The Ultimate Bull Vs. Bear Debate: Ed Yardeni & David Rosenberg
Summary
Market Outlook: Ed Yardeni maintains a bullish outlook, predicting the S&P 500 could reach 10,000 by 2029, driven by strong earnings and a resilient economy, while David Rosenberg emphasizes caution, highlighting the risks of high valuation multiples and potential market bubbles.
Economic Resilience: Yardeni argues that the economy's resilience is evidenced by strong productivity and the absence of a widely anticipated recession, dubbing the current period the "roaring 2020s."
Valuation Concerns: Rosenberg warns of elevated valuation metrics, such as the CAPE ratio, suggesting that markets are priced for perfection and may not sustain current levels without a supportive interest rate environment.
Gold and Precious Metals: Both experts acknowledge the strong performance of gold and silver, driven by central bank buying and geopolitical tensions, with gold reaching all-time highs and projections of further increases.
Investment Opportunities: Yardeni recommends overweighting sectors like information technology, communication services, financials, and industrials, while Rosenberg advises caution in high-risk, high-valuation environments, suggesting alternative investments.
Labor Market and Productivity: Rosenberg points to weakening labor market indicators as a potential precursor to economic slowdown, while Yardeni highlights productivity gains as a counterbalance to labor market challenges.
Technological Impact: The discussion highlights the transformative potential of AI and digital advancements, with Yardeni seeing it as an evolution of the digital revolution, while Rosenberg remains cautious about the societal impacts and market overvaluation.
Demographic Influence: Yardeni emphasizes the spending power of retiring baby boomers as a key driver of economic resilience, while Rosenberg questions the sustainability of consumer spending driven by wealth effects rather than organic income growth.
Transcript
the the credit markets right now, like the equity market, are priced for almost 0% recession risk. How can anybody ever say at any moment in time that the business cycle's been totally repealed? You'll never hear that from me. I think the economy and the credit markets are much more resilient now. The uh correction we had at the beginning of this year, that could be fairly concerning. Then we had this uh remarkable V-shaped recovery. What the S&P 500 has done in gold terms. The S&P of 100 is down 23% this year. If you've got GDP being revised up and you've got the employment numbers uh being revised down, that that must mean productivity is absolutely on fire. I've been calling it the roaring 2020s and so far so good. I'm pleased to welcome to my show two economists and strategists who have been very popular on this program and many others at Yardenni, president of Yardi Research and David Rosenberg, president of uh Rosenber and Associates. very honored to be joined by both of you. Uh they have slightly different views in the markets and where the economy is headed but uh are both brilliant nonetheless. Thank you for being here both of you. Thank you very much. Yeah, thanks David. Great to be on. I just interviewed Ed. So let's follow up with uh Ed and I interviewed David a few months ago. So we'll follow up on his views um there as well. We'll have to talk about the government shutdown which is ongoing this week. Uh but first let's just get your stock market prediction and then the macro views behind that prediction. Dr. Ed, let's start with you. Since I spoke with you recently, you had upgraded your or updated rather your your bullish outlook. First it was 8,000 points on the S&P by the end of the decade and now you're saying 10,000. Yeah, 10 I mean I changed that about several months ago actually. I started talking about 10,000 and uh basically uh the economy's proven to be amazingly resilient and we've seen that in very strong earnings. earnings were very strong in the first and second quarters. And uh just kind of thinking about the uh the trend in uh in earnings with without a recession occurring between now and n the the end of 2029. Uh I think we could get to to 10,000. For the year ahead, I'm using 7,700. Uh I think the market will be discounting $350 a share uh for the S&P 500 by the end of uh next year. And I would apply a 22 multiple on that. So that would get me 7,700 by the end of next year. And I think the market will continue to move higher. Valuation multiples are are high and I think they can stay high as long as there's no recession. And I think the economy's demonstrated the past three years. We've had the most widely anticipated recession that just didn't happen. Maybe now that almost nobody thinks there's a recession coming. uh from my contra instincts are a little bit uh on on alert but u again I'm I'm going to go with a resilient economy for the rest of the decade and I've been calling it the roaring 2020s and so far so good and uh just need to get a few more years right all right uh David I'll let you uh give your forecast and then we can respond right well uh I don't um I don't give point forecasts anymore and the reason is because um the people that have point forecasts are continuously, you know, revising them. Uh, and I think it just creates more volatility in their own lives as opposed to uh getting a point estimate right. Everybody was cutting their year-end targets uh during the February to April uh draw down and that was a mistake and now everybody is raising their numbers. Uh I operate I don't I don't operate in black and white. I operate in uh shades of gray because the one thing I've learned in the 40 years in the business is that uh there is no such thing as a sure thing. And when you're giving a point forecast, you're basically um saying there's a sure thing. I I think it's more helpful actually when you give a point forecast, if you talk about what the risks are to your forecast, and they could be upside or downside risks. Uh and um what plan B is if the base case scenario doesn't come to be. So that's basically how I operate. Uh but that's from years of having worked both on the sell side and the buy side. So I deal more with uh direction. Uh and I spend most of my time across the asset classes trying to depict uh what's priced in at any moment in time. Uh and then whether or not I disagree with uh what the markets are telling me. Um you know, people always say that the markets are right. Um but were the markets right uh you know in the summer of 2007 uh when you look at what happened not just in the next year but the next two years just as one example there's countless other examples. So sometimes you have to either agree with the market or disagree and the question is you know what's priced in. I think Ed hit the nail on the head when he said that um nobody's calling for recession and it is ironic because there was so much recession fear uh back when the Fed was tightening policy. so aggressively in 2022 and in 2023. And I think what a lot of us uh underestimated uh was the power of fiscal stimulus and primarily not just the subsidies by the Biden administration which were huge uh for the construction of manufacturing facilities but it was really that $2 trillion combined stimulus checks of the household sector uh were the first time ever 100% of stimulus checks and $2 trillion is not exactly chump change. um all that money got spent and it was a gift that kept on giving and served as a massive antidote uh to what the Fed was doing over that period. It's why the inverted yield curve didn't work this time. Uh it was the power primarily of those stimulus checks which are now basically in the rearview mirror. Um I would say that uh as far as the market's concerned uh you know Ed is uh in terms of his calls is obviously hit the nail on the head. Um but uh I am concerned you know when uh you have the multiples and I think that Ed made the point that the multiples uh can stay elevated. Uh I just don't know if they make the multiples only make sense if we're in the sort of real interest rate environment we had 5 years ago. Uh not in the real interest rate environment we have right now. You always have to take a look at you know where is the where the market's trading any market benchmarked against uh the risk-free real interest rate and on that score you know when I look at almost every multiple that you could come up with uh price to sales price to ibeta price to book in so far as that still matters uh in today's environment u the buffet indicator that has its limitations too but price to sales are price to sales uh and you look at the trailing and the forward And you look at the uh cape multiple, which is my favorite because it goes back more than 100 years. And you know, when you're at 38 uh on the on the cape multiple, and it's not a timing device, but I always find that valuations, while not a timing device, at any point on the continuum, either act as a a tailwind or a headwind. Uh we've only been this high on the Cape multiple, the Schiller multiple. um three other times in history and it was back at the end of 2021 and nobody was calling for a bare market in 2022 but we did get one and it was saved by chat GPT in the fall of that year. Uh and then you're back in 992000 and before that well we're even above the level of 1929. Um these are each one of these valuation metrics that I mentioned are more than two standard deviation events. Uh I guess we could say that it's different this time. Uh and maybe it is maybe chat GPT and uh the uh shift in the technology curve is bigger than the internet was. Uh I mean time will tell. Uh but the point that I'm making is really two things. Uh the first is that I don't normally go balls to the wall bullish on anything uh when it's trading north of a two sigma event. I I just don't do that. I think we are in a bubble and I think as Bob Frell famously said uh bubbles go further than you think which is where we are right now. Uh but they don't correct by going sideways and I just don't invest in 2 SD events no matter what. I find other things to deploy uh the money and we've been doing that. It's very interesting that as we're sitting here the first thing we're talking about is the stock market and I imagine we'll get into gold and silver. Uh but gold and silver and the gold and silver mining stocks have actually smoked uh the S&P 500 this year and that that's they're not a trade on the MAG7. Um they're a trade maybe on something else that's going on. Um but if you're taking a look at what the S&P 500 has done in gold terms, not in deflated US dollar terms, the S&P 500 is down 23% this year. Uh so that again is if you're measuring it against something historically that's been stable uh which is the gold price. If we're taking a look at what's priced in I'll just make one last point that I said before that you want to take a look at what's priced in and when we back out the valuations what we're able to ascertain is that the S&P 500 as its own asset class um is discounting for the next 5 years sort of 2030 is discounting 15% EPS growth on an average annual basis which is double the historical norm. Uh now maybe we'll get that his history shows there's a 1 in 10 chance that over a 5year period you'll get double the average growth rate in earnings. All right. Investors should know that that is what you're buying right now. You're buying a market that's anticipating a 2x on the historical earnings trend benchmarked against the historical record. Right now gold is trading at an all-time high which has far surpassed many of the most bullish forecasts for 2025. The gold price itself is up 46% year to date, while silver surpassed the $40 mark, a price not seen since 2011. Meanwhile, banks are still raising their gold price forecasts, with Goldman Sachs projecting $4,000 by year end if current buying continues and $5,000 if the Fed aggressively lowers rates. Driving further demand for gold is strong central bank buying with central bank's net purchases totaling 244 tons in quarter 1 2025 alone according to the world gold council into this boom in precious metals and in record central bank demand I believe I have just come across one of the most monumental and significant developments in gold and commodities that I've seen in recent times. Now, ETFs in the past have made good trading vehicles accessible to a much larger audience in the 2000s, in much the same way that Blockbuster branches made movies accessible to cinema goers. But here's the catch. 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Basically, do your own research on StreamX, which is going to be a major disruptor in the commodities and ETF business with fully backed auditing and verifiable ownership, redeemable and secured. Check out their website in the description, link down below. All right, thank you. I just let uh Dr. Ed have a chance to respond to the evaluation. I I think David, I and I actually do agree on gold. Um I have never had an opinion on gold. As an old-fashioned strategist, I don't have any anything to to to any model that I can use. I I need some income. I need interest, coupon, uh rent, something. But you don't have that with with gold. Uh and of course, there's a lot of uh explanations for why gold goes up or or doesn't. Uh it, you know, traditionally viewed as an inflation hedge. Uh but when it uh rose above uh 2,000 last year, I said, you know, this could be the beginning of a bull market and I based it on a very simple insight. Russia invaded Ukraine. Uh the US and uh Europe froze the assets of uh of the Russians and central banks of countries that are hostile to American interests decided it's time to buy more gold and cut back on their uh the dollar and and euro reserves. Uh so there there's basically a central bank put on on gold and then uh you we've had a lot of geopolitical um uh instability uh which I think is uh been been unnerving. I think Chinese investors are buying a lot of gold because they got uh killed in the property market. The Chinese government hasn't really done anything to stabilize that market. Uh they've gotten whips out in their stock market. So undoubtedly you've got Chinese investors buying gold and uh people in India have traditionally been gold purchasers and I think there's there's a lot of demand coming out of there. Uh I I think you know you can throw in all sorts of other things about concerns about uh fiat currencies debt debt crisis. So yeah, I I think Dave David's right on with the the gold call and if gold works, si silver works. Uh with regards to uh to the market, um I question David, you know, appropriately asked, you know, what is the market discounting? And I I guess from my my point of view, uh I I was in the minority camp on on the economy for the past three years arguing that we would not get a recession, that an increase in the Fed funds rate from 0 to 5 a 12% uh wasn't so much it was partly tightening, but it was also normalizing. Zero was the abnormality. 5 a.5% was not abnormal at all. And the same thing went uh for my view of the bond market. 0.5% was the abnormality resulting from QE the COVID and and factors like that. Uh concerns about deflation when COVID hit. Uh but uh now that we're at the four to 5% I think that's um that's back to normal. And so I think those levels of of interest rates are sustainable. And I've been uh uh I I've been thinking that if the Fed continues to I I was opposed to the Fed lowering interest rates last year and this year because I said look uh last year I said the bond vigilantes are going to bite you. They're going to come back to come and get you. And sure enough they lowered the Fed funds rate 100 basis points last year late last year and bond yields went up 100 basis points. This time around bond yields got down to 4%. They kind of bounced off of that. they're kind of toying around with that level. Uh but uh I I I don't expect to see bond yields going much uh going lower here. I think they're going to remain in this four to 5% range. So I think what the stock market is discounting, my interpretation uh is there was a lot of uh as David said, there was a lot of concerns about a recession o over the past three years. Most widely anticipated recession that just didn't happen. The GDAU recession is what I called it. And uh David's right, fiscal policy is a big uh part of the resilience of the economy. But the consumer um one factor that I think a lot of people have missed is the the baby boom demographics. The baby boomers have always had a very important impact on the economy. And right now total household wealth is a is a record $160 trillion. And half of that is held by the baby boomers, $80 trillion. So, the baby boomers were raised by Spock, and I'm not talking about Dr. Benjamin Spock, though they were raised by their mothers who read Dr. Benjamin Spock. Uh, but we baby boomers were uh kind of grew up watching TV and we watched a lot of Star Trek. And, uh, Spock the Vulcan said, "Live long and prosper." And so, we've taken that to heart. We've been living longer and we've uh invested in all sorts of different assets from houses to uh real estate to homes to insurance policies and we've prospered along the way. We paid off our mortgages. So, there's a tremendous amount of uh net worth that the retiring baby boomers are spending now. uh they're sharing some of that with their adult children, maybe helping out with mortgage down payments, mortgage interest, u uh the grandchildren's uh you know, after school activities, whatever. There's a a great deal of resilience in the consumer as a result of that. Great deal of resilience in capital spending. More than 50% of capital spending now is in technology. And I think that that's based on the GDP numbers. I think it's actually more than that. And technology is something that companies recognize they have to spend on in order to stay competitive. We've got a shortage of skilled labor. We've got a shortage of of uh uh we've got a mismatch of labor. And as a result of that, companies are doing what they should be doing, and that is increasing productivity. So I I see a productivity boom um over the rest of the decade into the 2030s. If the roaring 2020s work out for me, I'll be talking about the roaring 2030s. But I think the stock market's discounting the resilience of the economy and maybe erroneous now, as you said, David, now that nobody's expecting a recession, maybe now's the time to worry about it. But I think that's what the market is is is betting on. And the pees um tend to go will always go down when people worry about a recession and you get a correction when the recession doesn't happen uh and you get down to maybe 15 18 from in the in the 20s. When a recession actually happens you get singledigit uh multiples in the market and um I I'm not guaranteeing this. It doesn't come with a money back guarantee. Uh but I I I think the resilience of the economy continues through the end of the decade. Uh I think we have rolling recessions instead of economywide recessions and I think the market's uh correctly uh discounting that. All right, I'll move on to the labor market and I'll start with David first. So private sector payrolls just went negative for the uh for the second straight month. Lost 32,000 jobs in September. Uh June was revised to negative 13,000 jobs, the first loss since December 2020. The hiring rate is now at 3.2%. It's not a level similar to the immediate. It's now a level similar to the immediate aftermath of the Great Recession and um and investors are betting the Fed will cut rates to save the day. Will the Fed cut rates to save the day? Will that be enough? I'll just let you comment on the labor market to start with, David. And um going back to the in the no recession call, uh Jerome Pow himself has stated that the labor market is weakening. Is this a precursor to a recession or is it just noise? Well, I I don't think it's noise. And um you know the reality is that you know what didn't happen in the recession scare of 2022 and 2023 I is that you were not seeing um declines in employment uh that you're seeing right now. Now, we don't have a non-farm payroll report today, and we'll see how long that's going to take. But in the past 4 months, the only reason why non-farm payrolls haven't gone down is because of the skew of the birth death model. Uh, and outside of health and education, which is non-yclical, employment's been declining for the past several months. So, you're seeing serious erosion. It's not noise, it's a pattern. Uh, you know, you mentioned the ADP number. The first thing I go to with ADP is the small business sector. Uh because the small business sector is on the front lines of the economy and they can adjust their payrolls much more quickly than large companies. Uh and um you know the small business sector employment declined 40,000 uh in September which is huge and that was after a 44,000 decline in August. We haven't seen declines like that since the summer of 2020. uh when COVID was still ravaging the economy and most of the economy was closed uh and the small business sector is a is a leading indicator and there's other things too right like you've got uh the service sector ISM employment has been below 50 four months in a row uh for manufacturing it's been um below 50 now for eight months in a row and as you had mentioned um from the Jolts numbers uh you know we're seeing on a trend basis a big decline in hiring activity uh the challenger numbers for example on hiring year-over-year that's fallen dramatically and I think this is important the hiring rate going down because if in fact the other side of the debate is right I'm not saying Ed is saying this but a lot of people are saying that the decline in the labor market is supply side related because of all the immigration restrictions. Uh I think that's a factor but it's a two-bit factor. I think that there is a fundamental decline uh in the demand for labor because if companies are scrambling to replace the people that are being pushed out of the country, you'd be seeing job openings going up. That's not happening. But you'd be seeing gross hiring activity going up and that's not happening. and you'd be seeing companies scrambling and in that scramble they'd be raising wages but wage growth is actually moderating. So we're seeing a fundamental erosion in the demand for labor and uh I think it's obviously important because employment ultimately leads disposable income and disposable income then leads consumer spending and consumer spending is roughly 70% of GDP. Now, it may well be that the stock market looks through all this because, you know, when you have um $9 trillion mega cap growth companies, uh you have basically the same share of classic growth in the S&P 500 that you had back in the late 90s and 2000s. So, by definition, the S&P 500 has morphed into a growth index. Uh and it's lost a lot of italical properties. So, who knows? Maybe the first time ever we have a recession, the stock market just breezes by because it's effectively a longduration animal. Uh, it doesn't mean that's the same for the S&P 600 or for the Russell 2000. But that has been the case for the S&P 500. It's morphed into a growth index by definition. Therefore, it's got a longer duration expectation. I mentioned what's priced in on a 5-year basis. However, let me just say that for the people talking about GDP, it's not the only measure for economic activity. And we all talk about how so far this year there's actually been no growth for 92% of the economy called the part of the economy that isn't touched by AI directly or indirectly. You know, 92% of GDP is actually flat so far this year. it's open AI uh and the same concentration in the economy as there is in the stock market. Uh there's it's not just autos and housing. There's a lot of areas of the economy uh that are struggling right now. Um but the AI story uh is carrying the day. There's no doubt about it. But something else has happened that people that are saying the economy is so hunky dory that actually in the second quarter the biggest contribution to GDP growth was the tariff induced plunge in imports. Imports went down so much in the second quarter arithmetically it contributed 5 percentage points to headline GDP growth because imports are a negative in the GDP numbers. So, um, when they go when they go down, it provides a huge boost to GDP. Outside of imports, real GDP was actually negative 1.2 negative 1.2. That's a big that's a that's something that's that's worth commenting on. uh and and the fact that you know the the consumer is hung in very well but you can't talk about the consumer uh in the aggregate really because true you got to take a look what the critical factors are the critical factor and you can see it in the savings rate the savings rate in the past four months has come down more than a full percentage point why why is that happening is because you get because you've got because you've got the stock market boom so you've got this ongoing K shape to the consumer, right? Like basically what McDonald's is telling you that people are skipping breakfast. You can't therefore then say, "Oh, well things are hunky dory with the consumer." There's a segment of the consumer and it's the high-end that's driving the bus. And that's because of the stock market. Okay? It's not because of the labor market. And in actuality, I don't know anybody can look anybody straight in the face and say, "This is a great economy." when in the April to August period real personal disposable income you want to talk about the labor market what is the income after tax in real terms that the labor market is spitting out David negative 1.2% annualized real disposable income growth and yet real consumer spending growth is up 2.6% 6% over that period. That's the fallout is the drop in the savings rate linked back to the equity wealth effect on spending. Now, I'll just make this one last point, which is this. There's another asset class that also bulks large on the household balance sheet, which is called residential real estate. And we just got the case sheller numbers this week on home prices. They're down four months in a row. Four months is already the start of a pattern. And what we found historically is housing leads the equity market. Residential real estate leads the equity market. There's a 90% correlation between residential real estate valuation and equity market valuation. We haven't seen this play out yet. Um, but I I said this, you know, Ed and I debated a lot back in 2006, 2007. I set for the record back then. And back then it wasn't about AI. It was about the democratization of finance and the fact that everybody can go and buy a home. At that point the supply demand curve started to shift as they're doing right now in residential real estate. I said then I'll say now no cycle ever ends well. And this took time to play out but it played out big time. No cycle ever ends up well in a real estate deflation cycle. And this thing just started getting going 4 months ago. Okay, great. Uh let's give uh Dr. had a chance to respond to that. Yeah, look uh a few things. Um again, I think uh I I put a lot of weight on the importance of uh let's say 70 million people that are baby boomers. They are increasingly retiring. They're sitting on $80 trillion of net worth. I predict that the savings rate is going to turn negative. You got all these people that are retiring. They're not going to be getting income anymore. So you could have some weakness in disposable income because uh baby boomers tend to make more, you know, live long and and prosper. They they've lived long, they've worked a long time. They're they're making a lot of money and uh as they retire u that that money is not going to be earned anymore, but they will be spending an enormous amount of their net worth and there'll be inheritances and there's uh support going on right now. And I think you really have to factor that in. I think you're right. There's a lot of things going on with the consumer and I think that that's where I'm putting my weight of uh of of thinking about the consumer and as you pointed out uh the second quarter uh uh real GDP when it first came out was clearly uh uh kind of a an upside reversal from the weakness we saw in the first quarter related to the tariffs impact on uh on imports. But then the upward revisions that occurred last week from 3.3% to 3.8 8% for the second quarter were awfully impressive and the consumer went up from 2 from 1.6% to 2.5%. So the consumer is still spending. And then on Friday of last week uh the uh Atlanta Fed came up with its latest uh estimate for uh the growth of the economy in the uh third quarter and it's running around 3.8% 3.9% was what they came up with. But then the latest rei revision is 3.8%. Um I you know I'm I maybe I tend to accentuate the positives but I think what if you've got GDP being revised up and it's grown at over 3% and you've got the employment numbers uh being revised down that that must mean productivity is absolutely on fire. And I think there's a a a fundamental labor shortage in in the economy. I think you're right. It's not just supply. There's also a demand issue. And I think we have to seriously consider the possibility that companies are holding off on uh expanding their payrolls until they figure out what they might be able to do with AI uh to uh eliminate position entry level positions. And right now we know that the uh the the where the labor market is weakest is in uh teen teenagers and particularly people young people coming out of colleges are finding it very very hard to get an interview. Uh so I think that companies are responding to that uh by uh by using AI to increase their productivity and the demands holding up. the Fed if you know the Fed has this dual mandate and they're going they are going to give more weight than I would give to the labor market indicators at this point because even I mean pal did acknowledge that there's some funky things going on in the labor markets supply is going down and and demand is going down so you're right it's it's not just supply David um but when I uh look at uh at at these labor market indicators I say you know this this is the the consequence of uh the the uh that we're seeing fewer babies being born. Uh now we got a real slowdown in the native born population and on top of that as you said we've got uh I think the uh population of foreignb born from March to August just a very short period of time is down 1.5 million. So that's clearly had had an impact. Um but there are technologies uh there are ways to kind of re regroup your your business in a way that allows you to increase your productivity and satisfy the demand. I mean businesses are are doing well. Uh earnings alltime record high for the S&P 500. Uh and we've looked at it uh you know Magnificent 7 versus what I call the impressive 493 and the impressive 493 are also very strong. profit margins have held up remarkably well in the face of tariffs and again that can only be explained in my opinion by uh by the uh productivity and uh having an impact on on on those uh profits. So, put it all together. I think um David David uh David certainly uh gave a a good u analysis from you know where things could go wrong or are going wrong and I you know I I respect David's analysis of the business cycle. There's a lot to it but frankly I haven't put as much emphasis on residential real estate. Uh I I think there's you know home prices are still extraordinarily high. uh there's been a tremendous uh positive uh wealth effect from real estate and the stock market. But David, at the end of the day, if whatever it is causes the stock market to tank, there will be a negative wealth effect. And that may be what causes the next recession, uh a big negative effect from the stock market. But that's not my story. Yeah. You know, I don't um I I don't know if the stock market's going to tank or not. Um, as I said at the beginning, I I just uh don't invest. I don't tell people what to do. Um, I tell people what I'm doing. Uh, I don't invest in two sigma events unless it's coming off uh a depressed bottom. So, um, and that and and and based on our work, that's where we are right now. Acknowledging that Bob Ferrell's classic rule that exponentially rising markets go further than you think, but they don't correct by going sideways. I I have a couple of concerns. You know, the the first is that um you know, when I hear about asset prices, I hear about um wealth, you know, asset prices in the United States, you go back a century's worth of data, it's always high. Even in recessions, it's high. Wealth is always high. Um ultimately though it's the direction that influences growth uh not the levels. And I have a problem. I had a problem back in 2000 and nobody saw a recession in 2001 and I had problems in 2007 and nobody saw a recession 2008. I have a problem with getting to this stage of the cycle where asset prices are driving so much of what's happening in the economy in particular uh the fabled wealth effect. Um, and as I said before, GDP indeed. So, Ed says 38 and 38. 38 is Scott Besson's favorite number right now. GDP is spending. It's not the only measure of economic activity. GDP is spending, consumer spending, business spending, housing, uh, exports, government spending. But what about income? We This is not an economy driven by organic income. I finished saying before because this is the statistic. Nobody knows. Everybody knows 38. Nobody knows that over the past four to five months real disposable incomes in the United States. This is where you want to talk David Lynn about what is the labor market doing. The labor market is spitting out a negative 1.2% 2% annualized trend since April in something fundamental called real personal disposable income. So yes, uh everything Ed's talking about is feeding into something we've seen at the peak of other cycles, which is this wealth effect driven decline in the savings rate to promote consumer spending, of course, in a certain slice of it, which is the high end. So I just don't look ever at headline numbers. I got to dig deep to find out what is the stability behind those numbers, what is the proportionality, what is the distribution. Um and uh I look at the stock market for example uh I see it extremely concentrated um just as it was. Uh the earnings are concentrated uh the market capitalization is concentrated to an extent that it was back at the peak in early 2000. a peak that nobody ever knows it's a peak till you're reading about it in the history books. So, we're not going to talk about it right now. Obviously, we're not in the history books just yet. And, you know, Ed talks about the demographics. Look, um, we have a situation where, and this is what's driving the market is a lot of the momentum and the bull market and passive index investing. Uh, passive index investing. Uh we have a situation now where passive index funds for the first time ever account for more than 50% of the market cap. They've overtaken active and now a lot of the active managers are becoming index managers because it's been working and you're getting these flow of funds coming in and these index funds have to buy the market. uh it's this self-reinforcing development, but it's gone to another extreme which is and of course people think that they're smart that 72% of the US household financial asset mix is now in equities. Only 8% is in bonds. Who's going to talk to you at the cocktail party if you want to talk to the Treasury market? They're going to avoid you like the plague. Um, but we've never had this degree of concentration before of index funds, passive investing. Uh, we've never had this degree of concentration of of household financial assets in the stock market. Uh, but it's it's certainly worked. But you see, the thing is that nobody in this cycle has rebalanced their portfolio, and there's been, I guess Ed might say, no reason to. But they've not rebalanced. They've not taken profits, and they've not diversified. Um I I find that actually rather chilling. Um but you know, nobody really wants to hear that story, but they might want to one or two years down the road. You know that the the boomer the boomer over 60% of boomer financial assets are in the stock market and that's just been great. Um, however, the time cycle of investing historically would warrant that they should be closer to 40% equities than 60. Time is not on their side, notwithstanding the fact that life expectancy is going up. And the fact that life expectancy is going up means that their money is going to have to work longer for them once they retire. And here's the problem is that all our two standard deviation events in the market says much more uh you know I I do call it a bubble and Jeremy Granthm would agree that anything more than a 2SD event is a classic bubble. We are in a price bubble and it can go on further. But I I'm worried about when the bubble does pop because we know historically that bubbles pop. even bubbles premised on a phenomenal shift in the technology curve and we've had multiples of these over the bubbles. So the well let me just finish let me just we'll let me just finish this last point which is this the median age of the boomer at the peak of the bubble in March 2000 was 40. The median age of the boomer today is 60. Okay. Time at least was on their side back then. And and I'm wondering actually unless you unless the market cycle has been fully repealed which I don't believe um what happens in the next bare market whenever it starts what is going to be the social impact especially on this critical demographic that's driven everything in the past five decades from the economy to finance to politics. Um that to me is something that we should be talking more about than 3.8 on the last GDP print. Right. Let's get uh Dr. Ed to respond. And I'll I'll add to uh a question to that if I may. Dr. Ed, uh suppose David is right in his assessment that we're currently in a bubble and the markets are so concentrated that it becomes a risk in itself. you know, ultimately where do investors go in an environment where things are looking frothly and bubbly and there's a huge concentration risk and I'll let you respond to the rest of it. I mean, um, weren't we all saying that or thinking that at the end of last year, at the beginning of this year? I mean, we were looking at a 22 multiple at the beginning of the year and then we had a a correction and the correction didn't lead to a recession. The correction didn't lead to uh uh a drop in real GDP. It was just a correction. And we had a bare market not too long ago back in 2022. And uh it was kind of a garden variety bare market. Didn't last very long. And there was no recession associated with it. So I I think that there are certainly aspects of a meltup. There's certainly aspects of a bubble. uh but uh I think the economy and the credit markets are much more resilient now so that the implications aren't what they were in the past. I think we could very well see a significant correction uh sometime next next year. It might be from a 23 24 25 multiple. Uh and um that could be fairly concerning, but so was the uh correction we had at the beginning of this year. And then we had this uh remarkable V-shaped recovery as the market uh started to recognize that uh some of the concerns about uh the hyperscalers uh spending too much money on uh data centers may well maybe we've already kind of had that concern and uh because of deepsek and the market saw that these hyperscalers were convinced that they were on to something and that they were going to continue to spend. So, uh I'm I'm not quite sure what is going to be unique about the uh the the uh bubble bursting situation that Dave's talking about when we just kind of burst the bubble for a little while and it didn't last very long and we didn't have any uh long-term consequences from it. The credit markets are extremely resilient. We uh we no longer depend as much on the banks. uh when asset prices fall, they don't uh lead to a credit crunch the way they did in the past. Uh we just saw that the tightening of monetary policy created a problem in two banks in California a couple of years ago and the response of the Fed was to provide liquidity and the result was no credit crunch and no recession. So the two word the two words I think that are relevant here is resilience of the economy and and backed up by the capital markets and productivity which I think is very much technologydriven uh and uh I think that's what the market's discounting. Dr. Ed, let me just give uh ask you one followup and I'll move on to uh David here. Uh this is from the World Economic Forum. And it says here the uh companies such as Nvidia, Microsoft, Amazon, the Mag 7 have collectively spent $ 36 billion on capex over the last four quarters whereas the quarterly average for a typical S&P 500 company is $2 billion. Is there historical precedent for one sector contributing to the majority of spending in the entire market? Yeah. Well, look, uh, over 40% of the market capitalization of the S&P 500 is information technology and communications. Uh, that's I think it's 44%. I think we got up to 40% during the tech bubble of the late 1999 environment. And back then, uh, only 25% of, uh, earnings were attributable to those two sectors. And now it's more like 35%. So there's there's more earnings behind the uh concentration that we're seeing and I think we have to recognize that we've been in a digital revolution since the mid1 1960s when the IBM mainframe proliferated and that digital revolution AI is just a a uh it's an evolution in the revolution of digital uh of the digital revolution. What's going on is we are processing more and more data more cheaply u and uh and more rapidly than ever before and as a result of that it's feeding on itself and uh I think we're all trying to figure out how to use AI in our businesses and I think a lot of us are finding that it's got some flaws but it's early on and meanwhile we're finding that it's actually quite useful and I think that's what we're going to find discover here is that the digital revolution has evolved to the point where it's making a significant difference. Uh I have to believe there were points in the agricultural revolution centuries ago, the industrial revolution, the retailing revolution, all these revolutions where suddenly you had two sigma events and uh they were justified by the consequences of the revolution on business and on the economy. uh David uh on investments in your in one of your recent uh special reports entitled investing in the mega forces economy the opening line where structural forces like AI decarbonization and demographics are becoming bigger drivers of change than than the traditional big business cycle. I'll let you comment on that and especially the AI front. Uh Jeff Bezos himself earlier today, this is according to CNBC, has admitted that it's starting to look like an industrial bubble. This is this these are his words. It's kind of like an industrial bubble. He did go on to say that it's you know this is real. It's going to be it's going to bring big benefits to society. I'll let you expand on how these themes are investable. Well, I think that he's 100% right and I've been talking about the fact that um again just looking at the valuations what's priced in and I think that look I think uh AI just like the internet uh generative AI is is going to be a gamecher. Um I I I see for society there's uh more risks than there were just uh you know with the internet which at the beginning was just a way to uh improve uh our communications um and the way that we shared information. Uh AI is I think probably already seeing it uh more perious societal effects. uh but I said before that uh I I'm just taking a look at the deviation of valuations and I think that's really what's important here that uh you know Ed had said that yeah you know we had this recession scare and the regional banks and and um and nothing happened. it was a a blip on the screen and he's right for saying that. Where I differ probably is uh I'm not extrapolating those events from what's going to happen in the near future. Okay? Because you would have said after the October 1987 stock market collapse uh and remember there was fears of depression. I started in the business in October of ' 87. there was fears of a depression uh that quickly went away within a couple of months and then this mentality grew into the peak of the bull market in 1989 that the business cycle's been repealed but it wasn't. And a lot of people were pointing to the proliferation of the computer age because remember Microsoft went public in 1986. And then we had in 1998 for example escaped a bullet with the Asian crisis, the Russian default and of course long-term capital management. And then we had the same thing. We had the same mentality that wow, we avoided a recession. Therefore, we're not going to have a recession again. and and not not only that will not have a bare market again and it was within 2 years people were caught off guard because they were extrapolating things that happened in the previous cycle. Uh you go back to uh all those times when I was at Merrill and I was debating Ed quite regularly back then. Um at the beginning of 2007 you had New Century Financial uh the Canary in the coal mine closed its doors. he was a mortgage lender and uh the market didn't peak till October of that year and people said well you know in that interim period I mean there's no problem here uh we escaped something pernitious and therefore there's a new era here where because this happened the business cycle's been repealed in fact you can even go the recession started to the surprise of a lot of people in December 2007. That's when the recession started. Uh but Bear Sterns didn't close the stores until February of 2008. Now, at that period of time, people were still talking about the soft landing. uh after Bear Sterns uh closed its doors uh and was mopped up by Jamie Diamond, uh the the view was that wow, you know, we avoided a bullet here and that the business cycle's been repealed. Meanwhile, we were already 3 to four months in recession. Uh and people thought that the we just were in a correction and not a bare market. Well, that view changed obviously in the summer of 2008. Uh I just talking about here the dangers of extrapolation. Uh yes we wrote a long-term report. Yeah. So so the dangers of the dangers of using data points from the cycle to then formulate your forecast on what's going to happen next. Um that sends chills down my spine. Uh I I I think that what I'm looking at now, yes, there was no recession in 2022, 2023. That $2 trillion of stimulus checks, the quotes excess savings was still being put to work. It's the first time ever that 100% of a government handout, $2 trillion uh got fully put into the economy. That was a massive antidote uh to what the Fed was doing. Uh and uh the point I'm making is that it comes down to David Lynn's comment before. Either we're going to admit that the labor market is a very important market. It generates most of the income in the economy, not corporate profits, but personal income. And there's some derivative impact on corporate profits from personal income. We were not seeing employment going down and employment now. We don't have the non-farm payrolls. You look at the household survey, employment's going down. You look at the non-farm pay, you look at the ADP numbers, employment starting to contract. You look at real disposable income, it's negative over the course of the April to August period for we have data. I mean, real personal incomes are going down. They were not going down in 2022. They were not going down in 2023. They're going down right now. And it's a negative trend that's building on itself. I'm sure when we finally get the September and October data, the negative trend in real PDI is going to be even worse. And there are repercussions for that on the broad economy. Unless we're going to say we're going to run this economy on asset inflation to perpetuity, we have to step back and say that organic personal income is actually not just on a declining trend, but is contracting. Okay? And there are leading economic effects from that that I don't believe are priced dead. Ed made the point about credit spreads. Good grief. They're back to where they were in the party period of 1998 999. Yeah. The credit market is telling you there's nothing wrong. But the credit market was telling me there's nothing credit was telling me there was nothing wrong in ' 07 and nothing wrong in 99. The the credit markets right now like the equity market are priced for almost 0% recession risk. All right, we have to uh move on. That's that's the dilemma I have right now is how can anybody ever say at any moment in time that the business cycle's been totally repealed. You'll never hear that from me. Okay, great. Uh Dr. Ed, one final question for me and then uh we'll close off. So, same same line of thought here. Investable themes here. I I mentioned to uh David um AI and a few other themes that he wrote down. Um what what is it for you given your macro outlook? What is what? What are the investable themes or you know just generally speaking assets allocation. Yeah. Yeah. I've I've been you know I I turned bullish on this market in early November 2022. I didn't think uh we were Is it the broad market that you're bullish on or a specific sector that you like more than others? Yeah. Yeah. I'm I'm I'm getting there. Uh, I'm just saying since then we've uh been recommending overweighting information technology, overweighting communication services, overweing financials, and overweing industrials. And they've all been working gang busters just just fine. Uh, and even if uh you look at the market excluding the Magnificent 7, it's been a very good bull market. Uh, it's just been dominated by the Magnificent 7. And I don't really have a problem with the concentration issue. Uh, so I would continue to uh look for opportunities in that market. Uh, I I I hope David's right. We we have an opportunity to get things a little cheaper. I don't I don't mind corrections. I view them as buying opportunities. Uh, we're saying that they're they don't seem to last very long. And uh I continue to bet uh on what uh I I've been saying for three years now. and uh continue and I think we should learn from the experience of the past three years this economy is resilient and I think it's I'm not saying there's never going to be a recession but David I would point out that we've had rolling recessions we've had a recession in multif family housing single family housing office buildings on the other hand we've had some real strength in manufacturing uh produ uh bu building of manufacturing facilities data centers Uh, and I think the consumer is not all about asset inflation. I think it's about cons retiring people. We've never had a wealthier retiring sector than what we have right now with the retiring baby boomers. And I think that's what you're missing, David, is is the resilience of the economy, the productivity of of the economy. And with regards to your real disposable income, you're focusing on employment. As you know, there's another variable that determines uh real purchasing power, real disposable income, and that's real wages. And if productivity does what I think, which is currently go from 2% to 3% over the rest of the decade, uh we'll see real wages increasing. Real wages are tied to productivity. That's still the case, and that's what I'm counting on. All right. Excellent. Let's set it here. This is um all the time we have. Thank you very much to both of you, gentlemen. Thank you, David. Great talk. Tell us before we go, tell us where we can find your work. Uh David, I'll start with you first. Sure. Well, you can uh just um Google us at uh Rosenberg's research uh or go to information at ros rosenbergresearch.com uh and check out um uh our website and you can check out uh the opportunity to uh press a few buttons and uh get a free trial to kick our tires. Thank you. Uh Dr. Ed, you're denny.com. That simple. All right. Very good. Thank you to both of you again. We'll speak again soon and thank you for watching. Don't forget to like and subscribe.
The Ultimate Bull Vs. Bear Debate: Ed Yardeni & David Rosenberg
Summary
Transcript
the the credit markets right now, like the equity market, are priced for almost 0% recession risk. How can anybody ever say at any moment in time that the business cycle's been totally repealed? You'll never hear that from me. I think the economy and the credit markets are much more resilient now. The uh correction we had at the beginning of this year, that could be fairly concerning. Then we had this uh remarkable V-shaped recovery. What the S&P 500 has done in gold terms. The S&P of 100 is down 23% this year. If you've got GDP being revised up and you've got the employment numbers uh being revised down, that that must mean productivity is absolutely on fire. I've been calling it the roaring 2020s and so far so good. I'm pleased to welcome to my show two economists and strategists who have been very popular on this program and many others at Yardenni, president of Yardi Research and David Rosenberg, president of uh Rosenber and Associates. very honored to be joined by both of you. Uh they have slightly different views in the markets and where the economy is headed but uh are both brilliant nonetheless. Thank you for being here both of you. Thank you very much. Yeah, thanks David. Great to be on. I just interviewed Ed. So let's follow up with uh Ed and I interviewed David a few months ago. So we'll follow up on his views um there as well. We'll have to talk about the government shutdown which is ongoing this week. Uh but first let's just get your stock market prediction and then the macro views behind that prediction. Dr. Ed, let's start with you. Since I spoke with you recently, you had upgraded your or updated rather your your bullish outlook. First it was 8,000 points on the S&P by the end of the decade and now you're saying 10,000. Yeah, 10 I mean I changed that about several months ago actually. I started talking about 10,000 and uh basically uh the economy's proven to be amazingly resilient and we've seen that in very strong earnings. earnings were very strong in the first and second quarters. And uh just kind of thinking about the uh the trend in uh in earnings with without a recession occurring between now and n the the end of 2029. Uh I think we could get to to 10,000. For the year ahead, I'm using 7,700. Uh I think the market will be discounting $350 a share uh for the S&P 500 by the end of uh next year. And I would apply a 22 multiple on that. So that would get me 7,700 by the end of next year. And I think the market will continue to move higher. Valuation multiples are are high and I think they can stay high as long as there's no recession. And I think the economy's demonstrated the past three years. We've had the most widely anticipated recession that just didn't happen. Maybe now that almost nobody thinks there's a recession coming. uh from my contra instincts are a little bit uh on on alert but u again I'm I'm going to go with a resilient economy for the rest of the decade and I've been calling it the roaring 2020s and so far so good and uh just need to get a few more years right all right uh David I'll let you uh give your forecast and then we can respond right well uh I don't um I don't give point forecasts anymore and the reason is because um the people that have point forecasts are continuously, you know, revising them. Uh, and I think it just creates more volatility in their own lives as opposed to uh getting a point estimate right. Everybody was cutting their year-end targets uh during the February to April uh draw down and that was a mistake and now everybody is raising their numbers. Uh I operate I don't I don't operate in black and white. I operate in uh shades of gray because the one thing I've learned in the 40 years in the business is that uh there is no such thing as a sure thing. And when you're giving a point forecast, you're basically um saying there's a sure thing. I I think it's more helpful actually when you give a point forecast, if you talk about what the risks are to your forecast, and they could be upside or downside risks. Uh and um what plan B is if the base case scenario doesn't come to be. So that's basically how I operate. Uh but that's from years of having worked both on the sell side and the buy side. So I deal more with uh direction. Uh and I spend most of my time across the asset classes trying to depict uh what's priced in at any moment in time. Uh and then whether or not I disagree with uh what the markets are telling me. Um you know, people always say that the markets are right. Um but were the markets right uh you know in the summer of 2007 uh when you look at what happened not just in the next year but the next two years just as one example there's countless other examples. So sometimes you have to either agree with the market or disagree and the question is you know what's priced in. I think Ed hit the nail on the head when he said that um nobody's calling for recession and it is ironic because there was so much recession fear uh back when the Fed was tightening policy. so aggressively in 2022 and in 2023. And I think what a lot of us uh underestimated uh was the power of fiscal stimulus and primarily not just the subsidies by the Biden administration which were huge uh for the construction of manufacturing facilities but it was really that $2 trillion combined stimulus checks of the household sector uh were the first time ever 100% of stimulus checks and $2 trillion is not exactly chump change. um all that money got spent and it was a gift that kept on giving and served as a massive antidote uh to what the Fed was doing over that period. It's why the inverted yield curve didn't work this time. Uh it was the power primarily of those stimulus checks which are now basically in the rearview mirror. Um I would say that uh as far as the market's concerned uh you know Ed is uh in terms of his calls is obviously hit the nail on the head. Um but uh I am concerned you know when uh you have the multiples and I think that Ed made the point that the multiples uh can stay elevated. Uh I just don't know if they make the multiples only make sense if we're in the sort of real interest rate environment we had 5 years ago. Uh not in the real interest rate environment we have right now. You always have to take a look at you know where is the where the market's trading any market benchmarked against uh the risk-free real interest rate and on that score you know when I look at almost every multiple that you could come up with uh price to sales price to ibeta price to book in so far as that still matters uh in today's environment u the buffet indicator that has its limitations too but price to sales are price to sales uh and you look at the trailing and the forward And you look at the uh cape multiple, which is my favorite because it goes back more than 100 years. And you know, when you're at 38 uh on the on the cape multiple, and it's not a timing device, but I always find that valuations, while not a timing device, at any point on the continuum, either act as a a tailwind or a headwind. Uh we've only been this high on the Cape multiple, the Schiller multiple. um three other times in history and it was back at the end of 2021 and nobody was calling for a bare market in 2022 but we did get one and it was saved by chat GPT in the fall of that year. Uh and then you're back in 992000 and before that well we're even above the level of 1929. Um these are each one of these valuation metrics that I mentioned are more than two standard deviation events. Uh I guess we could say that it's different this time. Uh and maybe it is maybe chat GPT and uh the uh shift in the technology curve is bigger than the internet was. Uh I mean time will tell. Uh but the point that I'm making is really two things. Uh the first is that I don't normally go balls to the wall bullish on anything uh when it's trading north of a two sigma event. I I just don't do that. I think we are in a bubble and I think as Bob Frell famously said uh bubbles go further than you think which is where we are right now. Uh but they don't correct by going sideways and I just don't invest in 2 SD events no matter what. I find other things to deploy uh the money and we've been doing that. It's very interesting that as we're sitting here the first thing we're talking about is the stock market and I imagine we'll get into gold and silver. Uh but gold and silver and the gold and silver mining stocks have actually smoked uh the S&P 500 this year and that that's they're not a trade on the MAG7. Um they're a trade maybe on something else that's going on. Um but if you're taking a look at what the S&P 500 has done in gold terms, not in deflated US dollar terms, the S&P 500 is down 23% this year. Uh so that again is if you're measuring it against something historically that's been stable uh which is the gold price. If we're taking a look at what's priced in I'll just make one last point that I said before that you want to take a look at what's priced in and when we back out the valuations what we're able to ascertain is that the S&P 500 as its own asset class um is discounting for the next 5 years sort of 2030 is discounting 15% EPS growth on an average annual basis which is double the historical norm. Uh now maybe we'll get that his history shows there's a 1 in 10 chance that over a 5year period you'll get double the average growth rate in earnings. All right. Investors should know that that is what you're buying right now. You're buying a market that's anticipating a 2x on the historical earnings trend benchmarked against the historical record. Right now gold is trading at an all-time high which has far surpassed many of the most bullish forecasts for 2025. The gold price itself is up 46% year to date, while silver surpassed the $40 mark, a price not seen since 2011. Meanwhile, banks are still raising their gold price forecasts, with Goldman Sachs projecting $4,000 by year end if current buying continues and $5,000 if the Fed aggressively lowers rates. Driving further demand for gold is strong central bank buying with central bank's net purchases totaling 244 tons in quarter 1 2025 alone according to the world gold council into this boom in precious metals and in record central bank demand I believe I have just come across one of the most monumental and significant developments in gold and commodities that I've seen in recent times. Now, ETFs in the past have made good trading vehicles accessible to a much larger audience in the 2000s, in much the same way that Blockbuster branches made movies accessible to cinema goers. But here's the catch. 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Basically, do your own research on StreamX, which is going to be a major disruptor in the commodities and ETF business with fully backed auditing and verifiable ownership, redeemable and secured. Check out their website in the description, link down below. All right, thank you. I just let uh Dr. Ed have a chance to respond to the evaluation. I I think David, I and I actually do agree on gold. Um I have never had an opinion on gold. As an old-fashioned strategist, I don't have any anything to to to any model that I can use. I I need some income. I need interest, coupon, uh rent, something. But you don't have that with with gold. Uh and of course, there's a lot of uh explanations for why gold goes up or or doesn't. Uh it, you know, traditionally viewed as an inflation hedge. Uh but when it uh rose above uh 2,000 last year, I said, you know, this could be the beginning of a bull market and I based it on a very simple insight. Russia invaded Ukraine. Uh the US and uh Europe froze the assets of uh of the Russians and central banks of countries that are hostile to American interests decided it's time to buy more gold and cut back on their uh the dollar and and euro reserves. Uh so there there's basically a central bank put on on gold and then uh you we've had a lot of geopolitical um uh instability uh which I think is uh been been unnerving. I think Chinese investors are buying a lot of gold because they got uh killed in the property market. The Chinese government hasn't really done anything to stabilize that market. Uh they've gotten whips out in their stock market. So undoubtedly you've got Chinese investors buying gold and uh people in India have traditionally been gold purchasers and I think there's there's a lot of demand coming out of there. Uh I I think you know you can throw in all sorts of other things about concerns about uh fiat currencies debt debt crisis. So yeah, I I think Dave David's right on with the the gold call and if gold works, si silver works. Uh with regards to uh to the market, um I question David, you know, appropriately asked, you know, what is the market discounting? And I I guess from my my point of view, uh I I was in the minority camp on on the economy for the past three years arguing that we would not get a recession, that an increase in the Fed funds rate from 0 to 5 a 12% uh wasn't so much it was partly tightening, but it was also normalizing. Zero was the abnormality. 5 a.5% was not abnormal at all. And the same thing went uh for my view of the bond market. 0.5% was the abnormality resulting from QE the COVID and and factors like that. Uh concerns about deflation when COVID hit. Uh but uh now that we're at the four to 5% I think that's um that's back to normal. And so I think those levels of of interest rates are sustainable. And I've been uh uh I I've been thinking that if the Fed continues to I I was opposed to the Fed lowering interest rates last year and this year because I said look uh last year I said the bond vigilantes are going to bite you. They're going to come back to come and get you. And sure enough they lowered the Fed funds rate 100 basis points last year late last year and bond yields went up 100 basis points. This time around bond yields got down to 4%. They kind of bounced off of that. they're kind of toying around with that level. Uh but uh I I I don't expect to see bond yields going much uh going lower here. I think they're going to remain in this four to 5% range. So I think what the stock market is discounting, my interpretation uh is there was a lot of uh as David said, there was a lot of concerns about a recession o over the past three years. Most widely anticipated recession that just didn't happen. The GDAU recession is what I called it. And uh David's right, fiscal policy is a big uh part of the resilience of the economy. But the consumer um one factor that I think a lot of people have missed is the the baby boom demographics. The baby boomers have always had a very important impact on the economy. And right now total household wealth is a is a record $160 trillion. And half of that is held by the baby boomers, $80 trillion. So, the baby boomers were raised by Spock, and I'm not talking about Dr. Benjamin Spock, though they were raised by their mothers who read Dr. Benjamin Spock. Uh, but we baby boomers were uh kind of grew up watching TV and we watched a lot of Star Trek. And, uh, Spock the Vulcan said, "Live long and prosper." And so, we've taken that to heart. We've been living longer and we've uh invested in all sorts of different assets from houses to uh real estate to homes to insurance policies and we've prospered along the way. We paid off our mortgages. So, there's a tremendous amount of uh net worth that the retiring baby boomers are spending now. uh they're sharing some of that with their adult children, maybe helping out with mortgage down payments, mortgage interest, u uh the grandchildren's uh you know, after school activities, whatever. There's a a great deal of resilience in the consumer as a result of that. Great deal of resilience in capital spending. More than 50% of capital spending now is in technology. And I think that that's based on the GDP numbers. I think it's actually more than that. And technology is something that companies recognize they have to spend on in order to stay competitive. We've got a shortage of skilled labor. We've got a shortage of of uh uh we've got a mismatch of labor. And as a result of that, companies are doing what they should be doing, and that is increasing productivity. So I I see a productivity boom um over the rest of the decade into the 2030s. If the roaring 2020s work out for me, I'll be talking about the roaring 2030s. But I think the stock market's discounting the resilience of the economy and maybe erroneous now, as you said, David, now that nobody's expecting a recession, maybe now's the time to worry about it. But I think that's what the market is is is betting on. And the pees um tend to go will always go down when people worry about a recession and you get a correction when the recession doesn't happen uh and you get down to maybe 15 18 from in the in the 20s. When a recession actually happens you get singledigit uh multiples in the market and um I I'm not guaranteeing this. It doesn't come with a money back guarantee. Uh but I I I think the resilience of the economy continues through the end of the decade. Uh I think we have rolling recessions instead of economywide recessions and I think the market's uh correctly uh discounting that. All right, I'll move on to the labor market and I'll start with David first. So private sector payrolls just went negative for the uh for the second straight month. Lost 32,000 jobs in September. Uh June was revised to negative 13,000 jobs, the first loss since December 2020. The hiring rate is now at 3.2%. It's not a level similar to the immediate. It's now a level similar to the immediate aftermath of the Great Recession and um and investors are betting the Fed will cut rates to save the day. Will the Fed cut rates to save the day? Will that be enough? I'll just let you comment on the labor market to start with, David. And um going back to the in the no recession call, uh Jerome Pow himself has stated that the labor market is weakening. Is this a precursor to a recession or is it just noise? Well, I I don't think it's noise. And um you know the reality is that you know what didn't happen in the recession scare of 2022 and 2023 I is that you were not seeing um declines in employment uh that you're seeing right now. Now, we don't have a non-farm payroll report today, and we'll see how long that's going to take. But in the past 4 months, the only reason why non-farm payrolls haven't gone down is because of the skew of the birth death model. Uh, and outside of health and education, which is non-yclical, employment's been declining for the past several months. So, you're seeing serious erosion. It's not noise, it's a pattern. Uh, you know, you mentioned the ADP number. The first thing I go to with ADP is the small business sector. Uh because the small business sector is on the front lines of the economy and they can adjust their payrolls much more quickly than large companies. Uh and um you know the small business sector employment declined 40,000 uh in September which is huge and that was after a 44,000 decline in August. We haven't seen declines like that since the summer of 2020. uh when COVID was still ravaging the economy and most of the economy was closed uh and the small business sector is a is a leading indicator and there's other things too right like you've got uh the service sector ISM employment has been below 50 four months in a row uh for manufacturing it's been um below 50 now for eight months in a row and as you had mentioned um from the Jolts numbers uh you know we're seeing on a trend basis a big decline in hiring activity uh the challenger numbers for example on hiring year-over-year that's fallen dramatically and I think this is important the hiring rate going down because if in fact the other side of the debate is right I'm not saying Ed is saying this but a lot of people are saying that the decline in the labor market is supply side related because of all the immigration restrictions. Uh I think that's a factor but it's a two-bit factor. I think that there is a fundamental decline uh in the demand for labor because if companies are scrambling to replace the people that are being pushed out of the country, you'd be seeing job openings going up. That's not happening. But you'd be seeing gross hiring activity going up and that's not happening. and you'd be seeing companies scrambling and in that scramble they'd be raising wages but wage growth is actually moderating. So we're seeing a fundamental erosion in the demand for labor and uh I think it's obviously important because employment ultimately leads disposable income and disposable income then leads consumer spending and consumer spending is roughly 70% of GDP. Now, it may well be that the stock market looks through all this because, you know, when you have um $9 trillion mega cap growth companies, uh you have basically the same share of classic growth in the S&P 500 that you had back in the late 90s and 2000s. So, by definition, the S&P 500 has morphed into a growth index. Uh and it's lost a lot of italical properties. So, who knows? Maybe the first time ever we have a recession, the stock market just breezes by because it's effectively a longduration animal. Uh, it doesn't mean that's the same for the S&P 600 or for the Russell 2000. But that has been the case for the S&P 500. It's morphed into a growth index by definition. Therefore, it's got a longer duration expectation. I mentioned what's priced in on a 5-year basis. However, let me just say that for the people talking about GDP, it's not the only measure for economic activity. And we all talk about how so far this year there's actually been no growth for 92% of the economy called the part of the economy that isn't touched by AI directly or indirectly. You know, 92% of GDP is actually flat so far this year. it's open AI uh and the same concentration in the economy as there is in the stock market. Uh there's it's not just autos and housing. There's a lot of areas of the economy uh that are struggling right now. Um but the AI story uh is carrying the day. There's no doubt about it. But something else has happened that people that are saying the economy is so hunky dory that actually in the second quarter the biggest contribution to GDP growth was the tariff induced plunge in imports. Imports went down so much in the second quarter arithmetically it contributed 5 percentage points to headline GDP growth because imports are a negative in the GDP numbers. So, um, when they go when they go down, it provides a huge boost to GDP. Outside of imports, real GDP was actually negative 1.2 negative 1.2. That's a big that's a that's something that's that's worth commenting on. uh and and the fact that you know the the consumer is hung in very well but you can't talk about the consumer uh in the aggregate really because true you got to take a look what the critical factors are the critical factor and you can see it in the savings rate the savings rate in the past four months has come down more than a full percentage point why why is that happening is because you get because you've got because you've got the stock market boom so you've got this ongoing K shape to the consumer, right? Like basically what McDonald's is telling you that people are skipping breakfast. You can't therefore then say, "Oh, well things are hunky dory with the consumer." There's a segment of the consumer and it's the high-end that's driving the bus. And that's because of the stock market. Okay? It's not because of the labor market. And in actuality, I don't know anybody can look anybody straight in the face and say, "This is a great economy." when in the April to August period real personal disposable income you want to talk about the labor market what is the income after tax in real terms that the labor market is spitting out David negative 1.2% annualized real disposable income growth and yet real consumer spending growth is up 2.6% 6% over that period. That's the fallout is the drop in the savings rate linked back to the equity wealth effect on spending. Now, I'll just make this one last point, which is this. There's another asset class that also bulks large on the household balance sheet, which is called residential real estate. And we just got the case sheller numbers this week on home prices. They're down four months in a row. Four months is already the start of a pattern. And what we found historically is housing leads the equity market. Residential real estate leads the equity market. There's a 90% correlation between residential real estate valuation and equity market valuation. We haven't seen this play out yet. Um, but I I said this, you know, Ed and I debated a lot back in 2006, 2007. I set for the record back then. And back then it wasn't about AI. It was about the democratization of finance and the fact that everybody can go and buy a home. At that point the supply demand curve started to shift as they're doing right now in residential real estate. I said then I'll say now no cycle ever ends well. And this took time to play out but it played out big time. No cycle ever ends up well in a real estate deflation cycle. And this thing just started getting going 4 months ago. Okay, great. Uh let's give uh Dr. had a chance to respond to that. Yeah, look uh a few things. Um again, I think uh I I put a lot of weight on the importance of uh let's say 70 million people that are baby boomers. They are increasingly retiring. They're sitting on $80 trillion of net worth. I predict that the savings rate is going to turn negative. You got all these people that are retiring. They're not going to be getting income anymore. So you could have some weakness in disposable income because uh baby boomers tend to make more, you know, live long and and prosper. They they've lived long, they've worked a long time. They're they're making a lot of money and uh as they retire u that that money is not going to be earned anymore, but they will be spending an enormous amount of their net worth and there'll be inheritances and there's uh support going on right now. And I think you really have to factor that in. I think you're right. There's a lot of things going on with the consumer and I think that that's where I'm putting my weight of uh of of thinking about the consumer and as you pointed out uh the second quarter uh uh real GDP when it first came out was clearly uh uh kind of a an upside reversal from the weakness we saw in the first quarter related to the tariffs impact on uh on imports. But then the upward revisions that occurred last week from 3.3% to 3.8 8% for the second quarter were awfully impressive and the consumer went up from 2 from 1.6% to 2.5%. So the consumer is still spending. And then on Friday of last week uh the uh Atlanta Fed came up with its latest uh estimate for uh the growth of the economy in the uh third quarter and it's running around 3.8% 3.9% was what they came up with. But then the latest rei revision is 3.8%. Um I you know I'm I maybe I tend to accentuate the positives but I think what if you've got GDP being revised up and it's grown at over 3% and you've got the employment numbers uh being revised down that that must mean productivity is absolutely on fire. And I think there's a a a fundamental labor shortage in in the economy. I think you're right. It's not just supply. There's also a demand issue. And I think we have to seriously consider the possibility that companies are holding off on uh expanding their payrolls until they figure out what they might be able to do with AI uh to uh eliminate position entry level positions. And right now we know that the uh the the where the labor market is weakest is in uh teen teenagers and particularly people young people coming out of colleges are finding it very very hard to get an interview. Uh so I think that companies are responding to that uh by uh by using AI to increase their productivity and the demands holding up. the Fed if you know the Fed has this dual mandate and they're going they are going to give more weight than I would give to the labor market indicators at this point because even I mean pal did acknowledge that there's some funky things going on in the labor markets supply is going down and and demand is going down so you're right it's it's not just supply David um but when I uh look at uh at at these labor market indicators I say you know this this is the the consequence of uh the the uh that we're seeing fewer babies being born. Uh now we got a real slowdown in the native born population and on top of that as you said we've got uh I think the uh population of foreignb born from March to August just a very short period of time is down 1.5 million. So that's clearly had had an impact. Um but there are technologies uh there are ways to kind of re regroup your your business in a way that allows you to increase your productivity and satisfy the demand. I mean businesses are are doing well. Uh earnings alltime record high for the S&P 500. Uh and we've looked at it uh you know Magnificent 7 versus what I call the impressive 493 and the impressive 493 are also very strong. profit margins have held up remarkably well in the face of tariffs and again that can only be explained in my opinion by uh by the uh productivity and uh having an impact on on on those uh profits. So, put it all together. I think um David David uh David certainly uh gave a a good u analysis from you know where things could go wrong or are going wrong and I you know I I respect David's analysis of the business cycle. There's a lot to it but frankly I haven't put as much emphasis on residential real estate. Uh I I think there's you know home prices are still extraordinarily high. uh there's been a tremendous uh positive uh wealth effect from real estate and the stock market. But David, at the end of the day, if whatever it is causes the stock market to tank, there will be a negative wealth effect. And that may be what causes the next recession, uh a big negative effect from the stock market. But that's not my story. Yeah. You know, I don't um I I don't know if the stock market's going to tank or not. Um, as I said at the beginning, I I just uh don't invest. I don't tell people what to do. Um, I tell people what I'm doing. Uh, I don't invest in two sigma events unless it's coming off uh a depressed bottom. So, um, and that and and and based on our work, that's where we are right now. Acknowledging that Bob Ferrell's classic rule that exponentially rising markets go further than you think, but they don't correct by going sideways. I I have a couple of concerns. You know, the the first is that um you know, when I hear about asset prices, I hear about um wealth, you know, asset prices in the United States, you go back a century's worth of data, it's always high. Even in recessions, it's high. Wealth is always high. Um ultimately though it's the direction that influences growth uh not the levels. And I have a problem. I had a problem back in 2000 and nobody saw a recession in 2001 and I had problems in 2007 and nobody saw a recession 2008. I have a problem with getting to this stage of the cycle where asset prices are driving so much of what's happening in the economy in particular uh the fabled wealth effect. Um, and as I said before, GDP indeed. So, Ed says 38 and 38. 38 is Scott Besson's favorite number right now. GDP is spending. It's not the only measure of economic activity. GDP is spending, consumer spending, business spending, housing, uh, exports, government spending. But what about income? We This is not an economy driven by organic income. I finished saying before because this is the statistic. Nobody knows. Everybody knows 38. Nobody knows that over the past four to five months real disposable incomes in the United States. This is where you want to talk David Lynn about what is the labor market doing. The labor market is spitting out a negative 1.2% 2% annualized trend since April in something fundamental called real personal disposable income. So yes, uh everything Ed's talking about is feeding into something we've seen at the peak of other cycles, which is this wealth effect driven decline in the savings rate to promote consumer spending, of course, in a certain slice of it, which is the high end. So I just don't look ever at headline numbers. I got to dig deep to find out what is the stability behind those numbers, what is the proportionality, what is the distribution. Um and uh I look at the stock market for example uh I see it extremely concentrated um just as it was. Uh the earnings are concentrated uh the market capitalization is concentrated to an extent that it was back at the peak in early 2000. a peak that nobody ever knows it's a peak till you're reading about it in the history books. So, we're not going to talk about it right now. Obviously, we're not in the history books just yet. And, you know, Ed talks about the demographics. Look, um, we have a situation where, and this is what's driving the market is a lot of the momentum and the bull market and passive index investing. Uh, passive index investing. Uh we have a situation now where passive index funds for the first time ever account for more than 50% of the market cap. They've overtaken active and now a lot of the active managers are becoming index managers because it's been working and you're getting these flow of funds coming in and these index funds have to buy the market. uh it's this self-reinforcing development, but it's gone to another extreme which is and of course people think that they're smart that 72% of the US household financial asset mix is now in equities. Only 8% is in bonds. Who's going to talk to you at the cocktail party if you want to talk to the Treasury market? They're going to avoid you like the plague. Um, but we've never had this degree of concentration before of index funds, passive investing. Uh, we've never had this degree of concentration of of household financial assets in the stock market. Uh, but it's it's certainly worked. But you see, the thing is that nobody in this cycle has rebalanced their portfolio, and there's been, I guess Ed might say, no reason to. But they've not rebalanced. They've not taken profits, and they've not diversified. Um I I find that actually rather chilling. Um but you know, nobody really wants to hear that story, but they might want to one or two years down the road. You know that the the boomer the boomer over 60% of boomer financial assets are in the stock market and that's just been great. Um, however, the time cycle of investing historically would warrant that they should be closer to 40% equities than 60. Time is not on their side, notwithstanding the fact that life expectancy is going up. And the fact that life expectancy is going up means that their money is going to have to work longer for them once they retire. And here's the problem is that all our two standard deviation events in the market says much more uh you know I I do call it a bubble and Jeremy Granthm would agree that anything more than a 2SD event is a classic bubble. We are in a price bubble and it can go on further. But I I'm worried about when the bubble does pop because we know historically that bubbles pop. even bubbles premised on a phenomenal shift in the technology curve and we've had multiples of these over the bubbles. So the well let me just finish let me just we'll let me just finish this last point which is this the median age of the boomer at the peak of the bubble in March 2000 was 40. The median age of the boomer today is 60. Okay. Time at least was on their side back then. And and I'm wondering actually unless you unless the market cycle has been fully repealed which I don't believe um what happens in the next bare market whenever it starts what is going to be the social impact especially on this critical demographic that's driven everything in the past five decades from the economy to finance to politics. Um that to me is something that we should be talking more about than 3.8 on the last GDP print. Right. Let's get uh Dr. Ed to respond. And I'll I'll add to uh a question to that if I may. Dr. Ed, uh suppose David is right in his assessment that we're currently in a bubble and the markets are so concentrated that it becomes a risk in itself. you know, ultimately where do investors go in an environment where things are looking frothly and bubbly and there's a huge concentration risk and I'll let you respond to the rest of it. I mean, um, weren't we all saying that or thinking that at the end of last year, at the beginning of this year? I mean, we were looking at a 22 multiple at the beginning of the year and then we had a a correction and the correction didn't lead to a recession. The correction didn't lead to uh uh a drop in real GDP. It was just a correction. And we had a bare market not too long ago back in 2022. And uh it was kind of a garden variety bare market. Didn't last very long. And there was no recession associated with it. So I I think that there are certainly aspects of a meltup. There's certainly aspects of a bubble. uh but uh I think the economy and the credit markets are much more resilient now so that the implications aren't what they were in the past. I think we could very well see a significant correction uh sometime next next year. It might be from a 23 24 25 multiple. Uh and um that could be fairly concerning, but so was the uh correction we had at the beginning of this year. And then we had this uh remarkable V-shaped recovery as the market uh started to recognize that uh some of the concerns about uh the hyperscalers uh spending too much money on uh data centers may well maybe we've already kind of had that concern and uh because of deepsek and the market saw that these hyperscalers were convinced that they were on to something and that they were going to continue to spend. So, uh I'm I'm not quite sure what is going to be unique about the uh the the uh bubble bursting situation that Dave's talking about when we just kind of burst the bubble for a little while and it didn't last very long and we didn't have any uh long-term consequences from it. The credit markets are extremely resilient. We uh we no longer depend as much on the banks. uh when asset prices fall, they don't uh lead to a credit crunch the way they did in the past. Uh we just saw that the tightening of monetary policy created a problem in two banks in California a couple of years ago and the response of the Fed was to provide liquidity and the result was no credit crunch and no recession. So the two word the two words I think that are relevant here is resilience of the economy and and backed up by the capital markets and productivity which I think is very much technologydriven uh and uh I think that's what the market's discounting. Dr. Ed, let me just give uh ask you one followup and I'll move on to uh David here. Uh this is from the World Economic Forum. And it says here the uh companies such as Nvidia, Microsoft, Amazon, the Mag 7 have collectively spent $ 36 billion on capex over the last four quarters whereas the quarterly average for a typical S&P 500 company is $2 billion. Is there historical precedent for one sector contributing to the majority of spending in the entire market? Yeah. Well, look, uh, over 40% of the market capitalization of the S&P 500 is information technology and communications. Uh, that's I think it's 44%. I think we got up to 40% during the tech bubble of the late 1999 environment. And back then, uh, only 25% of, uh, earnings were attributable to those two sectors. And now it's more like 35%. So there's there's more earnings behind the uh concentration that we're seeing and I think we have to recognize that we've been in a digital revolution since the mid1 1960s when the IBM mainframe proliferated and that digital revolution AI is just a a uh it's an evolution in the revolution of digital uh of the digital revolution. What's going on is we are processing more and more data more cheaply u and uh and more rapidly than ever before and as a result of that it's feeding on itself and uh I think we're all trying to figure out how to use AI in our businesses and I think a lot of us are finding that it's got some flaws but it's early on and meanwhile we're finding that it's actually quite useful and I think that's what we're going to find discover here is that the digital revolution has evolved to the point where it's making a significant difference. Uh I have to believe there were points in the agricultural revolution centuries ago, the industrial revolution, the retailing revolution, all these revolutions where suddenly you had two sigma events and uh they were justified by the consequences of the revolution on business and on the economy. uh David uh on investments in your in one of your recent uh special reports entitled investing in the mega forces economy the opening line where structural forces like AI decarbonization and demographics are becoming bigger drivers of change than than the traditional big business cycle. I'll let you comment on that and especially the AI front. Uh Jeff Bezos himself earlier today, this is according to CNBC, has admitted that it's starting to look like an industrial bubble. This is this these are his words. It's kind of like an industrial bubble. He did go on to say that it's you know this is real. It's going to be it's going to bring big benefits to society. I'll let you expand on how these themes are investable. Well, I think that he's 100% right and I've been talking about the fact that um again just looking at the valuations what's priced in and I think that look I think uh AI just like the internet uh generative AI is is going to be a gamecher. Um I I I see for society there's uh more risks than there were just uh you know with the internet which at the beginning was just a way to uh improve uh our communications um and the way that we shared information. Uh AI is I think probably already seeing it uh more perious societal effects. uh but I said before that uh I I'm just taking a look at the deviation of valuations and I think that's really what's important here that uh you know Ed had said that yeah you know we had this recession scare and the regional banks and and um and nothing happened. it was a a blip on the screen and he's right for saying that. Where I differ probably is uh I'm not extrapolating those events from what's going to happen in the near future. Okay? Because you would have said after the October 1987 stock market collapse uh and remember there was fears of depression. I started in the business in October of ' 87. there was fears of a depression uh that quickly went away within a couple of months and then this mentality grew into the peak of the bull market in 1989 that the business cycle's been repealed but it wasn't. And a lot of people were pointing to the proliferation of the computer age because remember Microsoft went public in 1986. And then we had in 1998 for example escaped a bullet with the Asian crisis, the Russian default and of course long-term capital management. And then we had the same thing. We had the same mentality that wow, we avoided a recession. Therefore, we're not going to have a recession again. and and not not only that will not have a bare market again and it was within 2 years people were caught off guard because they were extrapolating things that happened in the previous cycle. Uh you go back to uh all those times when I was at Merrill and I was debating Ed quite regularly back then. Um at the beginning of 2007 you had New Century Financial uh the Canary in the coal mine closed its doors. he was a mortgage lender and uh the market didn't peak till October of that year and people said well you know in that interim period I mean there's no problem here uh we escaped something pernitious and therefore there's a new era here where because this happened the business cycle's been repealed in fact you can even go the recession started to the surprise of a lot of people in December 2007. That's when the recession started. Uh but Bear Sterns didn't close the stores until February of 2008. Now, at that period of time, people were still talking about the soft landing. uh after Bear Sterns uh closed its doors uh and was mopped up by Jamie Diamond, uh the the view was that wow, you know, we avoided a bullet here and that the business cycle's been repealed. Meanwhile, we were already 3 to four months in recession. Uh and people thought that the we just were in a correction and not a bare market. Well, that view changed obviously in the summer of 2008. Uh I just talking about here the dangers of extrapolation. Uh yes we wrote a long-term report. Yeah. So so the dangers of the dangers of using data points from the cycle to then formulate your forecast on what's going to happen next. Um that sends chills down my spine. Uh I I I think that what I'm looking at now, yes, there was no recession in 2022, 2023. That $2 trillion of stimulus checks, the quotes excess savings was still being put to work. It's the first time ever that 100% of a government handout, $2 trillion uh got fully put into the economy. That was a massive antidote uh to what the Fed was doing. Uh and uh the point I'm making is that it comes down to David Lynn's comment before. Either we're going to admit that the labor market is a very important market. It generates most of the income in the economy, not corporate profits, but personal income. And there's some derivative impact on corporate profits from personal income. We were not seeing employment going down and employment now. We don't have the non-farm payrolls. You look at the household survey, employment's going down. You look at the non-farm pay, you look at the ADP numbers, employment starting to contract. You look at real disposable income, it's negative over the course of the April to August period for we have data. I mean, real personal incomes are going down. They were not going down in 2022. They were not going down in 2023. They're going down right now. And it's a negative trend that's building on itself. I'm sure when we finally get the September and October data, the negative trend in real PDI is going to be even worse. And there are repercussions for that on the broad economy. Unless we're going to say we're going to run this economy on asset inflation to perpetuity, we have to step back and say that organic personal income is actually not just on a declining trend, but is contracting. Okay? And there are leading economic effects from that that I don't believe are priced dead. Ed made the point about credit spreads. Good grief. They're back to where they were in the party period of 1998 999. Yeah. The credit market is telling you there's nothing wrong. But the credit market was telling me there's nothing credit was telling me there was nothing wrong in ' 07 and nothing wrong in 99. The the credit markets right now like the equity market are priced for almost 0% recession risk. All right, we have to uh move on. That's that's the dilemma I have right now is how can anybody ever say at any moment in time that the business cycle's been totally repealed. You'll never hear that from me. Okay, great. Uh Dr. Ed, one final question for me and then uh we'll close off. So, same same line of thought here. Investable themes here. I I mentioned to uh David um AI and a few other themes that he wrote down. Um what what is it for you given your macro outlook? What is what? What are the investable themes or you know just generally speaking assets allocation. Yeah. Yeah. I've I've been you know I I turned bullish on this market in early November 2022. I didn't think uh we were Is it the broad market that you're bullish on or a specific sector that you like more than others? Yeah. Yeah. I'm I'm I'm getting there. Uh, I'm just saying since then we've uh been recommending overweighting information technology, overweighting communication services, overweing financials, and overweing industrials. And they've all been working gang busters just just fine. Uh, and even if uh you look at the market excluding the Magnificent 7, it's been a very good bull market. Uh, it's just been dominated by the Magnificent 7. And I don't really have a problem with the concentration issue. Uh, so I would continue to uh look for opportunities in that market. Uh, I I I hope David's right. We we have an opportunity to get things a little cheaper. I don't I don't mind corrections. I view them as buying opportunities. Uh, we're saying that they're they don't seem to last very long. And uh I continue to bet uh on what uh I I've been saying for three years now. and uh continue and I think we should learn from the experience of the past three years this economy is resilient and I think it's I'm not saying there's never going to be a recession but David I would point out that we've had rolling recessions we've had a recession in multif family housing single family housing office buildings on the other hand we've had some real strength in manufacturing uh produ uh bu building of manufacturing facilities data centers Uh, and I think the consumer is not all about asset inflation. I think it's about cons retiring people. We've never had a wealthier retiring sector than what we have right now with the retiring baby boomers. And I think that's what you're missing, David, is is the resilience of the economy, the productivity of of the economy. And with regards to your real disposable income, you're focusing on employment. As you know, there's another variable that determines uh real purchasing power, real disposable income, and that's real wages. And if productivity does what I think, which is currently go from 2% to 3% over the rest of the decade, uh we'll see real wages increasing. Real wages are tied to productivity. That's still the case, and that's what I'm counting on. All right. Excellent. Let's set it here. This is um all the time we have. Thank you very much to both of you, gentlemen. Thank you, David. Great talk. Tell us before we go, tell us where we can find your work. Uh David, I'll start with you first. Sure. Well, you can uh just um Google us at uh Rosenberg's research uh or go to information at ros rosenbergresearch.com uh and check out um uh our website and you can check out uh the opportunity to uh press a few buttons and uh get a free trial to kick our tires. Thank you. Uh Dr. Ed, you're denny.com. That simple. All right. Very good. Thank you to both of you again. We'll speak again soon and thank you for watching. Don't forget to like and subscribe.