Yardeni: Consumer Discretionaries Look Good
March 26, 2012
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Ed Yardeni, president and chief investment strategist for Yardeni Research, expressed strong optimism about the U.S. economic recovery when he spoke at IndexUniverse’s ”Inside Indexing” conference last week.
And when IndexUniverse.com Managing Editor Olivier Ludwig caught up with him on the sidelines of the conference, he elaborated a bit, saying he quite likes stocks in the consumer discretionary, industrial, technology and financial sectors right now.
Still, Yardeni is less sure about the future. While everyone more or less knows what has to be done to solve America’s long-term fiscal problems, Yardeni worries the United States just might lack the political will to get it done.
Ludwig: You said during your talk that corruption was the cause of the crisis that’s still with us. Can you elaborate on that?
Yardeni: I’m not smart enough to figure out who specifically bears most of the guilt for causing the crisis, but it seems to me what we saw happen in 2008 was the collapse of what I call the “credit insurance fraud industry.”
If you take a junk credit and convert it into a Triple-A bond, that’s not alchemy, it’s just fraud. Again, I call it an industry because so many banks and Wall-Streeters and mortgage brokers and individual borrowers all played the game.
And the cover that everybody took was the argument that “Everybody knows home prices could only go up, so what’s the difference if I don’t really have the income and am lying?”
Ludwig: You’re saying there’s blame on both sides—the people getting loans, the people giving loans—that the whole system was unhinged?
Yardeni: Yes. The rating agencies deserve blame. The government certainly participated in the corruption of the system, but so did Wall Street, so did the banks. It’s like one of those Agatha Christie mysteries: They all did it.
Ludwig: The sentiment you expressed in your speech about the Iranian situation struck me as particularly interesting. You seem to think disaster can be averted. The possibility of some military action there is pretty horrific, but you seem to think it’s unlikely.
Yardeni: It may be wishful thinking on my part, but I think everybody knows that a confrontation in the Persian Gulf would be a disaster. It would sink us all back into a recession, and then how would we get out of it now that we’ve shot all our fiscal monetary policy shots. It would be ugly. I don’t think anybody would want to see that happen.
Meanwhile, the West has come with these sanctions, which in the past didn’t work, but now it looks like they might. These sanctions are very tough. They make it almost impossible for them to clear transactions through the global transactions systems. It’s like if your bank just refuses to cash your check. It’s already having a severe impact to their economy, and it may very well get their attention.