Stimulus Package, Tax Proposal, & Employment Report | ITK with Cathie Wood

TL;DR

Kathy Wood discusses the current state of the market, including fiscal policy, monetary policy, and her outlook on the economy and innovation-based strategies.

Transcript

greetings everyone this is kathy wood from arc invest it has certainly been a an exciting i guess you might say it that way uh four months uh we've seen almost a full market cycle in almost most uh four months when it comes to certain strategies so what i'd like to do this month is well what i always do uh we'll talk about the macros i think the ba... Read More

Key Insights

• 🚕 The likelihood of significant tax increases is decreasing due to slim political margins.
• ☠️ The M2 growth rate is still high, indicating rapid growth, and the Fed plans to maintain an easy stance on monetary policy.
• 😮 Weak employment numbers are caused by people choosing not to work due to government stimulus, leading to labor shortages and rising wages.
• 😘 Productivity is increasing, leading to higher compensation and lower inflation.
• 🛀 Consumption numbers, such as retail sales, are showing stunning gains, while industrial production lags due to labor shortages.
• 🥺 Companies may be double and triple ordering due to supply chain disruptions, which could lead to an inventory build-up and potential commodity price correction.
• 👋 Good deflation associated with innovation and bad deflation associated with creative destruction are expected to impact various sectors, including energy and financial services.

Questions & Answers

Q: What are the chances of significant tax increases in the near future?

The odds of significant tax measures, including a capital gains tax rate increase of 43.4%, are decreasing due to slim political margins in the house and senate. It is unlikely we will see anything close to that rate.

Q: How is the M2 growth rate impacting the market and monetary policy?

The M2 growth rate is still high at 24.2% on a year-over-year basis, indicating a rapid growth rate. The Fed plans to maintain an easy stance on monetary policy until sustained inflation is above 2%, which suggests the markets do not expect tight monetary policy before late 2022 or early 2023.

Q: What are the reasons behind the weak employment report despite businesses scrambling to meet demand?

The weak employment report is attributed to the government stimulus, which has led to people choosing not to work when they are paid not to work. Companies are facing difficulties finding permanent employees, leading to a rise in temporary employment. The cost of attracting labor is driving up wages, contributing to fears of inflation.

Q: What are the potential risks associated with deflation and commodity prices?

Three sources of deflation are identified: good deflation associated with innovation, bad deflation associated with creative destruction caused by innovation, and commodity deflation due to potential overordering and inventory buildup. Commodity prices, such as lumber, have seen significant increases, but an inventory correction could lead to a serious correction in prices.

Summary & Key Takeaways

• Fiscal policy: The stimulus package is in place, an infrastructure bill with potential tax increases may come, but the likelihood is decreasing due to slim political margins.

• Monetary policy: M2 growth rate is still high at 24.2% on a year-over-year basis, and the Fed plans to maintain an easy stance until sustained inflation is above 2%.

• Market outlook: Businesses are scrambling to meet demand, employment reports show weak numbers due to labor shortages caused by government stimulus, productivity is increasing, and there are signs of inflation fears.