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Investors have been worrying about an impending recession for years, but the market has only continued to increase in value. Recent economic data is showing that such worries may be confirmed in a major way. Cathie Wood has predicted many economic trends. She foresaw the growth of disruptive technologies, the recent commodity crash, and is now seeing something not many have caught onto yet. Cathie is now seeing a trend that will cause many investors will start to panic and may even lead to a recession. This video will explain exactly what those indicators are and what serious risks are ahead.
Before we get into the massive shift that is about to occur and spark worries of a recession, we have to talk about the events that are building up this disaster. The pandemic initiated a variety of supply shortages. Consumer prices increased dramatically and supply chains couldn’t keep up with the renewed consumer demand from the recovery. The most renowned instance of this is the chip shortage, which has affected almost every company in some shape or form. Demand for chips is at all time highs while supply chains are still recovering from pandemic related issues. This exuberance has increased chip prices to new highs, which might seem unprecedented, but it’s just part of a bigger cycle that always happens with chips. The way that the chip cycle works is quite simple. First, consumer demand for chips increases dramatically in a short period of time, which leads chip prices to increase. After chip suppliers see the high consumer demand, they will then quickly try to build new production plants, which takes around 18 to 24 months. By the time these new plants are created, consumer demand has already disappeared while supply chains are beginning to ramp up. This is because chips are durable and do not have to be replaced that often, so all the consumers that recently purchased chips do not need more. Ultimately, chip prices decline as supply exceeds demand. Because of a lack of sales, chip suppliers then have to slow down chip production. At the same time that this happens, consumer demand begins to increase as consumers start to replace their old chips. This leads to high demand and low supply once again. The cycle continues again shortly after. Supply chains see high consumer demand and ramp up production, only to find out that consumer demand has already disappeared.
This cycle always happens over and over again, but right now we’re in a very unique situation. AMD CEO Lisa Su recently stated that “We’ve always gone through cycles of ups and downs, where demand has exceeded supply, or vice versa. This time, it’s different.” The reason why this time is different is because the pandemic has exaggerated the cycle to unprecedented levels. And just like every cycle, what goes up must come down.
The worst part about this is that it’s not just happening in the chip sector, but almost every single good. Suppliers are panicking to meet consumer demand for goods, but that demand is already starting to disappear because consumers have already purchased their goods. Lisa Su stated herself that the chip shortage will likely end next year. She said, “it might take, you know, 18 to 24 months to put on a new plant, and in some cases even longer than that. These investments were started perhaps a year ago.” Using Lisa Su’s estimate, we will likely see a sudden increase in chip supplies in 6 to 12 months. Cathie Wood knows that supply shortages are real and are still apparent, but she is seeing some signals that the cycle is starting to inflect — in other words, the tides are turning. The supply of goods is starting to increase dramatically as demand is already losing traction. This is not something that is only chip-related by the way. The downwards inflection of the supply and demand cycle will affect all goods, whether it be laptops or hand sanitizer. This impending collapse will cause many investors to panic and worry about an upcoming recession. Cathie doesn’t think that a recession will actually happen, but knows that investors will begin to expect one.