Why Ed Yardeni Sees Bitcoin as "Digital Tulips"

Summary

The speaker discusses market valuation concerns, forecasting a rapid rise in S&P 500 index levels and comparing the current market exuberance to the late 1990s. They highlight the high valuations in artificial intelligence stocks and the fluctuating performance of major companies like Apple and Tesla. The conversation also touches on Bitcoin's speculative nature, likening it to 'digital tulips,' and explores its impact on other markets. The speaker expresses a traditional investment perspective, valuing earnings and tangible assets over cryptocurrencies.

Takeaways

• 📈 The speaker forecasts a S&P 500 index level of 5400 by year-end and 6000 for the following year, with concerns about reaching these targets too quickly.
• 🚀 The market's current state is compared to the 1990s, with the speaker suggesting we might be in a similar position to 1996, just before the dot-com bubble.
• 💡 The concept of 'irrational exuberance' is discussed, referencing Alan Greenspan's famous speech and questioning if we are at a similar point of market overvaluation.
• 🤖 The valuation multiple for artificial intelligence-related stocks is considered very high, indicating a potential area of market exuberance.
• 📉 The 'Magnificent Seven' tech stocks have seen some underperformance, which the speaker views as a healthy market adjustment.
• 🪙 Bitcoin's significant price movements are discussed, with the speaker expressing skepticism, likening it to 'digital tulips' due to its speculative nature.
• 🌐 The global nature of Bitcoin and its 24/7 market are highlighted as factors that could lead to higher price movements, but also increased unpredictability.
• 💸 The speaker emphasizes the importance of earnings and tangible investments, expressing discomfort with the lack of these elements in Bitcoin.
• 📊 The impact of Bitcoin's price on other markets, such as gold, is noted, with gold benefiting from a shift in investor interest.
• 📈 The speaker shares a long-term earnings forecast for the S&P 500, predicting increases that would support index levels of 6100 by 2026.
• 🤔 FOMO (Fear of Missing Out) is acknowledged as a common sentiment among investors, especially with the rapid rise of Bitcoin's value.

Q & A

What is the speaker's forecast for the S&P 500 index by the end of the year?

The speaker forecasts 5400 for the S&P 500 index by the end of the year.

What concern does the speaker express about reaching the forecasted S&P 500 index level?

The speaker is concerned that the S&P 500 might reach the forecasted level of 5400 by midyear or even earlier, which could indicate an overheated market.

What is the speaker's forecast for the S&P 500 index for the next year?

The speaker forecasts 6000 for the S&P 500 index for the next year but is concerned that this level might be reached by the end of the current year.

Who is the individual mentioned from Yale, and what concept is he known for discussing?

The individual from Yale mentioned is Shiller, who is known for discussing the concept of 'irrational exuberance' in the market.

How does the speaker compare the current market environment to the 1990s?

The speaker compares the current market environment to the 1990s, suggesting that if we are in a similar situation, the question is whether we are at the stage of 1999 or somewhere earlier, like 1996.

What does the speaker refer to when mentioning the 'Magnificent Seven'?

The 'Magnificent Seven' refers to a group of high-performing tech stocks that have been experiencing high valuation multiples, although some are becoming more rational as they are not performing as expected.

How does the speaker view Bitcoin in comparison to traditional investments?

The speaker views Bitcoin as 'digital tulips,' comparing it to the Dutch tulip mania, but acknowledges the global market and 24/7 trading as factors that could lead to a much higher upside than traditional investments.

What is the speaker's stance on Bitcoin as an investment?

The speaker is skeptical about Bitcoin as an investment, stating a preference for traditional investments with tangible earnings and value, such as stocks and bonds.

How does the speaker describe the impact of Bitcoin's popularity on other markets?

The speaker suggests that Bitcoin's enthusiasm has spilled over into other markets like gold, with gold prices rising as Bitcoin enthusiasts diversify their investments due to high Bitcoin prices.

What is the speaker's long-term forecast for the S&P 500 index earnings?

The speaker forecasts that the underlying earnings per share for the S&P 500 will increase to $250 this year, $270 in 2025, and $300 by 2026, which would support an S&P 500 index of 6100 by 2026.

How does the speaker address the concept of 'irrational exuberance' in the current market?

The speaker acknowledges the widespread discussion of 'irrational exuberance' in the market, comparing the current sentiment to the period before Alan Greenspan's famous speech in 1996 about market irrationality.

What is the speaker's opinion on the recent market behavior of cryptocurrencies like Polkadot and Dogecoin?

The speaker finds the serious discussions around cryptocurrencies like Polkadot and Dogecoin to be 'nuts,' indicating skepticism and a belief that these may be signs of speculative excesses in the market.

Outlines

00:00

📈 Market Valuation Concerns and Bitcoin Speculation

The speaker discusses his valuation concerns for the S&P 500, forecasting a rise to 5400 by year-end and 6000 for the following year, but worries about reaching these targets too quickly. He references the exuberance of the late 1990s and compares the current market environment to that period, suggesting we might be in a similar situation to 1996. The conversation turns to the evaluation of artificial intelligence stocks and the performance of the 'Magnificent Seven' companies, noting some are underperforming. The discussion then shifts to Bitcoin, with the speaker expressing skepticism, likening it to 'digital tulips' and questioning its status as a tangible investment due to the lack of earnings or rentable value. The conversation also touches on the impact of Bitcoin's volatility on other markets, such as gold, and the speaker's personal FOMO when witnessing Bitcoin's price surges.

05:02

📊 Long-Term Earnings Forecast and S&P 500 Projections

The speaker, Ed Yardeni, shares his long-term earnings forecast for the S&P 500, extending projections out to 2026. He mentions that last year's underlying earnings were close to $222 per share and anticipates this year's earnings to be $250. For the years following, he predicts continued growth, with earnings reaching $270 by 2025 and $300 by 2026. These earnings projections are expected to support the S&P 500 index levels, with a target of 6100 by the end of 2026. The discussion underscores a bullish outlook on corporate earnings and the potential for sustained market growth.

Keywords

💡Valuation

Valuation refers to the process of determining the economic value of an asset or company, often used in the context of stock market analysis. In the video, the speaker expresses concern about the high valuations, particularly in relation to the S&P 500 index and artificial intelligence stocks, indicating a potential overpricing of these assets.

💡S&P 500

The S&P 500, or Standard & Poor's 500, is a stock market index that measures the performance of 500 large companies listed on stock exchanges in the United States. It is a key indicator of the overall health of the U.S. stock market. The video discusses the speaker's predictions for the S&P 500's performance over the coming years.

💡Irrational Exuberance

Irrational exuberance is a term used to describe an inflated and overly optimistic market sentiment that leads to excessive speculation and asset price bubbles. The term was popularized by Federal Reserve Chairman Alan Greenspan in 1996. In the video, the speaker references this concept to question the current market enthusiasm, particularly in relation to Bitcoin and tech stocks.

💡Artificial Intelligence (AI)

Artificial Intelligence refers to the development of computer systems that can perform tasks that would typically require human intelligence, such as speech recognition, decision-making, and language translation. In the context of the video, AI is mentioned as a sector with high valuation multiples, indicating that tech stocks related to AI may be overvalued.

💡Bitcoin

Bitcoin is a decentralized digital currency that operates without a central bank or single administrator, using a peer-to-peer network and cryptographic proof of transactions. It is often associated with high volatility and speculative investment. In the video, the speaker views Bitcoin as a speculative asset, likening it to 'digital tulips,' referencing the historical tulip mania.

💡Digital Tulips

The term 'digital tulips' is used to describe speculative digital assets, particularly cryptocurrencies like Bitcoin, that are likened to the historical tulip mania of the 17th century. This comparison suggests that the high valuation of these digital assets may be based on speculation rather than intrinsic value, similar to the tulip bulbs that were traded at extravagant prices in the Dutch Golden Age.

💡Market Structure

Market structure refers to the organization and operation of financial markets, including the mechanisms through which buyers and sellers interact to trade assets. In the context of the video, the speaker discusses the market structures that support digital currencies like Bitcoin, highlighting the global and 24/7 nature of the Bitcoin marketplace.

💡Halving

In the context of cryptocurrencies, halving refers to the event when the rewards for mining new coins are reduced by half. For Bitcoin, this happens approximately every four years and has a significant impact on the supply of new coins entering the market. The speaker in the video speculates about the potential correlation between Bitcoin halving events and the performance of equities.

💡Gold

Gold is a precious metal that has historically been used as a store of value and a hedge against inflation. In the video, the speaker discusses gold as an asset that has benefited from the speculative enthusiasm seen in Bitcoin, with investors diversifying into gold as an alternative asset.

💡FOMO

FOMO, or Fear of Missing Out, is a psychological phenomenon where people feel anxiety or concern about missing out on a rewarding experience or investment opportunity. In the video, the speaker admits to experiencing FOMO when observing the rapid rise in Bitcoin's value, despite their skepticism about its long-term viability as an investment.

💡Earnings

Earnings in a financial context refer to the net income or profit generated by a company over a specific period. Earnings are a critical factor in stock valuation and investor decision-making. The speaker in the video emphasizes the importance of earnings as a basis for investment, expressing a preference for assets with clear and measurable earnings.

💡ETFs

Exchange-Traded Funds (ETFs) are investment funds and exchange-traded products that hold a collection of assets, such as stocks, bonds, or commodities, and are traded on stock exchanges similar to individual stocks. In the video, the speaker mentions ETFs in relation to Bitcoin, indicating the growing financial infrastructure and investment tools surrounding digital currencies.

Highlights

Forecasting the S&P 500 to reach 5400 by year end, with concerns of reaching the target too early.

Concerns about reaching the forecasted 6000 for the S&P 500 by the end of the following year, possibly earlier than anticipated.

Comparison to the late 1990s bull market, aiming for a more sustainable pace rather than the rapid exuberance of the past.

Reference to Yale's Shiller and his discussions on market exuberance, drawing parallels to the current market climate.

Assessment that the current market environment resembles 1996, with Alan Greenspan's speech on irrational exuberance being a key moment.

Evaluation of the market's rationality, particularly in relation to artificial intelligence stocks and the so-called Magnificent Seven.

Observation that some of the Magnificent Seven are no longer as impressive, with examples like Apple and Tesla underperforming.

Bitcoin's significant price movements and its comparison to speculative bubbles, like the Dutch tulip mania.

The global and 24/7 nature of Bitcoin as a potential driver for higher upside compared to historical bubbles.

Preference for traditional investment values such as earnings and dividends, expressing skepticism towards Bitcoin's lack of tangible returns.

Discussion on the impact of Bitcoin's price movements on other markets, including gold and its mining shares.

Admission of experiencing FOMO with Bitcoin's rapid price increases and the temptation to invest.

Edward Yardeni's forecast for the S&P 500 earnings and its expected growth until 2026.

Projection for the S&P 500 to reach 6100 by 2026 based on expected earnings growth.

The importance of market structure and the role of digital currencies like Bitcoin in supporting and influencing market dynamics.

The potential correlation between Bitcoin's halving event in April and its impact on equities markets.

The shift of Bitcoin enthusiasm to gold, indicating a diversification trend among investors.

Transcripts

Valuation is a bit of an issue. I've been forecasting 5400 for the S&P

500 by year end. My concern is we might get there by

midyear or earlier. I'm forecasting 6000 for next year.

I'm concerned we might get there by year end.

So I'd like to have a nice leisurely bull market here, not something like we

had in the late 1990. He's a guy at Yale where you got your

parchment. I think his name is Shiller.

Used to talk a lot about exuberance that was out there.

What is the character of our exuberance within the Yardeni and comparable smart

bull market? Well, I think we can look back to the

1990s as a possible model for the environment we're in.

And if that's the case, then the next question is are we in 1999 or are we in

something somewhat earlier? I think at this point we're more like

1996. Remember December 5th, 1996, when Alan

Greenspan had that famous speech in which he did a hamlet on us, and he

said, you know, how do we know if the market's irrational exuberance?

And I think we're at that point now where everybody seems to be asking, is

irrational exuberance or irrational exuberance?

So, Ed, when you look at the elements within the market, what looks most

rational? What looks most irrational?

Well, the evaluation multiple on anything related to artificial

intelligence certainly is very high. The the so-called Magnificent Seven,

there are multiple has been very high, though they're becoming more rational,

actually, because some some of the Magnificent Seven aren't so magnificent

anymore. We've seen Apple underperform, we've

seen Tesla underperform. So it's it's a healthy thing to see that

the market isn't just willy nilly going across the board and marking up these

mega these mega stocks, these magnificent

seven. I think clearly outside of the stock

market, Bitcoin has had a heck of a move.

I think it's having a heck of a move down this morning.

But do show signs of a speculative excesses.

EDGE Your journey is an edge of fossil like me.

Do you believe that there's an underlying under bitcoin?

Is it an actual tangible investment? Well, this will probably get a lot of

people mad at me, but I mean well, and that is I do I view Bitcoin as digital

tulips. In other words, it is kind of like what

happened in Holland with the bubble in tulips.

But there's a huge difference here which really presents the possibility of much

higher upside, which we've already seen, and that is the notion that

it's a global market and it's open 24 by seven and we're talking about tens of

thousands, hundreds of thousands, millions of people playing in the

Bitcoin marketplace. I have no idea how high it could go.

I have no idea how low it can go. I am an old fashioned guy like you.

I need I need earnings. I need I need coupons.

I need something I can value. I need rent, something I can value.

And I don't have that with Bitcoin. You know, digital tulips that have a

structure of a eight investment tool underneath them with all those ETFs.

Right. And also a digital tool, a digital tool

that is going to also have what's happening to have.

I don't you went to the fancy oh oh Greifeld was on yesterday and we're

talking polkadot and doge and we're trying to have a serious conversation

with with Miss Haverford about Polkadot and doge.

This is nuts. This is nuts.

Okay, so Doctor Ed, let me go back to Bitcoin because there are a lot of

things, a lot of market structures to support this digital coin right now.

Sure. When we've seen the halving in April,

are you going to do you anticipate any kind of correlation with what we see in

equities? Because a lot of that bullish sentiment

tied to Bitcoin has spilled over into equities or vice versa?

Well, I think you're right. And I think where Bitcoin's enthusiasm

has spilled over into gold, I mean, gold was kind of sitting there doing nothing.

And then all of a sudden, maybe some of the Bitcoin enthusiasts concluded that

they haven't own enough of it and it's too expensive and they want to look for

other areas to diversify. So gold has been a winner, though gold

mining shares haven't done as well. But look, I have to admit I've got some

FOMO every now and then when I see this Bitcoin going up to 70,000, renew about

a dollar, a $10 and you to buy it at 100 and a thousand.

Why don't I just buy a couple? And you have huge response on YouTube

this morning Worldwide people are listening to Edward Yardeni.

I want to go to the x axis theta. Whether it's just a normal x axis or

dare I say we go logarithmic. You've had the courage to go out, speak

6000 and I think you've put a 25 handle on it.

Why can't Ed Yardeni model out to 2026. Oh, actually I have already.

I'm glad you asked me because just recently we were talking about 6500.

And in terms of earnings, the underlying earnings last year we said to 25 and

there are a lot of people who are using 1 to 84 earnings per share for the S&P

500. And we came awfully close to $222 is

what the S&P 500 earned last year. This year we also have bullish outlook

for earnings 250 and then the year after that.

In other words, 2 to 2025, we're talking about to 70 and then $300 a share, 4 to

26. And we think that will accommodate 6100

and the S&P 500 by 2026.