Is true that many of the experts on this channel so far this year did not predict the markets would be up as strongly as they are right now.
Today’s guest is one of the few who argued for more optimism. What did he see? And what did the bears miss?
To find out, we’re fortunate to speak with economist and investment strategist Ed Yardeni, president of the excellent research firm Yardeni Research.
To follow more of Ed’s work, go to:
https://www.yardeniquicktakes.com/wealthion-special (free month of our premium membership for Wealthion users)
Ed Yardeni 0:00
The baby boomers collectively 75 million baby boomers have a net worth of 70. I think it’s 73 yet $73 trillion $73 trillion. And what do they accumulate this all for wealth when they retired, they expected that I’ll be traveling playing golf, traveling, going out to restaurants.
Adam Taggart 0:24
It’s true that many of the experts appearing on this channel so far this year did not predict the markets would be up so strongly as they are so far this year. Today’s guest is one of the few who argued for more optimism. What did he see? And what have the bears been missing? To find out we’re fortunate to speak with economist and investment strategist, Ed Yardeni, Dr. Ed, president of the excellent research firm, Yardeni Research. Ed, thanks so much for joining us today.
Ed Yardeni 0:52
Adam Taggart 0:54
It’s a real pleasure had been looking forward to having you on the program for a good while, I got a number of questions for you based upon a lot of you and your firm’s recent publications. Very quickly, though, just to kick things off, I’d like to ask you the very general question I like to ask all my guests when they first come on the program. What’s your current assessment of the global economy and financial markets?
Ed Yardeni 1:14
Well, I think it’s actually looking better than it did last summer. Last summer, there was widespread concern about what was going on. In Europe, Europe looked as though it could very well go into a very severe recession during the winter. And it turned out that Europe did go into recession. But as a relatively mild one, there was also expectations that once China eliminated its lock downs last December, that there will be a lot of economic growth led by China. And that’s turned out to be disappointing. The the most positive surprise, I think, for the two, the consensus has been that the US economy has yet to fall into this much feared recession. It’s been the most widely anticipated recession of all times. And maybe as a result, it’s not going to happen, because everybody’s sort of making adjustments that reduce the likelihood of a economy wide recession. But my point is, we really have been in a recession since early last year, it’s just been what I call a rolling recession, hitting different industries at different times.
Adam Taggart 2:17
All right, a rolling recession. So Is there potential here then that we we just sort of hand the baton to different parts of the industries, but the whole economy as a whole doesn’t really drop?
Ed Yardeni 2:28
I think that describes what actually has been happening. I, I believe I coined the term rolling recession back in the mid 1980s, we had a plunge in oil prices, after they saw it in the 70s. And the Texas in Oklahoma and other areas where money had been spent on oil and gas, drilling and building a lot of commercial properties for the oil giants. That all kind of came to a crashing end very quickly as the price of oil took a plunge. And this time around, I think we’re seeing also a rolling recession, like the mid 80s, which did not turn into an economy wide recession. And this time around, we have had a recession in the housing industry. But let’s be very specific here. We’ve had a recession in the single family, housing industry multifamily has been actually very strong. And we will when we look at construction more broadly, we’ve had some really strong numbers coming out of non residential construction and out of public construction. So we know there’s a lot of onshoring going on factories coming back to the US. So there’s a lot of building of factories. And we’re also seeing just really the earliest starts of an infrastructure spending program. I live on the east coast, and the I 95 just was disrupted by a collapse in the north lanes. And we’re gonna have to be
Adam Taggart 3:55
what’s what’s that? I was in Philadelphia, right?
Ed Yardeni 3:57
Yeah, I was in Philadelphia. So there’s a lot of infrastructure that needs to be fixed. In this country. We’ve had a consumer recession, but it’s been in goods, people had gone on a buying binge for goods coming out of the pandemic, then they had more than they wanted, retailers ordered too much. And they got stuck with a lot of inventory. So they had to discount it, which is what happens in a typical goods recession. But meanwhile, the consumer swung around and started spending like mad at services, the cruise lines, for example, those stocks been on fire. So I think when you look at it kind of sector by sector, you can see some areas of weakness offset by areas of strength. And all in all, it’s still adding adding up to an economy that in GDP terms is growing by one to 2%
Adam Taggart 4:46
All right, um, great answer. I want to dig into it more deeply with you just to put a little bookmark to get back to GDP has been growing GDI has been contracting and we’ve had a couple of experts on this program recently, like David Rosenberg. Who’s been sort of looking at that contrast, we’d love to get your opinion on it. But But before we do that, I do want to underscore what you talked about, because you’ve written some very recent observations of this, I think is really important. You’ve kind of coined a term called mama, making America manufacture again. And you’ve got some great stats that you recently put out here, you’re talking about the trillions of incentives that are flowing, you know, into the manufacturing sector. So much so that you say it’s getting hard to find shovel, shovel ready mega sites for new plants. So almost the demand to spend the money is overwhelming, the overwhelming goal, you know, opportunities on the ground, you said that capital spending and real GDP hit a record high of 3 trillion and Q q1 of this year, right. And that’s a big deal. So we’re looking at these resetting a lot of recessionary data. But there is still a lot of fiscal spending coming in.
Ed Yardeni 6:04
Yeah, I think that’s a very, very important part of the story. Because in previous recessions, the Federal Reserve, which caused many of the previous recessions by raising interest rates, would then reverse course and lower interest rates. And it would take a while before fiscal stimulus would come into play. And by the time fiscal authorities lower taxes or increase spending, we were already in the recovery phase, this time around where for the past couple of years, we’ve had legislation being passed that spends hundreds of billions of dollars on infrastructure, and provides incentives for technology companies to bring production back here, particularly for semiconductors. So that has to be taken into consideration as another source of stimulus offsetting whatever weakness we’re seeing in some areas of the economy.
Adam Taggart 6:58
I’m curious, do you think the Federal Reserve is happy to see that amount of fiscal spending coming into the picture right now? Or is it some ways is that sort of at odds with what they’re trying to do the economy with quantitative tightening and higher rates?
Ed Yardeni 7:12
Well, it’s a bit baffling because they have this notion that the Fed that they do monetary policy, they don’t do fiscal policy. Fiscal policy is up to the President and the Congress, and they don’t comment on it. But they certainly have to take it into consideration when they conduct their monetary policy. And right now, they’ve been tapping, slamming on the brakes, however, you want to look at it. But they’ve been really trying to slow the economy down. And meanwhile, the fiscal authorities have been slamming on the accelerator. Generally speaking, that’s not a great way to drive a car. You, you wind up probably in the ditch. But I don’t know that that analogy, that car analogy particularly works in this situation. I think it just, as I said, all adds up to a soft landing for it for the economy.
Adam Taggart 8:01
Alright, soft landing for the economy. Now the Fed is out there trying to tame inflation right now. And obviously, the the fiscal side of the story is not helping. I would imagine that. So what is your inflation outlook here?
Ed Yardeni 8:18
Well, I think inflation is moderating. It’s it certainly looks as though it peaked last summer. I think that one of the reasons that a lot of economists really haven’t understood what’s going on with the economy, is they simply forgot the very simple thing. And that is, the pandemic was a big deal. It was it was something quite different than we’ve ever been exposed to. It’s certainly not nothing that was ever included in any model of the economy. And so you had to really kind of scramble to really understand that the pandemic was a huge deal. It was a huge shock to all of our lives, and there have been a lot of aftershocks. And one of the shocks was inflation. And a lot of that was related to the fact that the government provided what I call helicopter money. Of course, the originator of that expression was Milton Friedman. And that was picked up by Ben Bernanke. And the idea is if you drop helicopter money from helicopters, people will pick it up and they’ll spend it. And that’s basically what we did. During the pandemic, there were three rounds of checks that were dropped, deposited in people’s bank accounts. And the Fed was at that point, the very easing in its stance on monetary policy. And the result was lots of spending on goods. Big big jam up at the ports of LA, a big trouble getting a lot of trouble getting trucks to deliver the merchandise and that created a huge inflation in the good side. And then with a lag we started to see it also in rents and rents also was affected by the pandemic. A lot of landlords couldn’t raise rents you Maybe some couldn’t even collect rents. And so once the moratorium is and landlords were lifted, they scrambled to make up for what they had lost. And so I think a lot of the inflation has been pandemic related. And as we’re moving in time away from that shock, I think we’re likely to see that inflation continues to moderate. I also think we’re going to have a productivity boom, to do with the fact that we have a labor shortage. And that being the case, I think there are a lot of forces in play to bring inflation back down.
Adam Taggart 10:35
Okay, well, let’s, let’s Trundle over to jobs for a moment. So given what I understand from your outlook, particularly the sort of rolling recession, where I don’t think you get the sense that we’re going to have an economic trough, that’s, that’s coincident with a bunch of bunch of layoffs, like we saw in 2008, or even in the tech sector in 2001. So to folks that are worried about the jobs data, worsening, because we’ve been near record, low unemployment for so long, seems like you think maybe we’re going to sort of stick there for a lot longer stick stick near the lows?
Ed Yardeni 11:16
Well, I you know, I’m a big believer in staying close to the data and, and trying to determine what the data is saying and where it’s leading. And in the payroll employment numbers, we’ve had several months of better than expected payroll numbers, a few 100,000 per month, at the labor force has been expanding, as people see more opportunities for getting jobs, there’s a real shortage of labor, we know that job openings are basically running 1.8 job openings for every unemployed person, and they’re still remaining at that kind of level. Construction employments at an all time record high, that doesn’t happen in recessions in recessions, housing activity takes a dive, and so does construction. But as we just discussed, there’s a lot of reasons why construction is remaining strong in multifamily starts in non residential construction and an infrastructure spending by by the by the government, another kind of pet theory of mine, and it’s related to my age, I’m, I’m 73. I’m a baby boomer. And I’m increasingly unique, because I have no plans to retire, all my friends are retiring. And that leaves them with a lot of free time. And a lot of them have accumulated a pretty good amount of wealth between pension payments and social security 401 K, and just what they’ve accumulated in their house and in their own investment portfolios, and the baby boomers collectively, 75 million baby boomers have a net worth of 70. I think it’s 73 to $73 trillion $73 trillion. And what do they accumulate this all for Wells when they retired, they expected that I’ll be traveling playing golf, traveling, going out to restaurants. And when you look at the restaurants, you see they’re full of a lot of people with gray hair. When you look at the airport, you see the thought people with gray hair that are traveling, this all leads to tremendous demand for waiters and waitresses and airline staff. And that’s what we’ve seen a lot of the the job demand and as we said the fiscal stimulus is very big. And we need a lot of construction workers for infrastructure and onshoring.
Adam Taggart 13:36
All right. In you know, look, as long as the as long as the baby boomers are feeling flush, right. And right now we have a lot last year I think was a probably a pretty nerve wracking year for many of them, right seeing their net worth lease of their financial assets go down 20 plus percent. But this year, obviously is up to a much better start. What currently what are we talking about that for just a minute so I I like I said in my introduction, that you were a lot more optimistic about where the markets could go earlier this year. They’ve now had a really big run. They’ve they’ve been largely powered higher by the mega cap aid. And I’ve seen some recent writings of yours saying, you know, the downside to these sort of melt UPS is they do tend to be followed by meltdowns. How are you as sanguine about the prospects for the markets now as you are at the beginning of the year, or if things maybe got a little bit too far ahead of themselves given this run up? Well, it
Ed Yardeni 14:39
was really at the end of October that I look back and I said you know, I think we might have made a low in the s&p 500 on October 12. The NASDAQ didn’t really bottom until late last year, and it’s actually up a lot more than the s&p 500 But my call was based on just see a tremendous amount of pessimism that I saw up there. To be quite honest, I actually thought we bottomed. And June I think was 16, June 16. When we get down to 3666, I’ve had something about these DaVinci numbers in my career. And so maybe that’s maybe that was the low. We did have a nice rally through August 16. Last year, but then I anticipated that. Powell Fed Chair Powell might be a spoiler in short, it, he sure was, and it started talking about, you know, interest rates having to go still a lot higher. And then the market took a dive through October 12. And I think it was a very successful retest of the June, the June low, was about 2%, below the June low, but I figured that, technically speaking, we’ve retested a low pessimism was about it was as thick as it was back in March 2009. And surely, things aren’t anywhere near as bad as they were during the great financial crisis. And then I’ve been in the rolling recession camp, that seems like most other economists and strategists were convinced we were going to go into recession. And their simple observation was, they’ve we’ve had a tremendous increase in interest rates perpetrated by the Fed. And that’s got to lead to recession. And some of them said, when we run out of excess savings built up during the pandemic, will surely fall into recession. And I’ve been saying, you know, we’re in a recession, just just a rolling one. And meanwhile, there’s a lot of reasons to believe that it’s not going to turn into an economy wide recession. And that was really the heart of my fundamental analysis for believing that we weren’t going to have a severe earnings recession, and that earnings would recover.
Adam Taggart 16:49
Alright, so for folks that are pointing to, you know, a lot of these classic recession indicators like inverted yield curves, leading economic indicator data that data sets that are that are down only in at levels you see during recessions, I guess you would say, Yeah, because we’re in a recession. It’s just, it’s just sort of evenly just are not evenly distributed. But it’s I guess, rolling probably is the best term. And, and therefore, we’re just not going to see the the typical kind of widespread pain that we expect to see during a normal recession. So like if the NBR came out and said, Hey, a recession started in November of last year and ended in September of this year, I don’t think you’d be that surprised?
Ed Yardeni 17:35
Well, I wouldn’t be surprised in the sense that my definition of a recession that I share with NBR is really based on the index of coincident economic indicators. One of one of the recession indicators, of course, has been the index of leading economic indicators. It’s been down since December of 2021. And so it’s really been predicting that a recession is due by now. But meanwhile, the index of coincident economic indicators, think through amazing an all time record high. Usually, in a recession, you see a peak in the index of coincident economic indicators, which is monthly data, and then you see it going down. And then at some point, the troughs, and the recession peaks and troughs always have in the past, coincided with that index of coincident economic indicators. So, you know, I don’t know that we really need the dating Committee of the National Bureau of Economic Research to come up with that observation, you can all do this. Nobody can do this at home. But they like to get together and chat about these things. And they pretend that their insights are based on a lot more than just one index, but I kind of questioned that. But look, the leading economic indicators. One of them, of course, is the inverted yield curve. They’ve been pointing out to a traditional severe recession. I’ve often said that, you know, any data that doesn’t support, my outlook is bad, bad data that’s going to be revised. I’m not really making that argument about data. The data is, it’s out there. Now. All I’m saying is that while most economists have said, you know, the leading economic indicators have never been wrong. They’ve gotten eight of the past recessions. Absolutely right. The same thing for the yield curve. I said, well, it doesn’t mean that they they aren’t due to be to be wrong. I mean, they could be wrong once in a long track record of being right, especially when you consider the things that are different this time, like the demographics that I alluded to, with regards to the consumer, having a tremendous amount of retirement wealth, like the fiscal stimulus, which is very unusual to occur before a recession and to stimulate an economy in a way that makes a recession, less less likely.
Adam Taggart 19:57
Alright, and we’ve had a lot of conversation on this channel. have what we refer to as the pig through the Python, right, which was all that stimulus that was pumped into the economy, monetary and fiscal. And, you know, once it starts coming out, it was, you know, starts getting used up, then people were predicting, okay, we’re going to have that really nasty recession. We’ve talked about how the fact that, okay, the monetary stimulus, really those nozzles got turned off. The fiscal stimulus, though, is still still kind of roaring. So we do have that making its way into the real economy with all these construction projects we talked about, you’re kind of adding almost a third source of stimulus now, which is retiring boomers. Right. And you say 73 trillion. I mean, that’s, that’s a big
Ed Yardeni 20:43
pile in dollars. Yeah, that’s, that’s the data compiled by the Federal Reserve, as part of their US financial accounts data. It was a few years ago, they started to create a distribution account framework where they see who’s got who’s got the dough, and they look at baby boomers, Silent Generation Gen X millennium. And, you know, it’s one of the reasons that we have income inequality in America is because older people tend to make more money than younger people, they also tend to have more money stashed away, saved away, invested. And we have a huge generation here of baby boomers that have accumulated a lot of wealth over the years. And you can say, well, it’s only the top 1%, that if accumulated that, well, that’s probably not true. A lot of wealth has been accumulated in pensions. Social Security is is a source of wealth. And then, of course, the housing equity is is big for a lot of people. And you know, when people retire, they no longer have kids, the kids are out of the house, they don’t have that expense, they got more time to travel to go out to eat, they certainly don’t want to cook dinner, and just have to have them sitting at home. So the demographics is a very important factor. So is the fiscal stimulus. So is the onshoring. And so is the underlying resilience of the economy and financial system. The banking system just had a little bit of a stress test, and actually pass it pretty well.
Adam Taggart 22:17
Okay, um, I think it’s a really important element to consider. And I just being honest, I don’t think we’ve talked about it enough on this channel in the past, which is the spending coming from the boomer generation really, as sort of a third stool here, stimulus? Because you mentioned it, I’m curious, what’s your outlook for the housing market? Right, it definitely seems to have peaked. So we seem to be undergoing some sort of correction. I think the question is, is how much we’ve seen? I mean, I could put together a long laundry list, I think of depressive factors on the housing market. But the big one, obviously, is the fact that mortgage rates have more than doubled. Right? Do you expect to see perhaps a bigger correction in the housing market than we see in other parts of the financial markets themselves? So the economy or are you optimistic about its future to?
Ed Yardeni 23:04
Well, I’m relatively optimistic, I don’t see it being a huge booming sector anytime soon, with the mortgage rates, so high, but there have been a lot of unusual developments in the housing market. Again, there’s a lot of aftershocks relate related to the pandemic, when the pandemic hit, we were all locked down. And then as soon as the lockdown was trying to get lifted, people ran out, especially urban folks, and started to look for houses in in suburban and rural areas. And a lot of that supply was taken very quickly, in reaction to that kind of behavior. And then some of these urban folks started moving back to cities because they missed the the urban environment. But a lot of people who have houses decided that even if they could trade down because the kids are gone, they really didn’t want to do that, because they basically locked themselves in to a very low mortgage rate. And so we’ve had a real shortage of housing for houses for sale. And that’s actually benefited the homebuilders. We’ve been able to produce some houses and get get buyers for them without having to really slash their prices. So what’s been unusual about this housing recession is we really haven’t seen a big drop in home prices, because the supply is so slim, relative to the demand. And so I think that the housing market is actually in pretty good balance that this is where we are now when and you can see that by where the prices are. I think that as people get used to the fact that we’re back to a more normal interest rate environment, where mortgage rates, maybe 7% is excessive. Maybe we’ll get back down to five to 6%. I think that’ll be enough to bring back Some buyers, maybe requiring a little bit more of a haircut off the price being asked by the sellers. But all in all, I think that markets, despite this huge increase in mortgage rates, has weathered the storm reasonably well. I mean, housing starts, again, for single families and existing home sales are down for single families. But I think you’d see a lot more single, existing single family home sales, if those if those supply just can’t find it.
Adam Taggart 25:36
Right. So I totally get what you say We, on the other side of that is we have housing being the most unaffordable it’s ever been in US history right now. Right? So, you know, the question becomes, you know, there are always going to be even if sellers are on strike, right, we’re not moving, we’ve got our little mortgages, right, there’s always going to be some organic amount of sales being done for deaths and divorces and all that type of stuff. Right, so that does set price discovery. But that can take a long time. And if we don’t have an earnings recession, like you’re talking about, you know, maybe the economy continues to recover enough where it becomes a little less unaffordable to folks or to your point, if mortgage rates come down, that obviously helps things a bit. So I guess just what I’m, what I’m not hearing you say is, hey, I think housing looks, you know, like, it’s got a pretty grim future ahead of it here. I think you’re saying it’s gonna muddle through, probably at worst.
Ed Yardeni 26:35
I think that’s where we might want to think about the demographic angle, again, to the baby boomers that are retiring. I think that’s 46 million people that are seniors 65 and older, that are not in the labor force, and presumably, many of them are simply retired, it’s in relatively good health. But they may very well be willing to provide the downpayment for a house for their kids. I mean, people sort of make adjustments. And that may be a generational shift. I mean, the baby boomers, main question right now is how much to leave the kids versus how much to splurge on themselves. And some of them might just kind of split the difference and said, you know, the, we love the kids, but they were noisy, we didn’t like their friends. So we don’t believe in everything. Let’s, let’s have a good time. And let’s let’s travel, let’s go to restaurants. Let’s check in with a doctor just to make sure we’re that this little ailment isn’t anything serious. And so they’re spending money. And they could also afford, I think, some of them to provide the downpayment, and maybe a little bit of monthly support to support a mortgage. So I wouldn’t underestimate that demographic phenomenon as a source of surprising resilience even in the housing market.
Adam Taggart 27:57
Yeah, yeah. I wasn’t gonna ask this question, Ed, but you’re really making me want to ask it, so I’m going to do it. So we have the dynamic here of a large generational cohort that has amassed a lot of wealth, right. And the problem is that wealth isn’t evenly distributed. Right? So what’s the stat it’s something like 10% of households own 90% of the financial wealth, something like that. And it’s quite lopsided like that, right. So the policies of the Federal Reserve have been very rewarding to people who have had assets over the past 12 years or so. Right? It’s created this big wealth gap in the country. And we now have, you know, the 75 million baby boomers that you mentioned, that 73 trillion isn’t evenly distributed, right? A lot of it is in in a relatively few households, right. And they’re going to power the spending that you’re talking about.
Ed Yardeni 29:04
Yeah, I’m going to do I’ve got the data, I’ve been looking at the charts, I just need to write up the story. But when you actually look at the distribution of assets held by the baby boomers, there’s pension benefits, which isn’t just rich people. You know, there, there’s houses, which isn’t just rich people. And so it’s it’s a little bit more nuanced than just saying that, you know, there’s a minority that has all the wealth, and how many kids do they possibly have? And how much can they actually leave the kids? I think we’re looking at a much, much more wealth more, I wouldn’t say evenly distributed but enough to, you know, create the question for retiring baby boomers, about how much to spend on themselves and how much to leave to the kids.
Adam Taggart 30:01
Okay, so you’re saying it’s not quite as lopsided as I was making it sound Oh,
Ed Yardeni 30:05
and, you know, we’re in their wealth distribution arguments, people always seem to ignore Social Security. But Social Security, when you take the present discounted value that it’s, it’s, it’s well, when you look at some of these municipal workers that get to retire at the age of 50, and get retirement benefits for the rest of their lives, they’re basically millionaires. Hopefully, I don’t get any bad feedback on all this. But the idea is, you need a million dollars to generate that kind of income over the rest of your life. So the whole income distribution argument is a very complex one, I’ve done a lot of work on it, I wrote a book called in praise of profits. And basically looking at the wealth statistics, and the the traditional argument that we have a tremendous amount of wealth inequality. It’s, it’s, it’s somewhat exaggerated, it’s not wrong. It’s definitely true, we can definitely see it and, and sense it. But there’s a there’s a lot of $73 trillion, there’s a tremendous amount of wealth. And it’s not all just a few families.
Adam Taggart 31:21
Okay, I appreciate the nuance. And this is, I’m enjoying this discussion, I’m going to finish the question just to get it out there. And you can you can shoot it down. But I’m glad you brought up pensions, too, because I’ve mentioned that actually a lot on this channel, that if you’ve got a pension, it is like having millions of dollars in the bank. And of course, we know that pensions are largely an artifact of the boomer generation. Now, they’re they’re not as easy to get. So kind of where I was going with all this is if we have a, a, you know, relative minority of the boomer households that have a lot of financial wealth, and they’re potentially helping their kids out, you know, with that. And then we have the other cohorts that have pensions or whatnot, right? The younger generations are sort of looking at that and saying, Hey, unless I’ve got rich boomer parents, I there seems to be a real disadvantage here. And it seems that policy has really been favoring one part of the the populace and not the other. I’m just curious if you have thoughts about that.
Ed Yardeni 32:20
Well, I think policy is has been disadvantaging younger folks. While the baby boomers may have $73 trillion, to pass on some portion of that as a legacy. Let’s not forget that the baby boomers and we know that all of our political leaders in Washington are baby boomers. What have they been doing the deficit side, the federal deficit? Depends on how you measure it that some origin 20 $30 trillion, it’s, it’s huge. And this is sort of the bequest we’re leaving, to the younger generation. People often ask me, why hasn’t the deficit already created all sorts of problems? Why hasn’t all this debt already created some sort of problems? And I tell you, in a sense, it’s the baby boomer generation has basically taken money from their kids or they passed on debt to their kids, and future generations, I think they’re going to be more constrained in their ability to, for the government to issue debt in order to finance social welfare programs, infrastructure, and so on. So I don’t disagree with you. I think that’s, that’s been the case, I think. We’ve disadvantaged younger people with the student loans. When I went to college, I remember I don’t remember college being expensive. I know, it was like just a couple of 1000 bucks. And maybe on a current basis, that’s a lot more, but it just didn’t, it wasn’t a lot of money back then. And there was financial aid for those who couldn’t afford afford that. But now what we’re doing is we’ve seen these colleges dramatically increasing tuition, to you know, a quarter of a million half a million dollars for an education and then these poor students have to borrow all this money in order to do this, and the colleges are building stadiums, and they’re building more buildings and hiring and more administrators. So I think that’s, that’s not fair that you know, I, I got, I got a really good deal on an education. And I’ve got five kids and the first three, I don’t recall being feeling like it was a particular burden to have to pay for their education. The last two was the killer. So it’s like I’m, I’m all too aware of just how ridiculously expensive college education is. And that’s a major source of income inequality between generations as Is the deficit. And so I think, you know, the the baby boomers do have have some responsibility and blame here in the inequality. And as I said, the politicians are all baby boomers.
Adam Taggart 35:14
Ed boy, I’d love to spend another hour kind of peeling this back with you because I agree with everything you’re saying. And there’s, there’s, there’s so many other questions related to this, I’d like to ask you. And I just want to make a point here, too, that the college education element is a big factor in the explosion of costs there has happened after the government really pushed out the other lenders and gotten all the financing of college loan debt. Right. So it’s sort of policy related. But, but maybe we can have you back on to really explore this topic. Let me let me just sort of end this part of the conversation by asking you if, on this sense of sort of, you know, we’ve we’ve pulled a bunch of prosperity from the future to enjoy in the baby boomer generation, and we’re leaving the younger generations kind of with a bill, right? This simple way to look at it. If we made you Emperor tomorrow, and is there any particular reform that you would be challenging to try to address this?
Ed Yardeni 36:17
Well, yeah, I think, you know, we need more competition in a lot of industries, we need more competition in the healthcare industry, when you’re more competition in the education industries, you know, some of these industries have become oligopolies. And, you know, trying to figure out, you know, I got my own little company, and health insurance just keeps going up double digits every single year. And, you know, my employees share some of that, but it’s my responsibility to carry most of it. And, you know, there’s, there’s, I’ve tried reading these plans, understanding, and then when I actually need them and, and go to see what what I’m getting charged. It’s like, I haven’t a clue what they’re charging or why they’re charging. And, you know, the whole the deductibles, it’s, it’s a real, it’s really not a good good system whatsoever. And so I think we need to figure out ways to bring more competition there. And as we just discussed, there’s, there’s way too much cost embedded in the colleges, which then they pass on to the students. And that just burdens them dramatically.
Adam Taggart 37:37
Okay, we’ve talked a lot in this channel in the past about sort of the corporatocracy sort of these corporate cartels that have emerged in most sectors now. So just for the record, I’m, I vote for you as emperor, let’s put it that way.
Ed Yardeni 37:52
I think it’s a corporatism. It’s, you know, it’s when the government and big business get together and basically conspire. The businesses write the regulations. And the government says, yeah, that’s okay. As long as I can be a lobbyist, once I am no longer a politician. I mean, there’s a lot of corruption in our political system. But you know, what, that’s kind of human nature. I mean, there’s no country that doesn’t have corruption. But I think we need to blow the whistle on these things and recognize when it’s affecting the prosperity and standard of living, I mean, you know, you can see prosperity going up in countries with corruption. The problem is that the prosperity could be a lot greater and a lot more equal, equally distributed. If if there was better control of corruption that can kind of, you know, Inspector Generals and prosecutors focusing on some of the excesses that go on with corporatism.
Adam Taggart 38:48
I couldn’t agree more. Well, and you know, talking about Emperor ship, but there’s a presidential election next year, if you want to, you know, get yourself on a ticket, I’ll book for you. Alright, so I want to be very respectful of your time. It’s been a great discussion, before I wrap it up and ask where folks can go to learn more about you and your work. If we could just end sort of on your market outlook in general. So as you look ahead for the rest of this year, what do you see not looking for price targets, but do you see a continuation of the rise that we’ve seen this year? And in particular, as most people who watch this channel are just regular investors, we’re trying to figure out what the heck’s going in position? Are there any sort of allocation strategies that you think will perform well, given what’s ahead?
Ed Yardeni 39:35
Well, I think first and foremost, my my view, I share a view with Warren Buffett and with Jeremy Siegel, that stocks are really meant for long term investors trying to pick the top and a correction or even in a bear market is great if you can do it. But then you also have to remember to pick the bottom because if you miss the bottom, you just wind up spinning your wheels and missing out on dividends for a period of time, and paying commissions, and so on and so forth. I think you really have to view sell offs as opportunities to buy more stock not to, you know, suddenly bail out in a panic fashion, I don’t think we’re going to have the Great Depression. Again, I don’t think we’re even going to have the great financial crisis again. And we just had a bear market that didn’t really last that long. The s&p was down 25%. But it’s already made quite a bit of that back. So I think stocks should be in in portfolios, especially for younger people. You may not have the money, but you allocate some money to stocks. And keep in mind that the biggest return from stocks can actually be dividends, just compounding dividends. And I think you have to have the same attitude towards bonds. You know, I think current bond yields with current, the yields look pretty attractive to me, especially since I think inflation is on its way to coming down still still further. But I do have a target for the s&p 500. I think right now it’s around 4300. I think it’s gonna go to 4600 before the end of the year, or by the end of the week, things are going great, right? Yeah, it’s a little faster than I anticipated. And I’ve been almost pleading with the market, please don’t go up. So fast. Melt ups do sometimes lead to melt downs. But you know, the melt ups have been led by the mega cap, eight stocks. And these are top quality companies with profits with a cash flow with great technologies. So I don’t you know, I think we had a great opportunity back in January to buy the mega cap eight, I don’t think we’re gonna get that opportunity again next year. I think the market could be get to 5200 by the end of next year. So I remain fundamentally bullish on stocks. And I think the markets broadening out, you know, narrowed there with a banking crisis, people bail out of the banks and ran into the mega cap eight. I think the financials are making a comeback. I think the energy companies make a comeback. And I really like industrials, I think we’ve recently seen the industrials, materials and materials have made a comeback, because people are starting to realize there’s a tremendous amount of money that’s going into why infrastructure and into onshoring.
Adam Taggart 42:31
Yeah, and you gave us some of the numbers earlier here. All right. So thank you. That’s the very specific and very, very actionable, which is exactly what we’re looking for here. All right. Well, look, this has been fantastic. But I did find one other question I wanted to ask you, I’m kind of shoehorning it in here at the end. It doesn’t fit kind of the flow we’ve been in, but I have been a longtime follower of your research and your charts, you do a very good job of tracking the activity by the central banks. And I’m just curious, I feel like I can’t leave you without asking you this question. We’ve just seen an explosion in the balance sheet of central bank balance sheets, right over the past decade plus, right? Do you expect that to moderate in any material way as the economy? You know, global economy recovers here and the pandemic fades into history? Or is this really just an inexorable march towards purchasing power destruction? Well,
Ed Yardeni 43:36
I certainly hope that the central bankers get off this obsession with things like quantitative easing, namely increasing the size of their balance sheet. In an emergency situation, it’s fine for six months or so but don’t keep going on and on. And on. Qe one, the first round of quantitative easing after the great financial crisis made sense, the liquidity that was provided when the pandemic first hit with a lock downs, that that made sense of the liquidity provided to contain the banking crisis made sense. But that’s all has to do with the central bank’s primary function is should be financial stability, forget about this dual mandate of inflation and unemployment that should first and foremost be financial stability. And so they have the tools for financial stability, but they can also abuse those tools and create financial instability. So I am concerned that you know, they’ve, they’ve got too much power and there’s too many macro economists, like myself running these institutions that just based on what they do on their theoretical models, and don’t seem to have any relationship with real human beings and our needs, wants and desires but I hope that the experience of the past decade or so convinces central bankers, that you don’t want to go there. Again, you don’t want to go to zero interest rates. You don’t want to go to quantitative easing, you want to stay as normal as possible. And I think we’re kind of moving in that direction, certainly in the United States. And then we didn’t even talk about this. I think we’re in the early stages of the roaring 2020s, where technological innovations like artificial intelligence, and other technologies are all going to combine to increase the productivity of workers, increasing prosperity, and being quite bullish for the market.
Adam Taggart 45:41
Gosh, you’re opening a door here. I’d love to walk into you right now. But we’re near the end of the conversation. So next time you come back on the program that will focus on the roaring 2020s. Really interesting fact bomb you just dropped there. All right, well, look, happy to leave it there. Sadly, for folks that have really enjoyed this discussion. Maybe this is the first time they’ve been exposed to you and your work, and where can they go to follow you in your work there. Your identity research
Ed Yardeni 46:04
we had about a year ago, we created a research product for individual investors. It’s www.dr. Danny, so my last name ye AR D and I followed by quick takes. So your Denny quick takes that calm? And it’s exactly what it says it is. It’s quick takes is basically, you know, what economic indicators came out today, and how do they affect the markets? Why did they affect the markets this way? And what might be the next market? market mover?
Adam Taggart 46:37
All right. And I know your firm’s also got a Twitter account, correct?
Ed Yardeni 46:42
Yes, correct. Okay.
Adam Taggart 46:44
All right. When we edit this, I’ll put up the links to Yardeni quick takes and your Twitter account on the screen there so folks know where to go. Also put in your LinkedIn in the description of the video below, folks, as well. And this was a great conversation, you gave a lot of great actionable investing ideas there for folks, folks, if you have a good financial advisor, who is considering all the macro issues that Edie and I talked about here, helping build a personalized portfolio plan for you and then executing that plan for you. Fantastic, you should stick with them guys like that are rare. If you don’t have one, or if you’d like a second opinion from one who does consider talking with one of the financial advisors endorsed by Wealthion. To do that, just go to wealthion.com Fill out the short form, there only takes a couple of seconds. These consultations are totally free, they don’t cost you anything. They have no commitment to work with these advisors. They’re just offering these consultations and their counsel as a free public service to help as many people as possible position themselves to protect themselves against what might be coming in the markets or to profit from maybe coming and give us a lot of you know potential reasons, we may like to have some good opportunities to profit ahead here. And if you enjoyed having it on this program, we’d like to see him come back on the channel. Please cast a vote in favor of that by hitting the like button, then clicking on the red subscribe button below, as well as that little bell icon right next to it. Edie? It was a real pleasure to have you here on the show today. I really enjoyed this conversation. Pleasure. That’s all right, everyone else. Thanks so much for watching.
Transcribed by https://otter.ai