What Cathie Wood JUST Said.

hey everyone meet kevin here in this

video we're going to talk about kathy

wood's latest a warning for markets and

at the same time i am going to

incorporate something that's really

really important no not just a newspaper

but the financial times

hidden

all the way

on page 17

way

at the bottom

is something really important

that we're going to talk about that

relates to this

in just a moment but first

we're gonna mention that you should get

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as five minutes for now though we will

listen to what kathy woods

greatest fear is going forward all right

let's listen in folks see what we got

we've been saying for some time that the

the risk to

uh the economy is more on the side of

deflation and inflation so uh as kovid

took uh you know created all the um

uh destruction that it did and

quick note worth noting that she's

starting off right away by saying hey

risk here deflation not inflation that

is the opposite of what consumers feel

right now consumer expectations are that

inflation is going to be at all time

highs for years and years and years

going forward but is it possible that

consumers are actually lagging in their

expectations of what's going to happen

that is consumers should have felt this

way a year ago for high inflation now

now we're in high inflation now

consumers suddenly think inflation's

going to stay around forever and are

they going to be wrong are we actually

going to deflate let's see why kathy

wood is into deflation and then we got

to talk about something in that article

that's going to be very important supply

chains really being thrown off we've

been through a period here of inflation

which

i think

investors are baking into the cake

that's the that's the underlying

assumption out there that we're in an

inflationary period and that it was

turbocharged uh by the supply chain

disruptions uh that occurred during the

herona virus and of course they will

they will be focused on monetary policy

when they say that

um

she's essentially saying hey look if

investors are worried that inflation is

getting worse because of supply chain

issues they're going to look at every

single word that the federal reserve

says because when the federal reserve

talks it kind of gives us a little bit

of a heads up in terms of oh what's the

fed going to do about inflation do they

actually think it's here to stay or are

they suggesting it's here longer or what

and that is actually exactly what jerome

paul is saying he's saying inflation has

lasted longer and been more present than

it was initially expected however they

still expect inflation to inflict

downwards now will inflation inflect all

the way downwards to

a deflationary level let's see

student of economic history and i've

lived quite a bit of it myself so i've

seen a lot of markets and started in the

business during the 70s i was in college

when inflation was raging

so i i know what that is and i truly

believe we are not going back there and

that anyone uh planning uh for it is

probably going to be making some

mistakes

so the three sources of deflation that

we see

um to go into a little more detail uh on

the innovation side

pay attention by the way to this part

because it's going to relate to

something very very important here a lot

of people have been talking about this

right here being a big cause for

inflation coming but the counter

argument here is insane so we're setting

this up with kathy the trojan horsey end

of this

and i'm being transparent about my horse

logically enabled innovation

we are in a period today like we have

never been never i mean you have to go

back to

telephone electricity and automobile to

see three major

technologically enabled sources of

innovation evolving at the same time

today we have five five platforms

uh dna sequencing robotics uh energy

storage artificial intelligence and

blockchain technology all of all five of

those things by the way have nothing to

do with the first three things like we

didn't have dna sequencing back in the

day it didn't have artificial

intelligence back in the day or robotics

back in the day uh it's it's incredible

the the place we're in right now and

she's right i mean think about it look

when the iphone first came out i was

using the t-mobile razer and that was

cool why was it cool because it had a

color

screen

and it was more pleasant to send texts

in it still had a physical keyboard the

iphone came out and people are like oh

my gosh there's no keyboard whatever

will we do

humans must feel a response from a key

in order to be able to type

boy what a

inappropriate argument that was from

consumer reports consumer reports did a

whole piece about how getting rid of the

keyboard was the stupidest thing you

could ever do

that aged well but anyway let's keep

going here because obviously and ask

yourself how much more productive really

like what do you think about this remote

let's say the t-mobile razor is 400 and

the iphone's 1600 right so the cost is

4x it's four times as expensive let's

say uh back in you know back in the day

uh how

uh but then again i am comparing uh the

the

and so i really have to ask you to say

how much more productive could you be on

an iphone today compared to a t-mobile

razer back in 2007.

probably 10 to 20 to 50 x

with apps navigation uh background app

notifications for news emails text

messages face time zoom on your phone uh

hot spotting to your laptop so you could

take your laptop and actually function

out in society don't get me wrong i was

able to hotspot back in 2008 because i

remember taking my big old 17-inch

toshiba laptop to go play world of

warcraft on it on the travel by

tethering it but i couldn't actually do

anything other than kind of standing

there and trying to hit rock nodes

because there's no way you're fighting

tethering back in 2007

but

i think the point here is very clear yes

technology makes things much more

efficient let's keep going which are

deflationary

and not just by a little bit either

and that's why i made this argument is

that generally technology makes things

cheaper like a flat screen tv for

example that used to cost two thousand

dollars i know that because i sold my

world of warcraft account made the

dumbest financial decision ever and took

that two thousand dollars and bought a

48

uh 48 inch flat screen tv for 2 000

sony bravia hdtv

my dad ended up taking it from me

because he really liked it uh we we

agreed to that i wasn't using it as much

uh and

i should have invested that but nobody

taught me that

anyway i had to learn that all myself

but the point is that tv today is

something you could pick up for like 300

right that's deflation in technology

another form of deflation even when

phones are getting more expensive is the

fact that your productivity is

skyrocketing that folks is a very

important key that i'm dropping you for

what we're about to talk about

jeff gundlach and

howard marks and i think stan

druckenmiller

and

ray dalio all of them i think have been

very very concerned about

um

a deflationary bust

and uh we agree with them

uh in

this respect uh we think it's going to

be balanced by a deflationary boom so

that's where we differ but where we

agree

is that this is actually a very big fork

here okay ray dalio thinks that as

prices fall potentially the economy

slows people are going to get into the

great de-leveraging pay off debt pay

after pay after pay off debt the economy

shrinks even more and more and more and

potentially collapses in a deflationary

spiral kathy wood thinks no as prices

come down we're going to become so much

more efficient and so much more

productive and our economy is actually

going to grow much faster than we think

it's going to grow different trains of

thought

i am on the side of kathy here but i

still listen to ray dalio and the others

like the buries of the world and so on

there are companies who thought the

world would never change

and uh have been

again catering uh to short-term

shareholders who wanted that extra penny

or two in earnings and so got it uh

by having the companies leverage up and

take more debt and shrink the number of

shares

uh

and they've also been um focused on

dividends uh

they are

probably saddled

with

products and services that will become

obsolete because of the

record-breaking amount of innovation

taking place today

and in order to service their debt

they are going to have to cut prices

uh

and this by the way is just a reference

to companies that are more indebted like

let's say ford motors has a lot of debt

personally i don't think like they're

overly indebted like i don't think

ford's going anywhere anytime soon

obviously i prefer the teslas and the

neos of the world but uh

and i do disagree and depart from kathy

wood here where she suggests that tesla

and the automotive space is going to be

a winner take all or when you take most

space she doesn't say all she says most

uh i i think there's going to be a

healthy amount of competition in evs i

do think tesla's going to take the

toyota lion's share but that only needs

to be like 15 of the market i think

there'll be plenty of room for like a

neo to hang out with five percent or

something like that maybe even more i

will see i i would honestly love

to to drive a neo if anybody has a

connection with where i could try out a

neo i will fly to china hit me up okay

staff meet kevin dot com all right let's

keep going move those uh those goods and

services that are on their way out

anyway

uh so i i am concerned about that and oh

uh and in case i didn't finish that

thought basically if ford has a lot of

debt the argument is that they might

have to drop their prices to service

their debt to stay competitive and

that's deflationary so you've got

innovation deflation you've got dropping

your prices because you're no longer

competitive deflation

and then of course we continue on

and according to our estimates

in the year 2035

because of automation and artificial

intelligence

we believe

that gdp here in the united states will

not be 28 trillion which would be a if

you drew the growth linear growth that's

where it would be

but instead will be 40 trillion dollars

and it is our okay that is a big claim

she's suggesting then rather than our

gdp growing from 20 uh 21 trillion

dollars to let's say 28 kind of that

linear growth which linear growth just

means line right just

moving up uh just to give you a quick

little example here we'll jump right

over here

so uh linear growth this this is what

kathy is saying these are sort of the

estimates now that by 2035 will be

somewhere like this she's suggesting

that this is wrong that because of

increases in productivity we're actually

going to see something more uh more in

line with

this

40 trillion dollars as a gdp by 2035 and

the difference here this uh this extra

fat here so to speak that is

productivity

due to

none other than

innovation boom and that's what kathy

would invest in after all i like

investing in that too let's keep going

uh focused only on innovation to figure

out where that extra 12 trillion dollars

is going to come from and then to

educate

and orient our investors of course but

also

parents and grandparents you know how

where how should you educate your

children you know how should you steer

them so that they are on the right side

of change because there are going to be

so many exciting opportunities

wow that is

incredible incredible piece here but

what's more interesting maybe not

necessarily more interesting but equally

interesting is this right here kathy

would briefly touch us on it but

folks this is so understated every time

i hear people talk about inflation

they're like well people are paying more

money for people who work minimum wage

jobs it's like yeah

we get it because less of those

less people who and this is statistical

less people working minimum wage jobs

are vaccinated therefore they're more

likely to want to stay home or away from

cove

potential exposure at least that's what

some studies have shown it's not going

to be true for everyone it's just an

increased percentage of people who work

uh service jobs are less likely to be

vaccinated therefore less likely to want

to return to work which is one of the

reasons there were so many arguments

around oh well maybe people go back to

work after the unemployment boost

expires whatever the point is we still

have an elevated unemployment rate and

so people are wondering okay does this

mean wages are going to continue to go

up and if wages continue to go up does

that mean we're going to continue to see

inflation because if wages go up this is

like the child argument here like this

is very very basic level economics okay

basic level economics

well if i pay somebody eight dollars an

hour to make this cup but now i have to

pay them ten dollars an hour to make

this cup i'll have to raise the price of

the cup by probably somewhere around

three dollars or two dollars and fifty

cents to make up for those higher wages

and the extra additional costs that go

with higher wages like workers comp and

insurances and blah blah blah blah so

wait just go up prices must go that's

the very elementary argument right

that's like econ like 100 we're not even

at 101 yet right that's basing okay you

want to you want to graduate to to like

the higher advanced levels of economics

that's what you're here for okay good

this was a great piece ready for this

okay the great inflation debate is it

sustained or transitory and one of the

most important features of the consumer

price index or the measure of inflation

and inflation in general is

labor costs and labor costs are not just

the wages that you pay this is really

important and i think this gets missed

so much especially here on youtube is

when people think wages up they

immediately think that's it inflation

must be going up right but there's this

this forgotten aspect of wait a minute

there are two parts to wages

wages are the uh the actual uh hourly

rate that you pay so this is sort of the

hourly rate you could even call this

sort of labor cost and then you can call

this hourly wages just to make this a

little bit more clear

but the other factor that goes into this

is very important and it's productivity

what if the person that i pay ten

dollars an hour to make this cup can

actually make me two cups and make you

know even though i'm paying them uh you

know 15 more what if they can double

their output and we can do

100x on on our cup production right

so productivity very important now kathy

touched on this but didn't go deep on

this

this was interesting this author says if

productivity accelerates

unit labor cost should remain stable

and show should prices so as long as

wages go up with increasing worker

productivity we shouldn't actually see

labor costs the top costs before the

fork go up and what's really cool is you

could just type into google st louis

fred

labor productivity

and you'll get this first google result

here labor productivity output per hour

all employed

individuals let's go to just the last

five years here look at this inflection

point

after the pandemic so starting in uh

well i mean i guess you could really say

well it's q2 all of this right here is

really cute too uh in q2 this inflection

to the upside if we drew this trend line

continued you know we did some technical

analysis here we'd be shy of where we

are now maybe we'd be somewhere right

here at this gray or a marker or a

reading of about 110 and we're actually

at one one two five and we expect that

pace of change that rate of change to

accelerate in favor of more productivity

as people start going back to work uh

and continue to go back to work since

people have already started go back to

work if productivity accelerates uh the

prices should remain stable here is

another thing there are many reasons to

believe firms will continue to invest

and increase productivity one they're

sitting on mounds of cash as a result of

stimulus programs and cheap credit

earnings growth has soared and labor is

no longer such a cheap substitute for

capital expenditure and firms have to

catch up after weak investment in other

words because labor is getting more

expensive people are now companies are

now purposefully plowing more money into

new machinery and innovation to reduce

input costs because labor's more

expensive so in a weird way as labor

gets more expensive the labor that we do

hire becomes more productive because now

it works with newly created or installed

machinery because they that's the only

way those jobs could be created in the

first place by being more efficient uh

and and i've previously talked about how

this pandemic has been sort of this in

my opinion cleanse for for corporations

uh where corporations were able to lay

off tens of thousands of people and then

just hire back the people that they

probably found were the most productive

now that's harsh to the people who are

not laid off or sorry who are not hired

back but uh i'm talking in the mindset

of an investor here not to offend so the

shift from working uh at home during the

pandemic may have also yielded

efficiency gains uh 65 of uh respondents

felt remote working has been good for

productivity jury is still out on this

though higher productivity growth though

also

means that the economy can maintain

stable prices even in the face of higher

wages this is this was money right here

uh like when you now look at this and

you you again you look at your inputs

for inflation oh car prices went up

airline prices went up wages are going

up yeah but wait a minute airline car

prices are temporary wedding dresses are

temporary price increases sure the

prices might stay at elevated levels for

a while but if people are getting paid

more and they're being more productive

we could actually grow and inflict down

inflation fascinating insights kathy

fascinating insights financial times

thank you so much for watching this

video make sure to get your life

insurance in as little as 5 minutes and

folks we'll see in the next one thanks

again bye

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