Will the Market Crash get Worse | Cathie Wood.

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bf the market this week felt horrible in

fact many are considering it

the start of a potential market crash

well

here's what kathy wood has to say about

what the heck is going on

in this market now as usual remember

please don't sue me bro i'm just a dude

making a video outlining what kathy wood

thinks and trying to simplify what the

heck it is

that she's talking about and trying to

save some time so let's get into some of

the bottom lines

first kathy wood in her video released

yesterday stated

that we already know that bonds sold off

this week

due to concerns for inflation fed rate

hikes

growth in the economy and additional

rounds of bonds being released to

finance stimulus if you need more

clarity on this type into youtube meet

kevin

why the market crash today and look for

my video from thursday

but the big question right now is what's

next not what happened what's next

our yields going to continue to

skyrocket causing another stock market

sell-off

or was this a one-off and are we good

now can we just go back to investing

and looking at our green attendees well

according to kathy wood

bonds are very heavily shorted and have

been historically

not shorted as highly as they are now

and that could have led to the latest

sell-off that we're seeing in the market

especially what happened on thursday

because when bonds sell off yields go up

and that's what spooked the stock market

now kathy wood actually believes that we

might see a

pause in yields going up because the

amount of shorting in the bond market

may now slow down after the catastrophe

that we saw on thursday

and this is a little bit tricky to wrap

our heads around because we have to ask

ourselves okay so

bonds were shorted so their prices went

down which meant their interest rate

yield went

up and in order for prices to continue

going down maybe we'd need more people

shorting them

but because yields are higher now maybe

less people are inclined to short them

so that's a theory and that's kind of

what kathy wood

is outlining in other words saying hey

right now we think there might be a

pause

in increasing interest rates in the bond

market

which means a pause in the sell-off in

the stock market

that's kathy wood's take now kathy woods

take here

i have to say a little little tricky to

really grasp uh

grasp on to so i did a little bit of

research and uh

digging and i came across this which is

actually

the march 1st edition of the berens

publication

even though technically it came out

today on february 27th here two days

early but that's how they publish these

things

but anyway this is an article and i

publish all of these uh all my new

research by the way i've got a new

section in my stocks and money course

where

anytime i'm researching something i'm

going to be providing you exactly what

i'm reading so it's just a convenient

extra way to

if you're looking for something to read

read what i'm reading but anyway

what's interesting about this article

here scorched stock bulls

learn bonds aren't so boring after all

in the article they tell us a little bit

more first

they tell us what happened on thursday

wasn't so much that bond yields went up

it was quote

the ferocity at which most of the action

took place on thursday in other words

the rate at which yields went up how

quickly they spiked that spooked the

stock market not necessarily that they

did

and they mention that quote yet by

week's end it appeared

the backup in treasury yields might have

run its course

at least for now they go on to say that

the treasury market actually appears

oversold right now especially when we

look at the relative strength index the

rsi a technic a very common technical

that's used for trading

that really what the market might just

be doing is trying to price

in the fact that interest rates might be

going up in the future

in other words we're regularly fearful

that oh man as soon as interest rates go

up the market might crash and pull back

barons is kind of saying hey we might

start seeing that pricing in

happening now because remember the stock

market tries to price in future terms

the stock market's trying to say hey

let's price in what we think

the market's going to be like in 18

months to two years

and so baron suggests hey you know what

this spike that we've seen recently

could have been a short-term adjustment

to

okay yields went up they went up at a

fast rate great we're done we had our

sell-off we had our price in

let's go back to normal now and so

behrens and kathy here kind of

agree and in my opinion this is kind of

neat because

a if rates go up then maybe stocks won't

crash

as hard in the future because maybe

we've already started pricing in that

expectation

and b if inflation doesn't end up coming

around

and rates don't end up going up we could

end up pricing

out that risk meaning stocks could go up

even more

in other words both kathy and barents

here are actually being kind of bullish

after the madness that we saw on

thursday

and on thursday there was a lot of pain

on thursday i was doing everything i

could to make sure all of y'all who

support me

and watch me on the channel or in the

courses that i have linked down below

use that coupon code that's down there

uh but anyway i was trying to do

whatever i could to encourage hey

this is the time to hold this is the

time to add by the dip right

by the tip anyway the fact is that now

here

looking back we've got kathy wood over

at arkhanvest obviously very popular and

baron suggesting hey

this is good you know we let some steam

out of the market but we think that pain

is at least for now

temporarily over that's a good thing

it's bullish now we don't want to stick

our head in the sand and be stupid and

go yolo 100 on margin

but this is good to understand what

their perspectives are

now kathy's perspectives go a lot deeper

when it comes to valuing

and she broke a lot of that down

yesterday and here's just a simple

explanation so kathy wood believes that

people generally expect a return of

about four to five percent in the stock

market

and therefore if you take a very simple

formula that she uses which is simply

the number one

divided by the yield that you expect you

get a price

to earnings ratio and if you take four

to five

well one divided by four to five percent

you would get a price to earnings ratio

in the market of somewhere between 20 to

25

which she says okay cool like we tend to

top

out around 20 to 25 but

wait a minute what if the expectation

that people have that the stock market

is going to return

on their money in the future declines to

say

two to three percent well in theory then

price to earnings ratios could go as

high as 33

to 50. whereas in the past or in a down

market

maybe we'd expect a six to seven percent

return on our money where p e ratios are

like 14 to 16.

kathy wood actually thinks the opposite

might happen that is we could see

average price to earnings ratios

multiples in the stock market

sitting around 33 to 55 as people demand

less of a return on their money as we

kind of stay and settle in

a potentially lower interest rate

environment which is actually

really bullish for stocks because right

now there are a lot of individuals

who look at the s ps price to earnings

ratio for example or the price to

earnings ratio of companies

and we get confused because we're like

oh my gosh everything feels so

historically high

but if people's expectations of returns

on their money

go down that is they're willing to pay a

higher price for the same

share of earnings from companies then

maybe stocks aren't really overvalued

now it just becomes a matter of more

people are in the market because maybe

more money was generated after all 50 or

we say

25 to 30 percent of all money that's in

the market now was it generated

in 2020 which is kind of weird to say

but uh anyway

if that's the case and people are

looking and searching for returns

then maybe kathy wood is right maybe

broader index funds are only going to

return two to three percent

compared to the old school seven percent

before reinvesting dividends

because so many more people are chasing

the same returns

and this is why kathy wood believes it's

so important to

laser focus on technology innovation

and dna and genomics so here's

kathy woods kind of rationale for this

kathy believes and this is something

she's been very consistent about

that legacy blue chip companies like gm

which she

singled out are so far behind the

technology race

that they're failing to realize the pace

of innovation that's taking place

and once they finally get it they're

going to have to substantially cut the

prices of their products in the future

to even stand a chance at competing

and this will end up leading to a rey

dalio style of deflation

which she views as bad which is really

where companies go through this

great deleveraging by cutting prices to

try to stay competitive to at the same

time eliminate

their debt before they can get consumed

by their own debt

so this is where kathy says the correct

answer here

in all of what we've just talked about

is doubling down on

innovation and she turns the market

drama of

this last week on its head she says look

i've been down this road before in fact

as recently as

2016 and 17 we had money in markets

after donald trump's election shift to

value plays and away from technology

she actually says that 2016 and 17 were

very painful for arc invest

because they invest so heavily in

innovation in tech but that's not what

did well

after trump's election yet kathy wood

and this is where you you kind of go

down the kathy rabbit hole

that's okay if you believe in her kathy

wood believes hey look

as long as money is expanding into these

other sectors like value

which could end up being value traps but

hey that's on other people i'm not

investing there

as she says anyway the more money

invests into these other areas

the better it actually is for technology

and innovation because

as more money spreads into these other

in her opinion lower growth

areas then in the future as technology

and innovation

show this is where the game is this is

where the money is being made

you want to be an innovation in tech

then money might actually flow

from value in other sectors back into

tech genomics and

innovation and actually end up leading

to outsized returns

in those sectors much like what we saw

in 2019 and 2020 with tesla

and tech so in other words

kathy wood is turning around what

happened this week

completely on its head and saying hey oh

this whole like correction that happened

last week first of all called it she did

say in january hats off to her that we

should prepare for some form of a

correction this year

she said she didn't know when but that

you should always be prepared for it so

hats off

she is correct uh but uh what she's also

saying is hey

look by the dip like get in on

technology and innovation

during these times when people are

distracted by maybe

what plays that appear to be value plays

but could end up being

value traps or even index funds which

she is

deathly opposed to maybe not deathly but

she's not very

excited about index funds anyway and

maybe who knows maybe there's a bias

at play here because she does run an

actively managed etf exchange traded

fund

which basically means you can invest in

her actively managed fund

by buying shares in things like rk arc

g r w and so on now when it comes to

interest rates kathy wood believes

that there are two trajectories for

interest rates

and what the federal reserve might do

she believes that the fed will either

raise rates sooner to combat potential

inflation that

potentially jerome powell is going to

have to u-turn on his argument that

we're not going to raise rates until

2024.

this by the way is a scenario that i

kind of disagree with personally i kind

of think that jerome is

going to stick to his guns and we're not

going to see the fed raise rates until

2024 but

you know you you can't always be 100 in

on something you have to be open to all

possible scenarios but anyway

she believes that the fed's going to

change trajectories and and they're

going to end up raising rates

sooner rather than later and that's one

of the reasons she is bullish on

bitcoin but it's also one of her

explanations for

well that is why we might potentially

see some volatility in

stocks like the tech sector genomic

sector as the market begins to price in

rates which we just saw in this last

week

now there is a flip side though and this

is the side that i'm a little bit more

inclined to believe in and this is the

side that

kathy wood also addresses which is very

important because

it totally makes sense and this has to

do with the decline in the velocity of

money

so this is something we've gone deep on

as well before on this channel but

the easiest way to explain the velocity

of money and to kind of show this

alternate scenario so if scenario number

one is fed changes their opinion they

raise rates sooner than expected then

scenario number two

is the fed doesn't raise rates right we

go with with the more like

kevin fed strategy of let's wait until

2024. and again i'm not trying to like

align myself 100 with one direction i'm

just leaning more towards i don't think

the fed's going to raise rates anytime

soon

anyway in that scenario which kathy wood

addresses she believes the velocity of

money can stay low

and maybe we don't actually have to

raise rates and here's an easy example

for this

let's say there are 100 of us in a

classroom

so kind of think about it like a college

lecture hall okay so there are a hundred

of us in a classroom

let's say every single one of us has one

billion

dollars that is one of these little

pieces of paper right here represents

one billion dollars now let's say we

all buy something from each other 10

times

in other words i buy you or i buy a cup

of coffee from you for a billion dollars

then you take my billion dollars and you

go buy i don't know toilet paper for a

billion dollars whatever

the point is all of our money circulates

in our little

economy in this lecture hall 10 times so

now we've kind of created this

lecture hall economy well if we have 100

people

and our money exchanges hands 10 times

and we each have

a billion dollars then we take 100

billion times 10

and we have a 1 trillion dollar economy

okay cool

well now let's say we get somebody like

uh mr j powell

and he's got a money printer and he

walks in the room as a substitute

teacher for the day

and uh he cranks out you know what

jerome powell cranks

cold hard cash what else and he doubles

the money we all have

so all of a sudden now instead of having

one billion dollars we actually have

two billion dollars which means we've

doubled the amount of money that we have

which means in theory instead of just

buying one coffee i could buy twice as

many coffees

and if i were to buy twice as many

coffees the price of that coffee might

go up

because there might be so much more

demand on coffee the price of coffee

might go up which means there might be

inflation

but what if maybe i double my money

but now i go ahead and save and invest

the other half

and maybe even a little bit more and i

actually only circulate like 700

million of my billion dollars instead of

the full two billion dollars or even the

full one billion that i before

and now i'm actually exchanging less

money that's circulating

well now even though we've printed more

money our economy is actually in this

more extreme example here shrunk our

economy went from a one trillion dollar

economy

to us each only circulating 700 million

dollars meaning we've gone to a 700

billion dollar economy

so we actually had a decline in gdp

which means

less demand for products and services

which means potentially less pressure on

inflation

which means prices could actually come

down despite the fact that we now have

way more money and that that's a very

real possibility

because this is something that i've

mentioned often on this channel during

this pandemic is

in my opinion we could be going into

something that i call the frugal decade

which is where we actually save

and invest more than we spend

it's kind of like what i showed here

we're sure we have maybe

more money but we save and invest this

and then you know we don't need to spend

this we just we just don't need to spend

that much money let's put that away we

still got money to spend we're still

gonna go on vacations and stuff we're

still gonna have a reopening boom but

if the velocity of money goes down

inflation might not actually

happen and if inflation doesn't actually

happen

then the fed won't have to raise rates

as much and they can continue to fight

unemployment

which is their goal after all that is

part of their dual mandate

and arguably it is one of the most

important parts of their dual mandate

price stability and unemployment and we

want to see unemployment as low as

possible

so in other words kathy wood is bullish

in an environment where rates go up

because she believes in innovation

but she's also bullish in an environment

where rates stay low because if rates

stay low well that's just going to keep

pumping money into the stock market

anyway

and so no matter how you slice the

inflation debate

kathy wood is like look tech and

innovation okay like how many different

times we're gonna have to explain the

same freaking thing tech and innovation

okay

and one of the reasons she's so bullish

on tech and innovation is because she

believes

that electric vehicle companies become

more

efficient for every doubling

of output and this is kind of

interesting she says look when the ev

industry doubles their output

they become 28 more efficient every time

they double

28 28 28 and i'm sure there's some kind

of declining scale to that but still

that that doubling in efficiency

huge because that means profits that

means 10 d's yes and we all like tendees

in the dna sequency sequencing

industries she actually believes that's

more like

a 40 increase in efficiency

now kathy also reiterated her belief in

bitcoin

suggesting that uh energy costs are a

non-issue

relative to the traditional banking

system which uses a lot of energy

or even compared to the energy it takes

to mine gold for

example and she does view bitcoin as a

digital

gold she believes the use cases for

bitcoin are just beginning and even

though bitcoin might be a little bit

slower

than smart contracts at ethereum she

believes bitcoin is the safest

cryptocurrency there there is

and she basically went on to call and

and she didn't because kathy was very

nice but she kind of basically went on

to call

jane yellen a boomer and kind of

suggested that janie yellen doesn't

really understand

what the heck she's talking about with

bitcoin yet and don't you worry

bitcoin's still going to 400 thousand

dollars now

all of this could have just been the

biggest defense for

kathy wood and maybe i'm just

perpetuating that defense i don't invest

in kathy woods funds

but you know i tend to agree with a lot

of her perspectives i'm a little bit

more

on the side that we're not going to see

inflation as quickly i'm kind of on the

side that we're going to have this

frugal decade and see less

uh you know less velocity of money could

be wrong there but but then again i'm

like

i would say like 80 20 uh you know 80

leaning towards less inflation 20

keeping the door open and we'll see that

can change over time

and of course kathy wood appears to be

somewhere maybe closer to like 50

50 on that maybe she's even like no i'm

like 60

the fed's gonna raise rates sooner

rather than later she's kind of treading

lightly there in terms of which side

she's actually on

not that it really matters i mean the

slight differences don't matter i think

we're both still going to be investing

in genomics and tech because the sectors

are freaking

awesome and innovation it's great but uh

yeah there you have it so this was

either

a uh fully detailed advertisement for

arc i'm not sponsored or affiliated with

arc in all transparency here

or hopefully this was educational for

you and i want to know do you agree with

kathy

or has she lost her mind is she missing

something completely

and are we instead going to see a more

reverse of what i've just described

where we see maybe a peter schiff style

future where the fed doesn't think about

raising rates the fed actually can't

raise rates

instead they need to print more money

because the dollar is collapsing and we

have much larger economic issues because

all of our wealth is relatively

disappearing unless of course we're

trying to protect ourselves in stock

market

or assets but ideally not dollar

denominated assets but then again

now we're really opening pandora's box

and i did just have a two hour interview

with peter schiff

so i think i'm not doing that justice by

talking about that for about 30 seconds

at the end of a kathy wood interview

video not interview video anywho if you

found this helpful

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the next one

[Music]

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