Sister Wood: The Fed is "making mistakes" in raising interest rates, and high inflation in the United States may turn into deflation

time:2022-12-09 03:28:12source:chakarski.com author:Technology stocks
Sister Wood: The Fed is "making mistakes" in raising interest rates, and high inflation in the United States may turn into deflation

"Sister Wood" Cathie Wood once again pointed the finger at the Federal Reserve, arguing that the current high inflation in the United States is turning into deflation, and it is a mistake for Powell to follow Volcker's aggressive interest rate hike. Wood expressed the view in a series of tweets on social media on Wednesday, local time. She pointed to the Fed's monetary policy decisions based on two lagging indicators of employment and core inflation. In other indicators, there are already signs of deflation: major inflation indicators such as gold and copper point to the risk of deflation. Even oil prices are down more than 35% from their peaks, erasing most of this year's gains. This year's Jackson Hole Global Central Bank Annual Meeting is considered Powell's "Volcker moment." In his speech, Powell directly or indirectly mentioned Volcker's name twice, sending a hawkish signal to the market that exceeded expectations. But Wood believes that the current round of supply-shock inflation caused by the epidemic in the United States is fundamentally different from the one of the 1970s, which began with Guns and Butter in 1964. Refers to the simultaneous pursuit of several ambitious goals by the government at the time, resulting in a sustained and substantial increase in fiscal spending), and in 1971 Nixon decoupled the dollar from gold and accelerated after the abolition of the gold standard. The inflation of the 1970s lasted for 15 years, and it was not until Volcker became Fed chairman in 1979 that decisive action was taken. Wood said that the Fed’s actions today are already aggressive compared to Volcker’s year: In contrast, in the face of a two-year supply-related inflation shock, Powell is using Volcker’s sledgehammer, which is a crime mistake. The Fed has raised the federal funds rate 10 times from 0.25% to 2.50%, which is 5 times as much as Volcker raised rates from 10% to 20% in the early 1980s, when consumers and businesses had adjusted to 10%. -15 years of inflation. By contrast, today consumers and businesses are in shock. The housing market is unraveling. Wood cites more signals to argue that inflation is turning into deflation: Gold, one of the best inflation indicators, peaked at $2,075 in August 2020 more than two years ago, and is now down 15 %. Lumber prices fell by more than 60%, copper by 30%, iron ore by 60%, memory by 46% and crude oil by 35%. Further downstream, retailers appear to be overstocked, and they may be forced to discount heavily to clear shelves of holiday merchandise. Surprisingly, by the end of the year, the CPI and PCE deflator may be deflationary. Wood said she wouldn't be surprised if there was a major policy shift in the next three to six months: The Fed's response to a pandemic-related supply shock lasting 15 months appears to be similar to Volcker's response to a 15-year-old Inflation works the same way. I wouldn't be surprised if there is a major policy shift in the next three to six months. Finally, Wood once again shouted for the technological innovation she has always seen: Innovation can solve problems, and the world is facing many more problems than two years ago. Innovation is the key to real growth! This isn't the first time Mrs Wood has taken issue with Fed policy. In July of this year, she said that the current direction of the Fed's monetary policy is wrong, and she still believes that deflation is a bigger long-term risk to the economy. From the investment standpoint of Sister Wood, the Fed raising interest rates is undoubtedly a major negative. The valuations of her favored tech stocks rely on discounting future cash flows, with higher interest rates raising the denominator and lowering valuations. According to data analysis agency VettaFi, Wood’s flagship ARK investment fund suffered an outflow of $820 million in August, the largest outflow in nearly a year, slightly lower than the $939 million outflow in September 2021. ARK's flagship fund has fallen 57% so far this year, more than double the Nasdaq 100's 26% drop over the same period. Of the 36 stocks in ARK's flagship ETF, only two have produced positive returns over the past year, according to Koyfin data, Tesla and Signify Health, a healthcare services company. More
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