The State of the Market
January 2009Jurrien Timmer
Director of Investment Research & Portfolio ManagerFidelity Investments
The information presented reflects the opinions of Jurrien Timmer, Director of Market Research, for Fidelity Management & Research Company as of January 12, 2009. 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 presentation 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.
Page 2
2008: Deflationary Death Spiral
2009: Reflationary Bull?
2010-2012: Inflationary Bear?
Page 3
2008:Deflation
Page 4
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Europe ($)
Japan ($)
Japan ($)
Emg Mkts
Emg Mkts
Commo-dities
Emg Mkts
Small Value
Emg Mkts
Japan ($)
Large Value
Real Estate
Large Value
Large Growth
Emg Mkts
Commo-dities
Real Estate
Commo-dities
Emg Mkts
Real Estate
Emg Mkts
Europe ($)
Emg Mkts
Bonds
+79.8 +100.3 +43.0 +40.4 +65.0 +29.1 +59.9 +29.1 +74.8 +21.8 +38.3 +35.7 +35.2 +38.7 +66.4 +49.7 +15.5 +32.1 +56.3 +31.6 +34.5 +34.4 +39.8 +5.2
Emg Mkts
EAFE EAFE Japan
($) Commo-
dities Bonds
Small Growth
Small Caps
EAFE EAFE S&P 500 Commo-
dities S&P 500
Europe ($)
Japan ($)
Real Estate
Small Value
Gold Small Growth
Emg Mkts
Commo-dities
Emg Mkts
Gold Cash
+77.2 +69.4 +24.6 +35.2 +38.3 +8.9 +51.2 +18.4 +32.6 +7.8 +37.4 +33.9 +33.4 +28.9 +63.1 +25.9 +14.0 +26.1 +48.5 +26.0 +21.4 +32.6 +27.7 +1.8
EAFE Europe
($) Gold
Small Value
Large Growth
Cash High Yield
High Yield
Europe ($)
Commo-dities
Large Growth
Large Growth
Small Value
S&P 500 Small Growth
Small Value
Bonds Bonds Small Caps
Small Value
Japan ($)
Real Estate
Commo-dities
Gold
+56.2 +44.5 +23.8 +29.5 +35.9 +7.8 +46.2 +15.8 +29.8 +5.3 +37.2 +23.1 +31.8 +28.6 +43.1 +22.8 +8.4 +10.3 +47.3 +22.2 +25.6 +34.7 +21.2 +1.8
Japan ($)
Emg Mkts
Commo-dities
EAFE S&P 500 Large Growth
Small Caps
Large Value
Japan ($)
Cash Small Growth
S&P 500 Large Growth
EAFE Commo-
dities Bonds
High Yield
Real Estate
Small Value
Small Caps
Gold EAFE Europe
($) Commo-
dities
+43.5 +28.6 +23.8 +28.3 +31.5 -0.3 +46.1 +13.8 +25.7 +3.9 +31.0 +23.1 +30.5 +20.0 +40.9 +11.6 +5.3 +5.2 +46.0 +18.3 +17.8 +26.9 +14.4 -30.5
Large Growth
Large Value
Emg Mkts
Commo-dities
Europe ($)
Gold Small Value
Real Estate
Small Value
Europe ($)
Small Caps
Large Value
Europe ($)
Large Value
Convert Large Value
Cash Cash High Yield
Europe ($)
EAFE Gold Large Growth
High Yield
+32.9 +20.0 +14.8 +27.9 +29.1 -1.9 +41.7 +12.2 +23.8 +2.7 +28.4 +21.6 +24.2 +15.6 +36.4 +7.0 +3.8 +1.6 +35.6 +21.4 +14.0 +23.9 +11.8 -26.2
S&P 500 Gold Cash Small Caps
Large Value
Convert Large Growth
Convert Small Caps
Large Growth
Small Value
Europe ($)
Small Caps
Convert Large Growth
Cash Small Caps
High Yield
EAFE EAFE Europe
($) Small Value
EAFE Small Value
+32.2 +19.6 +5.5 +24.9 +25.2 -2.5 +41.2 +12.0 +18.9 +2.7 +25.8 +21.6 +22.4 +11.7 +33.2 +5.9 +2.5 -1.4 +35.3 +20.2 +9.9 +23.5 +11.6 -28.9
Large Value
Real Estate
Large Growth
Large Value
Small Growth
S&P 500 Real Estate
Emg Mkts
Real Estate
S&P 500 Convert Small Value
Real Estate
Bonds EAFE Small Caps
Gold Emg Mkts
Europe ($)
Commo-dities
Real Estate
Large Value
Small Growth
Japan ($)
+31.5 +19.2 +5.3 +23.2 +20.2 -3.2 +35.7 +11.4 +18.5 +1.3 +23.0 +21.4 +18.9 +8.7 +27.0 -3.0 +0.7 -6.0 +34.8 +9.1 +12.2 +22.2 +7.0 -29.1
Small Caps
S&P 500 S&P 500 Small Growth
Small Caps
Europe ($)
S&P 500 Small Growth
Large Value
Real Estate
Europe ($)
Small Caps
Convert Japan
($) Small Caps
Gold Emg Mkts
Convert Japan
($) Large Value
Large Value
Small Caps
Bonds Convert
+31.1 +18.5 +5.2 +20.4 +16.2 -3.4 +30.5 +7.8 +18.1 +0.8 +22.1 +16.5 +14.4 +5.1 +21.3 -5.4 -2.4 -6.2 +34.6 +16.5 +7.1 +18.4 +7.0 -34.6
Small Value
Convert High Yield
S&P 500 Bonds Large Value
Convert S&P 500 Gold High Yield
Commo-dities
Convert Small Growth
Cash S&P 500 High Yield
Large Value
Japan ($)
Real Estate
Japan ($)
Large Growth
S&P 500 Convert Small Caps
+31.0 +17.7 +5.0 +16.8 +14.5 -8.1 +26.9 +7.7 +17.7 -1.0 +20.3 +11.6 +12.9 +4.9 +21.0 -5.9 -5.6 -9.8 +32.5 +16.2 +5.3 +15.8 +5.6 -33.8
Small Growth
High Yield
Europe ($)
Europe ($)
Convert High Yield
Large Value
Bonds High Yield
Small Value
High Yield
High Yield
High Yield
High Yield
Europe ($)
Convert Convert Small Value
Large Value
Small Growth
S&P 500 Commo-
dities S&P 500
Large Value
+31.0 +17.4 +4.1 +16.4 +13.8 -9.6 +24.6 +7.4 +17.1 -1.5 +19.2 +11.3 +12.8 +1.9 +16.2 -6.2 -5.9 -11.4 +30.0 +14.3 +4.9 +14.5 +6.2 -36.8
High Yield
Large Growth
Bonds Convert Small Value
Emg Mkts
Bonds Large Growth
Convert Small Caps
Bonds Small Growth
Bonds Small Growth
Large Value
Europe ($)
Small Growth
Large Value
Large Growth
High Yield
Small Value
Small Growth
Cash S&P 500
+28.7 +15.4 +2.7 +14.2 +12.4 -10.6 +16.0 +5.0 +14.8 -1.8 +18.5 +11.3 +9.7 +1.2 +7.3 -8.1 -9.2 -15.5 +29.7 +11.1 +4.7 +13.3 +5.2 -36.5
Convert Bonds Large Value
High Yield
EAFE Real Estate
Europe ($)
Commo-dities
Small Growth
Large Value
Real Estate
Emg Mkts
Cash Gold Cash S&P 500 S&P 500 EAFE S&P 500 S&P 500 Small Caps
Convert High Yield
Large Growth
+27.3 +15.3 +0.5 +12.5 +10.5 -17.3 +13.7 +4.4 +13.4 -2.0 +18.3 +6.0 +5.3 -0.5 +4.7 -9.1 -11.9 -15.9 +28.7 +10.9 +4.6 +13.3 +1.9 -38.4
Bonds Small Value
Convert Real Estate
Cash Small Growth
EAFE Cash S&P 500 Gold EAFE EAFE EAFE Small Caps
High Yield
EAFE Europe
($) Europe
($) Convert Convert
Small Growth
High Yield
Large Value
Small Growth
+22.1 +7.4 -2.4 +11.4 +8.4 -17.4 +12.1 +3.5 +10.0 -2.2 +11.2 +6.0 +1.8 -2.5 +2.4 -14.2 -19.6 -18.1 +27.9 +7.5 +4.2 +11.9 -0.2 -38.5
Commo-dities
Cash Small Value
Large Growth
Japan ($)
Small Caps
Japan ($)
Europe ($)
Bonds Convert Cash Cash Emg Mkts
Small Value
Gold Large Growth
Large Growth
Small Caps
Gold Gold Cash Large Growth
Small Caps
EAFE
+10.0 +6.2 -7.1 +11.3 +1.8 -19.5 +9.1 -4.2 +9.8 -2.2 +5.6 +5.2 -11.6 -6.5 +0.9 -22.4 -20.4 -20.5 +22.1 +4.6 +3.0 +9.1 -1.6 -43.1
Cash Small Caps
Small Caps
Bonds High Yield
Small Value
Cash Gold Large Growth
Small Growth
Gold Bonds Commo-
dities Real Estate
Bonds Small Growth
EAFE S&P 500 Commo-
dities Large Growth
High Yield
Japan ($)
Japan ($)
Real Estate
+7.7 +5.7 -8.8 +7.9 +0.8 -21.8 +5.6 -5.1 +2.9 -2.4 +1.0 +3.6 -14.1 -18.8 -0.8 -22.4 -21.4 -22.1 +20.7 +6.3 +2.7 +6.3 -4.1 -40.8
Real Estate
Small Growth
Small Growth
Cash Real Estate
EAFE Commo-
dities EAFE Cash Bonds
Japan ($)
Gold Gold Emg Mkts
Small Value
Japan ($)
Japan ($)
Large Growth
Bonds Bonds Bonds Cash Small Value
Europe ($)
+5.9 +3.6 -10.5 +6.3 -1.8 -23.4 -6.1 -12.2 +2.9 -2.9 +0.4 -4.6 -21.7 -25.3 -1.5 -28.3 -29.5 -27.9 +4.1 +4.3 +2.4 +4.8 -9.8 -46.1
Gold Commo-
dities Real Estate
Gold Gold Japan
($) Gold
Japan ($)
Commo-dities
Emg Mkts
Emg Mkts
Japan ($)
Japan ($)
Commo-dities
Real Estate
Emg Mkts
Commo-dities
Small Growth
Cash Cash Convert Bonds Real Estate
Emg Mkts
+5.8 +2.0 -10.7 -15.3 -2.8 -36.0 -10.3 -21.4 -12.3 -7.3 -5.2 -15.0 -24.0 -35.7 -6.5 -30.6 -31.9 -30.3 +1.0 +1.2 +2.0 +4.3 -18.1 -53.21985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
The Periodic Table of Investment Returns
Page 5
Correlation of Returns (to the S&P 500)
-60% -40% -20% 0% 20% 40% 60% 80% 100% 120%
S&P 500
EQTY
50/40/10
PORT 50/30/20
Europe
EAFE
converts
Large Value
Large Growth
HF Comp
High Yield
Small Growth
Small Caps
HF FoF
Emerging mkts
Small Value
EMBI
ALT
REITs
Japan
FI
HF Eqty M/N
Commodities
Inv Grade Bonds
Cash
Gold
Inflation
12mo Corelation of Annual Returns, 20yr average
12mo Corelation of Annual Returns, Mar 2008
Correlation of Returns (to the S&P 500)
100%
99%
99%
98%
98%
98%
98%
98%
96%
96%
95%
91%
91%
91%
89%
89%
84%
84%
83%
77%
69%
30%
-1%
-1%
-2%
-42%
-60% -40% -20% 0% 20% 40% 60% 80% 100% 120%
S&P 500
EQTY
50/40/10
PORT 50/30/20
Europe
EAFE
converts
Large Value
Large Growth
HF Comp
High Yield
Small Growth
Small Caps
HF FoF
Emerging mkts
Small Value
EMBI
ALT
REITs
Japan
FI
HF Eqty M/N
Commodities
Inv Grade Bonds
Cash
Gold
Inflation
12mo Corelation of Annual Returns, 20yr average
12mo Corelation of Annual Returns, Mar 2008
Other than cash and Treasuries, there was no place to hide in 2008.
Page 6
The Efficient Frontier2007-20008 Bear Market
Compound Annual Return vs. Standard Deviation of Monthly Return.
cashinfl
FI
Agg
BAL
EMBI
CNV
L/S
LGSPXEQTY
LV
ALT
FoF
PORT
HF
HY
SG
comm
RUTSV
Japan
EAFEEUR REITsEM
Gold
-40
-30
-20
-10
0
10
20
30
0 1 2 3 4 5 6 7 8 9 10 11 12
Volatility of Returns
Ann
ualiz
ed R
etur
ns
Page 7
The Efficient Frontier2000-2002 Cyclical Bear Market
Compound Annual Return vs. Standard Deviation of Monthly Return.PORT: 50/30/20 model portfolio (stocks/bonds/alternatives).
cashinfl
FI
Agg
BAL
EMBI
CNV
L/S
LG
SPXEQTY
LV
ALT
FoF
PORT
HFHY
SG
comm
RUT
SV
Japan
EAFEEUR
REITs
EM
Gold
-40
-30
-20
-10
0
10
20
30
0 1 2 3 4 5 6 7 8 9 10 11 12
Volatility of Returns
Ann
ualiz
ed R
etur
ns
Page 8
The Efficient FrontierMultiple Horizons
Compound Annual Return vs. Standard Deviation of Monthly Return.
1982-2000 Bull
-40
-30
-20
-10
0
10
20
30
40
0 1 2 3 4 5 6 7 8 9 10 11 12
Standard Deviation of Monthly ReturnsAve
rage
12
Mon
th R
etur
n
The Efficient FrontierMultiple Horizons
Compound Annual Return vs. Standard Deviation of Monthly Return.
2000-2002 Bear
1982-2000 Bull
-40
-30
-20
-10
0
10
20
30
40
0 1 2 3 4 5 6 7 8 9 10 11 12
Standard Deviation of Monthly ReturnsAve
rage
12
Mon
th R
etur
n
The Efficient FrontierMultiple Horizons
Compound Annual Return vs. Standard Deviation of Monthly Return.
2003-2007 bull
2000-2002 Bear
1982-2000 Bull
-40
-30
-20
-10
0
10
20
30
40
0 1 2 3 4 5 6 7 8 9 10 11 12
Standard Deviation of Monthly ReturnsAve
rage
12
Mon
th R
etur
n
The Efficient FrontierMultiple Horizons
Compound Annual Return vs. Standard Deviation of Monthly Return.
2003-2007 bull
2000-2002 Bear
2007-2008 Bear
1982-2000 Bull
-40
-30
-20
-10
0
10
20
30
40
0 1 2 3 4 5 6 7 8 9 10 11 12
Standard Deviation of Monthly ReturnsAve
rage
12
Mon
th R
etur
n
Page 9
Household Savings & WealtthSource: FMRCo, Haver Analytics, Federal Reserve Bank
Quarterly Data since 1950.
403%
473%
529%
630%
503%
618%
400%
450%
500%
550%
600%
650%
Household Net Worthas a % of DPI
12.50
-0.70-2
0
2
4
6
8
10
12
14
'50 '52 '54 '56 '58 '60 '62 '64 '66 '68 '70 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10
3.5
4.0
4.5
5.0
5.5
6.0
6.5
Personal Saving Rate (SA, %)
Household Net Worth as a % of DPI
-200
0
200
400
600
800
1000
1200
1400
1600
Household Savings & WealtthSource: FMRCo, Haver Analytics, Federal Reserve Bank
Quarterly Data since 1950.
403%
473%
529%
630%
503%
618%
400%
450%
500%
550%
600%
650%
Household Net Worthas a % of DPI
12.50
-0.70-2
0
2
4
6
8
10
12
14
'50 '52 '54 '56 '58 '60 '62 '64 '66 '68 '70 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10
3.5
4.0
4.5
5.0
5.5
6.0
6.5
Personal Saving Rate (SA, %)
Household Net Worth as a % of DPI
-200
0
200
400
600
800
1000
1200
1400
1600
Household Savings & WealtthSource: FMRCo, Haver Analytics, Federal Reserve Bank
Quarterly Data since 1950.
403%
473%
529%
630%
503%
618%
400%
450%
500%
550%
600%
650%
Household Net Worthas a % of DPI
12.50
-0.70-2
0
2
4
6
8
10
12
14
'50 '52 '54 '56 '58 '60 '62 '64 '66 '68 '70 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10
3.5
4.0
4.5
5.0
5.5
6.0
6.5
Personal Saving Rate (SA, %)
Household Net Worth as a % of DPI
$1,398
$(117) -200
0
200
400
600
800
1000
1200
1400
1600
Change in Household Credit ($Bil)
A secular turn in consumer behavior?
Page 10
2009:Reflation
Page 11
Measuring Tail RiskDistribution of 12mo Returns for the S&P 500 Index
Monthly data from 1/26 through Oct 2008
0
20
40
60
80
100
120
140<
= -
70%
-70%
<=
> -
65%
-65%
<=
> -
60%
-60%
<=
> -
55%
-55%
<=
> -
50%
-50%
<=
> -
45%
-45%
<=
> -
40%
-40%
<=
> -
35%
-35%
<=
> -
30%
-30%
<=
> -
25%
-25%
<=
> -
20%
-20%
<=
> -
15%
-15%
<=
> -
10%
-10%
<=
> -
5%
-5%
<=
> 0
%
0% <
=>
5%
5% <
=>
10%
10%
<=
> 1
5%
15%
<=
> 2
0%
20%
<=
> 2
5%
25%
<=
> 3
0%
30%
<=
> 3
5%
35%
<=
> 4
0%
40%
<=
> 4
5%
45%
<=
> 5
0%
50%
<=
> 5
5%
55%
<=
> 6
0%
60%
<=
> 6
5%
65%
<=
> 7
0%
70%
<=
> 7
5%
75%
<=
> 8
0%
80%
<=
> 8
5%
85%
<=
> 9
0%
=>
90%
# of
obs
erva
tions
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
140%
160%
12m
o fw
d re
turn
20081930’s
A binary choice: the odds say “buy”, but if we’re wrong, we’re dead.
Page 12
1. Earnings: collapsing.
2. Liquidity: booming.
3. Valuation: favorable.
The “Three Pillars”The “Three Pillars”
Stock Stock MarketMarketStock Stock
MarketMarket
EarningsEarningsEarningsEarnings ValuationValuationValuationValuationInterest Interest
Rate Rate CycleCycle
Interest Interest Rate Rate CycleCycle
Page 13
S&P 500 Price Returns vs. Earnings GrowthQuarterly Data from 1926 through 2004.
Source: Ibbotson Associates, Haver Analytics.
-16.8%
18.5%
14.5%12.9%
11.6%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
Number of Occurrences
7%
29%
35%
18%
12%
Less than -25% Between -25% and zero Between zero and +15% Between +15% and +30% More than +30%
Stocks can rally on declining earnings.
Page 14
Inflation Trends Drive ValuationMonthly data from1/1871 through 6/2006.
Source: Haver Analytics, FMRCo, Dr. Robert Schiller.
13.3
15.816.5
21.0
22.8
18.2
15.2
14.3
8.3
10.7
12.4
14.8
15.8
14.3
11.2
10.310.8
13.2
14.5
17.9
19.3
16.3
13.2
12.3
11.5
8
10
12
14
16
18
20
22
24P
rice
to E
arni
ngs
Rat
io
+1/2 standard deviation
-1/2 standard deviation
Price/Earnings Ratio
current
231
71100
325
375
166 177
124
0
50
100
150
200
250
300
350
400
<-4 -4 - -2 -2 - 0 0 - 2 2 - 4 4 - 6 6 - 10 >10Inflation Rate
# of
Obs
erva
tions
Valuations at worst case scenarios.
Page 15
Trailing P/E Ratio
31.8
29.3
22.9
21.0
20.3
20.2
19.6
19.2
18.5
17.9
17.7
17.2
16.8
16.7
16.6
16.1
15.2
14.5
14.1
13.8
10.3
10.5
8.3
7.7
8.7
9.3
12.0
9.9
8.5
10.6
13.8
9.0
12.3
10.7
7.9
9.0
6.7
8.0
3.4
4.2
-2 3 8 13 18 23 28 33
China
India
Hong Kong
BRIC
Indonesia
EM Far East
Japan
Canada
EM (Emerging Markets)
Australia
USA
EM Latin America
Mexico
MSCI AC World
Brazil
MSCI AC World ex USA
EM EMEA
EM Eastern Europe
AC Europe
Russia
Trailing EPS Growth (YoY)
+28%
+41%
+18%
+33%
+47%
+16%
+7%
+25%
+25%
+38%
+15%
+29%
+16%
+20%
+36%
+23%
+37%
+28%
+25%
+35%
+26%
+9%
+28%
+1%
+5%
-8%
+1%
-1%
-9%
-26%
-23%
-16%
-25%
-16%
-13%
-5%
-17%
+6%
+6%
-17%
-30% 0% 30% 60%
The world is cheap again.
Page 16
The Fed's Balance SheetSource: FMRCo, Haver Analytics, Bianco Research.
Weekly data. $2,254
$858
$737
$893
$671
$480 $477
$791
400
500
600
700
800
900
1,000
1,100
1,200
1,300
1,400
1,500
1,600
1,700
1,800
1,900
2,000
2,100
2,200
2,300
2,400
1/04 7/04 1/05 7/05 1/06 7/06 1/07 7/07 1/08 7/08 1/09
Total Federal Reserve Bank Credit ($Bil)
Federal Reserve Holdings of Gov't Securities ($Bil)
Shock & Awe.
Page 17
Recession Playbook: 1929-32 vs 1973-75 vs Now
Jobless Rate25
7.2
2
4
6
8
10
12
14
16
18
20
22
24
26
-12 0 12 24 36 48 60 72
UR: 1929-1932UR: 1973-1975UR: 2007-2009UR: Mean
Money Supply
-4.3%
-10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
-12 0 12 24 36 48 60 72
Monetary Base: 1929-1932Monetary Base: 1973-1975Monetary Base: 2007-2009Monetary Base: Mean
Recession Playbook: 1929-32 vs 1973-75 vs Now
Jobless Rate25
7.2
2
4
6
8
10
12
14
16
18
20
22
24
26
-12 0 12 24 36 48 60 72
UR: 1929-1932UR: 1973-1975UR: 2007-2009UR: Mean
Money Supply
-4.3%
92.1%
-10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
-12 0 12 24 36 48 60 72
Monetary Base: 1929-1932Monetary Base: 1973-1975Monetary Base: 2007-2009Monetary Base: Mean
Recession Playbook: 1929-32 vs 1973-75 vs Now
Jobless Rate25
9.0
7.2
2
4
6
8
10
12
14
16
18
20
22
24
26
-12 0 12 24 36 48 60 72
UR: 1929-1932UR: 1973-1975UR: 2007-2009UR: Mean
Money Supply
-4.3%
92.1%
-10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
-12 0 12 24 36 48 60 72
Monetary Base: 1929-1932Monetary Base: 1973-1975Monetary Base: 2007-2009Monetary Base: Mean
Page 18
9/11
550
750
950
1150
1350
1550
1750
Jun-00 Jun-01 May-02 May-03 May-04 May-05 May-06 May-07 May-08
Monetary Base (Bil$)
The Battle at ArmageddonWeekly data. Source: Haver Analytics.
200
250
300
350
400
450
500
550
CRB Spot RawIndustrials
The Battle at Armageddon continues. The Forces of Good are gaining!
Page 19
-$400
-$300
-$200
-$100
$0
$100
$200
$300
Nonborrowed Reserves (Bil.$)
Reflation WatchSource: FMRCo, Haver Analytics Weekly data.
250
450
650
850
1050
1250
1450
1650
1850
2050
High Yield Spread
1200
1400
1600
1800
2000
2200
2400
6/03 12/03 6/04 12/04 6/05 12/05 6/06 12/06 6/07 12/07 6/08 12/08
Commercial PaperOutstanding: AllIssuers (SA, Bil.$)
Reflation signals continue to mount.
Page 20
Mutual Fund & Hedge Fund FlowsSource: TrimTabs, ICI, FMRCo.
Monthly Data. Stacking chart of 3 month sums.
750
800
850
900
950
1000
1050
1100
1150
1200
1250
1300
1350
1400
1450
1500
1550
1600
S&P 500 Index
-350,000
-250,000
-150,000
-50,000
50,000
150,000
250,000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Equity Mutual Fund Flows ($mil)
Hedge Fund Flows ($mil)
Some $1 trillion has been redeemed from HFs and MFs.
Page 21
Mutual Fund Flows Monthly Data. Source: ICI, Haver, Factset
750
850
950
1050
1150
1250
1350
1450
1550
1650
SPX
$924.0
-400
-200
0
200
400
600
800
1000
Net flows into money marketfunds (12mo Total, $Bil)
Net Flows: Money marketFunds ($bil)
$3,736
1500
2000
2500
3000
3500
4000
Feb-99 Feb-00 Feb-01 Feb-02 Feb-03 Feb-04 Feb-05 Feb-06 Feb-07 Feb-08 Feb-09
ICI: Assets: Money MarketMutual Funds (Bil.$)
Cash, TDs and MMF assets total $8 trillion!
Page 22
2010-2012:Inflation?
Page 23
What are the moral hazards?
Bigger deficits. Higher interest ratesHigher inflation.Higher taxes.More regulation.
Result: lower potential GDP.
Page 24
$2,522
0
500
1000
1500
2000
2500
3000
U.S. Gov't Bonds held byForeign Central Banks
-6.2% -7%-6%-5%-4%-3%-2%-1%0%1%2%
'67 '69 '71 '73 '75 '77 '79 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09
Current Account Deficit/GDP
Gold as Leading Indicator for Bonds Source: FMRCo, Haver Analytics, Factset. Quarterly data.
2.08
6.08
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
10yr Tsy Yield
Gold-Based "Fair Value" for Bonds
What happens when China stops buying?
Page 25
Stocks vs GoldSource: Haver, Factset, Robert Schiller, Bianco Research.
Since 1962. Monthly Data.
10
100
1000
10000
100000
Indexed S&P 500Indexed Gold
2000
1967
1929
19321980
1871 1881 1891 1901 1911 1921 1931 1941 1951 1961 1971 1981 1991 2001 2011
0
1
10
Trend since 1871
trend + 50%
trend - 50%
SPX vs. Gold
back to 1994 levels
secular turn: 2012-2014?
$2,000 Gold? Bet on it!
Page 26
Crude Oil vs Money SupplyWeekly data since 2001. M3 Retrofitted since 2006Chart concept by Barry Bannister (Stifel Nicolaus)
$38
$145
$10
$30
$50
$70
$90
$110
$130
$150
$7,000 $8,000 $9,000 $10,000 $11,000 $12,000 $13,000 $14,000 $15,000
M3 Money Supply
Cru
de O
il
Oil should be at $110, given where the money supply is.
Page 27
Market Cycles & Secular TrendsSource: FMRCo
Quarterly Data from 1/27 to 12/04.
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
7.0
7.5
S&P 500 Index (log)
12/0812/02
12/98
9/94
12/90
12/879/823/78
12/74
6/70
12/666/62
12/579/53
6/49
9/32
12/46
6/426/38
-100
-90
-80
-70
-60
-50
-40
-30
-20
-10
0
10
'27 '30 '33 '36 '39 '42 '45 '48 '51 '54 '57 '60 '63 '66 '69 '72 '75 '78 '81 '84 '87 '90 '93 '96 '99 '02 '05 '08
Pct Decline From PreviousBull Market Top
Secular trends.
Page 28
2008: Deflationary Death Spiral
2009: Reflationary Bull?
2010-2012: Inflationary Bear?
Page 29
Important Legal Information•Past performance is no guarantee of future results.
•The information presented reflects the opinions of Jurrien Timmer, Director of Market Research, for Fidelity Management & Research Company as of January 7, 2009. 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.
•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.
•The Reuters/Jeffries CRB Commodity index is an unmanaged index of various commodities. The index is made up of 19 commodities as quoted on the NYMEX, CBOT, LME, CME, and COMEX exchanges. These are sorted into 4 groups, each with different weightings. These groups are petroleum based products, which based on their importance to global trade, always make up 33% of the weightings; and 3 further group of liquid assets, highly liquid assets and diverse commodities. .
•The Periodic Table of Investment Returns shows the returns of various asset classes over time, ranked from best to worst. The chart represents data through 6/30/2008. Source: FMRCo. Russell 2000: Russell 2000 Index. Small Growth: Russell 2000 Growth Index. Small Value: Russell 2000 Value Index. Large Growth: Russell 1000 Growth Index. Large Value: Russell 1000 Value Index. S&P 500: Standards & Poor’s 500 Stock Index. Bonds: Lehman Brothers Aggregate Bond Index. Cash: 3month T-Bills (Ibbotson Assoc.). Commodities: Goldman Sachs Commodities Index. Real Estate: NAREIT Equity Index. Convertibles: CSFB Convertible Securities Index. Japan: MCSI (in U.S. Dollars). Europe: MCSI (in U.S. Dollars). EAFE: MCSI (in U.S. Dollars). High Yield: Ibbotson Assoc. Domestic High Yield Index. Gold: Ibbotson Associates.