After I recorded “ITK” on Friday, today the VIX (Equity Volatility Index) shot up to 65, the fourth highest level in the past 40 years: after “portfolio insurance” failed on Black Monday in October 1987, Lehman went under in 2008, and COVID hit in 2020. What does this move mean?

https://twitter.com/arkinvest/status/1820448809790439717

In 1987 and 2020, the panic/cathartic moves in the VIX created significant buying opportunities, particularly for stocks trounced during those downturns. In 2008, however, after the VIX spiked, the broad based equity markets did not bottom for another six months in March, 2009.

I’d argue that no other executive is as aligned with shareholders as @elonmusk, who committed to no salary, no bonus, no stock comp FOR 10 YEARS, unless he created tremendous value for @Tesla shareholders. Moreover, Musk will not be able to cash in on his options until 5 years after exercising them. Based on this pay package, Elon has worked without compensation since 2018, and IMPORTANTLY current shareholders will benefit from another 5+ years of Elon at the helm.

I believe the Delaware court decision, forcing #Tesla to void the March 2018 vote on Elon Musk’s performance-based pay package, is un-American, an assault on investor rights, and an insult to the Board of Directors of one of the most stunningly successful companies in US history. I have known Robyn Denholm, Chair of Tesla’s Board, professionally for 17 years since she was named Juniper Networks CFO in 2007. Robyn was and is an independent Director on Tesla’s Compensation Committee.

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. At first I thought that Amazon still was taking share and causing problems, but this chart suggests that market share has changed very little since 2020.

China is exporting deflation in a more profound way than I believe many economists and strategists appreciate. All else equal, the 15% depreciation in the yuan relative to the dollar in the last year should have increased its PPI inflation rate by 15%. Instead it has dropped 4%. In other words, the deflationary vortex emanating from China is approaching 20% (15%+4%), highlighted by the burgeoning defaults in Chinese real estate and trust companies.

Ironically, as crypto assets soared during the Silicon Valley Bank meltdown, this administration suggested that investors in regional banks - equity and bond holders - should prepare to be “wiped out” in the aftermath of an unprecedented 20-fold increase in the Fed funds rate. Now we are hearing anecdotes not only that businesses and individuals are hedging their fiat assets with some crypto assets but that they also are lowering risk and increasing returns by shifting from low yielding bank deposits into higher yielding money market funds, a win-win.

If you are correct, Congressman, then the FDIC and others will prevent the US from participating in the most important phase of the internet revolution. Like you, I believe regulators are using crypto as a scapegoat for their own lapses in oversight of traditional banking.

https://twitter.com/gopmajoritywhip/status/1636008298481680384

Despite a yield curve that inverted last July - and credit default swaps that started flashing red - the Fed continued to vote UNANIMOUSLY to jack rates up in 75 basis point increments. They paid no heed to commodity prices and other inflation indicators that were unwinding.

The echo is more like the early 1920s, after a pandemic and a war - the Spanish Flu and WWI - as three major innovation platforms were evolving into mass market opportunities - electricity, telephony, and the automobile, contributing to the breathtaking “Roaring Twenties”

https://twitter.com/elonmusk/status/1635811818169044994

In response to a supply chain- and war-related surge in inflation, the gold standard forced the newly formed Fed to drain money from the economy, pushing pricing from a 24% inflationary peak in June 1920 to a -15% deflationary trough one year later in June 1921.

US demand deposits - which make up the vast majority of M2 - have been falling since last August. Now we are seeing the consequences of the yield curve inversion that began last July, which I feared last September and described in the thread below. The inversion has worsened.

https://twitter.com/cathiedwood/status/1574513481436520461

Many banks parked the COVID stimulus gusher in long term bonds at record low 1-2% interest rates, never expecting the Fed funds rate to surge a record-breaking 19-fold to 4.75% in less than a year. Now deposit outflows are forcing them to sell “safe” securities at losses.

The bond market seems to be signaling that the Fed is making a serious mistake. At -80 basis points (as measured by the 10 year vs 2 year Treasury yields), the yield curve is more inverted now than at any time since the early ‘80s when double-digit inflation was entrenched. I am wondering why economists are not highlighting that an 80bp inversion in the Treasury yield curve today is much more of a red flag for the Fed today than it was in the early ‘80s. As a percent of the 3.5% 10 year Treasury yield, it is ~23% today vs ~5% of 15% in the ‘80s

If inflation is unwinding, as we believe, then we could be heading back to the future, the Roaring Twenties, the last time several general purpose technologies evolved at the same time: telephone, electricity, and the internal combustion engine. The setup is remarkably similar! Prior to the Roaring Twenties, the world was at war - WWI - and suffering a pandemic - Spanish Flu. While both had a more serious impact on the global economy, today’s combination is a strong echo that could result in much lower than expected inflation and a boom in innovation.

.@Nancy__davis is highlighting a chart that is flagging the deflationary ramifications of current Fed policy. First, the yield curve has inverted to a level not seen since the early eighties, but -0.5% (50 basis points) on a 4% base is draconian compared to -0.5% on a 15% base.

https://twitter.com/nancy__davis/status/1575158583678967809

Second, despite record-breaking monetary stimulus during COVID, the yield curve steepened only ~half as much in 2020 as “normal” during past crises: 150 basis points vs. 250-300. In other words, the long bond market seemed to be flagging a significant deflationary undertow.

The yield curve “suggests” that US monetary policy has not been this restrictive since the ‘80s. As measured by the 2-year Treasury yield relative to the 10-year Treasury yield, it has inverted by 50 basis points, the 10-year yield at 3.75% compared to the two-year at 4.25%. In @ARKInvest’s view, US monetary policy is significantly more restrictive than in the ‘80s when, to kill inflation, Fed Chair Volcker pushed the Fed funds rate up two-fold from 10% to 20%. Chair Powell and team have increased it 13-fold from 0.25% to 3.25% to slay the dragon.

Deflation in the pipeline, heading for the PPI, CPI, PCE Deflator: from post-COVID price peaks, lumber -60%, copper -35%, oil -35%, iron ore -60%, DRAM -46%, corn -17%, Baltic freight rates -79%, gold -17%, and silver -39%.

https://twitter.com/elonmusk/status/1568383953370767365

As measured by the Manheim, used car prices dropped 4% in August (roughly 50% at an annual rate!), have dropped 10% since peaking in January, and if electric vehicles are as disruptive as we believe, could be cut in half, hitting lows last seen during the GFC in late 2008.

The Fed is basing monetary policy decisions on lagging indicators: employment and core inflation. Leading inflation indicators like gold and copper are flagging the risk of deflation. Even the oil price has dropped more than 35% from its peak, erasing most of the gain this year.

https://twitter.com/arkinvest/status/1566035275456864256

At Jackson Hole, Chairman Powell invoked Volcker’s name twice directly, twice indirectly. Today’s COVID-supply-shock inflation is nothing like the ‘70s inflation that started with “guns and butter” in 1964, and accelerated after Nixon ended the gold-exchange standard in 1971.

While today’s non-farm employment numbers were stronger than expected at +300,00 adjusted for revisions, the broader based and less reported household establishment employment number was -300,000, confirming that the economy is in recession. ark-invest.com/videos/market-… The household employment survey incorporates more small businesses - the biggest source of job creation - than does the non-farm payroll measure of employment. Larger companies seem to be hiring - perhaps hoarding labor - to make up for past labor shortages.

The Fed seems to be worried more about its legacy than the economy: it is ignoring deflationary and dangerous signals. Relying on lagging inflation indicators like the CPI, Fed Governor Waller is calling for another hike of 0.75% in July. As measured by Markit, credit default swaps (CDS) - insurance policies against bankruptcies - have doubled this year, surpassing their peaks during the market rout in late 2018 and heading for COVID crisis levels. Money center bank CDS spikes are particularly concerning.

Important debate. In the last two days, Walmart and Target reported that nominal sales increased 3-4% on a year over year basis during the quarter ended April, translating into a 3-4% year over year decline in unit sales (adjusted for inflation). Their inventories are exploding.

https://twitter.com/realmeetkevin/status/1526284407035858944

Walmart’s inventories increased 33% in nominal terms on a year over year basis, translating into 20-25% in real or unit terms, as Target’s inventories increased by 42% and 30-35%, respectively. In my 45 years in this business, I have never seen such inventory excesses.

Yesterday, the yield curve - as measured by the difference between the 10 year Treasury and 2 year Treasury yields - inverted, suggesting that the Fed is going to raise interest rates as growth and/or inflation surprise on the low side of expectations…which will be a mistake.

https://twitter.com/ARKInvest/status/1510231665137930249

Economists have learned over many cycles that the 10-2 year measure of the yield curve leads another one: the difference between the 10 year Treasury yield and the 3 month Treasury rate. I have no idea why many strategists and economists are reverting to the latter one now.

Today, along with Big Ideas 2022, we streamed ARK’s Big Ideas Summit on YouTube. According to @ARKInvest’s original research, the market cap associated with convergences among five major Disruptive Innovation (DI) platforms will scale nearly 20-fold during the next 10 years.

https://twitter.com/wintonark/status/1486143239753060353

The five major Disruptive Innovation platforms are gene sequencing, adaptive robotics, energy storage, artificial intelligence, and blockchain technology. They involve 14 different technologies, all of which are converging and disrupting the traditional world order.

Today, we learned that, in November, retail inventories rose more than 2%, the fastest pace since the 90’s, while imports jumped 4.7% and exports dropped 2%. Moreover, real consumption (including services) was flat and the saving rate dropped to 6.9%, below pre COVID levels. As measured by the University of Michigan, which I believe is the best monthly survey on the consumer, sentiment during November and December dropped to a level last seen at the worst of the coronavirus crisis in 2020. In this context, the percent changes listed above make sense.