How Currencies Fluctuate in Value | ITK with Cathie Wood

[Music] [Music] greetings everyone it is employment Friday once again happens once a month uh so glad to be back and um today we're going to do pretty much the usual with um with a special treat UPF front uh so first we're going to talk about Bitcoin a lot has happened in the last few weeks and uh so Yasin elandra director of digital assets at Arch invest will be sharing some thoughts about the having uh in particular then uh we'll continue on with uh more monetary policy fiscal policy economic indicators market indicators and then at the very end we will discuss um the serious concentration that is taking place in the broad-based benchmarks towards a a few names and just put that in the context of History uh so um pretty interesting charts uh so uh with that uh let's bring uh on Yassin elandra hi Yassin hello hello Kathy thank you for having me very exciting times for Bitcoin uh as we know Bitcoin just underwent its uh fourth monetary policy having and uh Arc has been a part of three of those havingsex rate um so just to level set on what the Bitcoin has is it occurs roughly every four years and it really is an elegant reminder of bitcoin's predictable monetary policy and its role as a scarce asset so Bitcoin has a coded mathematically metered Supply that's baked into the software's rules where the reward for mining a block effectively gets cut in half every 210,000 blocks or roughly every four years the first having occurred in November of 2012 where uh the block reward was reduced from 50 Bitcoin to 25 Bitcoin and this most recent having has reduced the block reward from 6.25 Bitcoin to 3.125 bitcoin per block um so as you can see in the chart that issuance rate um has has gotten cut uh two below 1% and the green line is is bitcoin's uh circulating Supply which is uh roughly 19. uh five million of the total 21 million so over 90% of Bitcoin supply has already been issued uh from a price action standpoint the the Bitcoin having tends to coincide with bull markets uh so bitcoin's now trading at at roughly $60,000 and it's gone through a pretty nice reset after making all-time highs uh in March and so we like to look at just healthy resets healthy um you know uh liquidations on on the Longs especially during a a bull market and uh we've seen a 22% draw down from the all-time highs which tends to coincide with what we've seen in previous bull markets as kind of local Corrections um regarding bitcoin's predictable monetary policy it really is one of the primary reasons why we have such high conviction in Bitcoin and why we have had it over the years uh and we've really taken a a monetary lens on assessing the potential for Bitcoin uh versus that software technological lens and that really comes down to bitcoin's monetary policy uh so Kathy you know I've learned a lot from you just on monetary history monetary economics maybe you can sort of put that monetary hat on and really highlight the sharp contrast with bitcoin's policy versus you know Central Bank policy makers that you know can adjust the supply growth ad sycratic at will absolutely um uh well this this having chart is you can see the discipline here as uh as um as Yasin said uh it's been mathematically metered and actually uh we did a Bitcoin brainstorm with uh miners uh and I think yes's going to tee that up in a minute but this monetary policy uh basically uh was written in five lines of code I did not know that until we did that Bitcoin brainstorm it is so elegant so simple so straightforward uh so in contrast take a look at this all right this is uh m2's uh M2 growth and it's uh it's a a fouryear annualized percent change so uh from uh March this month to March uh or this past march to March four years ago uh what is the monetary growth rate at an annual rate um uh that that would be the last data point here which is uh you can see the black Dash land line so that rate is about 8% and uh actually probably it's closer to 6% this is there's a lot of data on on uh this chart but take a look at the four-year growth rate of M2 and you can see it's all over the place you can see in the 60s and 70s um it it was uh it moved toward double digits and we ended up with double digit inflation uh in the late 70s early 80s uh it took a while to get there and uh it seemed to be very sticky and then after uh after uh chairman vulker came onto the scene I think that was 1979 he said we have to get this thing under control and he started choking money supply and uh and that momentum actually continued into the mid90s and then in the mid90s it's very interesting because it's somewhat similar to today in the mid90s um you know the the uh there was a domino effect of currency devaluations around the world um our monetary policy was propagating throughout the world because it is the world Reserve asset and uh the first devaluation actually was Mexico um and it was a big one I remember it very clearly because we were involved with Mexican stocks uh and then uh a few years later uh we had the Asian domino effect I think the taibat devalued in uh 1997 and then uh the rest of Asia's currencies devalued we had uh the Russia Russian default in 1998 and then we had long-term capital falling apart um monetary policy uh propagates through the system and when it's so unpredictable um uh it leads to all kinds of excesses and uh and so what do we have now where we we see what happened because of covid that drove the four-year annualized growth in M2 up to 12% and then now we've had a very sharp deceleration unlike the 70s 60s and 70s where there was sort of an acceleration um at least in in a the sense of a trend and a stabilization near double digits here we had a money thrown at the system uh to prevent an outright depression and uh if by the end of the year we stabilize around 0% year-over-year growth uh that's year-over-year this line will drop toward uh uh two to three% which um which as you can see we've only seen once it was in the 90s and uh you know after that uh you know all hell broke loose around the world it is interesting to note that the devaluation there are many devaluations taking place in the rest of the world uh today uh I've mentioned in the past Egypt uh I think devalued by 40% in February or March uh the Nigerian era is uh down 50 to 60% in in the last nine months uh we're seeing the Indonesian rupia uh devaluing at an accelerated rate uh and in Latin America of course Argentina basically recognized that uh the black market had it right that it's uh its currency at least uh uh P publicly um stated was uh about really about 50% of that rate in the black market and that was correct so um we're we're in a very interesting environment and it's caused by um monetary instability around the world and uh so I often talk to uh Yasin about these devaluations and of course in Emerging Markets uh anyone with a connection to the internet now pretty much can uh establish or buy an insurance policy in the form of Bitcoin which uh just flipping back to the having in this purple line doesn't doesn't look anything like the volatility you see in uh monetary policy um here in the United States and and around the world uh and of course it's controlled by human beings when we went off the gold exchange standard in uh and closed the gold window in the United States in 1971 monetary policy just became unhinged and it has been unhinged ever since although human beings have tried to contain uh contain the uh inflationary ramifications and they they uh they take it too far both ways and right now we think they're taking it too far on the downside and I'll get into that as we go through uh as we go through some of the the rest of the monetary indicators and the economic and market indicators but uh yasim before I do that maybe uh you'd like to add a few more yeah I mean I mean what you're what you're saying is really just a byproduct of having an an opaque and unpredictable uh mechanism to enforce rules right the the the unpredictability of a lot of the monetary policies that we see you know in emerging markets and even in the US is a function of just the lack of transparency in being able to to make those decisions so Bitcoin doesn't have a central bank Board of Governors uh it has code that reinforces uh its very predictable monetary policy and and that's really a testament to the robust system of checks and balances that Bitcoin has Kathy you mentioned the Bitcoin brainstorm uh we had that recording last week where we really go deep into these systems of checks and balances um across all stakeholders miners entrepreneurs uh investors uh we also recently published a uh piece uh highlight Bitcoin as a unique risk off asset um and part of the the the uh value proposition of Bitcoin um in in being a decentralized open source software is beyond just this monetary policy its openness its transparency and its auditability and in a time of opaqueness and instability and unpredictability Bitcoin positions itself very uniquely as a riskof asset um while traditionally it's being been labeled as exclusively a risk-on asset and then we also have the Bitcoin monthly that we published on a monthly basis for Friday the 3 uh of of May and you should expect to receive our uh most recent edition of the Bitcoin monthly uh early next week so stay tuned for that yeah and I think uh Bitcoin monthly uh helps me understand the health of the system I mean the the transparency of the network uh has given us a great opportunity to understand what's going on out there and uh and and uh Yasin and his team are able to gauge where we are in uh in the bull market uh based on some of the indicators and how they've behaved in the past um and before handing it back to you again Yasin I wanted to highlight one point it is amazing to me that uh chairman pal and the FED Governors as you mentioned there are no fed Governors here in the Bitcoin ecosystem but there are in in the United States and every time one of them speaks markets move and uh you know what uh as I said they overdo it one way then they overdo it the other way and it's just contributing to a lot of instability not only in the markets uh but but also in the economy I would submit uh so back to you yesie for Last Words uh on this section yeah we're we're keeping a very close eye as Kathy mentioned the Bitcoin monthly is a it's a great sort of pulse check on where we think we are in the markets so you can obviously visit that at see that at ark-invest outcom we have a dedicated Bitcoin section um so Kathy really really uh enjoyed this conversation and uh I'll be I'll be just tuning in from the background on the rest of the conversation definitely yeah just before you go yes I I think um uh it's been helpful helpful for me as I'm looking at Bitcoin monthly and you know talking through this with the team that um uh we can see that and and we believe that the the buold market in Bitcoin is not over uh and uh so I would encourage everyone to take a look at uh that piece when it comes out and um and get kind of hooked on it because it's it's very very helpful yeah absolutely I think one of the things that we take a look at is how to assess bitcoin's fundamentals and we use onchain data uh which is derived from the the bitcoin's public blockchain that allows us to assess buyer and seller Behavior cost bases transaction volumes active addresses and we monitor that on a weekly basis and based on the numbers that we're seeing and you can see that in the Bitcoin monthly as well you know we believe that we still are in in a bull market very likely the second half and uh historically that has coincided with the Bitcoin having uh so we like this really healthy reset the healthy reset has reinforced a lot of the longer term holding Behavior which we like to see uh and all of that can be dissected and ultimately synthesized uh using onchain data so definitely take a take a deeper look at the at the Bitcoin monthly uh for more insight on that yeah and I I guess there was a lot of anticipatory Behavior because uh many people have learned about the all right okay um and now uh what I'd like to do is finish on monetary policy um and um go through the drill we've been through this month-to month for a while now uh and here you see M2 money supply uh growth versus CPI um you see um money supply the purple line there um is still negative but not as negative as it was that's interesting uh you can also see that uh the CPI is kind of stuck in the three to three and a half percent uh rate right now or at a three to three and a half percent rate and what we think is going on right now is uh that companies are um seeing their unit volume growth disappointing and so they're trying to make it up with pricing and uh in doing so they're actually turning the consumer off more it's not working and uh I'll show you some indicators a little later on to that effect so we think that they will be forced to um you know take their inflation rates down if they want to invite the consumer um back into uh buying uh products and services so uh we think the that this will resolve to um to the downside it's been in a Range now for gosh it looks like nearly a year in this three to three and a half percent range uh and uh if you look at the underlying economy we're seeing um uh the consumer starting to give way um we we've seen it in in different ways housing related Auto related but now we're talking about restaurants which uh which certainly have um had had a strong period as fiscal stimulus was burgeoning uh but that's that's over now and uh we do think that the inflation rate is going to look a little bit uh like the money growth rate we've been saying that we think it will turn negative at some point and we still do um the the biggest lagging indicator in the CPI is r uh and we're seeing signs of rental uh rental prices coming down uh actually negative in many parts of the United States and so that alone will start pulling this down we're seeing Auto prices coming down as well as um as dealers try and move those units uh Tesla Tesla's well advertised price Cuts uh maybe leading the charge so to speak there um so uh we think that we we do not think inflation is going to um is going to e stay at this uh level we think it is going to resolve uh to the downside in the next few months um and then uh here is the yield curve we focus on this uh because it typically when it's below zero this line it means that 10year treasury yields are below twoyear treasury yields and uh that is still the case it's usually a harbinger of recession uh or much lower than expected uh prices and I've focused um uh us on this yield curve if you look at 0809 where it peaked it looks like it's been on a constant downtrend from a trend point of view in hindsight uh and I do think that is a saying something about the deflationary undercurrents in the uh in the global economy and uh that they will continue to build I know that everyone's focused on inflation uh but we're going to show you some charts that uh would suggest that that is not the risk uh so this has not changed and um the idea that we're H going to have a soft Landing which is the consensus view right now this uh this chart would argue against in fact you can see except for the 80s every time uh it has been at this level we have ended up in a recession which you can see by the uh shaded lines um it took more of an inverted yield curve to get a recession going uh in the 80s uh but every time since we've pretty much had uh a recession every time the yield curve has been around this level um and we've been talking about a rolling recession housing Autos uh we'll get into that uh more uh now we're seeing more capitulation uh more broadly from uh consumers here's the real fed funds rate so the FED funds rate is roughly 5.5 uh percent uh and five to 5.5% uh and you can see the um minus 3% gets us to uh two and a half% there if um inflation does come down the way we expect and the FED does not cut rates which uh uh the markets now don't expect one until November if they don't cut as uh as inflation's coming down then this this line is going to go out closer to 5% uh again we haven't seen that really since the 80s when inflation was still considered embedded or at risk of going back to double digits we're nothing like that today um on the next page this this slide is um how long uh the FED has kept interest rates higher for longer meaning the length of time from its last rate hike to the first cut and you can see we're above average now and you can also see the last uh three times times this happened uh when we were higher than even we are now uh was a harbinger of the 089 uh Global financial crisis uh so that was 0607 it was uh a harbinger of the Tekken Telecom bust uh in 9798 and in 19697 it was the harbinger of a recession um and uh and the closing of the gold window as well so uh they haven't been great period periods or at least harbingers of great periods so um we are taking due note um so just a quick note on fiscal policy um you can see the deficit we present this each time and just want to reinforce that the antidote to this deficit which uh in a so-called expansion uh is at uh 6 and a half% uh that that really has has not happened except in the aftermath of the um 089 meltdown uh while stimulus was still flowing freely uh in response to it uh but we're we're not in such a meltdown now and um we do believe growth is going to be the solution as it was was in the 90s you can see the '90s in the Clinton Administration for the most part uh we we ended up back in a surplus which was um which was a function of the very good growth and I'll I'll mention that uh the internet uh really started to take off in the early 90s and that was a big part of the that uh that decade of uh growth and we think that cat GPT moment uh is very similar to what happened in 1993 which was the first time that email was connected to the internet it was a big aha moment just like chat GPT was for artificial intelligence and we think AI is going to be a huge Catalyst uh and is going to stimulate uh and accelerate the growth in our other uh Innovation platforms which are Robotics and energy storage uh blockchain technology and multiomic sequencing in the life science space all of those are getting ready to deliver massive growth rates that will really move the the needle um in terms of GDP uh unlike uh unlike the aftermath of the Tekken Telecom bubble uh you know the Technologies uh uh the internet was going and uh and and and the growth was very good but some of the expectations like personalized medicine we were not near that at all we are now and so we think that uh this Federal deficit if there's any discipline whatsoever in terms of spending um that it could move into Surplus territory which is something that the market does not expect listen very carefully to the C Cates all three of them um as as they put forth their um their economic plans uh and uh we'll we'll be talking a lot of th uh about those uh in the future uh but uh tax rate increases especially capital gains tax rate increases uh would um would undermine the scenario I just presented so um we definitely don't want those all right on to economic indicators uh here's sentiment consumer sentiment and it does seem to have bounced on a University of Michigan uh sentiment basis uh but you can see if you look at uh where uh where the economy has been in past Cycles when uh when it's been around these levels we've been pretty much uh either uh we've we've been in many cases uh moving towards a recession and um uh you can also say we were moving towards soft Landing so it's kind of a Never Never Land uh right now uh we the last tick was down it was a small tick down uh but pay uh close attention to this we think there will be uh more more ticks down because we do think uh that today's uh unemployment rate was um a a harbinger of more soft employment numbers to come and uh before I get into employment I do want to reinforce uh what I'm saying about that sentiment indicator it's probably on its way back down uh this is a good um indicator this is here we've got four really fast casual or fast food restaurants yum Starbucks Chipotle and McDonald's and you can see they are resolving to the downside um there's no pickup here and um we'll get into why uh in a few moments uh but I know that uh to see Starbucks sales it's out these are same store sales but total revenue at Starbucks was negative um and uh that we did see negative in uh in covid of course uh but for for Starbucks that's been highly unusual and it's basically saying you know Starbucks is discretionary I mean you don't have to go out and buy that cup of coffee you can make it at home and I do think that trading down is happening so negative numbers highly unusual there and they're all soft Chipotle's held up the best I think uh and I think they're being sensitive in terms of pricing I think they've taken um you know they're uh limiting the the chicken dishes because that's still high priced and uh so I think they're being more sensitive from a pricing point of view um on the next page uh this is the employment employment Friday so we got a soft employment report non-farm payroll was 175,000 expectation was up 240,000 so a big Miss there uh and if you look at the revisions I think the downward revisions were 22,000 and we've had consistent downward revisions which is uh consistent with um with I would say not a soft Landing a harder than expected Landing uh another thing that goes into these statistics and I haven't really talked about it before it's pretty consistent though is um it's something called the birth death uh ratio and uh this has to do with new business business formations and bankruptcies uh when we're going into a recession that number tends to be revised down normally uh the the net number is a positive and this last month it was 110,000 uh Jobs net from this net new business formation um well if that's wrong and as we enter into recessions or harder Landings uh Banks refuse uh to lend money and they are refusing to lend money to small businesses and small businesses are not happy about this probably means that that 110,000 increase in employment because of net uh new business formation uh is an overestimate so the employment numbers are probably weaker than what we're seeing now and that's corroborated by the household employment measure which was up only 25,000 last month um we saw average hourly earnings up 0.2% uh 0.2% less was less than the. three% it's down to on a year-over-year basis average hourly earnings growth is down to 3.9% we got a productivity measure this past week which on a year-over-year basis non-farm product ity was up 2.9% if you subtract that from the 3.99% uh in terms of average hourly earnings or even the 4.8 in the employment cost index um we're below 2% inflation uh and so on on this metric which is the real way you should be looking at um certainly wage inflation we're below 2% and uh you know I think that uh that is going to continue to to drop if we're right and the unemployment rate uh goes up uh there was one other yeah there was uh one other thing to note and that was the um uh the unemployment rate itself went up to 3.9 we think uh in the next year it could go up to 5% um and these moves tend to happen R rapidly here you can see uh non-farm payroll employment on a year-over-year basis is pretty much flat I think it's 0.3% um that's with today's number and you can see non-farm payroll has dropped below that 2% to 1.8% uh and we think the deceleration will continue if we go to the next chart temporary help was down another 16,000 and you can see except for the covid uh shock uh you have to go back to I think it's 2014 to see temporary help uh employment this low so businesses tend um to uh not hire on a temporary help if uh if times are getting tougher they'd prefer to cut back there than cut back on their full-time employment on the next page quits rates quits rate it continues to fall people quit jobs and you saw this uh in the aftermath of covid if they think they can jump to another job and get a higher uh wage rate um you can see that's been coming down we're now where we were before covid actually you have to go back to 2017 18 to see a lower number here and you can see that the employment cost uh uh index uh is is coming down on a year-over-year basis alongside this quit rate um here is another reason the the restaurant sales are starting to capitulate uh the personal savings rate is um at a very low level um you can see before uh the 0809 uh crisis uh the saving rate was similarly low what was happening back then was home price home prices were spiraling to the upside and um and consumers were tapping into home equity uh to supplement their their consumption um consumers are not doing that now uh the interest rates uh are are too high so they're not taking home equity loans like they were back then uh so uh saving rates very low if the unemployment rate now goes up uh the tendency for this number and you can see this what happens before the Shaded lines on each uh chart here if the consumer uh feels or consumers feel they're going to uh lose their jobs they actually try and uh bolster their saving rate which really hurts consumption so maybe one reason those restaurant sales are starting to come down now um here just a reminder that we've been in a rolling recession uh to see existing home sales drop from uh six nearly six and a half million units to we're now in the four to four and a half range uh that's been a huge hit of course interest rates directly implicated there on the new home sales you can see um after after after rising from 2010 uh to 2020 they also have been in somewhat of a recession territory you know there is a a a housing shortage out there and yet interest rates have destroyed affordability and uh and so even here we're we're uh continuing to see weakness Auto Sales we got another number it was in the high 15 million units at an annualized rate so it's kind of stuck 15 to 16 million we think this will resolve to the downside as well unless and Tesla certainly is doing this unless auto companies cut prices significantly now with the Uber and lift these days uh you know the imperative to have a car just is not uh as um as much as it was before uh in the early 2000s so maybe we will not go back to the 17 and a half 18 million units uh where which was steady state at some point maybe maybe the new steady state is 15 to 16 million and will go down from there in in um uh weak periods of activity here I mentioned earlier small businesses are not happy uh if you look at the nfib national Federation of Independent optimism index it it has dropped it's it's breaking down again after stabilizing uh for about a year or so uh but I think this is in response to an ability inability to get credit liquidity is drying up and you can see we're um in 089 0809 territory we're down below covid territory so uh this is quite serious and you know uh small businesses uh tend to be the biggest job uh generators uh and so this is not a good sign for employment going forward here this is just a a one of the first April numbers that that comes out and you can see there was a a capitulation here in the Chicago B business barometer uh so we're back in recession territory if you look at the the times in the past it's been here every time uh every time we have been in a recession so uh again this soft landing and uh you know the the lagging indicators out there that the FED is using um are are not capturing this sensitive data okay now on to market indicators I'll start with the dollar as we always do and um I think it's because just to to mention or repeat something that um Yasin and I mentioned around the Bitcoin discussion there are devaluations taking place around uh around the world and that's inflicting a lot of pain on those populations us the Dollar's been pretty strong actually since 0809 defying expectations of those who are saying that our twin deficits the budget deficit and the trade deficit would drive the dollar down the dollar is the world's Reserve ass um currency and uh so in a bit of a flight to safety the dollar is um is getting is still getting a a bid and even uh against the Yen uh so this is the Yen and and if if the line is going up then the yen is devaluing the dollar is going up the yen is depreciating um you can see how how long a period the Yen did appreciate it was really in a trend sense through uh 2013 and since then it has been depreciating that's a huge depreciation from you know roughly 75 to 150 that's you know it's lost half its value since then which relative to other currencies um and you can see very recently it broke down again uh it went to 160 and uh and the the Japanese monetary authorities intervened what does that mean they bought Yen which is tightening their liquidity pulling Yen out of the system and they sold dollars uh and that adds to Dollar liquidity um uh at the expense of the Japanese economy so uh that's that's interesting even Japan uh is suffering from the devaluation that I think our monetary policy has been a part of making happen here's the Bloomberg commodity index and you know we have to answer to the fact that the gold price has broken out of the the it had been in um a a range it had based uh for quite a time that the top had been 2100 and it popped above that it has popped above that in recent weeks but look at what the overall Bloomberg commodity uh price index has done it has done nothing it's been going down for the last few years and I think that's partly a reflection of what's going on uh with the dollar the dollar is up most Commodities are priced in dollar so the commodity prices are down so that's definitely one reason but there is um there is a lot of softness around the world uh including the US industrial sector which still seems to be in recession a lot of those uh companies in earning season are reporting uh negative year-over-year numbers so revenues falling uh and and I think this this chart uh highlights something that I've been saying for some time commodity prices today are where they were in the early 80s and here we have this um The Narrative out there saying we have an inflation problem look at look at what's happened to this you've seen since 2008 a downtrend sure you've seen movements um fluctuations within a downtrend but there's a downtrend nonetheless and uh I often mention krad of here um where you know it's when when um policy makers have not uh categorized the the backdrop correctly and in this case characterizing it as inflationary and here's an indicator that's saying heck no it's not inflationary um the risk therefore is deflation and uh we really do believe uh uh that is the case here's another way of talking about what's happened to Gold so the the the purple line here is is the ratio of metals prices to gold prices now I just told you that gold has um moved up out of a trading range many people would say that's a harbinger of inflation this chart would say absolutely not this chart this metals to gold ratio um is basically saying that the purchasing power of gold has gone up and that the reason it probably gone up is it's a flight to safety as these devaluations are taking place around the world we're even seeing central banks increasing their gold positions um and especially uh in China China has taken its dollar reserves down uh we don't know if that's uh if that's they're they're making that an explicit move uh or and buying gold instead uh or if it's a function of a deterioration in trade but nonetheless the the Chinese dollar reserves are down from $1.2 trillion to I think $750 billion over the last few years uh and China has been buying gold as have uh many other central banks um so so and one of the reasons China and and maybe Russia as well uh have been doing so is they don't like it that the dollar is the world's Reserve currency so think about it the dollar is going up despite that kind of activity and uh here the purchasing power of gold is going up and uh you can see that this line is is basically where it was during the thick of the crisis in ' 0809 that was surely a flight to safety moment what is not the same is the green line the green line is the 10-year treasury yield and you can see what uh how how tightly correlated these two uh indicators were um in the post 0809 environment and even before they were pretty tightly correlated uh as you can see they've broken apart they started breaking apart when the FED started tightening and uh so we think long rates have gone up most most ly because the FED has tightened uh and the yield curve can only go so negative um and uh and and this we we also believe that this is going to close how is it going to close um well our bet is that the long the long treasury bond deal will come down uh if we're right that the us is going into a harder Landing than most anticipate uh the the the metals to gold price uh uh could go up but that would mean you know a a burst in the metals prices relative to gold and that is not happening copper has come up but other metal prices have come down uh and so that would be our bet of course they could meet in the middle both Metals going up relative to the gold price and the treasury yield coming down um but we think the most likely given what we expect for the economy is that the treasury yield comes down uh and then this this chart is still the conundrum out there uh these are credit default swaps so the price of credit default swaps and normally when they're going up uh we're in a riskof situation and you saw that happening certainly as the FED started tightening and and continued tightening it stopped tightening and and got the idea that it would and this this um the credit default swaps which are really insurance policies against bankruptcy uh they they have settled down but if we're right on what's going on in the rest of the world and in the US and what is likely to happen um this the the credit default swap should have stayed more elevated what we think is going on is a lot of private Equity money is sloshing around in the system and uh they're buying up companies that we think uh or supporting companies that we think uh would be in trouble otherwise uh we shall see but you can see uh recently they've both ticked up and and stay tuned so now uh on to the last segment here just quickly to highlight um something you may hear about in the news but uh um is is has reached quite extreme levels here you can see the common Holdings in green it's the common number of Holdings uh between the the s&p500 and the NASDAQ 100 so the NASDAQ only has 100 in it so an 84 names are commonly held and the overlap is 45% in terms of weight uh that compares to where we started in O2 uh and that was in 12 and a half percent range the markets become very concentrated another way of saying this is uh the active share of the NASDAQ 100 has gone down from 87% to 55% and we've always said that our strategies are starting to fill the Gap that's been created here the NASDAQ used to be um a very fertile place for companies that were in the mid to large range and um you know they they were the innovators they were the disruptors and uh we feel like the NASDAQ 100 does very little of that uh right now we thought that was this was an interesting way to show that um and you can see the weight of just the top 10 stocks in the S&P 500 uh has gone from roughly 177% to 32% so nearly doubling uh since well in the last 30 years the big are getting bigger no doubt about it uh the FTC is on the March uh and really does not want this to happen um so there is talk about splitting up uh some of the larger names out there we have no idea if that will happen um so far they haven't done it in this Administration the EU has been more focused on forcing unbundling uh with Microsoft uh for example uh but historically and you can see um you can see from 2000 to 2015 the concentration diminished uh so we go through waves in the market of increased concentration and then when it turns the other direction then the the ilk of stocks in our strategies uh gets a nice Tailwind we don't know when that's going to happen uh but I did want to finish on this chart it's just pretty striking um so this is the market cap of uh and credit to Goldman Sachs market cap of the largest stock relative to the 75th percentile stock so the bottom you know quarter um uh the it would be the top stock of the the bottom quarter what is that so that uh ratio well it's it's out to a record high and that's telling us something you know uh you can see how uh this series reverts to the mean and you can see when it has happened and when I first looked at this chart I thought uh oh you know 2000 1973 uh 32 sounds like depression um so I thought oh my goodness but then in doing a little bit more analysis and we're going to do we're going to do a much deeper dive as time goes on if you look at uh there are two other times besides the um uh the 2000 techken Telecom bust the 73 recession that was a very serious recession um you see uh you see 64 and then 32 and 39 and if if you look uh at what happened there 32 the peak was at the really there was massive fear uh 29 through 32 massive fear and it crowding into the same stocks uh just because they seemed so safe uh they had the highest cash flows and and so forth but look what happened afterwards um what happened afterwards it was from 39 to 46 effectively uh the market went up 45% uh uh or 5% at an annual rate and you can see that those largest uh cap stocks um underperformed relative to the rest of the stocks in in the index uh if you take an even if you zoom in uh at 32 to 35 what you see is um you see a 62% increase in the the market there was a sort of a big dead cap bounce and then I think we might have ended up back in in the soup in 37 but from 32 to 35 a 62% increase in the market so 133% at a compound annual rate as the market broadened out into lower cap stocks and even in 64 uh for three years 6 64 to 67 the market went up uh 26% um and uh so that was 6% at an annualized rate again more diversification a broader-based market so I would um expect especially now that we're at an all-time high that just gives you a sense of two things how much indexation is driving this market and momentum to a few stocks they're variously known as the fangs at one time or the Magnificent Seven or now the magnificent six but those sorts of moves end and the markets broaden out in a healthy market and what will cause that if we're right interest rates coming down will cause that so we're certainly looking forward to that um especially last year the market did seem to start moving to start mov move to to move in that direction so that was the beginning we think of this move but if we're right this chart would suggest uh that um the move has um has miles to go and so we certainly are looking forward to that and um and uh it'll be a very exciting time because these five platforms 14 different Technologies are going to transform the world and they are going to make it a better place place so stay tuned thanks so [Music] much e for

Channel: ARK Invest

Views: 30,414

Keywords: innovation, investing, cathie wood, cathy wood, kathie wood, kathy wood, cathie woods, cathy woods, kathie woods, kathy woods, ARK, market news, fintech

Id: GqWuUSd4q7s

Length: 58min 10sec (3490 seconds)

Published: Sat May 04 2024