Cathie Woodthe founder of ARK Investment Managementreiterated their belief that the US federal reserve makes unanimous decisions based on lagging indicators – employment and headline inflation – despite significant price deflation in the pipeline.
Wood has slammed the central bank’s actions as the Federal Reserve continues on its aggressive path to curb inflation, despite many pointing to signs of a slowdown.
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Wood’s thesis: “Compared to [Paul] volckers 2-fold hike from 10% to 20% In the early 1980s, Powell hiked the fed funds rate 13-fold from 0.25% to 3.25%. Unlike the Volcker Fed, which has been battling building inflation for 15 years, today’s Fed appears to be responding to COVID-related supply shocks that emerged just over 15 months from now,” Wood said in Ark’s third-quarter report.
Wood’s comparison was an extension of what she explained in a series of tweets last month, in which she said the current policy action was akin to using a “sledgehammer.”
Wood also said that the combination of geopolitical forces and inventory hoarding pushed U.S. consumer price inflation — a lagging indicator — to 8.2% year-on-year, “a rate that we think are deflationary forces — good, bad and cyclical.” – start to relax.”
Tesla Inc TSLA chairman Elon Musk and double line chairman Jeff Gundlach recently “expressed our concerns about the risk of deflation,” Wood said. Musk’s Tesla is the second-biggest holding in ARK’s flagship ARK Innovation ETF ARKK.
On stocks: Wood also explained how the US economy has shrunk, inventories have built up and long-term inflation fears are overdone.
“Walmart Inc WMT and target company TGT continue to struggle with inventory builds that surfaced in the April quarter while Nike Inc NKE reported inventory growth of 44% year over year as sales growth hobbled at a rate of 3.6% in the August quarter,” she said.
To attract cautious consumers and eliminate bloated inventories, retailers may need to cut prices during the holiday season, she said.
On the subject of innovation: Wood also noted how several mega-cap stocks appear to have lured risk-averse, benchmark-sensitive investors into crowded trades and away from emerging growth opportunities focused on disruptive innovation. “You could be missing out on investment opportunities like the next one Amazon.com, Inc. AMZN, apple inc AAPLor Tesla, companies that have invested aggressively at the expense of near-term gains,” she said.
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Photo Courtesy: Ark Invest