Cathie Wood’s contrarian deflation call gets endorsements from Elon Musk, Jeffrey Gundlach

Cathie Wood, Managing Director and Chief Investment Officer, Ark Invest gestures as she speaks during the Bitcoin 2022 Conference at the Miami Beach Convention Center on April 7, 2022 in Miami, Florida.

Mark Bello | Getty Images

Cathie Wood, Wall Street’s most outspoken proponent of deflation, is attracting some high-profile supporters even as price pressures continue to surprise on the upside.

Jeffrey Gundlach and Elon Musk recently joined Wood’s camp in calling for lower prices amid fears the Federal Reserve is going too far. The so-called bond king warned of deflation risk on Tuesday, prompting investors to buy long-term Treasuries. Meanwhile, the Tesla CEO called the fall in commodity prices “neither subtle nor secret” and tweeted to his 100 million followers that “a major Fed rate hike risks deflation.”

“We are now hearing loud voices accompanying us on this risk of deflation,” Wood said during an investor webcast on Tuesday, checking the names of Gundlach and Musk in his comments.

Wood has been warning about deflation since last year, believing that disruptive innovation will drive down the price of obsolete goods and that artificial intelligence will help lower production costs. It is now doubling down on its call as a number of leading indicators it monitors point to deflationary forces instead of inflationary ones.

Ark Invest CEO noted that gold, traditionally a hedge against inflation, peaked more than two years ago. Other commodities, including timber, copper, iron ore and oil, all fell double digits from their peaks. She pointed out that inflation is less severe than it was in the 1970s, as it is triggered by temporary supply chain disruptions during the pandemic.

The markets are betting that the central bank will raise its key rates by at least 0.75 percentage point next weekwhich would take the federal funds rate to its highest level since early 2007. The Fed has raised interest rates four times this year for a total of 2.25 percentage points.

Tesla’s Musk responded to a Twitter thread with Wood on Wednesday that the central bank should “cut 0.25%”. Gundlach said the Fed should only hike 25 basis points because it could oversteer the economy with a giant rate hike. He added that the central bank had not paused enough to see what impact previous hikes had already had.

“Despite the fact that today’s narrative is the exact opposite, the risk of deflation is much higher today than it has been for the past two years,” Gundlach told The Future on Tuesday. Proof FestivalI. “I’m not talking about next month. I’m talking about later next year, definitely in 2023.”

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