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In this video, I cover why Cathie Wood thinks that the entire commodity asset class is about to collapse and what implications this has on other assets.
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Link to Cathie Wood’s video: https://www.youtube.com/watch?v=i17erEpctKQ
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Over the past few months, we’ve seen price levels increase all across the board. Copper prices have almost doubled in the past 12 months and even sugar is up almost 50% over the past 12 months. Not only that, but assets like stocks, cryptos, and real estate are all up substantially year over year (do sliding animation). Cathie Wood recently spoke up about how one asset, in particular, has been in a massive bubble and is actually on the verge of popping soon. In this video, I’ll cover what that asset class is and how this will impact the economy at large and the other asset classes. Welcome to Casgains Academy. If you’re new to the channel, please consider subscribing for more content like this, and let’s get right into it.
Over the past 12 months, an interesting and unusual movement has occurred within the economy, which has fueled up a major bubble. Because of the pandemic, consumers have been spending money on goods rather than services, especially in the middle of the pandemic when services were shut down. Essentially, most of us have already spent money on items like computers, air conditioners, and washing machines. As a result, we don’t need to purchase a new computer, a new AC, or a new washing machine. We’ve already stocked up on those items. Now, more and more consumers are purchasing services while spending on goods is decreasing. However, since spending on goods hasn’t decreased much yet, the price level for goods has increased because businesses cannot meet the high demand from consumers. This has led businesses to order plenty of materials for their supply chains, which ultimately leads raw material prices to increase. As I covered earlier, raw materials are exploding in value, with lumber prices almost up fourfold. Unbeknownst to the businesses that have been panicking to meet the high consumer demand, consumer demand for goods is starting to dwindle. This is because as vaccinations continue to roll out, consumers are spending more and more money on the services that are opening up, including eating outside, traveling to meet friends, and going on vacation. This is all about to tie together and result in very serious implications that I’ll soon cover. The problem with our current situation is that the businesses that sell goods have ordered too many materials. However, because consumers already stocked up on goods and are now spending on services, the businesses that sell goods will have to cancel a significant amount of their orders on the materials needed for their supply chains. After these cancellations occur, commodity prices are going to collapse, which definitely has huge implications for other asset classes like stocks and real estate. By the way, this isn’t just something Cathie is predicting, the data that recently came out about consumer spending directly supports her theory. The result of this entire situation is a fast decline in commodities. Businesses ordering massive amounts of materials have fueled the commodity bubble, and now, all of a sudden, after these cancellations, the price of commodities is going to collapse. Cathie Wood likens this event to the cartoon Wile E Coyote falling off a cliff because commodity prices are practically going to fall off a cliff (Use this footage as I’m talking and put the word “commodity prices” on the coyote so that the Coyote looks like this, and have that title animation follow the coyote as it falls down. So now that we know that there’s likely going to be a crash in commodity prices, you might be wondering how this impacts other asset classes that you might be invested in such as stocks and real estate. First of all, if commodity prices drop, then that serves as a deflationary force, as the price of goods will fall with commodities. As a result, inflation won’t be as high as expected. Cathie is already seeing investors predict this right now, as bond yields are going down at the moment, which means that investors aren’t as scared of inflation as you might think.
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