Concern periodically arises over the $1.5 trillion auto loan market. The concern is usually that consumers will have trouble paying back their loans.
But famed investor Cathie Wood, chief executive of Ark Investment Management, sees prices plummeting for gasoline-powered cars, meaning lower loan issuance and smaller profits for auto loan providers.
“Given the accelerated consumer preference shift toward electric vehicles, used car prices and the residual value of all gas powered autos are likely to plummet, causing serious losses in the $1 trillion auto debt market,” she wrote on Twitter.
The used vehicle price index is now down on a year over year basis, Wood notes. The Manheim Used Vehicle Value Index dropped 3% in September from August and 0.1% from a year ago.
Deflation and Recession
Wood has repeatedly argued in recent months that the entire economy is suffering from deflation and that a recession has begun.
The consumer price index surged 8.3% in the 12 months through August. But she considers consumer-price gauges a lagging indicator. Much of the CPI’s increase stems from rental prices. And Wood says rental price increases “will settle down” as supply rises.
Gold is the best leading indicator for inflation, she said. And it has traded in a range of $1,600 to $2,075 over the past two years, peaking in August 2020 and now trading at the bottom end of the range, Wood noted.
The dollar’s surge also is a strong deflationary force, she said. The Bloomberg Dollar Spot Index has soared 20% over the past year.
Meanwhile, money supply growth is flattening sequentially, and fiscal policy has tightened -- another two developments that are deflationary, Wood said.
Underperformance
Ark funds have tumbled this year, as their technology stock holdings suffered from weak earnings. Wood has defended herself by noting that she has a five-year investment horizon.
And the five-year track record of her flagship Ark Innovation ETF (ARKK) could indeed give investors comfort up to May 9. The fund’s five-year return beat that of the S&P 500 until then. But the five-year annualized return of Ark Innovation totaled only 2.96% through Oct. 7, far behind the S&P 500’s 9.3% return.
Ark Innovation’s share price has dropped 61% so far this year as Wood’s tech companies have hit the skids. And it’s down 77% from its February 2021 peak. Raging inflation and soaring interest rates helped put the kibosh on tech earnings.
The $7.5 billion fund has enjoyed a net inflow of $360 million in the 30 days through Oct. 7, according to VettaFi, an ETF research firm. But over the past three months, Ark has suffered an outflow of $355 million.
