National Debt and Safe Havens

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Create the video in the vampire theme and make it the funniest amount. It went viral. Bob's business, a revival. Now, imagine what your dreams can become. When you put imagination to work at canva.com. Once upon a mundane morning, Barb's Day got busy without warning. A realtor in need of an open house sign. No, fifty of them. And designed before nine. My head hurts. Any mighty tools to help with this plight? Aha! Barb made her move. She opened Canva and got in the groove. Both creating Canva Sheets. Create 50 signs fit for suburban streets. Done in a quick, all complete. Sweet. Now imagine what your dreams can become when you put imagination to work at canva.com. Today's number, forty-eight million dollars. Calci's trading volume on Oscars categories hit forty-eight point four million this year, up thirty-nine percent from last year and ninety-five percent from twenty twenty-four. Ed, I don't know if you saw the award for participation trop hy. You gotta you have to have a punchline. Well Ed, you had to be there. All right, never mind. I got something better. But what happened to the timing? That's the problem when I try to go dad joy, fuck this shit. Did you hear about the new category for suicide bomber? No. Unfortunately he couldn't be with us ton ight. Listen to me. Markets are bigger than us. What you have here is a structural change in the world distribution. Cash is trash. Stocks look pretty attractive. Something's gonna break. Forget about it. Ed, uh I don't know if you heard. Um anyways, any questions you want to ask me about anything I did this weekend like anything you'd like to know about Ed? 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 Oscar's After Party 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 Brunello Cuccinelli. I sat next to the uh I think her name's Alison Bree. She's a woman. She was trudy on Mad Men. Oh, yeah. Yeah, yeah. And she was in Glow and she's in this new movie. She couldn't have been more lovely, more beautiful. And then I sat next to the woman on my left was Jessica Williams, the woman in the uh she's in the series Shrink, also super smart, intelligent, interesting. And uh 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 I at one point Yeah, I'm totally serious. Oh my gosh. Okay. Anyways. Anyways, and then uh at one point I was at the bar in between John Hamm and Jacob Elodi and I thought no chance I'm getting laid tonight. No one's coming up to me. If Emily Rodakowski comes up right now, who was also at the party, uh chances are she's not gonna talk to me. So take us through, I mean one, why we there, two how was it? I mean, d give us just sort of like the play-by-play on this experience. Well, the answer to your first question, uh, why I 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 podcaster? And some 19-year-old intern probably threw out my name. Praise be to that 19-year-old intern. Really changed things. Yeah. 100%. But I went um you s it starts really early because I guess of time zone. So I went to the dinner. You show up like ridiculously early. It's like we're 110 years old going for the Grand Slam dinner at Dendy's. So you get there at 330, you walk in, um, and it's about 120, 150 people at the dinner. I hung out with Larry David. I'm totally name-dropping right now. Um it was like angry meet depressed depressed meet angry. Um and it's uh the collision of detail, style, fabulousness, venue. I mean, I gotta be honest, it's arguably the best party I've ever been to. Um just uh the 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 Kidman, 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 in 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 Kidman 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 tie. And there must have been four hundred 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, uh, Mr. Galloway, look here, and da-da-da. And then I went to the second X for more pictures and then and stood there. And then as if that wasn't 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 uh I kind of freaked out at about midnight. I realized I was walking around walking around sort of alone. It was either like I need to go deep in the pain 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 ripcord and actually went home uh fairly early. Oh wow. Okay. But it wasn't yeah. I mean, y you say that sometimes, but this one this one's a real contender for for actually that statement being true. I mean the v vanity f I mean, you just gotta make sure you're invited next time. I'm curious, what do people actually talk about at these things? Like you you're standing there, you're taking the photos, you say hi. Do people kind of like make new friends or how do I me an how are the conversations conducted? Everyone's uh quite frankly, everyone just couldn't be nicer. Um 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 uh super nice. Um Yeah, I d I don't uh it wasn't you know, they're just they're all fairly successful people. Some of the younger actors are the I mean if you're gonna be an actor you've gotta be fair ly what's the term? You gotta get a lot of reward, I think, for to put up in that industry and try as hard as they do, as talented as they are, you've got to pretty be into pr, you know, really into me in me meaning you've got to get a lot of reward uh seeing yourself on the screen. And half the time when I was speaking to a younger actor or actress, I thought they were just staring at themselves in the reflection in my glasses. 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 a strange setup. Like it's a weird setup for a party where you're supposed to be having fun, but also you're you're technically supposed to just be looking fabulous for the internet. Yeah, it I had huge expectations and it and it exceeded my expectations and I felt like it was one of those and unfortunately you can't take pictures or selfies. 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 Rodakowski. 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 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 shitboast to anyone, but come on. It''s likes like it literally inviting a hijacker to an air show. I'm like, what the fuck are they thinking? This guy is literally stealing he's 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 true. I don't know what to say here, Ed. But no, we gotta figure out your talking points. This is what the people are gonna be asking. 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. Uh 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. Uh 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 that I think it's kind of interesting that we spend so much time and attention on fashion and trying to look good and express art through what we wear. And the I met the president of Chanel. She couldn't have been more lovely and is like out of 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 wanna come sit with us? And this is, you know. Oh man. Yeah. So but she couldn't have been more I don't know. Uh like I said, lovely. And I hung out with my friend, Jamie Patrikov, 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 don't you're not there with your squad. You're just kind of entering this foreign universe. I mean, I'm yeah, it's I'm sure it was kinda tough. Yeah, no, I was not invited with a plus one. So I was at the bar a lot. Um but yeah, look, it was it was fantastic and whatever intern at 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 a call. Shall we get into a conversation with Ed Yardeni? Let's do it. Here is our conversation with Ed Yardeni, president of Yardeni 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 uh US investors, at least at the moment seem, to believe. Um 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 uh clear is uh we uh continue to have a price of oil of around uh hundred dollars um a a barrel. And uh that in the past when we've had spikes in um oil prices, that's either caused a recession or caused some slowdown in the economy. And I think it's reasonable to expect that um the oil shock uh we've experienced so far is going to push uh inflation rates uh up over the next few months, uh gasoline prices have gone up so that's certainly going to be in there. Uh and then beyond that, uh fertilizer prices have gone up because uh quite a bit of the material that used to make fertilizers has to uh transit through the Strait of Hormuz. So that could uh affect uh food prices. And that means that uh the Fed is uh most likely not going to be lowering interest rates. We have a labor market that's uh weak uh all all in. And uh real GDP was uh growth rate was revised downwards in the fourth quarter. So the the economy uh has been amazingly resilient uh during the current decade that I've called the roaring twenty twenties. I'm not giving up on that, but I'm simply conceding that uh we've seen this before, particularly in the seventies when we saw two was uh spikes in oil uh creating uh two recessions, creating a stagflationary environment, and that's that's the concern. So uh clearly something has uh changed uh on the geopolitical front. It's unstable. Uh on the other hand, the past couple of days, uh the m the financial markets have been remarkably calm. And I think uh as I kind of scratch my head and say, what are they what am I missing here? Uh I recognize that um the s some of the panic uh about this war uh related to the uh perception that twenty million barrels a day of petroleum uh crude was not going to get through the strait, and that's twenty percent of global consumption. Um however, along the way here over the past few days, it's becoming clear that uh it's not a total blockade. Um Iranian ships uh are getting through there, the U.S. is not stopping them, uh the Iranians have said that uh any vessel that's not related to the US or Israel can get through the strait. Uh and as a result of that, I think the market's kind of calmed down a bit. Uh and now I think we're looking at something like 10 percent instead of twenty percent of global consumption uh not being met uh by uh flows through the um uh Strait of Hormuz. You mentioned uh the investors reaction, markets 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, uh, 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 s uh understand what's going on here. What what's different about the current environment? And you know sometimes when you say this time it's different, it's a curse, and before you know it, it's not different at all. Uh but there are a few things that are different. Uh in the 1970s, we were much more dependent on oil imports, and we actually had shortages uh of oil and gasoline. There were lines at the gasoline uh uh stations. Uh that's not likely to happen today when the United States is uh energy i independent. So I think that's uh th that's a big deal. Um the analysts uh have been hanging on uh uh to to their earnings estimates not still early. I mean the war is about three we're in three weeks into the war and it may be that uh when the analysts do their Excel spreadsheets, they'll conclude that uh they've they've th their the their earnings estimates are too strong because companies uh costs of uh of energy have gone up and they're not gonna be able to pass all of those costs thro But we're not there yet. I mean the the earnings uh are all time record high uh in the fourth quarter and looks like the first quarter, based on an analyst expectations, is heading heading in that same direction. But it's been to the resilience of the economy uh and the resilience of earnings that uh both analysts and investors are counting in. And uh and again, they've they've learned over the years that geopolitical crises create buying opportunities. So rather than getting all panicky about it, uh if you got any cash uh around, you want to look for opportunities in a geopolitical crisis. Uh this one could settle down and uh sooner rather than later. On the other hand, it's pretty easy to draw um a scenario where things uh become uglier. So you know, everybody's kind of a military expert here these days and we're all playing war games, but uh I think the market right now is uh uh uh f r remarkably calm. And yet your recession forecast has uh your probability of recession has risen to 35 percent. How do you see that playing out and how bad would that be? Aaron Powell In a recession scenario, what happens, of course, is uh uh the the price of oil stays here for a while and uh that cuts into um lower income consumers purchasing power. So they they retrenched. Many of them are already quite stretched with consumer debt uh and having a tough time um uh you know having their paycheck uh cover their needs through the end of the month, uh then uh upper income uh c consumers uh might get rattled if uh the stock market just kind of stays here with a lot of uncertainty about potentially going Of course if the stock market goes down substantially, then um a a lot of the higher uh income, higher wealth consumers uh may decide to uh cash in some of their profits, which would uh accelerate uh uh any sort of correction or even uh potentially a bear market, and that would depress uh th their spending. So consumers have been uh uh uh really uh spending money. Uh uh all along here through thick and thin. Uh th uh think of all the things that um have stressed the the economy and have not caused a recession. Instead GDP's at all time record high in the stock market uh is what oh maybe three, four percent below uh its all-time record high of January twenty-seventh. We had the pandemic, we had the lockdowns after the lockdowns, we had uh supply uh supply chain disruptions then we had the inflation spike the war uh russia invading ukraine we had uh infl uh inflation uh going higher and then uh the fed coming in with uh tightening of monetary policies. We had the bank uh mini banking crisis in twenty twenty-three. We had um uh tariffs uh l last year. Uh underneath it all, we've also had a labor market which is very puzzling. It's uh a lot of people who uh younger people especially looking for jobs can't find them. And yet despite all that, uh the economy's done very well. Uh and productivity' uhs been a a big story of of late. And if it continues to be the story, then I think my calling this uh the roaring 2020s will play out pretty well. It's worked out pretty well so far, but now it's getting stressed Aaron Powell 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 It's uh it just it just feels as if I'm I'm old enough to remember I don't remember this, but we it feels like we spent a year obsessing over Greece defaulting and it didn't happen. And now I wonder if it just feels unlikely that there isn't going to be collateral damage from oil spiking like this. Um do you see a scenario where this starts where we don't expect it and if so, any any kind of I don't know longball predictions here about what we're not focusing on? One of the reasons I went from twenty eight percent to thirty-five percent on uh a recession risk, because it's it's not all about the oil shock. We also have some uh real issues with cockroaches. Uh that's what Jamie Diamond, the head of JP Morgan, uh said he was uh fearing that if you see one cockroach, uh there's usually uh more a a lot more uh in in the woodwork somewhere. And uh we're talking about the private uh equity and private credit markets. And I haven't been particularly concerned about those markets. I I f figured that unlike the banking system, when the banks uh get a lot of bad loans, suddenly they uh bank bank lending freezes up because uh the their capital is di depleted and it's forces them to try to uh shore up their balance sheet and lend less. Um and then of course they have to recognize where the losses uh uh actually are. And you get a credit crunch uh economy wide. And the private credit, my thought was uh well, you know, what's the big deal? Uh uh you have uh uh sizable institutional investors, big boys and girls investing in these private credit uh uh uh uh funds. Uh they're doing it because uh they get a better return on their money, but they also know there's more risk. And if a couple of these uh loans blow up, uh that's just mean that rate of return uh gets clipped, gets a haircut, and um you know life goes on. Um not nothing terrible happens. But uh Wall Street decided that uh just in case uh things didn't go right, let's share this with uh the individual investors with retail, and they started making uh uh these kind of alternative uh asset vehicles available to uh to the public. And I think something like one-third of the financing of private credit uh is uh been financed by retail investors through funds. And all of a sudden this is making the uh the news that uh some uh investors are trying to get out of these funds and they didn't find print that said, you know, these things are not that liquid and we can't just like accommodate your your your needs for getting out just because you're getting a little nervous. Well, then if you get a bunch of people getting nervous, uh that makes makes the headlines. Um and so that that can create a bit of a credit crunch in the private credit marketplace. Uh and they combine that with a s an economy that's uh being t stress tested by uh the oil shock and you can have to ask yourself, well now we got kind of uh a l a a layer cake of risks uh and um I don't know where to take that metaphor, but you know what I'm saying. Uh they they c 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 clearly some huge exogenous event right now. But with respect to private credit, you have seen some impact. The biz dev firms, the a lot of the issuers in the business of issuing private credit, the KKRs, the Apollo's, the TPGs, 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 fsirm, because when I look at those firms' underlying fundamentals, their AUM, their fees, I see no evidence that they're under strain right now. Trevor Burrus, Jr. I think uh this um sell-off uh s isn't confirmed by the actual facts on the ground. The problem I think is uh the the retail investor because to the extent that uh the private uh credit market has been growing uh 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 uh changes the market. It means that credit will be less available to the com kind of companies uh that borrowed in the private credit marketplace. Uh but then uh the banks might come in. Um they're always looking for opportunities and if uh they they might uh manage the risk a lot better. They have to because they're regulated, whereas the private credit uh system is is not regulated. So there could be pockets of problems. Uh but again I think I'm I'm counting on the underlying resilience of of the economy. It's uh we have a huge capital market. They're distressed asset funds that are always looking to buy things on the cheap and um so they might get something for twenty- centfsive on the dollar that somebody paid a dollar for, so they they took a big hit. But on the other hand, the uh distressed asset funds has the uh wherewithal to restructure that asset and uh we we we move on. Uh so uh that's one reason to believe that the economy is resilient. By the way, on the consumer side, another reason uh that the consumers have uh 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 do with myself. But my friends are retiring and the baby boomers collectively have eighty-five trillion dollars, not billions, eighty-five trillion dollars of net worth. That includes houses, includes stock portfolios, includes in cash value of insurance. Obviously it's net worth, so it includes their their mortgages with a negative sign, but a lot of them have paid off their mortgages, and so we've got this the the wealthiest retiring generation ever, and uh there're spent they're spending their nest eggs and when this uh if 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 hold in there or go up even as they're spending. And then on the capital spending side, uh the the whole uh technology revolution, uh which has really been it's really been the digital revolution since the mid-1960s, um but it's uh the the the the pace of technological innovation is uh increasing uh quite quite dramatically uh in all sorts of areas. It's not just AI, it's uh electric vehicles, it's uh robotics, uh space companies and so on. We'll be right back after the break and if you're enjoying the show so far, send it to a friend and please follow us if you haven't alre ady. Support for the show comes from Quince. If you've ever peered into your wardrobe and felt paralyzed by indecision, then it might be time to build a collection of pieces you don't have to think too hard about and that you know will look and feel great. Quince offers premium fabrics, thoughtful design, and everyday essentials that are dependable and feel effortless to wear. 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This and other information can be found in the funds prospectus at getvcx.com. This is a paid sponsorshi p we're back with Profty Markets. When you talk about some of the resiliencies 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 markets 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 there are people say, no, there are things that really do change things. Things do happen. And I'm always stuck on this question because, you know, I part of me believes, yes, of course things happen, of course things change. But then I also look through recent history and then I think, well maybe maybe it doesn't really. And I guess the question becom es 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 uh caused by credit crunches. Uh the Fed would raise interest rates uh in an attempt to uh slow down uh inflation. And along the way, uh 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, and before you know it, it becomes an economy-wide 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 a monetary policy, but coinciding with that was a increase uh 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 in oil prices at the time. Um you know, th these commodity uh price spikes uh you know they're they're call they're called spikes for a reason. They you know uh we we saw just uh what a week ago uh the the price of oil um uh uh I I think it was s on a Sunday night uh tra trading overseas uh spiked up to a hundred and twenty dollars a barrel and then by the next m by by Monday it uh already had come back down to a$100 barrel, which sounds like a high number, but we've been there before without the economy really uh take taking a dive dive on that. But I think right now I would say that uh geopolitics is sort of a uh one of the more obvious uh areas of of concern. I hope the markets are right and I'm coming around to the idea that you know, it's kinda like the awful situation in in Uc Ukraine uh with the Russian invasion. I mean, you you go uh outside of Ukraine into Europe and there's sitting there in cafes and uh, you know, uh t talking about politics, uh having their croissants and you know, like like nothing nothing terrible's happening. Uh a similar situation uh may may be occurring in the Middle East. We've had lots of uh wars and attacks and uh bombings in the Middle East and uh yet our economy uh certainly has uh c can continued to grow. Uh I mean it's it's easy to come up with a World War III scenario, uh but I'm not gonna do that unless you really ask ask me to because I tend to be an optimist but uh you know the the the the the sketch of that would be uh China has us right where they want us kind of preoccupied in the Middle East. Oh, there I guess I am telling you the scenario. So I was gonna follow up anyway, so you might so I jump the gun. So yeah China's must be very pleased to have us the US stuck in the Middle East, uh, where only a a couple of yearsgo we were saying, you know, everything's hunky-dory in the Middle East. We're not gonna bother there anymore. We're gonna focus on on Asia, particularly China, particularly Taiwan. Um, and uh there have been some uh changes recently in China where uh President Xi uh uh purged uh four out of five uh generals. Uh and nobody knows why. They don't know it's because the generals wanted to attack Taiwan and he didn't, or whether he wanted to attack Taiwan and they told him the generals said they're not ready to do it. Whatever it was, it it's it's a strange development. But you know, if I was a Chinese communist uh leader uh that had promised to uh bring Taiwan back, I mean this is a pretty opportune ki kind of environment, and that would be an absolute disaster for the global economy because Taiwan is uh uh basically has a monopoly on ships. Then again, uh the U. S. uh military uh forces are right there in the Middle East, and all we gotta do is take over Karg Island, and that's a huge uh source of uh oil for for China. So you know you can war game this stuff quite a bit. And then you know Russia might uh say, well, you know, the United States is preoccupied in the Middle East. Uh let's go after Estonia, Latvia and and and so on. Uh so I I would say geopolitics is really at the top of a list of of my concerns and um that's that's very hard to incorporate into an investment s strategy. And uh 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 look at the current situation. You know, I I thought well this this one this one will be a buying opportunity. Buying opportunity be to me means that you can buy the stock market on a correction, ten to fifteen percent. And we barely got to a five percent uh uh sell-offs uh so far and no nobody seems to be in a particular panic to sell stocks that suddenly creates a a buying opportunity for the rest of us who've learned that, you know, when things look bad, that's exactly what Two of our big themes for twenty twenty six, and this is before the the war in Iran, was one that we would start to for the first time in seventeen or eighteen years see outflows from the U. S. markets to emerging markets. That we'd been on this incredible seventeen 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, uh since uh two thousand and ten through last year, uh I was recommending stay home rather than go global. Uh that didn't mean uh don't invest at all overseas, but overweight the US and underweight everybody else. Uh and that uh worked out uh remarkably well. Even I was kind of surprised how well it worked out. And I overstayed my welcome because uh twenty twenty five was uh a great year to go global. Emerging markets did extremely well. Europe, Japan, I mean just across the board, the U.S. was uh a total underperformer, but that's after several years of outperforming. A little ironic 'cause in uh I think it was in twenty twenty four the Economist had uh uh uh c uh three cover stories on uh why America's exceptional and uh that was kind of uh the c front cover curse because uh in in twenty twenty five we had the tariffs and a lot of confusion about uh where American foreign policy was and uh suddenly investors were uh uh uh investing uh more overseas. Now it's kind of uh weird though, 'cause when you look at the actual data that the Treasury collects on foreign net foreign purchases of s of assets securities in the U S. They they were actually showing that last year foreigners bought a record 700 billion dollars of US stock. Maybe it was all NVIDIA for all I know, but uh the the the data belied the notion that uh people sold the US in order to get into other markets. Maybe just global wealth grows and the they kind of re rebalance more towards emerging market Europe and so on. Um 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 you know, a lot of that had to do with the specific uh fundamental changes that were going on uh in the banking industry, and of course the geopolitical changes going on in in defense. Uh last December, a little late, I said, okay, maybe it's time to rebalance. And I and the 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 five hundred. And I I I s felt uncomfortable telling people to overweight something that was already forty-five percent of the entire U.S. market. And the same thing happened to me with regards to thinking about the US relative to the rest of the world. It got to be sixty five percent of the market cap of the MSCI. And America may be exceptional, but you know, uh how can I recommend overweighting something that's basically worked the way I expected it to work. So at some time point you rebalance. And now with regards to the international situation, uh the war uh upended my idea of going global because suddenly the US looked like the place you wanted to uh park your money and um so the U.S. uh market is down, but it uh it still outperformed uh the rest of the world. I think uh uh w uh as this war settles down as it may just be a kind of a persistent uh uh problem in the Middle East is that it's been forever. I don't know why it should suddenly change, but uh if it just kind of becomes uh l less uh headline news, uh then I I think we could see the uh the go global working again particularly with emerging markets. The the story for emerging markets is a lot of them emer have have emerged. A lot of them have uh large middle classes, they have large populations. And I 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 uh MS M S C I uh ETF, or uh I prefer the E fund that excludes China. Um and um that uh you know China is a big part of the uh the MSCI index, but uh China's been kind of a play on um on on 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 term last year, especially when tariffs were placed, they went into effect, and then the Bon Vigilantes, the people who sold bonds, which drove up yields, which sort of punished the government. Uh some people might not know you came up with that term. That is your term, uh Bon Vigilante. It seems to be less uh of a topic right now. Uh people aren't really talking about it. But I just want to get your reactions. What are happening in the bond markets right now? Uh is there anything that is striking to you? Uh and and why aren't the bond vigilantes supposedly as active as they were last year? Well, it's been eerie actually in in the US bond market. It's been kind of s stuck in a range between four, four and a quarter, maybe four and a half for the past four years. Uh been a couple of times when it was above that, a couple of times when it was below that. But all in all, the bottom market has been remarkably uh quiet. Um I I I came up with the idea uh a while ago that uh bonds uh baniels are normalized. This is where they should be. Uh the the aberration was when they were down to zero point five percent for the tenure, um when the Fed was um uh providing quantitative easing, buying bonds, that that was the aberration, that was the abnormality. And to me, an economy that can grow with bonds of four to four and a 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 uh a bond market that's probably doing a pretty good job of allocating where capital goes. Uh you know when you when you have a a bond yield of zero point five percent, that's it distorts the uh the allocation of capital And so uh yeah, I think the the US bond market is kind of fine where where it is. Uh I've been doing this uh for over forty-five years. And yeah, back in 83 I came up with the idea of Bombage Landes. I I went back in my bookshelf and and I I read what I wrote back then and I said, uh, you know, uh if uh the the sheriffs 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 uh slow the economy down, slow inflation down and and a and risk uh ca causing a recession. Um and um back then I said uh what the bottom vegiliners are concerned about now is two hundred and fifty billion dollar deficits. So now we're talking about one and a half to two trillion dollars and w we're at four, four and a half percent, no big deal. But you know, over the past uh year, two years, um when people ask me w w what happened to the Bon Vigilanes, I've said, you know, have you looked what's going on in Japan? Uh during the tourist season, apparently Japan is overwhelmed with tourists. Well now they're also overwhelmed by Bon Bijlantis and I don't think they're there for the blossoming of the ch cherry trees. Uh they're there because um uh Japan has been a a a poster child for for other developed countries. You know they they uh they were early on in having a speculative bubble burst and uh having to uh lower interest rates to to zero and uh they were early on and accumulating a huge amount of debt uh relative to their uh GDP and uh uh over the past uh year or so the bond market over there, the bond yields have gone up dramatically. Um, but it really hasn't had an any significant impact on the Japanese econom y. We'll be right back and for even more markets content sign up for our newsletter at profgmarkets. com Support for the show comes from Vanta. If you're a business owner, you may have noticed that both risk and regulation are ramping up. And customers expect proof of security just to do business. 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Your thoughts on whether this destruction in in the labor force or jobs is overblown or underblown. So nobody's going to get fired at the Ardenny Researcher or just a small dinky little research firm because suddenly Claude uh Claude Claude's allowing us to do stuff we just wouldn't have done before. From my personal experience, I think AI, instead of requiring coders, requires prompters. You have to really be learn how to talk to it, you know, ask it the right questions, be very specific about uh what you want, and then you gotta check it because it's it's it's still not uh perfect. Uh but I I think uh what's happened over the past year or two in the labor market is AI became such a big deal that uh every company uh basically uh decided to uh freeze their payrolls. So we're not gonna hire anybody, we're not gonna fire anybody. We're gonna l do a lot of research and uh it try we're gonna try to do a lot of trials to see if AI can make the people we have here even more productive. And I think uh 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. Just uh you know, these people, you know, uh uh can na can can be taught if they can't naturally get a a feel for how to use AI. And then in other areas that AI is ir irrelevant, but you know what? We finally looked at this division that nobody's really looked in for you know for 20 years and maybe let's just sell it. You know, we're not making any money in this this division. So I think there's a lot of focus on productivity as a result of uh of AI. And I think uh like all technological I'm not a Luddite. I I think like all technological revolutions, there's a transition phase. Uh people are gonna kind of have to reinvent themselves. And I I think that that's's what they're doing and will continue to do and um I think p you know the the labor market will will continue to do well. If if I'm wrong, there's some people talking about uh universal uh income. Uh I guess the analogy would be something like uh uh the the Romans. The Romans uh uh uh you know conquered so many people and made slaves out of them that uh they you know didn't have any work to do. Everybody else, uh everybody they conquered did all the work. And I I I guess, you know, we could be poets and uh have parties and all that the way the Romans did. Uh but I I don't think it's gonna go that way. I think I I think we're all gonna 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 of form of credit crisis that stems from too much debt that we cannot uh 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 uh in more deficit spending. And when you talk 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 we just 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 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. uh private uh wealth managers. They they they manage money for uh uh w wealthy individuals and uh they particularly like my work because I tend to be balanced and uh when things look terrible uh you know you read some of my permabear competitors and you wanna uh you know you start reading their what they're writing and you wanna pull out a gun and blow out your br brains uh you know when you wake up in the morning, uh you can actually read mine without g going that far, even during bad times. But uh so a lot of them over the past couple of years have been telling me, you know, uh really appreciate your work because it's been balanced uh because uh our accounts are very, very nervous. Them the more the stock market goes up, the more nervous they get. I said, what's what what are they nervous about? Well they said first of all, they're wealthy individuals, uh they're conservative. They want to conserve, they want to meet you know 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, th they say, you know, let's maybe we should uh g get out of the market and say, Well what's what are you so worried about they they ask? And uh th these wealthy individuals will say, Well, I'm I really I'm very concerned about the deficit, I'm very concerned about uh the debt. It's it's just there's no way we can uh keep keep doing this. So then the manager tells me, so so what do they want you to I ask him, what what do they want uh you to invest in. So well they want to they just want to be you know safe in ten year treasuries. So I said you know here they're worrying about the the debt blowing up and they just want to be in ten year treasuries because hey what the hell I can always you know s sit on them for ten years. You know, even if the you know if we get a debt crisis and everything blows up, eventually rates will still come back down. Um, 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. They they if they're prosperous, they want to prosper more. If they're not prosperous, they want to prosper. There's still a a a fairly heav 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 uh reasonable prices. And that's created a tremendous amount of wealth, uh hundreds of trillions of dollars. And uh wealth likes to diversify. They they don't want to be all in in in one sector. And so uh for example, I have a a chart that I uh I've been showing these days showing the S<unk>P 500 versus the price of gold on the same scale. And what's interesting is they are kind of inversely related, which means that gold is really a pretty good diversifying asset for a stock portfolio. Because when the stock portfolio goes up, you you take a little bit on the chin as for that insurance policy. But when stocks are going down, gold's doing doing well. That's that's been true since gold's been set free uh by Nixon back in the early uh 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 uh by the end of uh the decade by the end of uh 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 is the world is getting wealthier and wealthier, and that's a good thing. Um and we want more and more people to be prosperous. Uh you know, we d we we want more and more neighborhoods to be good neighborhoods, aspirational neighborhoods. Uh certainly want a lot a lot fewer wars, but uh I guess uh we we can't fight uh human nature and human history. But um uh I guess I would say that the one thing that I I I I've often uh told uh investors are interested in my point of view and what I've learned is one of the things I've learned over the years it's amazing how well the U.S. economy and the global economy, but the U.S. economy and the U.S. stock market and foreign stock markets have done despite the politicians, despite the the the the dictators and the military and the wars, um it's really quite extraordinary. Uh 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 uh the Treasury and the White House. And I say, you know, it's amazing how we keep doing well despite these clowns. Uh and we just kind of take them into consideration when we're Aaron Powell 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 U.S. 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 U.S. Treasury Department in Washington, D.C. Ed, thank you very much for your time. If I may just uh say uh I I am a entrepreneurial capitalist, so if anybody wants to try the research, just go to your denny.com. Yourdenny.com. You got it. Thank you, sir. Thank you. Thank you, Ed. Ed, what'd you think? Well, Ed Yardeni is a legend. Um in the world of economics and markets. I thought it was great. I thought it was interesting his story about how investors feel