00:00Joining us now, definitive on Wall Street, it's C.J. Lawrence.
00:03Just a few years ago, he helped invent the synthesis of economics into stock market analysis.
00:10Ed Yardeni joins us, Yardeni Research.
00:12Ed, we've got a one-hour conversation.
00:14We're going to cram in here.
00:15I've got to first go to the therapy that's needed as you go to retirement,
00:20which is you've got Max, Chloe, Cooper, and Bailey.
00:24At the Yardeni house, it's a four-dog night.
00:27Yeah, it certainly is.
00:28It's their King Charles Cavaliers and their couch potato dogs.
00:32I love those.
00:32They're always on the couch, and they're sleeping.
00:35What do the kennel feasts do?
00:36I mean, the vet bill must be just, like, seriously off the chart.
00:38Yeah, but, you know, you have to get health insurance for your dogs.
00:41I mean, it's requisite.
00:43That's your Bloomberg-winning advice, Ed Yardeni?
00:45That's my advice.
00:46Thank you very much.
00:47Why is Ed Yardeni here?
00:48Let me go to the chart right now.
00:50Pull up an important chart here.
00:52Coming out of COVID, in October of 22,
00:55a guy named Ancampur in the chart area,
00:58and Yardeni in the economics and finance said,
01:02courage, buy here.
01:05What did you see in October 22 that gives you continued confidence in the market?
01:10Well, October 22 was a very strange bear market.
01:14Usually bear markets are associated with recessions.
01:17There was no recession.
01:18As a matter of fact, at the time,
01:20I kept saying that we are experiencing the most widely anticipated recession of all times
01:25that just isn't going to happen.
01:27It was the Godot recession, if you will.
01:29I just kept betting on the resilience of the economy,
01:32and so I kind of viewed the bear market as the aberration rather than the economy,
01:37which remained very strong.
01:38The earnings were holding up reasonably well.
01:41So I kind of viewed that as a panic attack.
01:43Now, look, there were good reasons for concerns.
01:46The Fed was raising interest rates from zero to 5.5% of the Fed funds rate.
01:52The bond yield was going up.
01:53Oil prices got a big spike.
01:56And yet the resilience of the economy came through remarkably well.
01:59We were betting on that,
02:01and we're still betting on the resilience of the economy.
02:03Yeah, so I want to take it to what we are seeing right now,
02:06because you said bond yields were going up, oil prices are going up.
02:08That's exactly what's happening now.
02:10The stock market has kind of slowed down a little bit.
02:12So the parallels between then and now, one could say, is noteworthy.
02:17Well, there's definitely parallels, but one of the big differences is earnings.
02:23We've got what I call, you know, everybody talks about FOMO, fear of missing out.
02:27But I'm talking about FOMO, and that is fabulous earnings momentum.
02:31We didn't have that back in 2022.
02:34And it was really at the end of 2022, November,
02:39that we suddenly had ChatGPT and AI revolution just starting.
02:44And the arc of this, and I just finished Justin Baer's wonderful book on Ned Johnson
02:48and, you know, the industry from ERISA 1974 forward.
02:52My basic take is we've rationalized an ownership of bonds,
02:56which has been really difficult since 22, since 21 as well.
03:02Is the basic psychology of retirement now afraid of stocks?
03:07I don't think so.
03:08I think actually quite the opposite.
03:10I think a lot of my friends are retiring.
03:13We're the baby boomers.
03:14I'm still working for a living because I don't play golf,
03:17so I don't know what I would do with myself.
03:18And oh, by the way, I get seasick on cruises.
03:20My friends are all going on cruises.
03:22They used to go one every three years.
03:24Now they go three a year.
03:26And I get text messages from them saying,
03:30I don't know what you're doing, but keep this market going up
03:32because we're spending money like crazy, and our net worth keeps going up.
03:35And Eric Belchunas last week, Scarlett, was brilliant on this,
03:38saying the stock market's become the American retirement system.
03:42It absolutely has.
03:43Do you know that the baby boomers have $90 trillion,
03:47trillion, not billions, trillion dollars of net worth,
03:50and by the way, there's still some people left from the so-called silent generation
03:54older than the baby boomers.
03:56They have $20 trillion, so we're talking over $100 trillion
04:00of retirement net worth assets for the largest generation ever that is retiring.
04:08Are they going to use that?
04:09Are they going to actualize that?
04:10Or are they going to just pass it on to their ears?
04:12Well, you know, the kids didn't listen,
04:14and we didn't like their friends, and they were noisy.
04:17So why leave them anything?
04:18Just spend like crazy.
04:20But look, a lot of people have been talking about the K economy,
04:24that the rich are getting richer, the poor are getting poorer.
04:27I think that misses what's really going on, and that's the demography.
04:31We've got a very, very well-off baby boom generation,
04:34and they're helping their younger children and grandchildren.
04:39The affordability crisis is really old versus young.
04:42Retiring people, they don't really care if the Fed tightens.
04:45Retiring people really don't care much about the labor market
04:50because they're retired.
04:51All they really care about really is the stock market.
04:53How should our audience of retirement, of personal finance,
04:58how should they synthesize the Fed madness?
05:02You and I remember when Arthur Burns had smoke coming out of the pipe
05:05and we interpreted that.
05:07Now we've got this parlor game.
05:08How does Ed Yardini filter that if it's for long-term investment?
05:13Well, I think you focus on the economy.
05:15If you believe in the resilience of the economy,
05:17if you believe that the labor market is in balance,
05:20we've got a 4.3% unemployment rate, which is awfully good.
05:25We have an inflation problem.
05:27The Fed is going to have to probably raise interest rates at least once,
05:30maybe a second time, maybe even a third time,
05:33according to where the two-year Treasury note yield is right now.
05:36So I think you kind of grin and bear it and try to enjoy your retirement life
05:42because I think the market will continue to defy the bears
05:47because the economy will continue to defy the pessimists.
05:51You were saying that the boomers don't care about the Fed raising rates.
05:54They're going to enjoy their retirement.
05:55I'm not a boomer.
05:56I'm a Gen Xer.
05:57So I've got to work for longer.
05:59And I'm wondering whether a higher for longer interest rates means that I have to rethink,
06:04reassess, pivot my investment strategy.
06:06Well, the short answer is yes.
06:09But I'm not a big fan of the higher for longer idea about interest rates.
06:13I think interest rates are back to normal.
06:15In other words, 4% to 5% 10-year Treasury bond yield is a sign of a very healthy
06:20economy.
06:22It's a yield that made sense before the great financial crisis.
06:26The aberration, you know, higher for longer implies we're going to be going back to closer to zero interest rates.
06:32This is it.
06:33This is pretty good.
06:33That was the abnormal.
06:34Yeah.
06:35Now, 6%, 6, 6.5%, 7% mortgage rates came awfully high to a lot of people compared to what?
06:41Compared to where they were when the economy wasn't doing so well.
06:44Ed, I know that you're seeing the odyssey.
06:46I guess it's tonight.
06:47You're going to see them.
06:48On Friday, today.
06:48They don't know that you were writing a newsletter in Sparta a few years ago.
06:52We all know that after the 1920s, Roaring Twenties, it wasn't pretty.
06:58What happens after the Yardeni Roaring Twenties of this 21st century?
07:03Yeah, I'm trying to sort that out now.
07:07I think that if the Roaring 2020s works, and then, in other words, that the economy doesn't have a recession,
07:16the stock market continues to go up.
07:17I've got $10,000 on the S&P 500 by the end of the decade.
07:21If that works, there's no particular reason why it couldn't be the Roaring 2030s.
07:27As a matter of fact, talking about a decade as Roaring, that's what the stock market usually does during decades.
07:34There's only been a few decades where the market was just kind of flat, where it was a nothing kind
07:42of environment.
07:43And certainly that was the 1930s were terrible.
07:47And the 1970s were no picnic.
07:50And then the period around the great financial crisis was.
07:54So we've had decades where you made nothing, but there have been lots of decades where the market's done very
08:01well, not just the 1920s.
08:02So we've had decades where the market's done very well, not just the 19th century, but there have been a
08:02lot of decades where the market's done very well, not just the 19th century, not just the 19th century, not
08:03just the 19th century.
08:03So we've had decades where the market's done very well.
Comments