Most bears seem to believe that inflation will continue to accelerate, shortening investment time horizons and destroying valuations. Despite what we believe has been a supply-chain related/short term burst in inflation, both equities and bonds have appreciated since March➡️
Unlike the tech and telecom bubble, this equity bull market has broadened beyond the innovation strategies that boomed last year to value and other stocks that had trailed. The bull market has strengthened, setting the stage we believe for another leg up in innovation strategies.
The equity market is likely to reward disruptive innovation strategies once again when headline inflation breaks and/or fears of recession increase. If the bond market is correct, one or both will be obvious during the next 3-6 months.
Since mid May a number of commodity prices have been breaking down: lumber -65-70%, copper -10-15%, oil -10%. An unexpected increase in the dollar also is negative for commodity prices. Now the Mannheim used car index - a leading index for new car sales - is slipping.
The deflation in commodity prices is cyclical but is adding to the secular forces caused by technologically enabled disruptive innovation (“good deflation”) and creative destruction (“bad deflation”).
If we are correct, GDP and revenue growth will diminish until the opportunities in nascent technologies begin to move macro needles. In this environment, innovation based strategies should distinguish themselves.
In our view, the seeds for the innovation explosion that @ARKInvest is dedicated to researching were planted during the 20 years ending with the tech and telecom bust. Having gestated for more than 20 years, these technologies should transform the world during the next 10 years.
To his credit, Michael Burry made a great call based on fundamentals and recognized the calamity brewing in the housing/mortgage market. I do not believe that he understands the fundamentals that are creating explosive growth and investment opportunities in the innovation space.
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