GDP statistics evolved during the Industrial Age and do not seem to be keeping up with the digital age. Thanks to productivity, real GDP growth probably is higher and inflation lower than reported, suggesting that the quality of earnings has increased significantly.
https://twitter.com/elonmusk/status/1379258463386284038
The technologically enabled innovation evolving today is dwarfing that during any other period in history. It is creating “good deflation” and explosive demand. Battery technology is a good example. In @ARKInvest’s view, EVs will scale 15-20 fold in the next five years.
If deflation limits the long term Treasury yield to low single digits, the discount factor used to present value future cash flows probably will fall to surprisingly low levels during the next few years, a massive head fake in the face of higher inflation expectations.
The seeds for the explosion in innovation today were planted during the tech and telecom bubble in the late nineties. Back then, investors chased the dream before the tech was ready and while costs were too high.
After gestating for 20-30 years, the dream has turned into reality, but given the reactions to @ARKInvest’s research, many investors seem skeptical or reticent. This wall of worry is healthy: I would prefer to invest in the face of fear than exuberance!
One more thought: @ARKInvest believes that the massive amount of disruptive innovation and good deflation evolving today is causing creative destruction and bad deflation elsewhere.
Companies that did not innovate and instead leveraged up to buy back stock and distribute dividends to satisfy short-term oriented shareholders, including private equity, will pay a steep price. They will have to cut prices to move aging inventory and service debt. Bad deflation.
Investors need to get and stay on the right side of change.
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