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Cathie Wood: This Hasn't Happened Since Before The Depression | In The Know

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Key takeaways

Finance

Finance-Focused Summary

Macro Outlook (Growth, Inflation, Interest Rates)

  • Long-term growth thesis: The speaker argues the world has sustained roughly ~3% global real GDP growth for ~125 years, with major technology eras (e.g., the industrial revolution) historically driving step-ups in growth.

    • Industrial revolution (comparison): described as moving from about ~0.6% average real GDP growth in earlier centuries to around ~3%—framed as a ~5x increase.
    • Forecast (next ~5 years): growth could at least double, and she suggests it could be ~5-fold higher globally (framed as ~15% impact). (“Possible” rather than certain.)
    • IMF reference: the IMF expects ~3.1% global growth, which she frames as conservative versus her technology-driven acceleration view.

  • Nominal growth mechanics: Nominal GDP growth = real GDP growth + inflation.

  • Rates and yield correlation: The 10-year Treasury yield is described as historically correlated with nominal GDP growth (on a trend basis).

  • Interest-rate “basing” / expected direction:

    • The 10-year yield has been in a range for about ~3 years (since ~2023).
    • If real growth is “north of 7%” and inflation is slightly negative, she expects 10-year yields to move higher.

  • Equities despite rising rates: Equity markets are noted as at all-time highs, attributed to the idea that rates rose more due to real growth expectations than due to inflation expectations.

Yield Curve and Recession Risk Framing

  • Yield curve regime shift (historical lens):

    • She claims that pre-Depression periods more often saw an inverted yield curve than a positively sloped one.
    • She suggests the industrial revolution’s deflationary tilt (linked to the gold standard) may have contributed.

  • Current interpretation: The prior episode of a highly inverted yield curve after COVID did not lead to an overall recession—though some sectors weakened.

  • What may happen next: The yield curve could flatten and potentially become more negative again, but “for a different reason”: real growth rising while inflation falls, implying long rates may be lower than short rates.

Fiscal / Debt Context (and Implications for Markets)

  • Deficit drivers:

    • Defense spending is ramping more aggressively.
    • Corporate tax reductions are described as larger than expected, producing tax refunds that corporations reinvest.

  • Deficit expectation: A trend toward lower deficits is predicted, potentially around -3% (noting the subtitles reference a -3% target tied to Treasury Secretary Bessent).

  • Debt-to-GDP: Debt is described as near an all-time record, though “not quite record-breaking.”

    • A headline “$40 trillion” appears, but she clarifies it’s not quite record-breaking relative to GDP share.

  • Debt capacity vs equity: She highlights “debt as a percent of corporate equities” falling to near record lows (except the late 1990s), implying improved servicing capacity through wealth/equity growth.

Money Growth, Velocity, and “Demand for Money”

  • M2 growth: described as ~4-year annualized, and a little over 5% YoY.
  • M1 growth: described as a little over 5% (vs M2’s ~5%).
  • Velocity of money: claimed to be flattening.
    • She connects velocity declines to labor force participation, contrasting this with economist Art Laugher, who views velocity as more of a residual.

Inflation Debate (PCE: Headline vs Trimmed Mean vs Core)

  • Key Fed focal point (Jackson Hole reference):

    • Headline PCE: 3.7% (explicit)
    • Fed target: 2%

  • Alternative inflation measures:

    • Trimmed mean PCE (Dallas Fed): 2.3%
    • Private measure + core PCE: 2.4% headline and 1.3% core are cited

  • Implied caution / policy implication:

    • If headline PCE (3.7%) keeps rising, she suggests the Fed would likely tighten more.
    • Her view is that the increase is temporary, linked to oil/shock effects from the Iran conflict.

  • Inflation-down thesis:

    • Oil price restraint: oil hasn’t exceeded the 2008 peak of $147, and could fall materially.
    • Technology deflation: examples include sequencing costs dropping from ~$2.7B per genome (2003) to < $100, potentially to ~$10 next, with inference costs falling by ~99.99% per year—presented as productivity-driven inflation resistance.

Oil/Energy Specifics and Market Implications

  • OPEC-related claims:

    • Abu Dhabi left OPEC (dropped out in May), with production up ~78% to ~4 million+ barrels/day.
    • Venezuela threatened to drop out.
    • US production: around ~13.6 million bpd; exports >~6 million/day; “almost nothing in 2015” is mentioned.

  • Oil outlook: oil could fall back toward ~$30 (described as a long-run average).

  • Transition risk: demand for oil is described as peaking as grids move toward natural gas, nuclear, hydro, solar, and wind.

Employment and Labor Market

  • US jobs (Employment Friday):

    • Nonfarm / Payroll jobs: ~162,000 created; expectation ~50–55k
    • Household employment: >~450,000 jobs created
    • Average workweek: longer (interpreted as demand strength)

  • Unemployment rate: ~4.1%

    • Youth (16–24) unemployment: 8.5% → 9.1% (entry-level job weakening)

  • AI and jobs: AI is framed as job-creating, supported by a survey (RAMP) claiming firms adopting AI more aggressively show faster employment growth.

  • Caution on labor supply: Labor force participation pressure remains (baby boomers retiring; immigrants leaving), potentially leading to labor shortages.

Consumer, Wages, Productivity, and Housing

  • Wage growth: average hourly earnings growth ~3.1% (described as behaving normally).

  • Productivity / unit labor cost risk: If productivity runs ~2–3%, unit labor costs should not re-accelerate inflation.

  • Consumer mood: University of Michigan slightly lifted; gasoline prices not rising further YoY.

  • Savings distribution (“bifurcation”):

    • Lower-income: described as “hand-to-mouth.”
    • High net worth: benefiting from booming stocks/venture funding and willing to spend/save more.

  • Housing (mixed):

    • Existing home sales: accelerating a little after expectations to keep falling.
    • New home sales/prices: still down.
    • Mortgage rates fell, then rose again; builders reportedly pivoting back to spec building.

Growth/Industry Indicators and Capital Spending

  • Manufacturing PMI: shifting from “just-in-time” toward “just-in-case.”

  • Non-defense capex (ex aircraft): described as breaking out since COVID after 20–25 years of topping out; framed as an AI-driven capex cycle that’s just beginning.

  • Trade balance: US growing faster ⇒ imports up ~3.6% in one month; exports down ~2.5%. Deficit rise is expected to be offset by capital inflows (capital surplus).

Market Ratios and Tactical Asset Signals

  • S&P / Oil: near highs; if oil falls, this ratio could break out meaningfully.
  • S&P / Gold: she disputes “deficit/debt waterfall” narratives and expects S&P relative to gold to move the other direction (i.e., not underperform).
  • Gold vs T-bills total return ratio: predicted to behave like a “golden age” equities period where the ratio declined; assumes T-bill rates not to fall like in the 80s/90s.
  • Bitcoin vs Gold:
    • Very low historical correlation; calls it a reassuring “turn”/breakout versus gold.
    • Bitcoin framed as both risk-off and risk-on in a tech-dislocation/counterparty-risk environment.
    • Explicit stance: “big bulls on Bitcoin,” citing technology revolution, a new monetary system, and a new asset class.

Credit Risk and SaaS / Private Credit

  • Systemic credit risk: described as not currently disturbed; CDS referenced as “no counterparty risk issues yet.”
  • SaaS/private credit: she suggests worries about SaaS aren’t systemic.
  • High yield vs 10-year Treasuries: described as very low spread/risk.
  • Example names:
    • Salesforce (CRM): cited as rebounding; she references Agentic AI and Slack synergy as supportive despite a large legacy base.

Innovation Platform Framework (Repeated)

She argues technology evolution is driven by five “innovation platforms,” contrasted with the industrial revolution’s ~three:

  1. AI (biggest catalyst)
  2. Robotics
  3. Energy storage
  4. Blockchain technology
  5. Multiomics / sequencing (life sciences)

Step-by-Step / Methodology Elements (As Described)

  • Connect technology revolutions → higher real GDP growth
  • Translate real GDP growth + inflation into nominal GDP growth
  • Relate nominal GDP growth trends to 10-year Treasury yields
  • Decompose inflation signals using multiple PCE measures:
    • Compare headline PCE (3.7%) vs Dallas Fed trimmed mean (2.3%)
    • Compare vs a private measure (2.4% headline, 1.3% core)
  • Assess recession risk using yield curve regime and slope
    • Positive vs inverted yield curve analysis over history
  • Cross-check inflation path using oil + technology
    • Oil shock timing (temporary) + commodity supply shifts
    • Technology cost curves lowering inflation via productivity

Key Numbers and Timelines (Explicit)

  • ~125 years: global real GDP growth ~3%
  • Next ~5 years: growth acceleration “at least double”
  • ~1971: end of the gold exchange standard (used as a turning point)
  • ~3 years (since ~2023): 10-year Treasury yield “in a range”
  • 10-year yield average level referenced: ~4%–4.4% zone (pre-gold-standard comparison)

Inflation measures (PCE)

  • Headline PCE: 3.7%
  • Dallas Fed trimmed mean PCE: 2.3%
  • Core: 1.3%

Oil

  • 2008 peak: $147
  • US production: ~13.6M bpd
  • Abu Dhabi production: >~4M bpd
  • Potential outcome: oil toward ~$30

Employment (Aug)

  • 162k payroll jobs (vs 50–55k expectation)
  • >450k household employment
  • Unemployment rate: 4.1%
  • Youth unemployment (16–24): 8.5% → 9.1%

Earnings / productivity / tech cost curves

  • Avg hourly earnings: ~3.1%
  • Productivity assumed: ~2–3%
  • Genome sequencing: $2.7B (2003) → < $100 → ~ $10
  • Inference costs: -99.99% per year (as stated)
  • Example AI compute deal: “pay $50B per gigawatt”; cost in mid-to-high $20s

Tickers / Assets / Instruments Mentioned

  • 10-year Treasury (Treasury yield)
  • PCE (no ticker; inflation metric)
  • Gold
  • Oil (no contract ticker)
  • Bitcoin
  • S&P 500 (implied)
  • Salesforce (CRM)
  • Slack (mentioned alongside Salesforce)
  • Anthropic (deal example)
  • Elon Musk / Tesla-like energy/data center ventures (mentioned; no ticker)

Disclosures / Disclaimers

  • No explicit “not financial advice” disclaimer appears in the provided subtitles.

Presenters / Sources Mentioned

  • Cathie Wood (speaker)
  • Brett Winton (chief futurist; chart developed with academia)
  • Fed Chairman Worsh (referenced indirectly; Jackson Hole presentation mentioned)
  • IMF
  • Dallas Fed
  • Art Laugher
  • Elon Musk
  • Antropic
  • President Trump
  • Treasury Secretary Bessent

Original video