Ed Yardeni's "Predicting The Markets" (Book Review)

On July 6th, CNBC's Squawk on the Street featured economist Ed Yardeni who called for a market melt-up despite the ravages of COVID-19 on the economy. This probably didn't surprise most market followers since Yardeni is considered a permabull in investing circles. What the interview didn't tell you is that Yardeni made a prescient call of a market pullback of around 20% early this year before the market cratered. He also gave clients sell signals for financial stocks in 2007, and dot com stocks in the late 1990's. He was bearish then, but not bearish enough as stocks sold off more than Yardeni anticipated. He doesn't hit the bullseye every time, but he gets pretty close which is why he's had an illustrious 40 year career on Wall Street. Yardeni has a lot of street cred coining phrases such as "Bond Vigilantes" and "Hat Sized Bond Yields". He recently published Predicting The Markets: A Professional Autobiography. A better subtitle may have been: Everything You Wanted To Know About Economics But Were Afraid To Ask.

Yardeni is not a maverick economist, but he does march to the beat of his own drum. What makes him unique, is that he wears two hats. The first being chief economist, and the other is chief investment strategist at his own firm Yardeni Research. He began this dual role when working at Deutsche Bank in 1999, which was new among the major Wall Street firms at that juncture. He's an eternal optimist about the American economy because, "recessionary quarters accounted for just 15% of all quarters from 1948 to 2016.". Recessions tend to be quick. He sees a lot of room to run, particularly with the BRAIN [Biotechnology, Robotics, AI, Nanotechnology] revolution. With the advent of quantum computing, Moore's Law may have a much longer future than some technologists predict. Yardeni emphasizes that pessimism sells. He quotes Warren Buffett to buttress his point: "Fifteen hundred different individuals have been featured on Forbes' list of 400 wealthiest Americans since 1982. You don't see one short seller among them.".

Predicting The Markets is a treasure trove of economic history and market intelligence going back to the Great Depression. At 550 pages, you don't have to be a glutton for punishment to read it cover to cover, but it sure helps. That's why I believe it's best used as a reference book. Read a section at a time. Skip the ones you aren't interested in. Chock full of dense data, you may lose interest if going too quickly. Information from chapter to chapter overlaps because Yardeni repeats some of the facts and advice which I think is helpful. It reinforces complex statistics and concepts in a readable format. For instance, the chapters on Consumer Behavior and Demographics seem to converge, especially when discussing the Baby Boomers and Millennials. Many economic concepts are joined at the hip. The author also gets deep in the weeds breaking down various economic sectors and sub-sectors. As an example, when discussing the FOMC [Federal Open Market Committee] statement, he includes explanatory paragraphs concerning: Staff Review of the Economic Situation, Staff Review of the Financial Situation, Committee Policy Action, and so on and so forth.

Yardeni is a self-professed "recovering macroeconomist". Throughout the book, he takes jabs at academic macroeconomists and their theoretical models. And I quote: "Macroeconomists are professional meddlers who feel a calling to make the world a better place. Our ingrained conceit is that without our meddling, the economy would perform pitifully, stumbling into recessions on a regular basis. It might never even regain its footing without our help...I often must remind myself that my day job is to predict how the policy wonks will do their job, not tell them how they should be doing it.". As a microeconomist, he believes financial prognostication is better suited for a jack-of-all-trades, master of none (although a proficiency in economics is required). A simplified definition of a microeconomist is one that focuses on the catalysts of companies and individuals that dictate their buying patterns. As a result, he puts a large emphasis on human behavior.

What I found particularly refreshing throughout the narrative is that Yardeni admits to his mistakes. For instance, he comes clean about being early in his cautionary statements concerning the dot com craze. He began to lighten up on technology stocks in 1997, but was eventually vindicated when the market imploded. One of the main reasons he is probably so honest is that there's no place to hide being a public figure. All of his calls are well documented in the financial press or on his Website www.yardeni.com. One instance is when he was on the PBS News Hour in late 2006 doing a point/counterpoint with Nouriel "Dr. Doom" Roubini about the outlook for the housing market. Roubini won the debate, but Yardeni changed his stance in early 2007, and concluded the subprime problem was as large as the S&L crisis. You don't hear much about Roubini these days which is one of the underlying themes in the book: doomsdayers may get it right once, but rarely ever achieve a command performance. Yardeni doesn't name names, but talks about the bearish soothsayers that claimed the market was at an "endgame" or on a "sugar high" back in 2010. Better to be long the S&P 500 and get the 7% uptrend since its inception in 1935.

Artificial Intelligence is everywhere these days. It's so pervasive that saying your organization has A.I. is like saying you've got corn in your Cornflakes. Although very bullish about the American economy, Yardeni discusses the impact Schumpeter's process of creative destruction and the "paradox of progress" in the era of A.I.: "On balance, society benefits from creative destruction, as this creates new products, better working conditions and jobs. But it also destroys jobs, companies and industries - often permanently.". He speculates about moving forward: "In the Brave New World that is rapidly evolving, technology might make the situation worse as automation, robotics and A.I. displace workers. We may have no choice but to impose a tax on robots and provide a universal basic income [UBI] to support lots of people who are unemployed in the world.". For a conservative, he seems like a rational thinker. That's probably why he's remained relevant for four decades.

There's been two big knocks on the book. One I agree with and the other I don't. The one I concur with is that there are no charts or graphs in the text. You have to go to www.yardeni.com to access the tables and diagrams which takes away from an uninterrupted read. Granted, they're updated regularly, and they would have added another 100 pages to an already large tome, but I would have preferred to have everything in one place. The other criticism that I don't understand is that the book is a big public relations stunt to induce people to subscribe to his services. Writing is about informing and selling, either the book or the subject you're discussing. I think Yardeni did a great job at both. He's got game and the résumé to back it up. Predicting The Markets was selling for $40 at the time publication. You can buy it for $16 now on Amazon. In addition, if you are cost conscious and don't want to subscribe to his service, he has a blog at blog.yardeni.com which is free.