The Pomp Podcast - Will Deflation Hurt Bitcoin? | Cathie Wood

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Starting point is 00:00:44 save and invest conditions apply visit scotiabank.com hisa to learn more scotia bank you're richer than you think. I think we're going to start talking about deflation more and more, and I believe interest rates are going to come down more than people expect until this productivity driven boom is obvious. If we get deflationary forces or get actual deflation, is that bad for Bitcoin in the short term? All right. Let's start with inflation and deflation. One of the things that's interesting to me is I've been talking about deflation is a bigger risk. I see you tweeting about it. So you're in spirit. We are locked in this together. What is your read on why deflation is a bigger risk? So it's a risk and an opportunity. So there's bad deflation

Starting point is 00:01:37 and good deflation. If you look at the government measures, they will tell you today we're kind of stuck in this 2% to 3% range. If you look at a more modern indicator, Truflation, I think you feature it as well, Anthony. I don't know if I should call you Pomp or Anthony, but anyway. Call me a Kathy fanboy. oh you're funny thank you uh so triflation is down to 0.8 percent and so it too was stuck in that two to three percent range it is resolving to the downside and i think it's going to go negative when i see pepsi uh cutting the price of potato chips and doritos by 15 percent you know I take note. And when I hear Koch saying, yeah, it seems like there's a bit of a backlash against

Starting point is 00:02:38 price increases, I take note. Today, the existing home price inflation rate dropped to 0.9% on a year-over-year basis. And we think that's going to go negative. New home prices are already falling on a year-over-year basis. Gasoline prices falling. So, and then the good deflation is associated with technologically enabled innovation. And, you know, the AI boom is massively deflationary. The AI training costs are dropping 75% per year.

Starting point is 00:03:29 AI inference costs, so what it costs when you query ChatGPT or Grok, what it costs to answer that, that's dropping 85% to, if you believe DeepSeek, 98% per year. And I think the productivity gains that we are seeing accrue to enterprises, that is going to turn around in a number of ways. One of them could be price declines. So many people think, oh, these corporations are going to simply increase their margins. Well, you know, China is exporting deflation. I know with tariffs, we're countering it. But isn't it interesting that our inflation rate did not go accelerate with tariffs? It remained stuck. I think I think we're going to see a lot of price declines in the future. When you think of the AI explosion, I think it is operating, obviously, in this complex environment. So you have deregulation. You have tax cuts. You have deportations. You have the AI boom.

Starting point is 00:04:41 You have a global monetary reset where we are trying to weaken the U.S. dollar. You have the tariffs. You kind of put all this together. How important do you think is it that the president, the treasury secretary and the Fed chair nominee all seem to be, you know, on the same team? Seems like they are going to go and implement this plan, which means that for investors, maybe it's going to be a little bit more of a complex environment to to navigate in the coming years as we go through this kind of reset. You know, it's so interesting. Many people are asking, you know, is this just a hype cycle? And, you know, should we pull away? I don't know if you've seen the markets in the last couple of days, but, you know, now algorithms are assuming that AI is going to destroy industries wholesale. This is not what happened during the late 90s. And I will get back to your question. In the late 90s, when Jeff Bezos said, you know, we're going to invest so much more than we expected because this opportunity is so great.

Starting point is 00:05:45 And that means we are going to lose so much more money than you, shareholders, expected us to lose. The stock absolutely took off to the upside. Any company saying that today is getting hammered. So we are in a completely different environment. Your question was the various parts of the administration being united. You mean when Kevin Warsh comes on board. Right now, of course, Powell is not at all aligned with Trump. You mentioned dollar devaluation.

Starting point is 00:06:24 I don't think that's what's going to happen. And Treasury Secretary Besant, who knows all about currency markets and knows how important they are, is saying a strong dollar is in the interests of the United States. Now, many people look at what happened last year. the dollar went down quite significantly. But if you look at the dollar in a long-term context, just go back to the early 70s and see where we are now. You'll see that the dollar, again, this is relative to other currencies, not relative to gold. The dollar is closer to the upper end of the range, with the exception of the 85 blowout of the dollar, than it is to the lower end.

Starting point is 00:07:15 And I think the policies of this administration suggest to us return on invested capital here in the United States should go up relative to that in the rest of the world. What do I mean by that? We've got massive deregulation. This government understands how much we have hurt ourselves relative to China with thickets of regulation, and they're trying to peel those away as quickly as possible. We got a tax cut where for the first time in our tax history, for the next three years, as long as the construction of a manufacturing facility starts by the end of 28, during its first full year of, or during its first year of service,

Starting point is 00:08:05 the company building that facility will be able to depreciate it, not over 30 to 40 years, but in the first year. So massive tax refunds coming back to reinvest. We are seeing tax cuts for the consumer to some extent, certainly at the margin in tips

Starting point is 00:08:27 and, you know, overtime, social security, and autos. So I think we're going to see massive refunds here in the first quarter. And I think that the rolling recession that we've been in for the last three years, PMI being down negative for saying manufacturing has been negative for the past three years. We've seen housing and got a terrible number today, 3.9 million. We're back to the lows in existing home sales. I think we are going to shift from that to a rolling recovery into a productivity-driven boom. And I think one of the things that is becoming obvious when you look at how they revised the employment numbers down by 860-something thousand over the last year, if in doing that, what they effectively said was, OK, given this level of GDP, and we're more sure about GDP because of national income accounts and so forth,

Starting point is 00:09:41 Um, it must mean that productivity was higher last year if we revised employment down like that, which in turn means that real GDP growth was higher and inflation was lower. They got the mix wrong in the GDP accounts. I think we're going to start talking about deflation more and more. And I believe interest rates are going to come down more than people expect until this productivity driven boom is obvious. So I actually think the U.S. from an investment point of view is going to do very well over the next few years. You wouldn't know it from the last few weeks. But I think there that we're in the flip side of the bubble. We are absolutely in the flip side of the bubble.

Starting point is 00:10:35 You know, investors just threw money at the bubble when the technologies were not ready and the costs were way too high. Now we're in an environment where we're ready for primetime with all of these technologies, robotics, energy storage, AI, blockchain technology and multiomics technology. And so I think we're going to have a boom and the U.S. is going to do very well. Today's episode is brought to you by Fountain Life. Are you ready to seize the day that will change your life? Guaranteed? You invest in wealth creation every single day, but what's the point of it without an optimal health span?

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Starting point is 00:13:31 inflation and deflation because the chaotic part of this is and it's ripping through the markets now. A lot of a lot of traditional industries and and companies, you know, being brought the whole SaaS space, the disaster, as they're calling it. We think there is merit to that particular one. But I think you're going to see disruption all over the place because the five innovation platforms that I mentioned are going to disrupt the existing world order. And what does that mean? If these technologies are so deflationary, it's going to be tough for the traditional world that's gotten used to sort of the, you know, the two to three percent inflation to adjust. They'll have to embrace some of these technologies faster than expected.

Starting point is 00:14:30 So, you know, the idea of counterparty risk, I think, is beginning to surface. We've seen it with first brands. We've seen, you know, private equity and private credit especially is where there have been a lot of excesses. Sass, they are too exposed to that. You know, are we going to see counterparty risk manifest more broadly? If so, Bitcoin doesn't have that problem. And so it is a good hedge against deflation as well as inflation. As a proud Tesla shareholder, I'd love your thoughts on Elon XAI SpaceX combination. Do you think he's going to combine it with tesla how you look at all the work that he's doing i think uh that ultimately he could and and and he started we have been using the word convergence for a long time in

Starting point is 00:15:28 i'll give a plug to our big ideas 2026 and you'll see a section by brett winton our chief futurist called the Great Acceleration. And you'll see a sphere in there showing how all these technologies are converging one with another. And at one point in the last, I'm going to say six weeks, Elon said, you know what? I think my companies are convergent stories. So we thought it was interesting he used that word. So SpaceX XAI does not surprise us at all. I think he's going to let Tesla run here for a while because the robo-taxi revolution is just beginning. And I do think he wants that story to become very clear to investors. And it will. He doesn't want to you know, combine with anything and confuse what's happening here. And as you know, we have

Starting point is 00:16:36 very big expectations for robo-taxis. We love it that Tesla and Waymo are competing against one another. And we think, you know, the stock, Tesla stock, if you look at it, it's been in a very large trading range for the last five years. And I remember the last time I said that was when Tesla was going through manufacturing hell. And there were people out there saying Tesla's going to go bankrupt. There's no demand for these things. It had been in a very wide range for six years back then. And I said, you know, the history of long bases like this is they either break out or break down. And we very much think Tesla's getting ready to break out again. And then Elon will have more degrees of freedom. What are you worried about in 2026 from a portfolio

Starting point is 00:17:37 standpoint? What are the things you're paying attention to and what could potentially change your mind on some of the allocations that you've made? Yeah, what's happening in the last week or so in particular, reminds me of the early days of COVID. Nobody knew what to do. And so algorithms just sold everything off except for the safest stocks, the most cash rich and cash flow generative companies. And I remember as I was looking at it, it's an algorithmic move taking place in the market and causing a bit of a downward spiral in innovation-related stocks. Now, unlike COVID, we're probably not going to have massive fiscal stimulus in the way that we got back then. So we're not going to come out of this with a big boom. But they're selling the baby with the

Starting point is 00:18:40 bathwater again. And so it gives active managers an opportunity to, in our case, concentrate towards our highest conviction names. I think the biggest risk out there is that Powell, who will only be in place until May, that Powell is not and the other Fed board members are not understanding the deflationary undertow that is beginning to take place here, and they will not, because they're not looking at the right signals, and because they're looking at government data, which is all wrong and based on the industrial age, they could miss this and will be forced into a response when there's more carnage out there. I think that's what I'm worried about right now.

Starting point is 00:19:41 I think, though, I think this is the opposite of the bubble, tech and telecom bubble. Right now, we're seeing all of the beneficiaries of AI and every stock in our portfolios we have been looking at from through the AI lens for actually the last five to 10 years. And so we believe we have the beneficiaries in our portfolios, but there's so much confusion out there on AI that it's baby out with the bathwater, as I just said. And then you have this overlay of the policymakers, once again, being late. You know, a lot of people in the crypto market and in our markets are technical analysts, and they use the 200-day moving average, 200-week, and they see it break. So, you know, there's an algorithmic technical move taking place here. And, you know, as I always say to our team, truth will win out.

Starting point is 00:20:49 And we definitely are on the right side of change. And we believe we are in the right companies that will benefit mightily from not only the AI revolution, but the convergence among these technologies. When you think about the way traditional research is set up in traditional asset management, it's set up incorrectly to understand what's going on here. It's set up by sector or industry or sub-industry. Many companies have five health care analysts, five consumer analysts. In the world of innovation, the right way to look at the world today is by technology. Under involved in those five platforms are 14 different technologies. We have set up our analyst responsibilities by by technology. So they are experts in a given technology and they are generalists when it comes to sectors and industries, because these technologies are converging and they are going to impact every sector, every industry, every company. Kathy you got me pumped up up here this is amazing all right well we appreciate it very much keep doing what you're doing everyone here is uh missing you but next year we're going to get

Starting point is 00:22:10 you in person so thank you so much all right thanks so much punk all right bye thank you bye

The Pomp Podcast - Will Deflation Hurt Bitcoin? | Cathie Wood

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