Investment Notes | Highlights from "Robinhood Investors Conference 2021" - What did Dalio, the female stock guru, and the founder of FTX say?

Hedge fund giant Paul Jones's Robin Hood Foundation and the largest investment bank, JPMorgan, held the Robin Hood Investment Conference 2021 on the 16th. The conference invited many industry leaders, including the founder of the world's largest hedge fund Bridgewater Associates, Ray Dalio, the female stock guru of Ark Invest, Cathie Wood, former Federal Reserve Board member Kevin Warsh, FTX founder SBF, and other big names. Here is a summary of the event.

The investment conference analyzed the future financial situation from central bank monetary policy, macroeconomics, commodities, investment banking thinking, future industry trends, with discussions also covering the areas of cryptocurrency and blockchain industries. Speakers included Bridgewater Associates founder Ray Dalio, Ark Invest's Cathie Wood, and FTX founder Sam Bankman-Fried, among other industry leaders.

The author summarized three discussions related to macroeconomics and cryptocurrency market information, namely "Is the U.S. Stock Market a Bubble?" by Dalio, "Investment Philosophy and Crypto Predictions" by Wood, and "The Digital Future" by FTX founder SBF.

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Is the US Stock Market in a Bubble?

The Federal Reserve's FOMC meeting concluded yesterday (17th), and according to the post-meeting statement, the current monetary policy remains unchanged, with no adjustments to benchmark interest rates or bond purchases. It seems that the Fed still considers inflation to be a short-term phenomenon. Is that really the case?

According to the dot plot of interest rates, out of the 18 officials, 13 expect rate hikes in 2023, with 7 of them anticipating a two-notch increase. This indicates that the Fed is gradually transitioning from a dovish to a hawkish stance. Looking at the economic data, the Fed seems compelled to do so. Both the Producer Price Index (PPI) and the Consumer Price Index (CPI) for May exceeded economists' expectations, and overheating inflation has become a problem that the Fed cannot ignore.

For the average investor, whether it's stagnation caused by rising inflation or hot money exiting due to tapering, it could potentially lead to asset bubbles, with the US stock market being a leading indicator.

So, is the US stock market currently in a bubble?

Ray Dalio, founder of Bridgewater Associates, stated at an investment conference that in his 50-year investment career, he has witnessed many asset bubbles. From these experiences, he has derived "six bubble indicators," including:

• Asset prices being too high based on traditional indicators
• High and sustained fluctuations in asset prices
• New buyers entering the market
• Bull market sentiment being evident
• Buyers purchasing assets using high leverage
• Buyers/traders often delaying payments

Dalio pointed out that excessively high asset prices refer to prices significantly exceeding valuations based on traditional metrics. However, he also mentioned that while excessively high prices are a necessary condition for a bubble, it does not necessarily mean the bubble will burst immediately.

Based on past experiences, excessively high asset prices (dividends and stock prices not aligning annually) may persist for a period until the bubble is pricked. This is followed by assessments based on other indicators, including high asset price volatility (intense chip turnover), the shoeshine boy theory (even strangers in bars starting to talk about stocks), whether investors are starting to leverage investments for maximum gains, and more.

At present, Dalio believes that the US stock market is not in a bubble stage, but certain tech stocks (growth stocks) do meet indicators 3, 4, and 5.

Furthermore, Dalio also noted that while the bubble in certain tech stocks is not as severe as in 1929 or 2000, it has already far exceeded that of the 2008 subprime mortgage crisis.

The Investment Philosophy of the Stock Goddess and "Crypto Outlook"

It is well known that the investment philosophy of Ark Invest is to find "disruptive innovation" companies, and the Stock Goddess further elaborated on this concept during the conference.

The Stock Goddess summarized five major innovation platforms and fourteen new technologies.

The five major platforms include DNA sequencing, robotics technology, energy storage, artificial intelligence, and blockchain.

The fourteen technologies include deep learning, virtual reality, electric vehicles, autonomous driving technology, cancer screening, cell therapy, genetic science, 3D printing, cloud computing, big data, Bitcoin, digital wallets, drones, and aerospace technology.

She believes that these platforms and technologies will begin to integrate in the future, creating cross-domain advantages.

For example, with Tesla, electric vehicles have brought about an energy revolution. Autonomous vehicles derived from electric vehicles utilize artificial intelligence, combined with big data collection and cloud computing, supporting autonomous driving technology, which will change the structure of transportation.

When discussing the blockchain industry, the Stock Goddess defined Bitcoin as the "reserve currency" in the cryptocurrency market because Bitcoin is the most secure among all cryptocurrency networks. Even though the price of Bitcoin has been affected by energy issues recently, causing many companies to temporarily halt Bitcoin purchases, this may not necessarily be a bad thing for Bitcoin.

The Stock Goddess stated that the high value of Bitcoin will prompt more investors to start investing in green energy industries like solar energy. Mining activities and renewable energy will mutually benefit from this.

In fact, in Ark Invest's proof-of-concept model (see image below), they believe that Bitcoin mining models can transform intermittent power resources into power plants with a certain capacity, allowing power companies to potentially utilize Bitcoin mining as a service, thus more effectively utilizing renewable energy.

Moreover, many investors have recently expressed concerns about whether governments will attempt to shut down the Bitcoin network. Regarding this, the Stock Goddess believes it is unlikely. She thinks that the blockchain industry is a future trend, and more institutions are adopting Bitcoin. Therefore, the government's approach should be "regulate and actively develop" rather than banning Bitcoin.

SBF's Predictions for the Blockchain Industry

After discussing Bitcoin, let's talk about the future development of asset digitization and the blockchain industry.

The host of the investment conference, Paul Jones, who holds 5% of his assets in cryptocurrencies, is particularly focused on industry development.

Regarding the future development of DeFi, Sam Bankman-Fried, the founder of FTX, admitted that he cannot predict it, but he understands that many commodities and assets are being digitized, and the world is indeed trying to create new digital user experiences, including value storage or payment functions.

If you tell me that all the world's commodities will be digitized in the future and traded on the blockchain, I would be very surprised. However, I do believe that if blockchain technology continues to advance, the digital application development in this industry has great potential.

SBF provided an example that by moving social platforms onto the blockchain, all applications on the blockchain can be interconnected. This integration allows all commonly used personal platforms to be integrated together. This eliminates the need to constantly check various social platforms and worry about personal information or conversations being abused.

Furthermore, he mentioned the greatest advantage of DeFi: composability. Since DeFi and other applications are open, transparent, and open-source, engineers can connect various applications like LEGO blocks. Blockchain applications have extremely high composability, and DeFi is even more so, making it easy to connect and create new functions and ecosystems. The past year has proven that DeFi's adaptability is extremely high.

This level of composability is almost nonexistent in the world outside of DeFi. (In traditional finance), whenever two applications need to be integrated, the process is lengthy and cumbersome, which is not a good user experience.

However, SBF believes that it will take some time to truly reach that point. The current challenge to overcome is the blockchain's "scalability."

SBF stated that any large enterprise, such as Twitter, Facebook, VISA, MasterCard, the New York Stock Exchange, CME, and others, requires massive transaction throughput. They may need millions of transactions per second, a capacity that current blockchain efficiency clearly cannot achieve, with Solana being the closest solution.

"If about 1% or more of the world's industries are moved onto the blockchain, then hundreds of millions of transactions per second may be required. And the current transaction volume of blockchains cannot meet this requirement."

"Solana is perhaps the blockchain that comes closest to meeting this requirement. Currently, Solana's peak TPS is 50,000 (capable of handling 50,000 transactions per second), and this peak will continue to increase."