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Let's start the show, Ed Yardeni, president of Yardeni Research. Ed, thank you very much for joining. The CPI data for June came as a surprise to everyone. Consumer prices in June decreased for the first time since 2020. One would think that inflation was accelerating. In addition, there is PCE data that perhaps paints a slightly different picture.
So tell us about your view on inflation and what you learned from Kevin Warsh's initial testimony? Well, I guess Kevin Warsh didn't say anything new. He confirmed that, as before, he believes that AI will significantly increase productivity, which will stimulate economic growth without accelerating inflation, even the opposite.
Productivity is very conducive to disinflation. So, he continued to argue that this would be a very important factor. But in the short term, he acknowledged that the Fed has been unable to achieve its 2% inflation target for over 5 years. He reaffirmed his commitment to reducing inflation to 2%, which is why the Fed is maintaining tight monetary policy.
They are definitely not going to lower interest rates. But , on the other hand, I think everyone who thought that a rate increase was possible in July — we also assumed this at the end of the month — will not happen because of such a moderate level of CPI inflation. There is another inflation indicator—the consumption deflator.
It was a little higher, and it is what the Fed is trying to lower to 2%. So I think the Fed will maintain a hawkish stance. This does not mean that they will necessarily raise rates. In the meantime, we may get lucky and see a further slowdown in inflation. Of course, in the July data we will see some inflation growth, perhaps even in the AI sector.
But overall, the main conclusion is what we see in the bond market. Two-year Treasury yields have fallen as no rate hikes are expected anytime soon. Mhm. Yes, I understand. You know, another piece of news, Ed, congratulations, good morning, is the situation with IBM. That corporations might spend money on data center equipment and take that money away from software costs .
What do you think about it and what was the reaction afterwards? Well, I think IBM was a standout event. I mean, they've never seen a one-day crash where stocks lost 25 %, and the stock market didn't seem to pay much attention to it . I think IBM was actually seen not as betting on AI, but as betting on quantum computing.
And I think when we suddenly got the news that there were problems in the core business , everyone focused on that and forgot about all the hype around quantum computing. I think this is actually a good opportunity to buy IBM stock. I think they will be leaders in the field of quantum computing. But now we see that, thanks to the belief that the Fed will not raise rates anytime soon and expectations of rising oil prices, they will not remain high for long before falling again.
In any case, we see that semiconductor stocks are showing a nice recovery , which is still a vote of confidence in AI trading . Mm. Hi Ed, good morning, nice to see you. He, what about gold? Once upon a time, all that glittered was gold. Gold has retreated and you may not have seen any significant jump in the last many trading sessions, in fact, to be honest, it was 5500 and now it's around 4100.
You used to be a little optimistic about the prospects for gold. Do you think now is a good time to enter? I am still optimistic about gold in the long term. I think the stock market will hit 10,000 points on the S&P 500 by the end of the decade, and gold has an inverse correlation in the short term with the stock market, but in the long term—the trends are quite similar.
So this suggests rebalancing: when people make more money in stocks, they tend to diversify their portfolio and invest in gold. Speaking of portfolio diversification, central bankers are still buying gold. China's central bank continues to buy gold, and yet we have seen gold weaken. If you look at the chart from a technical perspective, this level is extremely important .
$4,000 per ounce is a critically important level. I think he'll stand it. And if that happens, I believe we'll reach 5,000 by the end of the year. The highest figure to date, a record high, was around 5,600 at the beginning of the year. But overall, I think gold is a really good way to diversify your portfolio.
This is not at all what one would expect when war broke out and inflation began. The fact that gold is falling is making everyone scratch their heads. Ed, just one quick comment. The market here , I mean, in India, is feeling a little better, isn't it ? If foreign flows have returned, IT sector stocks are showing good results.
It's not like there's suddenly clear upside visibility for IT stocks , or that management is very positive, or anything like that. Well, maybe you could argue that with some stretch, but it depends on who you ask and how you look at it, right? But what definitely happened is that the Korean market collapsed.
Korea has fallen about 25% from its highs. Mm. And, you know, the argument is that he sucked out all the money; and since it's starting to show weak results, maybe, I don't know if it's technical or what, and maybe it's trading again at around six earnings per share in Korea. He hit rock bottom again.
So, if these memory problems continue, who knows when he'll start growing again. But currently, some of this money is coming in and going into stocks in India. Does this sound plausible? That sounds very positive to me. I think everyone is a little confused about artificial intelligence: is it really a reality, will it ever be a business, will it generate a positive rate of return.
What about competition from cheaper models from China? But in the end , I think it's all about processing as much data as possible. We've been doing this since 1965, trying to bring about this digital revolution. We've come a long way, and I don't think this is something made up, I think it's all quite serious.
I think we will see AI significantly increase productivity. This is big business, it won't destroy jobs or ruin companies in the software industry . For a while, software developers in the US and India, call centers and everything else were considered potential victims of AI, but I think people are becoming a little more realistic: in the end, it will probably benefit companies in general.
Yesterday, Jamie Dimon said during a JP Morgan conference call that AI had helped the bank cut up to 40% of jobs in certain positions. Although he added that most of these people were offered positions in other divisions of the company. Uh, so that's right . Yes, thank you. Thank you very much . Ed, it's always nice to hear your thoughts. biggest market maker.
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