A lot to unpack here. If you want to skip the bitcoin talk go to 20:10 and you will see the market summary. Some interesting metrics to look at.
https://ark-invest.com/videos/market-insights/january-5-2024-in-the-know-with-cathie-wood?
Andy
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Thanks for the link. Here is a brief summary (from my notes)–
Cathy Wood Summary Jan 5, 2024
We have been in a rolling recession for several years. Recession is coming.
Consumer manufacturers are seeing falling unit sales in response to price increases. They will respond by cost cutting (so they can trim prices). Unemployment figures will rise.
Temporary employment is falling.
Double ordering has resulted in excess inventory. Production will slow to move inventory.
Capital expenditures are trending down. Especially in computers and peripherals due to much purchasing during Covid. AI may be in for a rethink. Use free software instead. Good enough.
Dollar is strengthening making US exports less competitive. Slowing the economy.
Too much corporate debt (from very low interest rates) will end badly. Rising bankruptcies.
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Nice summary Paul. I believe this was in the automotive industry so companies that supplies chips to that industry could see a down turn. As was noticed by MBLY.
Andy
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The Captain
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Who gives a plop what “Cathie Wood”, or any other talking head says in public? As someone said, years/decades ago, about the talking heads on bubblevision, words to the effect “if they are giving away advice, that is what it’s worth”.
Steve
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Uh, Steve0, they go on television because it’s good for business. People get to know who they are. They get their name out. Their Mom is impressed. Maybe they have a book to sell or a fund they want you to find out about.
This is not complicated. A year ago I never heard of Cathie Wood and now I know who she is. I happen to think she’s wrong about a lot of stuff, but then I think the same about lots of famous people. Being famous has lots of perks, just look at the Kardashians, who have made hundreds of millions of dollars for … being famous.
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Re: who gives a plop.
Indeed talking heads are exactly that. But she does present her evidence. Who knows if she is right? Your problem is she might be right.
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She has looked at all the dials on the dashboard.
I have very little faith in her. But her returns were excellent last year. How she did it is to be a two-year wonder BTC. I doubt she has done anything else in 2023.
She’s done fine this year. Since inception her flagship ARKK fund has been completely crushed by the Nasdaq index.
If you are withering under the burden of having too much money, investing with Cathie Wood will fix that in short order.
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So, her appearances, and the associated hype, are advertising, passed off as “news”?
Steve
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People who have too much money are stepping over her on the sidewalk. The people with too little money see her on the news. That is pedestrian.
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So instead of focusing on Cathy Woods what did you guys think about her viewpoint on the Macro Economic trends?
Andy
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The trends she was talking about were.
Deflation, She says she always thought that inflation was transitory and that now we will see deflation.
That innovations will provide a turbo charged gdp and that now we will see GDP going much higher.
If it is true that GDP goes much higher than the Debt to GDP will be much lower, so maybe the debt doesn’t matter. The growth will be much higher than the 1980’s
Predicts negative inflation in 2024 and 2025. Thinks the fed will overshoot their goal.
The yield curve has been inverted for 18 months but thinks the recession will be mild because we have been in a rolling recession.
Points to FDX and General Mills revenue going down because consumers are not willing to pay the prices so they will have to bring down their prices.
Thinks that capex in spending on software and computers will come down but AI will buffer some of this. But corporations will look for ways to mitigate the cost.
Claims the dollar is very strong historically which is deflationary.
Commodity prices are in a downturn which should make the fed change course.
Gold to oil ratio is almost at 30 which usually signals a crisis thinks maybe debt on the private side ie commercial loans might drive the crisis.
Andy
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Re: Advertising passed off as news
Yes, that is the story of most talking heads on TV etc. They look smart and people decide to do business with them.
Those with a column to write or time slot to fill might be an exception. But they get influenced by those “talking their book.”
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I don’t think we doubt her data. We know the economy is slowing. The question do you believe her estimates for the future?
Will there be a recession? If so how severe?
Recession requires two consecutive qtrs of declining GDP. Last reported qtr was positive. Will December qtr be negative? March qtr is earliest recession can be declared.
How were holiday sales? Retailers scaled back inventory and i saw sales before Christmas. We will be watching January numbers closely.
Full scale recession could mean 30% reduction in earnings across a broad spectrum of companies and months to recover. Stocks will likely take a big hit and you would want to be in cash, fixed incomes or money markets.
What is a “soft landing?” Maybe end of inflation with slowing of some consumer sectors. Recession that is over by the time its reported.
Cathie offers some interesting ideas. But we shall see if she is right.
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I agree Paul. The problem with anybody prognosticating is that the conclusion can be wrong even with all the data as we all know. But I do see that automotive might slow down, as she pointed out, but I am not so sure about software, because it has been in a slow down for about a year. I do think AI is going to keep some chip companies thriving and that we should start seeing software companies that are tied to AI start taking off. But I can see commodities going down until we go on the other side of the down turn.
Andy
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Yes, and someone noted recently that double ordering in the shortage means semiconductor inventories for chips used in autos are high. Extended slow down is implied by Cathie’s numbers.
I agree AI seems to be the future. Everyone is scrambling to find a position in the market. Yes, a “rethink” might be in order. But if i ran a software company AI would be one of the efforts i would protect. Maybe scale back budget but keep it going. Trim elsewhere.
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Deflation is very rare. It’s only happened a handful of times in the last century, and mostly associated with horrible economic conditions. And almost always follows periods of high inflation.
It all depends on interest rates. If interest rates remain around 4-5%, it means the debt will rise by at least 4-5% each year. That’s because we refinance ALL the interest ALL the time. And that’s assuming no additional new debt being added, which is a bad assumption since it isn’t likely to happen.
Not very likely. The Fed can adjust rates whenever they want, and if they see this kind of daya, you can bet they will do it, and do it dramatically.
There may actually not be a real recession. I think that’s because any rolloff of employment from privately financed endeavors will rapidly be re-employed in government financed endeavors. Recent legislation is pouring money into all sorts of things, semiconductor factories, EV manufacturing, battery manufacturing, renewable energy and related stuff, assorted other infrastructure, etc.
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Thanks Mark, I do not believe this to be true. If the Fed could adjust rates whenever they want than inflation wouldn’t have become as high as it did. I think it is possible they overshoot on the downside also.
I agree that could pull the economy up and the recession everyone has been calling for could not come to pass.
Andy
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This is clearly not correct because it doesn’t take into account things other than the Fed. For example, the pandemic disruption caused supply chain disruption which caused inflation. No matter what the Fed did, they couldn’t fix supply chain with quicker higher interest rates. The products weren’t made and the ships literally couldn’t get there and no financial machinations could change that.
It is entirely possible that they overshoot on the other side, but my point is that they can correct as necessary. Unless there is some sort of event external to the Fed that causes or adds to it.
The Fed also seems to have gotten the hang of jawboning more successfully. You can see how market interest rates often respond well before the Fed makes any move at all.
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