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well what we do um see in these earnings results is that we are in a recession and we've been calling for a recession for quite some time a lot of it based on excess inventory so we think this is an inventory-led recession and i think that's coming through loud and clear we're seeing advertisers cut back dramatically it's you know we've just gotten two quarters consecutive quarters of negative real gdp growth but a lot of people still are fighting the notion that we're in a recession uh as inflation and interest rates were going up we were facing incredible headwinds uh that started in february of 21 and um it looks like at least so far uh that we bottomed on an intraday basis based on our flagship strategy um on may 12th and uh we actually bottomed before the nasdaq and the s p did the s p broke down to new lows after that so that was an early signal that we might be turning the corner here but i think to really turn the corner the fed does need to change its spots it's getting all kinds of signals that it should like an inverted yield curve and yet uh i think it's paying attention to lagging indicators of inflation hello everyone my name is wagner now according to kathy wood arc invest ceo and cio the fed is making a big mistake cathy wood sees the federal reserve is making a big mistake by raising the interest rates too quickly you see inflation is still a very short-term problem and this becomes clear when investors start paying closer attention to how the gold and the us dollar have been trading he has also recently said that she believes the fed is making a big mistake with their policy and that we're also getting all kinds of catalysts which should give the fed a pause and pivot their policies and the markets are also telling us that they are making a mistake and i think something will break that matters to them if they keep following the lagging indicator called the cpi now apart from the fact that krypto is having its worst quarter since 2011 crypto as a whole is a much more mature market than it was back then the s p 500 is also down 20 a year to date the nasdaq is down roughly 30 and the stock market has not seen a worse year to date since 1962.
and in june the fed raised interest rates by 75 basis points to a range of 1.5 percent to 1.75 percent the most significant one-time hike since 1994 and later in july it also raised interest rates by another 75 basis points and the fed's commitment to the tighter monetary policy comes when inflation runs at a 40-year high the latest u.s annual inflation numbers have also continued to increase and kathy wood would argue that the fed should be worried about deflationary forces and these are all kinds of deflationary signals she said which are going to force the fed to pivot and reverse their current policy and i also think based on what we're seeing from gold gold the gold price actually peaked in august of 2020 many people don't know that and it's down near the low end of a range a two-year range that's an important inflation gauge and then copper price the copper price broke down it broke a one year trading range in the four to five dollars per pound range and it has come down hard so i think all these are signals that that inflation is going to come down it's going to come down significantly and that we're probably going to see some deflation and we've been calling for that for quite some time as well you see deflation is the opposite of inflation with inflation debt is borrowed today and paid back with currency tomorrow that is worth a lot less which makes the cost of that less and its currency is devalued and interest rates are near zero the buying power declines and deflation works in the opposite way with deflation prices get cheaper now this sounds like a good thing but this can actually lead to a negative feedback loop where people believe products will get cheaper if they just wait long enough so they stop buying and wait for the cheaper product this decreases the growth for the economy overall and that is exactly why kathy wood is worried about deflation the fed could raise interest rates too high and too often causing inflation to hurt the economy and there are a few deflationary signals that will cause the fed to pivot their policy the deflationary signals include trading patterns of gold the u.s dollar yields oils and copper and gold which is often viewed as an inflationary hedge out there and has also stumbled down below one thousand seventy dollars and is down around twelve percent in the last three months and this trading pattern does not support the inflation narrative kathy would point out but gold has been one of the most reliable inflation hedges out there and it has broken down to the low end of its range but i think the reason for the pivot is going to be a massive amount of deflation in the system it's already here if you look at commodity prices the gold price for example it actually peaked in august of 2020 and it's at the lower end of the two-year range while copper has broken down oil is breaking down lumber has crashed uh iron ore as well uh freight rates out there are suggesting that the supply chains are loosening up quite significantly the rates are coming down so we've got deflation in the system she also pointed out that deflation is the greater risk here and not inflation kathy stated when talking about the prices of gold he added that the latest dollar strength is an even bigger sign of deflation noting that the us dollar index is trading at a 20-year high also the 10-year treasury yield is below 3 and oil is done more than 20 on the month even oil is starting to break despite what's going on in russia because the global economy is in a recession so demand has gone higher than 2019 this also brought out comments from elon musk stating that if interest rates are increased yet again then it could send the prices down dramatically and when consumers expect prices to decline they often delay making purchases until when they think prices will be lower decreasing the overall demand now this could also affect whether people are buying teslas now or decide to buy later when evs may cost less and this goes in line to what kathy wood believes that deflation is on the horizon she said all things point to the inflation problems being overblown the way i describe what's going on right now i was in in my early days in my career in the early 80s when volker was taking a sledgehammer to inflation because it was embedded in the system after 15 years of profligate spending vietnam war great society and then going off the gold exchange standard a sledgehammer that's what he needed that is what i believe um chairman powell thinks he needs and we just don't think that's true because we see so much deflation and one more thing we also see a massive inventory overhang around the world you've got europe in recession china in recession effectively and here in the united states retailers are bulging with inventories which will have to be cleared with discounts so we think we're going to see some major downside surprises in inflation during the next three to six months and she also disagrees that inflation is embedded with a broader market economy and sees the inventory problems resolving within the next few months now i really think this is more of an inventory problem she said i think we could be out of this when economists are finally declaring that we are in a recession that's about how bad the call has been out there everyone thought that inflation was embedded into the economy that a recession was only a question mark and arc invest etfs have experienced some of the largest losses during the first two quarters of 2022 and obviously as stocks saw a broader sell-off the arc innovation etf fell down year 53 date and all of the people who bought this are also down 53 year-to-date but i believe that selling out of kathy what's portfolio right now might be a loss you will never be able to recover from but still what we know from history is that stocks will recover and if we do see a pivot from the fed then they could recover much faster than expected unless you believe that's not going to happen and we will only go down further from here and i also want to spend a little time on crypto you see we've seen bitcoin way back in november at sixty nine thousand dollars and it is now trading at around twenty thousand twenty one thousand dollars and it's also just below its 200 week moving average which is at 22 500.
now historically rate increases have been negative for bitcoin this year and in context the time during which the fed raised its benchmark rates from near zero in march 2022 to 2.25 to 250 in august 2022 has brought a 50 drop in the price of bitcoin now even alphabet or google has cautioned that layoffs may be necessary in order to remain 20 more efficient however fed chairman jerome powell has stated that the central bank might raise rates further to achieve the desired inflation objective of 2 and the cpi or the consumer price index in the us was up to 8.5 year on year in july and the august inflation report came out to be low expectations and that is still well short of the fed's two percent inflation objective which according to former bank of england rate setting committee member david blanchflower will result in a harsh landing and this could result in an increase of unemployment and economic downturn comparable to elon musk's and kathy wood's prediction of deflation but similarly kathy wood believes that bitcoin will reach 1 million dollars by 2030 because even though prices have fallen 70 from their all-time high there's still plenty of more adoption happening behind the scenes we are very positive in bitcoin we have uh we have in our big ideas 2022 which you can find on our website we have a price target uh in 20 30 of 1.3 million dollars it's only 21 000 now and we can show you the building blocks how we get there cathy wood also referenced the most recent data stating that used car prices fell 4 in august and almost 50 by 2022.
the indicator once again reflects that consumer demand is on the downfall which could signal deflation is coming or is here already but do you guys think that the fed will be forced to pivot to avoid deflation let me know your thoughts down in the comments below and as always please don't forget to like and subscribe for more content until next time you
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