Fidelity's Jurrien Timmer Goes Over Everything, From JGB Volatility To Gold

Jurrien Timmer, Director of Global Macro & portfolio manager at Fidelity Investments, appeared on CNBC Squawk Box on Thursday where he discussed everything from the volatility of the JGB to secure cash cushions. "I think what we're seeing in Japan is that the unintended consequence has come up in the form of volatility in the bond market. Alright, so JGB yields were at 33 basis points a few weeks ago. They went to about a hundred basis points. Now they're 88 or so, but that's still very low, but it's still a tripling, ah, as well," said Timmer. "And now it looks like speculators in the bond market, the bond vigilantes have finally come out of the woodworks because nobody wanted to fight the Fed, and now all of the sudden ten year treasury yields have gone from 1.6 [percent] to 2.2 [percent], and so maybe the speculators are feeling more comfortable selling treasuries, um, trying to anticipate a 1994 type of scenario where the Fed has to exit in a meaningful way. I'm sure the fed is trying to prevent a '94 debacle because at that point, if you remember, ah, it was the worst bond market, you know, the worst bear market and the bond market, ah, ever." Timmer believes that the Fed must be watching these movements and trying to figure out how to exit when the time comes. Of the four factors driving things, he's noted the Fed as being most important. "I looked over the last four years, we've had corrections each spring in 2010, 11 and 12, and what they all had in common was economy was weakening, the technicals were stretched, sentiment was, was ebullient and the Fed was not printing. This year we have the first three, the economy, at least the global economy is rolling over, ah, the technicals are a little shaky, sentiment is ebullient…But the difference is that the Fed is not only printing, but it's printing by the bucket load and the Bank of Japan is undoing this incredible monetary experiment of doubling the monetary base that, that we've never seen that before," said Timmer. "So I think this is why the stock market has held up so well. And it's almost become an extension of the bond market, and if you look at economically sensitive markets, you really have to look at the commodities market, or the price, the relative performance of energy stocks, for instance, ah, to find their weakness, but it's all under the surface and behind the scenes. It's kind of a stealth correction, as opposed to a real correction that we saw each of the last three years." Timmer called the market here something that has become very unpredictable. "I can see the S&P running another hundred points to the upside or falling a hundred points starting, starting today. Um, very unpredictable, the Fed knows it eventually is going to have to tapper…So what the question is, ah, if it becomes kind of unstable here. It could keep running, like today, we were down earlier, we're up now, ah, it becomes unstable. So what I'm doing, ah, as co-manager of the Global Strategies Fund, we're keeping kind of a low profile here, ah, we have a 60/40 [60 percent stocks, 40 percent in bonds] benchmark, we recommend some kind of balanced approach still works, you know, yields could spike through," said Timmer. Since the 2009 low, Timmer said that the strategy has actually worked quite well, saying that Fidelity Investments just published a study on 401Ks proving it successful. "Ah, that's our benchmark, you know, we can go underweight, we could go overweight, but the only thing left to really diversify risk out there are basically long duration U.S. treasuries," said Timmer. Timmer said that at this point, given that yields have already run to almost 2.25 percent, that his sense is that if they hit about 2.5 percent, that they will at some point start to undermine the equity market. "So we we're slightly underweight in equities, but our main focus is where geographically to be overweight and underweight, this is a global fund…It's really a question of: 'Underneath the surface, where are your exposures?' And then, the secondary question right now is: 'How much in equities and bonds?' We do have a cash cushion, we bought some gold recently, so we have some other asset classes as well," said Timmer. Why gold? "Based on some of my analysis, gold could be at 2,000, or should be at 2,000, so that's pretty good, a pretty good risk reward," said Timmer.