WARNING: Cathie Wood says a Recession is Coming | Details.

kathy wood appears to suggest that a

recession is coming hey everyone meet

kevin here in this video i'm going to

break down exactly what three main

arguments kathy wood made in her last

video and i'm gonna pull up some

additional research and color so that

way we can try to contextualize what she

tells us about this coming recession and

we know exactly what to monitor to see

is kathy going to be right or hopefully

are we going to be able to avoid a

recession

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check them out okay so the first big

argument that kathy wood makes

is that an inventory buildup is coming

and when an inventory build it comes

prices are going to fall now this is not

unique we've heard this argument before

in fact we've heard this argument for

about nine months now and now

it's starting to look like maybe she's

right about the inventory build up but

is she right about the conclusion and

this is where we're going to go to the

source to try to get a little bit more

insight

so first she points to research that

brett whitton who has come on this

channel for an interview great guy found

it's by the logistics managers index

it's a survey and it compares

inventories this year to prior years and

months

and kathy wood points out correctly that

the normal seasonal cycle of inventories

building up through november and then

collapsing into february has reversed

that inventories this year are actually

way higher than they were in november

because all of those delayed shipments

and all the over-ordering that we did is

coming in the ships are coming in

we are now at record levels of inventory

and kathy makes the argument that by the

end of the year we're likely going to

see manufacturing indices like purchase

manager indices coming in below 50 to

signal manufacturing contraction and

this is going to potentially be bad for

a lead up to a recession then we start

seeing contraction and manufacturing see

that fall in demand and then we go into

negative quarters of gdp boom recession

she gives two reasons one she believes

that companies bought too many products

because of fears of supply chain issues

or running businesses with too little

inventory and now they're over

compensating and over ordering as these

products come through and the supply

chains slowly clear up ordering firms

have to pay more for warehousing to

store all this extra stuff or cut prices

for their goods and this creates the

assumption that people are going to

order less from manufacturers because

they got enough inventory okay that's an

assumption but we're going to get to

some more details in a moment number two

kathy believes that the consumer is

weakening because we're going to

experience the similar kind of demand

destruction that europe is seeing she

believes that europe is already in

recession and that china is probably in

a recession but we're unlikely getting

the real data from china and this

reiterates the idea that the chinese

consumer is saving four times as much

money in this january than they did last

january because they're probably

panicked because of the whole ever grant

crisis and the destruction of real

estate property values which when

property values go down what happens

when people start getting nervous right

and then maybe people start spending

less money in fact that was a big thing

that kathy mentioned as well is that

look if we want to avoid a recession

real estate markets got to stay propped

up and companies got to keep spending

money on capital goods and investing

which they'll only do if the consumers

keep spending money and if those two

things go away we're screwed basically

it's roughly what she said right

now y'all probably already know my

thoughts on the real estate market

because i've done a lot of videos on the

real estate market

yeah we got some headwinds coming okay

but what's interesting here is kathy's

setup and which echoes what she's been

talking about for nine months that hey

high inventory levels are definitely

going to lead to a decline in prices

let's fact check that or maybe not fact

check that but at least challenge the

thesis what if they don't because it

seems logical right but what i did is i

went to the actual report i always like

going to the primary source i went to

the actual report and she's right okay

so we saw substantial substantially high

levels of inventory levels we're seeing

a rapid growth in inventory levels and

there's really no sign no obvious signs

of a slowdown of growth in inventory

levels on the horizon

and here we go this is interesting there

is some possibility that the surgeon

inventories will result in some

markdowns oh wait a minute that's

literally what kathy's saying wait so

she's right so inventories are going up

and if inventories go up that could lead

to markdowns right but wait a minute

they say here

there's a possibility that the surge in

inventories will result in some

markdowns for durable goods

however it seems unlikely this will lead

to a meaningful break in the inflation

that we have observed

across supply chains as warehousing and

transportation prices remain high due to

the continued mismatch in demand and

available capacity

so now we have to break this down a

little bit they're making this argument

here that okay maybe we'll see declines

in prices of things like washers dryers

refrigerators or cars these are forms of

durable goods

but we still have a mismatch of supply

and demand and that means even though

inventories are going up in aggregate we

might not actually see prices come down

across the board now that's interesting

kathy didn't mention this but let's keep

reading

down here we get something that sounds a

little bit more like a kathy woody an

argument and this is where i mark number

three right here take a look at this

firms with these higher levels of

inventory will now have to decide what

to do with this

unseasonably high inventory that's what

kathy said that's exactly what she said

will they be sold at a discount that is

will products be sold at an in at a

discount or

stored in increasingly expensive

warehouses neither option is ideal and

it'll be fascinating to observe

basically what happens ah that's

interesting so the reports basically

saying hey look a few things can happen

here a we could just see menu for like

companies who are ordering things store

stuff even though it's more expensive to

store stuff rather than reduce prices

let's store stuff and have inventory on

hand so we never run into these

disastrous situations again where we

just can't fulfill the orders it's

better to be able to have a little bit

more inventory and fulfill orders than

not have the inventory at all and not be

able to service our customers because

then maybe we lose the customer and we

lose that potential lifetime value of

that customer because they go

build a relationship with someone else

now this this is where finance gets a

little bit frustrating because it's like

dang

kathy told me something that was black

and white and here comes kevin and makes

it gray

that is kathy says inventory levels are

going up prices are coming down

that makes sense

but the actual survey that she was

referencing says

maybe prices will come down for durables

again washing machines dryers and cars

but

yeah unlikely to actually see prices

come down for other goods and services

yet because there's still too

much demand now kathy makes arguments

about demand we'll talk about that in

just a moment but quite interesting now

here's another thing take a look at this

over here

this here says last month

there was a question about a drop in

sales and shipping delays and is it

possible that recent supply chain

challenges may have taught manufacturers

suppliers retailers and customers that

holding inventory

provides an important element of

resilience and are not as lean as they

once were

in other words hey

like i just said maybe companies are

okay

having more inventory because it's a

form of resilience to make sure they can

keep those customers right this is just

sort of expanding on what i just said so

interesting very very kind of gray

report not as black and white as i

thought after watching kathy's video i

thought this sounds like an interesting

report definitely going to look it up

not as black and white as i thought so

the report kind of gives a little bit of

a counter argument here what actually

ends up happening well tbd now we have

to pay attention and i'm going to give

you some hints in terms of what to pay

attention for uh to so we could try to

track and understand okay is cathy going

to end up being right are we going to

see those

declines in prices or what but the next

thing we got to talk about is that

weakening consumer so kathy has made

this argument in february as well and

she talks about the decline of real

purchasing power she talked about it

then she's talking about it now and she

talks about how companies are talking

about reductions in revenue now i

personally do believe

that at some point in the future

consumers will spend less money in fact

i'm trying to allocate less money to

consumer discretionaries like the

clothing stores or not you know nike

lulu under armor whatever because i do

believe that the consumers are going to

spend less money that we might follow in

the footsteps of the chinese consumer

and start trying to save more money but

at least up to right now april 4th the

consumers are still spending money like

there's no tomorrow and now they're

either blind and they don't realize that

we're about to walk into a freaking

minefield in a recession and they should

stop freaking spending money and then

they're gonna go bankrupt because they

spent all their money and they didn't

prepare for a rainy day that's entirely

possible

but i'll tell you right now

consumers are still spending money like

crazy first of all out of q4 earnings

reports

even the most recent ones that just came

out lululemon under armour they're

talking about spending like crazy and

raising prices and raising like

increasing purchasing power the only

companies that are actually talking

about

declines in purchasing power at least

from the reports that i read were

companies like coca-cola and the

mattress department at macy's those are

the only companies that we're talking

about yeah we don't know if we can

really keep raising prices here okay so

we can't raise prices on coca-cola and

the mattress department at macy's is

having problems actually in fairness i

do think heinz ketchup was also

complaining about this like i we're

gonna start squeezing our customers out

here but otherwise every research that

every company that i researched whether

it was the clothing companies whether it

was apple nvidia amd everybody's talking

about pricing power because the consumer

is spending so much freaking money and

the fact is

the average consumer today has the

average consumer household has or so

average household has 16 000 more in

their bank account than they did two

years ago prior to the pandemic now at

some point we would expect maybe this

would evaporate right but i don't know

kathy right now

at least from what i'm seeing it seems

like people are spending money like

there's no tomorrow even if we look at

trends let's take a quick look at trends

look at this

this is uh the uh here i'll just hide

myself for a second searches for

disneyland we look relative to uh to the

pandemic we're at roughly the highest

point for searches for disneyland let's

do another one here let's jump on over

to restaurants near me you know we're

not at the absolute highest which we get

around summer time but we're pretty darn

up there we're about that 75 rsi level

that's above levels of 17 18 and right

before the pandemic not bad people are

going out people are having fun search

terms for cruises are at the highest

level during the entire pandemic in fact

carnival cruise lines i was blown away

by this but carnival cruise lines today

came out and they released a report and

said

we just had our busiest booking week

ever in our company's history the week

ending april 3rd was the absolute

busiest week for booking ever and you

know with course members about two weeks

ago i was noticing how search trends we

were doing this research together and i

was noticing how search trends for

things like home solar home battery and

home related stuff were going down but

any kind of searches for going out fun

entertainment bars near me gyms near me

costco membership like all this stuff

skyrocketing costco membership probably

skyrocketing because maybe people want

discounted gas or they want to save a

little bit of money on groceries because

prices have gone up

i don't know i don't go to costco uh

although i i think lauren orders uh i

think you could like

doordash or whatever costco and you pay

like a little premium for the membership

or whatever i don't know i don't handle

any of that stuff but the point is like

searches are going up for this stuff so

people are spending more money on fun

and costco

maybe what costco stock has done so well

which also makes sense because people

trend wise have been moving away from

consumer discretionaries like

institutions and into consumer staples

which costco is probably your most

popular consumer staple right now in

terms of the stock market at least so

i can't personally say that at least yet

we are seeing a consumer that is saying

yeah no thanks we don't want to spend

money anymore

now kathy used autos and this was her

third big thing she used autos as a way

to say well

sales are dropping so this is a sign

that the consumer is not spending money

anymore but wait a minute when you look

at a company like tesla we just

delivered substantially more teslas in

this quarter compared to anyone i mean

we had a record delivery a record

quarter for deliveries and we know

there's a massive backlog for tesla's

which maybe that's not fair but tesla

has a perfect control there well maybe

not perfect but has very good control of

their supply chains and therefore

they're able to deliver because they

they entered so many supply chain

contracts in 2016 17 18 and 19 before

the pandemic betting on an eevee boom

and so they are profiting off of that

right now and so when we look at the

other autos like the uh plunge in the f

series pickup this morning uh and this

sort of reiterates what kathy said when

she released her video but this morning

we got a report that the f-series pickup

truck from ford plunged 31

that ford has sold 26 percent less

vehicles this quarter than they did

last year in the same quarter

and so when we see numbers like this in

addition to toyota selling maybe uh 20

to 25 percent less vehicles quarter over

quarter just like ford seeing these

large declines we wonder wait a minute

is that the consumer or wait a minute

ford blamed supply chains and

semiconductors toyota blamed supply

chains and semiconductors they didn't

actually blame the consumer lucid's

doing it rivian's doing it they're all

blaming supply chains and the

semiconductor shortage they're actually

not blaming the consumer

so i don't know if we could use that

kathy woody an argument of saying the

consumer is definitely weakening now i

actually and i've said this before i

want to be clear here i agree that i do

think the consumer will weaken

but just because i'm making the

prediction that the consumer will weaken

i'm not seeing it yet like so far i'm

wrong i'm not seeing the consumer weaken

kathy's seeing that decline in

purchasing power but i don't know

i i don't necessarily agree with her

rationalizations or sort of

reasons for why that consumer purchasing

power is going down so if she were to do

another update i'd really like a little

bit more concrete examples of where that

consumer purchasing power is going down

now look

where can you see this and i think this

is going forward we're going to talk

about a couple other things that kathy

said as well where can you see and what

is really important to do going forward

to measure the consumer well to measure

the consumer

the next earnings season going gonna be

huge

how did consumers react in q1 i think

that's going to be critical i want to

watch these earnings coming up here

starting in a couple weeks like a hawk

what are the consumers saying about

russia and ukraine did they spend less

money in in q1 did they spend less money

starting february 24th and in march

because gas prices went up

did are companies coming in with lower

guidance is etsy missing are the credit

card companies missing uh and so

that's going to be a huge guide going

forward is if we get misses

then maybe kathy's right maybe the

consumers are going to weaken we're

going to head towards recession just

like that 10-2 yield curve is predicting

alternatively if these next earnings

reports come out and say

dude still got supply chain issues

pricing power still got it still pumping

you know uh profits like crazy

and uh you know we just had a report for

example that that starbucks is halting

buybacks because they're reinvesting in

their stores what they're really trying

to say is they need to spend so much

more money on coffee and so much more

money on employees and so much more

money on on like you know training

people in their stores because of quits

and new hires or whatever that

they they can't keep buying back their

stock they got to actually spend money

on their business right and this is

because consumers keep buying coffee

even though the price of coffee keeps

going up consumers keep buying coffee

the starbucks was doing great in terms

of consumer demand with the exception of

in china is doing great here in america

in terms of customer demand

the retailers seem to be doing great the

travel companies seem to be doing great

and so in my opinion everything's going

to come down to these earnings here

for for q1 and then the forecast for q2

but let's touch a little bit more on

what kathy thinks regarding the

inversion so

she thinks the bond market's right that

we're going to see a recession the 10 to

yield curve has inverted and quite

frankly it didn't get better today even

though the stock market rallied the 10-2

uh inversion has worsened i think we're

like negative yeah here it is negative

three basis points right now you can see

that there at the bottom right corner of

the screen

uh right there there you go look at that

negative three basis points now yeah and

so kathy makes this argument that hey

we are going to uh probably see demand

destruction at the same time as the

federal reserve is raising rates and uh

that's going to lead us into a recession

and she does not believe that inflation

is the real problem which i kind of

agree with her on this long term i don't

think that inflation expectations are

the issue look at the five-year

break-even chart it's plummeting again

with the inflation expectations shot up

during the war when the war started at

the beginning of this ukraine crisis

but look at this they're starting to

plummet again and so what's the bond

market telling us well the bond market's

saying

we believe that inflation is going to

come back down that's what we're seeing

here in the last few days

on top of that we think the fed's going

to be too aggressive the market's

pricing in that 50 bp hike i don't think

they're gonna do the 50 bp hike neither

this kathy but the market does market

thinks with like 70 certainty that we're

gonna see a 50 bp hike and so what's the

market pricing in right now it's pricing

in that the fed thinks inflation is out

of control and they're going to raise

rates too aggressively but the market's

actually saying

but inflation's probably going to go

down the fed's going to have over

tightened and pushes into a recession

which historically the fed kind of does

now does that mean run away and dump and

sell everything no of course not because

usually the recession doesn't actually

come until rates stop going up and then

they start going down and then it's like

oh crap we tightened too much oops

recession

so like at the beginning of the rate

hike cycle rate hiking cycle you kind of

want to be in and exposed to the market

but look kathy really hangs her hat on

the bond market and

the ten two has always been right it's

always predicted a recession within 12

to 24 months now i did a video on the

truth about the coming recession

inverted yields you could type that

title and do a youtube and you'll see it

it was this video it had the thumbnail

of the playgrounds really really good

watch on my thesis on on the yield

curves and the difference between the

10-2 and like the three-month uh 10-year

which kathy does not like the

three-month tenure

but

look

the thing is

things are very blurry right now and if

i were to give a big bottom line out of

everything it would be this

if earnings

forecasts

beat or meet

for q2

we're golden

we're probably doing really really well

if earnings

miss and we get revision down down down

down

it's not going to be good

not going to be good and so my strategy

is to remain nimble we're starting to

get to some crazy levels with these

market rallies where we keep seeing the

stock market go up up up and up i'm glad

i dumped everything i had into the

market pretty much i bought them but now

some of the prices are like well this

isn't fun anymore i'd rather pay my

taxes than uh which obviously you should

always pay your taxes but i'd rather pay

my taxes then then buy stocks right now

because because prices have gone up so

much again let's like no

give me a little bit more rent but you

know whatever so anyway be careful out

there hopefully this adds a little bit

color and we'll see in the next one

goodbye