Concern periodically arises around the $1.5 trillion auto loan market. Usually the concern is that consumers will have difficulty paying back their loans.
But famous investor Cathy Wood, CEO of Ark Investment Management, sees the price of gasoline cars falling, which means less loan issuance and lower profits for car loan providers.
“Given the accelerating shift in consumers’ preference toward electric vehicles, used vehicle prices and the residual value of all gas-powered vehicles are likely to fall, causing huge losses in the trillion-dollar auto debt market.” wrote on Twitter.
Wood notes that the used car price index has now fallen year-over-year. The Mannheim Used Car Value Index fell 3% in September from August and 0.1% from a year ago.
deflation and stagnation
Wood has repeatedly argued in recent months that the entire economy is in deflation and that a recession has begun.
The CPI rose 8.3% in the 12 months through August. But it considers consumer price metrics a lagging indicator. Much of the CPI rise stems from rental prices. Wood says rent increases will “stabilise” as supply increases.
She said gold is the best leading indicator of inflation. Wood noted that it has been trading in a range of $1,600 to $2,075 over the past two years, peaking in August 2020 and is now trading at the lower end of the range.
She said the dollar’s rally is also a strong deflationary force. The Bloomberg Spot Dollar Index is up 20% over the past year.
Meanwhile, money supply growth is sequentially slowing, and fiscal policy is tightening — two other developments that lead to deflation, Wood said.
Ark funds have fallen this year, as their technology stocks suffered weak earnings. Wood defended herself by noting that she has a five-year investment horizon.
And her five-year track record of pioneering the Ark Innovation ETF (see you) It could already give investors a rest until May 9. The fund’s five-year return has outpaced that of the S&P 500 until then. But the five-year annual return from Ark Innovation was just 2.96% through October 7, well below the S&P 500’s 9.3% return.
Ark Innovation’s stock price is down 61% so far this year as Wood’s tech companies hit a buzz. It is down 77% from its peak in February 2021. Massive inflation and high interest rates have helped put the kibosh on technology profits.
The $7.5 billion fund had a net outflow of $360 million in the 30 days to October 7, according to VettaFi, an ETF research firm. But over the past three months, Ark has racked up $355 million in cash.