Cathie Wood takes a non-consensus view in her latest Vlog, where she discusses a range of issues from USD trajectory and future inflation rate projections. Cathie Wood is the CEO and founder of Ark Invest, a fund with a technology focus.
Cathie Wood believes the long wave of technology innovations, such as autonomous electric vehicles, blockchain, and nanotechnology have the potential of being disruptive and could also have a deflationary impact on the economy.
“Cathie Wood believes the long wave of technology innovations, such as autonomous electric vehicles, blockchain, and nanotechnology have the potential of being disruptive ”
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Even a recent decision made by 130 countries to spearhead a bold new framework for a minimum global tax of 15% was another area where Cathie Wood takes a non-consensus view
Ireland and Hungary are holding back on a global tax treaty “130 nations including our own agree to a global tax policy so that any corporation around the world would have to pay a minimum of 15%” said Cathie Wood.
Cathie Wood’s Ark argued that this would reduce the US corporation tax burden and she now believes that the probability of corporate tax and capital gains taxes increases has now gone down with a global tax treaty.
But Cathie Wood also noted that many big tech US companies are the beneficiaries of low or zero taxation jurisdictions. So, a global minimum tax would be a headwind on the profitability of many of the FANNG companies.
Cathie Wood takes a non-consensus view on the economic recovery
“We are in quantitative easing mode, and the economy is flying” said Cathie Wood.
Citing the National Bureau of Economic Research, she highlighted the view that this has been the sharpest rebound from any recession in post-WWII history.
“We are out of the woods towards normalizing” said Cathie Wood.
“We are in quantitative easing mode, and the economy is flying”
But playing Devil’s advocate, why is the bond market rallying and worker participation rates near record lows? Why do we see vacant commercial properties mushrooming, which indicates a subprime crisis in commercial real estate could be brewing?
Moreover, if the economy is flying, why are the Repo rates climbing again, which could be interpreted as banks not being eager to lend to each other.
Regarding inflation, Cathie Wood takes a non-consensus view here also, believing that what we could see going forward is deflation
Falling prices and the opposite to the consensus of inflation.
Cathie Wood notes that the money supply (M2) has dropped from 27% in February to currentlly13.8%. “The rate of money growth is decelerating quite rapidly” she said.
“For those that are monetarists that is going to be a source of relief from inflation view” said Cathie Wood. But M2 growth rate before the pandemic lockdowns was approximately 6.5%, so M2 expanding at 13.8% is twice the average rate, noted Cathie Wood.
“Long-term combination of electric and autonomous vehicles will drive oil prices down. Subsidies in China and elsewhere will accelerate the shift towards electric” – Cathie Wood
Cathie Wood then looked for clues why the bond market continues to rally with low corporate bond yields compared to treasury yields.
So, the fixed income market could be rallying for several reasons. The Fed could be ramping up its QE program. Already it is buying 120B dollars a month. Alternatively, investors are less optimistic about the economic recovery, so they don’t see demand inflation, and are rotating into less risky assets.
Cathie Wood takes a non-consensus view and argues that technological innovation is inherently deflationary
“The 10-year Treasury yield has dropped from 1.74 to 1.43 no matter how strong the economic data has been, how high inflation numbers have been” she said.
“Bond market is sniffing something out” she said.
Cathie Wood likes to believe investors are flocking to bonds due to deflation brought on by innovation in the new technologies and also money growth rate cut in half.
Cathie Wood takes a non-consensus view on oil prices, she doesn’t think oil prices will not go to triple digits
“If oil price breaks above 77 USD, we will see the higher peak for the first time” she said.
“Long-term combination of electric and autonomous vehicles will drive oil prices down. Subsidies in China and elsewhere will accelerate the shift towards electric” added Cathie Wood.
Moreover, she believes that the prices of electric vehicles will continue to fall as more auto companies enter the space.
Cathie Wood thinks that oil prices in the medium long term will go to 12 USD a barrel.
Cathie Wood takes a non-consensus view on the recent US employment data
“There were few weak spots in employment data” she said. The unemployment rate did tick up from 5.8% to 5.9% she noted.
She also highlighted that Household Employment which is not the same as Nonfarm Payroll Employment. Household Employment data includes a disproportionate number of small medium-size businesses, and it fell 17, 000. She noted that small medium-size businesses are a leading indicator of changes, bearing in mind that this sector is the first to react when they experience a slowdown.
“Innovation going to be exciting, but all the destruction will be demoralizing” – Cathie Wood
Cathie Wood also noted that construction employment fell, which she believes is due to shortages in building construction materials
“Chip shortages also slowed down car production sending second-hand market higher” she said.
Regarding retail consumption Cathie Wood thinks this figure will disappoint in future months because durable consumption was brought forward due to lockdowns.
“Consumer is loaded up with goods so inventories could be rising. In May real consumption dropped 0.4%, durable consumption dropped 4.3 %. That is a nearly 50% drop in the annual rate. Non-durables down 0.5% and services up only 0.4%.
Retail inventory, mostly durable goods, fell 0.8% in May” she said.
Cathie Wood takes a non-consensus view on the USD
“Terms of trade not going to turn against the US in that the burden of global corporate tax rate minimum 15% will hit everyone in the world. It will hit disproportionately global tech companies who have managed their global taxes to very low levels. Maybe this is why USD is going up” she said.
Cathie Wood sees deflationary conditions building, lumber prices have been cut by more than half now, copper down 10 to 15% range.
Cathie Wood takes a non-consensus view on the bull market, believing that it is strengthening
It has already deflected news about Archegos fund blow up, tax hikes discussions, and big corrections in valuations. Cathie Wood sees a shift from value towards growth. Profit growth has been explosive, but she thinks there will be a greater shift as conviction grows.
She thinks the Bond market is signaling more deflationary pressure than what most investors believe
“Innovation going to be exciting, but all the destruction will be demoralizing” she said.