Hey everyone kevin here in this video we're going to talk about what kathy wood just said. So take a look at this kathy wood just said that in november we learned that retail inventories rose more than two percent. The fastest pace is since the 90s and she's right. When i look at the average of retail growth on a month-over-month basis, the average over about the last 20 years is about a one-third percentage point increase in inventories.

We had a point, eight percent here in 2016 - one percent in 2020. we had a 1.3 percent over here in 2013. - another 1.3 percent in 1999 somewhere up here. But the point is two percent: is: is a lot she's, not wrong that that is a a large bump? What we're going to do is we're going to keep breaking down her response here to see what we think about her conclusion from all of this.

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Two percent: okay, so basically we're bringing more stuff to america, we're sending less stuff out this kind of makes sense. Europe is in a big slowdown. Uh, the asia-pacific region is doing nowhere near as well as we are in america uh in terms of at least keeping the economy, booming, uh and uh. Unfortunately, you know kathy doesn't mention this here, uh beyond, just mentioning that hey retail inventories are up and consumption is flat.

Now she does use the inflation-adjusted phrase for inflation by suggesting that real consumption is flat and that savings rates have declined, but really what she's setting up for? Is that hey? If we're bringing more junk in and we're we're not getting it off the shelves, then prices are expected to come down which could create deflationary pressures right, but before we keep going with what she mentions in her tweet, i think it's worth looking at a little bit Of data and seeing is kathy on the right track here. Is she on to something or is she totally wrong, or is there maybe a little bit of a middle ground? Let's look at it, but first a note from our sponsor. Thank you. Today's sponsor trends trends is the ultimate knowledge and networking hub from hubspot.

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So here are some articles that i i pulled up with some research uh and here's one from neiman marcus, suggesting that their their earnings margins are substantially higher than what we've seen in the past. And this comes from their october 30th report, which does indicate that consumers are willing to pay more money. We saw the same thing at nike in the nike earnings report that just came out about a week and a half ago we saw that consumers were willing to pay more money, that consumers were not demanding markdowns and folks. We see the same thing at chipotle, saying that hey their input costs aren't necessarily going up that they're not having this cost pressure, but still what are they doing? They're raising the prices, because consumers are willing to pay for that, but maybe kathy's right, because what happens? If consumers stop spending right well, let's see we.

We have the reiteration here that kathy is right, that retail inventories rose, two percent the most since 1992 wholesale inventories rose, 1.2 percent and the trade gap is widening. So, who knows maybe kathy read this article here, u.s merchandise trade gap widens to a record as imports surge. Okay. I know that well when i say i know, i think i'm like 95 confidence, kathy reads: bloomberg and behrens because a lot of times we see the same articles and then i see her tweets, but anyway, kathy didn't mention this, which i think is worth noting.

Take a look at this foot traffic at t.j.maxx, marshalls rose 14.7 and 16.2 between december 1st and christmas day. So yeah inventories went up in uh in in november, but compared to 2020 we actually have more foot traffic during this covet search like despite omicron, which is mostly a nothing burger. We know that, even though the market was fearful for a while - and there was a lot of fun about it - we know it was mostly a nothing burger which hopefully, it stays that way knock on wood right. We don't want it to turn more severe but or evolve into some other crazy variant, but anyway same thing is true for burlington coat factory 17.5 raw stores, 22.2.

So last winter yeah we had more potential concerns because it was our first winter going through covet. But still you had more stimulus, then now you actually have potentially less stimulus, less unemployment money. You do have the child tax credit, but that's coming to an end and and like kathy said, consumer savings are going down yet foot traffic is up during the omicron surge. In fact, if we look at the economist, we could see the following here that yeah travel to workplaces is falling about 25 in america, but retail and recreational activity has continued to recover in america as well as in places like the united kingdom and germany.

So, according to mobility, data people are still out there spending and look at this. This right here is a piece from bloomberg, showing a comparison of foot traffic and shopping uh at specific stores and the uh black box. Here the black circle is comparing 2021 to 2019, and the little blue circle compares 2021 to 2022 or 2020. Rather so any negative you have over here means you're getting this sort of decline in traffic, so you're getting a little bit of a decline in traffic at walmart and at best buy but target is freaking, kicking butt, costco's, kicking butt and bj's wholesale has recovered and Is is doing quite well as well so you're, seeing this this uh overall, a slight decline from 2019, but we're still doing pretty dang good with our foot traffic, which implies that spending could still be strong now.

This is in contrast to the consumer sentiment report. Now consumer sentiment always seem seems to be bearish of the sentiment of the day and that's what she mentions here. Next, according to the university of michigan, their consumer sentiment, which she believes is the best survey on the consumer. Consumer sentiment fell to its lowest level during november and december.

Now, personally, i believe: that's because people are freaking out over the federal reserve, ending uh their bond buying their taper process, starting their taper process, eventually going to raise rates and the market got kind of crappy there at the beginning of december and at the end of November and consumer sentiment always seems to drop every time you get fear about either the omicron variant, the surge we saw in europe in november omicron coming out, uh in early november and then into december. So not a surprise. In my opinion, that sentiment would fall, but but again we don't really see that kind of adjustment here to kathy's logic, and so i'm a little bit worried that kathy is thinking. We're definitely going to have deflation, because what she's saying is look retail inventories went up.

Two percent: at the same time, gdp went up two percent, but spending didn't go up two percent. That means everything went into inventories and she's basically saying we might be fighting deflation next year. We've heard this argument before i'm going to break through this a little bit more here, but i want to just give you a little preconclusion here. I'm worried that kathy isn't necessarily looking at the uniqueness of businesses purposefully.

Surging inventories because of the supply chain worries that we were not going to have stocked shelves. There have been a lot of fears that okay now maybe we overstock now it's time for discounts, but in terms of what we're seeing in mobility data and the consumer. Actually, spending out there most signs point to a continuation of spending. Now jp morgan did notice a slight dimension, slight decline in some spending globally, but that could also be as a result of a slowdown and lockdown, quite frankly in europe, but in the united states.

I don't know i want to ask you, it seems, like things still feel, pretty hustle and bustle out there. Now i'm not suggesting that kathy wood is wrong, but i don't think things are going to be as extreme as kathy says. Here's what kathy says might happen. She believes that a lot of what's happening right now reminds her of y2k, where, basically, you had tech companies run up, but innovative companies run up, but they ended up selling down because they were not able to innovate.

Yet then, she believes we're going to see the opposite of this. What we're going to see is we're going to see deflation in consumer products and appliances and and non-innovative companies, and we're going to see a lot of that business go to innovative companies and, in other words, she believes that her book of business is going to do Very well going forward, and that's because, during times of fears of potentially inflation going away and fears of recession, people are going to go for growth at all costs and if people go for growth at all costs, they'll go back to innovative stocks and the company she's. Investing will do well again, fine and she ends by saying those investors should be rewarded handsomely. Maybe maybe, but i think, there's a middle ground here.

I definitely don't think that we're going to hyperinflation, i think inflation is going to inflict down, but i don't actually think we're going to go as far as seeing deflation in 2022 or, quite frankly, a risk of a recession. If anything, i think the bull market is somewhat just getting well, i shouldn't say just getting started, but i think this real, like the real fruits of the efficiencies that we've built into so many of the businesses and companies that we've had whether it's supply chain efficiencies, Repairing the supply chain crises, employee efficiencies by laying off a lot of people and then hiring back new folks, new blood, so to speak, uh retaining excellent talent. I i think we're going to see some incredible profit margins that company, so i'm very bullish really more broadly. So i think the summary out of all of this is: i don't think that kathy wood is necessarily wrong.

We know inflation is going to go down, but i think she's going a little too far by suggesting we're definitely going to deflation by not considering some of the other aspects as to why we saw this retail uh, inventory surge and the fact that we still see Shoppers out there like crazy, despite the fact that it almost right now feels like we're at peak omicron and so those adjustments not being part of her view soften her view substantially. In my opinion. So again, i'm not thinking we're at hyper hyperinflation, but i also don't think we're at this kathy wood we're going to deflation. Only innovative is going to win.

I think we're going to have somewhat of a middle ground and personally, i'm pretty optimistic about 2022, which i know is hard when, when there's so much of these uh we've been having so many of these false rallies in full start, which uh false starts, i should Say to rallies - hopefully, hopefully the rally that we're seeing today continues, for example, rk is up 4.7 today. I hope this continues, but we've seen so many false starts of arc go from 90 to 100 and then back down. I hope we don't have another full start and some more red over the next few days, but i'm optimistic for 2022 long term, no matter what so, i'm excited all right folks, these are my thoughts. Thank you so much for watching this video.

My thoughts on what kathy wood just said and we'll see in the next one thanks again goodbye.