The 8.3% surge in consumer prices reported for the 12 months through August did nothing to change famed investor Cathie Wood’s economic views.
The chief executive of Ark Investment Management still believes we’re suffering deflation and are in the midst of a recession.
Federal Reserve Chairman Jerome Powell has misread the environment in comparing this period to the late 1970s and early ‘80s, Wood said in a webinar. That’s when then-Fed Chairman Paul Volcker pushed interest rates way higher to quell inflation.
“Powell believes that he too is slaying the inflation dragon,” Wood said. “But we don’t believe the Fed’s task is anything like the late ‘70s and early ‘80s.”
Back then, the economy took 15 years to “work up an inflation frenzy,” she said. “This is more like a 15-month problem,” up to the time the Fed began raising rates in March.
Gold Is Leading Indicator for Inflation
“To use the same resolve this time will prove to be a mistake,” Wood said. “We think we’re already in a recession.”
She considers consumer-price gauges a lagging indicator. Gold is the best leading indicator for inflation, she said. And it has traded in a range of $1,700 to $2,075 over the past two years, peaking in August 2020, Wood noted.
The dollar’s surge over the past 16 months also is a strong deflationary force, she said. The Bloomberg Dollar Spot Index has soared 17% since May 28, 2021.
Even when it comes to the consumer price index, much of its increase stems from rental prices. And Wood says rental-price increases “will settle down” as supply rises.
Meanwhile, money-supply growth is flattening sequentially, and fiscal policy has tightened -- another two developments that are deflationary, Wood said.
In Sync With Musk and Gundlach
Tesla Chief Executive Elon Musk shares her thoughts on inflation, Wood said. He tweeted Sept. 9: “A major Fed rate hike risks deflation.”
Renowned bond investor Jeff Gundlach, chief executive of money management firm DoubleLine, also agrees with her, Wood said. “Before, he was sure we were in a 1970s-style inflation, but now he has changed his tune.”
Weakness in home and auto sales points to recession, she said. Existing-home sales fell 5.9% in July from June, according to the National Association of Realtors. And auto sales declined 1.1% in August from July.
Also, increased use of credit cards signify that people are having trouble paying their bills, Wood said. “They’re no longer using their debit cards and have defaulted to credit.”
Wood indirectly touted her technology stocks. “Innovation solves problems,” she reiterated. “Truly disruptive innovation is now priced [in the markets] at $8 trillion. We think that will scale to over $200 trillion in the next eight to 10 years.”
