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This video is brought to you by Extra. Learn more at metkvin.com/extra. Hey everyone, me Kevin here. In this video, I have to say I am disappointed with Kathy Wood. And I'm going to break down the most salient arguments that Kathy Wood made in her recent video. I'm going to break down with facts my belief as to why some of the things Kathy Wood is saying are just blatantly wrong.
And I'm very disappointed because usually I agree with almost everything Kathy has to say. I think one of the biggest differences between myself and Kathy right now is that while first we totally agree that we're going to see the explosion of innovation between 2024 and 2030 that's the longer term right that six-year end of the decade period I completely agree genomics is in its infancy explosion of cash flow DNA sequencing energy storage adaptive robotics blockchain tech everything a convergence of innovation completely agree that these things are going to lead to deflation in broader markets in prices and massive profits for innovative companies.
Completely agree. But it's the time between 2022 and 2024 that I'm nervous about and that I have some bones to pick with Kathy Wood that 2022 and 2023 are not what Kathy Wood is suggesting. Let's go through item by item her argument and then my response. So, first Kathy Wood argues that we're already seeing a significant amount of monetary tightening and that because we're already seeing monetary tightening, maybe markets are overdoing the sell-off, that maybe we're overly negative and overly fearful because we've already seen tightening and we don't need to worry about tightening anymore.
Well, folks, let's actually look at the facts. So, Kathy Wood provides evidence that we are tightening money growth as her first evidence. And she suggests that, hey, look, the amount of money growth that we've seen used to be at 27% year-over-year during the pandemic, during the early part of the pandemic, we printed so much money.
That's down to 13% recently. And if you zoom in even more, it's down to 8% growth in in the expansion of the money supply or M2 money supply, right? But unfortunately, I worry that Kathy is stuck in in here with a recency bias. Kathy's only looking here at how we've seen this decline of essentially money supply growth from 27% down to this 13 or recently 8%.
But Kathy isn't actually zooming out to realize that we are still expanding the money supply substantially more than the 3 to 4% that we usually do during normal times. This is not a sign of tightening. This sign of of a drop here is not tightening. This is a removal of a lot of accommodation while still providing accommodation.
We are still printing money right now. We're still printing 30 to$45 billion per month right now with the Federal Reserve. We are still stimulating the economy and we'll talk about stimulus in just a moment because folks forget that we still have a flow of stimulus. Kathy Wood suggests a stimulus flow is over that the that now we're tightening because we've seen this decline.
But that's not right. Just because you're comparing to a time in 2020 when we opened the floodgates of money and yeah, we had a lot of money printing and and creation then. And yes, today things are relatively less than they were then. Doesn't mean that that money just disappears. It doesn't work that way.
Right now, this is where Kathy would then suggest that uh Jerome Powell because we're already tightening might end up just telegraphing uh and end up acting with a 50 basis point hike uh in in in the March meeting. Essentially saying, look, because we're already tightening, maybe we'll do a 50 basis point hike.
So, a half percent hike on March 16th and then we'll just take a pause. We'll just stop for a moment because after all, it's an election year and maybe we don't want to end up rocking the boat during an election year because then Powell could be accused of potentially uh you know having a political bias, which we'll talk about the political bias aspect in just a moment.
But here's here's the problem. Okay, Kathy Wood thinks that they're going to raise rates half a percent and then pause and not do more because we've tightened enough. But unfortunately, this is relatively the opposite of what Jerome Powell says. Now, even though Jerome Powell doesn't give us crystal clarity, Kathy Wood implies that he has given us clarity when the reality is if anything, he's giving us the opposite indications.
This is where you have to make up your own mind. Jerome Powell says that we want to quote reduce the balance sheet in a predictable manner over time and we want it to be orderly and predictable. That is the opposite of implying one and done, right? But that's for the balance sheet. What about rates?
Well, Kathy Wood is suggesting that uh we're going to have this half uh point half uh percentage point increase and then maybe the federal pause. But wait a minute, Jerome Powell was literally asked this question during the last Federal Reserve uh FOMC press conference. Jerome Powell was literally asked, "What about just frontloading interest rate increases and then pausing?" And that is literally what Kathy Wood is suggesting is going to happen.
A front-loading of interest rate increases and then a pause. And Jerome Powell was literally asked this question. And this was Jerome Powell's response. And I'm going to leave the conclusion up to you. Does Jerome Powell's response agree with Kathy Wood or suggests something entirely different? This is for you to analyze.
Okay. What about front-loading Jerome Powell? Jerome Powell responds with the following. This is a very different expansion with higher inflation and higher growth in a much stronger economy. These differences are likely to be reflected in our policy. We haven't determined any ceiling on rate increases.
We want to move steadily away from accommodative economic effects. We'll be guided by the data and we'll try to communicate that as clearly as possible. But we know the economy is in a different place today. It is a much stronger economy that we have today with major differences from the past. We have much more inflation that we've seen in prior tightening cycles.
So does Jerome Powell's response here align more with Kathy that we're going to do a oneand done in March and then go away or does it align more with a steady Eddie rate hike? We got to keep pushing and we got to walk the walk at the Fed to finally raise rates consistently, steadily, and be very clear with our intentions and actually follow through with them.
I'm going to leave the conclusion to that up to you. I think it's pretty obvious which side my opinion lies on this one. And in case it's not, I think Kathy's wrong on this one. Just anyway. Uh then Kathy suggests this argument and this is a very very commonly held belief uh that uh that might not be founded in fact.
And there are a couple things that we really have to break apart here because I'm a little bit disappointed in Kathy in this. But first, I just have to mention to you very commonly held belief. Maybe Jerome Powell won't want to raise rates aggressively in 2022 because we have a midterm election year.
Well, look, I don't know if this is just a correlation without causation aspect or whatever. But let's just look at some other election related time frames and compare them to non-election related time frames. Take a look at this. In 2016, which was a presidential election year, we had an interest rate liftoff.
If Kathy Wood would is right, we we wouldn't do that during a presidential election year because that could be a sign of political bias. In 2018, we overly hiked rates during the midterm elections. In 2000, leading into the dot crash, we hiked rates numerous times, four to five times, leading rates to go from 5.25 to 6.5% in less than a year.
In 1992, which was also a presidential election year, interest rates were actually suddenly cut 1%. And frankly, the most stable times at the Federal Reserve, seemed to be non-election years or periods of massive political issues. So, we seem to have a more calm Fed during politically calm periods and a more active Fed during politically active periods, which is kind of an opposite.
I mean, consider this. Between 2010 and 2016, the Fed was pretty quiet until Donald Trump happened on the scene in 2016. In 2021, the Fed was mostly quiet, talking about how inflation's transitory, and we've had, you know, essentially no elections, right? There haven't been elections other than the California recall in 2021.
In well, and of course some other elections, but but minor ones, no nothing nationally. Uh between 1995 and 1998, no no massive elections here, uh the Federal Reserve changed virtually nothing. So I think the the suggestion that politics affects the Fed comes from the c cynicism that the Fed really cares more about politics than the actual economy and preserving the dollar as much as they can.
And while I agree that the Fed can be influenced by politics like Biden potentially threatening Jerome Powell's job, which I believe happened, I do not see election years as actually providing causation to action or not at the Federal Reserve. I I personally think this is a little bit of a weak argument.
uh and and I I can't say that it's definitely a definite aspect that there is political influence or that there is not. I'm sure there is some level of political influence, but I I don't think we can we can make bets with our money that the Fed's not going to do something just because of politics. His history doesn't say we can make that bet.
Uh at least, you know, other than being a yolo and and a totally shot in the dark. A total shot in the dark. Now, uh then Kathy would suggest that our economy is is actually quite weak. And this I have a little bit of a problem with because you know I don't know about your economy Kathy, but GDP came in at 5.7% in January with an annualized rate of growth of over uh 6% for Q4.
This is the largest gain that we've had since 1984. And I'm not sure if you've been paying attention to some of the earnings calls here, but Microsoft, Amazon, Apple, Starbucks, GM, Ford, Tesla, Ralph Lauren, UPS, Caterpillar, or Gibway Clark, just to name a few of the earnings reports that I've read, have literally all literally all of them said that they have had the highest levels of demand that they have ever seen and the highest pricing power that they have ever seen in recent decades.
Now, the only complaint that they have is they're being held back by dynamics, dynamics like supply chains and labor costs. Now Kathy then so so I disagree that this is a slow economy. The fact that Kathy Wood is suggesting that our economy is slowing I I I I don't see that. I think our economy is actually very very very strong right now which I know some people argue then they're like well Kevin if the economy is so strong how could we go into a recession?
Well a recession is only two negative GDP prints in a row right and we if we have that then all of a sudden you might see consumers turn inward and stop spending. That's when you could potentially see the deflation from excessive inventories and people stop spending. But right now we're we're not there, right?
And we're talking on quarterto quarter basis here. Now Kathy then points to fiscal outlays peaking in 2022 and suggests that this is because she thinks that the child tax credit ended in December. She said thanks. We're going to clarify this. Uh and that there really haven't been any other forms of stimulus checks and and that the government isn't spending as much money on people as they did previously.
No. While this is broadly true, Kathy missed again some facts here. And and this is where I'm thinking to myself, Kathy, come on. Y'all got hundreds of millions of dollars to hire researchers. You should know the answer to this. You should know this. I'm one dude sitting in this room here doing 99% of my own research.
Uh, no. Anyway, look. Okay, let's clarify this about the child tax credit. The child tax credit came in two batches. Batch number one did end in December. This is correct, Kathy. Batch number one ended in December. Batch number one was a monthly payment of $250 to $300 per child depending on the age of the child for six months ending in December.
The second batch will come as a refundable tax credit on individuals tax returns. Guess what? Not in December, in February, March, or April. This means that millions of households will actually be getting a very large stimulus check. The largest stimulus check that we've ever had. Remember, we had $1,400, $1,200, and $600.
This means we're going to have the largest stimulus check ever actually coming in March, February, or April via a refundable tax credit on people's tax returns of $1,500 to $1,800 per child. So, the largest stimulus check ever is actually still on its way. That's massive. This is likely to lead to another temporary surge of demand and reiterate companies pricing power.
But Kathy made no mention of this. The fact that companies are suggesting they have so much pricing power and the fact that all of this this extra these extra little surges of of spending that people have from having higher bank balance sheets or or household balance sheets, higher bank uh higher net worths, whatever.
The fact that Kathy is ignoring this confuses me a little bit. I'm I'm not sure why this would not be talked about. Of course, fiscal policy will calm down. I agree with this. And I believe we're actually going to set up for a really weird and rude awakening potentially in Q3 and Q4 when at the same time as finally stimulus ends and the Fed stimulus ends because remember the Fed's still printing money today.
We're still getting a massive stimulus check ahead of us. Still got growing inflation ahead of us, right? So we're going to go through more pain first while consumers are still going to feel strong. And then the concern is if inflation doesn't go down, then all of a sudden finally we see less consumer purchasing power, less consumer spending at the same potential time as we have less support on accommodative policies.
Maybe the Fed has tightened too much and then this is where potentially we push into a recessionary period. Hopefully it is short and shallow. Uh but but that seems to be the trajectory we're heading on right now. So uh Fed's still printing money. Congress is still sending checks to people. Uh and and really little evidence here of a weak economy.
Now Kathy does suggest that we've seen a decline of the annual work week of 6% or an annualized rate of about 6%. But makes no mention of the fact that this was a measure from January where it would make sense that we saw a little bit of a decline in people's work week because of omocron. Kathy only makes the mention of omocrron when making essentially an excuse for why wages were going up potentially because of omocrron.
So that was weird. Why mention omocron as a reason why wages went up, but not mention omocron as a potential reason why the work week was lower in the last jobs report? I'm I'm I'm not jing with this. Usually I love Kathy Wood videos and and I'll tell you, I don't want to come across as harsh here, but I think when we just look at the facts and and we compare reality, then then we have we have some cause for concern here.
I want to be the perma bull. I want to be the bull going, "Let's go. we're going to the moon on these innovation plays. I'm a little concerned. Anyway, uh then Kathy talks about how purchasing power is declining. Now, this I agree is a good argument. You know, we've had real wage growth negative over the last year.
That means inflation's at 7% and wage growth has been 5% year-over-year. Uh that's a negative, right? People are losing purchasing power. The problem, unfortunately, is that Kathy is suggesting, see, people are losing purchasing power. This means our economy is weak right now. Wrong. All you have to do is actually look at the bank earnings that are suggesting people have way more money in their uh checking accounts than ever before.
Yeah, the saving rates have declined, but they still have bigger balance sheets now, which means they could potentially still be spending very strongly for the next two to three quarters. Entirely possible, right? All you have to do is look at Visa or Mastercard to see people are spending money like crazy, especially in retail stores.
And so Kathy is suggesting that we're already seeing a slowdown when the reality is we're seeing only the potential of a slowdown get baked in. And this is a problem because if Kathy thinks we're slowing down now, but really what we're setting up for is a slowdown at the end of the year, I think Kathy's going to have a disappointing year.
I hope not. But I I think this is there's the lag time here is misaligned. You can't look at the jobs data and say, "Oh, see people's purchasing power is declining." Without realizing that people have more money and feel richer than ever before. Again, look at bank earnings, JP Morgan, Wells Fargo, City.
They all tell you the same thing and not realize that, wait a minute, okay, this means this decline in p purchasing power isn't going to hit us for for two to three quarters potentially. And we should really consider that when we're investors rather than considering, oh, no, no, things are slowing down now when they're not because that would imply that if things are slowing down now that then maybe the Fed doesn't have to hike as much.
But that's not what we're actually seeing. That's not what the numbers are actually saying. Now, Kathy Wood does suggest that consumer sentiment has has started declining and then sites specifically how people are a little bit less inclined to purchase cars right now, but this is no surprise. You go to a dealership right now, they will price a Prius that usually sells for $35,000, which is already crazy.
May as well buy a Tesla. Uh they'll price a Prius at $35,000 and they'll literally throw on their dealer markup $10,000 just because they can. Of course, the sentiment for buying durables has been declining. This is the same thing that the New York's Fed survey found that people have to spend more money right now on essentials uh than than on non-essentials.
And the biggest sector getting hit is durables. Well, yeah, because pricing for durables has shot up. And we are going to see a longer term shift where people finally start saying, "Okay, that's it. These prices are too high. We can't pay these prices anymore." And when we see that shift, that's maybe when the prices start coming down.
But it's too early to actually see that shift, especially since we're still seeing prices go up for durables. Okay? we're still seeing that inflation for pretty much everything. Uh then Kathy talks about how sales at Amazon are only up 9% and how this is a very very low comp. And she says even coming out of the recession uh when when Amazon had really really strong comps, they did better than 9% growth.
But I think Kathy missed the point here that Amazon's comps were so so strong and we only had 9% growth because we didn't come out just of just a recession. We came out of a stay-at-home pandemic where of course spending on Amazon surged and of course the year-over-year comps are going to be very very difficult.
So this argument that sales at Amazon only went up 9% is is is kind of laughable because again it it discards the fact that we just came out of a pandemic style recession not an '08 financial crisis. Very very mis misaligned here on this one in my opinion Kathy. And then on top of that she says that this one really peeved me.
Okay this one really really peeved me. She suggests that Facebook saw weakness in the consumer sector and that's why Facebook is having problems. No, Kathy, Facebook did not say they're seeing weakness in the consumer sector. I'll tell you exactly what they said by showing you literally what they said.
They said, "We're hearing from advertisers that macroeconomic challenges like inflation and supply chain disruptions are impacting advertiser budgets." That does not say the consumer is spending less money. It literally says supply chains and inflation is hurting advertisers. That's This is This is bad, Kathy.
I'm disappointed. These It should not be that easy for one person to discredit some of these things. Again, I do not want to make this. It's It's not like I have a fund and I'm like, "Oh, buy my fund instead of Cathy's fund." No, like there's nothing nothing like that. The only sponsor for this video is Extra.
And I love Extra. And I'm sure Kathy loves Extra, too. Go to medkaven.com/extra. But it's not good when one dude in a YouTube studio can start picking apart these pieces when this is supposed to be your summary of of macro and and and whatever research for the week. Come on. Not not cool. Okay, then Kathy Wood is suggesting that our latest GDP print shows that inventories are up.
And this is sort of her way of suggesting that. See, inventories are up, deflation's coming. Okay, but if you actually read the earnings calls of companies like Ford, GM, and Ralph Lauren, guess what they tell us? The reasons inventories are appearing to be up is because more inventories are in transit.
It's taking 150 days for stuff to get from warehouse to store uh than when it used to take 50 days. So, you have higher inventories, but they're not on shelves. They're on ships. It's a problem. Uh, in fact, Ford and GM are talking about tight inventories, not loose inventories. This is this is not right.
Uh, and this is really this really flies into the face. this this suggestion that we're seeing real demand being quite sluggish which was her quote flies in the face of companies like Starbucks who are like we're raising prices in January that's going to hit us on the CPI print which is expected to be 7.3% coming up.
Uh then we've got Panda Express which is not even a public company so you have to talk to the employees to actually get this kind of information which is the kind of stuff that I do. Uh but anyway even Panda Express just raised prices in January so it's like a great that's also going to hit us on the CPI print and it's because demand is crazy.
Now look, long run. Yes, I agree. Innovative companies will increase productivity. But then then now Kathy, now I don't know if this was the result of your soulsearching which you were talking about, but Kathy, what the heck? Kathy is saying that private mark market valuations, so private equity valuations have gone up over the last year and that we've seen public values drop 50%.
And the private market double. So she's like, okay, prices war together, public markets have dropped 50%. and private markets have doubled. And so now Kathy is suggesting I think the private market, the more expensive one, has it right. So we're going to open a private market equity fund where where we do like venture capital fund to invest in private equity.
What? What? Come on, Kathy. You're literally saying in your video, we think private valuations have doubled and public valuations have h haved. And so now we're going to double down and go invest more in private markets because obviously they have it right. This is the opposite of what Warren Buffett tells you.
You don't use pricing as your indicator to tell you what's right or wrong. Now you're chasing the top rather than buying the dip more. Like you've been selling more Tesla than anything else. Now I know recently you did buy a little bit of Tesla, but I got to put my hands down because this is this does not make any freaking sense at all.
Okay, look. And she talks about how benchmarks are doing a disservice, how great crypto is going to be in the future, which I agree with. Okay, look, I'm sorry. I have I don't think I've ever been this rough uh to Kathy, and I love her. I agree with her long term, but this is short-term blindness. This is just like buying Zoom as we're coming out of the stay-at-home cycle.
Even though Zoom might be a great and innovative company, come on, man. You know, traders are in that thing up the wazoo. And the reason it's fallen so much is because they're trading out of it. That's all I got to say. Go check out mechan.com/extra. .
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