Cathie Wood disputes Jack Dorsey’s hyperinflation warning, says prices will drop after the holidays
Catherine Wood, Managing Director of ARK Investment Management LLC, speaks at the Milken Institute Global Conference in Beverly Hills, Calif. On Monday, October 18, 2021.
Kyle Grillot | Bloomberg | Getty Images
Innovation investor Cathie Wood on Monday refuted the hyperinflation theory of Twitter and Square founder Jack Dorsey.
The founder and CEO of Ark Invest took to Twitter to lay out her counter-current theory on deflation after Dorsey tweeted Friday night that “Hyperinflation is going to change everything. It’s happening. ” Wood believes his hypothesis will start to come true sometime after the holidays.
âIn 2008-09, when the Fed started quantitative easing, I thought inflation was going to take off. I was wrong. Instead, the velocity – the rate at which money spins every year – has declined , removing its inflationary sting. The velocity is still dropping, “Wood said in a tweet.
While many market participants worry about rising prices, the authoritarian investor expects deflation amid falling commodity prices, failure of companies that have fallen behind. innovation, storage of companies and innovation trends that are taking off.
âNow we believe three sources of deflation will overcome the supply chain-induced inflation that is wreaking havoc on the global economy. Two sources are secular, or long term, and one is cyclical. Technological innovation is deflationary and the most powerful source, âWood said in the Twitter thread.
The ARK Innovation portfolio manager noted that the costs of training in artificial intelligence are falling by 40 to 70% per year, which she says is a “record deflationary force”.
âWhen costs and prices go down, velocity and disinflation – if not deflation – follow. If consumers and businesses think prices are going to come down in the future, they will wait to buy goods and services, which will lower the velocity of money, âshe added. .
Wood also said that S&P 500 companies that haven’t invested enough in the future will also be a deflationary force in the economy in what’s called “creative destruction.”
âSince the tech and telecommunications collapse and the global financial crisis in 2008-09, many companies have responded to the needs of short-term oriented shareholders who want profits / dividends now they have leveraged their balance sheets to pay dividends and buy back stocks, ‘manufacturing’ earnings per share. They haven’t invested enough in innovation and will likely be forced to pay down their debts by selling increasingly obsolete products at reduced prices: deflation, âhis tweet read.
Wood calls these companies âvalue trapsâ and has previously said major stock market averages are in jeopardy because of them.
The final factor that is expected to lead to deflation is the storage of goods due to the pandemic and supply chain bottlenecks. Many companies have ordered oversupply, which the economy is poised to shift to the service sector as the economy opens up, Wood explained.
“Because businesses closed and were caught off guard as the consumption of goods took off during the coronavirus crisis, they are still scrambling to catch up, probably double and triple orders beyond their needs,” she added.
âAs a result, once the holiday season is over and businesses are faced with oversupply, prices should drop. psychologically important, âsaid Wood.
Wood made a name for himself after a 2020 banner in which Ark Innovation grossed nearly 150%. The fund is down 2% in 2021 but has recorded more than $ 5.7 billion in fundraising this year.