In the short term, certain markets and individual companies can experience anomalies and pockets of outperformance. FANG and Friends are enjoying double-digit growth in a world of 2% growth. How long they continue existing in a rarefied world where the law of large numbers is suspended remains anyone’s guess.
“What’s clear is that they’ve been given a free ride by telling users we’ll give you all our services for free if you let us take your data and sell it,” Yardeni says. “That’s going to be reined in by self-regulation or regulation, but they are generating a lot of cash that they can use to get into other businesses.”
Amazon’s business model confounds Yardeni. “I don’t know why Jeff Bezos does anything but Amazon Web Services,” the hugely profitable cloud business.
For bond investors, the picture isn’t so rosy, but even here Yardeni is no doomster. If inflation remains subdued and the expansion continues, bond investors are likely to earn modest real returns exceeding inflation, though they are unlikely to realize significant capital gains from the asset class.
Over four decades, Yardeni has reached his own conclusion about what’s wrong with the aptly named dismal science. Economists define their discipline as the study of how societies allocate and distribute scarce resources. That Malthusian, zero-sum prism fails to address the dynamics of the modern world.
What modern history reveals is that economics is really about using technological innovations to solve the problems posed by scarce resources. Economics is about creating and distributing abundance, not about distributing scarcity.
As a market strategist, Yardeni believes it’s important to be an investor, not a preacher, and avoid letting one’s own political and economic views color one’s outlook. Since 2009, he has maintained a constructive outlook on equities even though many observers were bellyaching about a phony bubble on a “sugar high” driven by outlandish monetary policies guaranteed to produce hyperinflation, or so the skeptics argue. Many of these same individuals are now unemployed or working in other industries.
When it comes to politics, Yardeni admits he wasn’t “thrilled” with our previous president and certainly “has issues” with the current White House occupant. But more important variables drive markets and economies.
Even a President Bernie Sanders wouldn’t alter his stance. “The U.S. economy has done remarkably well despite Washington’s meddling. It should continue to do so,” he says.