"We're Now In The Middle Of A Market Correction" Admits Longtime Wall Street Bull | Ed Yardeni

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**Ed Yardeni** (0:45)
I still think this will turn out to be a 10-15 percent correction.
And we're half way through that. It could happen this week or next week.

**Adam Taggart** (1:01)
Welcome to Thoughtful Money. I'm its founder and your host, Adam Taggart. Ed Yardeni, president of Yardeni Research, has maintained a more bullish outlook on the economy and the financial markets than most analysts have over recent years, and he's largely been proven correct. But in the aftermath of the outbreak of war in Iran, his outlook has turned much more concerned. He now sees the return of the bond market vigilantes, a term that he coined back in the 1980s, by the way, only this time worldwide. And he now calculates rising odds of both an economic recession and bear market in stocks resulting from the current oil price shock. So what advice does he have for investors in such an environment? Well, we'll find out from him directly. Ed, thanks so much for joining us today.

**Ed Yardeni** (1:47)
Thank you.

**Adam Taggart** (1:48)
All right, Ed. So first off, just want to make sure the description there in the intro, correct?

**Ed Yardeni** (1:55)
Yeah, you know, when I think about the outlook and try to communicate how things look to me, I typically have one, not just one scenario, but two or three. And I try to give people an idea of my conviction with a base case having the highest subjective probability and then alternatives. Things may be better than the base case. Things may be worse than the base case. So, yeah, the war upended everybody's forecasts, I think, and continues to upend everybody's forecasts because I guess if this war ends in a matter of days or maybe a couple of weeks, then the consequences may be fairly minor to the global economy. And then we can all kind of go back to the scenarios where we thought they were most likely before the war. Obviously, the longer it lasts, the worse the outlook becomes. But when the war first broke out on Saturday, I write on Sundays and I write almost every day. And so we sent out a note to our clients that was optimistic that, well, you know, the US and Israel beheaded, decapitated the regime in Iran. Iran lost the war. They just don't know it yet. The problem is Iran is a state of professional terrorists. That's what they do for living all day.
That's their modus operandi. And it's, you know, even if you decapitate a regime like that, you're still left with a lot of terrorists. And so what took me a few more days and I said, you know, I think that could be a real problem here is that if you don't have a command and control, and you still have hundreds, a few hundred thousand, a couple hundred thousand, let's say, of people in the Iran Revolutionary Guard, then you still have a problem with terrorists. And with drones and missiles, they're not necessarily going to surrender just because you bomb them from the air. Military historians have long shown that military campaigns simply from the air don't really change the outcome. You really need boots on the ground to do that, and that doesn't seem like a very likely scenario. In any event, I concluded that maybe I was too optimistic initially. And so I actually raised my odds of a recession from 20 percent to 35 percent. I kept my what I call a roaring 2020 scenario at 60 percent. So I took it all from basically a melt up scenario. I left five percent for a melt up. I mean, we can still have a melt up if Trump declares victory or if in fact there is a deal. Stock market obviously soar on that kind of news. And I think there's still a perception that there's similarities between what's going on this year and what happened last year. Last year we had Liberation Day and April 2nd. Market took a dive on that with the tariffs. And then on April 9th, I guess after Trump had a look at the reaction to the stock and bond market, he decided to postpone Liberation Day and the market was up 10% on April 9th, basically from 3 to 4 p.m. all in about an hour. And I think there's sort of a hope that the same thing is going to happen here. This time around, we got Obliteration Day.