The Fed Is About to Unleash a Market Frenzy | Ed Yardeni
Summary
Market Outlook: Dr. Ed Yardeni predicts a potential melt-up in the stock market and gold due to the Federal Reserve's interest rate policies, which could lead to financial instability.
Labor Market Dynamics: The labor market is described as "funky" with declining labor supply and demand, influenced by factors like AI adoption and immigration policies.
Consumer Spending: Despite concerns about consumer credit, spending remains strong, particularly driven by retiring baby boomers with significant net worth.
Credit Market Insights: Yardeni highlights the resilience of the credit markets, supported by private equity and distressed asset funds, reducing the risk of a widespread credit crunch.
Inflation and Tariffs: Tariffs are impacting inflation, keeping it above the Fed's target, while the Fed's focus on lowering interest rates might not address underlying labor market issues.
Stock Market Predictions: Yardeni forecasts a 19% gain for the S&P 500 this year, driven by resilient economic growth and strong earnings, particularly from the "Magnificent Seven" tech companies.
Gold and Geopolitical Factors: Gold is seen as a hedge against geopolitical risks and central bank actions, with a potential price target of $10,000 per ounce by the end of the decade.
Investment Perspective: Yardeni emphasizes the importance of understanding macroeconomic trends and maintaining a positive outlook on the economy's resilience and growth potential.
Transcript
So all lowering interest rates is gonna do is give us more of a melt up in the, financial markets. We have a melt up in gold for sure, and I think we're sort of on the edge of a melt up in the stock market, which then creates financial instability. Hi, I'm Ed D'Agostino and today I'm speaking with one of the most accurate stock market predictors on Wall Street. Dr. Ed Yardeni's track record this decade has been among the best. Today he gives us his market call for the rest of the decade, plus a price target for gold. Welcome to Global Macro Update. Dr. Ed, it's always good to see you. Really appreciate your time. The labor market, kind of what I wanna talk with you about, seems to be what's mostly driving interest rates and, and fed policy these days. But then it dawned on me. Right. I'm, I'm going to speak with an economist about the labor market and you don't have much data to work with. So, so how, how has that been, being an economist and not having any official data? There's an official data, but, uh, there's, there's some data. There's, uh, for example, the, uh, uh, yearly percent change in, uh, the Red Book retail sales Index. Uh, so that's available every week and that still shows that, uh, consumers are doing what they do best, which is consume, or at least, uh, on the retail side. I don't really have anything on services other than I travel a lot, and the airports are absolutely bobbed. So, uh. PE people are definitely traveling. And when you travel, you, you eat at the airport, you or wherever you're going. You're either on business or on vacation, I guess. Uh, and, uh, that entails, uh, uh, eating at, uh, restaurants, uh, going out, staying at hotels. So that's just totally a anecdotal, but, uh, yeah, it's uh. It, it's a, it's kinda like winging it here, uh, trying to figure out what's going on. But it's, it's difficult. I mean, we just don't, uh, I really like the weekly initial unemployment claims data. We, we don't have that. Um, there, uh, the consumer credit data did come out from the Fed. The federal reserve's still open for business, and, uh, the revolving credit, uh, looked, uh, disconcerting because on a year over year basis. Uh, revolving credit, uh, has stopped growing and, uh, usually when the consumers are spending, they're using their credit cards. Uh, but I'm, I'm of the opinion that, uh, the, the consumers sector is being held up by retiring baby boomers. Uh, there's, uh, about 70 million, uh, baby boomers, uh, I would guess, uh, you know, may maybe something like 30, 35 million households of baby boomers. And, uh, these folks are retiring. And they, uh, are the richest retiring generation ever. They're retiring with $80 trillion of net worth and, uh, they're gonna spend it and, um, they are spending it. And I think that accounts for the ongoing strength of the consumer in the face of what looks like, uh, not much, uh, job growth. And, uh, it suggests to me that, uh, uh, we will continue to see the, uh, con consumer. Uh, surprisingly strong, uh, which would, uh, obviously be, uh, quite a contrary. Perspective on what's going on in the economy. You wrote recently that you think the labor market is in a bit of a funk, but you, you, you had an interesting explanation. Can you, can you explain what you mean by a funk? Well, I think, uh, fed chair, Jerome Powell, um, has, uh, expressed, uh, some opinions on this and didn't use the word funk, but, uh, did say it, you know, it's, uh, it's unusual to see what's going on in the labor market. He pointed out that the supply of labor is declining and so is the demand for labor. And so the unemployment rate is at 4.3%, uh, which is basically full employment, but we're at full employment, uh, with this funky development, that unusual development where, uh, the, instead of growing, we've got the parallel employment, uh, basically, uh, flat, at least that was the last data we saw. And, uh, some indications that it, uh, might actually be turning a bit negative. Uh, hirings, uh, have slowed down there. There's people who are saying it's the no. Hire no fire economy. Actually, the last data we have was August was, uh, showed 5.1 million people were hired. So it's not like nothing's going on and, and nobody's getting hired. Quite the opposite. Uh, but the separations, which includes, uh, both quits and layoffs, guess what? That was 5.1 million. So, uh, basically I guess you could argue that, uh, whoever quit or whoever was fired, uh, was. Basically replaced, uh, on a one-to-one basis, but we usually are see hirings, exceed separations. And, uh, that's what's, uh, kind of funky about this labor market. But I think on the supply side, uh, clearly the, uh, uh, freezing of, uh, illegal immigration from the southern border has had an impact on, uh, increasing labor. And at the same time, deportations have led to, uh, a reduction in labor. And anyone who. I had a tendency to hire undocumented workers, uh, probably decided that's not such a good idea anymore. 'cause any day ice could come in and your labor force could be gone. Uh, so, uh, that's what's going on on the su supply side. On the demand side, it may very well be that, uh, AI isn't having, uh, that a AI may actually be having a, an immediate impact on employing, uh, young people, the young, new entrants. I think a lot of companies are spending some money on AI trying to figure out how to use it. Uh, and I think they are gonna find uses for it and conclude that, uh, a lot of the entry level, uh, jobs that they had, maybe they don't really need to hire in in that, that end. Uh, you know, to, to work with ai, you actually have to have some experience because AI is artificial, but it's not intelligent, and you really have to know what you're doing when you're using it and you have to proofread it. You have to read what, what it. What comes out just to make sure that it, it didn't hallucinate and get something wrong. But it is very useful and, uh, getting a lot of information together, very rapidly, giving you a summary and, um, you know, that, uh, that that's starting to affect the, uh, availability of, uh, work for, uh, teenagers as well as for, uh, people coming outta colleges. Uh, again, the data that we have through, uh, August showed that the unemployment rate. Uh, for teenagers and for, uh, 20 to 25 year olds has increased rather sharply. Uh, so, and anecdotally we know it's, it's hard for young people to, to, to find jobs. Um, so we've got this very funky labor market, which has led to, uh, uh, a lot of concerns about consumer spending. Uh, and I, I, I've, uh, pointed out that, uh, we have to look at the demographics of the baby boomers is to explain why the consumers. Are still spending now, right now as we're speaking, uh, the market, uh, got a little funky about Consum consumer, uh, debt. Um, there, there been, uh, an issue with, uh, uh, debt in the, uh, subprime auto market. Um, a couple of the regional banks have raised, uh, some concerns about, uh, loans. Uh, they, they've been making. I don't think this is going to, uh, lead to a real big problem in, in the credit markets, uh, or in the, uh, e economy. But, um, it's, uh, it, it is something that, uh, everybody's focusing on. But I, again, I think that, uh, it's undoubtedly, uh. Uh, lower income, uh, workers, uh, are, are struggling. Um, but on the other hand, uh, higher income workers, which tend to be retiring baby boomers. Um, now I think the savings rate's actually gonna go negative. 'cause baby boomers, uh, when they retire, they don't get a paycheck anymore. And meanwhile they keep spending, uh, and a lot of them, uh, are getting a, a, a real, uh, tailwind with the stock market 'cause they do own stock. And so they, they're spending money and then they look at their net worth and it's actually gone up during the month. You mentioned consumer credit. Something I wanted to circle back on with you. Have you looked at the whole buy now pay later aspect of consumer credit? My understanding is that it's not really followed by credit rating agencies, so uh, is it hidden? Yeah. I don't think it's, yeah, it's a fair, it's a fairly new development, right? About a year, two years, that, that it's really kind of caught on. And, uh, yeah, it's got all the, uh, uh, all, all the earmarks of, uh, of, of a troublemaking scenario. Um, and that may be contributing to some of the, uh, uh, stress that we're seeing in, uh, in, in lower income consumers that, uh, decided that they wanted to buy and hoped they could pay later. So I also wanted to circle back on your comment about entry level jobs. Um, the last data that I saw indicated that. Youth unemployment. So 16 to 24 year olds was between two and two and a half times higher than the, the rest of the economy's unemployment rate is, is that normal? It's normal for teenagers to have a higher unemployment rate than, than any other, uh, age group. It's, uh, normal for kids coming outta college to have a somewhat higher. Uh, and then it's quite normal for o uh, o older age groups to have a very low unemployment rate. Uh, they, they tend to, uh, be the last ones to, uh, be laid off. So, uh, there's really nothing that abnormal, uh, going on in the labor market. Uh, when we look at things, it's just, some people look at those charts and say, uh, oh, you know, the next thing is gonna happen is we're gonna go straight up in the unemployment rate. But that only happened in the past. When a credit, uh, crisis hit shut off credit to everybody and then, uh, caused a recession. So, uh, I think, uh, what the market, uh, may start to worry about is that, uh, any signs of trouble in the credit markets today, uh, could, uh, lead to, uh, an economy wide credit crunch, uh, which then would cause a recession. My, my counter, that is that, uh, things have changed dramatically. In the capital markets. It used to be that, uh, when we had a financial crisis in, uh, a, a bank or a few banks or savings of loans, it, uh, it did very quickly become a credit crunch and a recession because when they, when, when financial institutions, uh, lose money, uh, they have to take, uh, the charge offs and that depletes their capital and it, and then that might actually force 'em to significantly cut down lending. That's, that then becomes the general credit crunch and then a recession. What, what's changed in the, in the, uh, credit markets is that, uh, or the capital markets, which is both the banks and, uh, the, uh, uh, the, the equity market and the, and, and the bond markets is that, uh, we have, uh, private equity now. And if something blows up in the private equity realm, um, it's really just a haircut and somebody's rate to return. It's not a situation where they've gotta stop lending. I mean, if somebody has a private e uh, equity or private debt fund, uh, that's what they do. And if, if their investors continue to give them money, they will continue to invest in, uh, private equity and private debt, which tend to be, uh, you know, we use the word funky, but I think it applies as well to, to that kind debt. Um, but it doesn't shut down. Uh, it doesn't cause a credit crunch. Um, and so I think there are a lot of, um, shock absorbers now. Uh, in the credit markets, uh, look at what happened with commercial real estate. All the hand wringing about how that was all gonna lead to calamity for the economy. 'cause we're kind of seen that before, back in the early nineties. But, uh, what's different this time around is we have, uh, lots of distressed asset funds. Uh, those, those people, some of 'em are my clients. And when I see them and I walk in and I got a big smile on my face, Hey, the stock market's making a new high, they said. You know, you forgot. We do distressed assets. We want things to go badly. They wanna buy stuff at 25 cents on the dollar. And, uh, you know, a lot of this stuff gets cleared off the market very quickly because of the distressed asset funds. Uh, we got Vulture capital funds, uh, we've got, uh, venture funds. So there's a, a, a lot, lot of money in the, uh, uh, private equity and private debt, uh, credit markets. And guess what? So you, you lose some, you win some, you lose some, uh, more often than not, uh, you win a lot, but, uh, occasionally you do lose quite a bit. Dr. Ed, does that mean there's too much money in the system because you, you, the feds saying that they're probably going to whine. Quantitative tightening down. Um, so their, so, so, so their balance sheet is gonna end up being incredibly high compared to historic average. Uh, and you're saying that there's just so much money out there? No, the Fed is, so yesterday, I mean, you know, everything's been changing in the economy and the feds still operating as though what's, uh, fairly predictable business cycle. Uh, in other words, they think that, uh, when they raise interest rates. That slows the economy down and brings inflation down. Well, they, they did that. They raised interest rates. The economy didn't really slow down. They did, inflation did come down, but it probably would've come down on its own. 'cause a lot of that was pandemic related, supply side disruptions and all that. And now they actually think that, uh, you know, the federal funds rate, the interest rate they control is still too high relative to, uh, some fictitious, mythical, uh. Uh, magic, uh, neutral interest rate. They think it's 3% is the fed funds rate and we're at 4%. So they think they still need to lower rates by a hundred basis points, but they don't wanna do it too quickly because inflation is still 3%, not 2%. Uh, because of the tariffs. I know the administration's saying, Hey, uh, tariffs had no impact whatsoever on inflation. That's nonsense. Durable goods inflation's up from, uh, zero, from, uh, down 4.2% year over year, a year ago. To up 1.5% year over year now. So durable goods inflation has gone up. And so what Trump's tariffs have done is they've kept inflation from coming down. We'd probably be down at 2% now, but the, the Fed thinks that, uh, this is just a transitory thing. We'll get down to 2%, uh, within the next couple of years. And meanwhile, they're concerned about what they see in the labor market. And my counter is, well wait a second. You really think that lowering interest rates is gonna do anything? And last data we had showed that. Uh, second and third quarter, real GDPs were increasing by over three point a half percent. So what are they trying to do? Stimulate even more demand. Uh, are they really gonna get, uh, more people coming into the labor force, uh, by creating more demand than, than, than we have right now? I, I kind of doubt it. I mean, again, these are structural changes in the labor market that lower interest rates aren't gonna do much about. So if they, and meanwhile, consumers are spending, especially the baby boomers, capital spending is strong, a lot of it. Technology stuff is being financed with, uh, cashflow. So all lowering interest rates is gonna do is give us more of a melt up in the, uh, financial markets. We have a melt up, uh, in gold for sure. And I think we have, we're sort of, uh, on, on the edge of a melt up. In the stock market, which, which then creates financial instability. I'm not on the list of people who are being considered to be Fed chair. I'm kind of annoyed about that because for many years I've offered to do the, to do what the Fed does for half the price. I'll give 'em a 50% discount. I'll do it from home. I, I don't need a big staff. Uh, you don't need a, a billion dollar renovation in your office. I don't need a renovation every, you know, we're, we're still gonna need people to do regulation of banking and all these boring things that I really don't want to get involved in. Uh, but, but I'll, you know, let's, let's, uh, let's have a spinoff of the, uh, of, of the FOMC and, and just make me the chair and I won't need anybody else. Uh, it, it can be done by one person if they know what they're doing, but. Let's not, let's not go there any further, uh, into, into, into my fantasy of, uh, of how things should be. Uh, but uh, again, I, I think that, uh, the, the Fed, um, I, if I was doing it, I, I'd leave the Fed funds rate right here. Um, we've got the inflation rates still at 3%, not 2%. And the Fed says, well, it's, it's transitory. We, we know about. The, the, their track record in at calling transitory versus persistent inflation. Uh, and then the other thing they say is, well, yeah, but the labor market, uh, is weak. And yet the last unemployment rate we had was 4.3%. And, uh, their own survey, their own forecast of, uh, their collective judgments of what the full employment rate is, is 4%. So, you know, we're a hundred basis, we're, we're, you know, a hundred basis points above their targeted inflation rate. And, uh, maybe 0.3 percentage points above their long-term, uh, ideal unemployment rate. And they're getting all, uh, uh, all concerned about lowering interest rates. Uh, you know, we'll see. I mean, uh, when they, when they did it last year and lowered the Fed funds rate by a hundred basis points, I, I, I said that'd be a mistake that, uh, the bond, uh, market wouldn't like it. I coined the phrase bond vigilantes. I warned them that my friends of the bond vigilantes might act up. And sure enough. They lowered rates by fed by a hundred basis points in the Fed funds rate market. And the bond yield went up a hundred basis points. So completely offsetting their, uh, their, their easing move. And I think they're running the risk of seeing the same thing happen. Now. You know, we, we are gonna get a CPI number, I guess it's October 24th. Um, I guess, uh, some government workers are giving us a freebie. They're not getting paid, but they're still coming in to calculate the CPI. I don't know what happened to the PPI, I thought the PPI was also gonna be. Uh, uh, released by them, but it's CPI is is for sure on October 24th. The FMC meets at, at the end of, uh, October. And it'll be interesting to see how the, the CPI plays out. I wanna move on to your comment about a melt up. 'cause you've, you've made some pretty bold calls coming up, uh, for, for both gold and the stock market, and you've been incredibly right. Uh, for, for years now. But, but before we get there, I just, I can't ask, I can't resist asking you about tariffs. As an economist, what are, what do you see as the pros and cons of the tariff policy right now? Great way to raise additional revenue. I mean, uh, you know, 10, 15% seems to be the base tariff that the administration has, has, uh, has implemented. And then, uh, around that there's this higher tariff rates. Uh, and then of course for steel, aluminum, uh, I think copper, some other, some other specific items, there's higher tariffs. And that's, uh, that's bringing in at an annual rate. Uh, it's bringing in about 350 to $400 billion, uh, in, uh, duties in, in revenues. And so if we're talking about, uh, a deficit of 1.5 trillion. Uh, you know, that's a significant, uh, decrease in, in the deficit. And I think it's one of the reasons that the bond market, the bond yield has actually been coming down. 'cause, uh, even the bond market recognizes this is a, an important development in terms of, uh, bringing in, uh, revenues. The problem is the Supreme Court, uh, may very well rule that the, that the, all this tariff, uh, nonsense, uh, might turn out to be, uh, illegal, uh, cons, unconstitutional. Uh, they might give the administration six months to, uh, figure out what to do instead. Maybe get, try to get legislation from Congress. Uh, but it, uh, could throw a lot of things up in the air with, uh, with, with this, uh, issue. Um, it's, it's basically a tax. So not, you know, I'm not a big fan. Of taxes as a kind of a market oriented economist who likes to see smaller rather than bigger government. Uh, but then again, I, you know, I deal with the facts. And the facts are that politically we just don't have the stomach to, uh, meaningfully cut back on outlays. Uh, and so if we can't do that, we, we should try to do the best we can to, to, to find, uh, revenues. And, uh, so far the evidence is that tariffs, uh, do have an impact. On inflation instead of get down to 2%, which was, I think where we would've been, we're kind of stuck at 3%. So, uh, and that's because this, the durable goods inflation rate has gone up, as I mentioned before. And in addition, the services inflation rate, which is not affected by tariffs, has kind of stalled out around 4%. And that's even with rent inflation coming down. So the, uh, the Fed being pretty, uh, irresponsible I think in basically declaring victory. Getting to 2%. It'll be, you know, 3% is transitory. We'll get there in a year or two. Uh, and kind of focusing on, uh, the, uh, the labor market issues, which are very complex and may not, uh, be something they can, that, that they may not, cannot be solved with. Uh. Uh, easier monetary policy. All that'll do is create financial instability. Well, let's move on to the stock market. I think that's what probably a lot of viewers are, are interested in hearing your take on, if I did my math correctly, you are predicting a 19% gain for this year, because I think you said that 7,000. Yeah. 7,000 for this for s and p 500? Yeah. It'll be the third, uh, double digit, uh, year in a row. Wow. How sustainable is that? I think it's sustainable because, um, I've been thinking that the economy is more resilient, uh, than, uh, just about anybody else. Uh, for the past three years I've been saying that, uh, we have the most, uh, we are experiencing the most widely anticipated recession of all times that isn't happening. Uh, and, um, you know, a lot of people are still worrying about a recession. I said, have, haven't you like learned anything from the past three years? Maybe there's. You have to understand why the economy has been so resilient. Look, we had the pandemic. The pandemic, uh, immediately led to a a a two month lockdown, uh, which, uh, caused a two month recession. Just two months, uh, official recession. Uh, then the lockdowns were ended and the economy started to lift, even though there were still social distancing, uh, requirements that, uh, should have kept the economy pretty weak. But, uh, people went out and bought goods like mad. And so we had a really pretty remarkable recovery coming out of the lockdowns. Uh, and then what? Well, then we had supply chain disruptions, uh, which, uh, caused a surge in inflation, which caused the Fed to raise, uh, interest rates. And, uh, yet the economy continued to grow with the Fed funds rate going from zero to five and a half percent. We continued to grow. Uh, and then, uh, since, uh, since then we've had, uh. Uh, tariffs. Uh, we've had now we're stress testing the economy with, um, uh, a labor market that's, uh, uh, kind of got everybody scratching their head what's about what's going on. Uh, and yet the economy continues to, uh, to, to, to be resilient. So, uh, I, I've said that, uh, and the other thing is earnings have demonstrated, kind of confirm that. So we had really strong earnings, much better than expected in the first quarter. Much better than expected in the second quarter. Uh, third quarter analysts expect 6% year over year. I'm expecting 10%. Uh, so it's a, it's a, it's an earnings led, uh, uh, bull market. It's, uh, it's been a melt up, but it's been a melt up. That's been earnings led. Uh, now how do we get to 22 on the forward pe? I mean, isn't that a melt up? Uh, I would just point out that, uh. Uh, when the pandemic hit and we had our lockdown, uh, re re recession and a bear market that lasted, you know, a a a few months, uh, a couple of months, uh, from February to basically March, March 31st, right when the Fed came in with, uh, all that liquidity. So, uh, it was a great buying opportunity. An amazing buying opportunity. Uh, we thought so at the time, and, um. The, uh, about six months into that, uh, V-shaped recovery, we could bounced back to a, a forward PE of 22. And that was led by the guess what, the Magnifi Magnificent seven. And, uh, ever since then, the market's been going higher from that point to now. The forward PE is basically around 22. Uh, so the market, the s and p is up a hundred percent. Uh, since we fully recovered. Uh, from the sell off, uh, in the lockdown recession. And, um, so it's, it's been a completely earnings led, uh, market with a high pe. And the high PE obviously has something to do with the fact that the Magnificent seven are selling it something like, uh, 30 times, uh, forward, uh, forward pe. And there's a reason for that. They truly are magnificent. You know, uh, only a few years ago people were saying, you gotta buy the Magnificent seven because they don't have any debt. They have a tremendous amount of cash flow. Uh, you know, they, they can use their cash, cash flow to buy back their shares, uh, to buy, uh, leading edge small companies that they can, uh, leverage up their technologies. And now that they're using all that cash flow to invest in ai, everybody's freaking out. This is 1999 all over again, and the point I've been making is in 1999. Uh, we, uh, a great part of that bubble was debt financed, particularly by telecom companies who solar financed, uh, their customers and they got their money in the junk bond market. This time around the, the money is coming from cashflow. These companies are just generating a huge amount of cash and they're spending it, and so what's the worst case scenario? The, they'll conclude that, uh, oh, oh, we're, we're overbuilding. We got more than we need. So they just slow it down. And guess what? They'll be even more profitable because their, their capital spending is slowing down. But, uh, they know better than, than any of us what's going on with the capacity of their data centers. And they see that it's growing like mad. And, you know, all these people that are kind of freaking out that, uh, it's all gonna be a, a bubble. They should kinda look at their own lives and, and ask themselves. Are, am I using ai? And the answer in, in my case is I'm using it all the time. It's not perfect and I'm still trying to figure out how to, you know, you gotta learn its lingo and its, and nuances, but, uh, I use it every single day. If the mag seven is truly magnificent. Um. At the same time. Gold is, is is is just on fire. Magnificent too. It should be the Mag Elite. Is it? Is it the Mag eight? There you go. All you need is gold and the magnificent seven. And yeah, come back in a few years when you wanna retire. So do you consider it the same trade? Because I had heard someone, uh, yesterday arguing that, that this is really about concerns about debasement of the dollar and flight to safety. And so where can you go? You can go to gold and you can go to the strongest companies in the world. I haven't even used the word debasement. Uh, I, um. I think that I, I, that's because I've been, uh, arguing that the dollar's, just in a correction, it was down 10%. I, I hate the DXY index 'cause it's basically a fixed, it is a fixed weight index where the, the Euro is 57% of it. And I keep asking everybody what is so great about the Euro, um, beats, beats me. Um, they've got more problems over there than, than we've got over here. Uh, so I, I, I'm not, uh, I, I, I'm not, I don't really feel as though everything that's happening is, uh, is, is because, uh, of the debasement of, uh, the, the US dollar. Uh, I, I've been in, I, you know, I've been talking about the Roaring twenties. Uh, I've had a. Happier outlook on things. I guess it's my nature. And, uh, back in 2020 I started this and 2020 was not a, a year to be optimistic, but I said, you know what? This is gonna turn out like the 1920s. The 1920s started out very depressing. And then it turned out to be the roaring 1920s. I think this was, this has already, uh, we're not finished with a decade yet and things could still follow up, but, uh, economies that are record high real GDP consumption record highs. Uh, stock market or record? High gold. Record high. Tell me this isn't the roaring 2020 so far, which certainly feels like that. And I think, uh, the stock market's going up on earnings. Uh, I think productivity is making a comeback. I think that, uh, AI is, is real. I don't think it's, uh, comparable to the.com, uh, bubble. There's similarities in some cases, but I don't think it's gonna add up. In a macroeconomic sense. In the, in the same way. We, we, we had a, a bursting of the do of, of, of the, uh, AI bubble just at the beginning of the year. Remember, deep Sea came outta nowhere and the stocks got hit, and then they came back because the company said, yo, despite what you, you, you think we're still gonna spend this kind of money? 'cause we, we need to. And so the stocks came, came right, uh, right back. Uh, so, um, the, the, the market outlook, uh, uh, is reflecting the optimism on the economy, the resilience of the economy. The valuation multiple is holding up this high because people have come around to my view that the economy is resilient and if it's gonna not have a recession anytime soon, which by the way, does not come with a money back guarantee. But, you know, that's been my forecast. Uh, the resilience of the economy has been my forecast for the past three years. It's worked out. And I think it just makes me feel even, uh, better about the resilience concept because it's proven itself. Uh, so, so far, so you, you, you put it all together and the question is, so why is gold up? And the the answer is because, uh, there's a lot of people who are pessimistic, pessimism sell. Uh, people like Ray Dalio, very smart billionaires, are going around saying, you should own more gold because everything's gonna blow up. There's gonna be a debt crisis. Uh, any day now. Uh, I think a lot of it's geopolitical. Uh, I think, uh, I turned, uh, bullish on gold when it rose above two thou to a new high, above 2000, back in 2023. And I said, uh, uh, no, I think it was actually 2024. Uh, and, uh, I said, uh. I think it may simply be because Russia invaded Ukraine. The US and Europe froze the assets of the Russian Central Bank. And ever since that, uh, people who are not our friends, central bank that run central banks in China, Russia, uh, uh, Venezuela, uh, South Korea, uh, North Korea and Iran, uh, they're, they're all buying gold. And, uh, so it kind of feeds on itself. And then we've had, uh, Trump come in, uh, kind of. Throw the, the global world order up in the air. And so nobody quite quite knows where it's all gonna land. And, uh, maybe all you really have to know is the Chinese, uh, uh, people lost a tremendous amount of money in their, uh, in, in their, in their, uh, investments in real estate. And they've got a huge negative wealth effect and they've gotten the whip side of their stock market and they're watching gold going like up every single day and maybe kind of peeling more and more of 'em and. You know, appealing to more and more of 'em to do exactly the same thing. So that could be a, a big factor, uh, driving, uh, gold up. Um, I've never had an opinion on gold 'cause, uh, I was an old fashioned strategist. I can't value it. And now I have an opinion. I think, uh, it should be in a portfolio. Uh, and I think that, um, uh, it, uh, it's, it's going gonna go higher and I've got the s and p 500 at, uh, 10,000 by the end of the decade. That end of. 1929 and I, uh, I've also have the, uh, price of gold going up to $10,000 per ounce by, um, the, uh, end of 1929. Now, let me just make a point about gold and, and bitcoin. If Bitcoin could go from basically zero to 125,000 in a few years, uh, why can't, uh, gold do the gold do the same? The wonderful thing about assets. Uh, that everybody thinks, uh, are, uh, are, are, are, are, are real assets that one should own, but have no income. No, no earnings is you can, you, you can say whatever you want about how high they can go. Uh, and some people have been saying like, a million dollars for, for Bitcoin. I said, yeah, I, yes, I, I, I can't, I don't have a valuation model target against it, but so gold and Bitcoin are similar that way. Where they're different is, I think bitcoin. Is a risk on asset, uh, as as proven recently. Um, and I think that, uh, gold is a risk off asset, um, as is the dollar, which is again, why I think the dollar could actually hold up pretty well. Uh, even though gold, uh, uh, seems to be indicating the basement, what, what we may be saying is the, the basement of, uh, of the yuan, uh, the, the Chinese currency, the, the economy. That's really the disaster case in, in the world today is China's. Uh, with the amount of debt they've accumulated and their horrible, uh, geriatric debt demographics. A portfolio manager friend of mine said to me a few years ago that the bearish case. It's always the most compelling, it sounds the most intellectual and it's almost always wrong. Almost always. And uh, and then over time, stocks tend to go up. Yeah. And, uh, they do, you know, hear, hearing that and then following you for the last several years and seeing. The success that you've had and that your client base has had, has really sort of turned me around and given me a new, new framework for looking at investment opportunities and, and markets. So I appreciate that. Uh, h how can viewers learn more about you and what you do? Well, you can always Google me or AI me, I suppose. Uh, but, uh, yardeni.com. Uh. Is, uh, our, uh, flagship, uh, website. And then, uh, uh, we, we have a flagship ships, uh, service for our institutional accounts. Uh, and then we had a request from quite a few accounts, uh, from uh, quite a few individuals that they wanted to have some access to our thinking. So we came up with quick takes. Uh, which is a daily that, uh, does where we do our best to try to make, help people understand the relationship between the, the macro and the micro of, of investing. Um, so, uh, your Denny quick takes is probably the, uh, the, the, the product that, uh, most individual investors, uh, might, might want to have a look at. I get it. I read it every day. Can't recommend it enough. Thank you, Dr. Ed Denni. Always a pleasure speaking with you. Thank you so much for your time. My pleasure as well. Thank you. Thanks for being with us today. For those of you who check out my podcast regularly, you probably know that I took a few months off to recharge, and I have to say it's really good to be back bringing you these interviews with the best economists, analysts, and investors out there. We're back on our weekly production schedule, so please be sure to subscribe to the podcast. And if you wanna get my free weekly essay on the markets, you can sign up at the link in the description. Thanks again for being with us. See you next week.
The Fed Is About to Unleash a Market Frenzy | Ed Yardeni
Summary
Transcript
So all lowering interest rates is gonna do is give us more of a melt up in the, financial markets. We have a melt up in gold for sure, and I think we're sort of on the edge of a melt up in the stock market, which then creates financial instability. Hi, I'm Ed D'Agostino and today I'm speaking with one of the most accurate stock market predictors on Wall Street. Dr. Ed Yardeni's track record this decade has been among the best. Today he gives us his market call for the rest of the decade, plus a price target for gold. Welcome to Global Macro Update. Dr. Ed, it's always good to see you. Really appreciate your time. The labor market, kind of what I wanna talk with you about, seems to be what's mostly driving interest rates and, and fed policy these days. But then it dawned on me. Right. I'm, I'm going to speak with an economist about the labor market and you don't have much data to work with. So, so how, how has that been, being an economist and not having any official data? There's an official data, but, uh, there's, there's some data. There's, uh, for example, the, uh, uh, yearly percent change in, uh, the Red Book retail sales Index. Uh, so that's available every week and that still shows that, uh, consumers are doing what they do best, which is consume, or at least, uh, on the retail side. I don't really have anything on services other than I travel a lot, and the airports are absolutely bobbed. So, uh. PE people are definitely traveling. And when you travel, you, you eat at the airport, you or wherever you're going. You're either on business or on vacation, I guess. Uh, and, uh, that entails, uh, uh, eating at, uh, restaurants, uh, going out, staying at hotels. So that's just totally a anecdotal, but, uh, yeah, it's uh. It, it's a, it's kinda like winging it here, uh, trying to figure out what's going on. But it's, it's difficult. I mean, we just don't, uh, I really like the weekly initial unemployment claims data. We, we don't have that. Um, there, uh, the consumer credit data did come out from the Fed. The federal reserve's still open for business, and, uh, the revolving credit, uh, looked, uh, disconcerting because on a year over year basis. Uh, revolving credit, uh, has stopped growing and, uh, usually when the consumers are spending, they're using their credit cards. Uh, but I'm, I'm of the opinion that, uh, the, the consumers sector is being held up by retiring baby boomers. Uh, there's, uh, about 70 million, uh, baby boomers, uh, I would guess, uh, you know, may maybe something like 30, 35 million households of baby boomers. And, uh, these folks are retiring. And they, uh, are the richest retiring generation ever. They're retiring with $80 trillion of net worth and, uh, they're gonna spend it and, um, they are spending it. And I think that accounts for the ongoing strength of the consumer in the face of what looks like, uh, not much, uh, job growth. And, uh, it suggests to me that, uh, uh, we will continue to see the, uh, con consumer. Uh, surprisingly strong, uh, which would, uh, obviously be, uh, quite a contrary. Perspective on what's going on in the economy. You wrote recently that you think the labor market is in a bit of a funk, but you, you, you had an interesting explanation. Can you, can you explain what you mean by a funk? Well, I think, uh, fed chair, Jerome Powell, um, has, uh, expressed, uh, some opinions on this and didn't use the word funk, but, uh, did say it, you know, it's, uh, it's unusual to see what's going on in the labor market. He pointed out that the supply of labor is declining and so is the demand for labor. And so the unemployment rate is at 4.3%, uh, which is basically full employment, but we're at full employment, uh, with this funky development, that unusual development where, uh, the, instead of growing, we've got the parallel employment, uh, basically, uh, flat, at least that was the last data we saw. And, uh, some indications that it, uh, might actually be turning a bit negative. Uh, hirings, uh, have slowed down there. There's people who are saying it's the no. Hire no fire economy. Actually, the last data we have was August was, uh, showed 5.1 million people were hired. So it's not like nothing's going on and, and nobody's getting hired. Quite the opposite. Uh, but the separations, which includes, uh, both quits and layoffs, guess what? That was 5.1 million. So, uh, basically I guess you could argue that, uh, whoever quit or whoever was fired, uh, was. Basically replaced, uh, on a one-to-one basis, but we usually are see hirings, exceed separations. And, uh, that's what's, uh, kind of funky about this labor market. But I think on the supply side, uh, clearly the, uh, uh, freezing of, uh, illegal immigration from the southern border has had an impact on, uh, increasing labor. And at the same time, deportations have led to, uh, a reduction in labor. And anyone who. I had a tendency to hire undocumented workers, uh, probably decided that's not such a good idea anymore. 'cause any day ice could come in and your labor force could be gone. Uh, so, uh, that's what's going on on the su supply side. On the demand side, it may very well be that, uh, AI isn't having, uh, that a AI may actually be having a, an immediate impact on employing, uh, young people, the young, new entrants. I think a lot of companies are spending some money on AI trying to figure out how to use it. Uh, and I think they are gonna find uses for it and conclude that, uh, a lot of the entry level, uh, jobs that they had, maybe they don't really need to hire in in that, that end. Uh, you know, to, to work with ai, you actually have to have some experience because AI is artificial, but it's not intelligent, and you really have to know what you're doing when you're using it and you have to proofread it. You have to read what, what it. What comes out just to make sure that it, it didn't hallucinate and get something wrong. But it is very useful and, uh, getting a lot of information together, very rapidly, giving you a summary and, um, you know, that, uh, that that's starting to affect the, uh, availability of, uh, work for, uh, teenagers as well as for, uh, people coming outta colleges. Uh, again, the data that we have through, uh, August showed that the unemployment rate. Uh, for teenagers and for, uh, 20 to 25 year olds has increased rather sharply. Uh, so, and anecdotally we know it's, it's hard for young people to, to, to find jobs. Um, so we've got this very funky labor market, which has led to, uh, uh, a lot of concerns about consumer spending. Uh, and I, I, I've, uh, pointed out that, uh, we have to look at the demographics of the baby boomers is to explain why the consumers. Are still spending now, right now as we're speaking, uh, the market, uh, got a little funky about Consum consumer, uh, debt. Um, there, there been, uh, an issue with, uh, uh, debt in the, uh, subprime auto market. Um, a couple of the regional banks have raised, uh, some concerns about, uh, loans. Uh, they, they've been making. I don't think this is going to, uh, lead to a real big problem in, in the credit markets, uh, or in the, uh, e economy. But, um, it's, uh, it, it is something that, uh, everybody's focusing on. But I, again, I think that, uh, it's undoubtedly, uh. Uh, lower income, uh, workers, uh, are, are struggling. Um, but on the other hand, uh, higher income workers, which tend to be retiring baby boomers. Um, now I think the savings rate's actually gonna go negative. 'cause baby boomers, uh, when they retire, they don't get a paycheck anymore. And meanwhile they keep spending, uh, and a lot of them, uh, are getting a, a, a real, uh, tailwind with the stock market 'cause they do own stock. And so they, they're spending money and then they look at their net worth and it's actually gone up during the month. You mentioned consumer credit. Something I wanted to circle back on with you. Have you looked at the whole buy now pay later aspect of consumer credit? My understanding is that it's not really followed by credit rating agencies, so uh, is it hidden? Yeah. I don't think it's, yeah, it's a fair, it's a fairly new development, right? About a year, two years, that, that it's really kind of caught on. And, uh, yeah, it's got all the, uh, uh, all, all the earmarks of, uh, of, of a troublemaking scenario. Um, and that may be contributing to some of the, uh, uh, stress that we're seeing in, uh, in, in lower income consumers that, uh, decided that they wanted to buy and hoped they could pay later. So I also wanted to circle back on your comment about entry level jobs. Um, the last data that I saw indicated that. Youth unemployment. So 16 to 24 year olds was between two and two and a half times higher than the, the rest of the economy's unemployment rate is, is that normal? It's normal for teenagers to have a higher unemployment rate than, than any other, uh, age group. It's, uh, normal for kids coming outta college to have a somewhat higher. Uh, and then it's quite normal for o uh, o older age groups to have a very low unemployment rate. Uh, they, they tend to, uh, be the last ones to, uh, be laid off. So, uh, there's really nothing that abnormal, uh, going on in the labor market. Uh, when we look at things, it's just, some people look at those charts and say, uh, oh, you know, the next thing is gonna happen is we're gonna go straight up in the unemployment rate. But that only happened in the past. When a credit, uh, crisis hit shut off credit to everybody and then, uh, caused a recession. So, uh, I think, uh, what the market, uh, may start to worry about is that, uh, any signs of trouble in the credit markets today, uh, could, uh, lead to, uh, an economy wide credit crunch, uh, which then would cause a recession. My, my counter, that is that, uh, things have changed dramatically. In the capital markets. It used to be that, uh, when we had a financial crisis in, uh, a, a bank or a few banks or savings of loans, it, uh, it did very quickly become a credit crunch and a recession because when they, when, when financial institutions, uh, lose money, uh, they have to take, uh, the charge offs and that depletes their capital and it, and then that might actually force 'em to significantly cut down lending. That's, that then becomes the general credit crunch and then a recession. What, what's changed in the, in the, uh, credit markets is that, uh, or the capital markets, which is both the banks and, uh, the, uh, uh, the, the equity market and the, and, and the bond markets is that, uh, we have, uh, private equity now. And if something blows up in the private equity realm, um, it's really just a haircut and somebody's rate to return. It's not a situation where they've gotta stop lending. I mean, if somebody has a private e uh, equity or private debt fund, uh, that's what they do. And if, if their investors continue to give them money, they will continue to invest in, uh, private equity and private debt, which tend to be, uh, you know, we use the word funky, but I think it applies as well to, to that kind debt. Um, but it doesn't shut down. Uh, it doesn't cause a credit crunch. Um, and so I think there are a lot of, um, shock absorbers now. Uh, in the credit markets, uh, look at what happened with commercial real estate. All the hand wringing about how that was all gonna lead to calamity for the economy. 'cause we're kind of seen that before, back in the early nineties. But, uh, what's different this time around is we have, uh, lots of distressed asset funds. Uh, those, those people, some of 'em are my clients. And when I see them and I walk in and I got a big smile on my face, Hey, the stock market's making a new high, they said. You know, you forgot. We do distressed assets. We want things to go badly. They wanna buy stuff at 25 cents on the dollar. And, uh, you know, a lot of this stuff gets cleared off the market very quickly because of the distressed asset funds. Uh, we got Vulture capital funds, uh, we've got, uh, venture funds. So there's a, a, a lot, lot of money in the, uh, uh, private equity and private debt, uh, credit markets. And guess what? So you, you lose some, you win some, you lose some, uh, more often than not, uh, you win a lot, but, uh, occasionally you do lose quite a bit. Dr. Ed, does that mean there's too much money in the system because you, you, the feds saying that they're probably going to whine. Quantitative tightening down. Um, so their, so, so, so their balance sheet is gonna end up being incredibly high compared to historic average. Uh, and you're saying that there's just so much money out there? No, the Fed is, so yesterday, I mean, you know, everything's been changing in the economy and the feds still operating as though what's, uh, fairly predictable business cycle. Uh, in other words, they think that, uh, when they raise interest rates. That slows the economy down and brings inflation down. Well, they, they did that. They raised interest rates. The economy didn't really slow down. They did, inflation did come down, but it probably would've come down on its own. 'cause a lot of that was pandemic related, supply side disruptions and all that. And now they actually think that, uh, you know, the federal funds rate, the interest rate they control is still too high relative to, uh, some fictitious, mythical, uh. Uh, magic, uh, neutral interest rate. They think it's 3% is the fed funds rate and we're at 4%. So they think they still need to lower rates by a hundred basis points, but they don't wanna do it too quickly because inflation is still 3%, not 2%. Uh, because of the tariffs. I know the administration's saying, Hey, uh, tariffs had no impact whatsoever on inflation. That's nonsense. Durable goods inflation's up from, uh, zero, from, uh, down 4.2% year over year, a year ago. To up 1.5% year over year now. So durable goods inflation has gone up. And so what Trump's tariffs have done is they've kept inflation from coming down. We'd probably be down at 2% now, but the, the Fed thinks that, uh, this is just a transitory thing. We'll get down to 2%, uh, within the next couple of years. And meanwhile, they're concerned about what they see in the labor market. And my counter is, well wait a second. You really think that lowering interest rates is gonna do anything? And last data we had showed that. Uh, second and third quarter, real GDPs were increasing by over three point a half percent. So what are they trying to do? Stimulate even more demand. Uh, are they really gonna get, uh, more people coming into the labor force, uh, by creating more demand than, than, than we have right now? I, I kind of doubt it. I mean, again, these are structural changes in the labor market that lower interest rates aren't gonna do much about. So if they, and meanwhile, consumers are spending, especially the baby boomers, capital spending is strong, a lot of it. Technology stuff is being financed with, uh, cashflow. So all lowering interest rates is gonna do is give us more of a melt up in the, uh, financial markets. We have a melt up, uh, in gold for sure. And I think we have, we're sort of, uh, on, on the edge of a melt up. In the stock market, which, which then creates financial instability. I'm not on the list of people who are being considered to be Fed chair. I'm kind of annoyed about that because for many years I've offered to do the, to do what the Fed does for half the price. I'll give 'em a 50% discount. I'll do it from home. I, I don't need a big staff. Uh, you don't need a, a billion dollar renovation in your office. I don't need a renovation every, you know, we're, we're still gonna need people to do regulation of banking and all these boring things that I really don't want to get involved in. Uh, but, but I'll, you know, let's, let's, uh, let's have a spinoff of the, uh, of, of the FOMC and, and just make me the chair and I won't need anybody else. Uh, it, it can be done by one person if they know what they're doing, but. Let's not, let's not go there any further, uh, into, into, into my fantasy of, uh, of how things should be. Uh, but uh, again, I, I think that, uh, the, the Fed, um, I, if I was doing it, I, I'd leave the Fed funds rate right here. Um, we've got the inflation rates still at 3%, not 2%. And the Fed says, well, it's, it's transitory. We, we know about. The, the, their track record in at calling transitory versus persistent inflation. Uh, and then the other thing they say is, well, yeah, but the labor market, uh, is weak. And yet the last unemployment rate we had was 4.3%. And, uh, their own survey, their own forecast of, uh, their collective judgments of what the full employment rate is, is 4%. So, you know, we're a hundred basis, we're, we're, you know, a hundred basis points above their targeted inflation rate. And, uh, maybe 0.3 percentage points above their long-term, uh, ideal unemployment rate. And they're getting all, uh, uh, all concerned about lowering interest rates. Uh, you know, we'll see. I mean, uh, when they, when they did it last year and lowered the Fed funds rate by a hundred basis points, I, I, I said that'd be a mistake that, uh, the bond, uh, market wouldn't like it. I coined the phrase bond vigilantes. I warned them that my friends of the bond vigilantes might act up. And sure enough. They lowered rates by fed by a hundred basis points in the Fed funds rate market. And the bond yield went up a hundred basis points. So completely offsetting their, uh, their, their easing move. And I think they're running the risk of seeing the same thing happen. Now. You know, we, we are gonna get a CPI number, I guess it's October 24th. Um, I guess, uh, some government workers are giving us a freebie. They're not getting paid, but they're still coming in to calculate the CPI. I don't know what happened to the PPI, I thought the PPI was also gonna be. Uh, uh, released by them, but it's CPI is is for sure on October 24th. The FMC meets at, at the end of, uh, October. And it'll be interesting to see how the, the CPI plays out. I wanna move on to your comment about a melt up. 'cause you've, you've made some pretty bold calls coming up, uh, for, for both gold and the stock market, and you've been incredibly right. Uh, for, for years now. But, but before we get there, I just, I can't ask, I can't resist asking you about tariffs. As an economist, what are, what do you see as the pros and cons of the tariff policy right now? Great way to raise additional revenue. I mean, uh, you know, 10, 15% seems to be the base tariff that the administration has, has, uh, has implemented. And then, uh, around that there's this higher tariff rates. Uh, and then of course for steel, aluminum, uh, I think copper, some other, some other specific items, there's higher tariffs. And that's, uh, that's bringing in at an annual rate. Uh, it's bringing in about 350 to $400 billion, uh, in, uh, duties in, in revenues. And so if we're talking about, uh, a deficit of 1.5 trillion. Uh, you know, that's a significant, uh, decrease in, in the deficit. And I think it's one of the reasons that the bond market, the bond yield has actually been coming down. 'cause, uh, even the bond market recognizes this is a, an important development in terms of, uh, bringing in, uh, revenues. The problem is the Supreme Court, uh, may very well rule that the, that the, all this tariff, uh, nonsense, uh, might turn out to be, uh, illegal, uh, cons, unconstitutional. Uh, they might give the administration six months to, uh, figure out what to do instead. Maybe get, try to get legislation from Congress. Uh, but it, uh, could throw a lot of things up in the air with, uh, with, with this, uh, issue. Um, it's, it's basically a tax. So not, you know, I'm not a big fan. Of taxes as a kind of a market oriented economist who likes to see smaller rather than bigger government. Uh, but then again, I, you know, I deal with the facts. And the facts are that politically we just don't have the stomach to, uh, meaningfully cut back on outlays. Uh, and so if we can't do that, we, we should try to do the best we can to, to, to find, uh, revenues. And, uh, so far the evidence is that tariffs, uh, do have an impact. On inflation instead of get down to 2%, which was, I think where we would've been, we're kind of stuck at 3%. So, uh, and that's because this, the durable goods inflation rate has gone up, as I mentioned before. And in addition, the services inflation rate, which is not affected by tariffs, has kind of stalled out around 4%. And that's even with rent inflation coming down. So the, uh, the Fed being pretty, uh, irresponsible I think in basically declaring victory. Getting to 2%. It'll be, you know, 3% is transitory. We'll get there in a year or two. Uh, and kind of focusing on, uh, the, uh, the labor market issues, which are very complex and may not, uh, be something they can, that, that they may not, cannot be solved with. Uh. Uh, easier monetary policy. All that'll do is create financial instability. Well, let's move on to the stock market. I think that's what probably a lot of viewers are, are interested in hearing your take on, if I did my math correctly, you are predicting a 19% gain for this year, because I think you said that 7,000. Yeah. 7,000 for this for s and p 500? Yeah. It'll be the third, uh, double digit, uh, year in a row. Wow. How sustainable is that? I think it's sustainable because, um, I've been thinking that the economy is more resilient, uh, than, uh, just about anybody else. Uh, for the past three years I've been saying that, uh, we have the most, uh, we are experiencing the most widely anticipated recession of all times that isn't happening. Uh, and, um, you know, a lot of people are still worrying about a recession. I said, have, haven't you like learned anything from the past three years? Maybe there's. You have to understand why the economy has been so resilient. Look, we had the pandemic. The pandemic, uh, immediately led to a a a two month lockdown, uh, which, uh, caused a two month recession. Just two months, uh, official recession. Uh, then the lockdowns were ended and the economy started to lift, even though there were still social distancing, uh, requirements that, uh, should have kept the economy pretty weak. But, uh, people went out and bought goods like mad. And so we had a really pretty remarkable recovery coming out of the lockdowns. Uh, and then what? Well, then we had supply chain disruptions, uh, which, uh, caused a surge in inflation, which caused the Fed to raise, uh, interest rates. And, uh, yet the economy continued to grow with the Fed funds rate going from zero to five and a half percent. We continued to grow. Uh, and then, uh, since, uh, since then we've had, uh. Uh, tariffs. Uh, we've had now we're stress testing the economy with, um, uh, a labor market that's, uh, uh, kind of got everybody scratching their head what's about what's going on. Uh, and yet the economy continues to, uh, to, to, to be resilient. So, uh, I, I've said that, uh, and the other thing is earnings have demonstrated, kind of confirm that. So we had really strong earnings, much better than expected in the first quarter. Much better than expected in the second quarter. Uh, third quarter analysts expect 6% year over year. I'm expecting 10%. Uh, so it's a, it's a, it's an earnings led, uh, uh, bull market. It's, uh, it's been a melt up, but it's been a melt up. That's been earnings led. Uh, now how do we get to 22 on the forward pe? I mean, isn't that a melt up? Uh, I would just point out that, uh. Uh, when the pandemic hit and we had our lockdown, uh, re re recession and a bear market that lasted, you know, a a a few months, uh, a couple of months, uh, from February to basically March, March 31st, right when the Fed came in with, uh, all that liquidity. So, uh, it was a great buying opportunity. An amazing buying opportunity. Uh, we thought so at the time, and, um. The, uh, about six months into that, uh, V-shaped recovery, we could bounced back to a, a forward PE of 22. And that was led by the guess what, the Magnifi Magnificent seven. And, uh, ever since then, the market's been going higher from that point to now. The forward PE is basically around 22. Uh, so the market, the s and p is up a hundred percent. Uh, since we fully recovered. Uh, from the sell off, uh, in the lockdown recession. And, um, so it's, it's been a completely earnings led, uh, market with a high pe. And the high PE obviously has something to do with the fact that the Magnificent seven are selling it something like, uh, 30 times, uh, forward, uh, forward pe. And there's a reason for that. They truly are magnificent. You know, uh, only a few years ago people were saying, you gotta buy the Magnificent seven because they don't have any debt. They have a tremendous amount of cash flow. Uh, you know, they, they can use their cash, cash flow to buy back their shares, uh, to buy, uh, leading edge small companies that they can, uh, leverage up their technologies. And now that they're using all that cash flow to invest in ai, everybody's freaking out. This is 1999 all over again, and the point I've been making is in 1999. Uh, we, uh, a great part of that bubble was debt financed, particularly by telecom companies who solar financed, uh, their customers and they got their money in the junk bond market. This time around the, the money is coming from cashflow. These companies are just generating a huge amount of cash and they're spending it, and so what's the worst case scenario? The, they'll conclude that, uh, oh, oh, we're, we're overbuilding. We got more than we need. So they just slow it down. And guess what? They'll be even more profitable because their, their capital spending is slowing down. But, uh, they know better than, than any of us what's going on with the capacity of their data centers. And they see that it's growing like mad. And, you know, all these people that are kind of freaking out that, uh, it's all gonna be a, a bubble. They should kinda look at their own lives and, and ask themselves. Are, am I using ai? And the answer in, in my case is I'm using it all the time. It's not perfect and I'm still trying to figure out how to, you know, you gotta learn its lingo and its, and nuances, but, uh, I use it every single day. If the mag seven is truly magnificent. Um. At the same time. Gold is, is is is just on fire. Magnificent too. It should be the Mag Elite. Is it? Is it the Mag eight? There you go. All you need is gold and the magnificent seven. And yeah, come back in a few years when you wanna retire. So do you consider it the same trade? Because I had heard someone, uh, yesterday arguing that, that this is really about concerns about debasement of the dollar and flight to safety. And so where can you go? You can go to gold and you can go to the strongest companies in the world. I haven't even used the word debasement. Uh, I, um. I think that I, I, that's because I've been, uh, arguing that the dollar's, just in a correction, it was down 10%. I, I hate the DXY index 'cause it's basically a fixed, it is a fixed weight index where the, the Euro is 57% of it. And I keep asking everybody what is so great about the Euro, um, beats, beats me. Um, they've got more problems over there than, than we've got over here. Uh, so I, I, I'm not, uh, I, I, I'm not, I don't really feel as though everything that's happening is, uh, is, is because, uh, of the debasement of, uh, the, the US dollar. Uh, I, I've been in, I, you know, I've been talking about the Roaring twenties. Uh, I've had a. Happier outlook on things. I guess it's my nature. And, uh, back in 2020 I started this and 2020 was not a, a year to be optimistic, but I said, you know what? This is gonna turn out like the 1920s. The 1920s started out very depressing. And then it turned out to be the roaring 1920s. I think this was, this has already, uh, we're not finished with a decade yet and things could still follow up, but, uh, economies that are record high real GDP consumption record highs. Uh, stock market or record? High gold. Record high. Tell me this isn't the roaring 2020 so far, which certainly feels like that. And I think, uh, the stock market's going up on earnings. Uh, I think productivity is making a comeback. I think that, uh, AI is, is real. I don't think it's, uh, comparable to the.com, uh, bubble. There's similarities in some cases, but I don't think it's gonna add up. In a macroeconomic sense. In the, in the same way. We, we, we had a, a bursting of the do of, of, of the, uh, AI bubble just at the beginning of the year. Remember, deep Sea came outta nowhere and the stocks got hit, and then they came back because the company said, yo, despite what you, you, you think we're still gonna spend this kind of money? 'cause we, we need to. And so the stocks came, came right, uh, right back. Uh, so, um, the, the, the market outlook, uh, uh, is reflecting the optimism on the economy, the resilience of the economy. The valuation multiple is holding up this high because people have come around to my view that the economy is resilient and if it's gonna not have a recession anytime soon, which by the way, does not come with a money back guarantee. But, you know, that's been my forecast. Uh, the resilience of the economy has been my forecast for the past three years. It's worked out. And I think it just makes me feel even, uh, better about the resilience concept because it's proven itself. Uh, so, so far, so you, you, you put it all together and the question is, so why is gold up? And the the answer is because, uh, there's a lot of people who are pessimistic, pessimism sell. Uh, people like Ray Dalio, very smart billionaires, are going around saying, you should own more gold because everything's gonna blow up. There's gonna be a debt crisis. Uh, any day now. Uh, I think a lot of it's geopolitical. Uh, I think, uh, I turned, uh, bullish on gold when it rose above two thou to a new high, above 2000, back in 2023. And I said, uh, uh, no, I think it was actually 2024. Uh, and, uh, I said, uh. I think it may simply be because Russia invaded Ukraine. The US and Europe froze the assets of the Russian Central Bank. And ever since that, uh, people who are not our friends, central bank that run central banks in China, Russia, uh, uh, Venezuela, uh, South Korea, uh, North Korea and Iran, uh, they're, they're all buying gold. And, uh, so it kind of feeds on itself. And then we've had, uh, Trump come in, uh, kind of. Throw the, the global world order up in the air. And so nobody quite quite knows where it's all gonna land. And, uh, maybe all you really have to know is the Chinese, uh, uh, people lost a tremendous amount of money in their, uh, in, in their, in their, uh, investments in real estate. And they've got a huge negative wealth effect and they've gotten the whip side of their stock market and they're watching gold going like up every single day and maybe kind of peeling more and more of 'em and. You know, appealing to more and more of 'em to do exactly the same thing. So that could be a, a big factor, uh, driving, uh, gold up. Um, I've never had an opinion on gold 'cause, uh, I was an old fashioned strategist. I can't value it. And now I have an opinion. I think, uh, it should be in a portfolio. Uh, and I think that, um, uh, it, uh, it's, it's going gonna go higher and I've got the s and p 500 at, uh, 10,000 by the end of the decade. That end of. 1929 and I, uh, I've also have the, uh, price of gold going up to $10,000 per ounce by, um, the, uh, end of 1929. Now, let me just make a point about gold and, and bitcoin. If Bitcoin could go from basically zero to 125,000 in a few years, uh, why can't, uh, gold do the gold do the same? The wonderful thing about assets. Uh, that everybody thinks, uh, are, uh, are, are, are, are, are real assets that one should own, but have no income. No, no earnings is you can, you, you can say whatever you want about how high they can go. Uh, and some people have been saying like, a million dollars for, for Bitcoin. I said, yeah, I, yes, I, I, I can't, I don't have a valuation model target against it, but so gold and Bitcoin are similar that way. Where they're different is, I think bitcoin. Is a risk on asset, uh, as as proven recently. Um, and I think that, uh, gold is a risk off asset, um, as is the dollar, which is again, why I think the dollar could actually hold up pretty well. Uh, even though gold, uh, uh, seems to be indicating the basement, what, what we may be saying is the, the basement of, uh, of the yuan, uh, the, the Chinese currency, the, the economy. That's really the disaster case in, in the world today is China's. Uh, with the amount of debt they've accumulated and their horrible, uh, geriatric debt demographics. A portfolio manager friend of mine said to me a few years ago that the bearish case. It's always the most compelling, it sounds the most intellectual and it's almost always wrong. Almost always. And uh, and then over time, stocks tend to go up. Yeah. And, uh, they do, you know, hear, hearing that and then following you for the last several years and seeing. The success that you've had and that your client base has had, has really sort of turned me around and given me a new, new framework for looking at investment opportunities and, and markets. So I appreciate that. Uh, h how can viewers learn more about you and what you do? Well, you can always Google me or AI me, I suppose. Uh, but, uh, yardeni.com. Uh. Is, uh, our, uh, flagship, uh, website. And then, uh, uh, we, we have a flagship ships, uh, service for our institutional accounts. Uh, and then we had a request from quite a few accounts, uh, from uh, quite a few individuals that they wanted to have some access to our thinking. So we came up with quick takes. Uh, which is a daily that, uh, does where we do our best to try to make, help people understand the relationship between the, the macro and the micro of, of investing. Um, so, uh, your Denny quick takes is probably the, uh, the, the, the product that, uh, most individual investors, uh, might, might want to have a look at. I get it. I read it every day. Can't recommend it enough. Thank you, Dr. Ed Denni. Always a pleasure speaking with you. Thank you so much for your time. My pleasure as well. Thank you. Thanks for being with us today. For those of you who check out my podcast regularly, you probably know that I took a few months off to recharge, and I have to say it's really good to be back bringing you these interviews with the best economists, analysts, and investors out there. We're back on our weekly production schedule, so please be sure to subscribe to the podcast. And if you wanna get my free weekly essay on the markets, you can sign up at the link in the description. Thanks again for being with us. See you next week.