One on One with Ed Yardeni, President of Yardeni Research
Monday, October 13, 2008
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SUSIE GHARIB: Our market guest made a bold call early this morning well before the opening bell rang here at the New York Stock Exchange. He said stocks hit a bottom on Friday. Joining us now with his analysis, Ed Yardeni, president of Yardeni Research, an independent investment consultant. Hi, Ed.
ED YARDENI, PRESIDENT, YARDENI RESEARCH: Hi, Susie. How are you?
GHARIB: Well, I'm fine. You were right about today. Tell us why you think this rally is for real. What has changed?
YARDENI: Over the weekend, the world's key governments and central bankers just woke up and realized that we were on the brink of a financial calamity, and even an economic depression. And they just launched a whole bunch of stimulative programs that included massive liquidity injection and buying capital in the banks. The program is extraordinarily impressive.
GHARIB: But the global credit crisis still hasn't gone away. The global economy is still under a lot of stress. A lot can go wrong. I mean, have we seen the worst of the market sell-off?
YARDENI: I think so. I think the market last week was starting to really discount a Depression, an economic calamity like the 1930s. The difference this time, I hope, is that governments learn from that experience and have done -- and are doing everything in their power to avoid that sort of calamity. In the 1930s they passed the Smoot-Hawley Tariff here in the United States and everybody scrambled to retaliate. We shut off world trade in the '30s. A credit crunch on a global basis could have the same impact now. Central bankers, governments realize that. And they're doing everything they can to put the credit crunch behind us.
GHARIB: Now we're going to be seeing, as you know, over the next couple of days and weeks, earnings coming out from corporate America.
YARDENI: Right.
GHARIB: Many CEOs are going to be warning that the outlook is going to be pretty bad for the rest of this year.
YARDENI: Sure.
GHARIB: So isn't that going to have a negative impact on stocks and couldn't they just go right back down again?
YARDENI: Well, as you know, the stock market discounts, it thinks about the future all of the time. And I think it has already discounted certainly a mild recession and started to discount a very severe recession or something even worse than that. So I don't think that there's going to be much of a surprise that all of this turmoil has had a negative impact on business and earnings in the second half of the year. I think the market is going to look at 2009 and see that, you know, the sun might actually come out in 2009. It doesn't have to be a recession and a depression year, which is what the market was starting to worry about.
GHARIB: So have you run some numbers of where you see the Dow and the S&P by December 31st of this year?
YARDENI: Well, you know, I think we're going to visit 10,000 once again. We've been doing it up and down for quite some time. And this time it was unnerving to see the market slice right through 10,000. But I think we're going to do this possibly in thousand-point increments maybe every week, hopefully as the news gets better. So I think we could go on the Dow Jones Industrials back to 11,000 and maybe 12,000 between now and year-end, 13,000 is not inconceivable, but I'm not going to push my luck here.
GHARIB: That would be amazing way to end the year. What could prove you wrong? I mean, what is on your worry list?
YARDENI: Well, look, the credit crunch just has not abated. It has just continued. It has spread. It started in the sub-prime mortgage market. It did not stay contained there. There's still going to be problems out there. Commercial mortgages are going to be a problem. But the governments are going to be buying -- either they're going to buy some of these assets or they're going to be making up for the losses by injecting capital into the banks. So I'm looking for more of how this thing starts to resolve itself rather than how it continues to unwind. We all know that.
GHARIB: So what should investors do? Listening to you, they might feel like, hey, maybe it's time to jump back in and buy up these bargains. What do you say?
YARDENI: Right. You know, October is just a tough month. I mean, it's a month that very often in the past we've seen panic selling. And you just - - you know, you just don't want to join panic selling. And that's because panic selling is always followed by panic buying unless the world comes to an end. And so far it hasn't. And I don't think it's going to come to an end this time. So I think that, you know, hold onto your stocks and they're probably going to go higher.
GHARIB: Ed, I hope you're right. We're going to get you back in a few weeks and follow up on all this. Thanks so much.
YARDENI: That's great. Thank you very much.
GHARIB: My guest tonight, Ed Yardeni, president of Yardeni Research.
