AI
Market Liquidity, Inflation, & Financial System | ITK with Cathie Wood
@ ARK Invest
02/27/21
Takeaways
CW
Cathie Wood
02/27/21
@ ARK Invest
I'm breaking our tradition to share our point of view on the current economic and market situation.
CW
Cathie Wood
02/27/21
@ ARK Invest
The market is currently worried about the impact of rising interest rates and the Treasury Secretary's perspective on cryptocurrency, particularly Bitcoin.
CW
Cathie Wood
02/27/21
@ ARK Invest
We need to discuss the liquidity of the market, especially regarding ETFs, and the ongoing debate between inflation and deflation.
CW
Cathie Wood
02/27/21
@ ARK Invest
The Federal Reserve remains supportive, with M2 money supply growth still in the mid-20s, indicating a very rapid rate of growth.
CW
Cathie Wood
02/27/21
@ ARK Invest
The Fed is focused on achieving full employment and maintaining inflation above two percent, but we are currently in the one and a half to two percent range.
CW
Cathie Wood
02/27/21
@ ARK Invest
Commodity prices, particularly copper, are rising rapidly compared to gold, suggesting strong market activity and investor confidence.
CW
Cathie Wood
02/27/21
@ ARK Invest
Housing prices are increasing at a double-digit rate, indicating strong asset market performance despite recent volatility.
CW
Cathie Wood
02/27/21
@ ARK Invest
The consumer has significant purchasing power, with disposable personal income rising sharply, suggesting robust economic activity.
CW
Cathie Wood
02/27/21
@ ARK Invest
Capital spending is strong, driven by the shift towards digital solutions accelerated by the pandemic, indicating a strong economic recovery.
CW
Cathie Wood
02/27/21
@ ARK Invest
The bond market is experiencing volatility, with record short positions as traders react to rising interest rates, indicating a potential pause in rate increases.
CW
Cathie Wood
02/27/21
@ ARK Invest
The market may be leading the Fed, suggesting that the economy is strong enough to warrant a reduction in quantitative easing soon.
CW
Cathie Wood
02/27/21
@ ARK Invest
The current economic environment is reminiscent of late 2016 and early 2017, when the market was nervous about rising interest rates and potential tax cuts. Value stocks have surged, with energy stocks up 27% and financial stocks up about 11% year-to-date, while technology stocks have only increased by 1%.
CW
Cathie Wood
02/27/21
@ ARK Invest
The current market volatility is seen positively as it broadens the bull market to other sectors, which is beneficial for innovation-based strategies.
CW
Cathie Wood
02/27/21
@ ARK Invest
The recent fear in the market is welcomed because it serves as a reality check against speculative moves in the innovation space, which may not last long.
CW
Cathie Wood
02/27/21
@ ARK Invest
Bitcoin's energy consumption is primarily renewable, making it a more sustainable option compared to gold mining.
CW
Cathie Wood
02/27/21
@ ARK Invest
The Bitcoin blockchain is more energy-efficient compared to traditional financial systems, enabling faster trade settlements and transactions.
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Cathie Wood
02/27/21
@ ARK Invest
The FBI has found Bitcoin beneficial for tracking illicit activities due to its transparent blockchain, which allows for pattern recognition.
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Cathie Wood
02/27/21
@ ARK Invest
High multiple stocks have been negatively impacted by rising interest rates, which have puzzled observers as P/E ratios have not increased despite falling rates.
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Cathie Wood
02/27/21
@ ARK Invest
The equity market has not yet incorporated potential future interest rates of 1% to 3% into its valuation structure, indicating a disconnect in market expectations.
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Cathie Wood
02/27/21
@ ARK Invest
Deflationary forces are emerging in the global economy, countering the belief that monetary policy easing will ignite inflation.
CW
Cathie Wood
02/27/21
@ ARK Invest
Technological innovation is driving good deflation, which reduces costs and increases productivity, contrasting with bad deflationary pressures. In the electric vehicle space, the deflation rate is 28% for every cumulative doubling in the number of units produced, and we're currently at 2.2 million units of electric vehicles.
CW
Cathie Wood
02/27/21
@ ARK Invest
In the DNA sequencing space, the deflation rate is 40% for every cumulative doubling, and we're starting from a very low base, which will increase rapidly.
CW
Cathie Wood
02/27/21
@ ARK Invest
We expect electric vehicle sales to grow from 2.2 million to 40 million in the next five years, significantly impacting economic statistics as they scale.
CW
Cathie Wood
02/27/21
@ ARK Invest
Disruptive innovations like electric vehicles, DNA sequencing, robotics, artificial intelligence, and blockchain technology are causing creative destruction in traditional industries.
CW
Cathie Wood
02/27/21
@ ARK Invest
Investors may not fully appreciate how these innovations are interconnected and feeding into one another, particularly with the convergence of autonomous taxi networks, energy storage, and artificial intelligence.
CW
Cathie Wood
02/27/21
@ ARK Invest
The energy release from these converging innovations will be powerful, but it may take time for this to be reflected in economic statistics, which are still grounded in the industrial world.
CW
Cathie Wood
02/27/21
@ ARK Invest
Good deflation is driven by innovation, while bad deflation is linked to disintermediation and disruption of traditional industries, putting many companies at risk.
CW
Cathie Wood
02/27/21
@ ARK Invest
Many companies, especially in sectors like financial services and automotive, have adopted short-term time horizons and leveraged up to buy back shares, which may lead to price cuts to service their debt.
CW
Cathie Wood
02/27/21
@ ARK Invest
The current deflationary forces are powerful and will likely cause confusion in the market, affecting the velocity of money, which is the rate at which money circulates in the economy.
CW
Cathie Wood
02/27/21
@ ARK Invest
During the 2008-2009 financial crisis, the velocity of money slowed down as people became risk-averse, which prevented monetary easing from igniting inflation.
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Cathie Wood
02/27/21
@ ARK Invest
In the ETF space, liquidity is often misunderstood; during the 2008-2009 crisis, ETFs provided liquidity when underlying bond markets were not functioning.
CW
Cathie Wood
02/27/21
@ ARK Invest
The equity ETF market is generally more liquid than the bond market, and during periods of volatility, the ETF infrastructure has handled trading effectively, unlike mutual funds that face redemption pressures.
CW
Cathie Wood
02/27/21
@ ARK Invest
As a portfolio manager in the ETF space, I focus solely on investment decisions without worrying about flows, unlike in mutual funds where redemptions can complicate management.
CW
Cathie Wood
02/27/21
@ ARK Invest
Despite market volatility, the ETF industry has managed well, and I have confidence in our strategies and the team behind me.