Edward Yardeni

There has been much confusion about corporate profits. As a result, there has been lots of sloppy analysis and misinformed discussion of such important issues as the central role of profits in economic growth, the trend of profits, the corporate tax rate, the profit margin, profits’ share of national income, and corporate share buybacks.

The confusion has played into the hands of progressives, who claim that the profit motive results in income and wealth inequality. As I will show in… Show more

There has been much confusion about corporate profits. As a result, there has been lots of sloppy analysis and misinformed discussion of such important issues as the central role of profits in economic growth, the trend of profits, the corporate tax rate, the profit margin, profits’ share of national income, and corporate share buybacks.

The confusion has played into the hands of progressives, who claim that the profit motive results in income and wealth inequality. As I will show in this study, their narrative of the relationship between profits and prosperity is wrong and misleadingly pessimistic. Market-driven profit is the source of widespread prosperity, not its nemesis. Show less

In this study, Edward Yardeni and Melissa Tagg, two of the world’s most experienced and widely followed investment strategists and Fed watchers, provide investors with a practical understanding of the forces that drove monetary and fiscal policies during 2020 in response to the Great Virus Crisis. The focus is on the Fed.

At the beginning of the year, Fed Chair Jerome Powell and his colleagues expected that the longest economic expansion in US history would continue and that the federal… Show more

In this study, Edward Yardeni and Melissa Tagg, two of the world’s most experienced and widely followed investment strategists and Fed watchers, provide investors with a practical understanding of the forces that drove monetary and fiscal policies during 2020 in response to the Great Virus Crisis. The focus is on the Fed.

At the beginning of the year, Fed Chair Jerome Powell and his colleagues expected that the longest economic expansion in US history would continue and that the federal funds interest rate would remain range-bound between 1.50% and 1.75%.The outlook changed dramatically for the worse on March 11, 2020, when the World Health Organization declared that Covid-19 had spread around the world. It was officially a pandemic.

That marked the beginning of the world war against the virus. It was a war on three fronts: the health front, the economic front, and the financial front. The Fed responded by the lowering its key interest rate to zero on March 15 and implemented an open-ended program of quantitative easing on March 23, “QE4ever.” Various liquidity facilities that were used during the Great Financial Crisis were reopened and new ones added. Fiscal policy joined the battle, with substantial spending programs initiated. Collectively, these measures amounted to trillions of dollars of support.

In this study, the authors explain why this two-pronged monetary/fiscal response worked so well on the financial and economic fronts. They also consider its potential long-term consequences on inflation, financial stability, and the role of government in the economy. Show less

In predicting the major stock, bond, commodity, and foreign exchange markets around the world, nothing is more important than to anticipate the actions of the Federal Reserve System’s Federal Open Market Committee (FOMC), which sets the course of monetary policy in the United States. By controlling the key interest rate in the money markets and other monetary variables, the FOMC has an enormous impact on the global economy and financial markets.

Watching the Fed closely are not only Wall… Show more

In predicting the major stock, bond, commodity, and foreign exchange markets around the world, nothing is more important than to anticipate the actions of the Federal Reserve System’s Federal Open Market Committee (FOMC), which sets the course of monetary policy in the United States. By controlling the key interest rate in the money markets and other monetary variables, the FOMC has an enormous impact on the global economy and financial markets.

Watching the Fed closely are not only Wall Street’s economists and investment strategists but also reporters and commentators at the major financial news organizations. In fact, anyone involved in investment matters and business activities anywhere in the world needs to watch the Fed, because its policies have powerful impacts not only on the US economy but also on the global economy.For participants in the financial markets, anticipating a policy change by the Fed and positioning an investment portfolio or speculative trade accordingly can result in big gains. Conversely, failing to anticipate a move by the Fed can result in big losses or missed opportunities for gains.

In this unique primer, Dr. Edward Yardeni, one of the world’s most experienced and widely followed “Fed watchers,” helps investors to understand the FOMC’s decision-making process, anticipate its moves, and profit from those insights. Show less

The authors explain that the bull market in stocks has boosted buybacks to a greater extent than buybacks have boosted the market, whereas the opposite is more widely believed. Rising stock prices increase the attractiveness of paying some of employees’ compensation with stock grants. Buybacks then are necessary to offset the dilution of earnings per share. While the latest bull market, like previous ones, has been driven by rising earnings, it’s a Wall Street legend that earnings per share… Show more

The authors explain that the bull market in stocks has boosted buybacks to a greater extent than buybacks have boosted the market, whereas the opposite is more widely believed. Rising stock prices increase the attractiveness of paying some of employees’ compensation with stock grants. Buybacks then are necessary to offset the dilution of earnings per share. While the latest bull market, like previous ones, has been driven by rising earnings, it’s a Wall Street legend that earnings per share have been boosted artificially and significantly by stock buybacks. It may seem that way only because what lift buybacks have provided to stock prices is highly visible, occurring in the open market, whereas companies’ need to offset stock issuance with stock repurchases is less apparent.

The authors also refute Progressives’ pervasive narrative that most Americans’ standards of living have stagnated in recent decades and that buybacks per se have worsened income inequality.
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The yield curve is now as widely followed by the financial press as movie stars are followed by paparazzi. The tabloids often comment on any noticeable changes in the physical features of the celebrities they stalk. Similarly, the financial paparazzi are obsessed with the shape of the yield curve.

The spread between the “long end” and the “short end” of the curve is widely deemed to be a great leading indicator of recessions when it goes negative. Such yield “inversions” do have a good… Show more

The yield curve is now as widely followed by the financial press as movie stars are followed by paparazzi. The tabloids often comment on any noticeable changes in the physical features of the celebrities they stalk. Similarly, the financial paparazzi are obsessed with the shape of the yield curve.

The spread between the “long end” and the “short end” of the curve is widely deemed to be a great leading indicator of recessions when it goes negative. Such yield “inversions” do have a good track record of occurring several months before the start of recessions.

In this Topical Study, Edward Yardeni and Melissa Tagg explain that the yield curve neither predicts nor causes recessions. Instead, it predicts the monetary policy course likely to be pursued by the Federal Reserve. Among the topics covered are:

1. The relationship of the business cycle to the monetary and credit cycles.

2. How the shape of the yield curve anticipates financial crises, and reacts to them.

3. The impacts of globalization on the US bond market and the shape of the yield curve.

4. How to use the yield curve to predict the Fed’s moves and to anticipate recessions, which are always bearish for stocks.

This study includes a “Primer on the Yield Curve,” based on “Dr. Ed’s” book, Predicting the Markets (2018). It also includes several charts useful for gleaning more insights into the relationships of the yield curve to the economy and to financial markets. Show less

WHEN BEN BERNANKE was a Fed governor, he said, “A part of monetary policymaking for which my background left me imperfectly prepared is what central bankers call ‘current analysis’ ... which] ... is not taught in graduate school, probably for good reason; it seems more amenable to on-the-job training.... It is, nevertheless, an intellectually challenging activity.” He added that a “prerequisite for any serious forecasting exercise” is to get an accurate read of the current economic situation… Show more

WHEN BEN BERNANKE was a Fed governor, he said, “A part of monetary policymaking for which my background left me imperfectly prepared is what central bankers call ‘current analysis’ ... which] ... is not taught in graduate school, probably for good reason; it seems more amenable to on-the-job training.... It is, nevertheless, an intellectually challenging activity.” He added that a “prerequisite for any serious forecasting exercise” is to get an accurate read of the current economic situation, which requires “a deep knowledge of the data mixed with a goodly dose of economic theory and economic judgment.”

I agree.

For the past 40 years since 1978, I have been thinking and writing about the economy and financial markets as both an economist and an investment strategist on Wall Street. Like Bernanke, I have a solid academic background in economics. However, I learned a great deal on the job as a Wall Street prognosticator, predicting the trends and cycles in the domestic and
global economies and financial markets—including stocks, bonds, commodities, and currencies.

In this professional autobiography, I share the lessons learned and insights gathered during my career so far. I hope that it will provide a very solid education in current analysis for anyone interested in the economy and financial markets.

Using current analysis to forecast our shared future, I see a bright one. Show less