Economist Called Bull Rally, Now Says S&P 500 To 10,000, Here's When | Ed Yardeni
Summary
Market Outlook: Dr. Ed Yardeni remains bullish on the S&P 500, predicting it could reach 10,000 by the end of the 2020s, citing the resilience of the economy and strong productivity growth.
Economic Insights: Despite anticipated recessions, the economy has shown resilience, with strong consumer spending and robust capital investment, particularly in technology.
Federal Reserve Policy: Yardeni suggests that recent Federal Reserve rate cuts may be politically influenced and argues that the Fed should focus on financial stability rather than attempting to manage the labor market.
Inflation Perspective: He believes that the Fed is adjusting to a 3% inflation target instead of 2%, and emphasizes the importance of productivity in controlling inflation without lowering interest rates.
Investment Opportunities: Yardeni highlights financials, information technology, and sectors benefiting from the AI and digital revolution, such as cloud providers, as promising investment areas.
Labor Market Dynamics: The labor market faces challenges due to a shortage of skilled labor and reduced immigration, which may drive companies to increase productivity through technology.
Debt and Fiscal Policy: Yardeni warns of potential debt crises and advocates for fiscal policy changes to address the growing deficit, suggesting adjustments to social security and spending.
Gold and Inflation Hedging: In a potential stagflation scenario, Yardeni recommends gold and inflation-protected bonds as viable investment options.
Transcript
I still think we're in the roaring 2020s. He caved into 25 basis points. I think what this does is it increases the chances of a meltup. The economy is going to continue to befuddle the pessimists and remain strong. I'm pleased to welcome back Edward Yardi, president of Yardi Research. Uh Dr. Ed's been calling for the bull market to happen uh this year and throughout this decade actually. He's been calling this the uh return of the golden 20s, soaring 20s rather. And uh he's been correct so far. We'll get his updated outlook on the markets and the economy and what's next for Fed policy with our uh interview today. Thank you very much for joining us, Dr. Ed. Thank you. Pleasure to have you. You were on the show a couple times throughout the last year. Exactly one year ago, I had you on the show in June 2024, and you were calling for the S&P to reach 8,000 points by the end of this decade, sometime this decade. I'm still bullish. I think it's a bull market. Uh, so instead of uh, you know, tweaking my year-end forecast, I'll start focusing on next year's forecast, which is 6,000 on the S&P 500 and 6,500 for uh, 2026. Uh, then by the end of the year, the decade, I think we're going to see something around 8,000. So the these are all sort of my base case 60% most likely roaring 2020 scenario. People are calling you crazy in this in the comments section. Well, it's the S&P is up a,000 points since that particular interview, so not so crazy anymore. We're at 6,600 points. So, I I'm wondering if you're updating that forecast, actually. Yeah, David, I've actually gotten crazier. I'm not talking about 10,000 or more by the end of the decade. And the end of the decade is by the end of 2029. Yeah, I still think we're in the roaring 2020s, and now I'm talking about the roaring 2030s. So, uh, if I was crazy a year ago, I guess I'm crazier now. What what what has changed? What has made you even more bullish where at least just updated your forecast? Yeah. Well, you know, I watched some of the economy and uh I think uh over the past 3 years, we've had the most widely anticipated recession of all times that uh never occurred. Maybe it's still ahead of us. Uh but I I learned from what I see and what I I see is that the economy is remarkably resilient. We've had rolling recessions. Housing is in a recession. Office buildings is in a recession, but uh overall the consumer is still spending. Uh I've been pointing out that the baby boomers are retiring with $80 trillion of net worth and they're spending it. They're passing some of that along to their kids before they pass away. And of course, the capital spending has been remarkably strong where more than 50% of capital spending now is is technology. And here we just had a stress test of the economy with tariffs and yet the economy is uh growing at a 3% uh annual rate during the third quarter after it grew about the same rate in the second quarter. So I I think the economy is going to continue to befuddle the pessimists and remain strong and I think productivity is making a big comeback which is uh it's fairy dust. Productivity makes everything better. Uh it's uh makes real GDP grow faster. It's uh great for keeping a lid on inflation. It's a booster for wages adjusted for prices. And of course, it's great for profits and profit margins. And one of the amazing things of late has been how strong profit margins have remained notwithstanding all the tariff turmoil. uh your view certainly is what reflected what is reflected rather in the markets but it somewhat is uh divergent from what the Federal Reserve itself is thinking about the economy right now. Take a listen to what Fetcher Powell had to say at the FOMC meeting this week. This is his remark uh his remarks on the labor market. Take a listen, we'll react together. Uh Kobe Smith for the New York Times. Um, should we be viewing today's cut as the committee taking out some insurance against the possibility that the labor market is at risk of weakening or is it the committee's view that the dynamics of a downturn are already in place? I guess I'm just, you know, trying to square the shift in the rate forecast in the SEP uh towards more cuts than just um 3 months ago with the fact that the forecast for unemployment didn't change. Yeah, I think you can think of this in a way as a riskmanagement cut because if you look at the SEP actually um the projections for growth this year and next actually ticked up just a little bit and inflation and unemployment didn't really move much. So what what's different now? What's different now is that you see a very different picture of the risks to the labor market. You've seen, you know, we were looking at 150,000 jobs a month at the time of the last meeting and now we see the revisions and we see the new numbers. And I I didn't I don't want to put too much emphasis on on payroll job creation, but it's just one of the things that suggests that the labor market is really cooling off. And that that tells you that it's time to to take that into account in our, you know, in our policy. Revisions indicate the labor market is cooling off. Can you assess that? Well, it's absolutely correct. uh the uh the numbers have cooled off uh certainly over the past few months and then there's this uh big downward revision of 900,000 uh that that's going to be reflected in the uh the final numbers that will be released earlier next next year. Uh but that's exactly my point is if if real GDP is growing 3%. and uh the growth rate of the labor force is now let's say uh 1% or 1.5% then we're talking about 2 to 2 1/2% uh contribution to growth uh from productivity. That's that's really the roaring 2020's concept is that we have a shortage of labor particularly skilled labor and companies are going to respond to that by using technology to augment uh the the productivity of of workers. uh Pal in a different part of his uh uh press conference uh remarked that we had a very curious situation in the uh labor market and what he's referring to is that he thinks and I and I think that a lot of the issues in the labor market u can't really be solved with easier monetary policy because they have to do with the supply of labor. We've had a a tremendous uh reversal in in the foreignb born population and labor force. The foreign born population is down 1.5 million 1.5 million just since uh March of this year from March to August. Uh that's the kind of drop and so that reflects the the the stop of the inflow of people coming from over the border in the south and at the same time a tremendous increase in deportations and employers that might have thought of hiring undocumented workers aren't going to be doing that uh clearly. So they're not going to take uh that risk. And then we've got uh the uh kids coming out of colleges wondering, you know, after they studied software programming, coding, why can't they get a job? Well, I think a lot of companies are looking at AI and trying to assess whether this might be a good way to deal with the labor shortage and not not uh higher at at this time. But uh none of these things can be fixed with uh lower interest rates. But the increase in productivity will allow the economy to grow faster uh notwithstanding the slowdown in the supply of labor. And again, PAL is fully aware of these things. I just think that uh the political pressure uh the the attempts to maintain some semblance of a consensus on the committee uh he caved into 25 basis points. I think what this does is it increases the chances of a meltup. The big risk to to my scenario, I think uh the optimistic scenario is is too much of a good thing. Kind of 1999 2000 again. You know, let's party like it's 1999. Before we continue with the video, let me tell you about a very important topic. How to protect your privacy. Now, your private information doesn't just live in the inbox of your phone. It's being collected, packaged, and stored, and tracked by data broker websites all over the internet, even without you knowing. That's where today's sponsor comes in. Delete Me. I use Delete Me to protect my privacy. And here's how it helps you. It's a platform that helps you remove your personal data, like your name, address, and contact info from hundreds of these data broker websites. When you sign up, you'll get a detailed privacy report showing where your data was found and what's already been removed. And delete Me keeps working throughout the year, scanning and clearing your information regularly. It's an easy way to take back control of your digital footprint without trying to track everything down yourself. Go to joinme.com/davidlin and use the promo code davidin at checkout to get 20% off of US plans. Link down below or scan the QR code to get started today. The Bank of England is one of the central banks uh in the past week to have held rates steady. Um, the Bank of Japan is another one. I just reading this report from the from the CNBC article here. The Bank of England voted to keep interest rates on hold. The monetary policy uh committee voted 7 to2 to keep rates steady. Uh, it weighs sticky UK inflation with an uncertain growth outlook in jobs market. That sounds exactly like what Pal was describing. So, I'm just wondering how much of this 25 basis point cut that the Federal Reserve did was politically influenced. Uh I'm pretty sure Starmer wasn't pressuring the UK uh Bank of England to to lower rates to the same extent that the government here did. I think politics did uh sway the the the the members of the Federal Open Market Committee uh to uh to lower by 25 basis points. Uh I mean only a few months ago, maybe even a month ago, they were saying that they are in no rush uh to lower interest rates because they thought that the economy was in a good place. uh they do repeat over and over again they're data dependent and based on the downward uh revisions and the weakness in recent uh payroll numbers they could certainly justify uh what what they did but that's just focusing on on the labor market data where so much so much of the other data suggests the economy is doing just fine. Uh and uh look, I I think the Fed was created back in 1913 uh with one goal and that was financial stability. Uh that still is their original mandate. Then somewhere along the line in the 1940s uh Congress decided that oh well the the Fed should really also manage the economy and so they should have a dual mandate of keeping maximum employment and stable prices. and uh all of a sudden they're finding it's not that easy to do both uh right now. And I I think they need to focus on financial stability and keeping inflation down. I don't think they can do much about the labor market that could be dealt with fiscal policies possibly. In your daddy quick takes, which is a service you offer to retail investors, you cited an article that was published uh in the Financial Times by yourself. Why it might be time to repeal the Fed's dual mandate. This is what you were just talking about right now, right? And importantly, you were talking about how 3% should be the new 2%. Can you elaborate on that? Well, I'm a practical kind of guy. If they, you know, if they're giving up on getting to 2%, which is the the way I read the 25 basis point cut, I mean, for for a couple of years, they've been telling us that they that their number one goal is to get down to 2% inflation, and now it's at 3%. They say, "Ah, it's good enough. the the the labor market has some issues. So we we got to help the the labor market. So on a de facto basis, they're basically learning to live with 3%. Remember when for years they couldn't get inflation up to 2% and they tried zero interest rates uh QE2 and and all those things. Uh I I don't think that they're it's a symmetrical situation. if they uh are concerned that we're three and not 2% they should be raising interest rates or at least they should be keeping them restrictive. I I think one of my arguments with the the uh Fed consensus is they think that the so-called neutral rate is 3%. So from their point of view they're still 100 basis point restrictive. And I look at the economy I said I I think the neutral rate is kind of where we are four 4 and a.5% with a bond deal around 4 and a quarter 4 and a.5%. Why? because we got full employment, maximum employment 4.3%. And inflation isn't quite down to 2%. So, we're kind of there. And um that's not particularly restrictive when you look at a record uh high in the stock market, gold, Bitcoin, and uh other financial assets. Okay. So, if let's say uh the Fed uh does lower, are you concerned about higher inflation then? And by the way, the 3% renewed uh or uh new target uh are you implying or at least assuming Dr. Yet that uh inflation will be higher and persistent for longer in embedded in our economy? Well, right now I think Fed officials have this notion that uh some of the recent inflation is tariff related and that this two shall pass and we'll get back down to 2%. Uh I sort of agree with that but not quite. I think that uh the the tariffs didn't increase tariffs. They just kept the tariffs from falling from three they kept the inflation rate from falling from 3% to to 2%. Uh so that's that's the current situation. I think when we look at u the the inflation news more closely, we see that it's not just durable goods inflation which is very much affected by tariffs but we're also seeing that services inflation has kind of gotten stuck around 3 to 4% uh and it would be much better if it was down to 2 to 3% to be consistent with the 2% target for the Fed. Uh I'm not arguing that they should change their target. Quite the opposite. I'm arguing that they should really focus on they should continue to have focused on getting inflation down to uh to 2%. But uh you know they they kind of uh fa finagled it a bit by saying well you know the unemployment uh rate is is is okay but we don't want it to go higher and we're concerned about the uh the payroll numbers. And as as your clip said, uh even Paul was kind of mousy about uh what this was all about by saying that uh it was sort of a an insurance uh policy against the econom the labor market getting worse. Well, how about I mean so meanwhile they're they basically uh given up on making the premium payments on their insurance policy to bring inflation down. uh some economists or observers of the market may argue that there's been a divergence between actual economic growth uh and the stock market. So your own leading e economic indicator on uh your Denny uh's website has shown that the leading economic indicator has been trickling down ever since um 2023 2024 uh while the inverse has happened with the stock market. How can you explain this divergence? Yeah. Well, you know, when any data doesn't support my story, David, uh it's it's got to be bad data or it's going to be revised. Uh I think the index of leading economic indicators, uh needs to be recalled. It needs to be, you know, I I think it should be called index of misleading economic indicators. It's just been dead wrong all along here. uh the the other chart uh which I I I would have highlighted would be the index of coincident economic indicators all time record high it's a monthly indicator of GDP basically it's got payroll employment in there it's got industrial production personal income uh business sales and that's at an all-time record high that was in in August yeah flip you can flip a little bit more uh yeah a little bit more more and that's it see bingo so the blue line is the index of coincident economic indicators all-time record high and I actually prefer the S&P 500 forward earnings uh which is uh available weekly and that's actually getting stronger uh in record high territory uh consistent with what we've seen in the first and second quarter remarkable strength in earnings notwithstanding all the the the tariff turmoil so um economy looks fine to me from a GDP perspective coincident indicators, earnings perspective and if the problem is in the labor market is is a supply side problem to a large extent that the Fed can't do much about and um it all means that productivity is u is coming to the four here and there's no reason to lower interest rates if we got strong productivity growth. You don't need to lower rates to boost productivity growth. uh instead that liquidity could go into creating financial instability which again is the Fed's uh original reason for being. This is a uh report from um from CBS this week. We're seeing uh large large uh retail stores, box stores, Home Depot retailers, Macy's, Nikon, camera maker Nikon all trying to were announcing they're raising prices for some of their goods as tariffs take effect. Now I wonder if this is a turning point for uh not just companies but financial markets as well. Uh one argument is that if these companies do go ahead with raising prices, consumers don't have uh the capacity to to actually absorb these higher prices, sales will slow. We'll start to see either margin decreases and or um slower sales in the next quarter. What do you think? Well, I think it's a it's a valid argument, but uh everything is um you know, there's a lot of moving parts here, and you can always focus on one gear and say, you know, it's not functioning quite properly and then miss the fact that all the other gears are working and the one that looks like it's malfunctioning isn't all that important to keep the machine going. And that's kind of the situation uh we're in right now. The e economy overall uh is uh is in fact growing. And so if we do have some challenges ahead for the consumer, there's been lots of reports that you know 10% of consumers are accounting for 80% of uh consumption. And I, you know, I think one point that I've uh kind of nailed over the past few years is the impact on the baby boomers. Uh and that's because I have an inside track on that. I am a baby boomer and I'm still working for a living, but a lot of my friends are retiring. And uh again, the the baby boomers are retiring. It's the richest retiring generation of all times. They're sitting on 80 trillion dollars of net worth. And they're not going to leave it all to their kids. I mean, the kids never cleaned up their room. We didn't like their friends. So, the hell with them. Let's just spend it all. But, of course, that's not what's happening. You can't spend all of that. H. And meanwhile, as the baby boomers that are retiring, I have friends who are are trying to spend it, but they can't spend it because the stock market keeps going up. And uh so that that just paid for the for the cruise. Um, and I do know from personal experience and friends that there is a lot of intergenerational transfers going on between us and our kids to maybe help with mortgage payments, uh maybe help with uh uh you know uh extracurricular activities for the grandchildren. There's a lot of that going on and I think that's so again you got to put this in a a broader context of here here's a list of the negatives and the positives driving the consumer. And the reality is we just saw with retail sales is they're still spending. Do you think with the uh Fed pivot now in full motion uh we can get a resurgence in uh home sales activities especially for uh firsttime buyers now? Well, you know, we've had a a small dip in the uh in the mortgage rate and it was reported as a big percentage increase, but when you actually look at the chart, it's it's it's still looks pretty depressed. Uh, no. I I think the problem is the the availability of of housing. Um, you know, baby boomers like myself aren't moving. Uh, we may have big houses, but the the kids come and visit with the grandchildren. So, I think there's a lot of that going on. Uh, and then, uh, we still have a lot of regulatory issues that make it hard to to to build homes. I I think we just need to build a lot more homes. But and I I I don't know how you do that other than I think the administration is looking into how regulations uh could could be amended to make it easier to build homes more more quickly. So you're bullish on the stock market. What happens to the bond market? What happens to the long end of the curve uh in a rising um sorry in a lowering interest rate environment from the Fed at the while at the same time uh the economy is growing and per your projections the stock market will continue to grow as well. Well, I I think the bond market is uh basically where it should be. Um if you look at the uh bond yields in the years prior to the great financial crisis, guess what? They were right around here between four and 5%. And uh we've seen the economy perform quite well. Well, I mean, it's true that uh high long-term rates of uh clobbered uh downtown office buildings, but so has the impact of the pandemic and people not coming in to work and uh uh you know, the the brand new office buildings are doing just fine. Uh so it's uh it's not clear that we need lower mortgage rates or bond yields uh to uh to stimulate uh some areas that are depressed in the U commercial real estate market. As we just discussed, it's not clear that lower interest rates are going to suddenly revive construction of housing. Meanwhile, housing hasn't been that terrible. I mean, there have been worse recessions in housing in terms of troughs than we're we're seeing right now. Uh so um 4 and a/4 to 4 and 3/4 on the bond yield. Um you know I I think that you know we can't dismiss the possibility of a debt crisis. Uh not something like what Ray Dallio has been uh warning us about a total calamity. Uh but something like what we had in 2023 where the bond yield went from 40% to 5% in a matter of a few months. Uh but uh Janet Yalen the Treasury Secretary came up with a clever response to that. She basically told my friends of the bond vigilantes, "If you don't like my bonds, I won't issue any any additional bonds and if I need any more additional money, I'll get it in the bill market." And so the bond yield went from 5% right back straight straight down. And uh so the now Treasury sec secretary Bessent who didn't like what she did at the time now has completely endorsed it. And he's even said that uh now that we have stable coins that have to be backed the by treasury bills that might also help to create a new demand for uh for for treasuries. But uh I mean I I I think I think it would be a good thing, believe it or not, to have a debt crisis at some point that gets the attention of the politicians and makes them realize that they really have to get get their act together and slow down the uh the growth rate of outlays and increase the growth rate of revenues. We do need to resolve this issue right now. I can only characterize it as a generational theft. Uh you you young folks, the baby boomers are ripping you off. That's that's that's all there is to to to say. We're you know we're we're getting all of our uh social social services. The deficit is is huge and you're going to be left with a debt. But Dr. Ed, it's not like the government hasn't recognized that there's a deficit problem. The Doge was set up to combat this problem. It was later abandoned. I mean, what could be done at this point? That didn't work. No. No. So, they they've tried, they failed. What what what should they do? Well, um I mean, there's there's a lot of simple things that can be done that are very controversial like uh uh lengthening the uh the the age uh you know, you have you have to live longer before you can collect uh social security. Um I get social security. I'm still working, so I'm paying taxes on it. Uh but uh may maybe you know administratively baby boomers who are working shouldn't uh shouldn't be able to collect or at least if they're going to collect collect at a at a at a late later a age. Um so uh there's still a lot that can be done to clean up um the uh the excesses in the uh in the mandatory spending. But, you know, the big problem is we now have the legacy of all that excess in a trillion dollars worth of uh interest expense. And that's why the Trump administration has been leaning on the Fed pretty hard to get I mean, Trump would like to see the Fed funds rate down to one 1%. Which would uh be nightmarish in terms of the meltup scenario would create in the financial markets. Uh I have two more questions and I'll let you go. Uh why I've been getting this a lot in my inbox. People are wondering what to do in a stagflationary environment. I know that's not what you're calling for right now. You're not calling for low growth or no growth at all. Uh but in the event that we do get high inflation and lower growth, what should be done for uh uh for investors? Well, um I've been doing this for a few years and uh in the past I never paid any attention to gold. It doesn't have a a coupon. It doesn't have a dividend. You know, I couldn't value it. Uh but when it crossed above 2,000 last year, I said, you know, I think we're starting a bull market again in gold. And when it crossed 3,000, I started putting out some targets. 4,000 by year end, which looked ridiculous at the beginning of the year, but now looks pretty possible. Uh and then if it gets to 4,000, I think 5,000. Uh I base that on central bankers that don't like us. um like in China and uh and North Korea and Venezuela buying uh gold as an alternative to to to the dollar. But I think gold is a good place to be. Um I um I I think inflation edged bonds are good to be in. I think this the stock market u I think will continue to as I as we discussed at the beginning of our discussion I think that the stock market has higher to go. And then finally, uh, you wrote in a note in, uh, your Dardenni research morning briefing, which I encourage people to sign up for. Uh, very good daily information. You said, "Helped by lower interest rates, many of the S&P 500 industries involved with banking and construction have been standout performers recently." Well, that got me thinking, uh, Dr. Ed, in an environment where we do get lower Fed funds rate, what are the sectors that will continue to stand out and outperform within the S&P? Well, I really like the financials. Uh we're sort of in the sweet spot for financials where stock markets at a record high and suddenly the IPO market has opened up big time in M&A activity and guess what the investment banks are making a lot of money and they're going to report better earnings and the financials is a big sector in the S&P 500 and if it does well it gets everybody bullish about the rest of the market. So I think financials uh look pretty good and the information technology I think smidcap small and midcap information technology industrials uh the these are sectors we've been recommending over waiting in the large caps and we would stick with them uh we would continue to focus on uh the cloud uh the cloud is the biggest beneficiary of uh the AI evolution of the digital revolution so cloud providers should continue to do very So perfect. Thanks very much. Appreciate your time, Dr. Ed. And uh let's let us know where we can uh follow you and uh learn more from your work in the meantime. Yeah. Well, again, uh if if you want a trial of the institutional product, you can find it at your.com. Uh and then your dennyquicktakes.com is where you can find the uh product that's more appropriate for individual investors. It's a daily. Uh and then I am on LinkedIn. I am at on YouTube. So, uh, it's, uh, it's not that hard to to find me if you're looking for me. All right. Very good. Thank you very much. We'll put the links down below. Absolutely. Thank you. So, make sure to follow at there and, uh, we'll speak to you again soon. Take care for now. Thank you.
Economist Called Bull Rally, Now Says S&P 500 To 10,000, Here's When | Ed Yardeni
Summary
Transcript
I still think we're in the roaring 2020s. He caved into 25 basis points. I think what this does is it increases the chances of a meltup. The economy is going to continue to befuddle the pessimists and remain strong. I'm pleased to welcome back Edward Yardi, president of Yardi Research. Uh Dr. Ed's been calling for the bull market to happen uh this year and throughout this decade actually. He's been calling this the uh return of the golden 20s, soaring 20s rather. And uh he's been correct so far. We'll get his updated outlook on the markets and the economy and what's next for Fed policy with our uh interview today. Thank you very much for joining us, Dr. Ed. Thank you. Pleasure to have you. You were on the show a couple times throughout the last year. Exactly one year ago, I had you on the show in June 2024, and you were calling for the S&P to reach 8,000 points by the end of this decade, sometime this decade. I'm still bullish. I think it's a bull market. Uh, so instead of uh, you know, tweaking my year-end forecast, I'll start focusing on next year's forecast, which is 6,000 on the S&P 500 and 6,500 for uh, 2026. Uh, then by the end of the year, the decade, I think we're going to see something around 8,000. So the these are all sort of my base case 60% most likely roaring 2020 scenario. People are calling you crazy in this in the comments section. Well, it's the S&P is up a,000 points since that particular interview, so not so crazy anymore. We're at 6,600 points. So, I I'm wondering if you're updating that forecast, actually. Yeah, David, I've actually gotten crazier. I'm not talking about 10,000 or more by the end of the decade. And the end of the decade is by the end of 2029. Yeah, I still think we're in the roaring 2020s, and now I'm talking about the roaring 2030s. So, uh, if I was crazy a year ago, I guess I'm crazier now. What what what has changed? What has made you even more bullish where at least just updated your forecast? Yeah. Well, you know, I watched some of the economy and uh I think uh over the past 3 years, we've had the most widely anticipated recession of all times that uh never occurred. Maybe it's still ahead of us. Uh but I I learned from what I see and what I I see is that the economy is remarkably resilient. We've had rolling recessions. Housing is in a recession. Office buildings is in a recession, but uh overall the consumer is still spending. Uh I've been pointing out that the baby boomers are retiring with $80 trillion of net worth and they're spending it. They're passing some of that along to their kids before they pass away. And of course, the capital spending has been remarkably strong where more than 50% of capital spending now is is technology. And here we just had a stress test of the economy with tariffs and yet the economy is uh growing at a 3% uh annual rate during the third quarter after it grew about the same rate in the second quarter. So I I think the economy is going to continue to befuddle the pessimists and remain strong and I think productivity is making a big comeback which is uh it's fairy dust. Productivity makes everything better. Uh it's uh makes real GDP grow faster. It's uh great for keeping a lid on inflation. It's a booster for wages adjusted for prices. And of course, it's great for profits and profit margins. And one of the amazing things of late has been how strong profit margins have remained notwithstanding all the tariff turmoil. uh your view certainly is what reflected what is reflected rather in the markets but it somewhat is uh divergent from what the Federal Reserve itself is thinking about the economy right now. Take a listen to what Fetcher Powell had to say at the FOMC meeting this week. This is his remark uh his remarks on the labor market. Take a listen, we'll react together. Uh Kobe Smith for the New York Times. Um, should we be viewing today's cut as the committee taking out some insurance against the possibility that the labor market is at risk of weakening or is it the committee's view that the dynamics of a downturn are already in place? I guess I'm just, you know, trying to square the shift in the rate forecast in the SEP uh towards more cuts than just um 3 months ago with the fact that the forecast for unemployment didn't change. Yeah, I think you can think of this in a way as a riskmanagement cut because if you look at the SEP actually um the projections for growth this year and next actually ticked up just a little bit and inflation and unemployment didn't really move much. So what what's different now? What's different now is that you see a very different picture of the risks to the labor market. You've seen, you know, we were looking at 150,000 jobs a month at the time of the last meeting and now we see the revisions and we see the new numbers. And I I didn't I don't want to put too much emphasis on on payroll job creation, but it's just one of the things that suggests that the labor market is really cooling off. And that that tells you that it's time to to take that into account in our, you know, in our policy. Revisions indicate the labor market is cooling off. Can you assess that? Well, it's absolutely correct. uh the uh the numbers have cooled off uh certainly over the past few months and then there's this uh big downward revision of 900,000 uh that that's going to be reflected in the uh the final numbers that will be released earlier next next year. Uh but that's exactly my point is if if real GDP is growing 3%. and uh the growth rate of the labor force is now let's say uh 1% or 1.5% then we're talking about 2 to 2 1/2% uh contribution to growth uh from productivity. That's that's really the roaring 2020's concept is that we have a shortage of labor particularly skilled labor and companies are going to respond to that by using technology to augment uh the the productivity of of workers. uh Pal in a different part of his uh uh press conference uh remarked that we had a very curious situation in the uh labor market and what he's referring to is that he thinks and I and I think that a lot of the issues in the labor market u can't really be solved with easier monetary policy because they have to do with the supply of labor. We've had a a tremendous uh reversal in in the foreignb born population and labor force. The foreign born population is down 1.5 million 1.5 million just since uh March of this year from March to August. Uh that's the kind of drop and so that reflects the the the stop of the inflow of people coming from over the border in the south and at the same time a tremendous increase in deportations and employers that might have thought of hiring undocumented workers aren't going to be doing that uh clearly. So they're not going to take uh that risk. And then we've got uh the uh kids coming out of colleges wondering, you know, after they studied software programming, coding, why can't they get a job? Well, I think a lot of companies are looking at AI and trying to assess whether this might be a good way to deal with the labor shortage and not not uh higher at at this time. But uh none of these things can be fixed with uh lower interest rates. But the increase in productivity will allow the economy to grow faster uh notwithstanding the slowdown in the supply of labor. And again, PAL is fully aware of these things. I just think that uh the political pressure uh the the attempts to maintain some semblance of a consensus on the committee uh he caved into 25 basis points. I think what this does is it increases the chances of a meltup. The big risk to to my scenario, I think uh the optimistic scenario is is too much of a good thing. Kind of 1999 2000 again. You know, let's party like it's 1999. Before we continue with the video, let me tell you about a very important topic. How to protect your privacy. Now, your private information doesn't just live in the inbox of your phone. It's being collected, packaged, and stored, and tracked by data broker websites all over the internet, even without you knowing. That's where today's sponsor comes in. Delete Me. I use Delete Me to protect my privacy. And here's how it helps you. It's a platform that helps you remove your personal data, like your name, address, and contact info from hundreds of these data broker websites. When you sign up, you'll get a detailed privacy report showing where your data was found and what's already been removed. And delete Me keeps working throughout the year, scanning and clearing your information regularly. It's an easy way to take back control of your digital footprint without trying to track everything down yourself. Go to joinme.com/davidlin and use the promo code davidin at checkout to get 20% off of US plans. Link down below or scan the QR code to get started today. The Bank of England is one of the central banks uh in the past week to have held rates steady. Um, the Bank of Japan is another one. I just reading this report from the from the CNBC article here. The Bank of England voted to keep interest rates on hold. The monetary policy uh committee voted 7 to2 to keep rates steady. Uh, it weighs sticky UK inflation with an uncertain growth outlook in jobs market. That sounds exactly like what Pal was describing. So, I'm just wondering how much of this 25 basis point cut that the Federal Reserve did was politically influenced. Uh I'm pretty sure Starmer wasn't pressuring the UK uh Bank of England to to lower rates to the same extent that the government here did. I think politics did uh sway the the the the members of the Federal Open Market Committee uh to uh to lower by 25 basis points. Uh I mean only a few months ago, maybe even a month ago, they were saying that they are in no rush uh to lower interest rates because they thought that the economy was in a good place. uh they do repeat over and over again they're data dependent and based on the downward uh revisions and the weakness in recent uh payroll numbers they could certainly justify uh what what they did but that's just focusing on on the labor market data where so much so much of the other data suggests the economy is doing just fine. Uh and uh look, I I think the Fed was created back in 1913 uh with one goal and that was financial stability. Uh that still is their original mandate. Then somewhere along the line in the 1940s uh Congress decided that oh well the the Fed should really also manage the economy and so they should have a dual mandate of keeping maximum employment and stable prices. and uh all of a sudden they're finding it's not that easy to do both uh right now. And I I think they need to focus on financial stability and keeping inflation down. I don't think they can do much about the labor market that could be dealt with fiscal policies possibly. In your daddy quick takes, which is a service you offer to retail investors, you cited an article that was published uh in the Financial Times by yourself. Why it might be time to repeal the Fed's dual mandate. This is what you were just talking about right now, right? And importantly, you were talking about how 3% should be the new 2%. Can you elaborate on that? Well, I'm a practical kind of guy. If they, you know, if they're giving up on getting to 2%, which is the the way I read the 25 basis point cut, I mean, for for a couple of years, they've been telling us that they that their number one goal is to get down to 2% inflation, and now it's at 3%. They say, "Ah, it's good enough. the the the labor market has some issues. So we we got to help the the labor market. So on a de facto basis, they're basically learning to live with 3%. Remember when for years they couldn't get inflation up to 2% and they tried zero interest rates uh QE2 and and all those things. Uh I I don't think that they're it's a symmetrical situation. if they uh are concerned that we're three and not 2% they should be raising interest rates or at least they should be keeping them restrictive. I I think one of my arguments with the the uh Fed consensus is they think that the so-called neutral rate is 3%. So from their point of view they're still 100 basis point restrictive. And I look at the economy I said I I think the neutral rate is kind of where we are four 4 and a.5% with a bond deal around 4 and a quarter 4 and a.5%. Why? because we got full employment, maximum employment 4.3%. And inflation isn't quite down to 2%. So, we're kind of there. And um that's not particularly restrictive when you look at a record uh high in the stock market, gold, Bitcoin, and uh other financial assets. Okay. So, if let's say uh the Fed uh does lower, are you concerned about higher inflation then? And by the way, the 3% renewed uh or uh new target uh are you implying or at least assuming Dr. Yet that uh inflation will be higher and persistent for longer in embedded in our economy? Well, right now I think Fed officials have this notion that uh some of the recent inflation is tariff related and that this two shall pass and we'll get back down to 2%. Uh I sort of agree with that but not quite. I think that uh the the tariffs didn't increase tariffs. They just kept the tariffs from falling from three they kept the inflation rate from falling from 3% to to 2%. Uh so that's that's the current situation. I think when we look at u the the inflation news more closely, we see that it's not just durable goods inflation which is very much affected by tariffs but we're also seeing that services inflation has kind of gotten stuck around 3 to 4% uh and it would be much better if it was down to 2 to 3% to be consistent with the 2% target for the Fed. Uh I'm not arguing that they should change their target. Quite the opposite. I'm arguing that they should really focus on they should continue to have focused on getting inflation down to uh to 2%. But uh you know they they kind of uh fa finagled it a bit by saying well you know the unemployment uh rate is is is okay but we don't want it to go higher and we're concerned about the uh the payroll numbers. And as as your clip said, uh even Paul was kind of mousy about uh what this was all about by saying that uh it was sort of a an insurance uh policy against the econom the labor market getting worse. Well, how about I mean so meanwhile they're they basically uh given up on making the premium payments on their insurance policy to bring inflation down. uh some economists or observers of the market may argue that there's been a divergence between actual economic growth uh and the stock market. So your own leading e economic indicator on uh your Denny uh's website has shown that the leading economic indicator has been trickling down ever since um 2023 2024 uh while the inverse has happened with the stock market. How can you explain this divergence? Yeah. Well, you know, when any data doesn't support my story, David, uh it's it's got to be bad data or it's going to be revised. Uh I think the index of leading economic indicators, uh needs to be recalled. It needs to be, you know, I I think it should be called index of misleading economic indicators. It's just been dead wrong all along here. uh the the other chart uh which I I I would have highlighted would be the index of coincident economic indicators all time record high it's a monthly indicator of GDP basically it's got payroll employment in there it's got industrial production personal income uh business sales and that's at an all-time record high that was in in August yeah flip you can flip a little bit more uh yeah a little bit more more and that's it see bingo so the blue line is the index of coincident economic indicators all-time record high and I actually prefer the S&P 500 forward earnings uh which is uh available weekly and that's actually getting stronger uh in record high territory uh consistent with what we've seen in the first and second quarter remarkable strength in earnings notwithstanding all the the the tariff turmoil so um economy looks fine to me from a GDP perspective coincident indicators, earnings perspective and if the problem is in the labor market is is a supply side problem to a large extent that the Fed can't do much about and um it all means that productivity is u is coming to the four here and there's no reason to lower interest rates if we got strong productivity growth. You don't need to lower rates to boost productivity growth. uh instead that liquidity could go into creating financial instability which again is the Fed's uh original reason for being. This is a uh report from um from CBS this week. We're seeing uh large large uh retail stores, box stores, Home Depot retailers, Macy's, Nikon, camera maker Nikon all trying to were announcing they're raising prices for some of their goods as tariffs take effect. Now I wonder if this is a turning point for uh not just companies but financial markets as well. Uh one argument is that if these companies do go ahead with raising prices, consumers don't have uh the capacity to to actually absorb these higher prices, sales will slow. We'll start to see either margin decreases and or um slower sales in the next quarter. What do you think? Well, I think it's a it's a valid argument, but uh everything is um you know, there's a lot of moving parts here, and you can always focus on one gear and say, you know, it's not functioning quite properly and then miss the fact that all the other gears are working and the one that looks like it's malfunctioning isn't all that important to keep the machine going. And that's kind of the situation uh we're in right now. The e economy overall uh is uh is in fact growing. And so if we do have some challenges ahead for the consumer, there's been lots of reports that you know 10% of consumers are accounting for 80% of uh consumption. And I, you know, I think one point that I've uh kind of nailed over the past few years is the impact on the baby boomers. Uh and that's because I have an inside track on that. I am a baby boomer and I'm still working for a living, but a lot of my friends are retiring. And uh again, the the baby boomers are retiring. It's the richest retiring generation of all times. They're sitting on 80 trillion dollars of net worth. And they're not going to leave it all to their kids. I mean, the kids never cleaned up their room. We didn't like their friends. So, the hell with them. Let's just spend it all. But, of course, that's not what's happening. You can't spend all of that. H. And meanwhile, as the baby boomers that are retiring, I have friends who are are trying to spend it, but they can't spend it because the stock market keeps going up. And uh so that that just paid for the for the cruise. Um, and I do know from personal experience and friends that there is a lot of intergenerational transfers going on between us and our kids to maybe help with mortgage payments, uh maybe help with uh uh you know uh extracurricular activities for the grandchildren. There's a lot of that going on and I think that's so again you got to put this in a a broader context of here here's a list of the negatives and the positives driving the consumer. And the reality is we just saw with retail sales is they're still spending. Do you think with the uh Fed pivot now in full motion uh we can get a resurgence in uh home sales activities especially for uh firsttime buyers now? Well, you know, we've had a a small dip in the uh in the mortgage rate and it was reported as a big percentage increase, but when you actually look at the chart, it's it's it's still looks pretty depressed. Uh, no. I I think the problem is the the availability of of housing. Um, you know, baby boomers like myself aren't moving. Uh, we may have big houses, but the the kids come and visit with the grandchildren. So, I think there's a lot of that going on. Uh, and then, uh, we still have a lot of regulatory issues that make it hard to to to build homes. I I think we just need to build a lot more homes. But and I I I don't know how you do that other than I think the administration is looking into how regulations uh could could be amended to make it easier to build homes more more quickly. So you're bullish on the stock market. What happens to the bond market? What happens to the long end of the curve uh in a rising um sorry in a lowering interest rate environment from the Fed at the while at the same time uh the economy is growing and per your projections the stock market will continue to grow as well. Well, I I think the bond market is uh basically where it should be. Um if you look at the uh bond yields in the years prior to the great financial crisis, guess what? They were right around here between four and 5%. And uh we've seen the economy perform quite well. Well, I mean, it's true that uh high long-term rates of uh clobbered uh downtown office buildings, but so has the impact of the pandemic and people not coming in to work and uh uh you know, the the brand new office buildings are doing just fine. Uh so it's uh it's not clear that we need lower mortgage rates or bond yields uh to uh to stimulate uh some areas that are depressed in the U commercial real estate market. As we just discussed, it's not clear that lower interest rates are going to suddenly revive construction of housing. Meanwhile, housing hasn't been that terrible. I mean, there have been worse recessions in housing in terms of troughs than we're we're seeing right now. Uh so um 4 and a/4 to 4 and 3/4 on the bond yield. Um you know I I think that you know we can't dismiss the possibility of a debt crisis. Uh not something like what Ray Dallio has been uh warning us about a total calamity. Uh but something like what we had in 2023 where the bond yield went from 40% to 5% in a matter of a few months. Uh but uh Janet Yalen the Treasury Secretary came up with a clever response to that. She basically told my friends of the bond vigilantes, "If you don't like my bonds, I won't issue any any additional bonds and if I need any more additional money, I'll get it in the bill market." And so the bond yield went from 5% right back straight straight down. And uh so the now Treasury sec secretary Bessent who didn't like what she did at the time now has completely endorsed it. And he's even said that uh now that we have stable coins that have to be backed the by treasury bills that might also help to create a new demand for uh for for treasuries. But uh I mean I I I think I think it would be a good thing, believe it or not, to have a debt crisis at some point that gets the attention of the politicians and makes them realize that they really have to get get their act together and slow down the uh the growth rate of outlays and increase the growth rate of revenues. We do need to resolve this issue right now. I can only characterize it as a generational theft. Uh you you young folks, the baby boomers are ripping you off. That's that's that's all there is to to to say. We're you know we're we're getting all of our uh social social services. The deficit is is huge and you're going to be left with a debt. But Dr. Ed, it's not like the government hasn't recognized that there's a deficit problem. The Doge was set up to combat this problem. It was later abandoned. I mean, what could be done at this point? That didn't work. No. No. So, they they've tried, they failed. What what what should they do? Well, um I mean, there's there's a lot of simple things that can be done that are very controversial like uh uh lengthening the uh the the age uh you know, you have you have to live longer before you can collect uh social security. Um I get social security. I'm still working, so I'm paying taxes on it. Uh but uh may maybe you know administratively baby boomers who are working shouldn't uh shouldn't be able to collect or at least if they're going to collect collect at a at a at a late later a age. Um so uh there's still a lot that can be done to clean up um the uh the excesses in the uh in the mandatory spending. But, you know, the big problem is we now have the legacy of all that excess in a trillion dollars worth of uh interest expense. And that's why the Trump administration has been leaning on the Fed pretty hard to get I mean, Trump would like to see the Fed funds rate down to one 1%. Which would uh be nightmarish in terms of the meltup scenario would create in the financial markets. Uh I have two more questions and I'll let you go. Uh why I've been getting this a lot in my inbox. People are wondering what to do in a stagflationary environment. I know that's not what you're calling for right now. You're not calling for low growth or no growth at all. Uh but in the event that we do get high inflation and lower growth, what should be done for uh uh for investors? Well, um I've been doing this for a few years and uh in the past I never paid any attention to gold. It doesn't have a a coupon. It doesn't have a dividend. You know, I couldn't value it. Uh but when it crossed above 2,000 last year, I said, you know, I think we're starting a bull market again in gold. And when it crossed 3,000, I started putting out some targets. 4,000 by year end, which looked ridiculous at the beginning of the year, but now looks pretty possible. Uh and then if it gets to 4,000, I think 5,000. Uh I base that on central bankers that don't like us. um like in China and uh and North Korea and Venezuela buying uh gold as an alternative to to to the dollar. But I think gold is a good place to be. Um I um I I think inflation edged bonds are good to be in. I think this the stock market u I think will continue to as I as we discussed at the beginning of our discussion I think that the stock market has higher to go. And then finally, uh, you wrote in a note in, uh, your Dardenni research morning briefing, which I encourage people to sign up for. Uh, very good daily information. You said, "Helped by lower interest rates, many of the S&P 500 industries involved with banking and construction have been standout performers recently." Well, that got me thinking, uh, Dr. Ed, in an environment where we do get lower Fed funds rate, what are the sectors that will continue to stand out and outperform within the S&P? Well, I really like the financials. Uh we're sort of in the sweet spot for financials where stock markets at a record high and suddenly the IPO market has opened up big time in M&A activity and guess what the investment banks are making a lot of money and they're going to report better earnings and the financials is a big sector in the S&P 500 and if it does well it gets everybody bullish about the rest of the market. So I think financials uh look pretty good and the information technology I think smidcap small and midcap information technology industrials uh the these are sectors we've been recommending over waiting in the large caps and we would stick with them uh we would continue to focus on uh the cloud uh the cloud is the biggest beneficiary of uh the AI evolution of the digital revolution so cloud providers should continue to do very So perfect. Thanks very much. Appreciate your time, Dr. Ed. And uh let's let us know where we can uh follow you and uh learn more from your work in the meantime. Yeah. Well, again, uh if if you want a trial of the institutional product, you can find it at your.com. Uh and then your dennyquicktakes.com is where you can find the uh product that's more appropriate for individual investors. It's a daily. Uh and then I am on LinkedIn. I am at on YouTube. So, uh, it's, uh, it's not that hard to to find me if you're looking for me. All right. Very good. Thank you very much. We'll put the links down below. Absolutely. Thank you. So, make sure to follow at there and, uh, we'll speak to you again soon. Take care for now. Thank you.