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In this video, I cover why Cathie Wood believes that a deflationary crash will be the ultimate shocker for a large portion of the stock market.
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Over the past few months, criticism against Cathie Wood has garnered substantial attention. However, Cathie Wood recently went on CNBC to dispel any attacks against her. Not only that, but she also boldly warned of the most unanticipated crash in history. Nobody sees what she believes is coming and this will lead major institutions and investors to suddenly lose billions. This video will go in-depth on the massive catalysts that are coming and how they will heavily impact the stock market going forward.
Short-sellers are rapidly attacking Cathie Wood’s funds. They’ve shorted almost all of the holdings in her funds, and some have shorted her entire innovation ETF. In fact, one management company is about to launch an ETF that exclusively short Ark’s innovation fund. So why are so many short-sellers like Michael Burry confident in their positions against Ark? In short, these short-sellers think massive inflation is coming soon.
Not only that but investors worldwide have witnessed stocks rise substantially over 12 months, which could lead to a fatal crash. A surface-level analysis would show us that consumer prices are rising, the stock market is skyrocketing, and therefore, this overheating will lead to a major crash ahead. However, this has become a popular opinion lately. When everyone thinks a crash is going to occur, that’s when a crash is least likely to occur. Cathie Wood does think that a crash is coming, but not in the way that you might imagine. Many renowned investors believe that the risk of overheated inflation is incredibly high. However, Cathie believes a completely different risk is imminent: deflation. This might seem totally crazy, especially since the Federal Reserve has printed immense amounts of money. Nevertheless, Cathie’s bet on the ultimate shocker of deflation starts to make more sense after a deeper dive.
There are three deflationary forces that will inevitably take place, but before we get into that, we must talk about the several sectors that are about to die off. The movement towards new technologies has been vastly accelerated by the pandemic. Electric vehicle sales have increased substantially during the pandemic, especially in comparison to fossil-fuel-powered vehicles. The pandemic has caused many people to realize that electric vehicles are superior to gas-powered vehicles. That might sound like nonsense, but the data that has been coming out recently is mind-blowing. In the UK, plug-in hybrid sales are up 93.6% in 2021. Additionally, electric and hybrid electric vehicles are experiencing a similar increase year over year. On the other hand, petrol and diesel are being demolished, with diesel down an astounding 46.9% year over year. Online retail is also experiencing a massive acceleration in sales. The world is not going to go back to outdated services. All these quote-unquote “recovery” services are recovering, but only in the short term. Over the long term, these stocks will fall 90% or even 100% as many of them inevitably lose market share. This is not a small-scale event either. The transition to new technologies is going to affect at least half of the S&P 500.
There are many outdated sectors that are quickly losing market share and will only continue to lose market share. However, there is something even more important that we have to talk about, which is the deflationary forces at play. There are three main deflationary forces; the first one is technology-enabled cost declines. Over the past decade, demand for electric vehicles worldwide has risen substantially. This increase in demand was primarily driven by the cost decline of batteries. Lithium-ion battery prices have fallen dramatically over the past three decades. The economies of scale and technological advancements will guarantee that battery prices will continue to decline over the long term. Now, this isn’t just the automotive space. Similar exponential declines are happening in almost every sector. Manufacturing, utilities, agriculture, and transport & warehousing have all seen enormous increases in real productivity.
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