Video by Millionaires Investment Secrets via YouTube
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“We are already in a recession but the bigger risk from here on is not inflation, it is deflation” says the CEO and CIO of Ark invest Cathie Wood. She came out on the screens when everyone has ben talking about the inflation concerns and even the US officials have also changed their narrative that the inflation is no longer transitory. The Fed interest rates hikes to combat the inflation are clear indictor that the Fed is also afraid of the rising inflation. But if we look at history, Cathie Wood has a proven record of making such predictions right. Back in 1980s Cathie Wood joined Jennison, and the US was experiencing severe inflation and interest rates were in the double digits. Everyone was talking about rising inflation but Cathie Wood came out believing in in deflation very strongly and she was right. US had deflation afterwards, and CPI kept going down during the presidency of Ronald Reagan.
On predicting the deflationary situation right, the former US Navy officer and Jennison’s co-founder and chief investment officer, Spiros Segalas praised Cathie Wood saying: “Cathie turned out to be better and smarter than all the famous economists of that time, “I’ve never met anyone with as much conviction.”
Now in the current scenario, when the inflation has been reported 9.1% for the month of June 2022 and Fed has raised the interest rates by 75 basis points showing the aggressive counter move by the Fed, Cathie Wood criticized the US officials specifically the Fed Chair that they are misunderstanding the prevailing economic situation. Cathie Wood is of the view that we already in a recession but this is not the ordinary recession rather this is a technical recession.
Cathie Wood based her prediction on the earnings results of the US major retailers such as Wall Mart and Target and the major advertisement platforms such as Snap and Meta and she is of the view that these earning numbers are clearly showing that we are in a recession. She opined that this is an inventory-led recession, and that’s coming through loud and clear. And it is evident from the recent earnings of Walmart and Target, the both retailers have warned that excess inventory will drag on their profits this year. Similarly recent earnings results from Snap and Meta Platforms revealed that advertisers were indeed slowing their spending on those platforms in recent months.
Cathie Wood is of the view that the current status of the US economy differs from Fed Chairman Jerome Powell’s view, who said last month that he isn’t seeing signs the economy has entered a recession. She opined that the Powell and the Fed are mostly focused on lagging indicators, like the employment market and inflationary readings like CPI.
Cathie Wood criticized US officials and Fed that they likely won’t acknowledge the economy is in a recession until it’s already happened. She thinks that the leading economic indicators are basis of her view that the economy is set to weaken further and inflationary pressures are set to end.
The US Fed has enacted its second consecutive 75 basis points interest rate increase, taking its benchmark rate to a range of 2.25%-2.5%. The Fed’s commitment to the tighten monetary policy comes when inflation runs at 40-year highs. And the latest U.S. annual inflation numbers will likely keep accelerating to 8.9% in July after posting 9.1% in June, according to market consensus calls.
Despite the inflation fears and Fed’s aggressive counter policy Cathie Wood argued that the Fed should be worried about deflationary forces. She believes that there are all kinds of deflationary signals, which are going to force the Fed to pivot and reverse its policy. According to her these deflationary signals are trading patterns of gold, the U.S. dollar, yields, oil, and copper.
Cathie Wood’s flagship fund has posted heavy losses in the past year due to its big bets on beaten-up tech stocks including Zoom, Block and Coinbase as she called it as the worst bear market she had experienced. The bottom in the main Ark fund came about a few weeks before the Nasdaq 100 and S&P 500 both hit their lowest levels so far this year.
Previously addressing a Morgan Stanley conference in Sydney remotely from the US, she said the plunge in some technology stocks – which are down as much as 80 per cent – was due to fears of inflation and rising interest rates, which cut the valuations of growth companies. However, she argued that the fund’s favored type of stocks were now “way oversold.” She also opined that the inflation is still a short-term problem, rather this becomes clear when investors start paying closer attention to how gold, the U.S. dollar,
Watch this video clip from Cathie’s recent talk and feel free to share your thoughts whether her recent prediction of deflation will turn out to be accurate like 1980s or not. Before diving into the video, take a second to smash the like and subscribe button if you haven’t done it yet. Enjoy watching!