WEBVTT - Single Best Idea with Tom Keene: Ed Yardeni

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news, single best idea and

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<v Speaker 1>we could have had many voices today. Very strong, strong

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<v Speaker 1>Monday for the end of August. The team just did

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<v Speaker 1>a great job getting smart conversations. Henrietta Trees was just

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<v Speaker 1>on fire in studio with Veda partners on the political

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<v Speaker 1>moment of the nation. But without question, the conversation of

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<v Speaker 1>the day it was with a great optimist, Edward Yard

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<v Speaker 1>Denny of your Denny Research. There's two ways to look

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<v Speaker 1>at this. The first is that I was at Jackson

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<v Speaker 1>Hall and I spent more time there than ever ever,

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<v Speaker 1>ever talking about nominal GDP, the combination of real GDP

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<v Speaker 1>and inflation. So if you have buoyant nominal GDP, is

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<v Speaker 1>it because you're getting real economic growth over inflation, or

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<v Speaker 1>you have the same nominal GDP from Okay economic growth

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<v Speaker 1>but more buoyant, larger inflation. Here's Edgyar Denny on how

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<v Speaker 1>it doesn't.

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<v Speaker 2>Matter revenues or revenues. The PE times is done in

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<v Speaker 2>nominal terms, and the E is in nominal terms, so

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<v Speaker 2>that's correct. We look at revenues and then we look

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<v Speaker 2>at earnings, and the implication is profit margins and what

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<v Speaker 2>we see in the data is that the first and

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<v Speaker 2>second quarter earnings were remarkably strong, much stronger than expected.

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<v Speaker 2>They usually is a positive earning surprise, but there was

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<v Speaker 2>particularly strong in both quarters. And now during the second quarter,

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<v Speaker 2>we have earnings on the S and P five hundred

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<v Speaker 2>at an all time record high, and no wonder the

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<v Speaker 2>stock market is an all time record high. Of course,

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<v Speaker 2>it helps that the valuation multiple is elevated at twenty two,

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<v Speaker 2>but I'm thinking the bill market cantinues here on earnings,

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<v Speaker 2>and I think that earnings will continue to push stock

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<v Speaker 2>prices higher.

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<v Speaker 1>Late in our conversation, ed Yard Denny extrapolating out but

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<v Speaker 1>in a very sound, not mathematical, but almost fundamental basis.

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<v Speaker 1>This is the first time I've ever modeled this. While

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<v Speaker 1>ed was talking, and I think Paul Sweeney saved me

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<v Speaker 1>and had a brilliant question. I was on the Bloomberg

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<v Speaker 1>doing the interpolation of if you have a certain number

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<v Speaker 1>for the standard and pores five hundred, it's mathematically better index.

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<v Speaker 1>But if you bring that over to what we're wedded to,

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<v Speaker 1>which is the Dow Jones Industrial average, what number do

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<v Speaker 1>you get. Let's listen to Edgar denny on the standard

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<v Speaker 1>and pores five hundred end of decade.

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<v Speaker 2>If you just kind of take normal assumptions of what

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<v Speaker 2>the economy can deliver and has delivered in the past,

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<v Speaker 2>you get to ten thousand on the S and P

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<v Speaker 2>five hundred by the end of the decade. That's the

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<v Speaker 2>end of twenty twenty nine. And the assumption there is

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<v Speaker 2>that earnings expectations get up to four hundred dollars a share.

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<v Speaker 2>And again, that's all pretty straightforward, consistent with the kind

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<v Speaker 2>of growth, right of six seven eight percent that we've

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<v Speaker 2>seen in earnings over the years. And if we get

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<v Speaker 2>better than that, the market I could very well close

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<v Speaker 2>even higher than that.

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<v Speaker 1>I can't convey how lonely that discussion is. That's the

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<v Speaker 1>first time I've heard SPX ten thousand, by let's call

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<v Speaker 1>it twelve thirty one, twenty nine. I've never thought about

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<v Speaker 1>twenty twenty nine. I'll be like sixty seven years old then.

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<v Speaker 1>But what it comes down to is what does that

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<v Speaker 1>mean for the Dow? And the answer is SPX ten

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<v Speaker 1>thousand is in the vicinity of Dow seventy. I've never

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<v Speaker 1>framed that. I got to go back and do more

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<v Speaker 1>work on this we'll be here all week. Exciting week

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<v Speaker 1>to say the least. On podcasts on Apple, on Spotify,

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<v Speaker 1>on YouTube podcasts, a single best idea