⚠️ URGENT: Cathie Wood Says These Stocks Face a Deflationary Crash

00:00
the legacy auto industry is starting to
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collapse right in front of our very eyes
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and we need to talk about it look i'm a
00:06
pretty dry and boring guy my idea of a
00:09
good time is making spreadsheets about
00:10
stocks this channel is all about
00:12
advanced technologies market trends and
00:15
the publicly traded companies that are
00:16
succeeding because of them i'm not here
00:18
to be sensational and i'm not here to
00:20
exaggerate anything so here's what's
00:22
going on every month arkhamvest releases
00:25
a video called in the know with kathy
00:27
wood where she talks about advanced
00:29
technologies market trends and the
00:31
publicly traded companies that are
00:32
succeeding because of them if you've
00:34
ever watched one of those you'll know
00:36
that kathy wood isn't trying to be
00:38
sensational and she's not exaggerating
00:40
anything either
00:41
i've mentioned lumber since may it's
00:45
dropped 64 percent copper 15
00:49
iron ore think china in particular down
00:52
51 percent see what i mean well in this
00:56
latest episode kathy wood literally
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spells out her entire view on the
00:59
collapse of legacy automakers even
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though arkan vest typically focuses on 5
01:04
years from now she's talking about
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things that are happening today based on
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data that's available today on companies
01:10
that we can invest in or avoid today so
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first i'm going to show you what she
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said without interruption showing my
01:17
sources is important to me since kathy
01:19
had covered a wide variety of topics in
01:21
that episode i've edited it down to just
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the parts that focus on legacy auto
01:26
while you listen to it try to keep in
01:27
mind what the same information means for
01:29
a company like tesla which is
01:31
archinvest's biggest position today
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after the clip i'll summarize what she
01:36
said and add context where i think it's
01:38
valuable as well as share my own
01:40
personal opinion on all of this as
01:42
always time stamps are enabled for your
01:43
convenience and i'll see you after this
01:46
clip we believe that the next big worry
01:49
is going to be recession we don't
01:52
necessarily believe there will be one
01:54
but
01:55
if we're right on what's going on
01:58
inventories are starting to build up
02:02
we've been saying for some time that the
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inventories in the system are much much
02:07
higher than i think most people
02:09
appreciate but where are they if they're
02:12
not in the auto dealer lots
02:15
well they're in our garages and in our
02:18
driveways everyone knows the familiar
02:21
story of stocking up on paper goods
02:24
we're not going to have to buy them for
02:26
quite some time so
02:28
a lot of inventories are in
02:31
households and now that the consumer is
02:34
shifting away from goods
02:37
at the margin to services
02:40
there will be too much inventory we
02:42
believe on the shelves i think analysts
02:44
are beginning to
02:46
sniff out
02:47
this excess inventory and the loss of
02:51
demand as
02:52
as consumers move from goods at the
02:55
margin of course
02:56
to services
02:58
well the market is really worried about
03:01
inflation
03:03
and one of the reasons and again this is
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uh in the headlines quite a bit as well
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uh are supply chain shortages
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and
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some of those are real we do believe the
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chip shortage is real but we also
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believe
03:20
that this notion that businesses were
03:23
caught flat-footed when they shut down
03:26
they just shut down and then with
03:29
stimulus checks
03:31
the consumer took off
03:34
businesses have been scrambling
03:37
for the last year to catch up with
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consumers
03:41
and to do so we believe there has been a
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lot of double and triple ordering
03:48
ordering more than their forecasts their
03:51
own forecasts suggested would be
03:54
necessary and
03:56
i think this is especially true in the
03:59
chip sector
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and specifically in the auto sector and
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that's the industry in trying to explain
04:07
the collapse in its sales here in the
04:10
united states from roughly 18 and a half
04:14
million uh cars sold
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to that was in april
04:20
to it looks like uh 12.3
04:24
something like that uh in uh in
04:27
september i mean that's that's a a
04:29
recession-like decline
04:32
well one of the reasons that's happening
04:34
is there was a lot of pre-buying last
04:36
year uh in in an effort to avoid mass
04:40
transit
04:42
there was a huge rebound in the auto
04:44
sector it was a much sharper rebound
04:47
than we've seen
04:49
coming out of any other recession
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including 0-809
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so there was a lot of pre-buying and and
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when i say the inventory pileup is in
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the garage in the driveway uh that
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that's what i mean
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uh we are hearing from a number of
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companies uh uh
05:09
sue at amd elon musk
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both are saying and then actually today
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gm said that they see the chip shortage
05:18
um
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loosening up here uh and my guess is uh
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we're going to find out um
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from
05:27
price declines in chips just how much
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excess inventory
05:33
there is out there so
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i i don't think the chip shortage is
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going to be
05:38
with us much longer i will bet as
05:41
analysts are putting pen to paper
05:44
or doing their spreadsheets
05:47
that they are beginning to put two and
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two together
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i know that bernstein was out in the
05:53
last week or so saying wait a minute the
05:55
shipment of chips
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into the auto industry is much stronger
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than uh the production
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levels we're seeing now
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and this and certainly the sales levels
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uh so analysts are beginning uh to to
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get the plot i think
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now on the auto sector i would say the
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other thing that's happening is that now
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that
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consumers have bought that car and don't
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have to take tran mass transit we're
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probably looking at a situation where
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the next car that consumers will want to
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buy is electric i think that that might
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be a part of what's going on with this
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dramatic decline in auto sales from 18
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and a half million to 12 million at an
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annual rate uh in the last month i mean
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uh again when we're not in a recession
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yet uh i don't think that drop was just
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because of shortages and i do think that
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the auto manufacturers have
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the wrong products in their pipeline
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they'll have to switch much more quickly
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to electric if they can
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now
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if we're right then what we're going to
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see is prices coming down
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you know i think of wiley coyote
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running running running to catch up as
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businesses have you know only to look
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down because the demand is not going to
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be as high as businesses expected we are
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already seeing some prices come down
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when prices start going down
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anyone who has excess inventory
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is
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risking inventory losses losing money on
07:44
their inventories so sometimes they will
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sell into that kind of price decline
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exacerbating it and i believe we're
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going to see a lot more of that
07:54
the one
07:56
price that i think is unnerving a lot of
08:00
people is the oil price it is
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threatening to go above its uh
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2018 peak which was just about 77
08:11
i have been surprised before in other
08:13
markets
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by oil prices and how how
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much they can defy fundamentals
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06 2006 to 08 i think the oil price went
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from 60
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to 130 dollars and we were entering one
08:33
of the worst periods of our financial
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lives but one of the things that i've
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been
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saying for quite some time is we do
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think the demand for oil globally has
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peaked we think that it peaked in 2019
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china's part of the reason and then the
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other very important reason is the shift
08:54
and we think it's taking place at an
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accelerated rate
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from gas-powered cars to electric
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vehicles so on the demand side we think
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demand is coming down for both cyclical
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and secular reasons on the supply side
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we've got
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some forces working against supply
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so pension funds and activist investors
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are
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basically
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forcing
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a number of oil companies to cut their
09:25
capital spending in the name of esg cut
09:28
their capital spending on oil in
09:30
particular now i've gotten a lot of
09:33
flack for this on
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on twitter because last year
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i did say we think oil demand has peaked
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and that oil prices will come down and
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we absolutely do stand by that point of
09:47
view at the turn of the last century
09:50
whale oil was um heavily used
09:55
for lighting and so forth as oil
09:58
discoveries were made the writing was on
10:01
the wall and whale oil manufacturers cut
10:03
back on their capital spending and so in
10:06
the short term that created huge
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volatility in the price and i i think
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we're probably seeing some of that now
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for a similar reason
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but at the end of the day
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demand uh demand ruled and uh the price
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did uh implode uh and we do think longer
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term that the oil price is on its way
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down okay so that was a lot to take in
10:32
so let me lay out and clarify a few
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things where i think it'll help us as
10:35
investors the most important thing to
10:37
realize is that if the market agrees on
10:39
something like inflation or an oncoming
10:41
recession that's what's going to get
10:43
priced in if you have a very different
10:45
view on the market than the majority and
10:48
you're right you're going to make a lot
10:49
of money because you were correctly
10:51
being greedy when everyone was being
10:53
fearful or the other way around that's
10:55
why everybody knows about michael bury
10:57
and his big short against the housing
10:59
market i'll get back to michael bury in
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a little bit the big worry in the market
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right now is an oncoming recession and
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following retail sales is one of the
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indicators of economic decline unlike
11:11
most people cathy wood thinks that all
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this extra inventory isn't necessarily
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because of an oncoming recession but
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because businesses double and triple
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ordered their inventories due to the
11:21
surge of demand and lack of supply that
11:24
came with the pandemic and the shutdowns
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so now businesses have a ton of items
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they can't move not because of a
11:30
recession but because a lot of
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households have extra goods that they're
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already stocked up on
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auto sales have dropped by
11:37
recession-like levels as well from 18
11:40
million cars sold to about 12 million at
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an annualized rate for a while now
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automakers have been blaming these same
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supply chain issues like the chip
11:48
shortage for their lack of car sales
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again kathy wood has a different take
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here which has three important points
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first more people than usual bought cars
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during the pandemic to minimize their
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exposure to public transport they
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collectively stocked up on cars those
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same people won't need a new car for a
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while not only because they just bought
12:08
one but also because they're using their
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existing cars less often on average
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second according to elon musk of tesla
12:15
lisa sue of amd and the folks over at
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general motors the chip shortage is
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actually loosening up since vendors are
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still getting those double and triple
12:23
orders that they put in months ago while
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consumer demand for these chips has
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already started to fall back to earth
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that's important because it shows us as
12:32
investors that the chip shortage isn't
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really a valid excuse for not selling
12:36
cars anymore and that something else
12:38
must be going on that something else is
12:41
the third point which is that whether
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somebody just purchased a new car or not
12:45
they could be delaying their next car
12:46
purchase in an effort to buy an electric
12:48
vehicle that means legacy automakers may
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have the wrong products in their
12:52
pipeline to begin with we're not in a
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recession yet
12:56
i don't think that drop was just because
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of shortages and i do think that the
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auto manufacturers have
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the wrong products in their pipeline
13:06
they'll have to switch much more quickly
13:08
to electric if they can according to arc
13:11
invest's latest research people who are
13:13
waiting so that they can buy an electric
13:14
vehicle will be rewarded for their
13:16
patients because evs are already
13:18
approaching the same sticker price as a
13:20
similar gas powered vehicle and they
13:23
could even be cheaper than one as early
13:25
as 2024 which isn't too far from now
13:28
when it comes to buying a car the total
13:30
cost of ownership of an electric vehicle
13:32
is already cheaper than a gas powered
13:34
one thanks to lower maintenance costs as
13:36
well as lower fuel costs speaking of
13:38
lower fuel costs one of the big things
13:40
that people don't like about gas-powered
13:42
vehicles is well gas
13:44
the experience of charging your electric
13:46
vehicle is by no means perfect but there
13:48
are two big things that oil and
13:50
therefore gas currently have going
13:52
against them first besides being much
13:54
more expensive per mile driven than
13:56
electricity gas is also much more
13:59
volatile no pun intended as kathy wood
14:01
pointed out the cost of gas shot up
14:03
during the financial crisis of 07 and 08
14:06
which was exactly the worst time for
14:08
prices to increase on people's basic
14:10
needs you might as well be burning
14:12
bitcoin with how volatile gas prices can
14:14
be on the supply side pension funds and
14:17
activist investors are forcing companies
14:19
to lower capital spending on oil because
14:22
of esg which stands for environmental
14:25
social and governance so money is
14:27
starting to leave oil out of concern for
14:29
the environment and investors want to
14:31
see more capital spending on sustainable
14:33
energy instead so that's the stance in a
14:36
nutshell most people think that there's
14:37
a recession coming in general cathy wood
14:39
thinks it's the decline of gas-powered
14:41
vehicles specifically comment below or
14:44
tweet me at ticker symbol u with your
14:46
thoughts on the current state of the
14:47
legacy auto market do you drive a gas
14:49
powered vehicle or an electric vehicle
14:51
today is your next vehicle going to be
14:54
gas powered or electric did you delay
14:56
your purchase because you drive less or
14:58
for another reason like affordability
15:00
seriously i read every comment and i'm
15:02
excited to hear your thoughts here's my
15:04
take surprising absolutely no one i
15:07
agree with kathy wood this is an
15:09
anecdote but i'm somebody who drives a
15:11
fairly new gas powered car today and i
15:13
really want my next car to be electric i
15:16
know that i can be patient on this big
15:17
purchase because i don't have a commute
15:19
anymore specifically and i don't drive
15:21
too much today in general like many
15:24
other people i know personally i want to
15:26
tesla because i'm constantly seeing them
15:28
make improvements to their hardware
15:30
their software and their manufacturing
15:31
capabilities all while keeping their
15:33
promise of being sustainably driven no
15:36
pun intended that's one reason i make so
15:38
much tesla content on this channel two
15:41
more reasons are the technology and
15:43
economic factors this whole episode was
15:45
about if you're interested in learning
15:47
more about tesla's technology and
15:49
economic tailwinds i'm organizing and
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putting out a lot more content on it
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there's just too much to touch on in a
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single episode that's why i'm proud to
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say that this episode is sponsored by
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now and in the description below now
17:32
let's put this all together and talk
17:33
about michael bury one of the episodes
17:36
in my tesla playlist talks about michael
17:38
bury's massive short position against
17:40
tesla at one point his puts against
17:42
tesla accounted for almost 40 percent of
17:44
his hedge funds portfolio and had a
17:47
market value of over 700 million dollars
17:50
if you go by the value of the underlying
17:52
tesla shares i have a ton of respect for
17:54
michael bury because he's the type of
17:56
investor who thinks about the big
17:57
picture while really digging into the
17:59
details just like kathy wood in that
18:02
episode i pointed out that he made his
18:03
bet against tesla when it was at an
18:05
all-time high and that his time horizon
18:07
for that bet must be short-term because
18:10
there's no way he doesn't also see the
18:12
writing on the wall for gas powered cars
18:14
in the long term well guess what michael
18:17
bury says that he's no longer betting
18:19
against tesla it was a trade burry said
18:21
in an email exclusively to cnbc when
18:24
asked if he was still shorting tesla
18:26
media really inflated the value of these
18:28
things i was never short tens or
18:30
hundreds of millions of any of these
18:32
things through options as was reported
18:34
the options bets were extremely
18:36
asymmetric and the media was off by
18:38
orders of magnitude where some of the
18:41
confusion may lie is that each of the
18:43
single options contracts is tied to 100
18:45
shares of stock so theoretically berry's
18:48
bet is tied to 1 million 75
18:51
500 shares of tesla stock and therefore
18:53
his options bet had a notional value in
18:56
the millions i'm not trying to debate
18:58
how much money michael bury's short
19:00
position was actually worth or even how
19:02
much money he ended up making my point
19:04
here is that his short position against
19:06
tesla was something that a lot of bears
19:08
pointed to when arguing against evs in
19:10
general and against tesla specifically
19:13
well it turns out that his short
19:14
position was very short term and is
19:16
apparently now closed no matter how you
19:19
look at it everything in this episode
19:21
boils down to exactly one thing if
19:24
you're still running on gas you're
19:26
running out of time
19:28
this is ticker symbol u
19:30
my name is alex reminding you that the
19:32
best investment you can make
19:34
is in you
19:48
you