The Most-Insane 100-Year Warning: Cathie Wood on Economy.

Kathy Wood just posted one of the most bullish videos I think I have ever seen. It's her latest in then episode and I have to say I don't think I've ever seen a more bullish Kathy Wood. I just left that video literally thinking there's actually a possibility that GDP is going to go to 6% per year and maybe even we'll see Elon levels of GDP going up to 10 to 15% per year. I want to break down some of the core components of her video and see where I diverge because look, I might be bullish right now. We got our little bull, you know, bare bull scale. This uh just so you know, I'm a 7.6 out of 10. Uh this is really the how I want to buy with what kind of pace I want to buy at uh for a 10-year portfolio, right? And and for me, like I'm in the bullish camp, but it's it's not like I want to go all in naked deep on margin into stocks because I'm so freaking confident right now. I left thinking that this was bearish. That's how bullish Kathy just was. Uh, and some of it was even bearish for treasuries despite being bullish for the market. So, I I'm trying to reconcile all of this and I'm going to do my best to do exactly that. So, she basically compares to the industrial revolution and she says, "Look, GDP back then was 6%. AI is way freaking better and we're going to do way better, like 5x better or more." uh and therefore she thinks our current growth could easily double to 6%. And she thinks the IMF is going to really undersshoot estimates for not just global growth but especially US growth. She also argues which we've heard for a long time that inflation could surprise to the low side maybe even go negative. And I mean frankly I don't disagree with her that disinflation is coming. There are two ways disinflation comes. One is technology frankly. two is the lack of money printing. Uh and then I guess there's also a third version which is a recession when people become fearful or depression. Right? So three primary forms of deflation that you get. Uh Wars doesn't, you know, he's kind of an anti-money printing guy. That's why I think the next, you know, when we have a crash, the next time, we don't know when, but it's going to kind of be an extended crash. It's going to suck a little bit cuz he's not going to money print. So that'll kind of keep deflation down. do think technological deflation is happening which is good and and then hopefully we don't have a crash right obviously you do not want to invest right now in a way where you're thinking markets you know GDP is going to double and you're all in on margin you know and then we go into a recession nobody wants to hear that and that's not the case that I'm making I just want to see how you know what assumptions does it actually take to get the to these GDP growth rates and so that's where I'm going to fast forward really to the core component of her video that didn't actually come up until the end of the video which I thought I have to say team Kathy a little bit of a disservice because we started with GDP going to double and then like 50 minutes later we got now here's the basis for why we think that the return on invested capital today from artificial intelligence is really good and way better than the lack of return on invested capital we had during the railroad boom, that the railroad boom was basically a boom built on hope. And so her fact for why today's artificial intelligence buildout is not built on hope is referencing a $50 billion per gigawatt deal that Elon Musk has with Anthropic, which the exact numbers are a $40 billion deal, which is fine. She was trying to remember it on the spot. No problem. Uh it's a $40 billion deal that works out to $1.25 25 billion per month going all the way through May of 2029 with a 90-day cancellation policy. And that was mostly it in terms of the real I mean we got a little bit on like ramp and jobs. We're going to break that apart in a moment as well which also disappointed me but it's okay. Let's understand this for a moment. Let's specifically focus on this anthropic deal. In the enthropic deal with OpenAI or sorry with Elon Musk, Elon Musk likely overbuilt and over assumed how much compute XAI would end up needing for Grock. That ended up putting Elon into a really beautiful position because Anthropic has this little thing coming up where they really want to show the highest growth numbers going into which makes sense, you know, it totally makes sense. They really want to pump their growth right now and they can't really pump their growth as perfectly as they want if they don't have emergency compute basically because they're getting ready to IPO. So right now they really have this incentive to pay whatever premium to grab compute right now even if it's at three to four times what industry deals are really being underwritten at. uh even you know two and a half right it's still more okay $40 billion per gigawatt sometimes written as millions per megawatt same thing uh you know while at the same time we're seeing new longer term deals that are being underwritten with companies like Nebius for closer to 15 to 16 billion per gigawatt suggests Elon had a real advantage by basically selling water in a desert right before anthropic IPO that's really useful for Elon to brand future expenditures on artificial intelligence. But I in in terms of compute and buying Nvidia chips, which is video, frankly, it's the sucking taking money out of the economy from IPOs and then spending it on Jensen's hardware. Who doesn't want Jensen's hardware these days? I don't know if that is sustainable enough to justify GDP doubling because you're basically saying a lab-to-lab transfer, right? XAI, we got too much compute here. You guys use it is enough to justify that GDP could really boom. Now, there are some other components here, but I think this was one of the weaker arguments we could have come up with. And to argue that the railroads were built on a hope and a prayer and we're built on Elon Musk's enthusiasm, I don't know. To me, those things almost feel similar. Okay, that said, let's get into some of the other facts because another component that she brings up is, hey, you know, folks, you know what's likely to happen here is we are likely to see hiring boom because AI is so useful and RAMP did a study where businesses that were using artificial intelligence are just booming with hiring and corporate profits are booming. Okay, we have to break apart both of these because there's so much more detail that was just missed on both of these facts. So, first of all, yes, if you just look at yearover-year earnings per share growth rates for these companies, for just basically technology companies or the S&P 500 companies, this right here is actually Xtech. Uh we've got a pretty solid growth rate on year-over-year levels for earnings per share. Even if you exclude technology, we're growing up what on a 23% rate right now. Profits last year were closer to 15% growth. That's phenomenal. And that's outside the tech industry, right? So does that prove Kathy right? I mean that's great, right? Uh, and then if we look at the S&P 500 as a whole, the last quarter is indicating that year-over-year profit growth could be somewhere in the neighborhood of 44%. The problem is, you don't want to just look at the S&P 500 and say, hey, how much is earnings per share growing from tech companies without tech companies? What we really actually have to do is look and say, what are operating profits actually growing at? Now, you might wonder, Kevin, why do we care about operating profits? Isn't earnings per share good enough? I mean, the economy is booming. WHY ARE YOU TRYING TO POO POO IT? I'm not trying to poo poo it. Uh, I'm just trying to be realistic about the level of GDP growth that we can expect because hey, if I'm wrong, I need to be more bullish. But if Kathy's wrong and I go all in on margin and leverage up on stocks because I just walked away from that video going, "Let's freaking go, baby." Industrial A Freedom Industrial Revolution 2.0. All right. Then then I'm gonna I'm gonna have a bad day if I end up getting George Dammon and the recession that's around the corner is is is going to eat my lunch. Okay. I'm going to have a bad time. I don't want to get George Dammoned. I want to get Kathy Wooded. You know, I I want to see the big green growth. But but I you know, I think the truth is somewhere in between here a little bit. And I love both of these people. I think they're wonderful people. I'm just saying like, man, we got to find a middle ground here. Here's the thing. You got to look at operating income for these companies because after their operating income, you're going to get this thing called equity gains and that's going to be what feeds into earnings per share. So, a lot of companies had exposure to SpaceX. Certainly Google did. I mean, we're talking $90 billion of exposure to SpaceX, more over a hundred at the peak. So earnings per share got marked up heavily because of equity growth, but that's kind of circular because if the stock market goes down, then that turns negative on corporate balance sheets. So I like looking at operating income growth for companies because this gives you a phantom wealth effect. So we'll call it the phantom wealth effect. If we just remove, literally only remove Google and Amazon from the S&P 500, we only take out their growth rates. We're not taking out all of their earnings. We just remove then th those two. What would the growth rate be for the S&P 500? Well, we would literally go from about that 48% you saw down to 28%. So just removing the growth that Amazon and Google saw that S&P 500 growth rate on EPS would collapse by almost half. Now that matters because it shows you that those two companies that took these massive equity gains did help blur some of these statistics on S&P 500 companies. And so you can actually that then which is another easy tool to kind of gut check this look at the top line. Just look at revenue of S&P 500 companies. Revenue for S&P 500 companies year-over-year isn't 50%. It's not even 28%, right? Because we got equity gains in all these other ones, too. Sure, margins could go up a little bit, but revenue growth is only 11.9% across the S&P 500. That is still good. We are still in boom town, baby. I honestly think we are still in boom town. But are we boom powing as big as Kathy is saying? I'm a little bit more skeptical. Now, I said I wanted to hold on to this because there was something else I wanted to talk about that has to do with the phantom wealth effect. One of the big arguments that Kathy Wood mentioned is that we've got she mentioned a few times that lower income consumers are getting screwed. But she put up this chart suggesting, hey, you know, debt to equity ratios right now or all-time lows and they're actually supporting people who are spending money who have exposure to stocks and people don't have that much debt. See, debt is dropping because debt to equity ratios are really low. But wait a second, debt to equity ratios being low doesn't all of a sudden mean that people paid off a bunch of debt. So let's say I have a $100 of debt and the stock market that exposure I have is $200. Well, in that case, my my debt to equity ratio is about 0.5. Or set another way, my equity to debt ratio is two, right? I've got $2 in equity for every dollar essentially of debt I have. But what happens if all of a sudden this is driven by the stock market going up? Still have $100 of debt. The stock market's now at $500 with that $100 I had. Yeah. My the ratio of debt I have looks really freaking low. But what happens in a correction? What happens if all of a sudden Anthropics IPO poopy dupies, they cancel their contract with Elon Musk and all of a sudden you're not getting as many Nvidia chips ordered anymore? Well, all of a sudden the stock market that takes the elevator down starts actually making you look broke and really indebted. So I think that's a risk to using a you know an equity debt like a global wealth based on the stock market chart relative to people's debt. I actually think a better tool is to go look at what's happening with people's margin debt. Uh, and if you look at what it was, July of 2025, we hit our first month over a trillion dollars of margin debt. That went all the way up to 1.5 in June of 2026, right before LEO fold got us down to $1.4 trillion. That's just margin debt. I bet you in August it's right back over this number. We'll get this data in a couple weeks and I wouldn't be surprised if this balance right here is actually higher than where we were in June, right? So, like debt's going up. It's just sort of being escaped by the rate of growth in the stock market. S&P equal weight is crushing it. And I'm not here again to be a bear. I'm just saying I got to I you know, do I think GDP is going to go to 10%. I mean, man, if everybody needs to build 10 gawatts of power and we got to start building gigawatts of power in space because we need that much AI, fine. But I actually think there's a little bit more of a red flag with artificial intelligence. See, Meta was supposed to fire a bunch of people in two waves of firings, but in May, the night before they were going to issue broader firings. They still had some firings, but they were going to issue broader layoffs. They actually pulled back the decision because their operation transformation, their OT that they planned at Mark Zuckerberg's compound in Hawaii didn't work out as well as planned because they realized, look, Agentic AI is cool and all and it's useful for a lot of things, but it just doesn't fully replace humans yet. So on one hand, this idea that Agentic AI is capable at this point to where we can replace a bunch of people and therefore we need that many more data centers is still a little bit removed from reality. On the flip side, and and this isn't me calling for an unemployment recession. I'm just saying if you've got big mega cap companies with all the budgets in the world and they're telling you AI is good, but it's not to the point yet where we could really transform the business by firing way more people than we thought. There were some scenarios where Meta was thinking they could potentially fire as much as 60% of their staff because AI was going to be so freaking good. It just it it it isn't there, right? I think the vast majority of us we look and go now look this is really good in terms of encyclopedic AI. Uh we could you know process our code bases finally through a memory wall. We could do a lot of productive things. There are going to be a lot of companies that benefit off of this. But is it at the point where we could just fire everybody? No. I mean that would obviously create its own issues and joblessness. I think in order to argue we need, you know, 6 to 10% GDP growth, man, you'd have to see profits skyrocketing everywhere outside of just the stock market going up. And I'm not convinced that we're seeing that yet. Now, on the flip side, the argument Cathy makes is there is so much productivity that people are actually going out and hiring more. And she cites the RAMP study. I've already broken this down when she studied it, like she referenced this study last month. I guess she didn't watch my video because I'm like last month when she referenced the study, I'm like, Kathy, no, this is wrong. You can't say everyone is out there hiring because of AI. Because let's actually look at the facts of the RAMP study. I'll just give you the bottom lines here because I made a whole video on it. So, I'm just going to refresh your memory on this. Okay, RAMP basically did a study with 21,000 firms. First of all, RAMP much higher percentage of like startups. So, you're going to have people that are more willing to use a fintech bank versus a legacy bank. they're going to be more likely to adopt AI. Duh. Okay. The problem with this is they saw uh that the highintensity adopters of AI saw total headcount grow by 10.2% over 24 months after being highintensity adopters of AI. But we totally don't adjust for the fact that those could literally be AI companies. That doesn't mean AI is leading to the hiring. Right? So we got some causation without correlation over here. And then they even tell you that like okay a lot of the hiring by the way right here is actually in some entry level work. That was surprising. 12% increase in headcount for highintensity adopters but again only for those highintensity adopters which are more likely to be tech forward companies. But they actually mentioned here that they had a no stat statistically significant headcount decline anywhere uh in the preferred region. So they didn't see any kind of like laying off because of artificial intelligence. That's good. But the big oopsy dupsy was that these sector gains were only or these job gains were really only found in IT information technology. Again, those more AI forward businesses. So this isn't like broad-based exploding AI is creating all these jobs. This is hey startups and businesses using a lot of AI who could be AI businesses are hiring. Well duh cuz they're probably newer companies anyway. They literally need to hire engineers and customer service and finance staff because they might not have those in the first place. So this study also ignored companies that failed. You had to be around for 5 years in the period. So, this idea that, oh, well, you know, it didn't kill jobs, sure. But any company that didn't make it to the end of your 5-year survey period got excluded by default. So, all the companies that went bankrupt at RAMP because of AI just got deleted from the results. Like, bro, come on, man. This is not a study that is citable. Okay. Yeah, you're like if somebody came up to me literally, okay, I don't know, maybe I'm being extreme here, but if somebody came up to me and said, Kevin, AI firms that are selling AI products and services, they're hiring more right now. I'd be like, yeah, no You ain't an AI firm if you ain't hiring right now. Yeah, you know, we we just made another higher selection, too. And in fact, we're expanding our coding team probably another 10 to 20%. Uh we're in process of working that right now, but we're also an AI company at heart with a lot of real estate backing. But this isn't a video about my startup. This is a video about the Kathy Wood commentary. So, let's focus on the Kathy Wood commentary. Okay. So understanding some of these sort of thesis she has, I was then also surprised to see that she argued one of the big things that would drive GDP was not only higher growth, you know, from some of the things that she mentioned, but also lower inflation expectations. And in saying this, she suggested that the 10-year Treasury could actually keep going up. Now, if you're arguing for deflation and then you're going to say the 10-year Treasury is going to go up, you really have to be hookline and sinker buying the idea that this economy is freaking booming. Here's how the math of that would work. I printed it out just to try to make it a little simpler. All right. How the 10-year Treasury could stay high. Let's say Kathy Wood thinks the 10-year Treasury could go to 7%. How would that work if our inflation expectations are potentially falling? Right? Well, here's an example. If inflation expectations right now are say 3%. They're like 2.75, but just for the sake of argument, say they're 3%. You take GDP growth of 5%, which is way higher than the probably 2.3ish% we'll end at this year in America. So, that's already twice that. Uh, let's say it's 5% GDP growth plus 2% on inflation expectations. That's how you could argue 7%. Now, a lot of people say, "Hey, that's not exactly how the 10-year Treasury works." And that's the debatable part. So, it doesn't work that clearly. Like, nobody when you buy a 10-year Treasury says, "By the way, you're getting compensated this much for inflation and this much for growth." But just so you know, the logic about why this could work. The logic as to why this could work is because people who buy treasury say, "Look, if I can grow my money at 7% somewhere else because businesses are growing revenue like the S&P 500, 11.9%, not not the 44% on the EPS, that's a misleading measure. Uh then then I need to be compensated to buy these bonds." In practice, the way that works is people just don't buy the bonds until the yield is high enough, then they buy the bonds. Fine. Now, another thing that she argues, which at this point is obviously speculative uh at best, but but I agree with her in the long term, she thinks that oil prices could potentially tank to $30 per barrel as uh the UAE ramps up production. She says oil production in the UAE is already up 78%. I could not replicate that statistic. I I'm up like 25% is what I'm seeing. I think she might be comparing to a daily low somewhere in a whole, which is fine. In that case, it would be true. I could not replicate that. Yes, oil production is up in the UAE and we expect Saudi Arabia is going to ramp oil production even more, you know, once we get done with this war in Iran, assuming it's not a forever war, which I goodness gracious, hope it's not. I agree with her. Inflation can come down, oil can come down, all that. Totally agree with her. And that's actually supportive to GDP. But you know, how supportive is it to GDP? If we have a roll over an AI, it's not going to if folk like if you need a canary in the coal mine, watch what happens with the anthropic IPO. That's sort of my canary, if you will. Okay, the canary is singing nice and loudly right now. I'm like, ah, yeah, we can buy the dip. We can buy the dib. Okay, cool. If if the canary croakkes anthropic croakkes, the the mine is no longer stable. Get out. Right. That's going to be one of the early indicators. Hopefully they don't croak. She did also acknowledge that gold topped around the time that Worsh was selected. I personally have made this argument for very very many months. I've believed that Worsh is a signaler of we're not going to print money, which again keeps you in an L-shaped recovery for a very long time. Bad in a recession, whatever. I'm not here to shill for money printing. I'm just here to tell you if we go into the hole, we're going to be in the hole for a lot longer under Worsh. That's it. Bottom line. Uh, I don't disagree with her on gold. Uh, and Kathy Wood was she sounded modestly bullish on a potential Bitcoin breakout, which would be great. You know, Bitcoin's been in the toilet for a while. Uh, and and hopefully the entire stock market and risk assets can all move together. Uh, she sees Bitcoin as a part risk asset and part inflation hedge. I see it mostly as a risk asset. And I personally think, you know, between now and my birthday, we're actually going to crank and the market's going to do really, really well because Anthropic's not the canary of Anthropic is not going to die the day it IPOs. It's going to die sometime in 27 or 28 if it dies. And it may not die. It could actually get through this sort of software period adjustment I made. To fully understand that, you should really just go watch the other video that I made. Uh so if you type in meet Kevin most dangerous chart in AI that will fully explain uh exactly what the anthropic canary is. This is what the thumbnail looks like. Highly encourage you watch this is a really really good one. Oh, it just starts playing a video. There we go. Highly encourage you watch that. It's a really really good one. Okay. So all that said, I love her enthusiasm. I do think some of the core components of where she thinks that GDP is going to grow this fast are poorly evidenced. I think more work could have been done to evidence the bull thesis. I understand there were a lot of charts about money velocity and comparing velocity to money to uh you know the labor force participation rate and and debt to GDP levels were not at peak yet blah blah blah. Like fine. I watched every single chart. I'm just giving you my reaction to the critical components here. I'm not going to try to argue every single chart because I honestly think the other ones don't add as much as the main components that we talked about here. So, with that, go check this video out. Watch this. The most dangerous chart in AI. And look at that sexy border we got. Oh my gosh, that is a lot bigger than I expected. >> Why not advertise these things that you told us here? I feel like nobody else knows about this. We'll we'll try a little advertising and see how it goes. >> Congratulations, man. You have done so much. People love you. People look up to you. >> Kevin Pra there, financial analyst and YouTuber. Meet Kevin. Always great to get your take.