De-FAANG'd | ITK with Cathie Wood — Transcript

Full transcript

1. 0:10foreign
2. 0:37foreign
3. 0:39[Music]
4. 0:49here you can see our new offices they're
5. 0:52almost finished here in Saint Pete we're
6. 0:56really excited to be moving into these
7. 0:58new offices it's been kind of crammed so
8. 1:02um uh welcome
9. 1:04so uh this this month's video is called
10. 1:08defanged and I I think what is happening
11. 1:12here is many investors both growth and
12. 1:16value are beginning to understand the
13. 1:19world of disruption out there even the
14. 1:22fangs are being disrupted many many
15. 1:25growth managers think they have the
16. 1:28right kind of exposure to Innovation uh
17. 1:31in in the form of the fangs or they did
18. 1:33at the beginning of the this year and
19. 1:36much of that kind of thinking has
20. 1:39disappeared here uh and so what what I
21. 1:42will do later in this call is talk a
22. 1:44little bit about what this means uh and
23. 1:49how it is distinguished from the kinds
24. 1:53of strategies we're involved in
25. 1:55um the the fangs became the biggest
26. 1:58parts of the benchmarks uh like the s p
27. 2:03and uh the NASDAQ especially the NASDAQ
28. 2:06100 and uh again that was very backwards
29. 2:10looking those stocks Rose to the top uh
30. 2:13because of past success and then Tick
31. 2:16Tock came along and talk about
32. 2:18disruption and then a recession comes
33. 2:21along uh as exemplified by the
34. 2:24advertising crash that is taking place
35. 2:28and hurting many of these companies and
36. 2:31we're seeing layoffs and freezes uh
37. 2:34something we've never seen from these
38. 2:36companies but that's that's
39. 2:39distinguished uh from the kind of
40. 2:42innovation in our strategies
41. 2:45we are very early stage and while our
42. 2:49stocks may have suffered as much as as
43. 2:54the fangs have certain of the fangs have
44. 2:57that what we're seeing right now is very
45. 3:01early stage growth so we can talk about
46. 3:05that in a little while I just wanted to
47. 3:07set that up it has been one heck of a a
48. 3:10rough time for innovation of all kinds
49. 3:13in the last 18 months but if we are
50. 3:18right if we are right and of course we
51. 3:21could be wrong but if we're right
52. 3:24um truly disruptive innovation
53. 3:27is is is going to move into a growth
54. 3:32trajectory that we believe will make
55. 3:37what has happened recently to their
56. 3:39stocks look like a blip in hindsight
57. 3:43given the great strides ahead so that's
58. 3:47distinct from the kind of disruption
59. 3:50that's taking place and causing some
60. 3:53trouble for tried and true the stocks
61. 3:56that have become big parts of benchmarks
62. 3:59so that's just a Prelude to set up for
63. 4:02this call
64. 4:04now I will go through in the the typical
65. 4:08order fiscal policy monetary policy
66. 4:11economic indicators and market
67. 4:14indicators with a few last words about
68. 4:16Innovation at the end
69. 4:18so in fiscal policy well the midterms
70. 4:21are upon us next week and
71. 4:25um if if the polls are correct it does
72. 4:29look like there will be
73. 4:31um a shift back to conservatives and in
74. 4:35certainly the house but uh perhaps even
75. 4:38the Senate and
76. 4:40um we think that uh that that the The
77. 4:44Stance of many conservatives is is to
78. 4:49push back on excessive regulation
79. 4:51regulation can be an innovation killer
80. 4:54so that will be that will be good news
81. 4:58um and we think there will be other
82. 5:00Innovation friendly moves in terms of
83. 5:03incentives and so forth
84. 5:05um what's interesting about this
85. 5:09election and this period in time is
86. 5:12historically and and this is just
87. 5:14history this is believe me not at all
88. 5:16partisan it's just uh observing
89. 5:19historically uh the market has done
90. 5:22better under Democratic uh
91. 5:25administrations and the conservatives
92. 5:28would tell you well that's because we
93. 5:30would have to come in and and clean up
94. 5:33all of the excesses uh the excess
95. 5:36spending the excess monetary
96. 5:39stimulus and uh and that would mean a
97. 5:43Crackdown on on certain businesses which
98. 5:47would be bad for the market and bad for
99. 5:49psychology seems like it's the opposite
100. 5:52here I have never seen a Fiscal outlays
101. 5:56Federal outlays down at a double-digit
102. 6:00rate in the uh in a midterm election
103. 6:04action year or a national election year
104. 6:09and yet here we are down down year over
105. 6:12year and I have never seen monetary
106. 6:16restraint uh the the likes of which
107. 6:18we're seeing now
108. 6:20um in a midterm election year in fact
109. 6:24historically during election years
110. 6:27midterm or the national uh elections
111. 6:31we saw federal reserves basically saying
112. 6:34to themselves perhaps but it it seemed
113. 6:38like we observe their actions uh to be
114. 6:42okay get all of uh what we need to do
115. 6:46out uh in the early in the year so that
116. 6:50we're not accused of being political
117. 6:53and uh that has not happened this time
118. 6:56in fact at the time in past uh fed uh
119. 7:01regimes
120. 7:04um that they would be uh basically going
121. 7:07neutral just status quo that probably
122. 7:11would have been around February March of
123. 7:13this year and yet that is when the FED
124. 7:16really started uh to to crank up
125. 7:20interest rates uh at a rate we have
126. 7:23never seen historically never we have
127. 7:26never seen this many people equate uh
128. 7:30What uh what happened during volkers
129. 7:33years as similar volcker was really
130. 7:36trying to throttle uh inflation and
131. 7:40raised interest rates from roughly 10
132. 7:43percent to roughly 20 percent uh that's
133. 7:46a two-fold increase
134. 7:48with this week's action from the FED
135. 7:50another 75 basis points
136. 7:54um that the FED has taken interest rates
137. 7:56up 16 fold in less than a year never
138. 8:01been done before and I think we're going
139. 8:04to see The Fallout during the next year
140. 8:06uh and and when I say that uh I mean it
141. 8:10will be a cyclical Fallout and I think
142. 8:13it will benefit those companies that can
143. 8:18grow through this period
144. 8:20um and as we said all during covid
145. 8:23Innovation solves problems we have so
146. 8:26many more problems now Supply chains
147. 8:29loosening up but still we have the war
148. 8:31in Ukraine and now we have a fiscal and
149. 8:36monetary policy
150. 8:38um really tightening in a way that
151. 8:41businesses are going to have to change
152. 8:43the way they do things increase
153. 8:45productivity cut costs and so forth in
154. 8:48order to navigate through this very
155. 8:50difficult environment we think that will
156. 8:53the crew ultimately to those companies
157. 8:55who facilitate those kinds of
158. 8:58productivity moves cost controls and so
159. 9:01forth
160. 9:02now in terms of monetary policy itself
161. 9:05um this this last month I did write an
162. 9:08open letter to the FED
163. 9:10um just for one reason it was to say
164. 9:13wait a minute
165. 9:14there are 12 members voting here and uh
166. 9:20and you've been unanimous over the last
167. 9:23few fed decision points uh unanimous 12
168. 9:27of you this how can this be there's so
169. 9:31much conflicting evidence out there
170. 9:34and and I put into the letter some of
171. 9:37the conflicting evidence
172. 9:39primarily the early stage of the
173. 9:42pipeline from an innovation point of
174. 9:45view Commodities uh falling dramatically
175. 9:49and we'll get we'll get to that in a
176. 9:51moment and uh and the fact that
177. 9:53inventories are overwhelming the system
178. 9:56and I think we'll see that in terms of
179. 9:59huge discounts uh at Christmas Even the
180. 10:04fed's own
181. 10:06um that their Regional territories uh
182. 10:09where the FED engages with Business
183. 10:12Leaders there are 12 of them uh even
184. 10:15these these I know they're not called uh
185. 10:17territories I think they're called Banks
186. 10:19uh
187. 10:20uh are are showing in their uh monthly
188. 10:24indicators so the Empire fed puts one
189. 10:28out the Philly fed Richmond Kansas City
190. 10:31Dallas uh and these These are uh
191. 10:35quantitative indicators they may be
192. 10:37subjective surveys but
193. 10:40um they are subjective all all the way
194. 10:42along and they are hitting the skids one
195. 10:46by one negative territory negative
196. 10:47negative I looked through the last
197. 10:49month's worth and all of the all of the
198. 10:52banks that I just mentioned were showing
199. 10:55increasingly negative sentiment uh about
200. 10:59economic activity in their regions
201. 11:02um so and and prices prices actually
202. 11:06falling and we we did see that and the
203. 11:08purchasing managers index prices paid uh
204. 11:11index
205. 11:12showed uh negative prices and again
206. 11:16we'll get into that in a minute
207. 11:19um so money now money M2 growth peaked
208. 11:22at 27 in uh mid-20
209. 11:27um mid-2020
210. 11:29and as of September was down to 2.6 it
211. 11:33looks like October could be below two
212. 11:35percent maybe one and a half percent and
213. 11:38effectively money is falling money if
214. 11:41you look sequentially is falling now the
215. 11:44only time we've had a sustained decline
216. 11:46in money on a year-over-year basis again
217. 11:49we're not negative year over year yet
218. 11:51but that's where we're heading was
219. 11:53during the Great Depression and uh hold
220. 11:56that thought because I'm going to
221. 11:59describe uh why we're not in the
222. 12:03environment that the FED thinks we are
223. 12:05which is the 70s
224. 12:07um and the reason is I think I set this
225. 12:10up in the in in the last YouTube video
226. 12:14in the 70s when when volcker inherited a
227. 12:18very bad
228. 12:19inflationary situation so inflation was
229. 12:23moving into the high single digits low
230. 12:25double digits mid double digits is where
231. 12:27it peaked
232. 12:29um so he inherited that but but it had
233. 12:33taken 15 years for that inflation to uh
234. 12:38move to those levels now
235. 12:41uh it started in April and May of 1964
236. 12:46Vietnam War Great Society programs the
237. 12:49Johnson Administration
238. 12:51um putting into place many many many
239. 12:53social programs at once and it was a
240. 12:57period called guns and butter so spend
241. 13:00on everything which they did so he had
242. 13:03fiscal policy moving really out of
243. 13:07control and monetary policy
244. 13:09accommodating it and also as we went off
245. 13:14the gold exchange standard in 1971. we
246. 13:18closed the gold window that was the last
247. 13:21semblance of discipline in our monetary
248. 13:24policy that was 1971 as I said you know
249. 13:27all hell broke loose we had uh OPEC
250. 13:30quadrupling oil prices we had the FED
251. 13:33accommodating those oil prices which
252. 13:35eventually got into
253. 13:37all kinds of indicators in including
254. 13:40wages
255. 13:41and you'll often hear the expression
256. 13:43cost push inflation it comes from the
257. 13:4570s the cost push was wages pushing
258. 13:49through uh and uh I think this time is
259. 13:54is very different
260. 13:56um
261. 13:57then you had volcker as I mentioned
262. 14:00going from 10 to 20 percent so two-fold
263. 14:04interest rates and that did the job that
264. 14:07did the job
265. 14:09um this period is not 15 years by the
266. 14:13time the FED started addressing it it
267. 14:15was 15 months so we didn't have a lot of
268. 14:18time uh for inflation to get out of
269. 14:21control and the inflation that we were
270. 14:24talking about this time is not the
271. 14:27monetary driven inflation it was a
272. 14:29supply shock to the system so the supply
273. 14:33chain imbalances which I never thought
274. 14:35would last for two years still puzzling
275. 14:38over that one
276. 14:40that that was a real problem the supply
277. 14:43shock a shock to the system so if the
278. 14:47supply is not there but the demand is
279. 14:50because of all of the stimulus then what
280. 14:52happens demand up relative to supply
281. 14:55means prices go up they go up until the
282. 15:00supply meets the demand now we're moving
283. 15:03into that part of the story and I think
284. 15:06we'll see it in action in in dramatic
285. 15:10action this holiday season as retailers
286. 15:13who are just brimming with inventories
287. 15:15trying to figure out what to do are
288. 15:17forced to slash prices and we're already
289. 15:19seeing 20 30 50 percent uh discounts if
290. 15:23you go to Walmart and I'm surprised to
291. 15:26see it at Walmart I thought that was
292. 15:27everyday low prices Target and other
293. 15:30places
294. 15:32the other thing that's very different
295. 15:34about this period relative to the 70s is
296. 15:39the dollar has been moving up uh in the
297. 15:4370s the dollar was moving down in fact
298. 15:46we ended up in a a dollar crisis in 1978
299. 15:50and I believe that's one of the reasons
300. 15:52uh that President Carter
301. 15:55um basically got rid of Miller that fed
302. 15:58chairman and uh and brought in
303. 16:02um chairman volcker uh and that that
304. 16:05that was a terrific uh terrific move now
305. 16:08the dollar in the early 80s uh started
306. 16:13moving up dramatically and and it almost
307. 16:15went parabolic and became a real problem
308. 16:19for the world uh does that sound
309. 16:21familiar here we are again
310. 16:23um the dollar going up is a massive
311. 16:26deflationary force and uh it's
312. 16:30deflationary because Commodities are
313. 16:32priced in dollars the reserve currency
314. 16:34it's deflationary because Emerging
315. 16:37Markets have a lot of dollar denominated
316. 16:39debt their their currencies are falling
317. 16:41apart but they have to service their
318. 16:44debt in dollars so it's a real killer
319. 16:46and um and so that is happening now and
320. 16:50you'll notice that a lot of banks around
321. 16:53the world are starting to
322. 16:57um move against the FED they had been
323. 17:01aligned with the FED but the Boe Bank of
324. 17:04England because of the liability driven
325. 17:07investment debacle which brought down uh
326. 17:11trusts
327. 17:13um the the Boe had to step back and say
328. 17:17no we're here to support this is a near
329. 17:19Lehman moment we must support our banks
330. 17:22because if if these Pension funds cannot
331. 17:27meet margin calls then the banks which
332. 17:31were the other side of the swap trade
333. 17:33would be left holding the bag and so the
334. 17:37boa has Boe has pulled back maybe not
335. 17:40verbally but in action you've got the
336. 17:43bogj so Japan pboc both supporting their
337. 17:47currencies and which means what are they
338. 17:50doing they're selling dollars and buying
339. 17:53their currencies that's adding dollar
340. 17:54liquidity to the system
341. 17:57uh and we saw Australia uh this past
342. 18:00week uh increasing its interest rate
343. 18:02only 25 basis points uh and so you've
344. 18:06got the central banks basically saying
345. 18:08oh wait a minute what's going on here
346. 18:10Australia would be very sensitive to
347. 18:12commodity prices and uh in a moment I'll
348. 18:15give you a sense of the drama that's
349. 18:18going on in terms of commodity price
350. 18:20inflation or deflation which of course
351. 18:24is the early stage of the pipeline for
352. 18:27uh inflation in final demand indicators
353. 18:32okay so let's go to two other periods in
354. 18:35history so we don't think this is the
355. 18:3770s what could this be
356. 18:39all right looking back in history there
357. 18:43are two periods uh that that remind us
358. 18:46of what we're going through right now
359. 18:49one is really 1918-21
360. 18:55and uh so that was a period of War World
361. 19:01War one and coming to an end
362. 19:05and
363. 19:06um so World War One
364. 19:09and uh the flu the Spanish Flu which was
365. 19:14much more
366. 19:16um which was much more vicious than
367. 19:18covid-19 killed as a percentage of the
368. 19:21population a much greater percentage of
369. 19:24the global population so war and flew
370. 19:27again sounds familiar and we were in the
371. 19:31middle of one of the greatest Innovation
372. 19:34booms in history telephone electricity
373. 19:37automobile
374. 19:39transformational truly disruptive sort
375. 19:42of sounds like today right
376. 19:44okay so from uh when when uh we were
377. 19:49experiencing the supply shocks
378. 19:51associated with both the war which which
379. 19:55was a very long well we we haven't been
380. 19:57through nearly as long uh a war as they
381. 20:00uh went through then
382. 20:02um and then the Spanish Flu uh the Dow
383. 20:07Jones Dow Jones Industrial Average from
384. 20:10November of 19 to August of 21 went down
385. 20:1446 percent
386. 20:15inflation associated with these problems
387. 20:19again mostly supply chain uh I would
388. 20:23submit
389. 20:24um inflation hit 15 to 25 percent it was
390. 20:28in that range for for a while again that
391. 20:31war was longer the flu was longer
392. 20:35um it certainly took a much longer time
393. 20:37to uh to
394. 20:40unwind than ours has
395. 20:43um so so that was a very bad period but
396. 20:47that inflation within a year again it
397. 20:50was a couple of years the inflation that
398. 20:53inflation turned down and
399. 20:57um moved into deflation uh I think the
400. 21:01deflation was something like 15
401. 21:05yes it was 15 percent
402. 21:09um so so that was June of 21. so it went
403. 21:14from 24 of June of 20 to 16 minus 16 of
404. 21:20June 21. now I've been saying for quite
405. 21:23some time that I think the bigger risk
406. 21:25here is deflation now it's a risk and an
407. 21:29opportunity in a sense the risk is on
408. 21:31the cyclical side uh it's the supply
409. 21:34chains have having
410. 21:37um been so out of balance that
411. 21:39inventories were overwhelming I believe
412. 21:41that's what happened back then and uh
413. 21:43prices just fell very dramatically
414. 21:45within a year that would be cyclical but
415. 21:48it would also be secular because
416. 21:50telephone electricity and automobile
417. 21:52were Innovations following learning
418. 21:55curves and the costs associated with
419. 21:58them were falling fairly dramatically
420. 22:00that's that's what we've been describing
421. 22:04here and what happened then so starting
422. 22:07in um
423. 22:10and I think it was mid 21
424. 22:13we moved into the Roaring 20s
425. 22:17um so here we are again in the 20s and
426. 22:20we think they could be Roaring Twenties
427. 22:23now
428. 22:24um from uh mid-21 through September of
429. 22:2929. uh the Dow Jones compounded at an
430. 22:33annual rate of 25 per year
431. 22:36um so that would be that would be the
432. 22:39good news scenario
433. 22:41now there is a possibility that there's
434. 22:44a bad news uh outcome here if you look
435. 22:48at 1929 to 30 there are also some
436. 22:51similarities to where we are today
437. 22:54uh monetary policy was tightening
438. 22:58aggressively now inflation was not a
439. 23:02problem then in fact it was quite low
440. 23:05but the Fed was railing against
441. 23:07Financial speculation associated with
442. 23:10the Roaring Twenties
443. 23:12um and uh and and it made a mistake
444. 23:15because inflation again one of the main
445. 23:17reasons the FED is around and really had
446. 23:20just been created was to solve for Price
447. 23:24stability keep prices as stable as
448. 23:27possible
449. 23:29um so they were tightening and it had
450. 23:32nothing to do with price stability
451. 23:34and I would submit that this time around
452. 23:37the fed's not looking at commodity
453. 23:39prices it's not looking at inventories
454. 23:41and how they're translating into
455. 23:43discounts they're looking at lagging
456. 23:45indicators employment and inflation the
457. 23:47the headline numbers and we'll go into
458. 23:50that in a minute
459. 23:52um the other thing that was going on
460. 23:54back then and this was in 1930 was Smoot
461. 23:57Holly uh tariffs broadbased tariffs 20
462. 24:02000 uh Goods uh and the tariffs were in
463. 24:06the 50 range
464. 24:08well we don't have quite that but could
465. 24:11this chips act chips are in everything
466. 24:13and I really realize it's just the
467. 24:16higher end of the chip stack but could
468. 24:20this chip act be a real impediment to
469. 24:25growth could it be the equivalent of
470. 24:27smooth Holly we don't think so
471. 24:30um but one never knows you know history
472. 24:33history will be uh will tell us
473. 24:37um anyway from September of 29
474. 24:41to uh July of 32 the stock market
475. 24:44dropped 89 percent
476. 24:47now I mentioned with the uh the uh
477. 24:50earlier uh part uh the early 20s it went
478. 24:54down 46 before we entered the Roaring
479. 24:57Twenties
480. 24:58um this time it went down 80 89 percent
481. 25:02if you compare that to the tech and
482. 25:04Telecom Bust from March of 2002 uh
483. 25:08November of 02 we were down 78.
484. 25:12um if you look at Innovation strategies
485. 25:14like ours like others many of them are
486. 25:18down 75 percent plus
487. 25:21um and even the tried and true stocks
488. 25:24meta for example is down 76 from its
489. 25:28peak Netflix down 76 from its peak
490. 25:32um Bitcoin is down 74 from its peak now
491. 25:36again what's the difference between the
492. 25:38first two meta Netflix and and Bitcoin
493. 25:41the first two are very mature they're
494. 25:44not uh they're not the new innovators
495. 25:47anymore in fact they're being disrupted
496. 25:49uh whereas Bitcoin is the disrupter and
497. 25:54I would submit those running real
498. 25:56Innovation strategies
499. 25:59um are are more in this early stage
500. 26:02group and if you look at the history of
501. 26:04Bitcoin uh and and you look at
502. 26:082017 for example in the context of what
503. 26:11happened after words
504. 26:13you know it looks it looks like a blip
505. 26:16and we think that will continue to be
506. 26:17the case as Bitcoin continues to gain
507. 26:21traction and as Innovation strategies
508. 26:24continue to gain traction you know I was
509. 26:27asked this week in an interview
510. 26:31um whether you know how I how I could
511. 26:35possibly feel uh with this kind of uh
512. 26:39Down Round And of course it never feels
513. 26:42good
514. 26:43but because of our research and because
515. 26:46of our five-year investment time Horizon
516. 26:48what is happening here is the rubber
517. 26:51band is stretching because if anything
518. 26:55the turmoil that we're in right now
519. 26:57economically and otherwise is uh is
520. 27:01going to hasten the adoption of these
521. 27:04new technologies now it is true that
522. 27:07some stocks in The Innovation space are
523. 27:10going to be have have some cyclical
524. 27:12Dynamics attached to them uh any any
525. 27:15company involved or associated with
526. 27:18marketing and advertising or so forth is
527. 27:21going to be singed uh in this in this
528. 27:24environment
529. 27:25um roku's been very uh vocal about it
530. 27:29but if you if you look at uh roku's
531. 27:33statistics
532. 27:35the scattered advertising Market which
533. 27:38is the primary advertising Market is
534. 27:40focused on was down 38 percent
535. 27:43uh and uh roku's revenues were up 12
536. 27:48their platform Revenue so advertising
537. 27:51were up 15 and one of the reasons is
538. 27:54because they're becoming less reliant on
539. 27:56the scatter Market which is the
540. 27:58short-term advertising Market that you
541. 28:00can pull uh if a company is worried
542. 28:02about uh uh saving their quarter or
543. 28:05something uh and Roku is now being dealt
544. 28:09Into The Upfront Market it is becoming
545. 28:13um an important way to reach consumers
546. 28:15and consumer products companies know
547. 28:17that so now it's getting some of the
548. 28:19more stable upfront Market uh and and we
549. 28:22think that will continue to be the case
550. 28:26um now on to economics again I mentioned
551. 28:28that the FED is focused on lagging
552. 28:31indicators employment and inflation so
553. 28:33let's deal with those directly today was
554. 28:35employment Friday
555. 28:37and we know we knew that the number was
556. 28:40going to be positive it was more
557. 28:41positive non-farm payroll was more
558. 28:43positive than expected initial
559. 28:45unemployment claims had been pointing in
560. 28:48that direction as well so non-farm
561. 28:51payroll employment was up 261 000 uh
562. 28:54better than the expectation of 190-ish
563. 28:57thousand average hourly earnings were up
564. 29:010.4 percent a little a little stronger
565. 29:05than the 0.3 percent now of course the
566. 29:07FED uh is railing against this uh the
567. 29:10fed the FED wants the unemployment rate
568. 29:12it seems to be at four and a half
569. 29:14percent well we started uh we started to
570. 29:18move up in terms of the unemployment
571. 29:20rate we went from three five to three
572. 29:23seven uh partly because the
573. 29:25participation rate
574. 29:27um uh dropped a bit so the FED uh is
575. 29:32getting its wish I suppose but you know
576. 29:35what's interesting about this hypothesis
577. 29:37is it's a Phillips curve
578. 29:40not hypothesis I I think it's been
579. 29:42disproven Phillips curve says well if
580. 29:45you want to get inflation down then you
581. 29:48have to get activity down the history of
582. 29:50the 80s and 90s and even into the 2000s
583. 29:53if you look at it is when real growth
584. 29:56was strong inflation was low why because
585. 30:00of productivity and I think that will
586. 30:03continue to be the case
587. 30:05nonetheless that's what the FED thinks
588. 30:07and so it's unfortunate but we're
589. 30:10probably going to see unemployment
590. 30:12Rising
591. 30:14um and we're already getting some
592. 30:15indicators so here's the other side that
593. 30:18the FED isn't talking about that much
594. 30:20first the Challenger job survey it's a
595. 30:23layoff survey
596. 30:25um and it is showing uh a 48
597. 30:29increase in broad-based layoffs meaning
598. 30:33um layoffs that companies are announcing
599. 30:36that cut across divisions and involve
600. 30:39quite a number of people
601. 30:41and we also uh saw that in the
602. 30:45purchasing managers index again leading
603. 30:47indicator that employment in that index
604. 30:50went negative uh in this last month
605. 30:53October
606. 30:55uh then uh very importantly in the in
607. 30:59the employment report itself uh is
608. 31:04buried a number called household
609. 31:05employment I don't know why they don't
610. 31:08feature it more the FED in particular
611. 31:10because it's much broader base than a
612. 31:13non-farm payroll survey and it includes
613. 31:17many more small and medium-sized
614. 31:19businesses
615. 31:21um it also includes people who are
616. 31:24working two jobs or three jobs and
617. 31:27they'll just say that they're working
618. 31:30and it also includes uh what the What's
619. 31:34called the birth and death rate of small
620. 31:35businesses
621. 31:37um and so that indicator household
622. 31:41employment dropped 328
623. 31:44000 and if you look at it since March
624. 31:47it's been fluctuating but since March
625. 31:50it's gone nowhere
626. 31:53um now that's not the picture that
627. 31:54non-farm payroll is painting here
628. 31:57um but I trust this employment indicator
629. 32:00much more than non-farm payroll because
630. 32:03it's better at turning points uh in the
631. 32:06market so think about that for more than
632. 32:08half of a year this measure of
633. 32:10employment has gone nowhere
634. 32:13what we think has happened in terms of
635. 32:16non-farm payroll which is much more big
636. 32:19company oriented is that a lot of
637. 32:21companies had so much trouble finding
638. 32:24employees over the last two years that
639. 32:27they they're reluctant to let them go
640. 32:29because economic indicators are
641. 32:32suggesting they should let them go and
642. 32:36if companies become mismanaged enough
643. 32:39then we probably will have more Twitter
644. 32:42like
645. 32:45examples where a new and Visionary
646. 32:49leader goes in and cleans house and
647. 32:52today I guess Twitter announced 50 of
648. 32:55its Workforce will be laid off
649. 32:58so I do think there that many companies
650. 33:01are going to have to take strong action
651. 33:03here because of what the FED is doing
652. 33:06and because fiscal restraint as measured
653. 33:09by a federal outlays is is so
654. 33:13significant right now now the other
655. 33:15lagging indicator the FED is really
656. 33:16focused on is inflation
657. 33:19now inflation the the
658. 33:22downstream closer to the consumer is
659. 33:25sticky and it tends to be sticky at
660. 33:27turning points so we have the PPI still
661. 33:31at eight and a half percent on a
662. 33:33year-over-year basis the CPI 8.2 percent
663. 33:37uh the personal consumption deflator
664. 33:406.22 percent
665. 33:43um but I'd like to share with you what's
666. 33:45in the pipeline here
667. 33:47um in other metrics dear me I have to
668. 33:50find it because uh yes here we go
669. 33:53all right so listen to this
670. 33:56um
671. 33:57now I'm going to start I'm going to
672. 33:59start with
673. 34:01um
674. 34:01the highest price declines from uh their
675. 34:05Peak Peaks and and these are as of
676. 34:08October 31st
677. 34:09um when we did this report so the Baltic
678. 34:12dry Freight index which which really
679. 34:15gives us a good sense of the rates the
680. 34:19shipping rates paid
681. 34:21um they have dropped
682. 34:24uh 74 they peaked uh more than a year
683. 34:29ago uh in uh October of 21 and they're
684. 34:33down 74
685. 34:34Lumber May of 21 it peaked is down 73
686. 34:39percent
687. 34:40iron ore
688. 34:42June of 21 it peaked down 52 dram prices
689. 34:46July of 21 down 51 silver uh
690. 34:52August of 2020 down 34 percent copper uh
691. 34:57March of this year down 32 percent oil
692. 35:00March of this year down 30 percent gold
693. 35:04uh
694. 35:06August of 2020 down 21 and corn uh April
695. 35:13of 22 this year down 15 percent now gold
696. 35:18um interestingly uh peaked more than two
697. 35:22years ago and has broken down it stayed
698. 35:25in a 1700 to nearly 2100 range for two
699. 35:29years and it's broken down uh gold is a
700. 35:33great leading indicator of inflation and
701. 35:37uh and it was on an upward trajectory
702. 35:41which has now completely turned around
703. 35:44now a lot of these indicators are down
704. 35:47on a year-over-year basis as well uh
705. 35:50Baltic rate down 58 Lumber down 22.
706. 35:55um dram down 36 copper down 23 silver
707. 35:5920.
708. 36:01um uh gold even down 8 percent you've
709. 36:05still got oil up four percent and corn
710. 36:07of 22 but you can see the pipeline is
711. 36:11full of deflation and as we know with
712. 36:13the inventories and we look at them
713. 36:15month to month they're still increasing
714. 36:18um again those ships are coming I think
715. 36:20last quarter or last month I describe
716. 36:23Nike's uh inventory on ships on their
717. 36:26way over to the United States up 85
718. 36:29percent year over year
719. 36:31um and they're North American
720. 36:33inventories up 68 percent as of the uh
721. 36:37end of the August quarter importantly uh
722. 36:40the saving rate has come down to 3.1
723. 36:44percent which is kind of shocking before
724. 36:46covid it was at eight percent it went up
725. 36:50to 34 I believe at the peak
726. 36:54um as the stimulus payments were working
727. 36:56their way through now it's down to 3.1
728. 36:59percent
729. 37:003.1 and if you look at what the consumer
730. 37:03is doing consumers taking on more debt
731. 37:06now and so that what that is telling us
732. 37:10contrary to those who think everyone has
733. 37:12a nice little cash buffer because of all
734. 37:15the stimulus we don't agree with that at
735. 37:16all a lot of people are getting those
736. 37:18stimulus payments were hand to mouth you
737. 37:20know as soon as they got it they spent
738. 37:22it either to pay down debt or to buy
739. 37:24food or energy now they're taking on
740. 37:27debt probably to pay for food and energy
741. 37:30that's not good and consumer sentiment
742. 37:33again near record lows where they were
743. 37:36where the ver where the University of
744. 37:39Michigan sentiment was in the early 80s
745. 37:42another very provocative number recently
746. 37:45has been home prices if you look at the
747. 37:48s p core logic price index it fell month
748. 37:52to month 1.3 percent in September
749. 37:57uh it peaked on a month-to-month basis
750. 38:00meaning sequentially at two and a half
751. 38:02percent earlier this year that is a
752. 38:04massive reversal and the fastest
753. 38:06reversal uh that I have seen on record
754. 38:09even in 0809 the the reversal kind of
755. 38:13started in
756. 38:15060506 or something
757. 38:17so housing prices are now starting to
758. 38:21come down and we haven't seen a price
759. 38:24decline that extreme the 1.3 since the
760. 38:280809 period uh when we were regularly at
761. 38:31two percent declines per month now that
762. 38:34that the consumer will really feel as
763. 38:36well because again The Nest Egg home
764. 38:39equity is starting to come down okay so
765. 38:43now let's flip to the market
766. 38:45um year to date the only thing that's
767. 38:46worked is energy up 65 percent
768. 38:49ironically uh there are two reasons uh
769. 38:52ESG Capital spending shut down by a lot
770. 38:55of companies in favor of dividends and
771. 38:58share repurchases
772. 39:00um I think I think that's going to
773. 39:02change dramatically uh with uh the
774. 39:04midterm elections I think the spigots
775. 39:07are going to be open and that production
776. 39:08is going to Boom to new highs here in
777. 39:10the United States and then the other two
778. 39:13uh top performers utilities and Staples
779. 39:16both down 7 to eight percent and then on
780. 39:19the negative side we have year to date
781. 39:21com Services of course the meta was was
782. 39:26the poster child this year down 44
783. 39:28percent consumer discretionary down 35
784. 39:31Tech down 32. in the bond market
785. 39:35um we're we're getting some indicators
786. 39:37we now have the yield curve down more
787. 39:40than 50 basis points and here's another
788. 39:42case in point where I think people are
789. 39:45saying oh but the base was so low you
790. 39:48know going up from 0.25 to 4 percent in
791. 39:53the FED funds rate
792. 39:55um it's it's not a big deal it is a big
793. 39:59deal uh the you know economics in
794. 40:01economics
795. 40:03activity is determined at the margin you
796. 40:05take a a price up uh that dramatically
797. 40:09uh or a cost up that dramatically
798. 40:1216-fold
799. 40:15um there are going to be serious
800. 40:16ramifications and and we think uh we
801. 40:19think they're upon us and you know
802. 40:21advertising is the first the first
803. 40:23category uh that businesses cut and it's
804. 40:26being demolished uh so the markets are
805. 40:29speaking quite loudly here that 53 basis
806. 40:32points on a four percent interest rates
807. 40:34is a lot different from 50 basis points
808. 40:37uh on 15 which is what we saw in the
809. 40:41early 80s which is the last time we saw
810. 40:43an inverted yield curve
811. 40:45um this this inverted uh I think what's
812. 40:48throwing people are spreads
813. 40:51um so spreads the the difference between
814. 40:55high yield high-yield uh bond
815. 40:59yields and the treasury yields they're
816. 41:03up they're moving up but they're not
817. 41:05skyrocketing
818. 41:07um and I think a big part of that is
819. 41:10energy energy bonds and energy is a big
820. 41:13user of debt because prices are still
821. 41:16pretty elevated and these companies are
822. 41:19making uh tons of money
823. 41:21that uh that their spreads are very
824. 41:24narrow and they're holding the
825. 41:26broad-based Aggregates down so we think
826. 41:30if you look Beyond uh or if you look at
827. 41:33spreads Beyond energy you'll see some
828. 41:36pretty significant gapping out and
829. 41:39that's the sign that there's some duress
830. 41:41out there another indicator is a credit
831. 41:44default swabs and I've been watching
832. 41:47these especially as they relate to Money
833. 41:50Center Banks we know when it comes
834. 41:53abroad to the banks Credit Suisse for
835. 41:56example blowing out to all-time Highs
836. 41:58but Europe's in um Europe Europe has
837. 42:01very significant problems that we may
838. 42:04not
839. 42:06the credit default swaps of our bank so
840. 42:09I keep track of Bank of America Goldman
841. 42:11Sachs uh JP Morgan and others they've
842. 42:16been gapping out what's going on there
843. 42:18and I think what might be going on is
844. 42:21uncertainty or concern about swaps a
845. 42:25little bit like what uh the uh the ldi
846. 42:28problem that the UK was forced to
847. 42:31address so uh very interested in that I
848. 42:35always ask our analysts to listen for
849. 42:37questions about spreads on earnings
850. 42:39calls and they're not getting a lot of
851. 42:41questions uh so maybe we'll have to make
852. 42:45some of our own phone calls there even
853. 42:46though we don't own any of these Banks
854. 42:50um and uh the other thing I'd like to
855. 42:52say about markets is and many people
856. 42:55don't have this perspective but we
857. 42:57remember 0809 because people were losing
858. 43:00their homes and uh you know it was
859. 43:03tragic but if you looked at stocks and
860. 43:06bonds in in the 0809 period
861. 43:10what we saw was in terms of wealth
862. 43:15destruction using both stocks and bonds
863. 43:1721 percent
864. 43:19so I mean I'm sorry seven and a half
865. 43:22percent seven and a half percent back
866. 43:24then because bonds held up
867. 43:26this time around bonds have not held up
868. 43:28we've had the worst Bond markets since
869. 43:31I've mentioned this before you have to
870. 43:33go back into the 1700s to see
871. 43:35year-to-date performance worse than this
872. 43:39um and and what we are what we're
873. 43:41experiencing if you come combined
874. 43:43equities and bonds is a 21
875. 43:47uh decline in wealth real wealth
876. 43:50destruction and if you look at some of
877. 43:53the surveys University of Michigan's
878. 43:55survey and you separate High income
879. 43:57earners from low-income earners High
880. 44:00income earners sentiment is lower than
881. 44:03the low-income earners even though the
882. 44:05food and energy price hits have been
883. 44:07much more severe when it comes to the
884. 44:09low income
885. 44:11other markets commodity prices I just
886. 44:13gave you you know is there any place to
887. 44:16hide uh I mentioned swaps uh being
888. 44:19something we have in mind here
889. 44:22um they may have worked very well for
890. 44:25black Stones uh Reit product but uh when
891. 44:28I see swaps being used so significantly
892. 44:32I just want to learn more shall I say
893. 44:34now the interesting thing about this
894. 44:37environment is if you look at crypto so
895. 44:40Bitcoin has been incredibly stable since
896. 44:44it's June Lowe's in fact the volatility
897. 44:4730-day volatility of Bitcoin has dropped
898. 44:51below the 30-day volatility of the s p
899. 44:54and the NASDAQ and you'll see that in
900. 44:58our Bitcoin monthly we're publishing it
901. 45:00this evening and there are some very
902. 45:03provocative charts in there that are
903. 45:05suggesting we're in a bottoming period
904. 45:07for uh for Bitcoin now we do have to be
905. 45:11careful we've seen a nice base develop
906. 45:13here and as many of you might remember
907. 45:16from our Tesla
908. 45:19call in the day I said you know the a
909. 45:23base whenever you have a very long base
910. 45:25and in the case of Tesla it was it was
911. 45:28five years but whenever you have a very
912. 45:31long base
913. 45:32something big is going to happen because
914. 45:35that's the bull and the Bears dueling
915. 45:37each other in the case of Tesla our bet
916. 45:39was we'd have a big upside breakout and
917. 45:43we did in the case of Bitcoin we would
918. 45:46expect the same the base is not nearly
919. 45:48as long and a lot of the the on-chain
920. 45:52analytics are supporting that point of
921. 45:55view we're also going to be talking more
922. 45:59about this in our market update next
923. 46:01Tuesday and in the next few weeks you'll
924. 46:04see uh three research papers
925. 46:07um one on AI accelerators
926. 46:11one on the Bitcoin energy slash utility
927. 46:16ecosystem pretty provocative and one on
928. 46:21uh how in important maybe the most
929. 46:24important innovation in history will be
930. 46:26autonomous Mobility
931. 46:28so look for those papers from Frank
932. 46:32Downing Yasin almandra and uh and and
933. 46:36Sam chorus and Tasha Kini
934. 46:40um and uh so with that I'll leave you
935. 46:44with this idea that once again that
936. 46:47Bitcoin is an example of a very early
937. 46:50stage
938. 46:52um Innovation that we think has miles to
939. 46:55go and so this down round is is in the
940. 47:01early stages of early early stage growth
941. 47:03the volatility is normal but then again
942. 47:06when you look back historically that
943. 47:10volatility which feels so awful at the
944. 47:12time
945. 47:13turns into looks like a blip if you look
946. 47:17backwards and we think that's a case
947. 47:19with truly disruptive innovation around
948. 47:22which we we have revolved our strategies
949. 47:25as opposed to the fangs which are being
950. 47:29disrupted that's a completely different
951. 47:32story completely different now we may
952. 47:35share some of the cyclical Fallout from
953. 47:38advertising
954. 47:39but that's it and I think we're going to
955. 47:42separate the wheat from the shaft here
956. 47:44in terms of truly disruptive innovation
957. 47:47versus those being disrupted so stay
958. 47:52tuned and we will look forward to
959. 47:56sharing our insights with you over the
960. 47:58next month and I will be back next month
961. 48:01so thanks again
962. 48:03foreign
963. 48:08[Music]