WTF Cathie Wood & Ark Invest | BIG Mistake.

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Hey everyone, me Kevin here. In this

video, I have to say I am disappointed

with Kathy Wood. [snorts] And I'm going

to break down the most salient arguments

that Kathy Wood made in her recent

video. I'm going to break down with

facts my belief as to why some of the

things Kathy Wood is saying are just

blatantly wrong. And I'm very

disappointed because usually I agree

with almost everything Kathy has to say.

I think one of the biggest differences

between myself and Kathy right now is

that while first we totally agree that

we're going to see the explosion of

innovation between 2024 and 2030 that's

the longer term right that six-year end

of the decade period I completely agree

genomics is in its infancy explosion of

cash flow DNA sequencing energy storage

adaptive robotics blockchain tech

everything a convergence of innovation

completely agree that these things are

going to lead to deflation

in broader markets in prices and massive

profits for innovative companies.

Completely agree. But it's the time

between 2022 and 2024 that I'm nervous

about and that I have some bones to pick

with Kathy Wood that 2022 and 2023 are

not what Kathy Wood is suggesting. Let's

go through item by item her argument and

then my response. So, first Kathy Wood

argues that we're already seeing a

significant amount of monetary

tightening and that because we're

already seeing monetary tightening,

maybe markets are overdoing the

sell-off, that maybe we're overly

negative and overly fearful because

we've already seen tightening and we

don't need to worry about tightening

anymore. Well, folks, let's actually

look at the facts. So, Kathy Wood

provides evidence that we are tightening

money growth as her first evidence. And

she suggests that, hey, look, the amount

of money growth that we've seen used to

be at 27% year-over-year during the

pandemic, during the early part of the

pandemic, we printed so much money.

That's down to 13% recently. And if you

zoom in even more, it's down to 8%

growth in in the expansion of the money

supply or M2 money supply, right? But

unfortunately, I worry that Kathy is

stuck in in here with a recency bias.

Kathy's only looking here at how we've

seen this decline of essentially money

supply growth from 27% down to this 13

or recently 8%. But Kathy isn't actually

zooming out to realize that we are still

expanding the money supply substantially

more than the 3 to 4% that we usually do

during normal times. This is not a sign

of tightening. This sign of of a drop

here is not tightening. This is a

removal of a lot of accommodation while

still providing accommodation. We are

still printing money right now. We're

still printing 30 to$45 billion per

month right now with the Federal

Reserve. We are still stimulating the

economy and we'll talk about stimulus in

just a moment because folks forget that

we still have a flow of stimulus. Kathy

Wood suggests a stimulus flow is over

that the that now we're tightening

because we've seen this decline. But

that's not right. Just because you're

comparing to a time in 2020 when we

opened the floodgates of money and yeah,

we had a lot of money printing and and

creation then. And yes, today things are

relatively less than they were then.

Doesn't mean that that money just

disappears. It doesn't work that way.

Right now, this is where Kathy would

then suggest that uh Jerome Powell

because we're already tightening might

end up just telegraphing uh and end up

acting with a 50 basis point hike uh in

in in the March meeting. Essentially

saying, look, because we're already

tightening, maybe we'll do a 50 basis

point hike. So, a half percent hike on

March 16th and then we'll just take a

pause. We'll just stop for a moment

because after all, it's an election year

and maybe we don't want to end up

rocking the boat during an election year

because then Powell could be accused of

potentially uh you know having a

political bias, which we'll talk about

the political bias aspect in just a

moment. But here's here's the problem.

Okay, Kathy Wood thinks that they're

going to raise rates half a percent and

then pause and not do more because we've

tightened enough. But unfortunately,

this is relatively the opposite of what

Jerome Powell says. Now, even though

Jerome Powell doesn't give us crystal

clarity, Kathy Wood implies that he has

given us clarity when the reality is if

anything, he's giving us the opposite

indications. This is where you have to

make up your own mind. Jerome Powell

says that we want to quote reduce the

balance sheet in a predictable manner

over time and we want it to be orderly

and predictable. That is the opposite of

implying one and done, right? But that's

for the balance sheet. What about rates?

Well, Kathy Wood is suggesting that uh

we're going to have this half uh point

half uh percentage point increase and

then maybe the federal pause. But wait a

minute, Jerome Powell was literally

asked this question during the last

Federal Reserve uh FOMC press

conference. Jerome Powell was literally

asked, "What about just frontloading

interest rate increases and then

pausing?" And that is literally what

Kathy Wood is suggesting is going to

happen. A front-loading of interest rate

increases and then a pause. And Jerome

Powell was literally asked this

question. And this was Jerome Powell's

response. And I'm going to leave the

conclusion up to you. Does Jerome

Powell's response agree with Kathy Wood

or suggests something entirely

different? This is for you to analyze.

Okay. What about front-loading Jerome

Powell? Jerome Powell responds with the

following. This is a very different

expansion with higher inflation and

higher growth in a much stronger

economy. These differences are likely to

be reflected in our policy. We haven't

determined any ceiling on rate

increases. We want to move steadily away

from accommodative economic effects.

We'll be guided by the data and we'll

try to communicate that as clearly as

possible. But we know the economy is in

a different place today. It is a much

stronger economy that we have today with

major differences from the past. We have

much more inflation that we've seen in

prior tightening cycles. So does Jerome

Powell's response here align more with

Kathy that we're going to do a oneand

done in March and then go away or does

it align more with a steady Eddie rate

hike? We got to keep pushing and we got

to walk the walk at the Fed to finally

raise rates consistently, steadily, and

be very clear with our intentions and

actually follow through with them. I'm

going to leave the conclusion to that up

to you. I think it's pretty obvious

which side my opinion lies on this one.

And in case it's not, I think Kathy's

wrong on this one. [laughter]

Just anyway. Uh then Kathy suggests this

argument and this is a very very

commonly held belief uh that uh that

might not be founded in fact. And there

are a couple things that we really have

to break apart here because I'm a little

bit disappointed in Kathy in this. But

first, I just have to mention to you

very commonly held belief. Maybe Jerome

Powell won't want to raise rates

aggressively in 2022 because we have a

midterm election year. Well, look, I

don't know if this is just a correlation

without causation aspect or whatever.

But let's just look at some other

election related time frames and compare

them to non-election related time

frames. Take a look at this. In 2016,

which was a presidential election year,

we had an interest rate liftoff. If

Kathy Wood would is right, we we

wouldn't do that during a presidential

election year because that could be a

sign of political bias. In 2018, we

overly hiked rates during the midterm

elections. In 2000, leading into the dot

crash, we hiked rates numerous times,

four to five times, leading rates to go

from 5.25 to 6.5% in less than a year.

In 1992, which was also a presidential

election year, interest rates were

actually suddenly cut 1%. And frankly,

the most stable times at the Federal

Reserve, seemed to be non-election years

or periods of massive political issues.

So, we seem to have a more calm Fed

during politically calm periods and a

more active Fed during politically

active periods, which is kind of an

opposite. I mean, consider this. Between

2010 and 2016, the Fed was pretty quiet

until Donald Trump happened on the scene

in 2016. In 2021, the Fed was mostly

quiet, talking about how inflation's

transitory, and we've had, you know,

essentially no elections, right? There

haven't been elections other than the

California recall in 2021. In well, and

of course some other elections, but but

minor ones, no nothing nationally. Uh

between 1995 and 1998, no no massive

elections here, uh the Federal Reserve

changed virtually nothing. So I think

the the suggestion that politics affects

the Fed comes from the c cynicism that

the Fed really cares more about politics

than the actual economy and preserving

the dollar as much as they can. And

while I agree that the Fed can be

influenced by politics like Biden

potentially threatening Jerome Powell's

job, which I believe happened, I do not

see election years as actually providing

causation to action or not at the

Federal Reserve. I I personally think

this is a little bit of a weak argument.

uh and and I I can't say that it's

definitely a definite aspect that there

is political influence or that there is

not. I'm sure there is some level of

political influence, but I I don't think

we can we can make bets with our money

that the Fed's not going to do something

just because of politics. His history

doesn't say we can make that bet. Uh at

least, you know, other than being a yolo

and and a totally shot in the dark. A

total shot in the dark. Now, uh then

Kathy would suggest that our economy is

is actually quite weak. And this I have

a little bit of a problem with because

you know I don't know about your economy

Kathy, but GDP came in at 5.7% in

January with an annualized rate of

growth of over uh 6% for Q4. This is the

largest gain that we've had since 1984.

And I'm not sure if you've been paying

attention to some of the earnings calls

here, but Microsoft, Amazon, Apple,

Starbucks, GM, Ford, Tesla, Ralph

Lauren, UPS, Caterpillar, or Gibway

Clark, just to name a few of the

earnings reports that I've read, have

literally all literally all of them said

that they have had the highest levels of

demand that they have ever seen and the

highest pricing power that they have

ever seen in recent decades. Now, the

only complaint that they have is they're

being held back by dynamics, dynamics

like supply chains and labor costs. Now

Kathy then so so I disagree that this is

a slow economy. The fact that Kathy Wood

is suggesting that our economy is

slowing I I I I don't see that. I think

our economy is actually very very very

strong right now which I know some

people argue then they're like well

Kevin if the economy is so strong how

could we go into a recession? Well a

recession is only two negative GDP

prints in a row right and we if we have

that then all of a sudden you might see

consumers turn inward and stop spending.

That's when you could potentially see

the deflation from excessive inventories

and people stop spending. But right now

we're we're not there, right? And we're

talking on quarterto quarter basis here.

Now Kathy then points to fiscal outlays

peaking in 2022 and suggests that this

is because she thinks that the child tax

credit ended in December. She said

thanks. We're going to clarify this. Uh

and that there really haven't been any

other forms of stimulus checks and and

that the government isn't spending as

much money on people as they did

previously. No. While this is broadly

true, Kathy missed again some facts

here. And and this is where I'm thinking

to myself, Kathy, come on. Y'all got

hundreds of millions of dollars to hire

researchers. You should know the answer

to this. You should know this. I'm one

dude sitting in this room here doing 99%

of my own research. [laughter]

Uh, no. Anyway, look. Okay, let's

clarify this about the child tax credit.

The child tax credit came in two

batches. Batch number one did end in

December. This is correct, Kathy. Batch

number one ended in December. Batch

number one was a monthly payment of $250

to $300 per child depending on the age

of the child for six months ending in

December. The second batch will come as

a refundable tax credit on individuals

tax returns. Guess what? Not in

December, in February, March, or April.

This means that millions of households

will actually be getting a very large

stimulus check. The largest stimulus

check that we've ever had. Remember, we

had $1,400, $1,200, and $600. This means

we're going to have the largest stimulus

check ever actually coming in March,

February, or April via a refundable tax

credit on people's tax returns of $1,500

to $1,800 per child. So, the largest

stimulus check ever is actually still on

its way. That's massive. This is likely

to lead to another temporary surge of

demand and reiterate companies pricing

power. But Kathy made no mention of

this. The fact that companies are

suggesting they have so much pricing

power and the fact that all of this this

extra these extra little surges of of

spending that people have from having

higher bank balance sheets or or

household balance sheets, higher bank uh

higher net worths, whatever. The fact

that Kathy is ignoring this confuses me

a little bit. I'm I'm not sure why this

would not be talked about. Of course,

fiscal policy will calm down. I agree

with this. And I believe we're actually

going to set up for a really weird and

rude awakening potentially in Q3 and Q4

when at the same time as finally

stimulus ends and the Fed stimulus ends

because remember the Fed's still

printing money today. We're still

getting a massive stimulus check ahead

of us. Still got growing inflation ahead

of us, right? So we're going to go

through more pain first while consumers

are still going to feel strong. And then

the concern is if inflation doesn't go

down, then all of a sudden finally we

see less consumer purchasing power, less

consumer spending at the same potential

time as we have less support on

accommodative policies. Maybe the Fed

has tightened too much and then this is

where potentially we push into a

recessionary period. Hopefully it is

short and shallow. Uh but but that seems

to be the trajectory we're heading on

right now. So uh Fed's still printing

money. Congress is still sending checks

to people. Uh and and really little

evidence here of a weak economy. Now

Kathy does suggest that we've seen a

decline of the annual work week of 6% or

an annualized rate of about 6%. But

makes no mention of the fact that this

was a measure from January where it

would make sense that we saw a little

bit of a decline in people's work week

because of omocron. Kathy only makes the

mention of omocrron when making

essentially an excuse for why wages were

going up potentially because of

omocrron. So that was weird. Why mention

omocron as a reason why wages went up,

but not mention omocron as a potential

reason why the work week was lower in

the last jobs report?

I'm I'm I'm not jing with this. Usually

I love Kathy Wood videos and and I'll

tell you, I don't want to come across as

harsh here, but I think when we just

look at the facts and and we compare

reality, then then we have we have some

cause for concern here. I want to be the

perma bull. I want to be the bull going,

"Let's go. we're going to the moon on

these innovation plays. I'm a little

concerned. Anyway, uh then Kathy talks

about how purchasing power is declining.

Now, this I agree is a good argument.

You know, we've had real wage growth

negative over the last year. That means

inflation's at 7% and wage growth has

been 5% year-over-year. Uh that's a

negative, right? People are losing

purchasing power. The problem,

unfortunately, is that Kathy is

suggesting, see, people are losing

purchasing power. This means our economy

is weak right now. Wrong. All you have

to do is actually look at the bank

earnings that are suggesting people have

way more money in their uh checking

accounts than ever before. Yeah, the

saving rates have declined, but they

still have bigger balance sheets now,

which means they could potentially still

be spending very strongly for the next

two to three quarters. Entirely

possible, right? All you have to do is

look at Visa or Mastercard to see people

are spending money like crazy,

especially in retail stores. And so

Kathy is suggesting that we're already

seeing a slowdown when the reality is

we're seeing only the potential of a

slowdown get baked in. And this is a

problem because if Kathy thinks we're

slowing down now, but really what we're

setting up for is a slowdown at the end

of the year, I think Kathy's going to

have a disappointing year. I hope not.

But I I think this is there's the lag

time here is misaligned. You can't look

at the jobs data and say, "Oh, see

people's purchasing power is declining."

Without realizing that people have more

money and feel richer than ever before.

Again, look at bank earnings, JP Morgan,

Wells Fargo, City. They all tell you the

same thing and not realize that, wait a

minute, okay, this means this decline in

p purchasing power isn't going to hit us

for for two to three quarters

potentially. And we should really

consider that when we're investors

rather than considering, oh, no, no,

things are slowing down now when they're

not because that would imply that if

things are slowing down now that then

maybe the Fed doesn't have to hike as

much. But that's not what we're actually

seeing. That's not what the numbers are

actually saying. Now, Kathy Wood does

suggest that consumer sentiment has has

started declining and then sites

specifically how people are a little bit

less inclined to purchase cars right

now, but this is no surprise. You go to

a dealership right now, they will price

a Prius that usually sells for $35,000,

which is already crazy. May as well buy

a Tesla. Uh they'll price a Prius at

$35,000 and they'll literally throw on

their dealer markup $10,000 just because

they can. Of course, the sentiment for

buying durables has been declining. This

is the same thing that the New York's

Fed survey found that people have to

spend more money right now on essentials

uh than than on non-essentials. And the

biggest sector getting hit is durables.

Well, yeah, because pricing for durables

has shot up. And we are going to see a

longer term shift where people finally

start saying, "Okay, that's it. These

prices are too high. We can't pay these

prices anymore." And when we see that

shift, that's maybe when the prices

start coming down. But it's too early to

actually see that shift, especially

since we're still seeing prices go up

for durables. Okay? we're still seeing

that inflation for pretty much

everything. Uh then Kathy talks about

how sales at Amazon are only up 9% and

how this is a very very low comp. And

she says even coming out of the

recession uh when when Amazon had really

really strong comps, they did better

than 9% growth. But I think Kathy missed

the point here that Amazon's comps were

so so strong and we only had 9% growth

because we didn't come out just of just

a recession. We came out of a

stay-at-home pandemic where of course

spending on Amazon surged and of course

the year-over-year comps are going to be

very very difficult. So this argument

that sales at Amazon only went up 9% is

is is kind of laughable because again it

it discards the fact that we just came

out of a pandemic style recession not an

'08 financial crisis. Very very mis

misaligned here on this one in my

opinion Kathy. And then on top of that

she says that this one really peeved me.

Okay this one really really peeved me.

She suggests that Facebook saw weakness

in the consumer sector and that's why

Facebook is having problems. No, Kathy,

Facebook did not say they're seeing

weakness in the consumer sector. I'll

tell you exactly what they said by

showing you literally what they said.

They said, "We're hearing from

advertisers that macroeconomic

challenges like inflation and supply

chain disruptions are impacting

advertiser budgets." That does not say

the consumer is spending less money. It

literally says supply chains and

inflation is hurting advertisers. That's

This is This is bad, Kathy. I'm

disappointed.

These It should not be that easy for one

person to discredit some of these

things. Again, I do not want to make

this. It's It's not like I have a fund

and I'm like, "Oh, buy my fund instead

of Cathy's fund." No, like there's

nothing nothing like that. The only

sponsor for this video is Extra. And I

love Extra. And I'm sure Kathy loves

Extra, too. Go to medkaven.com/extra.

But it's not good when one dude in a

YouTube studio can start picking apart

these pieces when this is supposed to be

your summary of of macro and and and

whatever research for the week. Come on.

Not not cool. Okay, then Kathy Wood is

suggesting that our latest GDP print

shows that inventories are up. And this

is sort of her way of suggesting that.

See, inventories are up, deflation's

coming.

Okay, but if you actually read the

earnings calls of companies like Ford,

GM, and Ralph Lauren, guess what they

tell us? The reasons inventories are

appearing to be up is because more

inventories are in transit. It's taking

150 days for stuff to get from warehouse

to store uh than when it used to take 50

days. So, you have higher inventories,

but they're not on shelves. They're on

ships. [laughter]

It's a problem. Uh, in fact, Ford and GM

are talking about tight inventories, not

loose inventories. This is this is not

right. Uh, and this is really this

really flies into the face. this this

suggestion that we're seeing real demand

being quite sluggish which was her quote

flies in the face of companies like

Starbucks who are like we're raising

prices in January that's going to hit us

on the CPI print which is expected to be

7.3% coming up. Uh then we've got Panda

Express which is not even a public

company so you have to talk to the

employees to actually get this kind of

information which is the kind of stuff

that I do. Uh but anyway even Panda

Express just raised prices in January so

it's like a great that's also going to

hit us on the CPI print and it's because

demand is crazy. Now look, long run.

Yes, I agree. Innovative companies will

increase productivity. But then then now

Kathy, now I don't know if this was the

result of your soulsearching which you

were talking about, but Kathy, what the

heck? Kathy is saying that private mark

market valuations, so private equity

valuations have gone up over the last

year and that we've seen public values

drop 50%. And the private market double.

So she's like, okay, prices war

together, public markets have dropped

50%. and private markets have doubled.

And so now Kathy is suggesting I think

the private market, the more expensive

one, has it right. So we're going to

open a private market equity fund where

where we do like venture capital fund to

invest in private equity.

What? What? Come on, Kathy. You're

literally saying in your video, we think

private valuations have doubled and

public valuations have h haved. And so

now we're going to double down and go

invest more in private markets because

obviously they have it right. This is

the opposite of what Warren Buffett

tells you. You don't use pricing as your

indicator to tell you what's right or

wrong. Now you're chasing the top rather

than buying the dip more. Like you've

been selling more Tesla than anything

else. Now I know recently you did buy a

little bit of Tesla, but I got to put my

hands down because this is this does not

make any freaking sense at all.

Okay, look. And she talks about how

benchmarks are doing a disservice, how

great crypto is going to be in the

future, which I agree with. Okay, look,

I'm sorry. I have I don't think I've

ever been this rough uh to Kathy, and I

love her. I agree with her long term,

but this is short-term blindness. This

is just like buying Zoom as we're coming

out of the stay-at-home cycle. Even

though Zoom might be a great and

innovative company, come on, man. You

know, traders are in that thing up the

wazoo. And the reason it's fallen so

much is because they're trading out of

it.

That's all I got to say. Go check out

mechan.com/extra. Thanks so much for

watching. We'll see you in the next one.