Shocked: What Cathie Wood JUST Said!

hey everyone me kevin here in this video

i'm going to talk about what kathy would

just said but i'm also going to provide

you my opinion

layered into a summary of what kathy

wood just said in her latest

release on the ark invest channel kathy

wood is a bit surprised about

the federal reserve and this is where

we're going to start first she wonders

why jerome powell is now focused on

things like homelessness

when she believes that that drone powers

should be focused on inflation

jobs and growth in the economy she says

she's not

you know saying that preventing

homelessness is bad but

she's worried that jerome powell is

diversifying with his mission

and his focus too much my opinion on

this

well she's right this is something we've

talked about on the channel before

over the last few weeks and i mentioned

too i thought it was kind of different

it was a

shift in jerome powell's stance is what

i talked about it as

and the shift was all of a sudden jerome

powell was talking about

a lot of social goods like

climate change or homelessness and it's

definitely a shift

when the federal reserve has usually

only been focused on

jobs and growth another shift is the

federal reserve focusing heavily on

max unemployment or max employment and

defining that as

making sure that blacks and hispanics

minorities women

all get back to full employment so sort

of broadening the mission of the fed

in my opinion this broadening of the fed

is actually a way of the fed saying look

we'll we'll

keep rates low longer because we want

all of these things to do well well

those aren't going to be the first

things that are going to do better

whites and asians have a much lower

unemployment rate

than blacks and women so even when the

total unemployment rate goes down to

you know three and a half four percent

again it might be a while

for minorities and women to get their

unemployment rate down

and so this to me is a tell that the fed

might try to keep

rates lower longer unless of course they

get squeezed out by inflation which

kathy's going to be talking about in

just a moment

kathy also says that here's the thing

jerome powell should be focused on

inflation and growth

but this was a big one she says she's

worried that the fed is potentially

losing control

she says quote i'm not sure inflation is

in the fed's control this is a big

statement here this is really

kathy saying hey look maybe they're

spreading their mission out because

they realize they're losing control on

inflation so maybe a little bit jaded

but she could be right and she's echoing

a symptom or i should say a sentiment

of what a lot of folks believe about

inflation that basically

the fed's getting ready to get smacked

upside the head

and the fed's going to realize they're

going to have to raise rates remember

what jerome powell just said at the imf

at the international monetary fund when

sarah eisen from cnbc asked what are you

going to do if you start losing control

of inflation are you going to raise

rates

john powell said well yes that would be

the principal tool that we would use to

control inflation

so kathy could be right here and a lot

of people believe that big inflation is

coming and the fed's losing control

kathy used the ppi increase the producer

price index a measure of inflation

increase

as a way to sort of evidence that the

this inflation is starting to

manifest itself in actual readings on

tuesday we get cpi data and we're

expecting to get smacked in the face

with some ugly year-over-year cpi data

but what we're really going to pay

attention to is that month-over-month

data

the ppi month-over-month data came in at

a one percent inflation rate which if

you analyze that that's over 12 per well

that's

12 that's huge that's a lot that's a big

inflation rate

kathy says she believes that jerome

won't react to this

which is something that he said uh and

is happy that the market has been

mostly muted in reaction to this and

that's potentially because the market

has already heavily priced in inflation

in that crash that we've kind of seen in

the higher multiple stocks between

february 19th and march and this

is something that i agree with kathy on

as well remember that car analogy we've

made on this

channel where essentially oh my gosh

higher inflation's coming

all of a sudden bond deals rise quickly

and it's kind of like whoa

you're in a car and all of a sudden it

jerks really fast rather than a nice

smooth acceleration

she's right we're getting a lot of

jerkiness in this data and the market is

not overall really liking it this is

leading to what feels like a very

bizarre market

hard to kind of grasp exactly the

direction the market's going to go in

in the short term in the long run we

know that kathy and

even myself are really bullish on high

innovation style stocks we'll see

anyway kathy what goes on to talk about

the uh

fiscal governance uh in our country she

talks about uh suspending money

like essentially there's no tomorrow she

talks about how there is a currently a

63

increase in federal outlays massive

increases in the deficit

four trillion dollars a year being spent

and biden now wanting to add another 2.2

trillion dollar infrastructure plan

kathy says this is going to lead to the

market uh to

be essentially in a quote confusing

period as the market tries to sort this

all out and this

echoes what we felt over the last six

weeks we felt

this that sudden jolt in the bond market

which hit the stock market hard

now lately we're kind of like okay all

right what's going on which way are we

going you know even recovery stocks

and some of the value stocks have sold

off a little bit now we're like okay all

right

where are we going now right kathy says

the reason for this

is maybe in addition to the rate shock

we have

the fact that because every day it's

like oh

here's another thing we're going to be

spending more money and more money more

money at least the way it feels in the

media it feels that way that every day

we're always talking about spending more

and more money she worries look

the market is going to be confused by

this

and she calls this a confusing period

that we're going in

and in her interview or in her

discussion i should say she sort of

mentions that this could take six plus

months to sort out

so we could be in this weird period for

quite some time to come

i thought that was interesting to

highlight that potentially this

confusing period

might not just be a six week issue but

it could be something as long as six

months so we'll see furthermore on

the on taxes so on the corporate tax

rate kathy wood believes

that rates for corporations won't end up

going up to 28

that they'll end up getting negotiated

down to about 25

my opinion on this is probably right on

this again and i agree with kathy on a

lot of things i'll let you know when i

really clearly disagree with her which i

i

will in this video as well uh but she

mentions that uh

she believes this rate's going to get no

she negotiated down to 25

i believe this is very possible because

of people like joe manchin

joe manchin remember what joe manchin

did with the stimulus checks last

time joe biden biden said hey you know

what maybe we'll be open to negotiating

the flexibility of who gets the stimulus

check

right before the stimulus package passes

joe manchin says i want less people to

be eligible for the check

otherwise i'm not voting for it he's

that 50th vote in the senate

they need him as a democrat he ends up

getting what he wants and stimulus

checks them to end up getting reduced

for qualifications for for families

by uh well from up to 200 000 to get a

check

scroll down to 160 thousand dollars and

up to a hundred thousand dollars as an

individual scroll down to 80 000

as a cap for getting a stimulus check

joe mansion one there

i expect the same thing potentially to

happen with the corporate tax rate we

already know that joe manchin is opposed

to the 28

tax rate so just stay tuned i would not

be surprised if he ends up putting up a

wall

drawing a line in the sand and saying i

will not vote for this unless that

corporate tax rate is lower i'm okay

with it going up but not that much

and guess what joe biden's already said

he's open to negotiating the corporate

tax rate that was a big bomb that

dropped last week

so right here kathy's suspicion is

probably going to be correct and i'm

kind of outlining some of the mechanics

as to how that could happen

on a personal tax rate kathy wood

suggested potentially arc invest might

be leaving new york

new york is increasing state income

taxes she sees an exodus from

new york and connecticut even california

and she sees this trend

accelerating as businesses and people

consider leaving to states like

florida this was a big statement now

we'll see

uh i can't convince lauren to leave

california so at least for the time

being

i won't be part of that exodus but i

totally get it trust me i do the numbers

all the time

uh now on the economy kathy wood says

that the economy is rebounding nicely

from the weather hit that we sort of had

in january and february

and she mentions that we have not seen

economic data as strong as we're seeing

it now

since 1994. she also mentions that

the latest unemployment report came in

stronger that the average work week went

up 0.2

hours which is a larger than expected

and this is potentially a sign that

companies are struggling to keep up with

demand

labor shortages job openings at record

highs

and she sort of outlines why she thinks

we're going into this booming

recovery my opinion on this i have to

agree again

the fact that right now companies are

struggling to keep up not only with

supply chain disruptions

but hiring folks because companies are

still competing

even though you know there's research

that says maybe companies aren't

fact of the matter is there is still an

unemployment boost of 300

per week we're not going to see that

unemployment boosts go away until

september

and so it's entirely possible that in

the lower wage

tier segment we might see less

competitiveness for job openings

leading to more job openness in other

words less people are looking for those

jobs right

and so businesses are spending more of

an effort trying to find people

to get their businesses back up and

running and this is also accelerated by

the fact that

less people are traveling to the united

states to do temporary work

uh like we have the j-1 visas and these

are folks who

come to america for a season like at ski

resorts and work at restaurants or

whatever

and we're seeing less of those now

because of the disproportionate impact

covet is having

around the world so that's that's also

accelerating this trend that kathy's

talking about

commodity prices she sees soaring she

didn't she kind of just mentioned that

obviously we know a lot of this has to

do with huge supply chain issues right

now

so adding my uh comment on that uh she

does mention though that the dollar is

going up which is something big that

nobody really expected to be happening

or that it would happen and she says

that a strong dollar could help

counter higher inflation as long as

we have a strong productivity so she

kind of sees a little bit of a dueling

match here

can we get to strong productivity while

having a stronger dollar

remember if we have a strong dollar it's

harder for us to export our goods

so that means we maybe are able to sell

less goods abroad

so this is sort of that dueling match

that she sees here but

she's right nobody did expect the dollar

to go up a lot of folks were thinking

the dollar was going to continue its

crash and it was slipping down

substantially so the fact that it's

going up now

is bizarre she's correct about this

again

uh then she brings up her inflation

argument again which i've broken down

quite a few times i'm not going to

rehash it

in full here basically good deflation is

technological innovation

bad deflation is when old guard

companies have to drop their prices to

compete

she sees all of these things a strong

dollar hyper productivity in the economy

and these two deflationary forces as

keeping uh

prices down however she is concerned

that the fed is going to lose

control of inflation and that there will

have to be

an interest rate increase now she's not

proposing hyperinflation

but even if inflation sits around three

or four percent the fed's going to have

to raise rates sooner

to control that and bring that back down

to that two percent range now kathy

provides a reason as to why

potentially we saw massive jolt in bond

yields in

march and february she believes that

banks started to realize that oh

we're not going to get the slr the the

liquidity ratios extended with the fed

so banks are going to have to have more

liquidity

and so as banks came to realize that

banks potentially

sold bonds which if you sell bonds price

goes down yield goes up

but what's the other benefit of selling

bonds you have cash

if you have more cash you get to you

qualify towards these ratios more

so potentially banks were big sellers of

bonds she believes

and that's why we saw this jolt in

yields and maybe

we might see a pause maybe that's why

things have settled down

because that x that that target date was

march 31st

maybe that's why we'll see this relaxed

sort of potentially

slow but still confused recovery here in

april

another thing she mentions which and i'm

gonna i swear i'm gonna disagree

with kathy here in a moment okay there's

just so much agreeing i think we

think along such similar mindsets and i

think it's it's so wonderful and

i'm not trying to elevate myself to

kathy's status at all i think i just

think it's wonderful

yeah and i also don't want to put myself

in an echo chamber so i'm looking for

things to disagree with right

but this is an interesting argument the

archagos drama which i covered as well

the big

hedge fund uh multi-leveraging up where

essentially archaeos was able to take

willie huang was able to take somewhere

around two to three billion dollars and

potentially extrapolate that

eight to 10x which is ridiculous and

this is done by a process of

rehypothecation where you're basically

taking your collateral

and promising it to different companies

to the point where no bank knows

who actually is it gets gets a claim to

that collateral right

big issue anyway she mentions that the

fallout that we saw

from arkaygos could have potentially led

to a

massive market disaster

the reason she believes there could have

been a massive market disaster is

because

when other banks around the world saw

this archagos

unfolding this drama unfolding a lot of

other banks could have

checked collateral hey is this

rehypothecated what happens then

if we want we want uh to claim this

collateral and what if all of a sudden

banks start freezing liquidity lines

or start dumping a bunch of stocks for

other family funds like archangel so

what if that sort of

chain ripple effects throughout the

economy there could be a massive

sell-off just from that that could be a

huge

catalyst for de-risking but she says

that didn't happen

she said this was a battle test and

we're actually reassured because this

didn't happen

fascinating argument i mean it's true

like that

that totally you know every corporate

compliance or

or lending risk management division went

through their books that day

after the sort of archaegos uh you know

block sale

disaster yeah so good point again

then she talks about the rotation uh

this rotation to like

financials actually being a good thing

banking going up

she believes when prices of of things

like value stocks that that are highly

indebted not all value stocks but stocks

that are highly indebted and maybe

aren't innovating

and banks that aren't innovating she

believes that when those prices go up

it's actually a good thing for her

the stock she invests in like square

because she believes

that it's just a matter of time before a

company like square

disrupts a company like chase and then

all of a sudden if chase is at a higher

price

boom here goes square to the moon now

uh she obviously didn't mention this

part about the price i'm i'm

interjecting this

but if you have not yet i encourage you

to watch this if you're interested in

knowing a little bit more about

chase versus the rest of the market and

especially fintech

watch the video that i did breaking down

what jamie dimon just said at chase

so uh just type that into youtube meet

kevin jamie dimon

it'll come up you'll see his face on

there really really good breakdown of

uh the massive like 66 page letter jp

morgan put out

it summarizes it all for you then kathy

talks about how we might be in this era

of a big transition where we go from

late 1800s to early 1900s all of a

sudden we get cars electricity light

bulbs we get this

massive explosion and growth from

innovation

and so this is her belief this is what

she is investing heavily in and she

believes

this disruption could be a lot bigger

than what we've ever

seen before and that's why she's going

so heavy

on her innovative companies and her

innovative picks

she mentions that elon musk responded to

her on twitter

uh her and her company on twitter asking

about what about the buffett indicator

why is it that market cap to gdp is

as high as it's ever been and as she

mentions this this is

simple now this is where i'm actually

going to disagree with kathy a little

bit

uh so and i think you'll you'll like my

reason for disagreeing with this

so kathy mentions that look here's the

thing

uh when we calculate market cap to gdp

we put market cap up here to

gdp i'm going to use fake numbers here

just to make an example let's say the

market cap is ten dollars

and gdp is two dollars that gives you a

market cap to gdp ratio of not five

dollars

but it gives you five right that's your

market cap to gdp

when you increase gdp what happens

well your market cap to gdp goes down

instead of five it'd be like 3.3 right

so the more you increase gdp the more

your

ratio goes down and this makes sense

this is intuitive like in this case

you'd have a

gd market cap to gdp ratio of two so

what you want

is gdp to be going up the problem

and keep in mind what gdp is gdp is

gross domestic product it's the sum

of everything that is produced in the

united states now some make the argument

that this has to do

with def like um with

internationalization or i should say

globalization

gross domestic product is different from

gross national product which also

includes what we're producing

uh and selling overseas which gross

domestic product is just here

but the reason she gives for gdp to

market or market cap to gdp going down

is because she believes that innovation

is deflationary and when you have

deflationary innovation

you're actually not going to increase

the gdp

you're going to decrease it so remember

what we had

earlier here which was if we go 10

divided by 2

we get to 5. but if prices go down

because of

innovation then all of a sudden market

cap to gdp

can go way out of whack and she believes

because we're going to see such

deflationary forces in technology

she thinks gdp could actually go down

due to deflation and lead

this market cap to gdp ratio to go up

substantially

now if if we compare this to reality

here

where we currently stand we're probably

more like this 100 over 20

which would put us oh sorry a hundred

over uh

let's go with five there we go this

would put us somewhere around

a uh buffett indicator of somewhere

around 20. that's

roughly where we sit right now as a

buffett indicator of around 20 and

sometimes we see this go from 20

to this 25 range somewhere around

there's where we're bouncing around

kathy and she admits she thinks this

sounds crazy but she

actually believes that there's a

possibility she's not betting on this

but she

believes there's a possibility that the

gdp

is going to decline potentially relative

to market cap in this formula

well i guess she believes the conclusion

is going to double she believes that

however it ends up happening the

mechanics of this

she believes this ratio the buffett

indicator ratio could double

to 40 or 50 or basically the s p 500 for

example

could be selling for 40 to 50 times

earnings in the future mostly

as more innovation gets priced in

but we actually see gdp lower

because things cost less because of

these deflationary forces

so her opinion is deflationary forces is

why this

market capped gdp ratios is going up and

why it's so relatively high

now i'm gonna this is where i'm going to

disagree with her

so while what she says could be true i

don't believe that gdp is going to go

down uh because of uh deflationary

forces i think we're going to find

more things to entertain and pleasure

ourselves with uh

you know toys computers travel we'll

we'll have more

stuff you know we'll have ev tolls and

we'll find more ways to spend

more money on more stuff right in which

case i actually think gdp is going to

grow

however i do think that there is a

short-term problem that we face

and when we look at what goes into

market cap right now what's driving a

lot of market cap

are high valuations at

growth companies the problem with growth

companies is a lot of growth companies

have low earnings today so that means

you put a high valuation into market cap

for growth

but you're not seeing a massive increase

in the gdp

because these companies just aren't

making a lot of money just yet

like tesla is going to make a lot more

money when they're selling 10 million

cars

than when they're selling a million cars

or 500 000 cars like last year

that's going to show up in gdp but right

now

tesla's valuation shows up and not the

dollar signs right

another thing to consider is another

thing that goes into market cap

are all the recovery stocks recovery

stocks have blown up since november

right

so you got recovery stocks

that have massive amounts of money going

or massive valuation increases since the

election that

moves up market caps but what's also not

happening at recovery

stocks yet revenues folks revenues even

though we're starting to reopen

they're not making a lot of money yet

which means we're not seeing that

reflected in gdp yet

so in my opinion and this is where i

differ from kathy why do we see a high

buffet indicator it's because

lots of companies are primed to make

lots of money either through reopening

or innovation

but they're just not yet except the

stock market is starting to price that

in already

mostly because of recovery and

innovation forces

so uh this is a place where i disagree

obviously but you know and i'm not

saying that

her thinking is definitely wrong but i

do think gdp is going to trend up

because people will spend more money on

spending more

but i agree there are going to be big

deflationary forces so it's kind of like

a half disagreeable

okay so uh this kind of gives us a

little bit of an overview of

my opinion of what kathy wood here

had to break down or what she had to say

now i want to give some bottom lines

here so

some big bottom lines that i got from

kathy out of her latest

talk here are first of all she thinks

that bond yield spike

could be temporary i thought this was

huge mostly because of that slr

selling off if she's correct on that

which i think i have a suspicion she

could be i think that's a really good

analogy

uh i we've already previewed before her

video we've talked about

how we believe this corporate tax rate

is going to stick at 25 completely agree

with her opinion on that

surprise she didn't talk as much about

supply chain disruptions and how that

could be an issue for short-term

inflation

why we might see that short-term

inflation but why it might not stay

she didn't spend a lot of time touching

on that just briefly touched it moved on

from there

does believe that at some point the fed

is going to get forced into raising

rates sooner than expected

but does believe we're seeing great

signs in the economy for recovery

strengthen the recovery

strength in the fact that we didn't have

a disastrous fallout from the archagos

disaster we saw

uh and she's got some theories for for

why the buffett indicator

is as high as it is she believes it's

inflation i believe it's low earnings

uh but uh you know both could be correct

here in in their own respects

so there you have it uh these are my

opinions on top of kathy

a summary on what kathy wood had to talk

about and folks

i appreciate you watching if you like my

insights and perspectives consider

checking out the programs linked

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folks

we'll see in the next one

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