Ed Yardeni on Long-Term Bull Market

Bloomberg Audio Studios, Podcasts, radio News. This is Master's in Business with Barry Ridholts on Bloomberg Radio.

This week on the podcast, I have another extra special guest. Doctor Eduard Danny is a really legend on Wall Street. He is both an investment strategist and an economist, and I'm very comfortable saying he does that better than anybody else. He has had a number of major market calls and economic calls that have been notable, not just because they were right, but for the way he uses the data to reach the right conclusion. He has consistently been bullish

It's always a pleasure. Thank you for having me.

Well, well, thank you for coming. It's always good to see you. We're neighbors. We probably don't get to see each other as much as we did pre pandemic.

We have to catch up.

We still have some bad pandemic habits that we have to break. Let's talk a little bit about your background. You have a fascinating academic background, a PhD in economics from Yale, and your thesis advisor is Nobel Laureate James Tobin. Tell us about working with Tobin.

Well, it was certainly an honor and to work with somebody who won the Nobel Prize for his contribution to economics. But sometimes it wasn't that easy to understand his theories because they were mathematical and got complicated. But as a result of that, I turned to Janet Yalen. Janet Yalen had graduated from Yale in their PhD program six years

That's really interesting. The undergrad at Cornell and then a master's degree also at Yale. That seems like a lot of education. Was the plan to go into academia or was it always Wall Street?

Well, I didn't really know what I wanted to do when I was an undergraduate, so I took everything from a couple of courses of engineering, physics, math, political science, and economics. And based on all that, I realized I wasn't any good at math or at physics, so I had to go into something a little softer and easier.

So you graduate with a PhD in economics in nineteen seventy six. We're going to talk about inflation later, but I have to ask a lot of your peers who graduated in the mid seventies. It seemed to really leave a mark on them. Unlike most of them, you nailed inflation on the way up, you nailed it on the way now. So many of them seemed to be scarred

I think that they first start out with theories and then look for data to support it. And I can't really generalize about the economics profession, but I think there's enough attention to just you know, dealing with the facts, with the data, and with historical events. I lived through a lot of those historical events and learned from them. But I observed that, you know, inflation was in fact brought down in a very conventional way in the late

And you also wrote a piece in twenty twenty three about why conventional forecasting models were so wrong, and a lot of people, in particular, you mentioned Jamie Diamond had been expecting a recession. It seemed like almost every economist was expecting a recession and it never showed. Again, what did you get right? What did they get wrong?

Well? I think most economists very logically believe that if the Fed's going to go from zero on the FED funds rate to five and a quarter percent, how could we not have a recession. My argument was that while the Feds certainly was tightening, they were also normalizing. I mean, so you had to not only look at where interest rates had gotten to, but where they came from. And they came from zero. So the really abnormality was the ultra ezy monetary policy that we had from the Great

I love that chart. You actually showed that chart today. Yeah, wealth, it comes from the flow of funds cost SERF. But when you look at the millennials and the gen xers, wasn't everybody predicting the boomers were going to go broke they wouldn't have any money retired. Seventy five almost seventy seven trillion dollars. That's a lot of money.

It's a lot of money. It's an ull time record high. The household sector in its entirety has over one hundred and fifty trillion dollars in net worth and that's assets minus liabilities, and it's all sorts of different assets. Its houses, its stocks, it's pensions, it's the whole, the whole thing. So that's at a record high. And the baby boomers

Let's roll back to the work that you did with James Tobin and one, I believe he won the Nobel Prize yes for his work on fiscal spending. So when you have the Cares Act one, which was ten percent of GDP, as the Cares Act two and then the Cares Act three, shouldn't that offset whatever the Fed's going to do? And by the way, five percent isn't outrageously Hi, that's kind of average. Well.

I think that's another good point is that not only did the consumers turn out to be resilient and they remain resilient, they're still spending and labor market has been really tight. The reason for that of course is the baby boomers are spending more on going out to restaurants, traveling, health care services. So guess what employment is doing all those industries all time record. You don't get a recession when construction and total parallel employment are at all time

So nice Tailwhen we'll come back to that a little later, let's stay with the early days of your career because I really find it kind of unique. You're an economist at the New York Fed in seventy six and seventy seven. You're fairly young and new. Then what were you working on when you were at the New York Fed?

Well, just by happenstance. They put me on writing memos, updating data. It wasn't really exciting stuff, but focused on the same things the loan industry. I mean, you can't think of anything like more boring. It's like and useless than analyzing the savings and loan industry in the in the late seventies.

Right before it blew up.

And then it blew up, and then I'm suddenly on Wall Street and I have a lot of knowledge of just what was going on in the SNL industry. So it really helped me to understand that crisis.

So here's what I find so fascinating and unique about your career. You have been chief investment strategic at places like Deutsche Bank and Prudential, but you were also chief economists at E. F. Hutton, Prudential, Base CJ. Lawrence, which eventually gets bought by Deutsche Bank. Like, that's a rare pair of hats for one person. Aware tell us a little bit about how you managed to do both jobs.

I did start at as an economist. I think I was at E. F. Hutton for about a year or two, and then the chief economists decided to move on, and so only a couple of years into Wall Street career, I was chief economist of E. F. Hutton, so that was pretty exciting. But I learned a lot from the strategist I worked with. There's a fellow by named Greg

So when you were working for Lawrence as part of and eventually become chief investment strategy at Deutsche Bank, what was that like? Given the fact that they're based in Germany Many. I don't want to say most, but many of their clients are European. How did that change how you looked at the world.

Well, I didn't really work for Deutsche Bank per se. I worked as the chief economists strategist for deutsch Bank Securities, which was still to a large extent based in the United States and had international clients, but we certainly had plenty in the US. So the transition from CJ. Lawrence being independent to CJ. Lawrence evolving into deutsch Bank Securities,

Let me ask you about that exciting time. Your arm wall in the eighties and nineties arguably the biggest bull market of our lifetime. We'll see how far this one goes. Where we are today, What was it like in that era when people were still stock pickers, active mutual funds were attracting the flows. Everybody thought they could beat the market. We didn't quite have all the data yet. Tell us what that era was like, as a chief strategist on the street.

Well, the eighties were certainly interesting, and near the tail end we had the crash in the stock market. The one day crash I scrambled to kind of understand what was going on, concluded as portfolio insurance, and that the week before the Houseways and Means Committee was starting to talk about taxing some of these transactions that were going on in M and A, and so a lot of the M and A stocks got hit quite hard. And my conclusion that it was largely a government a reaction

But well, to be fair, I want to say by August of eighty seven, SMP was up forty something percent and we finished the year plus one percent. So that's quite a wackage that would constitute bear in my book.

Right in the early nineties, I started to recognize the technology revolution that was going on.

And I got they were early and vocal.

Well, I was early in Vocal and as a matter of fact, I walked into a Barnes and Noble store I think in nineteen ninety four, early nineteen ninety five, and I'm pretty sure that I was the first one to have a website the Internet, obviously on Wall Street, and I know no other economists. I don't know how I got away with the Deutsche Bank. Why they would allow, you know, doctor Edyard Denny's economics network to be featured on the Internet without any any real mention of who I worked for.

Well maybe that's the German ownership didn't understand us compliance world, I suppose so at that time, who knows? You launch in January seven, not that much earlier than the financial crisis. Tell us what led you to launching your Danny Research.

Well, I had been on Wall Street for many years. It was getting a little stale. The lawyers were starting to take over, and there are more limits on what you could write about or who you could talk to, even in your own shop. Yet to get approval to go down to the trading desk, it just wasn't as exciting as it had been in the early two thousands, and suddenly, out of the blue, I got a call from Jim Olschlager, who runs Oak Associates in Akron, Ohio. And Jim was looking for somebody to work with him

Did you move to Ohio or I actually commuted.

They have a great airport there, Canton Akron Airport is a wonderful.

Airport, Farmingdale, l LaGuardia.

LaGuardia And I'd leave on a Sunday and sometimes hang around there until it was there Thursday. But so I just kind of commuted and that was okay with Jim and I worked out fine, And of course I did some market with him, so I would kind of meet him at different parts of the country and we'd market together.

Huh, let's talk about your clients. I'm assuming they're primarily institutional.

Well, they have been primarily institutional, you know, since I've been on Wall Street, I guess you know. I did work for some firms that also had a huge retail base with like prudentials, so I certainly had a lot of interaction with both institutional and retail. When I moved to CJ. Lawrence is primarily institutional. It was all institutional, really, and then when I went off on my own, I continued with an institutional bent. The research was aimed at

I was going to say, you also put a lot of information online. Yes, that's there for free, right. I don't mean like a chart here or there, huge runs of data and charts and it's updated like daily.

Yeah, it's automatically updated.

How do you manage to handle all this that seems like a lot of work that you're essentially giving away.

Well, several years ago, I didn't see the point of doing all these charts manually over and over again. And you know, when you run this chart, where is it? And so we came up with an in house program. This was when I was still on Wall Street. An in house program that ran these charts automatically when the data was available from our data vendor, and updated the charts and then put the charts in a proper place in the PDFs that focused on those particular topics. It

Oh, we have lots of AI to talk about a little later.

Yeah. But so anyways, this this smart program figured out how to paying the vendor and say anything new for me, and if there was, everything would be updated automatically. And we're still doing that and look, and that's your Denny Denny dot com here and now, if nobody was looking at our charts, I would still have the whole thing

And just to put some flesh on those bones. You post on valuation, the global economy, the US economy, inflation, credit, consumer spending, employee markets, pretty much anything that there's a regular data stream, it updates automation.

That's correct.

Huh, it's really really intriguing. Let's talk about putting some of those puzzle pieces together. You talk about the megacap eight, the Magnificent seven plus Netflix.

I like movies as very so I'm a well aware any want to leave the Netflix out of there.

Let me steer you away from the New Wonka movie because it's terrible. But how important are these eight stocks to the overall market this year and last?

Well, I mean arithmetically, they're very important. They're about twenty eight percent of the market cap of the S and P five hundred, so they they're huge in terms of their impact. And some people look at that and say, well, that's not healthy. It's a sign that this market is vulnerable, and I'm empirical about it. It is what it is. These are Greek companies that they're here to stay. They've had a couple of sell offs that turn out to

Michael Mobison put out a piece a couple of years ago talking about the intangibles that this market is not like the market of one hundred years ago, where you had giant factories, big foundries, massive demands for labor, material and income. A lot of the wealth today, a lot of the assets of these companies today are intangibles. They're copyrights, their trademarks and algorithe well, ep IP, all this intellectual property.

I think it's a fair explanation. I think it's also important to realize that the bull market we've had, in the upward trend in the stock market, certainly reflects the fact that the country is getting wealthier and wealthier. I know this is a very controversial subject because once you start getting into income and wealth, people talk about income

Someone called it the fabulous.

Yeah, but you know that that will be meaningful until it isn't you know. I mean, I don't know that you want to bet against Elon Musk and you know what he's doing with the Tesla. But that's been an underperformer.

Yeah, that's got cut in half over the past couple of years. Yeah. So, you know, people talk about the megacap eight as proof that the market is narrowing, and that's negative, but a quote of yours quote, the newble market has actually been fairly broad all along.

Discuss well, again we start with the data and then come to the conclusion rather than the other way around. And so a lot of people have been looking at various measures of market breadth, like the ratio of S and P five hundred equal weighted to S and P five hundred market cap weighted, and it's been going down.

So another quote of yours I found kind of fascinating. People keep talking about in video like it's a bubble. But the Nvidia stock price is up about the same amount as in Vidia earnings, Right, how can that be a bubble?

I don't think it is a bubble. It just looks like a bubble on a chart. You know, anything that you.

Know goes vertical like that.

Yeah, when everything goes vertical like that, Look at some point in video, because it's getting so much press, so much buzz, and it is making so much money with such high profit margins, is going to attract a lot of capital into competitors. And it's already doing that, you know, and video could be put out of business like overnight. If somebody suddenly came up with a quantum computer that

So we've seen this sort of single stock going vertical before. We've seen it with Intel, we've seen it with Cisco. There's always one company that you know is in the right space and the right captures lightning in a bottle, and you know, all bets are off. But it sounds like we're not that late stage for Nvidio here.

Well, you know, a lot of in the past couple of years, we've all been comparing the current decade, the twenty twenties, to previous decades. I've seen similarities between the twenty twenties and the nineteen twenties. Productivity, technology excitement started out.

The new fangled car had come out.

Yeah, it started out really depressing, and somehow or other it just turned out to be there wearing twenty twenties. So there's that analogy. Then, as we discussed earlier, there's the nineteen seventies, and that there's some analogies there. I mean, look, if the Middle East insanities eventually or at some point actually caused the price of oil to spike up to one hundred and higher, it is going to be the nineteen seventies all over again. But so far it hasn't been.

Huh, really interesting. Let's talk about some of the things that other people seem to be getting wrong. Quote, you don't get a recession when unemployment is at all time lows.

Explain Well, the pessimists would respond to that by saying, if you look at a chart of the unemployment rate, it's always at a cyclical low of sometime in an all time low right before recessions, which which is absolutely true. So when you see it like this, this low, you do have to start to worry about the historical precedents. I think a lot of the people have gotten it

How often do we get an inverted yield curve starting with FED funds rates at zero? This seems to be almost a case of first impression.

Yeah. Well, again, the pessimists, the crowd of naysayers, had a very logical possession, and that is, how could you see rates go from zero to five and a quarter five and a hare percent without something breaking, without having a recession. And the answer is, yeah, they were right, we get something broke. But the Fed had so much experience during the Great Financial Crisis and again during the

Huh. Interesting, Let's stick with the Fed because there are some really interesting quotes of yours. I want to throw your way. Quote there's really no need for the Fed to lower interest rates could be the most controversial thing I've heard you say the past few months. Tell us why you think the FED is fine at five to five and a quarter.

Well, I think the Fed fed officials have this notion that the real interest rates matter. That if the Fed funds rated five and a quarter five and a half percent and the inflation rate is five or six percent, then you obviously don't you know, you have a very low real interest rates and inflation just at interest rate. I have a problem with that whole concept anyways, how do you inflation are just an overnight rate and what

To be fair to Milton Friedman, back in the seventies, we had a lot less data. The Fed didn't even announce like people the young folks today don't realize. There wasn't even a Fed announcement that rates had been changed. You had to track the bond market and money supply to have a sense that was going on. So maybe there was a long invariable lag in the seventies or even the eighties. But today the Fed tells us what they're going to do, then they go out and do it.

I think it's people who would like to see the bullmarkt continue and think that the only way that's going to happen is if the FED provides the sweetener to make that happen. But I think the stock market's already demonstrated that they'll take the trade. And in other words, if the deal is rates don't come down, but the economy remains fairly strong and earnings come in strong and we have another technology boom, then we can live with that.

Your latest report, your latest topical study in praise of profits. Those people who have been claiming zero interest rate policy and quantitative easing are the only things that were supporting the stock market in the twenty tens, and now that rates have gone up, you're going to see how important the FED was to equity prices. That's not proving to be true. Yeah.

Yeah, I think that's another problem with macroeconomic models and the financial press, quite frankly, and that is always just focus on the FED and on Washington and the policy makers. And I keep pointing out that it's amazing how well this country has done for so many years, despite Washington, despite the meddling of the government. And what we have to do is give ourselves our selves credit. Us working stiffs.

I heard Obama was going to kill the stock market. Didn't happen. I heard, Oh, now Trump is in, He's going to kill the stock market. Didn't happen. This Biden's going to kill your market, Yeah, didn't happen to happen. I mean the takeaway is pay attention to profits and ignore what's going on in DC.

Companies, businesses, whether they're public or private. We're all become very very good at managing in challenging times, and sometimes those challenges come from the government. It shouldn't be that way. The government should be on our side, not kind of picking our pockets, and yet we do remarkably well.

So one of the things you said about inflation I found both to be fascinating and unique and very insightful. You were the first person I saw that pointed out CPI tends to go down as fast as it went up. Yeah, there's a symmetry here. When you get a giant searge, you'll get a giant collapse, which is what we saw in twenty two and twenty three. You go back to the seventies, it's long, it's slow, it builds its structural

Well, the seventies was, with the benefit of hindsights early, so far an outlier. You had two energy shocks. You started out the decade with Nixon devaluing the dollar by closing the Golden Windows. The dollar took a dive. Commodity price a sword the anchovies didn't show up in Peru, so that affected soybean prices somehow or other. I wish it.

Yeah, well butterfly, Yeah, yeah.

It was really crazy kind of stuff. And inflation was coming down after you know, the seventy three energy crisis, but then we had one in seventy nine and it went back up. Also, labor unions were very powerful. The thirty percent viral sure thirty thirty five percent of the labor force had union contracts and they had cost of

Huh, really intriguing. Let's talk about housing for a moment. Lots of folks are deeply concerned about commercial real estate. I know you've been a little more sanguine than some of the doom sayers in that space. What's going on with commercial real estate?

Well, again, I put the commercial real estate story in the context of rolling recessions. And by the way, now we're seeing some rolling recoveries. For example, demand for goods by consumers is now starting to show more activity. But yeah, The idea was that, Okay, we are in a rolling recession of the commercial real estate market. But commercial real estate is a very diverse kind of market.

It's multi family homes, its warehouses, its medical facilities, it's not just offices.

Yeah. The other thing I point out is that in the Great Depression, there was no distress asset funds. And again this came from my understanding of the SNL crisis is the SNL crisis was finally resolved with the Resolution Trust Corporation, the RTC, and Wall Street said, hey, this

Right, there's no such thing as toxic assets, only toxic prices.

Correct.

So let's talk about residential real estate. What's happening in that space. Clearly a huge shortfall in supply. How long does it take for that to get fixed?

Yeah, that's that's a very complex situation, and I think it reflects a whole bunch of different developments. Certainly one of them is that a lot of people refinance their mortgages at record low mortgage rates, and they're kind of hesitant to sell our house. They don't want to sell our house and buy another house if they still need a mortgage. At these kind of mortgage rates.

They were three and a half percent, it's seven percent.

Yeah. Yeah, So that's a bad trade. Not only that, but it's like it makes you feel smart living in a house where you're not paying much in a mortgage. And by the way, forty percent of people who own houses, forty percent of them don't even have a mortgage. That goes back to the story. But the older Americans, the baby boomers, you know, don't really have much in the way of expenses. But maybe they're not moving either. I mean,

But that's local government, not national government. You know, you know, you underbuild single family homes for a decade as the population grows. I'm more surprised we didn't anticipate this coming sooner rather than later. Everybody felt post financial crisis, oh that's it. We're never going to see a demand for housing again.

And it's having a tremendous impact on younger people that you know, some of them are still living at home and they're delaying obviously having families. And even if they have an apartment, they may be delaying having families. So this is having demographic consequences that will have an impact along the way.

We saw reduced household formation during the twenty tens, but that seems to be picking up again, right. I know that's something you track. When household formation rises, demand for houses tend to follow.

Right absolutely. And so again we've had this rolling recession that's hit housing, single family housing, and yet home prices all time record high. So you really have to be very flexible in looking at this economy and recognize how things change, and you know how models it used to work don't work anymore.

Let's talk about fiscal stimulus. You wrote a really interesting piece a couple of weeks ago. We had the Cares Act. CARES Act one was ten percent of GDP, CARES Act two, CARES Act three, CARES Act three under the Bond administration, the two previous CARES Act under the Trump administration, the Chips Act under the current administration, the Infrastructure Bill, the Inflation Reduction Act. Many of these are not single year spends,

I think again, the answer is in the data. And what the data shows is that you know, there's this monthly report I called Construction Put in Place that comes out from the government, and it's every month. The numbers are phenomenally strong outside of residential construction. So what we're seeing is that infrastructure spending all time record high. All these programs really are translating into actual dollars being spent

You've been talking about onshoring, so the reverse of what we saw in the eighties and nineties of offshoring. How significant an economic factor is. And obviously a lot of this traces back to the pandemic when we couldn't get you know, medical protective equipment or masks or really it was shocking to realize how much crucial infrastructure we decided to outsource. How substantial a chunk of the economy can all this onshoring be, and how long lasting is this?

Well, that's a great question. I'm thinking that, as you said, it's got legs, it's gonna be with us for a while. And then, of course, once these facilities are built, there's going to be a lot of automation and robotics there, but they're still going to need to be supported. I mean, even artificial intelligence, given what we know about it today, requires a tutor to say no, no, no.

You're you know you're stop hallucinating.

Yes, not hallucinating. Right, So humans are still going to be essential. And we've got a very tight labor market for particularly for skilled workers, and as a result of that, I think that the onshoring effect continues. I mean, we've got really cheap energy here. Natural gas prices are low, record record.

Oil production, I mean old time lies.

I mean, you know, you you reduce your transportation costs if you produce here rather than elsewhere. But the labor problem is a problem, but I think it gets solved with the innovation, with technology and providing robotics, automation.

What about the high skilled immigration that used to be a big part of the labor market in the nineties.

I'm struggling with that immigration issue. I mean, we're talking that tens of thousands or hundreds of thousands, are talking a few million.

This is shortfall of bodies to fill jobs.

Yeah, but you've got the migrants coming in, and the question is at what point will they be allowed to work, At what point will they be actually reflected in the official statistics, and how many of them will actually be left here depending on the politics. I mean, there's one presidential candidate that has basically said that he's going to send them all back.

So how realistic is that. We've heard that before. It doesn't really happen, does it.

Well. The reality is that what we need is a lot more legal migration.

Legal So when I talk about immigration, I'm really talking about Silicon Valley and C suite executives and high skilled people coming from places like China and India and Vietnam and Turkey and other places where Eastern Europe where they're highly educated in the STEM area, which we certainly could use more.

We could use more of absolutely, and for many of them. They want to be here, they'd love to be invited here, and it's it's safer here. You know, if you're in Taiwan, well why not bring more people over from there? From Eastern Europe? Well, you know, with skills. But legal migration is the way to go because then you know that the people that are coming in are going to be working as opposed to being a burden on the social system. But that gets so political these days, it's hard to talk about.

You mentioned legs. Let's talk about legs. Quote, this is a long term bullmarket. Discuss where we are in this bull market and how long could the long term be.

Well, look, I think what clearly everybody knows and certainly has had a big impact on the psychology and the thought process that went to thinking about the past couple of years, is that recessions cause bear markets. The bear market anticipates that the way things are going in the credit system, we're going to get a bear market to stocks.

Well, its twenty four, so you're saying four or five, six more years to go. Yeah, So it's interesting because.

And those could be the biggest of the roar.

Always the end of the bull market is the greatest gains. So when we look back at the past two years, we're recording this towards the end of the first quarter in twenty twenty four, twenty twenty two, SMP was off not quite twenty percent, about nineteen percent, the NAZDAK down about thirty percent. No real recession on an inflation adjusted basis. You had a couple of negative quoters of GDP, but you never had the full broad requirements of an actual recession.

Yeah. About a year ago, really now, I predicted that we would get to fifty four hundred by the end of this year, not that far away. That's that's the problem I'm having here, is like, I don't want to see this by the middle of the year.

I was going to say, you go away in August and take the rest of the year off.

The same thing happened last year. By the way, I thought we'd get to forty six hundred, we got to forty eight hundred, but we got to forty six hundred by the middle of last year's to the end of last year, and so yeah, I said, well, yeah, I'm not going to raise my forecast here, and then I did actually anticipate the correction that we had ten percent, and then that was down. The low was made October twenty seventh, and it's been vertical since then. As the age and.

Just to put this in context, you take the sell off in twenty twenty two, you take the recovery in twenty twenty three, and the average over those two years, you're flat for two years. Yeah, that's why every time people say, oh, we've come so far, so fast. Yeah, flat over two years doesn't seem that fast, not much of a return, that's exactly right. So you're talking about AI again. Many people seem to like to talk about that as a bubble. What do you see going on in that sector?

Well, I think at this point, given what I've experienced personally with things like chat GPT, you know when I think the roaring twenty twenties have started to get discounted in the stock market. On November thirtieth, twenty twenty two, that's when open Ai introduced chat GPT, and so I immediately signed up for the twenty dollars a month version of it.

Pretty reasonable, right, twenty dollars a month through your Microsoft account.

Yeah, And I thought, man, this is really great. Maybe it'll write my research for me and I can just do it from the beach. And I found out that I was spending more time finding the mistakes that you know, I mean, it's.

You know, I mean, it's only going to get better.

It's only going to get better. I mean, right now, it's kind of like auto fill. You know, where you're typing on word and it starts to anticipate what the next word might be. So it's kind of like autofill and speed and steroids. I mean, it actually gets you back to the old idea that Benjamin Franklin gave us, which was a speed. You know, haste makes waste, and

I have personally found that I spend less time with Google when I'm researching a topic and more time with either Chat gbtor Perplexity, which is either Claude or I'm forgetting the other engine that drives that because it organizes the answers in such a usable ways. And Google has just become a MESSI of ads. Yeah, they were getting away with us for a long time and suddenly people will accuse them of being a monopoly. Clearly they're not. If a simple app can eat their lunch the way they.

Well, that's the wonderful thing about technology is capitalists use technology are always looking for opportunities to put somebody out of business that's got a great business model. I understand that the CEO of Nvidia runs the company with the assumption that it's going to go out of business unless he's constantly thinking about what the next new new thing is. And you know, he started out with gaming and then went to bitcoin mining, and those worked until they didn't work.

Since you mentioned bitcoin, I saw a quote of yours asking the question, is bitcoin digital tulips? Tell us about bitcoin.

I don't want to get any hate emails from people who.

Love have fun being poor doctor ed.

Well, that's that's the thing is. I want to confess that I've got a tremendous amount of fomo, you know when it comes to bitcoin. You know, I kept looking at it that you know, when it was two digits in price and three digits and it just kept going up and up, And I said this is this this, this has got to be a bubble. It may still be a bubble in the sense that it's there is a comparison with the tool of bubble in Holland centuries ago, but there's a huge difference, and that is once a

Let me know when you buy, so I could tell on I have a little bit. I have a little bit of bitcoin and a little bit of ether that we bought a couple of years ago. I mean, maybe I'm break even. I don't even pay attention to it. I think of it as like a single company, like, hey, it's an Amazon or an Apple, and if it works out, great.

I have not tell anybody that they're wrong right to have it. I mean, I just you know, you need on a global basis, you continue to have buyers, and so far, so good.

It would have been nice to buy it when it was one hundred bucks. That would have been, that would have been.

Look, I'm an old fashioned kind of econdom miss strategy. So I need earnings, I need dividends, I need rents. I need something I can I can value. I don't really have any any of that.

You're not a commodity investor, really not really No.

I mean commodities go up, they go down, you know, and it's the old story. The best cure for high commodity prices is high commodity classic. But again, that makes a bitcoin different because you know, the algorithm is such that higher prices don't lead to more supply, though it does lead to more competitive doge coins and things like that.

Huh really interesting. Let's talk about the book that you put out not too long ago, Predicting the Markets. You cover four decades as an economist and a strategist on Wall Street, and you put out so much research every day. How on earth did you find the time to put this together?

Well, I don't play golf, okay, so that saves a lot of time. I do play tennis, yeah, and that's only about an hour. But I really enjoy it. And when it comes to the book, you know, I've been doing this for a while, you know, more than four decades, and by twenty fifteen sixteen, I got inspired to like put together there what I'd learned and mistakes made and insights accumulated. I felt like, you know, anybody who's just kind of getting into the business, they're not going to

And you talk about predicting everything from stocks, bonds, commodities, currencies, earnings. How challenging is it predicting the future when you know the world is so uncertain and there are so many random events.

Well, that's what makes it so interesting, right is you know there's no clear way to get it right all the time.

But you've gotten it a lot more right than most people. And we'll go through a quick list of things. I have to ask you what you saw in each of these that led you to the right prediction. Starting with in the early eighties, you identify disinflation coming from globalization and technology, and the bullish result of that into the equity markets. What were you looking at that led to that conclusion.

Well, in the early eighties, my focus was on disinflation attributable to the FED tightening up on monetary policy, and that we would have a pretty severe recession and that would potentially be deflationary, and.

We ended up with a double what was it eighty and eighty one or eighty and eighty two.

Yeah, But then along the way it globalization became a big deal in terms of my analysis, especially with the end of the Cold War in the late nineteen eighties. I had observed, based on the USCPI going all the way back to the eighteen hundreds, the CPI has these peaks historically, they're not random, They're actually associated with wars. And so my thought was that wars are obviously inflationary. You know, world trade gets cut off, competition is cut off,

Big spike in the mid forties early fifties and inflation.

Yeah, that was actually one of the models that I looked at for thinking about the current situation, is that we had this huge spike in the after the war in durable goods inflation because all the soldiers came back and they wanted cars, and Ford was building bombers, and so it took him a couple of years to retool, and then all those durable goods inflation came down like a stone, just the way it did in the current environment.

I think that's the best parallel to the post. And then, yes, I agree people talk about the seventies and the nineties. Really you think about moving from a wartime footing to peace time footing and that whole transition and and up consumer.

Demas So when the Cold War came to an end and the late edies of Berlin Well comes down, most economists are saying, this is going to be terrible for inflation, because all these people behind the Iron Curtain are going to want everything. It's going to be terrible for interest rates because they're going to need to borrow money. You know, it could work the other way around. It could be that all these people create bigger markets, more competition, more

Really interesting in ninety three. We talked about this earlier, but I want to spend a little more time on this. You called technologies growing impact the high tech revolution. Like that's a big, weighty phrase. What made you realize, Hey, this is more than just an incremental shift in how we spend money, this is revolutionary. What were you looking at?

I have to admit him a bit of a geek. I grew up in California, in Campbell, California, which is right next to San Jose, and my father worked for IBM, and this was back in the sixties, and he used to bring home for tray and Cobol manuals and things like that. I had a lot of technology around me in California. I wish they wouldn't have moved back to the Northeast because I'd probably be a billionaire by now because I would have got into all that and the

It's about abundance, not scarcity.

Yeah, and so I started to you know, I was an early believer on the Internet, and so early that in nineteen ninety five, as I mentioned before, I had my own website and you know, I had publications on there. They didn't the charts didn't automatically update. I wrote some of it. But then I had a software programmer who knew what we was doing, kind of really polish it

Way did quadt Trone end up? Was it? Credits? Was first Boston? I remember it was.

I don't think, I think, I think, I really don't know. I think eventually he went off on his own, but you know, he did extremely well.

When was it clear to you that the technology revolution had morphed into a bubble?

In the late nineties, When Alan Greenspan started to talking about justifying what had happened in the stock market as a lottery, what was that. It was nineteen ninety nine. He gave a testimony about the stock market and he said, well, you know, yeah, things look stretched, but you know, you have to look at the stock market as a lottery. People buy a lottery ticket. It's not necessarily a rational thing, but you know, the payout is so great that it

Amazon dot Bomb, I think was the headline of I don't remember if that was Howard Marx or Baron's or both. Yeah, but that was January two thousand. The timing was pretty good.

I think also Jeff Bezos made the front cover of Time magazine and that was the Curse.

December ninety nine. Yeah, it was a quarter later. It was done. Let's talk about the two thousands. You identified the coming commodity boom after China joined the World Trade Organization in two thousand and one. In hindsight, that's perfectly obvious. A lot of people missed it. What led you to that conclusion.

I'd seen lots of photographs and a few videos of what China looked like in the nineteen eighties. Not China overall, but you know, some of the urban areas Shanghai and things like that. They're all riding bicycles. They're all riding bicycles the nineteen eighties. And then I'm looking at some of these pictures of what's going on after they joined the World Trade Organization in two thousand and eleven and

And farms of the city.

Yeah, from the farms of the city, and so urbanization always has a tremendous impact on an economy. We started to see all these ghost cities being built because the Chinese viewed empty apartments as a good place to stash some of their wealth. The commodity demand was pretty obvious, and you could see it in the charts, and I was recommending overweighting materials, energy and industrials MAI. This is after I and everybody else recommended TMT, you know, technology,

So let's talk about the period leading up to the Great Financial Crisis. It was a lonely time to be a bear. Everybody was pretty bullish. What led you to turn bearish on financial stocks before the GFC?

Yeah, Look, I don't want to take any credit for getting that market right rather than getting the financials, which actually, what I think about it was a pretty good call. But yeah, I think in two thousand and seven we started to get lots of news suggesting that the subprime mortgage market was going to take the could take the system down, and so I recommended underwaiting financials. You know, the better call would have been just get out of financials.

I recall being on TV in early seven talking about derivatives and subprime and the anchors laughed at me. In hindsight, we all know what happened. Yeah, but throughout seven there wasn't a lot of love for anyone who was bearished. No, No, what sort of pushback did you get at the farm when you were talking about by then you had already launched your own.

Firm at two thousand and seven.

Yeah, So what sort of pushback did you get from clients saying underweight financials? Here was there?

What was the response like, Well, you know, I've been around for a while, as I've said a few times on the program here, and I've got very good relationships with these people, and you know, many of them have been listening to me and you know, talking to me for years, so they kind of respect my opinion. I didn't really get much pushback. I mean, you know, I explained why, and they said, that makes sense.

What about the bottom call March two thousand and nine.

I'm very proud of that one. I was at Merrill Lynch, one of my accounts was Mary Lynch Asset Management in Princeton. Walked into the meeting. We were all depressed. You know, this was actually March sixth, two before. Yeah, so March sixth, the official I think was March ninth. But so I come out of the meeting and some one of the traders kind of walked by. I said, how's the market? Said it just hit six sixty six in the S and P five hundred. I said, that's the double number.

By that number.

Yeah, so actually I used that in marketing. My thought, I said, you know what this is like the Da Vinci code. You know, it's that six sixty six? Was was it? But no, I I thought that, you know, the bull bear ratio, which I tend to follow quite a bit, was down to zero point six. Everybody was bearish.

Everything was at an extreme in March on nine. I mean, whether you look at sentiment or what have.

You, there's also there was the issue of mark to market, and I had started a conversation with Gary Ackerman, who was a congressman from from Queen's I actually went to his office and I said, you got you got to stop this mark to market stuff. It's it's like a

There was a fasby rule change not long after that. That's right, the Financial Accounting Standards Board. In the beginning there was some mark to make believe we used to call it. But at a certain point, if you're holding treasuries there in your hold to maturity account, why do you have to market?

Exactly? It's exactly. That was the point I made, and Ackerman bought into it, and he was on the committee that made a difference. So with all kind of so I kind of knew what was going on in Washington, which is occasionally you know, it's giving me some some insights and that.

So you've been pretty steadfastly bullish throughout the twenty tens and twenty twenties. What has kept you on the right side of this bull market trend this whole time?

As a matter of fact, during that period, I kept a log book or a diary of what I call panic attacks, and so, you know, when Brexit occurred, people.

Got all twenty thirteen something like that.

Yeah, something like that. Anyways, when bregsit occurred, there was expectations that the market would take a dive, and it did for two days, and I said, okay, there's another panic attack. Because you know, the Great Financial Crisis was so traumatic that ever since then, people have been looking over their shoulders for the next calamity.

Isn't it always that way? Don't these dislocations create a sense of PTSD amongst investors?

Yeah? I think that's true. That's absolutely true.

I have to ask you about you've been tracking the importance of the baby boomers to major trends. Is it true? Demography is destiny? Is that act?

Yeah? Yeah, I mean most economists don't really study or do much work on demographics because it's just too slow, you know, to have any immediate impact, and all the cool kids are looking at, you know, the business cycle and calling the next recession. But I think demography is extremely important. It's been very helpful to me and understanding the US. But I got an interest in the subject because of a baby boomer, and there's seventy five million of US, or at least that's how many were born.

Huh, really interesting last question before we get to our favorite questions. I know you track sentiment and pay attention to what goes on with that. Over the past couple of years, especially following the surgeon inflation, the sentiment has been worse than the eighty seven crash, worse than the dot com implosion, worse than the COVID lockdown, and worse than the Great Financial Crisis. How does this make any sense?

It's a great setup for the Roaring twenty twenties, right, I.

Mean, climbing the wall of worry? Is that what it's going to be, climbing wall of worry?

I mean, there's so many things to worry about.

But there's always things to worry about.

There's always things to worry about. I don't know. I mean, this pretty scary stuff right now. On a geopolitical basis, we didn't talk about that, but.

Ukraine, Middle East.

Russia, I mean all that, it's it's all concerning. Stock market doesn't seem to care, and I think that's because the oil market hasn't really had an issue with it so far. So that's something to watch out for.

All right, So let's jump to our favorite questions that we ask all our guests, and you're the perfect person to ask the first question. Tell us what you've been streaming these days, what's been keeping you entertained. It could be either shows or films.

I'm a big fan of Netflix and the other movie movie channels. My wife and I do enjoy. We don't go to theaters the way the way we did, and so we do usually watch a movie at home on a Friday night. There's been a lot of really good, good flicks. One that I particularly thought was amazing was American Fiction.

Just came out, just came really looks great. I want to and I want to count of me.

I don't want Academy Awards. I'm not sure for what, but screen if I was doing yeah, I think so, but I would have nominated. I would have. I think it was nominated for Best Picture.

And it's a great cast.

Also, it's a great cast, and it's got a lot of irony of it about identity politics, and it's political without being political. It's very human.

Yeah, so that's in my cueue give us another one.

I saw Oppenheimer. But meanwhile, Spielberg keeps coming up with these great docu dramas about World War two and up in the Air. Yeah, Masters of the Air on Apple.

That looks really fascinating, really really good. I saw a clip of one of the aerial dog fights. It's unbelieved, unbelievable, right, you're like right there, yeah, oh.

Yeah, but when you realize that they got in these bombers recognizing that their chance of coming back was at best fifty percent at best, so you know they were really just the bravery there was, the achievement was was absolutely extraordinary. I do like World War two kind of docu dramas.

I know you saw Offenheimer. I assume you saw a Barbie. Any of the films you want to mention.

I think it's Griselda. It's it's a it's a docudrama about a lady who was a huge cocaine dealer in in Miami, and she was very entrepreneurialship she figured out that that there was a huge market and selling cocaine to upper middle middle class people.

And the wife from from Modern Family, I'm drawn a blank on her. Yeah, yeah, she's hilarious.

Oh she's she was phenomenal. The acting was was absolutely great.

Huh. Let's talk about some of your early mentors who helped to shape your career.

Well, I recall being at Cornell University and I was a member of a group that kind of brought in interesting speakers on economics and politics, and uh so I pitched Henry Kaufman over at Salomon Brothers, and I gave him a call ask him if he'd have any interest in coming and giving a talk to us. But he sort of was my role model. I wouldn't. He certainly wasn't my mentor. I liked the idea of being on Wall Street and being an economist, so I'd say he was kind of relevant in that regard.

Let's talk about some books. What are you reading now and what are some of your favorites.

Well, I think it's called The Engineers That Won World War Two, and I'm reading that. I had read another book about a liberator bomber. So that's why I really enjoyed the Spielberg Show. Other than that, these days, I haven't had a lot of time to read because we've been upgrading our chart system and I introduced this new product, the Quick Takes, So that's that's kept me pretty busy. So I'm writing a lot more than I'm reading.

So let's get to our final two questions. What sort of advice would you give to a recent college grad interested in a career, either as an economist or an investment strategist or both.

I think first and foremost is a learner write. Unfortunately, for my minimal observations about younger folks these days, they don't really know how to write. Maybe that's because everybody's texting and sending messages that way. You know, knowing something about grammar and being able to communicate in writing is important, but so is being able to do so verbally. You know, we live in a very media oriented kind of world

Really interesting. And our final question, what do you know about the world of investing and research analysis today? You wish you knew thirty or forty years ago when you were first getting started.

This may sound remarkably trivial, but I wish I knew, but I didn't really fully appreciate the power of dividend investing. The people that I see that have the biggest smiles on their faces in my cohort of baby boomers are the ones who've been long term investors. They bought stocks, they bought property, they invested for the long haul, and they didn't get pushed out of the market, you know,

Just the power of compound.

The tower compounding, even a company like and it's just not not even dividends. I mean, if you think about Microsoft, there was a point where Microsoft, you know, in the nineties, was you know, the hot place to be, and then for many, many years it wasn't the hot place to be and look at it now.

Just past Apple for the biggest market cap again.

So you know, if you just have a diversified portfolio of well managed companies, I think the idea of buying companies where the founders are still there seems to be also a useful insight into what companies who want to invest in. People who kind of view their companies as their babies, that they created them, they want to make them better. It doesn't always work. Uber's management had a change along the way.

We were work as well, but you know, I could give you a hundred other examples where it has worked. Thank you, Ed for being so generous with your time. We have been speaking with doctor Edyard Denny. He is the president and founder of your Denny Research. You can find all of his research and writings at yardenny dot com. If you enjoy this conversation, well check out any of the previous five hundred or so we've done over the past nine years. You can find those at iTunes, Spotify, YouTube,