The market is in "the mother of all melt-ups," Ed Yardeni says.
America is fighting a "world war" on three fronts — health, economic and financial — but the longest bull market in history may not be over yet, Ed Yardeni, investment strategist to top institutional investors and large RIAs, tells ThinkAdvisor in an interview.
Amid a surge of new coronavirus cases in more than 35 states and massive layoffs in what he calls the "lockdown recession," Yardeni argues that the economy is rebounding — but with "aftershocks." Plus, the bull market, now more than 10 years old, "may still be intact," he says.
And the U.S. could be in for "the shortest recession of all time," Yardeni maintains, provided the recovery continues and with no repeat of the near-national lockdown.
But however short the recession turns out to be, the economy will not return to its 2019 level until late 2022, Yardeni forecasts. He draws a parallel between what he sees as the recovery's shape and Nike's check-mark-like "swoosh" logo.
President of Yardeni Research, based in Brookville, Long Island, New York, the economist has spent more than 40 years in financial services, 25 of them on Wall Street with firms including Oak Associates, Prudential Equity Group and Deutsche Bank's U.S. equities division. Earlier, he worked at the Federal Reserve Bank of New York and the U.S. Treasury.
The strategist, who earned a Ph.D. in economics from Yale University, has, over the decades, forecast Federal Reserve moves, corporate earnings and more than a few booms and busts.
In the interview, he predicts further localized lockdowns in states suffering new viral outbreaks, even as other states continue reopening.
Optimistically, he cites the potential for heavy consumer spending in a financial system now abounding with "an enormous amount of liquidity" resulting from increased savings during the lockdown, as well as cash raised in the securities markets.
ThinkAdvisor interviewed the strategist by phone on July 9. His most recent book is "Fed Watching for Fun and Profit" (March 2020-YRI Press). This intensive Fed watcher and film buff also watches lots of movies and pens reviews of them for his website. Recently, he screened the miniseries, "Chernobyl" and a docudrama on Ulysses S. Grant. Apt fare indeed for the times.
Here are excerpts from our interview.
THINKADVISOR: Is the bull market over?
ED YARDENI: I think the bull market may still be intact. I'm positing that the bull market that started in 2009 may not be over and that, if this melt-up continues, we actually may be entering its last phase.
You've in fact called what's going on in the market "the mother of all melt-ups." Please explain.
From the bottom, on March 23, to the recent high, we saw the fastest rebound in the stock market we've had since two similar experiences in the early 1930s. It's been extraordinary. But this time around we're in a strange recession — a lockdown recession.
Explain what's strange.
The traditional recession, which causes bear markets, is associated with credit crunches. We had one for a few weeks in March, but the Fed came in and carpet-bombed the financial markets with cash.
"Carpet-bombed"?
It was the B-52 carpet-bombing of the economy: The Fed went from bazookas straight to B-52s; they didn't even bother with helicopter money. It was the most massive and swiftest combination of monetary and fiscal stimulus we've ever had.
Please elaborate.
On March 23, the Fed announced what I call "QE Forever" — and by the end of the week, we had the CARES Act. That has stimulated financial markets, but the jury is still out on what impact it's going to have on reviving the economy, including bringing jobs back.
You just said that recessions cause bear markets. We're in a recession. But you aren't forecasting an imminent bear market. Please explain.
