The 35% Recession Warning Markets Are Ignoring — ft. Ed Yardeni

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Ed, I don't know if you saw the award

for participation trophy.

Oh, you got it.

You have to have a punchline.

Well, Ed, you had to be there.

All right, never mind.

I got something bad.

No, maybe that works.

But what happened to the time in?

That's the problem when I try to go dad.

Oh, I fuck this shit.

Did you hear about the new category for suicide bomber?

No.

Unfortunately, he couldn't be with us tonight.

Listen to me, markets are bigger than what you have here.

There's a structural change in the world.

If you should cash, it's trash.

Stunks look pretty attractive.

Something's going to break.

Forget about it.

Ed, I don't know if you heard.

Anyways, any questions you want to ask me about?

I think I did this week.

I'm like, anything you'd like to know about it,

anything on your mind, anything.

At the tip of the tip of your prefrontal,

of your still evolving prefrontal cortex.

Yes, now that you mention it,

how was the vanity fair Oscars of Departy in LA, Scott?

Ed, ed, ed, ed, I don't like to talk about my personal life.

I just this once will turn this back to me.

Oh, my God.

Could I be more fucking fabulous?

I mean, seriously, I was in Brunella, Kuchinelli.

I sat next to the, I think her name is Allison Bre.

She's a woman.

She was truity on Mad Men.

Oh, yeah.

Yeah, yeah.

And she was in glow and she's in this new,

maybe she couldn't have been more lovely, more beautiful.

And then I sat next to the woman on my left

with Jessica Williams, the woman in the,

she's in the series shrink.

Also, super smart, intelligent, interesting.

And two seats away from me with Sam Altman.

We're gonna just gloss right over that.

No.

And then keep moving around.

I mean, I, at one point, yeah, I'm totally serious.

Oh, my gosh.

Okay.

Anyways.

Anyways.

And then, at one point, I was at the bar

in between John Hamm and Jacob Allody.

And I thought, oh, my gosh.

No chance I'm getting laid tonight.

No one's coming up to me.

If family Radikowski comes up right now,

who was also at the party,

chances are she's not gonna talk to me.

So take us through.

I mean, one, why were you there?

Two, how was it?

I mean, give us just sort of like the play-by-play

on this experience.

Well, the answer to your first question, why was there?

I have no fucking idea.

I'm not exaggerating.

I was Googling actors named Galloway

because I thought it must have been a mistake.

I think what happened was, in all seriousness,

I think someone said, oh, podcasting's a new thing.

And they said, who's a podcast

and some 19 year old intern probably throughout my name?

Praise be to that 19 year old intern.

Really changed things, yeah.

100%.

But I went, it starts really early

because I guess of time zones.

So I went to the dinner, you show it like ridiculously early.

It's like we're 110 years old going

for the Grand Slam dinner at Vendee's.

So you get there at 330, you walk in,

and it's about 120, 150 people at the dinner.

I hung out with Larry David.

I'm totally name-dropping right now.

It was like angry meat depressed,

depressed meat angry.

And it's the collision of detail, style,

fabulousness, venue.

I mean, I got to be honest,

it's arguably the best party I've ever been to.

Just the food was amazing.

And then what happens is, you go to dinner,

then they break down the dinner,

you go to a different room for a party

and you do this like photo walk.

And before me was Nicole Kibman

and after me was Jeff Bezos

and shocking, no one really wanted to take pictures of me.

No one really wanted to take pictures of the dog.

So you were actually in the middle of that viral moment.

I don't know if you saw this,

but this is going viral.

Lauren's there with Bezos.

It's a Lauren and Jeff moment.

They're very excited and then suddenly Nicole Kibman

walks right by and the entire,

I mean, all of the paparazzi just shifts focus.

Suddenly it's all about Nicole

and you can see the pain on their faces,

but I didn't realize you were there too.

Well, this is how pathetic I am.

So on, what do they call it, the photo line or whatever,

there's three X's.

And so they can put multiple people out there

and you go to one of the X's,

they say one X, two X, three X and you go there

and people take a time.

And there must have been 400 photographers there.

I didn't know how it played out.

So they said, all right, Mr. Galloway, please go ahead.

I stopped at the first X and everyone's very nice

to the professor.

They're like, Mr. Galloway, look here and da da da.

And then I went to the second X for more pictures

and then stood there.

And then as if that was enough,

I decided to go to the third X

and by the time I got to the third X,

the photographers are like,

could you just move along, could you?

And then it dawned on me.

You're only supposed to go to one X and sit there for,

so literally the rookie lame move of the evening.

But Nicole Kidman, actually I'm not that into fashion.

She had the most beautiful dress.

Anyways, I just had a, I had a,

I kind of freaked out at about midnight.

I realized I was walking around,

walking around sort of a loan.

It was either like, I need to go deep in the pan

and get drunk and get a lot more social

or I need to go home.

And I just had sensory,

I was just overstimulated and decided to pull the rip

cord and actually went home fairly early.

Oh wow, okay.

But it wasn't, yeah, I'm just,

so thank you to the nice people at Vanity Fair

for including me, it was incredible.

It was like one of those, I've peaked, dad, I've peaked.

I mean, you say that sometimes,

but this one, this one's a real contender

for actually that statement being true.

I mean, the Vanity Fair, I mean,

you just got to make sure you're invited next time.

I'm curious.

What do people actually talk about at these things?

Like, you're standing there, you're taking the photos,

you say, hi, do people kind of like make new friends

or how, I mean, how are the conversations conducted?

Everyone's, quite frankly, everyone just couldn't be nicer.

Jeff Goldblum came up to me and talked about having sons

and he seemed like just this lovely guy.

Him and him and his wife were super nice.

Yeah, I don't, I wasn't,

you know, they're just, they're all fairly successful people.

Some of the younger actors, I mean,

if you're going to be an actor, you've got to be fairly,

what's the term, you got to get a lot of reward,

I think, to put up in that industry and try as hard

as they do, it's talented as they are.

You got to be into, you know, really into me,

in meaning, you've got to get a lot of reward

as seeing yourself on the screen.

And half the time when I was speaking to a younger actor,

I thought they were just staring at themselves

in the reflection in my glasses.

I think they were literally, I think for several of them,

I was just like a convenient makeup mirror.

I could see that a lot of kind of like just not sort of zoning out,

not really listening, smiling and just kind of thinking

about the cameras, which is a, it's kind of a strange set up.

Like it's a weird set up for a party

where you're supposed to be having fun,

but also you're technically supposed to just be looking fabulous

for the internet.

Yeah, it had huge expectations and it exceeded my expectations

and I felt like it was one of those,

unfortunately, you can't take pictures of yourself is so.

Well, I'm excited for the paparazzi photos

to come out where you're standing

on three different places.

Absolutely none of them will be of me.

I already googled my name, none of me.

Nobody's, it's like, let's either go with,

let's either go with Scott Galloway or Emily Rodikowski.

That's a tough call, but we're gonna go with Emily.

I need to hear more about Sam Altman,

the fact that you sat two seats away from him.

I mean, he is sort of like the chief villain of our time

whether you actually believe that he's a bad guy or not.

That is his reputation right now

and you were at the table with him.

Did you talk to him?

I promised I wasn't going to shitpost anyone,

but come on, it's like literally inviting a hijacker

to an air show.

I'm like, what the fuck are they thinking?

This guy is literally stealing, he's stealing everyone's watch

while they're in the bathroom and their future

and their social security card and their health plan.

And he's there.

I did not speak to him.

He seems, you know, he looked great, lovely guy.

I'm sure, actually that's not sure.

I think he's bad for humanity and I don't know what to say here, Ed.

But no, we don't figure out your talking points.

This is what the people are gonna be asking about.

We did not reconnect and bond and resolve our differences.

He probably doesn't even know who I am.

I just, I introduced myself.

You know, everyone was, I think the nice thing

about that type of event is everyone is so overwhelmed

by how well it's done and how fortunate they feel to be there

that everyone including me is on their best behavior.

Right.

So, but it's a really interesting.

I was shocked at how well they curate.

It was just some unexpected people from different walks of life.

Jane Fonda was there.

I mean, it was just very interesting.

And the one thing everyone had in common

is everyone looked amazing and really takes it seriously.

And it's just so fun.

I was thinking about one of the wonderful things

about our species is it.

I think it's kind of interesting

that we spent so much time and attention on fashion

and trying to look good and express art

through what we wear.

And I met the president of Chanel.

She couldn't have been more lovely

and it's like at a central casting.

She's this beautiful woman who looks,

you know, perfectly dressed as you might imagine.

And she was helping me out.

She said, you look lonely.

She was like, I know how to level you up in this room.

I'm like, I look that pathetic.

It was literally like somebody came over to me

as a charity, as a charity.

And said, do you want to come sit with us?

And this is, you know, oh, man.

Yeah, so, but she couldn't have been more, I don't know.

Like I said, lovely.

And I hung out with my friend, Jamie Patrickoff,

who again was like whenever he saw me alone

and hitting the bar and like, you know,

getting very insecure looking,

he would come over and introduce me to people.

And I mean, it's tough.

You're there alone.

You're not there with your squad.

You're just kind of entering this foreign universe.

I mean, yeah, it's, I'm sure it was kind of tough.

Yeah, no, I was not invited with a plus one.

So I was at the bar a lot.

But yeah, look, it was, it was fantastic.

And whatever interned vanity fair fucked up

and got me an invite, dude, I owe you.

Brother, I owe you.

Internship.

You want to be Ed's boss?

Just give me, give me a call.

Shall we get into a conversation with Ed Yodani?

Let's do it.

Here is a conversation with Ed Yodani,

president of Yodani Research.

Ed, thank you for joining us.

I want to get right into it.

And I want to start with a quote from a recent blog post

of yours and hear some more about it.

You said quote, we raised our odds of a recession

from 20% to 35% a few days after the war started

when we concluded it might be longer than widely expected.

More recently, we've become concerned

that a weakening US economy might

exacerbate the cracks in the US private credit market.

In some, you view this war as potentially more damaging

than others believe.

And certainly than US investors, at least at the moment,

seem to believe.

Please take us through your thoughts

on what this war has done to the US economy

and what it might mean for markets.

What's clear is we continue to have a price of oil

of around $100 a barrel.

And in the past, when we've had spikes in oil prices,

that's either cause of recession

or cause some slowdown in the economy.

And I think it's reasonable to expect

that the oil shock we've experienced so far

is going to push inflation rates up over the next few months,

gasoline prices have gone up.

So that's certainly going to be in there.

And then beyond that, fertilizer prices have gone up

because quite a bit of the material

that used to make fertilizers has to transit

through the administrative hormones.

So that could affect food prices.

And that means that the Fed is most likely not going to be

lowering interest rates.

We have a labor market that's weak all in all.

And real GDP growth rate was revised downwards

in the fourth quarter.

So the economy has been amazingly resilient

during the current decade that I've called the Roaring 2020s.

I'm not giving up on that,

but I'm simply conceding that we've seen this before,

particularly in the 70s, when we saw two spikes in oil

creating two recessions,

creating a stagnationary environment.

And that's the concern.

So clearly something has changed

on the geopolitical front.

It's unstable.

On the other hand, the past couple of days,

the financial markets have been remarkably calm.

I think as I kind of scratched my head,

so what am I missing here?

I recognize that some of the panic about this war

related to the perception that 20 million barrels a day

of petroleum accrued was not going to get through the strait,

and that's 20% of global consumption.

However, along the way here over the past few days,

it's becoming clear that it's not a total blockade.

Arranianships are getting through there.

The U.S. was not stopping them.

The Iranians have said that any vessel

that's not related to the U.S. or Israel

can get through the strait.

And as a result of that,

I think the market's kind of calmed down a bit.

And now I think we're looking at something like 10%,

instead of 20% of global consumption,

not being met by flows through the strait of Hormuz.

You mentioned the investor's reaction,

market's reaction, you wrote, quote,

so far the war appears to have had no adverse impact

on analysts' earnings per share estimates

for each of this year's four quarters,

which brings up something that I've been

sort of puzzling over, which is, I mean,

investors just seem to be quite optimistic about this,

at least optimistic that markets are resilient,

that this will not be a huge problem,

and notably a lot more optimistic than they were,

say a few weeks ago, when people started getting worried

about AI, and that was enough to completely tank

the markets and enough to get everyone concerned.

Why are investors feeling so positive

on a relative basis about this?

Yeah, that's a good, very good question.

And I've been thinking about it,

and trying to understand what's going on here.

What's different about the current environment?

And sometimes we say this time it's different,

it's a curse, and before you know it,

it's not different at all.

But there are a few things that are different.

In the 1970s, we were much more dependent on oil imports,

and we actually had shortages of oil and gasoline.

There were lines at the gasoline stations.

That's not likely to happen today

when the United States is energy independence.

So I think that's a big deal.

The analysts have been hanging on to their earnings estimates.

Not still early, I mean, the wars were in three weeks

into the war, and it may be that when the analysts do

their Excel spreadsheets, they'll conclude that

their earnings estimates are too strong

because companies' costs of energy have gone up,

and they're not going to be able to pass

all of those costs through.

But we're not there yet.

I mean, the earnings are all-time record high

in the fourth quarter, and it looks like the first quarter,

based on analysts' expectations,

is heading in that same direction.

But it's been to the resilience of the economy

and the resilience of earnings

that both the analysts and investors are counting in.

And again, they've learned over the years

that geopolitical crises create buying opportunities

so rather than getting all panicky about it,

if you got any cash around,

you want to look for opportunities

in a geopolitical crisis.

This one could settle down and sooner rather than later.

On the other hand, it's pretty easy

to draw a scenario where things become uglier.

So everybody's kind of a military expert here

these days, and we're all playing war games,

but I think the market right now is remarkably calm.

And yet your recession forecast has,

your probability of recession has risen to 35%.

How do you see that playing out and how bad would that be?

In a recession scenario, what happens,

of course, is the price of oil stays here for a while,

and that cuts into lower income consumers purchasing power.

So they were trenched.

Many of them are all really quite stretched

with consumer debt and having a tough time,

having their paycheck cover their needs

through the end of the month.

Then upper income consumers might get rattled

if the stock market just kind of stays here

with a lot of uncertainty about potentially going down.

Of course, if the stock market goes down substantially,

then a lot of the income higher wealth consumers

may decide to cash in some of their profits,

which would accelerate any sort of correction

or even a potentially a bear market,

and that would depress their spending.

So consumers have been really spending money

all along here through thick and thin.

Think of all the things that have stressed the economy

and have not caused a recession

and instead GDP is at all time record high.

In the stock market, it's maybe three, four percent below,

it's all time record high of January 27th.

We had the pandemic, we had the lockdowns.

After the lockdowns, we had supply chain disruptions.

This is when we had the inflation spike,

the war, Russia invading Ukraine,

we had inflation going higher,

and then the Fed coming in with the tightening

of monetary policies.

We had the many banking crisis in 2023.

We had tariffs last year.

Underneath it all, we've also had a labor market,

which is very puzzling.

It's a lot of people, younger people,

especially looking for jobs can't find them.

And despite all that, the economy's done very well.

And productivity has been a big story of late

if it continues to be the story

that I think my calling this the roaring 2020s

will play out pretty well.

It's worked out pretty well so far,

but now it's getting stressed

as with a potential for a stagnationary scenario.

Just in terms of, it feels like in the past,

it's always the stuff you're not expecting that hits you hard.

And do you see a scenario maybe

where some really energy,

consumptive or dependent emerging markets,

a currency decline, dollar denominated debt,

could that potentially be where this unwinding starts?

It just feels as if,

I'm old enough to remember, I don't remember this,

but it feels like we spent a year obsessing over

grease defaulting and it didn't happen.

And now I wonder if it just feels unlikely

that there isn't gonna be collateral damage

from oil spiking like this.

Do you see a scenario where this starts,

where we don't expect it,

and if so, any kind of,

I know, long ball predictions here

about what we're not focusing on.

One of the reasons I went from 20% to 35%

and a recession risk,

because it's not all about the oil shock.

We also have some real issues with cockroaches.

That's what Jamie Diamond,

the head of JP Morgan,

said he was fearing that if you see one cockroach,

this usually a lot more in the woodwork somewhere.

And we're talking about the private equity

and private credit markets.

And I haven't been particularly concerned about those markets.

I figured that unlike the banking system,

when the banks get a lot of bad loans,

suddenly the bank lending freezes up

because their capital is depleted

and it forces them to try to shore up their balance sheet

and lend less.

And then, of course,

they have to recognize where the losses actually are.

And you get a credit crunch economy wide.

And the private credit, my thought was,

well, you know, what's the big deal?

You have sizable institutional investors,

big boys and girls investing

in these private credit funds.

They're doing it because they get a better return

on their money,

but they also know there's more risk.

And if a couple of these loans blow up,

but this has been that rate of return gets clipped,

gets a haircut,

and life goes on.

Nothing terrible happens.

But Wall Street decided that just in case things didn't go right,

let's share this with the individual investors with retail.

And they started making these kind of alternative acid vehicles

available to the public.

And I think something like one-third of the financing

of private credit is been financed by retail investors

through funds.

And all of a sudden, this is making the news

that some investors are trying to get out of these funds

and they didn't read the fine print that said,

you know, these things are not that liquid

and we can't just like accommodate your needs for getting out

just because you're getting a little nervous.

Well, then if you get a bunch of people getting nervous,

that makes the headlines.

And so that can create a bit of a credit crunch

in the private credit marketplace.

And they combine that with an economy

that's being stress tested by the oil shark

and you have to ask yourself,

well, now we got kind of a layer cake of risks.

And I don't know where to take that metaphor,

but you know what I'm saying, they can interact.

So concerns about the US economy,

but if you didn't know what was going on,

I'm not sure you would know what was going on.

I'm not sure you'd look at the numbers

and say there's clear some huge exogenous event right now.

But with respect to private credit,

you have seen some impact.

The biz dev firms, a lot of the issuers

in the business of issuing private credit,

the KKR, the Apollo, the TPG's, their stocks have been hammered.

Do you think that that, so is this still a concern

or is it also a buying opportunity across those terms?

When I look at those firms underlying fundamentals,

their AUM, their fees,

I see no evidence that they're under strain right now.

I think this sell-off isn't confirmed

by the actual facts on the ground.

The problem I think is the retail investor

because to the extent that the private credit market

has been growing with funds coming in from retail investors,

and suddenly those funds aren't coming in anymore

and quite the opposite.

When they can get out, they are going to get out.

That changes the market.

It means that credit will be less available

to the kind of companies that borrowed

in the private credit marketplace.

But then the banks might come in.

They're always looking for opportunities

and they might manage the risk a lot better.

They have to because they're regulated

whereas the private credit system is not regulated.

So there could be pockets of problems.

But again, I think I'm counting

on the underlying resilience of the economy.

It's a, we have a huge capital market.

They're distressed asset funds

that are always looking to buy things on the cheap.

So they might get something for $0.25 on the dollar

that somebody paid a dollar for.

So they took a big hit.

But on the other hand, the distressed asset funds

has the wherewithal to restructure that asset.

And we move on.

So that's one reason to believe

that the economy's resilient.

By the way, on the consumer side,

another reason that the consumers

have been surprisingly strong is there's a lot of people

like me, baby boomers, that are retiring.

I'm still working for a living.

I enjoy what I do and I don't play golf.

So I don't know what I do with myself.

But my friends are retiring.

And the baby boomers collectively have $85 trillion.

Not billions, $85 trillion of net worth.

That includes houses,

includes stock portfolios,

includes in cash value of insurance.

Obviously it's net worth.

So it includes their mortgages with a negative sign.

But a lot of them have paid off their mortgages.

And so we've got this the wealthiest

retiring generation ever.

And they're spending their nest eggs.

And when the stock market keeps going up,

it might be hard for them to spend it

and see their net worth go down.

The net worth might actually hold in there

or go up even as they're spending.

And then on the capital spending side,

the whole technology revolution,

which has really been the digital revolution

since the mid 1960s.

But it's the pace of technological innovation

is increasing quite dramatically.

In all sorts of areas,

it's not just AI,

it's electric vehicles,

it's robotics, space companies, and so on.

We'll be right back after the break.

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We're back with Profty Markets.

When you talk about some of the resiliency that we've seen

and all of the large events that happen over the past few years,

that turned out to not be that big of a deal,

at least from a market's perspective,

there is this clashing of viewpoints

that I find very interesting in markets right now.

And there are the people who kind of believe

that nothing ever really happens.

Things change.

We might have wars.

We might have big catastrophic events,

but ultimately, things don't really change.

And then there are the people life goes on.

And then the people say, no,

there are things that really do change things.

Things do happen.

And I'm always stuck on this question

because part of me believes, yes,

of course things happen, of course things change.

But then I also look through recent history

and I think, well, maybe it doesn't really.

And I guess the question becomes,

if things do change in a dramatic way,

what would it be if not war, if not AI?

What are the kinds of things that you're looking at

that could fundamentally change America?

Most recessions were caused by credit crunches.

The Fed would raise interest rates in an attempt

to slow down inflation and along the way,

some borrowers who thought that interest rates would stay low,

suddenly are refinancing at higher rates

or they can't get credit.

Something blows up in the financial markets.

In one corner of the financial market,

before you know it, it becomes an economy

or credit crunch.

And when you can't get credit,

you clearly get a recession.

We've also had some of these recessions

that were caused by tightening of monetary policy,

but coinciding with that was an increased significant spike

in oil prices.

We had that in 2008.

Everybody thinks that the only thing that happened

was the housing market melted down.

But we also had a significant spike

in oil prices at the time.

These commodity price spikes,

they're called spikes for reason.

They, you know, we saw just what a week ago,

the price of oil, I think it was on a Sunday night,

trading overseas spiked up to $120 a barrel.

And then by the next, by Monday,

it already had come back down to $100 a barrel.

What sounds like a high number?

Well, we've been there before without the economy

really taking a dive on that.

But I think right now, I would say that geopolitics

are sort of at one of the more obvious areas of concern.

I hope the markets are right.

And I'm coming around to the idea that, you know,

it's kind of like the awful situation in Ukraine

with the Russian invasion.

I mean, you go outside of Ukraine into Europe

and they're sitting there in cafes

and talking about politics, having their croissants

and, you know, like nothing terrible is happening.

A similar situation may be occurring in the Middle East.

We've had lots of wars and attacks and bombings

in the Middle East and yet our economy

certainly has continued to grow.

I mean, it's easy to come up with a World War III scenario

but I'm not going to do that unless you really ask me to

because I tend to be an optimist.

But, you know, the sketch of that would be,

China has us right where they want us kind of preoccupied

in the Middle East.

Oh, I guess I am telling you the scenario.

So I was going to follow up anyway.

So I get you, Mike.

So I jumped the gun.

So China must be very pleased to have us,

the US stuck in the Middle East,

where only a couple of years ago we were saying,

you know, everything's hunky-dory in the Middle East.

We're not going to bother there anymore.

We're going to focus on Asia, particularly China,

particularly Taiwan.

And there are some changes recently in China

where President Xi purged four out of five generals

and nobody knows why.

They don't know because the generals wanted to attack Taiwan

and he didn't or whether he wanted to attack Taiwan

and they told them the generals said

they're not ready to do it.

Whatever it was, it's a strange development.

But, you know, if I was a Chinese communist leader

that had promised to bring Taiwan back,

I mean, this is a pretty opportune kind of environment.

And that would be an absolute disaster

for the global economy because Taiwan is,

basically has a monopoly on chips.

Then again, the US military forces are right there

in the Middle East and all we got to do

is take over Carg Island and that's a huge source

of oil for China.

So, you know, you can war game this stuff quite a bit.

And then, you know, Russia might say,

well, you know, the United States is preoccupied

in the Middle East.

Let's go after Estonia, Latvia and so on.

So I would say geopolitics is really the top of a list

of my concerns and that's very hard to incorporate

into an investment strategy.

And the markets have learned over the years

that geopolitical crises create buying opportunities.

I think they've learned it to such an extent

that you really don't get the buying opportunity.

Look at the current situation.

You know, I thought, well, this one will be a buying opportunity

and a buying opportunity to me means

that you can buy the stock market on a correction, 10 to 15%.

And we barely got to a 5% sell off so far.

And nobody seems to be in a particular panic

to sell stocks that suddenly creates a buying opportunity

for the rest of us who've learned that, you know,

when things look bad, that's exactly

when you're supposed to be buying.

Two of our big themes for 2026,

and this is before the war in Iran, was one

that we would start to be for the first time

in 17 or 18 years, see outflows from the US markets

to emerging markets.

That we'd been on this incredible 17 year run

and the rivers or the capital flows were about to reverse flow

and that you needed to be more diversified into emerging markets.

Well, since 2010 through last year,

I was recommending stay home rather than go global.

That didn't mean don't invest at all overseas,

but overweight the US and underweight everybody else.

And that worked out remarkably well.

I mean, I was kind of surprised how well I worked out.

And I overstayed my welcome because 2025

was a great year to go global.

Emerging markets, the extremely well Europe, Japan,

I mean, just across the board,

the US was a total under performer,

but that's after several years of outperforming.

A little ironic, because I think it was in 2024,

the economist had three cover stories

on why America's exceptional.

And that was kind of the front cover curse

because in 2025, we had the tariffs

and a lot of confusion about where American foreign policy was.

And suddenly, investors were investing more overseas.

Now, it's kind of weird, though,

because when you look at the actual data

that the Treasury collects on foreign net foreign purchases

of assets, securities in the US,

they were actually showing that last year,

foreigners bought a record $700 billion of US stock.

Maybe it was all in video for all I know,

but the data belied the notion that people sold the US

in order to get into other markets.

Maybe just global wealth grows

and they kind of rebalance more towards emerging market,

Europe, and so on.

I mean, from a fundamental perspective,

it's hard for me to get real excited about Europe,

but the European banks were outperformers,

the defense stocks were outperformers.

And a lot of that had to do with the specific

fundamental changes that were going on

in the banking industry.

And of course, the geopolitical changes going on in defense.

Last December, a little late,

I said, okay, maybe it's time to rebalance.

And the argument was pretty simple

on the domestic front technology

and communication services got to be something like 45%

of the market cap of the S&P 500.

I felt uncomfortable telling people to overweight

something that was already 45% of the entire US market.

And the same thing happened to me with the Reds

to thinking about the US relative to the rest of the world.

It got to be 65% of the market cap of the MSEI.

And America may be exceptional,

but how can I recommend overweighting something

that's basically worked the way I expected it to work?

So sometime point you rebalance.

And now with regards to the international situation,

the war upended my idea of going global,

because suddenly the US looked like the place

you wanted to park your money.

So the US market is down,

but it's still outperformed the rest of the world.

I think as this war settles down,

it may just be kind of a persistent problem

in the Middle East as it's been forever.

I don't know why it should suddenly change,

but if it just kind of becomes less headline news,

then I think we could see the go global working again,

particularly with emerging markets.

The story for emerging markets

was a lot of them have emerged.

A lot of them have large middle classes.

They have large populations.

And I can't go country by country

kind of figuring it all out.

So I either would use the EEM,

which is the emerging markets MSEIETF,

or I prefer the fund that excludes China.

And that China is a big part of the MSEI index.

But China's been kind of a play on an AI,

and they'd rather play in our sandbox than in their sandbox.

A lot of people might have heard the term bond vigilante.

This was a very important turn last year,

especially when tariffs were placed.

They went into effect.

And then the bond vigilante is the people who sold bonds,

which drove up yields,

which sort of punished the government.

Some people might not know you came up with that term.

That is your term, bond vigilante.

It seems to be less of a topic right now.

People aren't really talking about it.

But I just want to get your reactions.

What are happening in the bond markets right now?

Is there anything that is striking to you?

And why aren't the bond vigilantes supposedly as active

as they were last year?

Well, it's been eerie, actually, in the US bond market.

It's been kind of stuck in a range between four and a quarter,

maybe four and a half for the past four years.

Been a couple of times when it was above that,

a couple of times when it was below that.

But all in all, the bond market has been remarkably quiet.

I came up with the idea a while ago

that bonds, bond yellow normalized.

This is where they should be.

The aberration was when they were down to 0.5% for the 10-year.

When the Fed was providing quantitative easing,

buying bonds, that was the aberration.

That was the abnormality.

And to me, an economy that can grow

with bonds of 4 to 40, half percent, that's a good economy.

That's an economy that's providing a good rate of return

to bond investors.

And that's a bond market that's probably doing a pretty good job

of allocating where capital goes.

You know, when you have a bond yield of 0.5%,

it distorts the allocation of capital quite measurably.

And so, yeah, I think the US bond market is kind of fine

where it is.

I've been doing this for over 45 years.

And back in 83, I came up with the idea of bond vigilantes.

I went back in my bookshelf and I read what I wrote back then.

And I said, you know, if the sheriff's in town,

if the monetary and fiscal authorities don't do their job

and keep inflation down, the bond vigilantes will do it.

They'll push bond yields up to levels

that slow the economy down, slow inflation down

and risk causing a recession.

And back then, I said, what the bond vigilantes are concerned

about now is $250 billion deficits.

And now we're talking about $1.5 to $2 trillion.

And we're at 4.5%, no big deal.

But, you know, over the past year, two years,

when people ask me, what happened to the bond vigilantes?

I said, you know, have you looked what's going on in Japan?

During the tourist season, apparently Japan is overwhelmed

with tourists, well, now they're also overwhelmed

by bond vigilantes.

And I don't think they're there for the blossoming

or the cherry trees.

They're there because Japan has been a poster child

for other developed countries.

You know, they were early on

and having a speculative bubble burst

and having to lower interest rates to zero.

And they were early on

and accumulating huge amount of debt relative to their GDP.

And over the past year, so the bond market

over there, the bond yields have gone up dramatically.

But it really hasn't had any significant impact

on the Japanese economy.

We'll be right back.

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We're back with ProfG markets.

There's been a lot of...

I don't want catastrophizing warnings

about the state of the labor market

due to pressures from AI.

Your thoughts on whether this destruction

in the labor force or jobs

is overblown or underblown?

Or number one.

It's overblown.

So nobody's going to get fired at the Ardeni research.

We're just a small dinky little research firm

because suddenly Claude...

Claude's allowing us to do stuff

that we just wouldn't have done before.

For my personal experience,

I think AI, instead of requiring coders,

requires prompters,

you have to really learn how to talk to it,

ask the right questions,

be very specific about what you want,

and then you got to check it

because it's still not perfect.

But I think what's happened over the past year or two

in the labor market

is AI became such a big deal

that every company basically decided

to freeze their payrolls.

So we're not going to hire anybody,

we're not going to fire anybody.

We're going to do a lot of research

and we're going to do a lot of trials

to see if AI can make the people we have here

even more productive.

And I think what a lot of companies are concluding

is that in some areas,

AI is amazing and it can augment

the productivity of the people you have

there's no reason to get rid of them.

These people can be taught

if they can't naturally get a feel

for how to use AI.

And then in other areas,

AI is irrelevant,

but you know what?

We finally looked at this division

that nobody's really looked in for 20 years

and maybe let's just sell it.

We're not making any money in this division.

So I think there's a lot of focus on productivity

as a result of AI.

And I think like all technological,

I'm not a lot of it.

I think like all technological revolutions,

there's a transition phase.

People are going to kind of have to reinvent themselves

and I think that's what they're doing

and we'll continue to do.

And I think the labor market

will continue to do well.

If I'm wrong,

there's some people talking about universal income.

I guess the analogy would be something like

the Romans,

the Romans conquered so many people

who made slaves out of them

that they didn't have any work to do.

Everybody else,

everybody, they conquered did all the work.

And I guess we could be poets

and have parties and all that

the way the Romans did.

But I don't think it's going to go that way.

I think we're all going to have jobs.

Earlier in the program,

we were talking about things that really shake the markets,

things that actually have a dramatic impact.

And you pointed out correctly

that what they all have in common

is there is a credit crunch.

There is some sort form of credit crisis

that stems from too much debt

that we cannot handle.

So this makes me believe

that the thing that's going to bring everything down

is ultimately just the US national debt.

The fact that we're up to nearly $40 trillion in debt,

we are adding to it with the big beautiful bill.

As I said, $4 trillion added to the deficit

over the next decade in more deficit spending.

And when he talks to people about Japan,

people go, well, I guess Japan's okay.

And no one really has an answer as to why it's okay,

but they say, okay, it's okay.

And so maybe that means America's going to be okay.

I'm a little skeptical of this,

and I just like to end with your thoughts on

what is the deal with the US's debt?

Situation?

And is it going to come back to bite us?

I have to tell you a little story here.

You know, one, a fair amount of the people

who sign up to our research service

are institutional investors, private wealth managers.

They manage money for wealthy individuals.

And they particularly like my work,

because I tend to be balanced

and when things look terrible,

you know, you read some of my permabare competitors

and you start reading what they're writing

and you want to pull out a gun

and pull out your brains when you wake up in the morning.

You can actually read mine without going that far,

even during bad times.

But so a lot of them over the past couple of years have been telling me,

you know, I really appreciate your work

because it's been balanced,

because our accounts are very, very nervous.

The more the stock market goes up, the more nervous they get.

I said, what are they nervous about?

Well, first of all, they're wealthy individuals.

They're conservative.

They want to conserve.

They want to keep what they got.

But on the other hand, they're very happy to see their wealth go up

in the stock market.

But as it goes up, they say, you know,

maybe we should get out of the market.

So what are you so worried about, they ask?

And these wealthy individuals will say,

well, I'm very concerned about the deficit.

I'm very concerned about the debt.

There's no way we can keep doing this.

So then the manager tells me,

so what do they want you to?

I ask them, what do they want you to invest in?

They just want to be safe in 10-year treasuries.

You know, you're there worrying about the debt blowing up

and they just want to be in 10-year treasuries.

Because, hey, what the hell?

I can always sit on them for 10 years.

Even if we get a debt crisis and everything blows up,

eventually the rates will still come back down.

One of the ways to understand why things haven't blown up

is because the world is getting richer and richer.

I mean, for all the geopolitical stresses and strains

and crazy stuff going on,

the world on balance continues to grow.

People are aspirational.

If they're prosperous, they want to prosper more.

If they're not prosperous, they want to prosper.

There's still a fairly heavy dose of capitalism

on a global basis.

There's competition and there's companies that are under pressure

to provide the best goods and services they can for customers

at reasonable prices.

And that's created a tremendous amount of wealth.

Hundreds of Chinese dollars and wealth likes to diversify.

They don't want to be all in one sector.

For example, I have a chart that I've been showing these days

showing the S&P 500 versus the price of gold on the same scale.

What's interesting is they are kind of inversely related,

which means the gold is really a pretty good diversifying asset

for a stock portfolio.

Because when the stock portfolio goes up,

you take a little bit out of the chin

for that insurance policy.

But when stocks are going down, gold's doing well.

That's been true since gold's been set free by Nixon

back in the early 1970s.

But when you look at the trend, they're almost the same identical trend.

So here in my roaring 2020 scenario,

I have the market, the S&P 500,

getting to 10,000 by the end of the decade,

by the end of 2029.

And based on that chart, I'm extrapolating the trends,

gold could get to 10,000 per ounce as well.

Why? Because of diversification.

And so that's kind of the way I'm looking at it.

The world is getting wealthier and wealthier.

And that's a good thing.

And we want more and more people to be prosperous.

We want more and more neighborhoods to be good neighborhoods,

aspirational neighborhoods.

Certainly want a lot fewer wars.

But I guess we can't fight the human nature and human history.

But I guess I would say that the one thing that I've often told investors

are interested in my point of view and what I've learned is,

one of the things I've learned over the years is amazing how well the US economy

and the global economy, but the US economy and the US stock market

and foreign stock markets have done despite the politicians,

despite the dictators and the military and the wars.

It's really quite extraordinary.

And that's because people are aspirational.

So here in the United States, you know,

we're constantly reading the news about the Fed and about the Treasury

and the White House.

And I say, you know, it's amazing how we keep doing well

despite these clowns.

And we just kind of take them into consideration when we're

going about our business all day and thinking about,

how can we prosper despite what's going on politically?

Ed Yardani is the president of Yardani Research,

a provider of global investment strategies and asset allocation analysis.

He previously served as chief investment strategist of Oak Associates,

Prudential Equity Group and Deutsche Bank's US Equities Division in New York City.

He taught at Columbia University's Graduate School of Business

and was an economist with the Federal Reserve Bank of New York.

He also held positions at the Federal Reserve Board of Governors

and the US Treasury Department in Washington, DC.

Ed, thank you very much for your time.

If I may just say I am a entrepreneurial capitalist

so if anybody wants to try the research,

just go to Yardani.com.

Yardani.com.

You got it.

Thank you, sir.

Thank you.

Thank you, Ed.

Edward, what do you think?

Well, Ed Yardani is legend in the world of economics and markets.

I thought it was great.

I thought it was interesting his story about how investors

feel about our fiscal situation, our deficit spending,

and our increasing debt, and the fact that you have all these investors

who say, I don't know what to do.

I think I want to get out of the stock market.

Okay, well, what do you want to do instead?

Oh, I want to buy treasuries.

I want to buy more US debt.

Which is a great example of kind of the paradox

that a lot of investors are facing right now,

which is they know that they're getting too risky

because of the amount that we've seen in the amount of run-up

that we've seen in the stock market.

We know that we keep on spending more money than we should really be spending.

But then the question becomes like, well, what is your safe haven?

What is your insurance policy?

What is your protection?

And some people would say it's fixed income.

It's treasuries.

Some people would say it's gold or Bitcoin.

And in all of these assets, you can also make the case

that actually these are quite risky assets as well.

And so I think it's leaving investors in this very tricky place

where it's like, no one can agree on what the safe haven

even is anymore because there seems to be risk everywhere.

But if someone could come up with the asset

that is the true safe haven,

the Bitcoin is would say it's Bitcoin.

We already did it.

I don't know if everyone really buys it.

I don't think we really believe you based on what we've seen

with Bitcoin price movements.

But if someone could do that,

that guy would get very, very rich.

I almost think we need a new term.

It's not safe haven.

It's least fucked up or at least dangerous haven.

There's either markets that have greater debt than us

or there's markets that have less debt than us

but aren't growing.

And so we're the fastest turtle, if you will.

So yeah, I'm not sure safe haven is the right term.

The term he used that I thought was really appropriate

was balanced.

He strikes me as very balanced

and it's always good to hear from someone who's not easily...

I get the sense that Ed's seen a few cycles

and doesn't scare that easily.

I also thought it was interesting and contrast.

I think it's terms about the same size as property media.

Technically we're research firms,

but it's research firms.

And he said that they weren't planning to lay off any people

because of AI.

Whereas I'm planning to lay off most of the staff here.

Why does that make me happy?

I haven't been thinking about that for the last 20 minutes.

No, but he did strike me as very balanced

and quite frankly I just doesn't scare that easily.

I think he's probably...

I think he's probably one of the few investment newsletters

where you read it and your blood pressure comes down.

Whereas everyone else is, you know,

the world is falling and credit spreads are going to blow out, et cetera.

Anyways, I'm very much enjoyed.

Enjoy the interview.

Does your blood pressure go down when you listen to all content?

So speaking of blood pressure, I was diagnosed for the first time.

I've told you this.

Let's bring this back to me.

Every year I get a physical and every year it's like you're super human.

You're good cholesterol is high, you're bad cholesterol.

I love getting my physical.

So this time they told me I have shrunken inch

and I have high blood pressure.

And so I work my ass off on getting my blood pressure down.

I'm drinking glass, I'm eating no processed meats,

you know, trying to do more cardio.

And I got my blood pressure below 130,

or down to like 127,

and all of a sudden the American Heart Association

is now lowered what defines or what fits the qualification

of blood pressure down 10 points.

They move the goalposts on the ed.

Anyways.

Is that RFK's fault?

Whatever it is, it's RFK's fault.

No, I don't have measles.

That's one thing that I have going for me.

That's true.

But anyways, that's my high blood pressure story ed.

I don't have much, I don't know.

You are so bored by that.

At your age, you don't need to worry about any of this.

You don't even know anyways.

Don't, don't, yeah, you got time still ed.

You got time.

You got time.

Eating steak, eggs, and raw milk can all be good.

Yeah, but I do believe AI is going to replace you.

I have other things to worry about.

This episode was produced by Claire Miller,

an Alison Weiss, an engineer by Benjamin Spencer,

a video editor as Jorge Carti.

Our research team is Dan Shilan,

Isabella Kensel-Kristen, who done a human meal for Vario Jake.

McPherson is our social producer.

Drew Burrows is our technical director and Catherine Dillon,

who is our executive producer.

Thank you for listening to Profty Markets from Profty Media.

If you liked what you heard, give us a follow

and join us for a fresh take on markets on Monday.

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Reunion.

As the world turns.

And the price.

And love.