February 2023 Newsletter

A Study of Two Eds and Their Varied Prediction of the Economic Cycle

With an introductory paragraph on The Current War to Halt Inflation


By Vaughn Woods, CFP, MBA


The war on inflation is well underway. Yet the latest inflation data is disturbing. Despite rising mortgage rates into the 6-7% range, the latest inflation data is up, not down. Moreover, after social security recipients saw a 9% increase in their monthly checks in January, along with workers’ pay increases, consumer spending and savings are up. Therefore, for now, there are a few signs the Fed’s rate hikes have slowed inflation. The Fed’s goal, to achieve demand destruction, seems far off.  As such, expect the Federal Reserve Board to continue raising interest rates for several months.

To our first Ed, Dr. Edward Yardeni’s research fits nicely into his theory that quelling inflation, after unleashing trillions of dollars of post-COVID lockdowns will be difficult. He advises lesser-experienced investors not to bet against the American consumer. Americans love to consume and often, even more so as the economy weakens.  Dr. Yardeni is the President of Yardeni Research, Inc., a provider of global investment strategies and asset-allocation analyses.

Dr. Yardeni has taught at Columbia University’s Graduate School of Business and was an economist with the Federal Reserve Bank of New York. He also held positions at the Federal Reserve Board of Governors and the US Treasury Department in Washington, D.C. His research concluded that corporate earnings for the S&P 500 for 2023 will end up near $225. For 2024 he expects S&P 500 earnings to end up near $250. With inflation causing valuations to potentially experience an estimated multiple of the price-to-earnings ratio to decline to as low as 15.5 times earnings, that would put the low for 2024 at 3875. As I write this newsletter the S&P 500 sits just 81 points above that number at 3956. A multiple of 20 would command a 5000 S&P 500 for 2024. However, under this scenario the Fed will have begun lowering interest rates after witnessing success over inflation.

To support his thesis of no recession and further improvement in S&P 500 earnings, Yardeni accounts for a three-month rise in new home sales, despite total sales being down 19.4% year-over-year.













New Home Sales

Our second venerable Ed, Edward S. Hyman, disagrees. He sees a pending recession. Yes, he says, the economy is great now, but that’s only because once the Federal Reserve Board begins raising rates it can take between 1-2 years before the economic impact begins to show in a slowing economy. This is called the long lag effect. With the Federal Reserve Board continuing to raise rates even before the slowing occurs, we are definitely going to experience a recession. It’s coming like a truck with S&P 500 earnings falling to $190 for 2023.

Ed Hyman is Chairman of Evercore ISI and Vice Chairman of Evercore. He heads Evercore ISI’s Economic Research Team. For the past 47 years, Mr. Hyman has been ranked by the Institutional Investor poll of investors for Economics, ranking No. 1 for 42 years. Mr. Hyman earned a B.S. in engineering from the University of Texas and an MBA from MIT.


Existing Home Sales


Two other non-Ed analysts, both much younger, continue to tout the extreme value relative to historical data of the S&P 600 small-cap index which they say offers much greater value than large-cap stocks and are growing earnings faster than the S&P 500.

Currently the technical market patterns, which may offer predictability of the direction of specific markets over the very short term, we find the following:


The Dow Jones Industrial Average ETF (DIA) was downgraded to Avoid 02/13/2023. Since then, it is down 2.1%

The NASDAQ 100:  This index was upgraded to Buy on 01/19/2023. It’s up 6.8% since then.

The Utility Index: The Dow Jones Utility Index was downgraded to Avoid 02/08/2023. It’s down 2.5% since then.

The U.S. Energy Index (IYE) was downgraded 01/06/2023. Since then, the index is down 1.6%.

The S&P 500 (SPY) was upgraded 11/16/2022. Since then, the index is up 0.5%

The Barclays Tips Bond ETF: Downgraded 02/24/2023 to Avoid.

The MSCI EFA small-cap index was upgraded 11/5/2022: Since then, this index is up 7.1%.

The Ishares US Consumer Cyclical Index (IYC) was upgraded to Buy 01/24/2023. Since then, it is up 1.9%

The Streettracks Gold Shrs ETF was upgraded to Buy on 11/15/2022. Since then, shares are up 2.8%.

The Ishares Silver ETF (SLV) was downgraded to Avoid 02/16/2023. Since then, shares are down 1.3%.

The Ishares US Real Estate Index was upgraded to a Buy 12/06/2022. Since then, this index is up 1.5%.

The First Trust Dow Jones Global Select Dividend Index was upgraded 11/16/2022. Since then, it is up 6.5%.

The Japanese Yen Trust (FXY) was upgraded 11/17/2022. Since then, it is up 3.4%.


To illustrate the ongoing battle between the Ed Yardeni world of thought and the Ed Hyman world of thought, the best-performing ETF sector for the last four weeks was Leveraged Equity Longs, up 12.7%, followed closely by Leveraged Equity Shorts, up 12.45%!

Moreover, as the previous two charts show, while existing home sales have plunged due to a lack of inventory and high mortgage rates, new homes sales have unexpectedly risen for the last three months.  Clearly the Fed’s blunt tool of rate hikes is going to take a long time to work.

We’re working every day for you to assess asset allocation. Sometime the direction is clear. Sometimes not so much. The good news is that the next several months should give new perspective to which Ed, if not both, are correct in their analysis of the economic cycle.




Vaughn L. Woods, CFP, MBA

Vaughn Woods Financial Group, Inc.

2226 Avenida De La Playa

La Jolla, CA 92037




Investors should be aware that there are risks inherent in all investments such as fluctuations in investment principal.  Past performance is not a guarantee of future results.  Asset allocation cannot assure a profit nor protect against loss.  Although the information has been gathered from sources believed to be reliable, it cannot be guaranteed.  Views expressed in this newsletter are those of Vaughn Woods and Vaughn Woods Financial Group and may not reflect the views of Bolton Global Capital or Bolton Global Asset Management.  The information provided is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice.  VW1/VWA0283.