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‘There are big pockets of trouble’ in the economy: strategist

Ed Yardeni, Yardeni Research Chief Investment Strategist, joins The Final Round panel to discuss his thoughts on what’s driving the markets politically and socially, the state of the labor market, and where investors should be investing.

Video Transcript

SEANA SMITH: But we've gotten a lot of bank news out this week on the earnings front. I want to talk about that and more with Ed Yardeni. He's the president and chief investment strategist at Yardeni Research.

So, Ed, I actually want to start with the labor market--

ED YARDENI: Right.

SEANA SMITH: --and the claims that came in, OK? So increased to 898 last week. That holds above our pre-pandemic high around 695. We have definitely declined from that peak of near seven million in March.

ED YARDENI: Sure.

SEANA SMITH: But we're clocking in between 800,000 and 900,000. How concerned are you about the labor market? Do you think that there's any chance that we are in for a double dip on the recession or a longer recession?

ED YARDENI: Right. Well there's always a chance that we'll have this W-shaped economic scenario, but right now it looks very much like a V-shaped recovery. When you look at all the major economic indicators, with the exception of a labor market, the labor market is-- actually we have seen payroll employment pick up. It's just that the initial unemployment claims, as you point out, still suggest that there are a lot of people who haven't had an opportunity to go back to work, and a lot of them are in these services sectors that are pandemic challenged, where social distancing is making it very hard to get them going again. So it's a concern, but the offset is we have a housing-related boom in our economy. And so it's-- I think the glass is both half empty and half full right now.

SEANA SMITH: We need two glasses, I guess.

ED YARDENI: (LAUGHING) Yeah.

SEANA SMITH: Let's look-- (CHUCKLING) let's get to earnings season and what's going on here. So again, as with the recovery, I would say it seems kind of uneven. We have winners and losers, and even winners can't really tell us what Q4 is going to look like. Nobody seems like they want to go out on a limb here in terms of optimism. Is that good because it's kind of keeping a lid on sentiment, or is it actually telling us something about the future that maybe people don't want to hear?

ED YARDENI: Well, I think there's just so much uncertainty revolving around what might come out of Washington on November 3rd. In addition to that, there's still a lot of uncertainty about whether we're going to get a vaccine. And I think everybody expects that we will, but timing is everything. I think the widespread expectation was that earlier this year that we might be further along by the end of this year, and now everybody is talking about maybe the middle of next year.

And as we see, this virus is nasty. It seems as though we can control it for a while, and then suddenly we get these outbreaks. So naturally when you have this kind of uncertainty, with unprecedented uncertainty on the political side in many ways as well as on the health side, no wonder nobody in management wants to take a stance and say, you know, the coast is clear. Everything's going to be just fine.

So, you know, I'm actually surprised the banks didn't provision for more losses because there are going to be a lot of landlords that aren't going to be getting rent. There are going to be a lot of stores still and restaurants that go out of business. So we're not out of the woods yet, but as you said, there are winners and losers, and when you put them altogether, you still have an economy that's recovering with earnings that are probably unbalanced recovering.

SEANA SMITH: Are you more worried about the financials than other sectors when you talk about the loan losses? One thing that stood out to me when Jamie Dimon was talking was that he said, look, maybe if everything goes great, we're going to be-- we will have overdone this by $10 billion. But if it goes to the other side, we're going to be under by $20 billion. I'm like, well, why can't we at least get those numbers even? So, are financials something that stands out to you as a concern?

ED YARDENI: You know, I mean $10 billion up to $20 billion down-- I mean, that's a lot of serious money. And I think that uncertainty is something to be concerned about. If we can't quite get a handle on what the losses will be, then it's something that investors are going to be put off by until we get more certainty. And again, I'm pretty optimistic about the overall economy, but there are big pockets of trouble, and a lot of them are landlords and businesses that clearly have lines of credit that could be troublesome for the banks.

SEANA SMITH: And I just have to ask you about stimulus, and I think that ties into the election because, you know, Steven Mnuchin saying, looks like we're not going to get it before the election. The stimulus has become very political. What is the political calculus right now as you think about the landscape?

ED YARDENI: Well, the reality is we still have some money left that was dished out in the first round of fiscal stimulus. The personal savings are still quite high, and I reckon that there's still enough to keep the economy growing, maybe through Christmas. And on top of that, we have extremely stimulative monetary policy. That hasn't changed. And that's, again, driving a housing-related boom. New home sales, existing home sales are just skyrocketing. And then people are going to buy furniture and paint their houses. So there's a lot of that going on.

But I think no matter who wins, we're probably going to get more infrastructure spending. And if Biden wins, we're going to get a lot more spending in other areas that have to do with the environment. So there's a lot of spending coming, and the feds are ready, willing, and able to finance all that. So the fiscal and monetary stimulus side, the modern monetary theory components of policy, are extremely stimulative, and a lot of that has been going into the stock market.

SEANA SMITH: All right, Ed Yardeni, great to get a chance to talk with you. President and chief investment strategist at Yardeni Research-- glass half full, half empty. Just make sure you go and get two glasses out at least until November 3rd. Thanks so much.