Ed Yardeni
Investment strategist and prognosticator Ed Yardeni is forever on the alert for signs of weakness in the economy: They could signal a recession and bear market looming. Here's his bullish news: There's no such sign, as he tells ThinkAdvisor in an interview five days before the bull market set a record for the longest run in history.
"Dr. Ed," as Yardeni is known (he has a doctorate from Yale), consults mainly to institutional investors, as well as to financial analysts and RIAs with large portfolios who subscribe to his service (www.Yardeni.com).
"Don't underestimate" Trump has been his optimistic mantra ever since Donald J. Trump was elected president. In the last year and a half, he has not wavered from that faith. For example, he believes that Trump's trade war could very well result in less protectionism as opposed to more.
In the interview, the independent strategist, 68, discusses how inflation, the Trump tax cuts stimulating corporate profits and real GDP growth, and the gradual rise in interest rates point to a continuing strong economy and bull market.
In Yardeni's autobiographical "Predicting the Markets" (YRI Press, December 2017), he unpacks his 40-year career in financial services, which has included forecasting everything from Federal Reserve moves to corporate earnings to global synchronized booms, busts and stagnation. He also reveals some of his forecasting techniques.
In 25 years on Wall Street, Yardeni was chief economist at EF Hutton, Prudential Bache Securities and C.J. Lawrence, and chief investment strategist at Deutsche Bank's U.S. equities division. Earlier, he was with the Federal Reserve Bank of New York and the U.S. Treasury.
A separate web site, www.Yardenibook.com, contains the 700 charts he references in his book. "A simple well-constructed chart can be worth a thousand words," the forecaster says.
ThinkAdvisor recently conducted a phone interview with Yardeni, whose firm is based in Brookville, Long Island, New York. A longtime film buff, he peppers the book with references to movies — from "Wall Street" to "The Wizard of Oz " — chiefly to illuminate a financial or economic point.
"Life is like a box of chocolates. You never know what you are going to get," he says, quoting "Forrest Gump's" title character. "Markets are like Forrest's box of chocolates. You need to think outside the box when it comes to predicting them."
Here are highlights from our conversation:
THINKADVISOR: You focus on predicting how long U.S. monetary policies will remain bullish and when they'll turn bearish. What's your stance right now?
ED YARDENI: I'm bullish. I'm still using 3,100 for the S&P 500 by the end of the year. I've been carrying that forecast since the beginning of 2018. So far, so good.
How does the economy look exactly?
Clearly, growth picked up in the second quarter; and the statistics for the third quarter are on track for another 4% increase. So the tax cuts certainly have given a lift to consumer spending, which is the biggest component of economic growth.
What about the Trump factor in predicting the stock market? He's so unpredictable.
We've got a president who's probably the president that's the most bullish and bearish for the market simultaneously that I can recall. Deregulation and tax cuts are obviously very bullish for earnings. But then, a month after the tax cuts were passed, he turned right around and moved to escalate a trade war.
What's the upshot?
On the face of it, that shouldn't be bullish for stocks, unless it ends well with less protectionism rather than more. That's my working hypothesis. I don't think Trump is going to upend and destroy the global trade system. The fact that the market remains near an all-time record high tells me that investors are giving him the benefit of the doubt in all sorts of areas.
But he opposes globalization. How can the U.S. emerge with less protectionism?
What's the point of globalization if it raises a lot of political resentment and then a counterrevolution throwback to outright protectionism? Ironically, Trump might actually save globalization from itself. The stock market is confirming that view. But the jury is still out.
Well, Trump claims he's a free-trader.
Trump is more in line with Ronald Reagan's approach. He believed in free trade but he also insisted on fair trade. Trump is controversial, but I've been telling people since he was elected president: "Don't underestimate him."
So you haven't doubts about the way he's handling the trade issue?
The only question is: Will moving the world away from a multilateral trading system to a bilateral trading system end up in an escalating trade war that puts the global economy into a recession? Or will there be bilateral agreements that, when all of them are added up, will lead to freer trade?
Why else are you bullish about the economy and stock market?
Fed chair Jerome Powell is on a set course of gradual normalization of monetary policy. That's a good thing. The Fed has enough confidence in the economy to push interest rates back to normal levels: 3% is closer to where it should be. That augurs well for stocks. Investors are concluding, on balance, that fiscal monetary policies will continue to promote U.S. economic expansion.
