Cathie Wood's View: Economic Data Distorted, Prices Set to Fall, Innovation Needed for Momentum!
Last week, the United States announced better-than-expected third-quarter Gross Domestic Product (GDP) growth of 4.9%, the fastest pace since 2021 and significantly higher than the 2.1% growth in the second quarter. U.S. Treasury Secretary Yellen noted that the GDP data suggests a soft landing for the U.S. economy, and the Federal Reserve should maintain high interest rates in the long term.
However, Cathie Wood, the founder of Ark Invest, does not seem as optimistic. She tweeted on Twitter that government statistics do not seem to reflect how weak the economy actually is.
Government statistics do not seem to be capturing how weak the economy is. Many companies are reporting shockingly weak revenues. UPS’s US delivery volume growth is worse today than in 2007-2009. After falling for nearly two years, it dropped another ~11% last quarter. pic.twitter.com/sJUhfKZOX0
— Cathie Wood (@CathieDWood) October 26, 2023
Table of Contents
Corporate Financial Reports Show Weakness
Cathie Wood mentioned that the revenues of many companies have been extremely weak recently. The world's largest express courier and parcel delivery company, UPS, had a delivery volume growth in the U.S. worse than in 2007-2009. After falling for nearly two years, it dropped by about 11% last quarter as shown by the purple line in the chart below.
3M, a multinational conglomerate manufacturing company in the U.S., reported a more than 3% year-on-year decline in global sales volume in local currency terms last quarter. These service industries are unlikely to escape the impact of global monetary tightening.
Additionally, although Meta delivered impressive financial results, the report mentioned that advertising to consumers in developed countries in China grew by 21%. Cathie Wood believes that in order to cope with its own weak domestic economy, China is making efforts to export externally.
Why is U.S. Economic Data Still So Strong?
Since corporate financial reports indicate weakness, why is U.S. employment still so strong, supporting the government's view? Cathie Wood believes this can be interpreted from the perspectives of supply and demand:
- Demand side: Labor hoarding post-pandemic has kept job vacancies at high levels two years later
- Supply side: Decline in supply, especially in food and energy
Musk Also Agrees and Warns of the Dangers of Continued Rate Hikes
Tesla CEO Elon Musk also left a comment below, saying "Very interesting!"
In fact, Musk expressed concerns about the recent high-interest rate environment during the earnings call, as long-term U.S. bond yields have been rising recently, pushing up the costs of corporate financing and personal loans to new highs in recent years. The average interest rate on a 30-year fixed mortgage reached 8%, the highest level since the mid-2000s.
He warned of the dangers of continued rate hikes at the end of April:
It's not just the canary in the coal mine, SVB, that has died, one of the most stalwart miners, Credit Suisse, has also died, and the graveyard is filling up fast! Further rate hikes will trigger a severe recession!
Fed data has too much latency. Mild recession is already here.
It’s not like just the canary in the coal mine (SVB) died, one of the staunchest miners (Credit Suisse) died too & the cemetery is filling up fast!
Further rate hikes will trigger severe recession. Mark my words.
— Elon Musk (@elonmusk) April 30, 2023
Cathie Wood's "Innovation" Suggestions
Cathie Wood concluded by saying: If Ark's view is correct, then prices are about to collapse. If corporate profit margins are squeezed, companies will not only be forced to lay off excess labor but will also need to use artificial intelligence and other automation to salvage profits.
In this challenging period, innovative solutions are necessary to solve problems and gain momentum!
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