U.S. Economy at Risk for Recession | Ed Yardeni and Jimmy Connor
Summary
Oil Shock: Extended discussion of supply disruptions and a potential protracted conflict pushing rising oil prices, with pass-through to gasoline, diesel, and airfares.
Inflation & Growth: Higher energy costs risk a stagflation-like backdrop, squeezing consumers via fuel surcharges and potentially dampening spending.
Fertilizers & Food: Blocked inputs threaten fertilizer availability; fertilizer stocks have already surged, raising the risk of a broader food price shock during planting season.
Private Credit Risks: Heightened concern about private credit defaults and gating pressures, with recent troubles cited among major alt managers and warnings from industry leaders.
Gold Outlook: Still bullish on gold as a diversifier supported by central-bank demand and geopolitical risk, targeting higher prices despite a recent consolidation.
Fed Policy: The Federal Reserve is boxed in—unlikely to cut or hike near term as it tries not to monetize an oil shock while inflation pressures re-emerge.
US Equities: Near-term correction risk (10–15%) acknowledged, but the longer-term US equities bull case (Roaring 2020s, higher S&P targets) remains intact if geopolitical risks ebb.
AI Dynamics: Companies are reassessing payrolls and productivity amid AI adoption; capex effects are mixed, with limited net job-loss expectations over time.
Transcript
Ed, thank you very much for joining us today. How are things in Long Island? Uh, >> everything's uh just fine, thank you. Spring is coming, so looking forward to that. >> Yes, so am I. We had a pretty tough winter, >> as I'm sure you did. >> Yep. >> So, let's get into it. We have so much to discuss and the first thing I want to discuss is the price of oil and its impact on the global economy. We started the year at $60 a barrel. I can't believe it was that low, but that's where it was for most of January. and now it's significantly higher. I'm not even going to throw out a number because it changes every 3 minutes. So I want to get your view on these higher oil prices that we have witnessed and what will be the impact on the global economy and also the US economy. Yeah. Well, unfortunately, this certainly creates a feeling of deja vu all over again with the 1970s and uh suddenly uh in a matter of a couple couple of weeks, we have to be concerned in fact about that kind of scenario, a stag stagflationary scenario. Uh I think when the war first broke out and uh the uh regime heads were decapitated basically uh there was a lot of uh euphoria that this would be a fairly short war. Uh it took me about 3 days to conclude that maybe it wouldn't be so short uh because while we may have beheaded the uh regime, the regime has are basically professional terrorists. And uh just because you get rid of the heads doesn't mean that you still don't have a whole cadre of professional terrorists. This is what they do for a living. They've been doing that throughout throughout the Middle East for 47 years. They've been doing it around the world. And so just because you get rid of their heads doesn't mean that uh you've won. Um, you know, I I I I think from a, you know, from an overall military view, one can say that uh Iran lost to the the war from from the beginning. Uh, but but the problem is they're not willing to concede the point. President Trump said he he wants them to declare uh unconditional surrender, but uh they're not going to do that. And he recently defi redefined what unconditional surrender would mean. and he said it's it'll be his interpretation when he thinks they've surrendered. He's uh he's going to basically declare victory. Uh but that's easier said than done and it's having it's lock locked in all that oil. Meanwhile, Iran uh is sending out drones that uh are taking out some of the oil infrastructure among their neighbors. Israel's uh basically retaliating in and kind. The US is saying, "Hold on. don't destroy Iran's infrastructure on oil because when we win this war, we want o Iran to produce more more oil. So, there's a lot of moving parts here and they're not going uh so well in terms of what the oil market's saying. The oil market is saying don't count on this being a temporary situation. Uh investors are looking at previous oil spikes and saying, well, they go up and then they come right back down. Uh but this is a little trickier because of shutting off 20 million barrels a day. 20% of the supply of global crude oil. Uh that's not uh that that's not something that can be taken lightly. And the only question is how long will it take to come up with some sort of solution either a ceasefire or negotiated solution or a military solution to free up the street. Every $10 move in the oil price is equivalent to 25 cents at the pump. And the average price across the US is $3.50 a gallon. That's up from $2.80 in January. Of course, that varies or that's going to change depending on region and also state. State of California. It's well over five bucks a gallon. >> But it's just not the price of gas. It's also the price of diesel which is used by tractor trailers and farmers and railroads. >> Jet jets airfares are are already going up. >> Yeah. So, so when you look at all these elements, at some point it's going to start percolating down to the consumer, okay? And we're going to see a higher inflation number, but what what are your thoughts on that? When might that happen? >> Well, I think it's going to happen rather rapidly. I mean, I think we're going to see the airfares in the uh in the in the March data. The war started on February 28th, so we're basically going to see the impact uh during March. Um and um you know companies uh have been uh raising uh some of their prices in reaction to the to the tariffs. Uh so they uh they they they have their computer programs uh already set to lower and and and and raise prices. And so I think they're going to be raising prices kind of across the board. Uh I the problem is the longer this lasts uh the more it's not only going to impact oil prices but also food prices uh because a lot of the materials that are necessary for producing fertilizer have been uh blocked off from getting through the uh the straight and uh fertilizer stock prices have already soared on expectations that that'll be the case and this is kind of the worst possible time to have a problem with a supply of fertilizer because this is when farmers plant. So, we could have this oil price shock uh go into a a food shock. Uh again, much will depend on how quickly this thing ends. And uh I think it's um it's it's going to be tougher than a lot of people thought including the administration because uh Iran is a a country at least the government and its military is are all terrorists that professional terrorists and they'll they'll keep uh they'll keep uh things in in chaos. I think they Iran's strategy is chaos. Not only to block oil coming out of the Persian oil and having an impact on the on the neighborhood uh but also obviously that would have a geopolitical impact. I I think they want to create as much pain as they possibly can can around the world and uh hoping that the world will come kind of come back and uh try try to work out a ceasefire by guaranteeing that the regime can live on. >> Well, it's going to be interesting to see because as you mentioned, we're going to see higher prices with the airlines and trucking companies. That's going to spill down to the consumer. We're going to start getting hit with sir charges. You know, every time you get on an airplane, you order something from Uber or Amazon, there's going to be some sort of fuel searchcharge there, I'm sure. >> So, I want to ask you about the jobless numbers now because we saw the nod farms, they came out for the month of February, >> small uptick in the unemployment rate, 4.4% up from 4.3%. And then I read something interesting. I thought I uh according to this article that I read, the Bureau of Labor Statistics has revised jobs downward for 13 in each of the last 13 months. >> So the number of jobs has actually decreased by 710,000 >> jobs. Uh what are your thoughts on that? And are you concerned that this unemployment number is ticking higher? >> Yeah, there's a lot of uh confusion over those numbers. uh a lot of influences that seem to explain uh why things are so weak in the labor market. U I mean a 4.4% unemployment rate is basically full employment. Uh it's been kind of moving up and down uh just north of four to 4.4% for se several months. Uh so the supply and demand is of of labor is actually kind of in balance if you look at the unemployment rate. But it's it is very hard for uh a new entrance for college uh graduates to to find jobs. I think there's a few things going on. One is that um companies panicked u when the pandemic hit and first they uh put everybody on uh uh on leave obviously when the economy was shut down for for two months but then when they uh everything started up again after the uh lockdown was uh was ended uh they found that demand was much stronger than they expected and they couldn't get the workers to come back or the workers decided to quit and find a better job somewhere else. And so I think they overhired uh in 2020, 21, 22. Um and then uh along the way comes AI and u AI got everybody confused. Um companies suddenly said, you know, let's we really don't know what impact this has on our productivity. Let's study it. So let's just freeze our payrolls. let's not uh increase or decrease who we we have uh and let's go companywide see where AI can increase productivity where we can actually uh reduce uh some uh some of our workforce and I think what a lot of them are finding is that AI is great in some areas and not so much in other areas but on the other hand they looked at those other areas and said you know what there I think we could just get rid of uh a few people here because uh or or just get rid of the division just because the uh the numbers don't add up to a a profitable part of our business. So, I think there's been a lot of that going on and then of course overlaying all that has been uh the complete freezing of the southern border uh and uh then uh deportations uh which have made obviously a lot of employers uh conclude that it doesn't make sense to hire people who you can't prove are documented. So all these things have come together and at the same time the economy continued to be surprisingly strong. Uh and and that was because productivity made a a huge comeback at least it did in the three quarters last three quarters of last year and that that should be sustainable. uh but surge in productivity means that uh uh some workers are losing their jobs because there are new technological innovations that are are causing that and it takes some time for people to kind of adjust and reinvent themselves. U I I don't really think on balance AI is going to cause a lot of job losses. Um and I think it's because AI is artificial intelligence but it's not intelligent. You you definitely need people to prompt it, people to uh check check the numbers that it it produces, check the facts that it spews out. It sounds very um reliable. It sounds very on top of things, but it's not. And so I think um if anything, we we we need people with experience. The problem is the baby boomers are retiring which is another factor here uh causing um the uh labor supply to to decline and it's hard to replace baby boomers who've maybe overstayed their welcome. A lot of them didn't retire at 65. I'm 76. I'm still working for a living but a lot a lot of my friends have been retiring. Um and they've been keeping the consumer afloat. uh uh they've been going on cruise cruise ship tours obviously and um they've been living the high life. The baby boomers have $85 trillion of net worth and they're basically spending it to uh enjoy their uh retirement and that's why disposable personal income has gone flat. That's why the savings rates going down. Nothing wrong with that. uh people are entitled to retire and and and they the baby boomers uh kind of did what Spock from Star Trek told us and that was live long and prosper and now they're intend to live longer in retirement and they're spending money and they're helping their young adult kids and their grandchildren f financially. So that's uh kind of the the the the magic behind why consumers have uh hung in there. The question is whether the oil shock is going to uh be a shock to consumer spending. >> You touched on youth unemployment and so I'm based in Toronto. The unemployment rate across the country I believe it's around 6.8%. Uh youth unemployment which is 15 to 24 is at 15%. What's the number in the US? >> It's about the same. Uh the um 16 to 19 year olds is I think is around 15%. And then the uh the college graduate uh segment. So I guess that would be somewhere between 20 and and 25. Uh that's also kind of consistent with the numbers you just quoted. Um and um I think that's where the uh the difficulties are in the labor market is for for young people. But you know we also have a mismatch uh between the jobs and uh this the skills that young people are coming out with. Uh unfortunately uh we we have too many college graduates with the same degree in something vague called communications business and and management. And um there's a lot of them uh competing with each other with uh kind of ambiguous uh degrees. It's not clear exactly what the fit is uh with that kind of skill set. Uh so uh we probably need we actually need uh uh more more plumbers and electricians and uh people with trade skills. Uh I think it takes some time, but I think people uh are realistic and they do see what's going on and what it takes to get a job. So I'll see I think we will see more kids going into trades. Uh maybe more into sciences and engineering but maybe not coding because a lot of a lot of the kids who who figured it out went went into computer programming thinking that for that was a locked in sure job and now we're seeing that that's not the case because uh programs like Enthropic do amazing uh jobs of coding. I recently read an article on Vanguard. They reported that a record number of Americans made hardship withdrawals in 2025 from their 401ks. Did you see that? >> I did not. Uh but it's not not surprising. People have called it the the the K economy. Uh I think um I think that's part of the explanation that we've got uh segments of the economy that are doing very well. They've done well with the stock market. Uh they've lived long and prospered. As I mentioned before, home prices are up. Um and if they're still working, they're uh obviously in their uh 50s, 60s, maybe even 70s, uh and they they're highly skilled, highly experienced, and doing great. Uh then, uh you've got other people that are aren't doing as well. I think a lot of it is demographics. I think uh it's there is a real affordability crisis for for young people with without a doubt. Um, and if you uh you see some of these surveys where where you interview people and quite a few of them say that uh they live paycheck to paycheck and some of them will tell you they they really don't make it to the end of the month and then you but they never ask them so h how do you make it and I think a lot of them turn out to be young and are getting financial assistance from their their parents. uh and that's something that uh isn't really taken into consideration that kind of the the the demographic assistance that is that is occurring but obviously uh young people would coming out of school would like to get a job would like to be able to support themselves and move on from there. Um the young people can also I think look forward to with the likelihood that there'll be quite a bit of inheritance uh going on over the next few years and maybe that gives them a little bit of more more confidence that they're not going to be destitute that uh there will be some transfer of wealth occurring. I I kind of doubt that the baby boomers can spend $85 trillion before they pass away. So, I think there'll be some of that helping the consumer. >> So, we have a Fed meeting coming up on March the 17th, two-day meeting. Um, what's your take? Do you think they're going to hold? >> My my take is what a mess. I mean, they're looking at a real mess. U you know, for for a few years, they've been using the the phrase, you know, we're in a good place. Uh basically saying that the Fed funds rate is where it should be. uh that the balance of risks uh for unemployment and inflation is about equal. In other words, uh the risk that inflation will go up uh is about offset by the u risk that unemployment uh will will go up. And uh so uh they've been uh you know kind of favoring the uh the easing side of the of things figuring that you know the labor market seems to be struggling more whereas they haven't quite gotten to their inflation target but uh they're they're getting closer to it. But this up uh this war up ends everything. Um you know we we've we had the last CPI was pretty good around 2 and a.5%. uh you can always take out uh home ownership u equivalent rent and you get to 2%. So we're we're we're kind of there. I mean we're in Nirvana right now and I've been arguing that the Fed really doesn't need to lower interest rates at all. uh and and now the situation has changed to the extent where once again the Fed shouldn't uh lower interest rates and it shouldn't raise interest rates because it's kind of boxed in between inflation going up over the next few months and it's going to be hard for them to look through it. I mean, in the 1970s, we had two oil shocks and the Fed was too accommodative uh for for too long. And as a result, at the end of the decade, the 70s, uh Paul Vulker, Fed chair, came in and just knocked the living daylights out of the economy by uh letting interest rates sore uh to levels that caused the recession. And so I think from that experience, the Fed should know that you don't want to monetize an oil shock because it's it spreads throughout the entire economy. So you don't want to uh you don't want to uh accommodate it by keeping uh interest rates uh by by by lowering interest rates because you're concerned about uh the labor market. But they really are in a bind here. And I think uh they're just going to have to con to get the message out that, you know, there's just some things they they can't uh solve. They can't solve some of the structural problems in the labor market. And uh you know, what can they really do on the to respond to the geopolitical situation? Uh so I I I think uh you know if uh Kevin Worsh the nominee for Fed chair gets uh passes the Senate uh he's going to get into a very messy situation. It's hard to see how he continues to promote the idea that the Fed needs to lower interest rates. But obviously he's capable of doing that. He'll say that, you know, all of this adds up to stagflation. stagflation, we'll end up with recession, and we don't want a recession. Uh, and we'll deal with inflation one way or the other. We'll we'll deal with it by winning the war and having u oil prices come down and everything will be hunky dory again. Um, as you can tell, I've become more much more uh much more concerned about the outlook. Uh, kind of known as a per permable. Uh but I I try to be a realist and in this situation I think um I'm more realistic than most and and arguing that let's not assume that this war is over uh as as quickly as the administration has been promising. Let's not underestimate the mischief that uh and violence and terrorism that Iran Iran's regime can still inflict. I mean, the Iran regime is in it for uh for surv ex for survival and uh and they're d they're very very dangerous. Uh they have a lot of experience of being terrorists. >> Well, one of the reasons why I always enjoy speaking with you is because you're always so positive and you're always so bullish. And I guess the big unknown is the oil price. And are you concerned if the oil price stays at a 100 bucks or higher for the next few months? Are are you concerned that the US economy might go into a recession? Maybe the global economy. >> Yeah. Yeah. I've been arguing since the beginning of the decade that uh the economy is remarkably resilient. And as a matter of fact, I've been talking about the decade as being potentially the roaring uh 2020s. Well, it's been so far so good until the war. And now we've had a series of stress tests of of the economy's resilience starting uh with a pandemic, with the global supply chain uh issue, with inflation, with the Fed tightening. And despite all of that, the only recession we've had this decade was the two-month recession caused by the government when they locked down locked us all down and locked down the economy. So the economy's uh resilience has been absolutely spectacular and I've gotten that pretty much right. Um, and I continue to kind of harbor hopes that um, the economy's resilience will get us through this uh, o oil shock. Uh, but my gut feel is this could last longer and the longer it lasts, the more likely it is that the consumer will will retrench. Meanwhile, we got a lot of uh, uh, crosscurrens on what AI's impact is on uh, on capital spending. uh higher oil prices. Um by some estimates, if the price of oil goes, it it stays at 100. It's already at 100. Stays at 100. Uh the longer it stays there, the more it's equivalent to something like a at least $1,000 uh per year extra and and spending just on gasoline. And that's probably a low number. And uh the estimates on what the tax refunds are going to be uh we're in February and March and April and going to be in March and April is that uh that'll be about $1,000 more than they got last year because of the uh big beautiful bills impact on on tax tax refunds. And so, uh, whatever stimulus I and others were counting on, uh, from that, uh, from those refund checks kind of gets, uh, uh, completely offset by the higher, uh, energy prices. Uh, so, uh, yeah, you put it all together and, uh, it makes for, uh, it it increases the chance that things can go wrong. So, as a matter of fact, I I raised the odds of things going wrong uh, from uh, 20% to 35% uh, just about a uh, a week ago uh in response to what I saw was the increasing risk from this uh geopolitical situation for the stock market. I also said you know I think we can now have a 10 to 15% uh correction and I I'm not ruling out a bare market if this thing continues to to fester. Uh so that's where my head's at. Um, you know, there's uh I I don't know that I'd rush to, you know, to to to get out of the out of the market, but uh if you have some some big profits in some areas, it's probably a good idea to cash them in, stay in cash until this turns out to be a huge buying opportunity, which I think it will. I I I am a permable in the sense that I believe that corrections and bare markets create buying opportunities. I'm a permable in the sense that I think that uh stocks are meant to be held for the long run through thick and thin and if you do that you'll do just just uh just fine but uh obviously bare markets are extremely unnerving. It's always tough watching when you lose money. So Ed um I have to admit I'm really surprised by the resiliency of the S&P. It's more or less flat on the year. Uh, remind me again, is your target still 7,700 for 20? >> Yeah, right now it's still 7,700, but um yeah, I got my f finger on the trigger. I'm I'm not going to be raising that number. Um and um you know it it could it could I mean it could turn out to be very similar to what happened last year when the first half of the year was really terrible uh because of the tariff situation and then uh I guess April 9th the president postponed his liberation tariffs uh liberation day tariffs and the market just took off uh starting on April 9th uh and had a it was up 100% % uh to to the top uh from that from that bottom. Um the problem here is um this is you know Trump doesn't he always says that he's got the cards and the other side doesn't have the cards. Uh that's not quite quite the case. He I I think he got a little cocky with with Venezuela in underestimating u what it would take to uh defang uh Iran and uh even if he at some point declares victory here and says, you know, it's it's we we've we've done what we wanted to do. We've the you know, bombed their new nuclear sites again. We've taken out their missile launchers and all that. And that's what we wanted to do. we're we're going home. The problem is the Israelis may may not get that message, nor might the Iranians. They might just keep keep the shooting going. Um and uh so that's that's kind of the issue here. But if it's if it's like la last year, then uh there'll be some cathartic uh event that uh leads to an end to the war. And then the market obviously would do very well with oil prices uh coming down dramatically. I mean there is a lot of oil and the US is an exporter of oil and gas. The US produces a tremendous amount of uh of of both. We're not I don't think we're going to have uh shortages. We're not going to have lines uh you know around the block. Uh so that uh so I don't think this is going to be the 70s all over again. But here, you know, everything was going great with the roaring 2020s thesis. And then suddenly I have to talk about the possibility that could this could be u uh another scenario and that's the stagflating 1970s redux. You know the the 1970s all over again. And um you know I I try I try to remain flexible though I do tend to be optimistic but uh I I can't ignore the the the risks here. Well, it's going to be interesting to see if we get a pull back in the economy, uh, what comes out of that and we've been reading a lot of concern about what's happening with AI and the circular financing and private equity and and private credit. >> And there is a pension plan based in Ontario. It's called the Ontario Teachers Pension Plan. They manage the retirement funds for 346,000 teachers. They manage about $280 billion. They just came out with their 2025 performance numbers. And you're not going to believe this when I tell you, but their number for 2025 was 6.7%. Okay, >> they missed their target by their target was 11.7%. >> So, they blamed it on PE and real estate. Now, they didn't go into a lot of detail. I don't know where their real estate holdings were, but uh with PE, they said they took some massive write downs. And I guess these have been in the works for, you know, a few years. >> That's PE. That's that. When you say PE, does that include private credit as well or just >> uh they didn't say. Okay. But >> yeah, it might be a generic term. >> Private equity. >> Private. Yeah. >> So, I'm wondering how many other >> funds out there have the same sort of situation where you're sitting on a bunch of private equity or private credit. We saw troubles out of this Blue Owl and Blackstone and Black Rockck and many others. You just kind of wonder is that going to be the next thing to fall? >> Yeah. Well, you know, we've already had one shoe fall on the geopolitical side and now we have the potential for another shoe to to drop on the uh on the credit side. In the past, um the there's a lot of recessions, almost all of them, uh showed that uh the decline in the economy coincided with a surge in oil prices and also with a credit crunch. Um and uh in the current situation uh I've been a little bit blasze on the on the private credit and and private e equity side. Uh but recently uh uh Lloyd Blankfine who used to run Goldman Sachs and Jamie Diamond who runs JP JP Morgan have both been uh sounding the alarm on particularly private uh credit. And Jamie Diamond has u made the famous uh comparison to cockroaches that you know when you see one there there's there's rarely only one. There's probably a whole bunch some somewhere else in uh you know in the kitchen. And so uh we're seeing more cockroaches uh coming out. And um again, one of the reasons that I've raised the odds of things going badly is because the private I I I think you know if you see private credits blow up, uh that's not like the banking system blows up. It's like a a haircut in a rate of return in portfolios as we as you just mentioned in the portfolio uh up in Canada. But um when you combine an oil shock with a uh issue in the in the credit markets uh namely the uh potential for more defaults in private debt. And not only that, but you're kind of getting a run not on the bank, but you're getting a run on these uh funds that invest in private credit. And uh you know if you read the um you know the the fine print it says you you know the the fund manager can keep you from taking your money out. Uh and you know you can be gated and and that's suddenly spooking a lot of investors. Um, you know, it it it was kind of worrisome when a couple of years ago Wall Street decided that uh uh retail should be able to uh enjoy the benefits of of private equity and private debt. And did kind of make me wonder, is this Wall Street's way of anticipating that things are going to go badly and they're going to try to uh you know, dump it on retail? And uh right now, unfortunately, that scenario kind of looks like it's uh it's it's playing out. Uh so again um the risks of recession definitely are uh are increasing here. Um and um uh I I I think we just have to see how these things interact, but it's hard to see that they uh that that it doesn't kind of feed on one doesn't feed on the other. >> You've been bullish on gold in the past. It was up 60% in 2025. It's up 15% give or take so far in 2026. Are you still bullish on gold? >> Yeah, gold has been a good call for me. Um, when it uh rose above uh 20,000 um I I I I told everybody I know nothing about gold. I don't do demand and supply. I don't watch the market. I don't know it. But what I did know is that uh the reason gold went to a new high of 2000. I think it was like in 2023. um you know in 2022 the uh Russia invaded Ukraine and um then uh Russia invaded Ukraine and then of course um uh the US and Europe froze their the assets of of the Russians and other central bankers in other countries that we don't get along with decided well instead of uh holding on to dollars and euros and currencies maybe they should be buying some gold. So I said that's all there is to it. um go gold gold is going higher and uh when I got to to 3,000 I said um actually that was the beginning of last year I think this was 2024 that gold rose above 2,000 um I got so many numbers in my head sometimes uh I I I missed by a year but uh I think it was last year that we crossed 3,000 and I said at the beginning of last year I said I think we're going to go to 4,000 and it got to 4500 and so at the end of last year. I said, I'm raising my target for this year from 5,000 to 6,000. And we got to I think like 5,500 5600. Now we're back to 5,000. I think we're kind of consolidating here. It's been kind of weird, peculiar to see that gold is not responding to this war at all. It's just kind of like stalled at 5,000. And you think with what's going on with all the chaos, it would be soaring to 6,000. But I think uh the the war has kind of uh whether you like it or not brought American exceptionalism back. U you know, we can be exceptional in all sorts of ways, but the dollar has actually been pretty firm uh on this war situation. And maybe that's kind of taken some of the thunder out of gold. But yeah, I'm still using 6,000 on gold by the end of the year. I'm still using 10,000 on the S&P 500 by the end of the decade. and on gold uh by the end of the decade. Gold, if you put the price of gold uh on the same chart as you as the S&P 500 with the same scale, you'll see that they're inversely correlated, which makes gold a very good diversifier uh for an S&P 500 portfolio. But you also see that the trends are almost identical. Uh so I I think that uh as people get richer in the stock market uh they get a little nervous that they got so much money in the market and they start to diversify and they go into bonds, they go into gold and maybe that's why that longerterm relationship uh works. But yeah, I I think this two shall pass. I just don't know whether it's a matter of a few more weeks or several months or through the end of the year. Um but I do think that we're still in the roaring 2020s. I think we just kind of got whaid here by this uh war. Uh I don't think it's going to be the 1970s all over again, but you know, I I never rule things out. I always do things with subjective probabilities. So, it's uh quite possible that I'll be raising my my risk scenario here um with regards to a stagflationary environment and the negative implications that has has for the stock market. Yeah, there's so many reasons to own gold and we didn't even talk about the fiscal situation in the US. I think >> there's so much going on in the world right now. We're we're kind of missing out on a lot of things. >> But let's just say that the debt's at $40 trillion. The president has come out and he said he wants to take the the >> the defense budget from 1 trillion up to 1.5 or two trillion. I don't know where the hell he's going to get the money to pay for that. Yeah, I >> think he was hoping to pay for a lot of things with the tariffs, but the Supreme Court came out and they struck that down. >> Uh what are your views on the debt levels in the US and >> Well, look, the the it's pretty easy to uh uh balance the budget. All we have to do is slow down the in the pace of increase in outlays and and increase taxes. But uh you know politically we're completely divided and half the country does don't want doesn't want anybody touching the outlays and wants them to keep growing. Uh and the other half doesn't want to see taxes going up. Um but the practical reality is we can't keep doing this um like this. Um so far the bond market hasn't uh protested. You know, I coined the the term bond vigilantes back in 1983. And I think it was in 2023 that we came pretty close to a a bond um a debt crisis. The bond yield went from four to 5% uh between um August and uh the the 1st of November just just like that. And um but the Treasury announced that they were going to finance more of what they need in Treasury bills and less in bonds and that helped to calm things down. Also, inflation was continuing to to moderate. Uh but I'm watching the bond market. The bond market has been remarkably quiet of late. Uh but uh it it could start uh protesting uh all this outlays without any offsetting uh increase in revenues. And of course, the administration was counting on3 to400 billion in revenues from customs duties and looks like that's not going to uh last uh at all. Um so um we may get into an uncomfortable situation where um you know if we feel compelled to do all the spending we're going to have to to raise some revenues and that um you know again the politics of it could be uh harrowing. A and by the way, the other thing we didn't discuss is that the way things are going, the Republicans are probably going to lose their majority in the House. And then if you think we've got a lot of political partisanship and turmoil, you ain't seen nothing yet. And the president himself has said that if uh the Republicans lose the House, he's going to spend the rest of his uh second term fighting off impeach impeachment uh proceedings that uh the Democrats are going to bring. So it's um you know the stock market's done an amazing job of tuning out Washington all all these years and maybe one of the reasons uh I have had a tendency to be bullish compared to lots of other people who have been perma bears is I've observed that isn't it amazing how well the US economy and stock market have done despite Washington well you know Washington's in our face all the time now and it's it's hard not to take Washington into consideration when you look at uh what's going on on g on the geopolitical realm and that you know we're we're seriously going to have to consider spending even more on uh on defense. So u these are interesting times all too all too interesting. >> Yes. Uh and I totally I I love the point I love the point that you just made. It's not about the governments. Doesn't matter who what party is in power. If it's the Republican or Democrat or liberal or conservative, it always comes down to the people. The people is what makes your country and my country great. And if you look at the S&P over the last 100 years, that's why it keeps going up. Because >> if we could just get rid of our we could just get rid of our governments, we'd probably have uh amazing economies. I I don't know who'd be running uh foreign policy. That's that's the problem. We still need the government to defend us. >> Yeah. I I understand you're you guys are are building some uh infrastructure uh for for soldiers just in case Americans ever come to uh to to to claim some uh territory here. But uh you know it's it's crazy. It's it's crazy stuff. Uh um my daughter uh lives in Toronto, so uh I I have a good part of my heart up there up there in Toronto. And uh I I I I hope for for all of our sakes as the craziness uh stops. >> Yes, I am with you 100%. Well, listen, this has been a great discussion as always. And uh if somebody would like to follow you online or read some of your research, where can they go? >> Yeah. Uh well, for institutional investors, uh you could go to yard www.yardenni.com. Um individual investors uh can go there as well. And there's uh a uh something called quick takes uh which uh has been very popular. It's really taken off for us. Um and uh we we try to give you more uh of of a sense of you know what the market implications are for uh all these economic developments, geopolitical developments, the Fed and so on. And it's a it's a quick read, but uh it it is opinionated and you can uh agree or disagree with us, but hopefully you also get a lot of useful information that you can make your own sound judgments with. Ed, once again, thank you and good luck in the markets. >> Thank you. Same to you.
U.S. Economy at Risk for Recession | Ed Yardeni and Jimmy Connor
Summary
Transcript
Ed, thank you very much for joining us today. How are things in Long Island? Uh, >> everything's uh just fine, thank you. Spring is coming, so looking forward to that. >> Yes, so am I. We had a pretty tough winter, >> as I'm sure you did. >> Yep. >> So, let's get into it. We have so much to discuss and the first thing I want to discuss is the price of oil and its impact on the global economy. We started the year at $60 a barrel. I can't believe it was that low, but that's where it was for most of January. and now it's significantly higher. I'm not even going to throw out a number because it changes every 3 minutes. So I want to get your view on these higher oil prices that we have witnessed and what will be the impact on the global economy and also the US economy. Yeah. Well, unfortunately, this certainly creates a feeling of deja vu all over again with the 1970s and uh suddenly uh in a matter of a couple couple of weeks, we have to be concerned in fact about that kind of scenario, a stag stagflationary scenario. Uh I think when the war first broke out and uh the uh regime heads were decapitated basically uh there was a lot of uh euphoria that this would be a fairly short war. Uh it took me about 3 days to conclude that maybe it wouldn't be so short uh because while we may have beheaded the uh regime, the regime has are basically professional terrorists. And uh just because you get rid of the heads doesn't mean that you still don't have a whole cadre of professional terrorists. This is what they do for a living. They've been doing that throughout throughout the Middle East for 47 years. They've been doing it around the world. And so just because you get rid of their heads doesn't mean that uh you've won. Um, you know, I I I I think from a, you know, from an overall military view, one can say that uh Iran lost to the the war from from the beginning. Uh, but but the problem is they're not willing to concede the point. President Trump said he he wants them to declare uh unconditional surrender, but uh they're not going to do that. And he recently defi redefined what unconditional surrender would mean. and he said it's it'll be his interpretation when he thinks they've surrendered. He's uh he's going to basically declare victory. Uh but that's easier said than done and it's having it's lock locked in all that oil. Meanwhile, Iran uh is sending out drones that uh are taking out some of the oil infrastructure among their neighbors. Israel's uh basically retaliating in and kind. The US is saying, "Hold on. don't destroy Iran's infrastructure on oil because when we win this war, we want o Iran to produce more more oil. So, there's a lot of moving parts here and they're not going uh so well in terms of what the oil market's saying. The oil market is saying don't count on this being a temporary situation. Uh investors are looking at previous oil spikes and saying, well, they go up and then they come right back down. Uh but this is a little trickier because of shutting off 20 million barrels a day. 20% of the supply of global crude oil. Uh that's not uh that that's not something that can be taken lightly. And the only question is how long will it take to come up with some sort of solution either a ceasefire or negotiated solution or a military solution to free up the street. Every $10 move in the oil price is equivalent to 25 cents at the pump. And the average price across the US is $3.50 a gallon. That's up from $2.80 in January. Of course, that varies or that's going to change depending on region and also state. State of California. It's well over five bucks a gallon. >> But it's just not the price of gas. It's also the price of diesel which is used by tractor trailers and farmers and railroads. >> Jet jets airfares are are already going up. >> Yeah. So, so when you look at all these elements, at some point it's going to start percolating down to the consumer, okay? And we're going to see a higher inflation number, but what what are your thoughts on that? When might that happen? >> Well, I think it's going to happen rather rapidly. I mean, I think we're going to see the airfares in the uh in the in the March data. The war started on February 28th, so we're basically going to see the impact uh during March. Um and um you know companies uh have been uh raising uh some of their prices in reaction to the to the tariffs. Uh so they uh they they they have their computer programs uh already set to lower and and and and raise prices. And so I think they're going to be raising prices kind of across the board. Uh I the problem is the longer this lasts uh the more it's not only going to impact oil prices but also food prices uh because a lot of the materials that are necessary for producing fertilizer have been uh blocked off from getting through the uh the straight and uh fertilizer stock prices have already soared on expectations that that'll be the case and this is kind of the worst possible time to have a problem with a supply of fertilizer because this is when farmers plant. So, we could have this oil price shock uh go into a a food shock. Uh again, much will depend on how quickly this thing ends. And uh I think it's um it's it's going to be tougher than a lot of people thought including the administration because uh Iran is a a country at least the government and its military is are all terrorists that professional terrorists and they'll they'll keep uh they'll keep uh things in in chaos. I think they Iran's strategy is chaos. Not only to block oil coming out of the Persian oil and having an impact on the on the neighborhood uh but also obviously that would have a geopolitical impact. I I think they want to create as much pain as they possibly can can around the world and uh hoping that the world will come kind of come back and uh try try to work out a ceasefire by guaranteeing that the regime can live on. >> Well, it's going to be interesting to see because as you mentioned, we're going to see higher prices with the airlines and trucking companies. That's going to spill down to the consumer. We're going to start getting hit with sir charges. You know, every time you get on an airplane, you order something from Uber or Amazon, there's going to be some sort of fuel searchcharge there, I'm sure. >> So, I want to ask you about the jobless numbers now because we saw the nod farms, they came out for the month of February, >> small uptick in the unemployment rate, 4.4% up from 4.3%. And then I read something interesting. I thought I uh according to this article that I read, the Bureau of Labor Statistics has revised jobs downward for 13 in each of the last 13 months. >> So the number of jobs has actually decreased by 710,000 >> jobs. Uh what are your thoughts on that? And are you concerned that this unemployment number is ticking higher? >> Yeah, there's a lot of uh confusion over those numbers. uh a lot of influences that seem to explain uh why things are so weak in the labor market. U I mean a 4.4% unemployment rate is basically full employment. Uh it's been kind of moving up and down uh just north of four to 4.4% for se several months. Uh so the supply and demand is of of labor is actually kind of in balance if you look at the unemployment rate. But it's it is very hard for uh a new entrance for college uh graduates to to find jobs. I think there's a few things going on. One is that um companies panicked u when the pandemic hit and first they uh put everybody on uh uh on leave obviously when the economy was shut down for for two months but then when they uh everything started up again after the uh lockdown was uh was ended uh they found that demand was much stronger than they expected and they couldn't get the workers to come back or the workers decided to quit and find a better job somewhere else. And so I think they overhired uh in 2020, 21, 22. Um and then uh along the way comes AI and u AI got everybody confused. Um companies suddenly said, you know, let's we really don't know what impact this has on our productivity. Let's study it. So let's just freeze our payrolls. let's not uh increase or decrease who we we have uh and let's go companywide see where AI can increase productivity where we can actually uh reduce uh some uh some of our workforce and I think what a lot of them are finding is that AI is great in some areas and not so much in other areas but on the other hand they looked at those other areas and said you know what there I think we could just get rid of uh a few people here because uh or or just get rid of the division just because the uh the numbers don't add up to a a profitable part of our business. So, I think there's been a lot of that going on and then of course overlaying all that has been uh the complete freezing of the southern border uh and uh then uh deportations uh which have made obviously a lot of employers uh conclude that it doesn't make sense to hire people who you can't prove are documented. So all these things have come together and at the same time the economy continued to be surprisingly strong. Uh and and that was because productivity made a a huge comeback at least it did in the three quarters last three quarters of last year and that that should be sustainable. uh but surge in productivity means that uh uh some workers are losing their jobs because there are new technological innovations that are are causing that and it takes some time for people to kind of adjust and reinvent themselves. U I I don't really think on balance AI is going to cause a lot of job losses. Um and I think it's because AI is artificial intelligence but it's not intelligent. You you definitely need people to prompt it, people to uh check check the numbers that it it produces, check the facts that it spews out. It sounds very um reliable. It sounds very on top of things, but it's not. And so I think um if anything, we we we need people with experience. The problem is the baby boomers are retiring which is another factor here uh causing um the uh labor supply to to decline and it's hard to replace baby boomers who've maybe overstayed their welcome. A lot of them didn't retire at 65. I'm 76. I'm still working for a living but a lot a lot of my friends have been retiring. Um and they've been keeping the consumer afloat. uh uh they've been going on cruise cruise ship tours obviously and um they've been living the high life. The baby boomers have $85 trillion of net worth and they're basically spending it to uh enjoy their uh retirement and that's why disposable personal income has gone flat. That's why the savings rates going down. Nothing wrong with that. uh people are entitled to retire and and and they the baby boomers uh kind of did what Spock from Star Trek told us and that was live long and prosper and now they're intend to live longer in retirement and they're spending money and they're helping their young adult kids and their grandchildren f financially. So that's uh kind of the the the the magic behind why consumers have uh hung in there. The question is whether the oil shock is going to uh be a shock to consumer spending. >> You touched on youth unemployment and so I'm based in Toronto. The unemployment rate across the country I believe it's around 6.8%. Uh youth unemployment which is 15 to 24 is at 15%. What's the number in the US? >> It's about the same. Uh the um 16 to 19 year olds is I think is around 15%. And then the uh the college graduate uh segment. So I guess that would be somewhere between 20 and and 25. Uh that's also kind of consistent with the numbers you just quoted. Um and um I think that's where the uh the difficulties are in the labor market is for for young people. But you know we also have a mismatch uh between the jobs and uh this the skills that young people are coming out with. Uh unfortunately uh we we have too many college graduates with the same degree in something vague called communications business and and management. And um there's a lot of them uh competing with each other with uh kind of ambiguous uh degrees. It's not clear exactly what the fit is uh with that kind of skill set. Uh so uh we probably need we actually need uh uh more more plumbers and electricians and uh people with trade skills. Uh I think it takes some time, but I think people uh are realistic and they do see what's going on and what it takes to get a job. So I'll see I think we will see more kids going into trades. Uh maybe more into sciences and engineering but maybe not coding because a lot of a lot of the kids who who figured it out went went into computer programming thinking that for that was a locked in sure job and now we're seeing that that's not the case because uh programs like Enthropic do amazing uh jobs of coding. I recently read an article on Vanguard. They reported that a record number of Americans made hardship withdrawals in 2025 from their 401ks. Did you see that? >> I did not. Uh but it's not not surprising. People have called it the the the K economy. Uh I think um I think that's part of the explanation that we've got uh segments of the economy that are doing very well. They've done well with the stock market. Uh they've lived long and prospered. As I mentioned before, home prices are up. Um and if they're still working, they're uh obviously in their uh 50s, 60s, maybe even 70s, uh and they they're highly skilled, highly experienced, and doing great. Uh then, uh you've got other people that are aren't doing as well. I think a lot of it is demographics. I think uh it's there is a real affordability crisis for for young people with without a doubt. Um, and if you uh you see some of these surveys where where you interview people and quite a few of them say that uh they live paycheck to paycheck and some of them will tell you they they really don't make it to the end of the month and then you but they never ask them so h how do you make it and I think a lot of them turn out to be young and are getting financial assistance from their their parents. uh and that's something that uh isn't really taken into consideration that kind of the the the demographic assistance that is that is occurring but obviously uh young people would coming out of school would like to get a job would like to be able to support themselves and move on from there. Um the young people can also I think look forward to with the likelihood that there'll be quite a bit of inheritance uh going on over the next few years and maybe that gives them a little bit of more more confidence that they're not going to be destitute that uh there will be some transfer of wealth occurring. I I kind of doubt that the baby boomers can spend $85 trillion before they pass away. So, I think there'll be some of that helping the consumer. >> So, we have a Fed meeting coming up on March the 17th, two-day meeting. Um, what's your take? Do you think they're going to hold? >> My my take is what a mess. I mean, they're looking at a real mess. U you know, for for a few years, they've been using the the phrase, you know, we're in a good place. Uh basically saying that the Fed funds rate is where it should be. uh that the balance of risks uh for unemployment and inflation is about equal. In other words, uh the risk that inflation will go up uh is about offset by the u risk that unemployment uh will will go up. And uh so uh they've been uh you know kind of favoring the uh the easing side of the of things figuring that you know the labor market seems to be struggling more whereas they haven't quite gotten to their inflation target but uh they're they're getting closer to it. But this up uh this war up ends everything. Um you know we we've we had the last CPI was pretty good around 2 and a.5%. uh you can always take out uh home ownership u equivalent rent and you get to 2%. So we're we're we're kind of there. I mean we're in Nirvana right now and I've been arguing that the Fed really doesn't need to lower interest rates at all. uh and and now the situation has changed to the extent where once again the Fed shouldn't uh lower interest rates and it shouldn't raise interest rates because it's kind of boxed in between inflation going up over the next few months and it's going to be hard for them to look through it. I mean, in the 1970s, we had two oil shocks and the Fed was too accommodative uh for for too long. And as a result, at the end of the decade, the 70s, uh Paul Vulker, Fed chair, came in and just knocked the living daylights out of the economy by uh letting interest rates sore uh to levels that caused the recession. And so I think from that experience, the Fed should know that you don't want to monetize an oil shock because it's it spreads throughout the entire economy. So you don't want to uh you don't want to uh accommodate it by keeping uh interest rates uh by by by lowering interest rates because you're concerned about uh the labor market. But they really are in a bind here. And I think uh they're just going to have to con to get the message out that, you know, there's just some things they they can't uh solve. They can't solve some of the structural problems in the labor market. And uh you know, what can they really do on the to respond to the geopolitical situation? Uh so I I I think uh you know if uh Kevin Worsh the nominee for Fed chair gets uh passes the Senate uh he's going to get into a very messy situation. It's hard to see how he continues to promote the idea that the Fed needs to lower interest rates. But obviously he's capable of doing that. He'll say that, you know, all of this adds up to stagflation. stagflation, we'll end up with recession, and we don't want a recession. Uh, and we'll deal with inflation one way or the other. We'll we'll deal with it by winning the war and having u oil prices come down and everything will be hunky dory again. Um, as you can tell, I've become more much more uh much more concerned about the outlook. Uh, kind of known as a per permable. Uh but I I try to be a realist and in this situation I think um I'm more realistic than most and and arguing that let's not assume that this war is over uh as as quickly as the administration has been promising. Let's not underestimate the mischief that uh and violence and terrorism that Iran Iran's regime can still inflict. I mean, the Iran regime is in it for uh for surv ex for survival and uh and they're d they're very very dangerous. Uh they have a lot of experience of being terrorists. >> Well, one of the reasons why I always enjoy speaking with you is because you're always so positive and you're always so bullish. And I guess the big unknown is the oil price. And are you concerned if the oil price stays at a 100 bucks or higher for the next few months? Are are you concerned that the US economy might go into a recession? Maybe the global economy. >> Yeah. Yeah. I've been arguing since the beginning of the decade that uh the economy is remarkably resilient. And as a matter of fact, I've been talking about the decade as being potentially the roaring uh 2020s. Well, it's been so far so good until the war. And now we've had a series of stress tests of of the economy's resilience starting uh with a pandemic, with the global supply chain uh issue, with inflation, with the Fed tightening. And despite all of that, the only recession we've had this decade was the two-month recession caused by the government when they locked down locked us all down and locked down the economy. So the economy's uh resilience has been absolutely spectacular and I've gotten that pretty much right. Um, and I continue to kind of harbor hopes that um, the economy's resilience will get us through this uh, o oil shock. Uh, but my gut feel is this could last longer and the longer it lasts, the more likely it is that the consumer will will retrench. Meanwhile, we got a lot of uh, uh, crosscurrens on what AI's impact is on uh, on capital spending. uh higher oil prices. Um by some estimates, if the price of oil goes, it it stays at 100. It's already at 100. Stays at 100. Uh the longer it stays there, the more it's equivalent to something like a at least $1,000 uh per year extra and and spending just on gasoline. And that's probably a low number. And uh the estimates on what the tax refunds are going to be uh we're in February and March and April and going to be in March and April is that uh that'll be about $1,000 more than they got last year because of the uh big beautiful bills impact on on tax tax refunds. And so, uh, whatever stimulus I and others were counting on, uh, from that, uh, from those refund checks kind of gets, uh, uh, completely offset by the higher, uh, energy prices. Uh, so, uh, yeah, you put it all together and, uh, it makes for, uh, it it increases the chance that things can go wrong. So, as a matter of fact, I I raised the odds of things going wrong uh, from uh, 20% to 35% uh, just about a uh, a week ago uh in response to what I saw was the increasing risk from this uh geopolitical situation for the stock market. I also said you know I think we can now have a 10 to 15% uh correction and I I'm not ruling out a bare market if this thing continues to to fester. Uh so that's where my head's at. Um, you know, there's uh I I don't know that I'd rush to, you know, to to to get out of the out of the market, but uh if you have some some big profits in some areas, it's probably a good idea to cash them in, stay in cash until this turns out to be a huge buying opportunity, which I think it will. I I I am a permable in the sense that I believe that corrections and bare markets create buying opportunities. I'm a permable in the sense that I think that uh stocks are meant to be held for the long run through thick and thin and if you do that you'll do just just uh just fine but uh obviously bare markets are extremely unnerving. It's always tough watching when you lose money. So Ed um I have to admit I'm really surprised by the resiliency of the S&P. It's more or less flat on the year. Uh, remind me again, is your target still 7,700 for 20? >> Yeah, right now it's still 7,700, but um yeah, I got my f finger on the trigger. I'm I'm not going to be raising that number. Um and um you know it it could it could I mean it could turn out to be very similar to what happened last year when the first half of the year was really terrible uh because of the tariff situation and then uh I guess April 9th the president postponed his liberation tariffs uh liberation day tariffs and the market just took off uh starting on April 9th uh and had a it was up 100% % uh to to the top uh from that from that bottom. Um the problem here is um this is you know Trump doesn't he always says that he's got the cards and the other side doesn't have the cards. Uh that's not quite quite the case. He I I think he got a little cocky with with Venezuela in underestimating u what it would take to uh defang uh Iran and uh even if he at some point declares victory here and says, you know, it's it's we we've we've done what we wanted to do. We've the you know, bombed their new nuclear sites again. We've taken out their missile launchers and all that. And that's what we wanted to do. we're we're going home. The problem is the Israelis may may not get that message, nor might the Iranians. They might just keep keep the shooting going. Um and uh so that's that's kind of the issue here. But if it's if it's like la last year, then uh there'll be some cathartic uh event that uh leads to an end to the war. And then the market obviously would do very well with oil prices uh coming down dramatically. I mean there is a lot of oil and the US is an exporter of oil and gas. The US produces a tremendous amount of uh of of both. We're not I don't think we're going to have uh shortages. We're not going to have lines uh you know around the block. Uh so that uh so I don't think this is going to be the 70s all over again. But here, you know, everything was going great with the roaring 2020s thesis. And then suddenly I have to talk about the possibility that could this could be u uh another scenario and that's the stagflating 1970s redux. You know the the 1970s all over again. And um you know I I try I try to remain flexible though I do tend to be optimistic but uh I I can't ignore the the the risks here. Well, it's going to be interesting to see if we get a pull back in the economy, uh, what comes out of that and we've been reading a lot of concern about what's happening with AI and the circular financing and private equity and and private credit. >> And there is a pension plan based in Ontario. It's called the Ontario Teachers Pension Plan. They manage the retirement funds for 346,000 teachers. They manage about $280 billion. They just came out with their 2025 performance numbers. And you're not going to believe this when I tell you, but their number for 2025 was 6.7%. Okay, >> they missed their target by their target was 11.7%. >> So, they blamed it on PE and real estate. Now, they didn't go into a lot of detail. I don't know where their real estate holdings were, but uh with PE, they said they took some massive write downs. And I guess these have been in the works for, you know, a few years. >> That's PE. That's that. When you say PE, does that include private credit as well or just >> uh they didn't say. Okay. But >> yeah, it might be a generic term. >> Private equity. >> Private. Yeah. >> So, I'm wondering how many other >> funds out there have the same sort of situation where you're sitting on a bunch of private equity or private credit. We saw troubles out of this Blue Owl and Blackstone and Black Rockck and many others. You just kind of wonder is that going to be the next thing to fall? >> Yeah. Well, you know, we've already had one shoe fall on the geopolitical side and now we have the potential for another shoe to to drop on the uh on the credit side. In the past, um the there's a lot of recessions, almost all of them, uh showed that uh the decline in the economy coincided with a surge in oil prices and also with a credit crunch. Um and uh in the current situation uh I've been a little bit blasze on the on the private credit and and private e equity side. Uh but recently uh uh Lloyd Blankfine who used to run Goldman Sachs and Jamie Diamond who runs JP JP Morgan have both been uh sounding the alarm on particularly private uh credit. And Jamie Diamond has u made the famous uh comparison to cockroaches that you know when you see one there there's there's rarely only one. There's probably a whole bunch some somewhere else in uh you know in the kitchen. And so uh we're seeing more cockroaches uh coming out. And um again, one of the reasons that I've raised the odds of things going badly is because the private I I I think you know if you see private credits blow up, uh that's not like the banking system blows up. It's like a a haircut in a rate of return in portfolios as we as you just mentioned in the portfolio uh up in Canada. But um when you combine an oil shock with a uh issue in the in the credit markets uh namely the uh potential for more defaults in private debt. And not only that, but you're kind of getting a run not on the bank, but you're getting a run on these uh funds that invest in private credit. And uh you know if you read the um you know the the fine print it says you you know the the fund manager can keep you from taking your money out. Uh and you know you can be gated and and that's suddenly spooking a lot of investors. Um, you know, it it it was kind of worrisome when a couple of years ago Wall Street decided that uh uh retail should be able to uh enjoy the benefits of of private equity and private debt. And did kind of make me wonder, is this Wall Street's way of anticipating that things are going to go badly and they're going to try to uh you know, dump it on retail? And uh right now, unfortunately, that scenario kind of looks like it's uh it's it's playing out. Uh so again um the risks of recession definitely are uh are increasing here. Um and um uh I I I think we just have to see how these things interact, but it's hard to see that they uh that that it doesn't kind of feed on one doesn't feed on the other. >> You've been bullish on gold in the past. It was up 60% in 2025. It's up 15% give or take so far in 2026. Are you still bullish on gold? >> Yeah, gold has been a good call for me. Um, when it uh rose above uh 20,000 um I I I I told everybody I know nothing about gold. I don't do demand and supply. I don't watch the market. I don't know it. But what I did know is that uh the reason gold went to a new high of 2000. I think it was like in 2023. um you know in 2022 the uh Russia invaded Ukraine and um then uh Russia invaded Ukraine and then of course um uh the US and Europe froze their the assets of of the Russians and other central bankers in other countries that we don't get along with decided well instead of uh holding on to dollars and euros and currencies maybe they should be buying some gold. So I said that's all there is to it. um go gold gold is going higher and uh when I got to to 3,000 I said um actually that was the beginning of last year I think this was 2024 that gold rose above 2,000 um I got so many numbers in my head sometimes uh I I I missed by a year but uh I think it was last year that we crossed 3,000 and I said at the beginning of last year I said I think we're going to go to 4,000 and it got to 4500 and so at the end of last year. I said, I'm raising my target for this year from 5,000 to 6,000. And we got to I think like 5,500 5600. Now we're back to 5,000. I think we're kind of consolidating here. It's been kind of weird, peculiar to see that gold is not responding to this war at all. It's just kind of like stalled at 5,000. And you think with what's going on with all the chaos, it would be soaring to 6,000. But I think uh the the war has kind of uh whether you like it or not brought American exceptionalism back. U you know, we can be exceptional in all sorts of ways, but the dollar has actually been pretty firm uh on this war situation. And maybe that's kind of taken some of the thunder out of gold. But yeah, I'm still using 6,000 on gold by the end of the year. I'm still using 10,000 on the S&P 500 by the end of the decade. and on gold uh by the end of the decade. Gold, if you put the price of gold uh on the same chart as you as the S&P 500 with the same scale, you'll see that they're inversely correlated, which makes gold a very good diversifier uh for an S&P 500 portfolio. But you also see that the trends are almost identical. Uh so I I think that uh as people get richer in the stock market uh they get a little nervous that they got so much money in the market and they start to diversify and they go into bonds, they go into gold and maybe that's why that longerterm relationship uh works. But yeah, I I think this two shall pass. I just don't know whether it's a matter of a few more weeks or several months or through the end of the year. Um but I do think that we're still in the roaring 2020s. I think we just kind of got whaid here by this uh war. Uh I don't think it's going to be the 1970s all over again, but you know, I I never rule things out. I always do things with subjective probabilities. So, it's uh quite possible that I'll be raising my my risk scenario here um with regards to a stagflationary environment and the negative implications that has has for the stock market. Yeah, there's so many reasons to own gold and we didn't even talk about the fiscal situation in the US. I think >> there's so much going on in the world right now. We're we're kind of missing out on a lot of things. >> But let's just say that the debt's at $40 trillion. The president has come out and he said he wants to take the the >> the defense budget from 1 trillion up to 1.5 or two trillion. I don't know where the hell he's going to get the money to pay for that. Yeah, I >> think he was hoping to pay for a lot of things with the tariffs, but the Supreme Court came out and they struck that down. >> Uh what are your views on the debt levels in the US and >> Well, look, the the it's pretty easy to uh uh balance the budget. All we have to do is slow down the in the pace of increase in outlays and and increase taxes. But uh you know politically we're completely divided and half the country does don't want doesn't want anybody touching the outlays and wants them to keep growing. Uh and the other half doesn't want to see taxes going up. Um but the practical reality is we can't keep doing this um like this. Um so far the bond market hasn't uh protested. You know, I coined the the term bond vigilantes back in 1983. And I think it was in 2023 that we came pretty close to a a bond um a debt crisis. The bond yield went from four to 5% uh between um August and uh the the 1st of November just just like that. And um but the Treasury announced that they were going to finance more of what they need in Treasury bills and less in bonds and that helped to calm things down. Also, inflation was continuing to to moderate. Uh but I'm watching the bond market. The bond market has been remarkably quiet of late. Uh but uh it it could start uh protesting uh all this outlays without any offsetting uh increase in revenues. And of course, the administration was counting on3 to400 billion in revenues from customs duties and looks like that's not going to uh last uh at all. Um so um we may get into an uncomfortable situation where um you know if we feel compelled to do all the spending we're going to have to to raise some revenues and that um you know again the politics of it could be uh harrowing. A and by the way, the other thing we didn't discuss is that the way things are going, the Republicans are probably going to lose their majority in the House. And then if you think we've got a lot of political partisanship and turmoil, you ain't seen nothing yet. And the president himself has said that if uh the Republicans lose the House, he's going to spend the rest of his uh second term fighting off impeach impeachment uh proceedings that uh the Democrats are going to bring. So it's um you know the stock market's done an amazing job of tuning out Washington all all these years and maybe one of the reasons uh I have had a tendency to be bullish compared to lots of other people who have been perma bears is I've observed that isn't it amazing how well the US economy and stock market have done despite Washington well you know Washington's in our face all the time now and it's it's hard not to take Washington into consideration when you look at uh what's going on on g on the geopolitical realm and that you know we're we're seriously going to have to consider spending even more on uh on defense. So u these are interesting times all too all too interesting. >> Yes. Uh and I totally I I love the point I love the point that you just made. It's not about the governments. Doesn't matter who what party is in power. If it's the Republican or Democrat or liberal or conservative, it always comes down to the people. The people is what makes your country and my country great. And if you look at the S&P over the last 100 years, that's why it keeps going up. Because >> if we could just get rid of our we could just get rid of our governments, we'd probably have uh amazing economies. I I don't know who'd be running uh foreign policy. That's that's the problem. We still need the government to defend us. >> Yeah. I I understand you're you guys are are building some uh infrastructure uh for for soldiers just in case Americans ever come to uh to to to claim some uh territory here. But uh you know it's it's crazy. It's it's crazy stuff. Uh um my daughter uh lives in Toronto, so uh I I have a good part of my heart up there up there in Toronto. And uh I I I I hope for for all of our sakes as the craziness uh stops. >> Yes, I am with you 100%. Well, listen, this has been a great discussion as always. And uh if somebody would like to follow you online or read some of your research, where can they go? >> Yeah. Uh well, for institutional investors, uh you could go to yard www.yardenni.com. Um individual investors uh can go there as well. And there's uh a uh something called quick takes uh which uh has been very popular. It's really taken off for us. Um and uh we we try to give you more uh of of a sense of you know what the market implications are for uh all these economic developments, geopolitical developments, the Fed and so on. And it's a it's a quick read, but uh it it is opinionated and you can uh agree or disagree with us, but hopefully you also get a lot of useful information that you can make your own sound judgments with. Ed, once again, thank you and good luck in the markets. >> Thank you. Same to you.