Cathie Wood: Is the Economy Weakening?

A rundown of what was discussed by Cathie Wood in her "In The Know" segment this week. From monetary policy to her comments on DNA sequencing costs.

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So Cathie Wood published another one of the “In the know” segments they do at ARK invest and I found it specially interesting because it encapsulates this new era of uncertainty, this no-mans-land in economics that is the -hopefully- post-pandemic world.

Lets break down what she said shall we?

Monetary Policy

The M2 or Money Supply growth rate has been going down progressively and it stands at 12% now from the 27% we saw during the pandemic but still higher than the 6 to 7% that we were used to see in the pre-Covid world. We have to keep in mind that Quantitative Easing is still going on.

The 3.5 Trillion dollar package is being debated in the Senate and it has a major Democratic opponent, Senator Manchin from West Virginia wants to revisit the amount for two reason that sound very reasonable:

  1. Debt/GDP is already above 100%

  2. Inflation risks

Cathie Wood doesn’t seem to be a fan of the tax hikes that are being proposed but to pay the 3.5 Trillion package and the impending Infrastructure Program, there is no doubt that the US will have to raise taxes to everybody.

Employment

Cathie Wood talks about the disappointing numbers on employment but she puts forward two main reasons for it:

  1. Delta variant: The new variant has once again put pressure on certain sectors of the economy, specially hospitality and leisure where the numbers have remained stagnant when they should have moved upwards.

  2. Supply Chain problems: The manufacturing sector seems to have confronted a lot of friction and some of it is affecting very loudly ell the auto makers. The Chip Shortage has been covered ad nauseam, but it’s worth repeating, this shortage is going to persist for at least another 9-12 months according to experts.

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Strong Indicators

  • There are over 10 Million jobs unfilled in the United States but the unemployment claims are at 340 thousand, still 100 thousand above the numbers we saw pre-pandemic. A couple of reasons for this:

    1. Skillset mismatch, a permanent reason put forth everywhere in the world. The shift in labor demands is faster than ever before and societies are scrambling to adapt.

    2. Wages too low: As free market would have it, some companies are already increasing the minimum wage to attract employees, for example, Walmart increase its minimum hourly wage from 11 to 12$.

  • Saving rate is at a fantastic 13% and Cathie Wood calls this a Consumer Fire Power.

  • Home sales are still strong and home supply is increasing slowly. Hopefully we’ll see supply meeting demand in order for the prices to stop escalating as they are in some places.

  • Purchasing Manager Index (PMI) is showing super strong orders from businesses trying to catch up to consumer demand (they learned during corona virus) and also preparing for what its expected to be a crazy holiday season.

Weak Indicators

  • The University of Michigan Consumer Sentiment Index has dropped hard to the lowest level in over a decade.

  • Retail sales have gone down 1-1.5% and Cathie mentions a few reasons behind this. One one side we have consumer inflation expectations (and reality) and on the other hand, we cant remember the over-buying of goods that happened during the pandemic.

  • Real hourly rate year-over-year has gone down by 1.2%.

  • Auto sales have dropped 33.1%! from a year earlier and here is where the official narrative is dismissed by Cathie Wood. One one side the car manufacturers blame the drop on the chip shortage affecting the industry but on the other hand Cathie offers an alternative explanation that not surprisingly aligns with her view at ARK and her bullish stance on Electronic Vehicles.

    1. She thinks that people over bought gas cars to avoid mass transportation and that sounds very plausible.

    2. She believes that people have decided to switch to Electric Vehicles and as ARK has said before, they see sells of EVs go from 2.2 Million units back in 2020 to 40 Million in 2025. Ans as proof of this theory she mentions that used vehicles sales have gone down as well but if we see the chart, it has but it’s still crazy high from the pre-Covid levels.

Markets

She goes over the fix income market (bond market) and points out that it doesn’t show any worries about inflation or what she says, the impending credit problem. She mentions Commodities prices and the fact that Lumber is almost back to normal levels, as is copper.

And then she speaks about Crypto and explains that she sees investors hedging inflation with Bitcoin because it is better than Gold. An impressive remark that would have been unthinkable a year back.

Healthcare

She ends here presentation on healthcare and what it seemed to be an ad for ARKG.

  • DNA sequencing cost is plummeting.

  • AI training cost is going down 60% a year.

  • She is very very bullish on Genomics

And last thoughts

I always enjoy her presentations but to be honest, sometimes I feel that instead of presenting data and her unbiased thoughts on it, she presents the data and molds it in rhetoric to fit it into the ARK invest hypothesis. Somehow it seems like she’s pandering to Tesla fans or crypto maximalists and placing her ETFs as if they were synonymous with imminent disruption fueled by innovation. I hope she’s right, I put some green on ARKG just in case :)


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Disclaimer: All material presented in this newsletter is not to be regarded as investment advice, but for general informational purposes only. You are solely responsible for making your own investment decisions. In any case, transparency is paramount so my portfolio can be viewed here.