‘We do see in these earnings results 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.’ – Cathie Wood.
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In an interview with CNBC, CEO and CIO of Arc Invest Cathie Wood shared her views on what’s going on with the economy. Cathie has been saying that we are in a recession since long before news broke that the GDP fell for the second consecutive quarter. Cathie believes the Fed is looking at all of the wrong indicators, such as unemployment, which she believes lags behind what’s really going on in the economy. Although it has been announced that the GDP fell for two consecutive quarters. The Fed’s announcement of interest rates seems to have led to a rally in both the stock and crypto markets.
At the time of writing, bitcoin was trading at $23,800, a 4% increase in the previous 24 hours. Earlier in the day, bitcoin did break the 24000 resistance. Ethereum is up 11.1% in the last seven days, trading at $1,706, with many analysts predicting a rally to $2,000.
The market has been difficult to navigate, but Cathie believes that we are in an inventory-led recession, which is quite different. Where do you think it will be at the end of the week?
‘We’re seeing advertisers cut back dramatically. It seems like when Walmart and Target announced in May that they were loaded up with inventories, and this was far above what they had expected, and they were going to have to do something about it. You know, a lot of advertisers have started cutting back, cutting their budgets, saying okay, this is a possible recession indicator.
As you know, we’ve just gotten two consecutive quarters of negative real GDP growth, but a lot of people are still fighting the notion that we’re in a recession. I think this is a recession and I think what the fed is really focused on is employment as a gauge. Employment is a lagging indicator. The CPI, the PPI, all of those are lagging indicators. If you look at initial unemployment insurance claims, they’re up 50% from the low. I do believe we’re going to see some significant disappointment in the employment numbers moving ahead.
I also think, based on what we’re seeing from gold, that the gold price actually peaked in August of 2020. Many people don’t know that. It’s down near the low end of a two-year range that’s an important inflation gauge and then copper price. The copper price broke down. It broke a one-year copy trading crypto range in the $4-5 per pound range and it has come down hard.
I think all these are signals that, uh, inflation is going to come down. It’s going to come down significantly. We’re probably going to see some deflation, and we’ve been calling for that for quite some time as well.
Typically, growth stocks will outperform as we move towards the end of a bear market or the end of a recession because they’re the new leadership. As inflation and interest rates were going up, we were facing incredible headwinds. That started on February 2021. At least so far, it looks like at least so far that we bottomed on an intraday basis based on our flagship strategy on May 12th. We actually bottomed before the Nasdaq and the S&P broke down to new lows after that.
That was an early signal that we might be turning the corner . 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 have an inverted yield curve and yet, I think it’s paying attention to lagging indicators of inflation, determined not to be blamed for letting the genie out of the bottle and causing another 70s-style inflation period.’
What do you think of Cathie’s thoughts here? Are we in an inventory-led recession?
[This article is a transcription of a video made by Only The SAVVY]
[Original video: https://youtu.be/weyHoo6v1DY]
