Ignore Jack Dorsey on inflation, says Cathie Wood

Famed investor Cathie Wood and Twitter founder Jack Dorsey are squaring off on Twitter on the topic of hyperinflation.

After Dorsey went to his platform to ominously announce that “hyperinflation is going to change everything. It’s happening,” Wood took to Twitter to refute his claims.

The cofounder and CEO of ARK Invest believes that technological advancement, creative destruction—or companies selling obsolete goods at discounts to service debts—and a natural balancing of supply and demand after the holiday season will all suppress long-term supply chain–induced inflation.

In 2008-09, when the Fed started quantitative easing, I thought that inflation would take off. I was wrong. Instead, velocity – the rate at which money turns over per year – declined, taking away its inflationary sting. Velocity still is falling. https://t.co/tFaXSaCKqS
— Cathie Wood (@CathieDWood) October 25, 2021

Cathie Wood expecting deflation goes against many in the market who are concerned about rising prices caused by tangled supply chains and skyrocketing post-pandemic demand.

In the tweet thread, the hot-handed investor noted that training costs for artificial intelligence are dropping 40% to 70% per year, providing one “record-breaking deflationary force.” She also found the number of companies catering “to short-term oriented shareholders who want profits/dividends now” do not invest enough in innovation and will be forced to sell their goods at a discount—another force pushing prices down.

But these are both long-term trends, which Elon Musk rightly pointed out.

Inflation has flared in response to COVID-related supply chain bottlenecks and oil supply constraints but, IMHO, the powerful and converging deflationary forces associated with AI, energy storage (EVs!), robotics, genomic sequencing, and blockchain technology will bend the curve. https://t.co/DxGLRWe2P6
— Cathie Wood (@CathieDWood) October 26, 2021

To which Cathie Wood responded by saying short-term inflation only flared in response to COVID-19–related supply chain bottlenecks and oil supply constraints—the latter of which she refers to as “an outlier and psychologically important” but that will sow the seeds of a serious oil price decline in the long term through the adoption of EVs.

Inflation has been on the minds of investors everywhere, fearing the poison will creep into corporate earnings and subsequently investor returns. The term“stagflation” was the most common word in client conversations last week, strategists at Goldman Sachs wrote in an investor note.

And talking about inflation breeds more inflation, so a comment by the famed Cathie Wood might cool an overheated market. Wood has a strong following on Reddit and made a name for herself in 2020 when her fund ARK Innovation returned 150% over the year. The fund, while currently down 2% in 2021, has seen more than $5.7 billion in inflows this year.

In one big area, Wood and Dorsey are in agreement. They are among the most prominent voices in the crypto bull crowd, with Wood lobbying U.S. regulators hard to make Bitcoin investing more accessible to everyday investors.