October 2012 For Investment Professionals Jurrien Timmer Director of Global Macro co-PM of Global Strategies Fund (USA) co-PM of Tactical Strategies Fund (Canada) The information presented reflects the opinions of Jurrien Timmer, Director of Global Macro, for Fidelity Asset Management as October 3, 2012. These opinions do not necessarily represent the views of Fidelity or any other person in the Fidelity organization and are subject to change at any time based upon market or other conditions. Fidelity disclaims any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for a Fidelity fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Fidelity fund. Global StrateGieS inveStment outlook
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October 2012
For Investment Professionals
Jurrien Timmer Director of Global Macro co-PM of Global Strategies Fund (USA) co-PM of Tactical Strategies Fund (Canada)
The information presented reflects the opinions of Jurrien Timmer, Director of Global Macro, for Fidelity Asset Management as October 3, 2012. These opinions do not necessarily represent the views of Fidelity or any other person in the Fidelity organization and are subject to change at any time based upon market or other conditions. Fidelity disclaims any responsibility to update such views. These views may not be relied on as investment advice and,
because investment decisions for a Fidelity fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Fidelity fund.
Global StrateGieS
inveStment outlook
2
•This chart shows the distribution of the S&P 500 index from 10/98 through the end of 2012, in 50 point increments.
•Most of the time, the SPX has been stuck in a range between 1000 and 1400, with the occasional tails to below 700 or above 1500.
Risk vs Reward
Data source: FMR, Bloomberg, Haver Analytics, Factset, CQG. Daily data as of October 3, 2012.
Distribution of the S&P 500 Since October 1998Daily Data f rom 10/1/1998 through 12/15/2011.
Source: FMRCo, Factset
QE-ternity Housing Energy
China Europe
Earnings Fiscal Cliff
Oil
You are here
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•The business cycle can be defined many ways but perhaps the simplest is to divide into quadrants based on the level of economic activity and the rate of chance.
•Level up, ROC up: expansion (mid-cycle growth).
•Level up, ROC down: late cycle (stagflation).
•Level down, ROC down: recession.
•Level down, ROC up: early recovery (reflation).
0 12 24 36 48
Economic Cycle
early cycle - reflation
mid cycle -expansion late cycle -
stagflation
down cycle -deflation
peak ROC
trough ROC
FED EASING
For Investment Professionals
The Market Cycle
Data source: FMR, Bloomberg, Haver Analytics, Factset, CQG. Weekly data as of 3 October 2012.
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•The global economy continues to slow down.
Global PMIs in Late & Down Cycles
Data source: FMR, Bloomberg, Haver Analytics, Factset, CQG. Monthly data as of October 3, 2012.
For Investment Professionals
World
Australia
Brazil
Russia
India
China
Canada
EZ
AustriaFrance
GermanyGreece
Ireland
Italy
NL
Spain
Indonesia
JapanKorea
Mexico
Singapore
SouthAfrica
Switzerland
Taiwan
Turkey
UKUSA
Vietnam
-20
-15
-10
-5
0
5
10
15
20
25
35 40 45 50 55 60
New
Ord
ers
-Inv
ento
ries
Markit/HSBC PMI
Global PMIs vs New Orders - InventoriesMonthly data. Source: Haver Analytics, Markit
Size of bubble: GDP (in USD)EARLY CYCLE
MID CYCLE
DOWN CYCLE
LATE CYCLE
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•Capital has been fleeing Greece and is now fleeing Spain. This creates potentially unsustainable imbalances between the AAA core and the Periphery.
Europe’s Structural Imbalances
Data source: FMR, Haver Analytics, Factset. Monthly data as of 3 October 2012.
•A simple rule of thumb is that as long as a country’s nominal GDP growth remains above its funding rate, it can grow its way out of debt. That has been the case in the US so far.
How Sustainable Are Our Deficits?
Data source: FMR, Bloomberg, Haver Analytics, Factset, CQG. Quarterly data as of October 3, 2012.
For Investment Professionals
1.72
4.0%
-4
-2
0
2
4
6
8
10
12
14
16 Nominal GDP vs Interest RatesSource: FMRCo, Haver Analytics, Factset. Quarterly data.
•The relationship between GDP growth and unemployment suggests that growth needs to be at least 3% in order for the jobless rate to come down.
Economy at Stall Speed
Data source: FMR, Bloomberg, Haver Analytics, Factset, CQG. Monthly data as of October 3, 2012.
For Investment Professionals
y = 54.449x2 - 9.6849x + 0.1999R² = 0.6719
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
-6% -4% -2% 0% 2% 4% 6% 8% 10% 12% 14%
yoy
chg
in jo
bles
rate
yoy chg in real GDP
Real GDP vs UnemploymentQuarterly Data. Source: Haver Analytics, FMRCo
need 3% growth just tokeep unemployment steady
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•The decline in the labor force participation rate has occurred while more and more Americans are receiving food stamps. This appears to be a structural issue.
A Depressing View of the American Economy
Data source: FMR, Bloomberg, Haver Analytics, Factset, CQG. Monthly data as of October 3, 2012.
•If central bank balance sheets continue to expand (not a stretch of the imagination), then gold will likely follow. This chart suggests that gold could be well above $2,000 a year from now.
Gold is the Pure Play on More QE
Data source: FMR, Bloomberg, Haver Analytics, Factset, CQG. Monthly data as of October 3, 2012.
Distribution of the S&P 500 Since October 1998Daily Data f rom 10/1/1998 through 12/15/2011.
Source: FMRCo, Factset
QE-ternity Housing Energy
China Europe
Earnings Fiscal Cliff
Oil
You are here
28 For Investment Professionals
Questions? Comments?
29 For Investment Professionals
Important Disclosures •The information presented reflects the opinions of Jurrien Timmer, Director of Global Macro, for Fidelity Asset management as of October 3, 2012. These opinions do not necessarily represent the views of Fidelity or any other person in the Fidelity organization and are subject to change at any time based upon market or other conditions. Fidelity disclaims any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for a Fidelity fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Fidelity fund. •As with all of your investments through Fidelity, you must make your own determination whether an investment in any particular security or fund is consistent with your investment objectives, risk tolerance, financial situation, and your evaluation of the investment option. Fidelity is not recommending or endorsing any particular investment option by mentioning it in this conference call or by making it available to its customers. This information is provided for educational purposes only, and you should bear in mind that laws of a particular state and your particular situation may affect this information.
•Past performance is no guarantee of future results. •Foreign investments, especially those in emerging markets, involve greater risks and may offer greater potential returns than US investments. These risks include the political and economic uncertainties of foreign countries, as well as the risk of currency fluctuations.
•Sector investments may involve greater volatility than more broadly diversified investments.
•Lower-quality debt securities involve greater risk of default or price changes due to the credit quality of the issuer.
•The S&P 500® and S&P, are registered trademarks of The McGraw-Hill Companies, Inc., and are licensed for use by Fidelity Distributors Corp., and its affiliates. The S&P 500 Index is an unmanaged market capitalization-weighted index of common stocks.
•All indexes are unmanaged and no investment may be made in any index. Stock values fluctuate in response to the activities of individual companies and general market and economic conditions. Small-cap stocks are generally more volatile than large-cap stocks. Lower-quality debt securities involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Foreign investments, especially those in emerging markets, involve greater risk and may offer greater potential returns than U.S. investments. This risk includes political and economic uncertainties of foreign countries, as well as the risk of currency fluctuation. Changes in real estate values or economic conditions can have a positive or negative effect on issuers in the real estate industry. Value stocks can perform differently from the market as a whole. They can remain undervalued by the market for long periods of time.
•Fed Funds rate is the rate of interest on overnight loans of excess reserves among commercial banks.
•Bonds are rated by agencies such as Standard & Poor’s and Moody’s Investor Services with ratings that measure the risk of default.
•Bonds rated AAA are considered to be the safest while those rated below BBB are considered to be “high yield” or below investment grade. Intermediate ratings of AA+ or BB- are often used to further differentiate bonds.
•30-year treasury and 10 year treasury are a fixed income securities backed by the full faith and credit of the U.S. government and are used as benchmarks for the pricing of various corporate fixed income instruments.
•The Fed Funds rate is the rate of interest on overnight loans of excess reserves among commercial banks. Bonds are rated by agencies such as Standard & Poor’s and Moody’s Investor Services with ratings that measure the risk of default. Bonds rated AAA are considered to be the safest while those rated below BBB are considered to be “high yield” or below investment grade. Intermediate ratings of AA+ or BB- are often used to further differentiate bonds. Lower-quality debt securities involve greater risk of default or price changes due to the credit quality of the issuer. 30-year treasury and 10 year treasury are a fixed income securities backed by the full faith and credit of the U.S. government and are used as benchmarks for the pricing of various corporate fixed income instruments. The S&P Gold group is an index of gold stocks as defined by Standard & Poor’s. The NAREIT All Issues REITs Index is an index of real estate investment trusts as defined by the Nat’l Assoc. of Realtors.
•Sources for correlation slide:
•All data downloaded from Haver Analytics. All country and regional equity indices: MSCI. All bond indices: Barclays Capital. Gold: Handy & Harman. All GSCI: Goldman Sachs Commodity Index. Currencies: Morgan Stanley. Hedge Fund Data: Hennesee.