Yardeni Research President Ed Yardeni Talks Iran Crisis and Inflation

**SPEAKER_1** (0:02)
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**Jonathan Ferro** (0:07)
Joining us to discuss, I'm pleased to say that Ed Yardeni of Yardeni Research joins us now for more. Ed, welcome back to the program, my friend. So I've been conditioned to ignore this situation. I wake up this morning, I want to ignore the situation. Can I ignore the latest situation in the Middle East?

**Ed Yardeni** (0:22)
And no, absolutely not. I mean, this is a geopolitical crisis that just won't go away, won't end. The ceasefire, according to the president, is over, and he's clearly in a position to know and in a position to end it. So we're back to square one in some ways, back to where we were in March. I think, though, I think both sides are testing one another. I think the president is demonstrating to the Iranians that while they may have obviously a significant impact and flows through the strait, he can shut off their oil to the rest of the world.
The unsettling development here, I think, is it may very well be that Iran is basically out of control, that the Revolutionary Guard is not going along with whoever is, quote unquote, on the moderate side, moderate being that they'd like to cease fire to continue and they'd like to come out with some sort of agreement. But the president made it pretty clear that it's very frustrating, if not impossible, to negotiate with the other side. And so clearly, we can't ignore this.

**SPEAKER_4** (1:34)
At this point, Ed, it is sort of surprising, as John was mentioning, that oil prices aren't even higher, if the juice really is over. Though the pace of increase is pretty notable. The two-day increase for both Brent and WTI is the most since at least April. And you see just sort of the surge upward. Is there a trigger point either in the pace of increase or the level that could make you rethink even the broadening out trade in US equities?

**Ed Yardeni** (1:59)
Lisa, the honest answer is I don't know. Nobody knows for sure.
So we are all watching the price action in the marketplace, particularly in the oil market. And I think what we're seeing is we're being reminded constantly here that there was a bear market in oil before the war started at the end of February. The bear market actually started when Russia invaded Ukraine. We had a big spike there, and ever since then, we've been on a significant downtrend until this war started. So, that kind of, and it's certainly, everybody was surprised by how quickly the price of oil came down. And I think that just reflects that over in China, they really adopted electric vehicles. And on top of that, their economy is really very weak. And on top of all that, the United States has looked the other way as the Russians have been selling more oil to China and India and other countries. Meanwhile, we've been exporting a lot of oil to Japan and South Korea. So put it all together, and the underlying fundamentals for oil are actually bearish, but they're certainly not bearish in the short term here with the end of the ceasefire.

**SPEAKER_4** (3:12)
The volatility that we're seeing, Ed, though, just highlights how much inflationary pressures are coming from myriad places. And it seemed to be persistent, even when you wanna say, look, there's potentially a glut because of all of these the release valves that you talked about. At what point do you think that this market is under pricing the risk of inflation running a bit hotter, putting pressure, yes, on the Fed, but potentially pressuring certain profit margins for companies that are facing a pretty wearied consumer?

**Ed Yardeni** (3:41)
Well, before the June meeting of the FOMC, we thought that the Fed was gonna pivot fairly significantly from an easing stance back in April to a tightening stance in June. And that's exactly what happened. The big surprise to me was that Kevin Warsh turned out to be among the hawks, because when he interviewed for the job, he certainly sounded dovish. Now the Fed seems to be pretty much all aligned with the idea that price stability is much more important than the labor market. The labor market seems to be stable, but all bets could be off here depending on what happens with the Middle East.
The consumer has been doing just great, but if we get another spike in gasoline prices, there may be some geopolitical fatigue. Meanwhile, the market is running to AI fatigue.
As I saw in your brief cuts for all the strategists that you had interviewed recently, everybody was talking about rotation. I was talking about rotation out of the AI trade into companies. We know something about and we know their future more than we do the AI companies. That was the Dow Jones, that was the Russell 2000 But now we're all back to, as I said, square one in some ways with regards to the Middle East, and that's become the main focus. You're right. The inflation concerns are back in play, and as a result of that, the Fed is back in play. Not only is the Fed pivoted to tightening, they may actually have to tighten.