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Bloomberg Audio Studios. Podcasts, radio, news. Let's go. Let's look at inflation and our optimism in the markets. With us is a man who was an authority on Wall Street in C.J. Lawrence a few years ago. He helped combine economics with stock market analysis. Ed Yardeni is with us, Yardeni Research. Ed, we have an hour of conversation that we have to squeeze in here .
To start, I have to talk about the therapy needed in retirement: you have Max, Chloe, Cooper, and Bailey at your home in Yarden. It's a four- dog night. Yes, definitely. These are King Charles spaniels and dogs that like to lie on the couch. They are always on the couch sleeping. How are the care costs?
I mean, the vet bills are probably just beyond reasonable. You need to take out medical insurance for your dogs. This is just... This is your financial advice from Bloomberg or Yardeni. Thank you very much. Why are you here, Yarden? Let me jump right into the graph. Let's open up an important chart that came out after COVID and on October 22nd, where a guy named Encompor in the charting field and Yardeni in economics and finance said: buy.
What did you see on October 22nd that gives you confidence in the market today? October 22nd was a very strange "bear" market. Typically, such markets are associated with recession. There was no recession . In fact, at the time I kept saying that we were experiencing the most anticipated recession in history, which simply wasn't going to happen.
It was a kind of "non-recession ," if you will. I continued to bet on the resilience of the economy, so I considered the bear market an anomaly, rather than an economy that remained very strong. Profits held up pretty well. So I took it as a panic attack. Look, there were good reasons for concern. The Fed raised interest rates from zero to 5.5% on the federal funds rate.
Bond yields were rising. Oil prices have jumped sharply. And yet, the resilience of the economy has proven itself remarkably well. We have been betting on this and continue to bet on the stability of the economy. Yes, I want to move on to what we're seeing now, because you said that bond yields are going up and oil prices are going up.
This is exactly what is happening now. The stock market has slowed down somewhat. So, the parallels between then and now are, one might say, noteworthy . Well, there are definitely parallels, but one of the big differences is the profits. We have what I call, you know, everyone talks about FOMO, the fear of missing out.
I'm talking about FEMO—it's an incredible momentum for profit growth. Uh, we didn't have that in 2022. And it was at the end of 2022, in November, that we suddenly saw ChatGPT and the beginning of the AI revolution. And this whole arc of development...I just finished Justin Baer's wonderful book about Ned Johnson and, you know, the industry , starting in 1974.
My main takeaway: We have rationalized our bond holdings, which has been really difficult since 2020 and 2021. Is the basic psychology of retirees now afraid of stocks? I don't think so. I think it's actually quite the opposite. I think a lot of my baby boomer friends are retiring. I still work for a living because I don't play golf and I don't know what else to do .
By the way, I get dizzy on cruise ships. My friends all go on cruises. Previously, they traveled once every three years. Now they go three times a year, and I get a message from them: "I don't know what you're doing there, but keep supporting the market growth, because we're spending like crazy and our net worth is growing." You were with us last week, Carl.
It was a brilliant statement that the stock market had become America's retirement system. He definitely became her. You know that baby boomers own $90 trillion —trillions, not billions, but trillions of dollars in net worth. And, by the way, there are still people from the so- called "silent generation", older than the baby boomers.
They have 20 trillion dollars. So we're talking about over $100 trillion in retirement assets for the largest generation in history that is now retiring. Are they going to use it? Are they going to implement it? Or will they just pass it on to their heirs? Well, you know, the kids weren't listening, we didn't like their friends, and they were noisy.
So why leave anything to them ? Just spend like crazy. But listen, many people talk about a K- shaped economy, where the rich get richer and the poor get poorer. I think this doesn't take into account the main thing, namely demographics. We have a very, very wealthy baby boomer generation, and they are helping their children and grandchildren .
The accessibility crisis is actually a confrontation between the old and the young. Retirees don't care whether the Fed tightens policy. Pensioners are not very concerned about the state of the labor market because they are already on vacation. All they're really interested in is the stock market. How can our audience, interested in pensions and finance, understand this Fed madness?
You and I remember Arthur Burns puffing smoke from his pipe, and we tried to interpret it. Now we have this parlor game. How does Ed Yardeni filter this for long-term investing? I think we should focus on the economy. If you believe in the stability of the economy, if you think that the labor market is balanced, our unemployment rate is 4.3%, which is very good.
We have a problem with inflation. The Fed will likely have to raise rates at least once, maybe a second time, and possibly a third time, given the current yield on two-year Treasury bonds. I think we should just grit our teeth and enjoy retirement, because the market will continue to challenge the bears and the economy will continue to challenge the pessimists.
You said that baby boomers don't care about the Fed raising rates. They are going to enjoy their retirement. I'm not a baby boomer. I'm a Gen Xer, I need to work longer, and I'm wondering if higher rates over the longer term mean I need to review and change my investment strategy. The short answer is yes, but I'm not thrilled with the idea of " higher rates for longer." I believe that interest rates have returned to normal.
In other words, a 4-5% yield on 10- year Treasury bonds is a sign of a very healthy economy. This is a level of profitability that was quite logical before the great financial crisis. The “higher rates for longer” aberration suggests that we will return to zero or near-zero rates again. That's all. This is quite...Yes, now mortgage rates of 6, 6.5 , 7% seem very high to many, but compared to what?
Compared to what they were when the economy was n't doing well. I know you're watching "The Odyssey." It seems you're watching it tonight . They don't know that you wrote a newsletter in Sparta a few years ago. We all know that after the roaring 1920s, there was turmoil. What will happen after the roaring 20s of this 21st century?
We are trying to figure this out now. I think that if the "roaring 2020s" come true, meaning there is no recession in the economy , then the stock market will continue to grow. I predict 10,000 points for the S&P 500 by the end of the decade. If this works, there is no reason why the “roaring 2030s ” cannot come.
Actually, talk of a "roaring" decade is how the market usually behaves for decades. There were only a few decades when the market was sluggish, in a state of stagnation, of course, the 1930s were terrible, and the 1970s were not easy. And also the period around the Great Financial Crisis. So, there were decades when you made nothing, but there were many decades when the market performed wonderfully.
And not just the 1920s. Treat the 1970s with kindness. We had Bob, so we somehow got through it . You are optimistic about the stock market. You have long held an optimistic view of the stock market. You mention the baby boomers, a generation that feels quite secure thanks to the profits they have made.
What would surprise other people about how you spend or save money, given what happened? Well, over the years I've realized that I can't really trade. I can't fully manage my own money because I'm too busy with my main job. And there is also a certain conflict of interest: if my portfolio suddenly drops, I become pessimistic and write in a pessimistic tone, which simply reflects my personal anxiety.
So I try to stay mostly in ETFs, maintain some liquidity by having stocks and bonds, but mostly in an ETF portfolio. What timeframe are you looking forward to? How diversified are your ETFs? Well, you know, as I get older, I don't need 30-year bonds anymore. So maybe I should do it . Maybe I think you should consider a triple leveraged, all- cash fund.
That would be reliable. Yes, but I fundamentally believe in the market. I believe the S&P 500 has been exceptionally good, and the NASDAQ 100 has been even better. The technology sector has become a leader in our economy. So, it turns out that for Dr. Ed Yardeni, the main thing is growth. Yes, and I think a lot of these so- called “ Trump accounts” will probably be invested in exactly that way.
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