Cathie Wood Thinks if There is No Blood in Your Street, You Should Move

 

Baron Rothschild, an 18th-century member of the Rothschild banking family, is credited with saying, “the time to buy is when there’s blood in the streets.” Rothschild made a fortune investing after the battle of Waterloo. Cathie Wood sees “blood” today that should be attracting investment capital in smaller growth companies. Wood said in an interview this week, investors can benefit from investing in the most “massive misallocation of capital in history, or mankind.”

In a CNBC interview with Wood this week, the CEO of ARK Invest said that risk-averse investors and fund managers are putting money in companies and benchmarks based on past successes instead of betting on innovative companies.  She was emphatic that investors are making a mistake piling into index funds.

Wood said household name companies are attractive to cautious investors as they’ve prospered before, but they’re often susceptible to being disrupted and their values may be based on index fund inclusion, not potential. She believes many are likely to be overtaken by more innovative rivals. “Benchmarks are where they are, and especially the largest companies and stocks in the benchmarks are where they are, because of past successes. If we’re [Ark analysts] right, those are the companies that are going to be disrupted,” Wood said in the interview.  

She defended Ark funds, which have tumbled in value this year, and said her research into disruptive innovation is the best in the financial industry.

 

“Those benchmarks are where the risk is, not our portfolios.” – Cathie Wood

 

Wood explained she sees significant potential in innovative companies using blockchain technology and artificial intelligence. She praised the breakthroughs and benefits in AI over the past few years. Wood pointed to Tesla as a company using AI as a competitive advantage, noting it’s the kind of business she prizes. Ms. Wood explained, “AI costs are dropping 60% per year accounting for both hardware and software. When the cost of something is dropping that much, to levels much more accessible, you’re going to have an explosion in creativity.” Wood added, “That is what’s happening.”

 

“Tesla has been the best case in point and I think we have a lot of Tesla-like stocks in our portfolio.” – Cathie Wood

 

Wood suggested the telecom bust of the early 2000’s and financial crisis of ’08-’09 still has investors averse to risk and retrenching into indexes. She believes these indexes are far riskier than the innovative investments her firm has embraced. When pressed Wood said she believes certain holdings in her funds will reach and surpass pre-pandemic highs.

Take-Away

Cathie Wood founded Ark Invest with the flagship ARK Innovation ETF (ARKK). It has enjoyed incredible performance which makes her one of the most listened to money managers this decade. In 2020 the fund returned over 150%, however it disappointed in 2021 by dropping 23%. Through mid-February 2022 it is down 30%.  Does this represent the kind of investment climate, in the growth and big index stock sectors, that Baron Rothschild was referring to? Should investors seek opportunities on the streets where there is “blood?” Time will tell if companies with past successes, are being valued based on those successes, as Ms. Wood claims.

Suggested Reading

Ark Invest Has Filed for a Closed-End Fund that Invests in Private Equity

Michael Burry vs Cathie Wood is Not an Even Competition

Musk’s Lawyers Suggest a Rogue U.S. Agency is being Weaponized Against Him

Michael Burry’s Stock Market Holdings (Filed Feb 14, 2022)

 

Sources

https://www.youtube.com/watch?v=TCH8gHuCN_U

https://investorplace.com/moneywire/2020/04/this-coronavirus-crisis-will-mint-millionaires/

 

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Phase I Research Findings on a US Central Bank Digital Currency Released by Federal Reserve

 

The Federal Reserve Bank of Boston and the Digital Currency Initiative at the Massachusetts Institute of Technology have released the findings of their initial technological research into a central bank digital currency, or CBDC. The published research describes a theoretical high-performance and resilient transaction processor for a CBDC that was developed using open-source research software, OpenCBDC. This collaborative effort, known as Project Hamilton, focuses on technological experimentation and does not aim to create a usable CBDC for the United States. The research is separate from the Federal Reserve’s Board’s evaluation of the pros and cons of a CBDC.

“It is critical to understand how emerging technologies could support a CBDC and what challenges remain,” said Boston Fed Executive Vice President and Interim Chief Operating Officer Jim Cunha. “This collaboration between MIT and our technologists has created a scalable CBDC research model that allows us to learn more about these technologies and the choices that should be considered when designing a CBDC.”

The whitepaper released today details findings from the first research phase. In this phase, researchers selected concepts from cryptography, distributed systems, and blockchain technology to build and test platforms that would give policymakers substantial flexibility in the potential creation of a CBDC. The paper describes the following findings:

• The team met its goal of creating a core processing engine for a hypothetical general purpose CBDC and explored it in two architectures.
• The work produced one code base capable of handling 1.7 million transactions per second.
• The vast majority of transactions reached settlement finality in under two seconds within architectures that support secure, resilient performance and offer the significant technological flexibility required to adjust to future policy direction.

Researchers with MIT and the Boston Fed released the code for Project Hamilton, OpenCBDC, in github for contributions.

“There are still many remaining challenges in determining whether or how to adopt a central bank payment system for the United States,” said Neha Narula, director of the Digital Currency Initiative at MIT. “What is clear is that open-source software provides an important way to collaborate, experiment, and implement. In addition to supporting collaboration, monetary systems benefit from transparency and verifiability, which open-source offers.”

About Project Hamilton

Project Hamilton is a multi-year collaboration between the Boston Fed and MIT’s Digital Currency Initiative that was announced in 2020. The project explores the use of existing and new technologies to build and test a hypothetical digital currency platform. The project’s first phase produced the research and code released today for a high-performance transaction processor. The code is the first contribution to OpenCBDC, a project maintained by MIT which will serve as a platform for further CBDC research. Project Hamilton aims to inform future contributions to the code and inform policy discussions about CBDC.

In the coming years, the second phase of this partnership will allow Project Hamilton to explore alternative technical designs to improve the already robust privacy, resiliency, and functionality of the technology outlined in the first phase.

The Federal Reserve Bank of Boston serves the First Federal Reserve District, which includes all of New England except Fairfield County, Connecticut. Within the district, the Bank monitors local economic conditions to aid in the formulation of monetary policy; engages in outreach to promote economic growth, community revitalization, and economic and financial education; supervises banks and bank holding companies; and provides financial services to facilitate banking operations.

 

The above report was released by the Federal Reserve Bank of Boston on February 3, 2022 under the title: “The Federal Reserve Bank of Boston and Massachusetts Institute of Technology release technological research on a central bank digital currency”.  All links throughout the report are provided by the authors.

 

Suggested Reading

Cryptocurrencies in 2022, a View from Academics

Blockchain 2022 – What’s Next?

Has Bitcoin Lived Up to the Original Vision

How Close is the U.S. to Having a Digital Currency?

Source

https://www.bostonfed.org/news-and-events/press-releases/2022/frbb-and-mit-open-cbdc-phase-one.aspx

 

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Ark Invest Has Filed for a Closed-End Fund that Invests in Private Equity

 

Ark Invest’s Cathie Wood, known for her investments in publicly traded disruptive and innovative companies, is branching out and creating a fund that invests in private equity. ARK filed documents for the fund with the Securities and Exchange Commission (SEC) late last week. The ARK Venture Fund (The Fund) will invest in disruptive, innovative companies that Ark CIO and ARK analysts believe should grow exponentially. The reasons for investing in these private companies is similar to the public securities held in ETFs managed by Ark, but The Fund will not be an ETF. Instead, The Fund will be registered as a closed-end fund that won’t focus on public securities. Other primary differences include the participant’s long holding period. And, unlike Ark’s other funds, not all that can invest in The Fund could otherwise copycat Ark’s investments by acquiring like holdings; this is because of restrictions placed on who can participate in private offerings.

 

THE FUND   The Fund is a non-diversified, closed-end management investment company that is registered under the 1940 Act. The Fund is structured as an “interval fund” and continuously offers its Shares. The Fund was organized as a Delaware statutory trust on January 11, 2022. The principal office of the Fund is located at 200 Central Ave., St. Petersburg, Florida 33701 and its telephone number is 212-426-7040.   The Fund’s investment objective is to seek long-term growth of capital. The Fund invests primarily in domestic and foreign equity securities of companies that are relevant to the Fund’s investment theme of disruptive innovation. The Adviser defines “disruptive innovation” as the introduction of a technologically enabled new product or service that potentially changes the way the world works. Under normal circumstances, substantially all of the Fund’s assets will be invested in equity securities, including common stocks, partnership interests, business trust shares, other equity investments or ownership interests in business enterprises and Private Funds. The Fund’s investments will include micro-, small-, medium- and large-capitalization companies. The Fund’s investments in foreign equity securities will be in both developed and emerging markets. The Fund may invest in foreign securities (including investments in American Depositary Receipts (“ADRs”) and Global Depositary Receipts (“GDRs”)) and securities listed on local foreign exchanges.

          From: SEC Reg. File 811-23778 (February 3, 2022)

 

Fund Details

Unlike open-end mutual funds and ETFs, a closed-end fund can’t create or redeem shares as investors decide to invest or redeem shares. Ark doesn’t plan to list its new Venture Fund on a stock exchange for public trading. Investors may cash out each quarter as The Fund purchases 5% of the outstanding shares, according to the SEC filing. This makes the new fund fall into the category of an “interval fund” because it has scheduled redemption periods. In addition to the restricted sell periods, investors may not be able to liquidate all of their holdings if many other investors are also looking to redeem shares since the amount of shares to be repurchased will only be 5%.

The nature of the underlying investments and the investor restrictions are more closely aligned than other ARK funds. This is because disruptive and innovative investments usually take time to play out, and tend to be volatile in the shorter term. It also reduces the need for The Fund to maintain a larger than desired cash (liquid) position. As it is not a fund to be actively traded, the managers can focus more on performance without having to cater to redemptions at inopportune times.

Preventing investors from selling their shares whenever they want reduces pressure on the fund to keep low earning cash available, or to sell
its holdings when prices are low. The fund is designed primarily for long-term investors and not as a trading vehicle, according to the filing. The more known cash flow will also make it easier for the fund manager to invest in illiquid or less liquid securities, such as those of private companies. According to the filing, the Fund also allows the manager to use leverage to help boost returns.

 

Twitter@CathieDWood January 18,2022

 

Purpose

Wood has noted she has seen that innovative companies have been given much higher valuations in the private market than in the public markets, where the risk of volatility is reduced. She believes there is an enormous opportunity to be found within the valuation differences.

The Fund allows participation for most retail investors and carries a minimum investment of $1,000. Private equity deals are often only shown to institutional investors and accredited
individuals. Most retail investors don’t check to see if they qualify to participate in these deals.

Take-Away

The ARK family of funds is growing to include a closed-end fund with restrictions on redemptions. The known redemption periods with maximum aggregate amounts investors may cash out could allow for management to better fine-tune their holdings. Alleviating the need to be liquid when the markets are down, or invest inflows when markets are up, could benefit fund performance. 

ARK expects the Venture Fund will be open to investors two quarters after it is launched. The redemptions will be paid at net asset value, according to the filing.

Paul Hoffman

Managing Editor, Channelchek

 

Suggested Reading

Why Michael Burry has Better Opportunity Than Cathie Wood

Who Gets to Participate in Private Offerings

Understanding Family Offices

Alternative Investments and 401(k) plans

 

Sources

https://www.sec.gov/Archives/edgar/data/1905088/000110465922011382/tm225314d1_n2.htm

https://www.thestreet.com/investing/cathie-wood-ark-etfs-continue-to-lose-ground

https://www.schwab.com/resource/interval-funds-the-facts-and-the-risks.

https://twitter.com/CathieDWood/status/1483742793432547328

 

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The Reason Investors are Hoping for Bad Economic Statistics

 

During 2021 the market went up on most economic numbers that indicated unexpected strength. One headline from mid-year reads, “Market Rally Amid Global Recovery Hopes; U.S. Payrolls Jump.” Flash forward to 2022, and the stock market is now spooked by a positive print. In a complete U-turn, a payroll number that surprises on the high side shakes the equity markets and brings out sellers. Why is good news now bad news, and which economic releases may cause the strongest market reaction?

 

Background

During 2021, the Fed was assuring the markets that interest rates would remain low for an extended period – a period measured in years. This did two things. First, it showed investors that the stimulative impact of low borrowing costs would keep consumer and business borrowing costs down. Second, it told investors they would earn very little if they invested in the fixed income markets. Ten-year Treasury notes last summer (August 5) traded as low as 1.19% per year, locked in for a decade. On the same date, the Russell 2000 returned 1.34% for the day. Investors that might typically invest all or some of their money in bonds found more risk in locking money up for ten years at just over a 1% annual return. Ten-year US treasuries now are priced to yield 1.8% or 50% more. Each increase in yield attracts more buyers to bonds, including higher-yielding corporate bonds and tax-exempt municipal offerings, pulling money away from other investments.

The Fed has now indicated that it is much more inclined to focus on inflation and avoiding an overheated economy. This translates to pushing up rates quicker if economic growth is strong. Pushing rates up, as mentioned earlier, increases borrowing costs for businesses and consumers while providing more attractive alternative investments that have an added benefit of a contractual obligation to pay a rate of interest.

 

Releases that Move Markets

Not all economic numbers have the same potential. There are economic numbers that can sway the market more than others. Equity investors that haven’t been paying much attention to economic releases in the past ought to at least mark their calendars with these three impactful reports, and monitor expectations.

Gross Domestic Product or GDP, is a quarterly report. The number is first estimated and released toward the end of the month following a calendar quarter-end. It’s reported by the Bureau
of Economic Analysis (BEA). This estimate is typically the most impactful for GDP. It is then fine-tuned for a second estimate late the next month and then finalized a month later. The subsequent reports can impact markets if they differ substantially from the previous estimate. Historically, the original estimate is fairly close to the final.

Gross Domestic Product, as its name implies is the total output of all goods and services produced within the U.S., this includes foreign companies operating within U.S. borders, and excludes domestic companies producing outside U.S. borders. It measures all economic activity and as such, can be the single most important economic indicator concerning interest rate changes.

A larger than anticipated increase quarter-to-quarter, or even an increasing trend can be viewed as inflationary; this promotes concern from the Federal Reserve. As a result, the Fed may feel the need to step in and raise interest rates in an effort to slow or temper the overall growth. On the other hand, a decline or a downward trend may cause the Federal Reserve to lower interest rates to spur growth.

Consumer Price Index or CPI, measures the average amount of change in prices paid over a period by consumers for a fixed cart of typical consumer goods and services. In other words, inflation. It’s released monthly by the Bureau
of Labor Statistics (BLS).

Inflation erodes the purchasing power of savings. As a result, investors typically have, as a minimum return benchmark to match or beat inflation. Interest rates naturally move up with inflation as investors demand to be better compensated (market reasons), and because the Fed may enact monetary policy to lower inflationary pressures that would include pushing up the cost of money to banks. Downward trending CPI reports allow the Fed room to lower rates and increase economic activity.

The Employment Situation Report or payroll employment is released each month by the BLS. The highlights of this economic release include: Total number of employed and unemployed, the unemployment rate, the number of people working full or part-time in both U.S. businesses and the government, the average number of hours worked per week by nonfarm workers, and the average hourly and weekly earnings for all nonfarm employees. From these statistics, investors and the Fed can discern the health of the employment situation. If payroll is trending up, or average hourly earnings are increasing at a high pace, this could be seen as foretelling inflation down the road. Inflation then leads to higher borrowing costs and more expected return from investments in interest-bearing securities like bonds.

Take-Away

When inflation is low the markets have much less to worry about and can be expected to rally on positive economic news, especially reports that are surprisingly positive. When inflation is running at a rate that may cause the Fed to intervene on positive economic news, then good news can be treated as bad by the equity markets.

The current state of the U.S. economy is that payroll employment is high, GDP is expected to break records, and inflation is near a level not seen in 40 years. With this in mind, the Fed will try to maintain a balance of stable growth and stable prices. If the economy is growing too quickly, there will be selloffs in anticipation of the Fed acting sooner rather than later.

Paul Hoffman

Managing Editor, Channelchek

 

Suggested Reading

How PPI Impacts CPI Numbers

How Much is a Trillion?

Stimulating Economic Activity Without Cost

Money Supply Drives Stock Market Performance

 

Sources:

https://ycharts.com/indicators/10_year_treasury_rate_h15

https://app.koyfin.com/share/d7f947966a

https://www.bls.gov/news.release/empsit.nr0.htm

 

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	Image Credit: NASA Kennedy (Flickr)

Will the Market Soon Reach New Heights?

 

Stock indices have gotten off to a rocky start this year, which has created a lot of concern among investors. The landscape of low rates and easy money is quickly changing with high inflation and spending plans out of Washington less likely to pass. Investors are debating whether the selloff in January is the beginning of a prolonged market dive or if the reaction is overdone and provides an opportunity to bargain hunt among stocks with some indices down double digits.

Last week had some particularly volatile days that shook many people out of their positions, only to later see the broader market rally back with a vengeance, even during the same session. This activity has also created frustration and worry. One highly regarded investment bank, Goldman Sachs has issued this advice – Buy the dip.

 

 

One real concern among equity investors is the Federal Reserve (Fed) is openly looking to raise rates in 2022 in order to fight inflation that’s running close to its 40-year high. Goldman Sachs’ strategists believe when the Fed acts, it will likely still leave nominal and real rates at historically low levels. “Any further significant weakness at the index level should be seen as a buying opportunity, in our view, albeit with moderate upside through the year as a whole,” strategists led by Peter Oppenheimer, Chief Global Equity Strategist, said in a note released Wednesday (January 26).

Market Cyclone

There was a lot feeding the market storm that may have finally brought its worst conditions last week. This includes the Fed announcing they will be less accommodative sooner than previously stated, jitters over Ukraine/Russia tensions, covid related illnesses at high levels, and even Congress less willing to spend money. It all converged to create perfect conditions for a large disturbance in the markets.

The market atmosphere is most unsettled from fear that if the Fed is determined to unwind inflationary conditions, it may have to get aggressively hawkish. That would surely include quantitative tightening by shrinking its massive, almost $9 trillion, balance sheet.

In addition to quantitative tightening, the Fed is set to begin raising overnight bank lending rates. As recently as last summer, the consensus among Wall Street economists was that there would be no interest rate rises in 2022 and only one in late 2023. Four increases are now expected in 2022.  

The market storm that came from these disturbances is likely running out of strength with the steep correction. Despite the hazardous market conditions we just experienced, it is the bad market “weather” that helped allow strategists at Goldman to forecast a continuation of the economic growth, and the bull market cycle to remain in place.

Goldman Sachs does not think the recent correction will continue and turn into a bear market. However, the growth of the economy is key. Higher rates typically aren’t negative for stocks as long as economic activity is still expanding, according to Goldman strategists. Rate hikes even during times of decelerating growth still experience positive, although weaker, stock index returns. “Historically, a Fed tightening cycle that is accompanied by accelerating growth tends to be associated with strong returns and relatively low volatility,” Goldman said. “Meanwhile, a tightening cycle into slowing growth is associated with very low, but positive, equity returns alongside high volatility. It is this second combination that the markets seem to be pricing.”

Take-Away

The selloff we experienced through January and the market storm causing U.S. markets to swing violently last week are all part of a bull market correction according to the chief global equity strategist’s team at Goldman Sachs. The new report forecasts weaker yet still positive markets under the new and expected economic conditions.

 

Suggested Reading

Dip Buying in 2021 Has Consistently Paid-Off, is it Different this Time?

Will Small-Cap Stocks Outperform in 2022?

Will the Markets Continue to March Higher in 2022?

Why 2022 Investing Will Need to be Different

 

Sources

https://moneywise.com/investing/stocks/goldman-sachs-buying-opportunity

https://markets.businessinsider.com/news/stocks/stock-market-outlook-buy-the-dip-goldman-sachs-correction-fed-2022-1

 

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An Archive of Memes from Stonks’ Heyday in 2021

 

A year has passed since the WallStreetBets, Gamestop memes first took center stage. The investment phenomenon shook up Wall Street, drove market analysts to monitor Reddit activity, and caused stock market news reporters to scratch their heads in disbelief. The face of the social media collaborators became the enthusiastic memes that people would share, most featuring a confident character with “diamond hands,” often on a rocket. It was a time in market history that was both exciting and confusing. The era will forever have changed what it means to be a self-directed investor. One year since the beginning it feels as though the peak has passed, investors are finding their way around the market with a broader set of tools.

 

History Book

 WallStreetBets users calling themselves “Diamond Hands History” have launched a Kickstarter fund to publish an archive of the fun memes from the era of self-deprecation and intentional misspelling STONKS (stocks), and HODL (hold). 

The donation categories to help make “Diamond Hands:
The GME Archive” a reality are as sophomoric as the memes often were. The tiers start at “Baby Ape” $1 and continue to with higher-priced tiers with meme-related levels like “True Ape”, “Ape Chieftain”, and “Richer Than Your Wife’s Boyfriend.” 

The creators have a fundraising goal of $20,000 for what they use as a working title,”the epic book of GameStop.” They are expected to rocket right past the goal. According to the fundraiser page, the project intends to “capture the moments in time when GameStop was all anyone was thinking about.”

Challenges

The project is not as easy and straightforward as it appears. The creators had to collaborate with and get legal permission from thousands of social media users. They refer to it as the “first project of this kind in history,” given the collaboration with and legal permission from thousands of social media users. The diamond hands historians parsed through more than 10,000 posts as well as hundreds of thousands of comments for publication — all with consent from the original Reddit users.

 

Image: Mockup of the forthcoming book

 

The project description explains, “We decided to archive the most popular primary source documents related to the historic First and Second GameStop Squeezes,” The purpose is easy to understand, “We aim to archive the best WallStreetBets memes, posts, and comments about GameStop into a single book,” according to the Kickstarter page.

A teaser of the project features photos of a GameStop billboard in Times Square, lists of quotes from social media, and a hardcover book sample suitable for anyone’s parlor or even bathroom shelf. The Kickstarter also explains the final book puts the creators in potential legal jeopardy due to the images contained in the memes and copyright issues.

Looking Forward

The meme stocks are still making history but are no longer the force or focus they once were. Such is the way of the investment markets. The trade that works one day, isn’t as powerful once others catch on. Wall Street is now keeping close tabs on social media posts and retail investment trends. Professional investors and trading desks at top
banks and services such as Morningstar are quantifying buzz in order to capitalize on what they learn. 

WallStreetBets, the investor forum on Reddit, is picky about who they let interact on their platform. Still they have over 11.5 million members sharing ideas. That by itself is a tremendous feat and a huge audience once the book becomes available.

Paul Hoffman

Managing Editor, Channelchek

 

Suggested Reading

Is it Game-Over for Meme Stock Investors?

Young Traders Confounding Wall Street Pros is Cyclical

Dogecoin Group Works to Give Currency Greater Purpose

WallStreetBets Founder May Create Controversial ETP

 

Sources

https://www.kickstarter.com/projects/diamondhandshistory/diamond-hands

 

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Cryptocurrency Executive Order from White House Could Come Before President’s Day

 

The White House, according to Bloomberg, is said to be drafting an executive order for cryptocurrencies. It is more focused on being restrictive than creating a level playing field for all currencies. The expectation is the chief executive could execute the order during the month of February.

President Biden is looking to get ahead of crypto issues and give regulation a priority. The plan tasks multiple federal agencies to evaluate risks and opportunities within the digital currency environment. Bloomberg cited unnamed sources when they suggested that the reports were expected to be presented to the White House quickly.

Senior Biden administration officials have already had several talks related to the plan. Their recommendations are due to be submitted to the chief executive in the coming weeks, according to the report.

As technology rapidly changes, under current statutes and regs, there is no definitive legal framework for cryptocurrency or the regulation of crypto exchanges. The Securities and Exchange Commission (SEC), for its part, has been calling for a greater level of oversight over the crypto market.

Blockchain and digital assets are a challenge for most to understand, this is why so many outright dismiss the asset. Other skeptics point to the lack of clarity in crypto-related policy as a reason not to get involved.  Executives within the industry like Sam Bankman-Fried the CEO at FTX have called for more regulation, saying it would remove barriers to entry for many retail and institutional investors.

The push by the Biden White House puts the executive branch at the center of efforts to set policies and regulate the new market.  The related potential oversight agencies have been waiting for legislative guidance. This development follows a sell-off in crypto markets which follows other asset weaknesses in the face of higher costs to participate in the economy.  Bitcoin which traded above $68,000 in November broke below $36,000 and ether fell below $2,500, wiping out $350 billion in value from the total crypto market over the weekend.

Federal agencies, including the Financial Stability Oversight Council, are tasked with publishing reports on the systemic impacts and illicit uses of cryptocurrencies. A similar report from the Federal Reserve had detailed the pros and cons of a central bank digital currency, or fully digitizing the U.S. dollar with a “legal tender” status.

According to the report, the executive order is expected to ensure the U.S. is not left behind, but is a competitive player in the evolving field of digital assets.

Paul Hoffman

Managing Editor, Channelchek

Suggested Reading

Is Biden Tightening the Reins on Large Companies?

Federal Marijuana Laws are Half-In/Half-Out Says Justice Clarence Thomas

Will the SEC Allow ETFs to Own Cryptocurrency?

How Close is the U.S. to Having a Digital Currency?

 

Sources

https://www.bloomberg.com/news/articles/2022-01-21/white-house-is-set-to-put-itself-at-center-of-u-s-crypto-policy?sref=3REHEaVI

https://time.com/nextadvisor/investing/cryptocurrency/bitcoin-record-high-price

https://www.barrons.com/articles/cryptocurrency-exchanges-regulation-sec-coinbase-51620335275

 

Stay up to date. Follow us:

Cryptocurrency Executive Order from White House Could Come Before President’s Day

 

The White House, according to Bloomberg, is said to be drafting an executive order for cryptocurrencies. It is more focused on being restrictive than creating a level playing field for all currencies. The expectation is the chief executive could execute the order during the month of February.

President Biden is looking to get ahead of crypto issues and give regulation a priority. The plan tasks multiple federal agencies to evaluate risks and opportunities within the digital currency environment. Bloomberg cited unnamed sources when they suggested that the reports were expected to be presented to the White House quickly.

Senior Biden administration officials have already had several talks related to the plan. Their recommendations are due to be submitted to the chief executive in the coming weeks, according to the report.

As technology rapidly changes, under current statutes and regs, there is no definitive legal framework for cryptocurrency or the regulation of crypto exchanges. The Securities and Exchange Commission (SEC), for its part, has been calling for a greater level of oversight over the crypto market.

Blockchain and digital assets are a challenge for most to understand, this is why so many outright dismiss the asset. Other skeptics point to the lack of clarity in crypto-related policy as a reason not to get involved.  Executives within the industry like Sam Bankman-Fried the CEO at FTX have called for more regulation, saying it would remove barriers to entry for many retail and institutional investors.

The push by the Biden White House puts the executive branch at the center of efforts to set policies and regulate the new market.  The related potential oversight agencies have been waiting for legislative guidance. This development follows a sell-off in crypto markets which follows other asset weaknesses in the face of higher costs to participate in the economy.  Bitcoin which traded above $68,000 in November broke below $36,000 and ether fell below $2,500, wiping out $350 billion in value from the total crypto market over the weekend.

Federal agencies, including the Financial Stability Oversight Council, are tasked with publishing reports on the systemic impacts and illicit uses of cryptocurrencies. A similar report from the Federal Reserve had detailed the pros and cons of a central bank digital currency, or fully digitizing the U.S. dollar with a “legal tender” status.

According to the report, the executive order is expected to ensure the U.S. is not left behind, but is a competitive player in the evolving field of digital assets.

Paul Hoffman

Managing Editor, Channelchek

Suggested Reading

Is Biden Tightening the Reins on Large Companies?

Federal Marijuana Laws are Half-In/Half-Out Says Justice Clarence Thomas

Will the SEC Allow ETFs to Own Cryptocurrency?

How Close is the U.S. to Having a Digital Currency?

 

Sources

https://www.bloomberg.com/news/articles/2022-01-21/white-house-is-set-to-put-itself-at-center-of-u-s-crypto-policy?sref=3REHEaVI

https://time.com/nextadvisor/investing/cryptocurrency/bitcoin-record-high-price

https://www.barrons.com/articles/cryptocurrency-exchanges-regulation-sec-coinbase-51620335275

 

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	Image Credit: Patrick Feller (Flickr)

Michael Burry’s Investments in Health, Bombs, and Bars

 

Michael Burry’s investing genius was brought to the world’s attention in the movie The Big Short. When the hedge fund manager’s insight and brilliance became known, investors made a practice of checking the latest transactions from his company, Scion Capital Management, on its 13F quarterly filing. His latest filing shows that he scaled down his stock holdings considerably. In fact, when compared to the previous quarter, Burry’s holdings of public companies went from 22 to just 6. 

It’s safe to say Burry’s investment universe is broader than the average self-directed investor and even deeper than the average hedge fund manager.  With this in mind, out of the entire universe of publicly held corporations he could hold, there are only six that Burry’s portfolio owned at the end of the third quarter. Of the six, two are large-cap household names, and the others have smaller market-caps and are far less known. It’s on the lesser-known opportunities that we’ll focus.

 

SCION ASSET MANAGEMENT, LLC – Q3 2021 (per 13F filing)

Sources: Whale Wisdom / Channelchek

 

The two large-cap names, CVS Health (CVS) and Lockheed Martin (LMT) shouldn’t need an introduction. CVS operates retail and mail-order pharmacies. Lockheed Martin is a defense contractor that builds military satellites, missile control systems, mission systems, and aeronautics. As for the four smaller companies, there are two prison systems, a health care company, and a distributor of oil and gas services. These are the four out of the thousands of publicly traded stocks available to Dr. Michael Burry that we will explore further.

Burry’s Small-Cap and Microcap Holdings

CoreCivic (CXW) is a company that owns and manages private prisons and detention centers along with related concessions. CoreCivic is a publicly owned prison system that was trading as a REIT up until January 2021, it now trades as a Regular C-Corporation.

In a research report dated January 11, 2022, titled A
Significant Win Noble Capital Markets Senior Research Analyst, Joe Gomes we learn that CoreCivic is one of the largest private owners of real estate used by U.S. government agencies.  The Company owns 15 properties representing nearly 2.7 million square feet of real estate, all used by government agencies. 

Shortly after being inaugurated, President Biden signed an executive order directing the attorney general to not renew Justice Department contracts with privately operated criminal detention facilities.  The company has been proactive in pivoting to adjust to the changing operating landscape. The company’s initial steps are discussed in an exclusive Channelchek
Virtual Roadshow.  

CoreCivic’s 52-week price range is $5.92-$12.35.

 

NOW Inc. (DNOW) is a global distributor to the oil and gas markets. It does business under the brands DistributionNOW and DNOW. The Company operates approximately 130 locations in the U.S., and 40 locations in Canada, plus nearly 20 other countries. NOW’s energy product offerings are used in the oil and gas industry, including upstream drilling and completion, exploration and production, midstream infrastructure development, and downstream petroleum refining. They also operate in related industries such as chemical processing, power generation, and industrial manufacturing operations. NOW provides supply chain management to drilling contractors, E&P operators, midstream operators, downstream energy, and industrial manufacturing companies.

DNOW’s 52-week price range is $6.83-$11.98.

GEOGroup (GEO) is another correctional facility play that specializes in the ownership, leasing, and management of correctional, detention, and reentry facilities as well as community-based services and youth services in the United States, Australia, South Africa and the United Kingdom. The Company owns, leases and operates a range of secure facilities, including maximum, medium, and minimum-security facilities, processing centers, as well as community-based reentry facilities. It also offers delivery of offender rehabilitation services under its GEO Continuum of Care platform.

In a research report dated January 11, 2022, titled What Do The
Debt Negotiations Reveal?, Noble Capital Markets Senior Research Analyst Joe Gomes updates investors on the company including a section on GEO’s monitoring business called BI. The analysts calls BI “a hidden gem.” Gomes explains GEO is a market leader in the monitoring business with over 2,000 active contracts and a 98% customer retention rate.  He presents the value this way, “BI is the largest producer of electronic monitoring devices and has developed an unrivaled platform of monitoring, case management, and supervisory services. Since 2015, BI has generated a 12% CAGR in revenue and should end 2021 with about $260 million of revenue. With many clients seeking an alternative to detention for low-risk offenders, we believe there remains substantial growth potential in this business.”

GEO’s 52-week price range is $4.96-$11.

 

SCYNEXIS Inc. (SCYX) is a drug development company focusing on the commercialization of novel anti-infectives to address what they see as a significant amount of unmet therapeutic needs. The company engages in developing a lead product candidate, SCY-078, which is a novel oral and intravenous (IV) drug for the treatment of several fungal infections, including serious and life-threatening invasive fungal infections. According to information found under the company ticker on Channelchek, it is a structurally distinct triterpenoid glucan synthase inhibitor that is effective in vitro and in vivo against a broad range of Candida and Aspergillus species, including drug-resistant strains.

SCYNEXIS’ 52-week price range is $4.21-$10.25.

Take-Away

Dr. Burry has an excellent record of spotting investment opportunities before the rest of the market catches up. His picks are as disparate as the mortgage market in 2008 and GameStop (GME) in 2020. Burry will typically see what others are not looking at. One-third of his public company holdings are prison and detention center related. Does he believe the industry is beaten up and will rise, does he think the real estate or other assets owned are valuable beyond the stock price, perhaps something else? The research reports for both CXW and GEO may provide more insight.

One of his other two small company holdings, DNOW, is an oil and gas distributor. This is another industry that would appear to have substantial government policy headwinds. The last, SCYX, develops drugs to fight off fungus infections. It is a microcap company that is the smallest of the six that Burry committed capital to.

 Paul Hoffman

Managing Editor, Channelchek

Suggested Content

CoreCivic C-Suite Interview (Video)

Biden Signs Executive Order to End Use of Private Prisons by BoP

Michael Burry vs Cathie Wood is Not an Even Competition

Is the Index Bubble Michael Burry Warned About Still Looming?

 

Sources

https://whalewisdom.com/filer/scion-asset-management-llc#

https://www.youtube.com/watch?v=URBOifP8EDY

https://channelchek.com/news-channel/Wall_Streets_Tools_to_Copycat_Meme_Stock_Investor_Successes

 

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How the Fed is Moving Ever So Slowly Toward Normalcy

 

The market nail-biting isn’t over, but the FOMC meeting is, and the resulting directive brought a sigh of relief to the equity and bond markets. The statement that followed the meeting has a real change in marching orders for those conducting open market operations (buying/selling securities to implement policy), but the change is in the pace of being accommodative, which is not perceived the same as a move to tighten.

Today (January 26), the Federal Open Market Committee (FOMC) decided to continue to steepen the taper of their bond purchases. While the reduction each month, as decided at the last meeting, would have had the purchases completed by June, the increased reduction (less tapered) brings these bond purchases to an end in early March. The directive to the Fed’s Open Market Trading Desk (the Desk) is to increase purchases to the System Open Market Account (SOMA) by a lesser amount than previously. This will still inject money into the economy and have the impact of holding longer-term rates down, but it will do it with a less pronounced impact.

Along with these purchases, the Desk was told to maintain the policy of reinvesting at Treasury auction all maturities and interest payments from Treasury securities and reinvesting cash flow from mortgaged Backed Securities (MBS).

 

For Treasury securities, monthly purchase schedules won’t be published after mid-February because new purchases will end in early March. The Desk will continue to roll over maturing Treasury security holdings by replacing maturing securities with newly issued securities available at Treasury auctions.

Rollovers are typically accomplished by bidding at Treasury auctions for an equal par amount to the value of SOMA maturities. The bids at Treasury auctions are placed “non-competitive” and are treated as add-ons to announced auction amounts.

Net increases in purchases will end in early March. The regular monthly purchases will continue to reflect the reinvestment of principal payments from agency debt and agency MBS into agency MBS using the secondary market. These purchases will continue to target recent 15 and 30-year mortgage securities.

Not a Tightening Move

The Committee was clear that it views changes in the target range for the federal funds rate as its primary means of adjusting the stance of monetary policy. It reiterated it will determine the timing and pace of reducing the size of the Federal Reserve’s balance sheet so as to promote its goals of maximum employment and price stability. The Committee expects that reducing the size of the Federal Reserve’s balance sheet will occur after it has begun to increase the Fed Funds target rate. 

The FOMC appears to want to return to normalcy as they stated, “In the longer run, the Committee intends to hold primarily Treasury securities in the SOMA, thereby minimizing the effect of Federal Reserve holdings on the allocation of credit across sectors of the economy.”

While it appears that a Fed Funds hike is coming, perhaps as early as March, the FOMC also reserved the right to change its mind as needed, “The Committee is prepared to adjust any of the details of its approach to reducing the size of the balance sheet in light of economic and financial developments” the Fed said in its statement.

Paul Hoffman

Managing Editor, Channelchek

 

Suggested Reading

Why a Less Dovish Fed Doesn’t Translate into a Hawkish Fed

Can the Fed Stop Inflation?

 

Sources

https://www.newyorkfed.org/markets/opolicy/operating_policy_220126

https://www.federalreserve.gov/newsevents/pressreleases/monetary20220126c.htm

https://www.newyorkfed.org/aboutthefed/fedpoint/fed27.html#:~:text=The%20System%20Open%20Market%20Account,outright%20and%20a%20temporary%20basis.

 

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	Image Credit: Patrick Feller (Flickr)

Michael Burry’s Investments in Health, Bombs, and Bars

 

Michael Burry’s investing genius was brought to the world’s attention in the movie The Big Short. When the hedge fund manager’s insight and brilliance became known, investors made a practice of checking the latest transactions from his company, Scion Capital Management, on its 13F quarterly filing. His latest filing shows that he scaled down his stock holdings considerably. In fact, when compared to the previous quarter, Burry’s holdings of public companies went from 22 to just 6. 

It’s safe to say Burry’s investment universe is broader than the average self-directed investor and even deeper than the average hedge fund manager.  With this in mind, out of the entire universe of publicly held corporations he could hold, there are only six that Burry’s portfolio owned at the end of the third quarter. Of the six, two are large-cap household names, and the others have smaller market-caps and are far less known. It’s on the lesser-known opportunities that we’ll focus.

 

SCION ASSET MANAGEMENT, LLC – Q3 2021 (per 13F filing)

Sources: Whale Wisdom / Channelchek

 

The two large-cap names, CVS Health (CVS) and Lockheed Martin (LMT) shouldn’t need an introduction. CVS operates retail and mail-order pharmacies. Lockheed Martin is a defense contractor that builds military satellites, missile control systems, mission systems, and aeronautics. As for the four smaller companies, there are two prison systems, a health care company, and a distributor of oil and gas services. These are the four out of the thousands of publicly traded stocks available to Dr. Michael Burry that we will explore further.

Burry’s Small-Cap and Microcap Holdings

CoreCivic (CXW) is a company that owns and manages private prisons and detention centers along with related concessions. CoreCivic is a publicly owned prison system that was trading as a REIT up until January 2021, it now trades as a Regular C-Corporation.

In a research report dated January 11, 2022, titled A
Significant Win Noble Capital Markets Senior Research Analyst, Joe Gomes we learn that CoreCivic is one of the largest private owners of real estate used by U.S. government agencies.  The Company owns 15 properties representing nearly 2.7 million square feet of real estate, all used by government agencies. 

Shortly after being inaugurated, President Biden signed an executive order directing the attorney general to not renew Justice Department contracts with privately operated criminal detention facilities.  The company has been proactive in pivoting to adjust to the changing operating landscape. The company’s initial steps are discussed in an exclusive Channelchek
Virtual Roadshow.  

CoreCivic’s 52-week price range is $5.92-$12.35.

 

NOW Inc. (DNOW) is a global distributor to the oil and gas markets. It does business under the brands DistributionNOW and DNOW. The Company operates approximately 130 locations in the U.S., and 40 locations in Canada, plus nearly 20 other countries. NOW’s energy product offerings are used in the oil and gas industry, including upstream drilling and completion, exploration and production, midstream infrastructure development, and downstream petroleum refining. They also operate in related industries such as chemical processing, power generation, and industrial manufacturing operations. NOW provides supply chain management to drilling contractors, E&P operators, midstream operators, downstream energy, and industrial manufacturing companies.

DNOW’s 52-week price range is $6.83-$11.98.

GEOGroup (GEO) is another correctional facility play that specializes in the ownership, leasing, and management of correctional, detention, and reentry facilities as well as community-based services and youth services in the United States, Australia, South Africa and the United Kingdom. The Company owns, leases and operates a range of secure facilities, including maximum, medium, and minimum-security facilities, processing centers, as well as community-based reentry facilities. It also offers delivery of offender rehabilitation services under its GEO Continuum of Care platform.

In a research report dated January 11, 2022, titled What Do The
Debt Negotiations Reveal?, Noble Capital Markets Senior Research Analyst Joe Gomes updates investors on the company including a section on GEO’s monitoring business called BI. The analysts calls BI “a hidden gem.” Gomes explains GEO is a market leader in the monitoring business with over 2,000 active contracts and a 98% customer retention rate.  He presents the value this way, “BI is the largest producer of electronic monitoring devices and has developed an unrivaled platform of monitoring, case management, and supervisory services. Since 2015, BI has generated a 12% CAGR in revenue and should end 2021 with about $260 million of revenue. With many clients seeking an alternative to detention for low-risk offenders, we believe there remains substantial growth potential in this business.”

GEO’s 52-week price range is $4.96-$11.

 

SCYNEXIS Inc. (SCYX) is a drug development company focusing on the commercialization of novel anti-infectives to address what they see as a significant amount of unmet therapeutic needs. The company engages in developing a lead product candidate, SCY-078, which is a novel oral and intravenous (IV) drug for the treatment of several fungal infections, including serious and life-threatening invasive fungal infections. According to information found under the company ticker on Channelchek, it is a structurally distinct triterpenoid glucan synthase inhibitor that is effective in vitro and in vivo against a broad range of Candida and Aspergillus species, including drug-resistant strains.

SCYNEXIS’ 52-week price range is $4.21-$10.25.

Take-Away

Dr. Burry has an excellent record of spotting investment opportunities before the rest of the market catches up. His picks are as disparate as the mortgage market in 2008 and GameStop (GME) in 2020. Burry will typically see what others are not looking at. One-third of his public company holdings are prison and detention center related. Does he believe the industry is beaten up and will rise, does he think the real estate or other assets owned are valuable beyond the stock price, perhaps something else? The research reports for both CXW and GEO may provide more insight.

One of his other two small company holdings, DNOW, is an oil and gas distributor. This is another industry that would appear to have substantial government policy headwinds. The last, SCYX, develops drugs to fight off fungus infections. It is a microcap company that is the smallest of the six that Burry committed capital to.

 Paul Hoffman

Managing Editor, Channelchek

Suggested Content

CoreCivic C-Suite Interview (Video)

Biden Signs Executive Order to End Use of Private Prisons by BoP

Michael Burry vs Cathie Wood is Not an Even Competition

Is the Index Bubble Michael Burry Warned About Still Looming?

 

Sources

https://whalewisdom.com/filer/scion-asset-management-llc#

https://www.youtube.com/watch?v=URBOifP8EDY

https://channelchek.vercel.app/news-channel/Wall_Streets_Tools_to_Copycat_Meme_Stock_Investor_Successes

 

Stay up to date. Follow us:

	Image Credit: Alphatradez (Pexels)

Does “Buy the Rumor, Sell the News” Apply to Today’s Markets?

 

Is the current market selloff a case of “Buy the rumor, sell the news”? The expectation that the upcoming Fed announcement is going to surprise investors with an even more hawkish stance than previously declared is the impetus for the current selloff. The presumed certainty is so great that the market may be positioned for the worst, and have this expectation already priced it in. If the Fed’s position is instead unchanged or otherwise less severe than feared, it could lead to a relief rally.

 

Background

The S&P 500 is down over 8% over the first 24 days of the year, the Nasdaq Index is down 12%, and both have fallen several more percentage points from their highs attained last year. Many highly followed tech stocks have fallen even further. Much of the selloff has been attributed to a hawkish Fed that is planning to raise interest rates to combat rising inflation. A modest increase in rates was expected heading into the new year. The market’s concern is now that the Fed will act with more resolve. The current selloff appears to be fear of the worst case for many sectors of the market, especially those that are impacted most by borrowing costs.

 

 

Is Relief on the Way?

If the market’s fears are correct and the Fed ramps up its hawkish rhetoric, will the markets have much further to fall? This risk may have already been substantially reduced with the current price action. If instead, the Fed sets a less aggressive timeline than priced in, many traders will wish they bought at current prices. And for those that are contemplating selling, they may be handed a better opportunity.

JP Morgan’s top equity strategist, Marko Kolanovic says the market correction could be approaching its “final stages.” In a note released this week, Kolanovic said the recent bearishness in stocks is out of line with momentum in economic activity, easing supply bottlenecks, and what JP Morgan expects will be a strong earnings season.  “While some are concerned that rising input prices will eat into margins, we expect margins to remain resilient thanks to strong activity and prices outpacing wage inflation,” Kolanovic wrote.

Investor sentiment has turned bearish, causing technical indicators to suggest oversold conditions, “we could be in the final stages of this correction. While the market struggles to digest the rotation forced on it by raising rates, we expect the earnings season to reassure,” Kolanovic explained.

According to the latest AAII Sentiment Survey, bullish sentiment fell to a low not seen since the coronavirus selloff. At the same time, bearish sentiment rose to a 16 month high. For many contrarian investors, that bearish sentiment suggests something between incremental buying and loading up on favorite sectors.

The Fed is in a tough spot and may again use unconventional tools to navigate. If the market continues to decline, it has implications for the overall economy and employment. Should the selloff continue, Kolanovic sees the Fed potentially stepping in with policy changes to stem the decline. “In a worst-case scenario, we could see a return of the ‘Fed
put,'” Kolanovic said.

Fed thinking could be altered by a continued steep market correction which may translate into fewer and smaller interest rate hikes in 2022 or a return to a longer-term tapering.  Just as when a quarterback calls a play, the movement on the field may quickly dictate other means of moving the ball toward the goal line. If the Feds plan to fight inflation and maintain a strong economy runs afoul, it certainly has other less aggressive offensive options to implement toward its goal.

Take-Away

As with all things related to predicting economic trends (or even forecasting weather), the expectations never match what is actually experienced. If the Fed is predicting one set of conditions, and it appears that another set is unfolding, they can turn on a dime. The Fed has done this unannounced before. It has also pulled tools from its quiver that have previously gone unused.

The most recent selloff appears to be based on the worst-case scenario; as JP Morgan’s top strategist has written, the economy is growing with very strong momentum.

Is there a better sell opportunity in the near future, is this a buying opportunity? Time will tell.

Paul Hoffman

Managing Editor, Channelchek

 

Suggested Reading

Will the Fed “Put” Become Worthless?

Climbing a “Wall of Worry”

The Correlation of Passive Ownership and Underperformance

Safe Haven Comparison During Downturns, Bitcoin vs. Gold

 

 

Sources

https://www.nasdaq.com/articles/vix-etfs-surge-as-stocks-continue-to-tumble

https://www.cnbc.com/2022/01/24/jpmorgans-kolanovic-says-selling-is-overdone-as-stocks-tumble.html

https://www.aaii.com/sentimentsurvey

https://www.thebalance.com/what-does-buy-the-rumor-sell-the-news-mean-1344971

www.koyfin.com

 

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	Image Credit: ETF Trends.com

Cathie Wood Says Investors Making Emotional Decisions is a Mistake

 

In a recent interview with Cathie Wood, ETF Trends’ CEO Tom Lydon, asked the popular fund manager about her expectations for the markets, and specific strategies for recent volatility for the Ark Innovation Fund (ARKK). The ETF has fallen over 50% from its high. Wood discusses specific plays while highlighting the importance of the technology companies the fund invests in. She explained her belief that deflation, not inflation, is the more worrisome risk over the medium term.

 

Longer-Term Outlook

Cathie Wood’s advice to investors who have experienced drawdowns or realized losses on her strategy is to know that, “We have never underperformed the market on a rolling three-year point of view.” Wood stressed the importance of taking a long-term view in a well-managed future-looking portfolio. 

In the past Wood has stressed that Ark Invest takes a five-year outlook when it places investments. With the steep sell-off amid inflation fears, she says the bond market confirms are unwarranted, and a more hawkish Fed stance, Wood expects a rebound to begin to unfold. “What this means is that this rubber band has been stretched so tightly, that we believe, and consider the source, but we truly believe given the valuations in our portfolio, the growth in the portfolio, and the fact that we’re probably looking at very choppy waters from a cyclical point of view so that our secular growers are going to shine,” Wood said.

As the Chief Investment Officer of the Innovation Fund, Cathie says that investors would be wise to take advantage of the potential for a sharp rebound in Ark’s investment strategies. “I certainly would be using this downdraft to increase that allocation [to ARK funds], because if anything during the last year, and it is quite a year for me to be saying this if anything our conviction in how rapidly the world is going to change and how transformative these technologies will be as they converge and feed one another, our conviction in that outlook has increased dramatically,” Wood said.

 

“Well, and I will harken back to ’08, ’09. How many people do both of us know who just couldn’t take it anymore? They became very emotional. Their life was flashing before their eyes. They thought they were going to be destitute. You conjure up all kinds of fears as downward momentum continues relentlessly day by day. They finally can’t take it. They sell and they regret it for the rest of their lives. They think of about it every day the market goes up after that.” “… An emotional response, just avoid it. It is usually catastrophic to long-term performance. What is additive and significantly so to performance is averaging down. It doesn’t feel good maybe as you’re doing it, but you would be shocked how little it takes if you’re consistent and you just keep averaging down.”  _C. Wood

 

According to Wood, it’s crucial that investors avoid making emotional investment decisions, as that can be catastrophic to their portfolio performance. Instead, investors can improve performance by averaging down, according to Wood.  The 65-year-old added that the undervaluation in Ark’s portfolio holdings “has reached an extreme I’ve never experienced in my career.” Wood used Tesla as an example reminding of the amount of skepticism the company faced for years until it soared from $35 to $1,000 in a short period of time. “It was a major surprise to some people, and it was because they didn’t understand the story. We feel that is a theme that’s going to play out again and again and again, in our portfolios,” said Cathie.

As for some of the top holdings in the AARK portfolio, like Teledoc, Roku, and Zoom Video, “they are ready like a coiled spring,” Wood said.

On Inflation

Cathie addressed interest rates and inflation while discussing the ETF’s healthcare holdings. She said many think inflation means higher interest rates. She pointed out, “Interestingly, long-term interest rates are not confirming that by the way. We do believe inflation is transitory. I know that’s become a bad word recently, but we believe people are going to be shocked at how low inflation goes this year. We’re going to see negative year over year in many, many categories.”

 

Take-Away

An ETF that invests in one sector is likely to underperform the overall market when the sector underperforms, and overperform when the sector overperforms. Individual stock holdings can do the same. The sector Cathie Wood’s ARKK ETF invests in has, in the past, performed well above the S&P 500, and is now experiencing performance well below. The CIO says the time horizon they take when adding to holdings is five years. She suggests that those in or considering investing in the fund that concentrates on disruptive technologies, use the same time horizon. Cathie Wood believes, with that timeframe, the selloff makes timing very good.

Paul Hoffman

Managing Editor, Channelchek

 

Suggested Reading

The Sources of Deflationary Pressure According to Cathie Wood

Index Funds Still May Fall Apart over Time

Is it Game-Over for Meme Stock Investors?

Walmart’s Metaverse, NFT, and Crypto Plans

 

Sources

https://www.etftrends.com/disruptive-technology-channel/qa-with-ark-invests-cathie-wood/

https://markets.businessinsider.com/news/stocks/cathie-wood-advice-to-investors-after-arkk-sell-off-2022-1

 

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