Cathie Wood SHOCKS with MAJOR Prediction / Catalyst

Kathy Wood thinks GDP is going to 7% and

no that is a real number that she is

using which means it's inflation

adjusted. So if inflation's 2% she

thinks GDP is going to grow at 9%. In

this I'm going to break down exactly why

she says that. First, she thinks we're

coming to an end of an era of rolling

recessions. That this leftover lingering

weakness in the job market that we're

seeing underneath the hood in some of

the labor reports is just a lingering

indicator that hey, we're completing

rolling recessions. And once we're out,

once we're done with this, whether that

actually means we actually go into a

real recession or not, she doesn't

speculate on. But once we get through

this period, whether that's the next 6

months or a few years, she suggests

we're going to launch from these rolling

recessions into a quote rolling

recovery. Although many already suggest

the stock market is pricing in a rolling

recovery. We don't talk about that

either in this Kathy Wood breakdown

because she doesn't bring it up. So

Kathy says that we're likely going into

a market of higher growth because of

higher productivity, because of the

innovations. is much the same that we

saw in the 1990s. See, a lot of people

credit Bill Clinton for getting us back

to a budget surplus rather than a budget

deficit where basically we were bringing

in more money every year than we're

spending. A lot of people credit

politicians for this. Kathy Wood

actually credits the internet age for

this. She says, "The internet is what

enabled our economy to outgrow our debt,

leading to more revenues, which could be

taxed due to higher productivity,

meaning we were actually bringing in

more money than we were spending in the

'90s because of the internet boom, which

also ushered in the 1995 soft landing

and low inflation." Kathy Wood believes

that today we are in the next 1990s

boom. That no, artificial intelligence

is not a bubble. That instead we are

just now starting to harness the power

of artificial intelligence to determine

productivity uh and see productivity

enhances that will ultimately lead to

higher GDP and lower inflation. Now, she

briefly mentions that Elon Musk believes

that government spending is taxation and

that's why he's aligning so much

anti-Donald Trump, especially with this

American party and talk about really

trying to fight this continued deficit

spending, but she just doesn't see

inflation. And so her belief is that not

only is innovation going to keep

inflation down, but that M2 money

growth, the growth rate is very low.

Yes, it's positive, but it's relatively

low. and that really we could exceed all

of these concerns with frankly lower

rates and higher productivity over time.

So far she acknowledges no real

inflation in the May June statistics and

that again there's some cracks

underneath the hood in the jobs market

and the jobs market does take time for

example you know to show damage for

example the average work week is down

although it's really only down back to

2019 levels which we looked at some

charts and we're like okay yeah this

isn't that big of a deal uh and the

biggest warning she gives isn't about

the labor market it's actually about

software services businesses she talks

about how they're doing a lot of work

inhouse now because of SAS and frankly

or because of AI and frankly a lot of

SAS businesses that were previously

utilized to help make workers more

productive are just being replaced by

sort of in-house machine learning or

in-house you know neural nets

essentially that can help companies do

their own business. We were just talking

about how Amazon is kicking butt uh in

the way of integrating artificial

intelligence with fulfillment and

robotics to actually lower their

shipment costs and lower their product

costs while at the same time increasing

their revenues. Now, I personally look

at that and it's still unclear if that's

just because prices have been rising uh

as opposed to just unit volume growth,

but the numbers are pretty strong to

indicate that Amazon's doing pretty well

at making their business more efficient.

That's what they talk about in their

earnings call as well. So Kathy thinks

that even though we're starting to see

kind of a turn in consumption to the

downside,

you're seeing an environment where

people are going to have more money to

consume in the future. One of the

reasons she gives for that is she thinks

that autonomous vehicles are actually

going to make it way less likely for you

to have to spend money on a car in the

future. And gas prices are coming down

as well because we keep producing more

and more barrels of oil despite the fact

that the international blend for oil is

sitting around $70 per barrel. And this

is true. By the way, we were actually

just looking at uh Saudi um Saudi the

Saudis basically introducing as many as

548,000 barrels more per day in August

between OPEC plus. And uh while they're

increasing their prices for China,

broadly the market believes this is

because oil producers are actually

bullish that consumers are going to have

more money to spend the economy globally

is going to grow and so they want to

flood markets with oil and they are

making the bet that they're not going to

crash oil prices like JP Morgan and

Goldman Sachs believe. Kind of an

interesting point, but think about this.

If oil prices are down or stable and you

don't have to buy a new car because in

the future you could use a robo taxi or

some form of autonomous vehicle, then

maybe you have more money to spend on

other things like promoting efficiency

in your business or uh you know making

capital investments. Kathy Wood makes it

pretty clear that she's excited about uh

this 179 deduction from the big

beautiful bill where we now have 100%

expensing for capital equipment once

again which is kind of exciting. Now you

know robo taxis uh might still be a

little bit niche at the moment. So it

might be a little optimistic potentially

even overly optimistic to say that's

going to reduce spending for people for

now. But it's a good argument for the

longer term. And this is where things

get a little more weak, I think, on the

Kathy Woodian argument because first of

all, I agree with almost everything she

says. I do think there's a higher

likelihood that we get a substantial

valuation correction first, like some

kind of oopsy dupsy because people panic

and go, "Oh my gosh, like this like pain

of the jobs market is is hitting a lot

harder." We have no idea when that's

going to be. Uh, you know, will it be

before October or Halloween? Will it be

next year? No, nobody really knows.

Remember, Morgan Stanley is forecasting

1% GDP growth between Q4 uh of 2025 and

Q4 of 2026, which is pretty dismal. At

some point though, I highly agree that

our economy is going to boom again. And

this is one of the reasons why when

people ask me like, Kevin, aren't you

worried about the national debt? I

usually respond and say no. Even if our

national debt kept expanding at the pace

where it is now, our uh GDP to debt

ratio, which which I I kind of think

this is very useful when we look at this

sort of chart, it's it's high. Uh but

when we look at our interest outlays,

you know, so we can see GDP to debt

ratio, it's pretty high. It's not as bad

as it was during COVID when we were

spending like, you know, pretty crazies.

But if we look at our interest payments

as a percentage of GDP, um we go to that

St. Louis Fred website, we find that

interest payments have been higher in

the past than where they are now and

they're already starting to roll over

despite the fact that rates are still

pretty high. So by this, I personally

argue that we have the capacity as a

country to pay a lot more in interest

than we currently do. Not that we want

to, but we basically we can kick the can

down the road. And obviously if we we

can kick the can down the road, we're

going to kick the can down the road

because that's just what we do in

America. So assuming we kick the can

down the road, it means that we're not

really worried about a deficit crisis in

the very near term. And in the longer

term, I personally am an optimist about

the very long term that whenever we get

through whatever it is we get through

over the next year or two or 6 months,

whatever it ends up being, I agree with

Kathy that we we could be in for a

productivity boom. Now, who wins in that

productivity boom? Well, I don't know.

That's the hard part because everybody's

wondering like, okay, is is AI a bubble?

Is the Donald Trump AI spending of

infrastructure or these trillions of

dollars actually going to happen?

Who knows? Uh, so I guess it remains to

be seen, but where at least at this

point, I agree with Kathy Wood. Up to

this point, I agree with a lot of what

Kathy says. I do think she should give

us a little bit more color on her

thoughts that we could potentially

V-shaped down first in some form of uh

recessionary dynamic based on the labor

market, but I have a feeling she didn't

bring that up because the labor market

data isn't so bad yet that we really

need to be freaking out about it. But

again, it's a lagging indicator, which

she does acknowledge. That said, take a

look at this. She says here that housing

will have big strength going forward

into GDP as rates fall. I could see this

because usually the new construction

homes are most sensitive to interest

rates. And in fact, Kathy Wood brings up

this chart right here. This chart shows

you new home prices versus existing home

prices. And what you'll find is that new

home prices have actually been declining

on a percentage basis, the 3-month

moving average for the last about year

and a half, whereas existing home prices

are still positive. Now, Kathy didn't

acknowledge the spread between this and

accidentally said that existing home

prices were falling on average. They are

not. They are simply growing positively

at a smaller rate. And this is her

chart. And I could forgive this as a

little oopsie-doopsy, which is fine

because we could look at the chart and

see the data that she's actually

pointing out. But what I actually am

most surprised about that she didn't

mention is the volatility between the

two and the spreads. So you'll find here

is that the purple line is significantly

more volatile than the the uh bluish

greenish line here. Why is that? Well,

it's usually because when you have a new

construction neighborhood, you're

selling substantially more volumes of

homes. It's not like that neighborhood

that everybody wants to be in where

there are three homes that come up for

sale out of a 100 homes. It's usually a

3% ratio every single year. And so if

you want to get into that home in that

neighborhood, you got to pounce on that

home. That lack of supply actually helps

boost home values because people want to

be in established neighborhoods,

especially neighborhoods that already

have kids or families or whatever that

they can kind of drive around and like

make their little judgments on. Do we

want to live in this neighborhood?

Right? That's what makes some

neighborhoods more desirable than

others.

With new construction home

neighborhoods, you're kind of making a

gamble because you kind of have a

hundred homes that come up for sale

essentially at the same time. You know,

call it 50 year 1, 50 year two, right?

So, you have a lot more interest rate

price sensitivity because you have less

established

valuation in the neighborhood. And the

people coming into the new construction

homes are usually stretching themselves

because you're selling these new

construction homes at the peak price you

possibly can by throwing in as many

builder upgrades as you can which are

way overpriced. And so you get a whole

lot more interest rate volatility. In

fact, you could see exactly that here in

2018 where you actually saw new

construction home prices go negative in

2018, partly because of Donald Trump's

trade war and then the bond market

disaster that we had at the end of 2018.

You actually saw prices here get hit and

you saw that growth rate in existing

home prices dip a little bit as well,

though nowhere near as volatile or go

negative or, you know, didn't go

negative as we saw here. So, these are

just little things that that we know

about real estate, but then again, we

work real estate every single day,

right? So, so we know real estate really

really well and it's it's worth kind of

looking at some of these differences. I

also take issue with this idea that, you

know, counting crypto and agency

supported mortgages and qualifying could

open the housing market. I don't really

think so. Usually, when you get a

30-year fixed rate loan, the amount of

money you need in reserves, if you have

a uh you know, if you have a job, it's

like two months. It's really not that

big of a deal. So, you need your two

months PITI in reserves. Uh, usually if

you're self-employed, you need as much

as 6 months in reserves. That gets a

little pricey for people because now if

your payments, you know, 5 grand, you

need 30 grand in reserves. So, using

crypto potentially for those

self-employment scenarios might be more

useful. But I see it as less of a big

deal for your normal home buyer. And I

really don't see it as sort of opening

up a a very large swath of the market to

suddenly buying homes that previously

weren't. So I don't really see that as a

needle mover, but everybody's got a

different opinion on that. But it is

worth again looking at this chart and

then even looking back to 2006 where

again we saw this sort of boom in home

construction and that's when you saw

this boom. That's when you saw new these

new homes kind of fall under the value

of existing minus obviously once we went

into the recessionary environment here

which is sort of kind of like a bizarre

phenomenon that when you were in a

recession new construction homes

actually sold for more than existing

homes. And that seems like that happens

during these recessionary environments.

Uh at least this this you know 2008

housing crisis over here. Kind of

fascinating. Part of that could be

because of migration. We've regularly

talked about that as well where, you

know, in the 2008 housing crisis versus

what we're seeing kind of today,

you have a lot of similarities in where

you're building homes. Uh, you know, you

had a housing boom in Florida uh in in

2008, much like you do today. So some

people say, hey, that actually creates

some hope for this chart that maybe if

there is some form of recessionary

environment, existing home prices could

catch up in a recession and fall down

and the new construction will sit on

top. Who knows? The point is usually

they converge pretty decently. And when

you see these gaps, in my opinion, it's

often because of interest rate gaps. And

one of the reasons why again you could

going right back to interest rates, you

potentially saw those higher new home

prices over here is because interest

rates plummeted. The remember the first

thing the Federal Reserve does is dunk

interest rates. I think new construction

is most responsive to lower interest

rates versus existing homes uh supply.

And uh and the money printing usually

doesn't start until the end of the

recessionary cycle. So, a lot of ways to

slice it, but my opinion broadly uh is

that new construction is your most

sensitive uh asset for interest rates,

which does also set up the idea that if

for whatever reason we cut rates

dramatically under a new Fed chair next

year, hey, maybe there's an argument to

look into those home builders or lenders

as potentially investment opportunities.

Kind of interesting. Uh so then what

else do we get? We get this talk that

CPI inflation could be lower because of

housing costs coming down. Kathy talked

a little bit about housing prices

potentially coming down leading to CPI

being lower. But usually what we use are

owner equivalent rent reads. So

basically the idea here is that if new

homes are falling in value, rents might

be lower because the cap rates you

demand as an investor lower. Therefore

we get less of an inflationary impetus.

It makes sense. It's skipping a few

steps there. But I actually agree here

with Kathy that yes, if we have more

supply, rents come down. Uh, and it's a

benefit to those overbuild markets. It

was actually I I can't remember where I

said it, but it was just about, you

know, 20 30 minutes ago or so. We were

talking about this. We said the best

thing for you to do if you want

deflation in housing is just build more

homes. So, if you're a real estate

investor, you need to know this as an

investor. If you're a real estate

investor,

you want prices to go up and so you want

to buy homes where they're not building

as many, where you have dumb politicians

blocking your ability to, you know, to

have a lot of new construction. Uh, if

you want more affordable housing, you

should be demanding more free market

construction, not affordable housing,

because you still need investors to help

you drive demand. uh and and the more

demand you have, the more builders you

have come in and then you get sort of

the Austin, Texas where prices actually

come down. But as soon as you put

housing restrictions in place, like

quote unquote affordable housing, which

usually have these layered rules for how

they're built, the quality material

they're built with or whatever, which

often is worse. Typically, you find

quote unquote affordable housing is just

lower quality uh and and uh ends up

increasing pricing because you create

this lack of supply because people

aren't building as much as they should.

It distorts the entire real estate

market. What you really want is a free

market if you want housing to be

actually affordable. And that's what you

get in a place like Austin, Texas, where

yes, prices have come down from some of

their bubble peaks because of the

overbuilding. So that said, uh then

Kathy gets into this idea that longer

term she believes the Treasury market

will come down once people realize

there's a lack of inflation. She thinks

China is still suffering because they're

still going through a housing bubble

burst. uh and she says that uh junk

yields relative to 10-year spreads are

at lows in her opinion setting up for a

potential bubble there as maybe too much

capital is going into sort of private

credit and she suggests that could end

badly. That said, she also thinks that

this market recovery that we're seeing

is actually healthier than what we saw

in 2023 because

this is a very broad bull market

recovery. So overall, Kathy very bullish

uh on uh on basically the market and the

economy over the next few years and she

thinks this is just the beginning of the

recovery. What do you think? Why not

advertise these things that you told us

here? I feel like nobody else knows

about this. We'll we'll try a little

advertising and see how it goes.

Congratulations, man. You have done so

much. People love you. People look up to

you. Kevin Pra there, financial analyst

and YouTuber. Meet Kevin. Always great

to get your take.