Update: Another Roaring Twenties May Still Be Ahead

Episode Overview

• The current bull market, which started in October 2022, remains intact, supported by a trend of "immaculate disinflation" where inflation is falling without a US recession.
• The central thesis for the decade is a "Roaring 2020s" scenario, where a technology-led productivity boom drives strong, non-inflationary economic growth.
• This productivity boom is fueled by a massive, sustained increase in high-tech capital spending, which now accounts for over half of all capital expenditures.
• External factors, particularly China's economic struggles and property bubble bust, are exporting deflationary pressures globally, which helps moderate inflation in the US.

Key Concepts

• Roaring 2020s Productivity Boom: The core thesis is that the US is in the early stages of a major productivity growth cycle, mirroring the tech-driven booms of the 1920s and 1990s. This is expected to lead to strong GDP growth, rising real wages, and healthy corporate profits.
• Immaculate Disinflation: The concept that inflation can moderate significantly without the need for a recession, challenging the traditional economic view. This soft landing is aided by global factors.
• High-Tech Capital Spending: An exponential, long-term increase in business investment in software, R&D, and high-tech equipment is identified as the primary engine for the productivity boom. This spending now represents a record 50% of total capital spending.
• Productivity and Real Wages: The conversation emphasizes the direct historical correlation between productivity growth and real wage growth, arguing that this boom will directly benefit workers without triggering runaway inflation.
• China's Deflationary Role: China's internal economic problems, including a stressed financial system and a bursting property bubble, are causing it to "have the recession for us," exporting disinflationary pressure that benefits the US economy.
• Consumer "Money Illusion": While consumer sentiment is low, it's argued this is a form of "money illusion" where people focus on higher price levels rather than the actual increase in their real, inflation-adjusted wages.

Quotes

• At 2:28 - "I think what's going on here is that we got a bull market that's started back on October 12th of 2022." - Dr. Yardeni clearly states his position on the current market cycle.
• At 5:18 - "I think one of the reasons for that is because China's having the recession for us." - He explains his view on how China's economic downturn is exporting disinflation and benefiting the US economy.
• At 14:05 - "I've been suggesting that there's two alternative paths for the US economy in the decade ahead... and that's the Roaring 2020s scenario, in which, like the 1920s... we have technological innovations that greatly improve productivity." - He outlines his primary long-term economic thesis.
• At 21:55 - "Now I think we're back on track to go up to by the second half of the decade to three and a half to four and a half percent. Sounds far-fetched, maybe delusional, but it's happened before." - The speaker sets a high target for future productivity growth, acknowledging its ambitious nature.
• At 23:39 - "The only thing that ever made sense to me when I studied economics was microeconomics, in which we learned that workers' real wages... are tied to productivity." - Explaining the fundamental economic principle behind the correlation shown between real compensation and productivity growth.

Takeaways

• The current bull market is fundamentally supported by the "immaculate disinflation" trend, allowing inflation to fall without a US recession.
• The long-term economic outlook is exceptionally positive, centered on a "Roaring 2020s" thesis driven by a technology-led productivity boom.
• This productivity growth is the key to non-inflationary economic expansion, as it allows for simultaneous increases in real wages for workers and healthy profit margins for companies.