Seasoned Wall Street investor Ed Yardeni, in an interview with Bloomberg on Jan. 30, recommended owning energy-related stocks to hedge against potential oil price shocks.
Yardeni highlighted the current geopolitical volatility, particularly in the Middle East, as a factor that could lead to a surge in oil prices reminiscent of the crises experienced in the 1970s.
“Energy is a hedge against things getting more out of control in that part of the world,” he stated, highlighting the potential for turmoil in oil-producing regions to upend markets.
Drawing on the parallels with the oil shocks of the 1970s, Yardeni expressed his concerns about the current global geopolitical scenario: “This situation is reminiscent of the 1970s when we had two geopolitical crises, two oil shocks.”
He highlighted the ongoing Russian conflict in Ukraine and added, “Now there is a potential for another shock in the Middle East.”
Reflecting on the possible economic consequences, he speculated, “Then we could get a recession out of it after all.”
The Energy Select Sector SPDR Fund XLE has risen 5% in the past week.
Tech Sector Strength vs. Dot-Com Bubble Concerns
When probed about the concentration of major tech companies and the echoes of the dot-com bubble, Yardeni observed that “there are similarities, but one of the key differences is that [the] Magnificent Seven have strong earnings.”
Read also: Tech Giants’ Market Concentration Echoes Dot-Com Bubble Peak, Analysts Warn
Federal Reserve’s Policy Dilemma
Yardeni scrutinized the Federal Reserve’s possible monetary policy responses.
“There’s been a lot of discussion about that and one of my colleagues actually went through a lot of the transcripts, Fed transcripts from past crises over the years, geopolitical crises,” he recounted, revealing the limited tools at the Fed’s disposal during such events.
He expressed his stance on interest rates: “Well, there isn’t much they can do, but they have to consider whether they really want to lower interest rates right now.”
He voiced concerns over the direction of the Fed’s policies, fearing that an overly dovish stance could fuel an asset bubble.
Yardeni is skeptical of the need for aggressive monetary easing: “I don't believe in five rate cuts,” he said. “The economy doesn't really need them.”
He suggested a measured approach: “Probably two or three will be enough. Interest rates are back to normal. It's good for allocating capital more rationally.”
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