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recently in her monthly in the no report CEO and CIO of Arc invest Kathy Wood shared her thoughts on the current economy the growth of M2 crypto and most notably the recent bank failures Kathy compared it to the crisis that occurred in 1994 when Orange County went broke she believes that the failure of silvergate Bank in Silicon Valley Bank is a sign that the FED has gone too far she acknowledges that these Banks had a concentration of crypto and venture-related customers but argues that the crisis was triggered by deposit outflows which were caused by risk aversion and the lack of Returns on deposits money is fleeing to money market funds which is not necessarily presenting major problems for the Big Money Center Banks but it is definitely causing issues for smaller Banks let's listen to Kathy the leading indicators of inflation are pointing down to deflation actually and this idea that we should be using employment I understand it's in its mandate is to encourage full employment uh and we think low inflation is consistent with full employment but we don't like this idea that because employment's going up that's a bad thing it's inflationary that's the Phillips curve view of the world which I've discussed on this webinar a few times in the past but basically it says if employment and output are moving up then the riska is that inflation will move up as well the history of the last 40 years on balance suggests that is just false we had inflation and interest rates coming down pretty consistently from the early 1980s until until 2020 so 40 years and during that time some of the strongest economies with the best employment gains gains and output gains were in um periods when inflation was coming down and the link there is that when you have strong output growth um you tend to have strong productivity growth as well and productivity so output per Mana hour enables companies to actually pay higher wages without increasing their prices or they can increase their margins without increasing their prices now very recently companies have been doing the opposite companies even like PNG have been relying on pricing to maintain margins uh why is that well as they've pushed as prices went up the consumers started pulling back png's volume growth in the fourth quarter was down six percent that's crazy that's very unusual for a Staples company as well well so basically the consumer is saying no mas and I think while many at the fed and elsewhere think that these higher prices are going to be perpetuated and we'll get into the wage structure I think we're seeing quite the opposite uh we're going if volumes continue to be hit because the consumers are saying no I'm I'm not going to be buying that anymore well the hit is going to be to margins so uh I think I think monetary policy narratives have to change a bit here and haven't yet chairman Powell was out this week in front of Congress both houses of Congress sounding very hawkish why because some of the economic indicators that have come out recently look strong including initial unemployment insurance claims they're going down suggesting employment is is doing fine so we'll get into that in a moment when we talk about economic indicators but we're beginning to see uh Brewing here a banking crisis and the question we have to answer is this going to become systemic like Lehman Brothers in 0809 or and we're betting on this latter one here is this more like 1994 when uh Orange County went broke and that created a crisis to which the FED responded uh we think it's much more like 1994 because the setup was similar uh in 93-94 commodity prices had taken off as we were coming out of that uh recession it was an SNL induced recession so housing and and uh the Fed was railing against those price increases with higher interest rates it was a terrible year for growth stocks and that's how we would characterize uh 2022.
um but when Orange County went bust that was a sign that the FED had gone too far to watch Cappy's full report check out the link below what are your thoughts on the bank crisis do you think this is a critical hit to the crypto industry or was silvergate a victim of its own errors let us know in the comments if you want to see more on the world of crypto and tech make sure to like subscribe and hit that notification Bell as we put out daily content thanks for watching and we'll see you next time
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