This Is Where the Rubber Meets the Road, with Jurrien Timmer

Bitcoin

Across the shows: 5 speakers in other episodes, 2 bullish and 3 bearish calls, past 30 days

• Jurrien Timmer · Fidelity InvestmentsBullish

  Bitcoin's power-law cycle and confirmed double bottom above $80k point to further upside, more than gold.

  On log scale, Bitcoin price and time follow a harmonic power-law pattern, and each winter is smaller than the last. The 2025 peak fell a bit short of the model. Timmer flagged the $60k level as a buy zone; it held, and a break above $80k confirmed a double bottom. Priced in gold, the pattern looks beautiful. He expects both gold and Bitcoin to rise, with Bitcoin rising more, though there is still no clear narrative for the move.

  “I think they're both gonna go up and Bitcoin's gonna go up more”at 53:04

US Treasuries & yields

• Jurrien Timmer · Fidelity Investments

  Fiscal risk is being repriced into bonds; term premium at 90bp and real yields near 300bp.

  Timmer argues fiscal risk is being repriced into Treasuries. The term premium is now about 90bp, and real rates have risen from roughly minus 200bp five years ago to nearly plus 300bp, so investors now earn a real return on bonds. He cites a 5.3% nominal 10-year yield and about 2.9% real yield. Yields reflect fiscal risk plus real growth, with some technical factors such as mortgage convexity. The buyer base is weakening: central banks are not buying and some, like Japan and China, are selling, and commercial banks are not really buying. He says 6% yields could easily happen and that investors should not overstay being short bonds, since real yields now compensate them.

  “Fiscal risk definitely is being repriced. You know, the term premium is now 90 basis points. Real rates have gone from minus 200 bps five years ago to now almost 300 bps.”at 27:17

• Jurrien Timmer · Fidelity Investments

  Rising yields partly reflect Kevin Warsh's opacity, which raises the term premium as investors demand pay for uncertainty.

  Timmer argues that Fed chair Kevin Warsh wants to be more opaque and less predictable, like Greenspan. Less forward guidance means less price discovery and less certainty. Investors want to be paid for that uncertainty, so the term premium rises. Bond yields rise as a byproduct of the policy, even though Timmer sees the approach as wise.

  “And that's actually another reason why bond yields are rising because Kevin [Warsh] wants to be like Greenspan and be more opaque and less predictable.”at 43:41

• Jurrien Timmer · Fidelity Investments

  The 60/40 premise is broken: stock-bond correlation turns positive when rising cost of capital makes cash competitive.

  The classic 60/40 portfolio assumed bonds are negatively correlated with stocks. That no longer holds because when the cost of capital rises and the risk-free asset becomes competitive, the correlation turns positive. Bonds are now part of the source of the stock wobble rather than the cushion. Timmer says investors need assets that do not move with stocks or bonds, such as commodities.

  “But it's built on the premise that the 40 is negatively correlated to the 60, which it no longer is because when the cost of capital rises, and the risk free asset is competitive, the correlation goes to positive.”at 1:02:03

• Jurrien Timmer · Fidelity Investments

  Ten-year Treasuries look attractive, with real rates locking in returns; short-to-intermediate TIPS are a sweet spot.

  Timmer sees the risk-reward of ten-year Treasuries as very favorable. A 100 basis point fall in yields gives about a 5% coupon plus about 6 years of duration return. A 100 basis point rise costs only about 1%. Because the return is driven by real rates, he says investors can lock in a real return. He especially likes short-to-intermediate TIPS, which have duration around 2.5 and a real yield around 2.5.

  “And so bonds, I think they're attractive, right? The risk reward of owning ten year treasuries is like 11 to minus one.”at 1:02:18

US deficit & government debt

• Jurrien Timmer · Fidelity Investments

  US isn't yet a debt sustainability problem; Washington aims to outgrow debt, hence its AI push.

  Timmer says the US is not yet at France's debt sustainability problem. Debt has risen about $17 trillion since COVID and there are no non-economic buyers, meaning central banks are not buying and some are selling. The gap widens as economic buyers who care about the interest rate fill it. He says it is a priority for the Washington administration to outgrow the debt, which explains why officials favour AI, since productivity growth lowers the debt-to-GDP ratio.

  “The US isn't there, and it's a priority, I think, of the administration in Washington to outgrow the debt, and that's why they're all proponents of AI in part.”at 20:01

• Jurrien Timmer · Fidelity Investments

  US debt is not yet at France's crisis point, but it is getting close as growth-to-funding-rate gap narrows.

  Debt is sustainable only when the funding rate is below growth. Real potential GDP growth is about 2.5% and starting to edge down as 2021 base effects roll off. The real yield is 2.8%. Nominal potential growth is around 6%, and the ten-year is at 5.3%, so the US is not there yet but getting close. A productivity boom from AI could lift the speed limit and save the situation.

  “In The US, we're not there yet, but we're getting close.”at 48:33

• Jurrien Timmer · Fidelity Investments

  Financial repression may return; a Fed-Treasury accord could force banks to buy Treasuries, though Timmer is unsure.

  Timmer asks at what point financial repression comes back, now that inflation runs at 3-4% rather than deflation. He wonders whether policymakers will return to a Treasury-Fed accord like the 1940s. Stopping interest on excess reserves would push banks to buy Treasuries as non-economic buyers. He is unsure of the endgame and how it would be executed, and he notes limits without Fed complicity.

  “You stop paying interest on excess reserves and they're gonna buy treasuries pretty quickly.”at 1:00:43

AI infrastructure & data centers

• Jurrien Timmer · Fidelity Investments

  Hyperscaler debt issuance is reverse crowding out; ~$3.6T new corporate capital absorbed so far.

  Hyperscalers are borrowing about $500B this year, and Timmer's analysis suggests another $500B next year. Companies are now net issuers of equity and debt, spending cash on capex instead of buybacks while other firms go public. Over the last twelve months this adds up to about $3.6T of new capital in the Fed flow of funds data, and it is being absorbed well so far. This is reverse crowding out, where private borrowing competes with government for capital and pushes yields up, a factor in the bond selloff alongside fiscal risk and real growth. Capacity is constrained in GPUs and other infrastructure. He argues hyperscalers care little where rates are, since they expect 30-40% returns on data centers with insatiable demand.

  “the hyperscalers are borrowing 500,000,000,000 this year. Our analysis suggests they're going to borrow another 500,000,000,000 next year.”at 22:23

• Jurrien Timmer · Fidelity Investments

  Suppliers to the AI capex buildout have backlogs so large they cannot keep up with demand, so earnings look secure.

  Timmer looks at the companies supplying the capex buildout and says demand is so tight they cannot keep up. He refers to five-year backlogs. Because of this, he is not worried about the earnings story for the AI buildout, even though semiconductor earnings growth itself is unsustainable. His worries are about capital demand and ROI, not earnings.

  “But then we look at the companies... that are providing all the stuff to the CapEx build out, it's so tight they cannot keep up with demand.”at 42:18

• Jurrien Timmer · Fidelity Investments

  Hyperscalers now spend cash flow on capex with unknown ROI instead of buybacks, a risk he worries about.

  Hyperscalers used to return about 90 cents of each earnings dollar to shareholders through dividends and mostly buybacks. Now they spend their cash flow on capex. Timmer worries about too much demand for capital and unknown returns on investment. A known buyback return is a bird in hand, so the market will pay up for certainty and not for uncertain capex payoffs.

  “I worry about two things. One is, again, too much demand for capital, unknown ROIs.”at 42:49

AI bubble & tech valuations

• Jurrien Timmer · Fidelity Investments

  Not an AI bubble: earnings are exploding so tech valuations are falling.

  Timmer compares the AI boom with the internet story and says he does not think it is a bubble because earnings are growing so fast that valuations are falling. The AI melt-up began around April 2025 after the tariff tantrum and the market went vertical, yet the tech sector P/E was about 21 then and is about 20 today. Paying less for earnings is hard to reconcile with a bubble. He is explicit that this is not a prediction that the story has an unhappy ending. The open question is when the market chokes on the fire hose of capital, which he says has not happened yet.

  “And I don't think we're in a bubble at all because earnings are exploding to such a degree that valuations are actually falling.”at 23:03

• Josh Brown · Ritholtz Wealth Management

  This is an earnings bubble: demand pulled forward by data-center capex means earnings will miss and fall.

  Brown argues the bubble is about earnings, not high valuations. Demand is being pulled forward by global data-center capex. At some point these companies will start missing earnings and will not hit them again until analysts ratchet expectations down. Stocks will then fall to lower multiples, like 14 times earnings, even at 21 times. The market is over-earning, and that is not a free pass.

  “It's an earnings bubble. We don't need high valuations for this to be a bubble because, actually, what's happening is a pull forward in demand related to the CapEx, data center CapEx, and it's global.”at 41:05

• Jurrien Timmer · Fidelity Investments

  The AI rally rhymes with the 1998-2000 melt-up, with Nvidia vendor financing like Cisco, though analogs are unreliable.

  Timmer sees a parallel with the 1995-2000 period. In 1998-2000, after the LTCM shock and Fed easing, mega-cap stocks doubled in valuation without earnings to back it up, and Cisco used vendor financing. He sees Nvidia doing something similar today. He notes that since April 2025, the market has gone up by the same amount over the same length of time. He caveats that price analogs are for entertainment only, and that valuation can be read either way, since five-year CAPE is at an all-time high while next-12-month PE is falling.

  “Mega cap stocks doubled in valuation, and they did not have the earnings to back it up. And you had Cisco vendor financing everybody else just like NVIDIA is doing today.”at 1:09:12

US stock market outlook

• Josh Brown · Ritholtz Wealth Management

  A broader market rally needs Treasury yields to stop rising and oil prices to ease.

  Brown describes a summer broadening trade in which small caps, mid caps, value stocks and every sector hit 52-week highs. That ended when WTI crude crossed 80 and the 10-year yield crossed 5%, and the market became more selective again. He argues that the only real catalyst for a catch-up trade in the blown-up sectors is that yields at least stop rising, with some relief from high oil prices. Timmer agrees that oil and bonds are central to the rate-driven market moves.

  “well, the only real answer is yields at least stop going up. And maybe we get a little bit of pressure from high oil prices down. That's the catalyst for the re broadening.”at 25:57

• Jurrien Timmer · Fidelity Investments

  Rising Treasury yields are compressing P/Es, a stealth correction echoing 2022 and 1994.

  Timmer says the market is in a stealth correction, with only 25% of stocks above their 50-day and 46% above their 200-day as of last week, much like 1994 and 2022. He says price is a residual of earnings and valuation, and rising rates are cutting the multiple. In 2022 earnings growth slowed to about 8%, but the P/E fell 33% as the cost of capital rose from zero to 5%. Under the Fed model, a 5.3% Treasury yield is competitive with the S&P's earnings yield, so if yields rise stocks must respond or risk a 1987-style break. A 6% yield implies about a 16x P/E, roughly 20% lower before earnings growth offsets. Since June the index has been flat because about 35% earnings growth is offsetting the rate pressure. Long-duration mega-caps are more resilient, while cyclical firms with weaker balance sheets are hurt by Fed tightening. In 1994, Greenspan doubled the cost of capital, the market went nowhere for a year while internals rotted, and it exploded once the pressure lifted.

  “I see this as like an echo of 2022, and we're having a sort of a stealth correction”at 28:15

• Jurrien Timmer · Fidelity Investments

  Over the next 5-10 years returns will be fine but lower-beta than the last five years, favouring income stocks.

  The market is top-heavy: the top 50 stocks are about 60% of the index and the top 10 about 40%, while only about 38% of stocks outperform. The S&P is up about 125% cyclically. Returns of 17-18% a year over the past decade were outsized, driven by large-cap growth and AI, and were partly over-earning. CAPE and secular analogs suggest the next 5-10 years will not be terrible but will have lower beta. He would focus on high payout-ratio, dividend-growing equities and buybacks.

  “And my sense is, and the CAPE model suggests this as well as secular analogs, that the next five, ten years, they're not gonna be terrible, but they're gonna be a lower beta than what we've seen over the last five years.”at 1:06:25

Europe's economy

• Jurrien Timmer · Fidelity Investments

  France has a debt sustainability problem: nominal growth ~2% versus ~4.5% bond yields.

  Timmer cites France as the current example of a debt problem. Nominal economic growth is about 2% while bond yields are about 4.5%. When debt is high and the economy cannot outgrow it, the interest burden rises faster than the economy, so a debt sustainability problem follows. Private banks in Europe are forced to buy government debt under risk budgets, but this does not solve the underlying problem.

  “France is sort of exhibit a right now because the economy in nominal terms is growing at 2% and bond yields are four and a half.”at 19:45

• Jurrien Timmer · Fidelity Investments

  France is in a debt spiral because its funding rate is now above its growth rate, causing a bond-market crunch.

  France has no growth, a lot of debt and political turmoil. Debt is sustainable only if the funding rate stays below the growth rate. In France the funding rate is now well above growth, and bond yields are exploding. Its cost of funding is rising from 2% to 5%, which will eat up interest expense, so the ECB will have to step in to fix it.

  “But the funding rate needs to be below the growth rate. And in France, it's now well above, and and that creates a crunch, and we're seeing that in the bond market there.”at 48:21

AI & jobs

• Josh Brown · Ritholtz Wealth Management

  Predicted AI job losses have not appeared, and mass job loss is not on the horizon for the next few quarters.

  Brown compares 2024 forecasts of AI-driven job losses, some cataclysmic, by 2026 or 2027 with the data. He says nothing like that has happened. The jobs numbers are disappointing somewhat, but relative to a 350 million population, a 50,000 to 100,000 miss is a rounding error. He thinks the forecasts were either far too early or misunderstood what the technology means.

  “It doesn't appear that mass job loss is on the horizon for q four or q one of twenty twenty seven.”at 55:16

• Jurrien Timmer · Fidelity Investments

  AI job-loss fears are overstated because new industries are created; AI will cut some jobs but reshape work.

  Timmer says job-loss risks were overstated, and probably still are, because technology creates new industries that are hard to foresee, as the internet did with ride-hailing. He says AI is a tool that makes people smarter. He gives an example: he drafted waiver legal documents with ChatGPT and saved a lawyer's fee. He concedes AI requires fewer workers, but says AI is spreading faster than past technologies like the railroads, which lets job effects pass through quickly.

  “I think the risks were overstated, and I think they probably still are because new industries are created”at 55:39

International equities

• Jurrien Timmer · Fidelity Investments

  Japan is one of the hottest markets as it supplies equipment to the AI build-out.

  Timmer says Japan is one of the hottest markets because it supplies the AI build-out with equipment rather than with chips. Hyperscaler spending and capacity constraints in GPUs and other infrastructure keep this demand going. Josh Brown notes that Japan is where the transistor was invented.

  “you look at Japan as one of the hottest markets because they are supplying the the AI space, not with semiconductors, but equipment.”at 24:29

Oil & fuels

• Jurrien Timmer · Fidelity Investments

  Oil and the S&P 500 are about 50% negatively correlated; oil is feeding sticky inflation.

  Timmer looks at correlations: oil and the S&P are about 50% negatively correlated, and the S&P and long-term government bonds are about 50% positively correlated. He says this is all one trade in which oil feeds sticky inflation, which pushes up bond yields and weighs on stocks. He adds that a colleague has seen oil tanker rates rise about tenfold, which points to real bottlenecks in the system. Josh Brown's remarks about WTI crude crossing 80 fit the same pattern.

  “oil and the S and P are about 50% negatively correlated... So it's all one trade. It's oil feeding into sticky inflation.”at 26:18

US inflation

• Jurrien Timmer · Fidelity Investments

  US inflation will average at least 3% over the next five years, in his view.

  Timmer says a five-year TIPS held to maturity pays about 2.6% real plus whatever inflation turns out to be over the next five years. He thinks inflation will be at least 3%, so the real return is attractive. That is why he says investors should not overstay their welcome being short bonds, and he notes yields could easily go to 6%. Persistent inflation is linked to oil prices and the end of the savings glut era.

  “If you buy a five year TIPS and you hold it to maturity, you're getting, like, 2.6% real plus whatever the inflation is gonna be over the next five years... My view is gonna be at least 3%.”at 27:17

Earnings & corporate profits

• Jurrien Timmer · Fidelity Investments

  Earnings growth near 35% is high, but durability matters more; investors won't pay for peak earnings.

  Timmer argues that the market may be pricing peak earnings growth. Earnings growth is about 35% and close to its high, and he does not know whether it is at peak. Expectations are not so dumb that investors will keep bidding up the multiple, because investors do not pay for peak earnings. The key variable, which he is not sure can be solved, is not the level of earnings growth but how durable it is. That durability determines whether earnings can offset rising rates, and it also separates long-duration mega-caps from cyclical companies with weaker balance sheets.

  “Investors do not pay for peak earnings. And I think one of the key things we need to solve for, and I don't know if we can, is not the level of earnings growth, which is of course very high, but how durable that is.”at 30:11

AI chips & semiconductors

• Jurrien Timmer · Fidelity Investments

  Semiconductor earnings growth of 178% is unsustainable, and the sector is at the point where its earnings cycle should roll over.

  Semiconductor earnings are up 178% year over year, which Timmer says does not sound sustainable. The semiconductor index has a clear roughly 40-month earnings cycle, and he says it is right at the point where it should start to roll over. He pushes back on the argument that the sector is now secular rather than cyclical, noting 'it's different this time' is a poor thing to rely on.

  “So semiconductor earnings are up a 178% year over year. So that doesn't sound sustainable to me.”at 41:42

Credit markets

• Jurrien Timmer · Fidelity Investments

  Weak, leveraged credits face a 2027-28 maturity wall as high-yield spreads widen; quality megacaps stay immune.

  Companies with leveraged, weak balance sheets face a maturity wall in 2027 or 2028, and high-yield spreads are now moving higher with triple-C credits weakening. This is why market breadth is poor, as in 2022. Strong companies such as the Max Seven and other high-quality firms with solid balance sheets and cash flow growth are relatively immune. Anything touching AI is immune because its returns are so high.

  “But if you're a weaker credit, more leveraged... and you're looking at a maturity wall in 2027 or '28 and you look at high yield spreads are now moving higher”at 46:35

Middle East & Iran

• Jurrien Timmer · Fidelity Investments

  The Iran conflict forced Gulf states to sell gold and Treasuries to raise cash, correlating the two.

  After gold ran up and became overbought, the Iran events caused a regime change. Gold became for sale because it is a reserve asset. Gulf Cooperation Council states that cannot sell oil had to sell gold to raise cash. Treasuries were sold too, so gold and Treasuries became highly correlated.

  “And then Iran happened, and all of a sudden, gold is for sale because it's a reserve asset.”at 51:07

Gold & precious metals

• Jurrien Timmer · Fidelity Investments

  Gold's fair value on global money supply is about $5,000 and rising; the recent drop should pass.

  The real-rate model for gold broke in 2022, when it doubled instead of falling to 1,000. Gold now tracks global liquidity growth (global M2, growing 7-9% a year, roughly $120 trillion). Gold ran to about $5,600 in 2025, above the roughly $4,800 his model supports, as speculators rotated out of Bitcoin. A later overbought reversal and an Iran-driven sell-off pushed it to around $4,000. Timmer thinks the drop will pass and sees about $5,000 as the right level.

  “And based on global money supply, 5,000 to me is the right number and rising.”at 51:36

US jobs & labor market

• Jurrien Timmer · Fidelity Investments

  Weak payrolls aren't really weak: with no immigration and retirements, breakeven job growth is only about 30,000.

  Weak job numbers look less weak once the labor force is considered. With no immigration and boomers leaving the labor force, the breakeven rate for jobs has fallen to about 30,000 a month, down from 70,000 to 100,000 previously. The weaker numbers are measured against a labor force that is growing much less, so they need to be normalized.

  “and boomers are leaving the labor force... What we call the breakeven rate... is only like 30,000 where it used to be 70 or a 100,000.”at 54:01

US rates & the Fed

• Jurrien Timmer · Fidelity Investments

  The Fed's three 2025 cuts were a mistake that now must be reversed; this is not a tightening cycle.

  The Fed cut three times in 2025 as insurance against AI-driven job losses and disinflation. That proved a false alarm: Iran pushed inflation back up and the job market is fine. The Fed built a cushion it did not need. Timmer says it should not have eased those three times and now has to take them back. He does not see this as a tightening cycle, but a correction.

  “That's why the fed cut, and now they have to uncut. So I don't see this as a tightening cycle.”at 54:57

Commodities (broad)

• Jurrien Timmer · Fidelity Investments

  The BCOM spot index is negatively correlated with equities and bonds, making commodities a useful diversifier.

  Timmer looks at correlations. The BCOM spot commodity index sits in the lower-left quadrant of his four-quadrant correlation chart, negatively correlated to stocks and bonds. Managed futures are probably similar because they are long commodities and short bonds. He thinks investors should hold such uncorrelated assets, like gold, Bitcoin and commodities, to offset the positive stock-bond correlation.

  “So I look a lot at correlations and for instance, the BCom spot index, commodity index is ... this is in the lower left quadrant where it is negatively correlated to everything else.”at 1:03:39

Banks

• Jurrien Timmer · Fidelity Investments

  European banks are a favourite: high payouts, outperformance since April 2025, and positive yields help them.

  European banks have seen strong payout growth, with a payout ratio of about 88%. They have outperformed the S&P since April 2025 by about as much as AI stocks did. These boring banks were held back by negative rates and policy for years, and positive yields are now very good for them. Timmer calls them one of his favorite sectors, though he worries about the risk of correlations snapping to one.

  “since April 2025. They outperformed the S and P by as much as AI did... now positive yields are very good for banks.”at 1:04:55