opinions these days. Where can people follow you and stay in touch

with Fidelity? I'm on Twitter. It's at Timmer Fidelity is the handle. And I'm also on LinkedIn. And I find especially LinkedIn is interesting. There's a lot of interaction. There's slightly fewer crazies on LinkedIn. But those are the two forums where I'm very active on posting charts every day. And so that's where you can find me. That's great. Well, based on what you've said about Bitcoin, you might have a few new followers on crypto Twitter. And maybe some of those folks are on LinkedIn, too. So thanks so much for your time. All right. Thank you very much. Thanks for listening to another episode of On the Brink with Castle Island. To find out more about Castle Island, visit castle island. to listen to all of our podcast episodes please go to on the brink dashpodcast.com or just click on the tab

on our website. Thanks for listening.