What will be the next big thing? We’ve watched generations of technologies heralded only to then flop, while others were slept on and quietly took over the world. As always there are investors betting big on those innovations that hold the most promise: from DNA sequencing, to AI and blockchain technology. As these technologies penetrate further into our lives, what can we expect? How will the world adapt and navigate these seismic changes? Cathie Wood, founder, CEO and CIO of ARK Invest, who is no stranger to big calls and predictions, joins to discuss her outlook ahead for the metaverse, autonomous vehicles, finance and more.
Note: This is a rough transcript — please excuse any typos.
Cathie Wood: I don’t think we’ll be able to get away from artificial intelligence. I think we need to get on the right side of change here. Make sure that we’ve got the right experts focused on the potential problems, but then run with the solutions that it offers.
Chris Hayes: Hello, and welcome to “Why Is This Happening?” with me, your host, Chris Hayes.
Well, welcome back to our second episode in our “Future of” series. I’m very excited about what we’re doing today, which is very different than what we’ve done in the past, really, kind of, a totally different kind of genre of conversation, a different kind of guest, a different sort of thing.
And before we get into, I guess the setup is if you listened last week we talked to Seth Meyers, and I kind of introed the conceit behind this “Future of” series.
And part of the idea I had was that, you know, I find myself having a hard time these days thinking about a future that is not like dire, and cataclysmic, and dark, and dystopic. And part of that I think is a little bit of conditioning having gone through several, kind of, cycles of optimism about the future, particularly as it regards tech.
I’m, you know, in my early 40s. And so I’m old enough to remember like this incredible burst of techno-optimism, particularly in the, kind of, 1990s around the tech bubble.
And then around social media, like everyone’s going to be connected, and then that quickly curdles and becomes like, oh, there’s going to be like, you know, genocidal disinformation flowing through these same networks that we were supposed to just, like, share family photos on.
And that’s going to have incredibly horrific real-world consequences. And a lot of us, I think, are wrestling with the fact that, like, a lot of techno-optimism has curdled into this kind of dark techno-dystopianism.
So today is like an attempt at kind of having a conversation around techno-utopianism. Like, what is the, kind of, most bullish case for technological innovation in the near term from someone who really is a believer in these technologies, a believer in innovation, and is so much so that her entire thing is betting on them, putting her money where her mouth is in the fund that she runs, which is the ARK Innovation Exchange Traded Fund.
Her name, the name of today’s guest, is Cathie Wood. Now, if you operate in the world of finance and business you’ve probably heard of her because she is the very rare investor who’s kind of a household name.
I mean, there’s not a lot of those folks. Warren Buffett is probably the household name in investors and stock pickers. She was named one of the stock pickers of the year, I think, in 2020 by Bloomberg.
She’s both a famous and can be polarizing figure in the world of finance because she takes these very big bets. She has a very, again, optimistic view of technological innovation and disruption. And she makes big bets on the technologies she talks about.
So one of the things today that is different than normal conversations is, you know, she has money riding on the things she’s talking about. That’s not usually the case with WITH podcast, but that’s what she is. That’s what she is, she’s an investor.
So we should say that this is a conversation we recorded a while ago, and markets fluctuate a lot. She had a very, very good year. I think it was a year ago or two years ago, or in 2020, she had a great year.
This year, year-to-date I should just note that her Innovation Exchange Traded Fund is down 30 percent year-to-date. That might change by the time you even hear this because it’s a very volatile time for stocks.
We should also say, you know, that she says that the technology companies in her portfolio are vastly undervalued. That her fund’s recent selloffs is short-lived. Most investors, I think, think that.
Obviously, like these things fluctuate. I should also note this interview, we recorded it earlier this year. We actually recorded it back in January and it was done as part of ARK Invest has a big kind of Big Ideas Summit. So this conversation was done in the context of that.
But I should be very clear, this is in no way an endorsement of ARK’s products or services or anything.
I wanted to basically find someone who is like as bullish as it gets on, (ph) like, there is a bunch of technologies out there that are great, that are maturing, that are going to change the world for better and that I’m betting on.
And again, that’s not my view. That’s sort of the way that I’m inclined to think about this stuff.
I tend to see, like, the dark side of a lot of technologies, I think partly, whether that’s personal disposition or my experience with some of what we’ve seen over the last 10 years as sort of social media and smartphones developed.
But I thought it would be great to have a conversation with someone who doesn’t take that approach, someone who is like really, really bullish on this stuff.
And I learned a lot, a lot of this conversation has really stuck with me, even in places where I didn’t necessarily agree or I don’t see the trajectory going the same way as Cathie does.
But I think you’ll learn a lot. And I think the technologies she talks about, some of them are ones I hadn’t spent a lot of time thinking about, but the more I think about, can really be quite transformative.
So without further ado, my conversation with Cathie Wood.
Chris Hayes: So Cathie, I really was excited to talk to you because I’ve been thinking a lot about the future and this series that we’re doing —
Cathie Wood: You have three children.
Chris Hayes: I have three children.
Cathie Wood: You have three children.
Chris Hayes: Right. So you think about the future for three children. I think about the future, well, for a bunch of reasons. I’m a journalist and I’ve been thinking about the way that I’ve been thinking a lot about how we conceive the future in a cultural sense, you know, utopian visions versus dystopian visions.
I think we’re in a very, like, dystopian dominant moment, sort of culturally —
Cathie Wood: Yes.
Chris Hayes: — which I think, you know, makes a lot of sense.
But you know, I think about the future. The future is a dangerous thing to write about if you’re a journalist because it’s unwritten.
But what you do is think about the future, and then make bets on the future. You have to kind of put your money where your ideas are about the future.
Cathie Wood: Absolutely.
Chris Hayes: And I’m curious, maybe broadly, where you’re thinking about where the future is going right now in a broad sense. And then we can break those out a little bit into which technologies, which innovations are going to drive that.
Cathie Wood: Yes, in a broad sense we have never been like this moment in history in terms of the amount of change, it’s already started. We feel the ground, as you just said, shifting underneath us.
It has already started. Five major innovation platforms evolving at the same time. You have to go back to the early 1900s to see anything like it. You had three platforms then. You had telephone, electricity, and automobile.
Today you have DNA sequencing. You heard it on the conference, DNA sequencing, robotics, energy storage, artificial intelligence, blockchain technologies, all of them are in exponential growth trajectories. And they are converging with one another in massively important ways and profound ways.
And they’re going to deliver, we believe if you just take a look at the technologies themselves, over the next 10 years we believe the market cap associated with these five platforms and the 14 underlying technologies is going to scale at a 30 percent compound annual rate of return.
These are astonishing rates of return. And if you’re a good stock picker you’ll probably do even better than that if you’re focused only on innovation.
Chris Hayes: So what’s interesting about these five categories when you lay them out is that they transcend atoms and bits. And that’s been a place where there’s been a really interesting question about innovation, right, because we’ve had tremendous innovation on the digital side. No one would really argue against that, right. Like, we’re —
Cathie Wood: Yes.
Chris Hayes: — all holding a computer that’s more powerful than the one that sent a human to the moon, at all times.
So all of the stuff that we’ve seen with Moore’s Law, and all the stuff we’ve seen on the bit side has kind of gone along what very bullish predictions might have said.
On the atom side it’s been a much different story, I mean particularly when you look (ph) about the fact, like, that like most people are using combustion engine to get around.
That’s fundamentally not that different from the technology of 100 years ago, Mercedes-Benz in the 19th century.
Cathie Wood: Absolutely.
Chris Hayes: And that has been the place where it felt like we’ve had some real innovation roadblocks.
Cathie Wood: Yes.
Chris Hayes: That the physical structure that powers the world, the extraction of fossil fuel, the burning it in combustion engines, the burning it in plants has not changed that much. And what you’re saying is that that is going to change now.
Cathie Wood: It is going to change for two reasons, beyond the environmental concerns. One, the technologies are ready, the kind of battery technology, artificial intelligence, and robotics.
Those three, actually that’s a convergence taking place in the transportation field, whether you’re talking about autonomous vehicles ultimately, or drones for parcels, or food delivery and so forth.
So yes, you’re absolutely right. These worlds, the digital and the physical world, finally are converging because the technology’s ready. And just as important, the costs are low enough. The costs were prohibitively high before, especially when it came to electric vehicle sort of battery technology.
But thanks to Elon Musk, and I would say also to the Chinese, who are moving very quickly in this direction, that is no longer true. In fact, the total cost of ownership of an electric vehicle, most people don’t know this, is lower today than that for a gas-powered vehicle. Most people just look at the sticker price.
Chris Hayes: Yes
Cathie Wood: And we think in two years that they will be the same price. And then a few years after that, we believe that electric vehicles will be 30 percent plus lower in price.
So these cost declines continue in emerging technologies. Whereas the internal combustion engine is a very mature technology, so it is not enjoying anymore cost declines. They ended a long time ago.
Chris Hayes: Yeah, I mean one thing that we’ve seen, so if you look at P.V. cells, right, we’ve seen this incredible cost decline of solar, both residential and at large sort of commercial or industrial scale.
I mean, there’s this question about whether that’s been associated with profit and returns in those industries. Because we’ve seen a very competitive and sometimes very low margin drive in, for instance, P.Vs. because you’ve got a lot of players in the market. You’ve got China making them very, very cheaply. And so you’ve had —
Cathie Wood: Yes.
Chris Hayes: — a little bit of a strange situation in which from the consumer standpoint, from the deployment standpoint you’re getting this incredible cost plummet.
But that’s not necessarily converting to huge returns to the people that are players or investors in that sector.
Cathie Wood: Right. That’s a very commoditized industry.
Chris Hayes: Yes.
Cathie Wood: And I remember when China made a decision that this was one of its goals to dominate that sector, that’s when the commoditization began. But there is another thing. And I think what will change the picture are solar roofs like Tesla has designed.
And the reason we think that’s going to proliferate solar over time in a more comprehensive way is because the roof will be a part of the house. That’s how it’ll be financed, instead of consumer installment debt —
Chris Hayes: Right.
Cathie Wood: — and cold calling, and so forth. So it will just become a part of our residential infrastructure and it will become a part of our mortgage.
Chris Hayes: Right.
Cathie Wood: So it’ll be a very different adoption cycle than we’ve seen thus far.
Chris Hayes: Right, because it’s path-dependent, it’s built in. I mean, in the same way that you buy a house, and it has a bunch of features like how it’s heated and how the water’s heated, all of that’s built into the house. You buy it, you get an inspector.
Obviously, those things could break down and you can replace them. But the default starting point for any home, right, is that you’ve —
Cathie Wood: Yes.
Chris Hayes: — got something to heat the water. You don’t buy a home, and then have to figure out how you’re going to go do that, which is what still is the reality in the residential space around energy, around electricity.
Cathie Wood: Right, right. And we can add another wrinkle here. Part of our research, which we talked about during the conference, which is with the way the electrical grid is evolving we could see Bitcoin mining become a part of that infrastructure. So that here in St. Petersburg, for example, we fill up our energy storage units quite easily because it’s so sunny here.
The overflow could go to Bitcoin mining, which would accelerate the shift towards renewables, because the whole ecosystem will become so much more profitable over time.
Chris Hayes: Right. I mean there’s obviously an enormous concern about energy intensivity (ph) of Bitcoin and crypto coin mining.
Cathie Wood: Yes.
Chris Hayes: Obviously, if you’re a miner, you want to go to the place where you’ve got the cheapest energy. And in some cases, you could imagine a universe of camped out (ph) in Arizona with free solar coming.
Cathie Wood: Yes.
Chris Hayes: Obviously, if you’re a miner, you want to go to the place where you’ve got the cheapest energy. And in some cases, you could imagine a universe of camped out (ph) in Arizona with free solar coming.
But in a lot of places, it’s people getting very cheap energy through fossil fuels and coal. And that seems unsustainable in the long run, both at the cost level and obviously from the carbon pollution standpoint.
How feasible do you see the conversion? There’s the proof-of-stake question about whether we’re going to get there and how quickly we’re going to get there to reduce energy intensivity (ph), but also to find ways that we’re not using a bunch of coal to make Bitcoin, which just seems, like, psychotically suicidal from a planetary standpoint.
Cathie Wood: Well, I think China banning mining was very helpful in that regard.
Chris Hayes: Yes.
Cathie Wood: And so, the U.S. was the biggest beneficiary of that. I think 34 or 35 percent of the mining now is taking place here it the United States and Kazakhstan also.
So we’re seeing people like Elon Musk and Jack Dorsey, who both care an awful lot about the environment, trying to figure this problem out. And in fact, what I have just mentioned about Bitcoin mining becoming a part of a utility ecosystem came out of research that we at ARK had done, led by Brett Winton, our Director of Research and Yassine Elmandjra, who is our Lead Crypto Analyst.
Working with Square we were able to dimension how much that solar and wind would proliferate, how much faster it would proliferate with Bitcoin mining as a part of the ecosystem as opposed to without it.
And I think that research is starting to bear fruit. We’re seeing, utility ecosystems, they’re getting the plug and they’re looking for new ways to profit. And in the meantime or in the process they will be accelerating the shift toward renewables, ironically, given the way people talk about Bitcoin.
Chris Hayes: When you talk about A.I., I think, when I talk about these sort of zeitgeist moods of utopia/dystopia —
Cathie Wood: Yes.
Chris Hayes: — that A.I. tends to be a source of a lot of dystopian angst, and I don’t think baselessly. There’s lots of reasons —
Cathie Wood: Right, yes.
Chris Hayes: There’s really lots of reasons to be worried. There’s this sort of long speculative line. There’s a very interesting line of philosophical inquisition into this.
What’s your case for utopian or positive outcomes that avoid the kind of worst anxieties people have about the proliferation of A.I. technology?
Cathie Wood: Yes, well first let’s start by agreeing that a lot of people are worried, and I think that’s good news. Half of the solution is understanding the problem.
And I think the reason we’re understanding the problem, maybe a little faster than would otherwise have been the case and understanding it more broadly, is because China wants to win at this game. And they are moving up the lead tables in terms of semiconductor chip manufacturing focusing on A.I
Just generally from our point of view and what we seek to encourage is innovation that solves problems and makes the world a better place. Typically, that is what it does.
Now, is technology used for nefarious purposes? All the time. All the time. And having cybersecurity experts out there focused on this, having the government really focused on this, I think, is good news.
But in terms of solving the world’s problems, we see A.I. converging with each of the platforms, including blockchain technology. We see it critical to autonomous taxi systems and drones which are going to lower the costs of transportation and make it much more convenient than it is right now, and much safer.
We see it in the genomics space, the convergence of DNA sequencing, and artificial intelligence, and gene editing and other gene therapies. The convergence of those actually curing disease.
We now have functional cures for sickle cell disease, beta thalassemia and a rare disease called ATTR. And that latest one was an Intellia gene-editing solution that was done in the body, not done by pulling cells out of the body. We are curing disease, could not happen without artificial intelligence.
And in the case of blockchain technology, I think we’re going to see some very interesting and we’re already seeing some very interesting convergences between blockchain technology and asset management in the form of hedge funds that employ data scientists to try and beat all the averages out there.
So I don’t think we’ll be able to get away from artificial intelligence. I think we need to get on the right side of change here. Make sure that we’ve got the right experts focused on the potential problems, but then run with the solutions that it offers.
Chris Hayes: Let’s talk a little bit about Bitcoin and crypto more broadly, and Web3 platforms.
Cathie Wood: Yes.
Chris Hayes: I mean, to me, this is something that you can’t walk around in the world anymore and not bump into it. I think I was resistant for a while to sort of embedding myself and understanding it. I now have done that and feel like I have a little bit of a better grasp.
So the one big question for me is the sort of distinction between the blockchain and Web3 infrastructure as a broadly applicable tool to build, what is essentially the next version of the Internet atop (ph) from the coin space.
And those two are very meshed in a sort of cultural institutional sense right now. Obviously, the technologies are related to each other at the point of conception.
But what is your case for how those two develop and the degree to which they develop independently such that the blockchain and Web3 platforms can be something that is much more ubiquitously used outside of the coin space?
Cathie Wood: Sure. Well, in Big Ideas we describe this by using the term revolutions. There are three revolutions taking place simultaneously right now. One is a money revolution. One is a financial services revolution. And one is a next-generation Internet revolution.
So on the money revolution Bitcoin, and Ether to some extent, but Bitcoin surely it is the most secure network out there. It is the first, and each one of these words is really important: the first global, private, decentralized monetary system ever invented.
And it is going to have profound ramifications, just ask the people in El Salvador. And recently President Bukele of El Salvador had a conversation with President Erdogan of Turkey because they are going through a currency crisis.
And so, I think the emerging markets are going to adopt this kind of money system increasingly because their own monetary system’s very dependent often on the dollar or on the euro or someone else who does not control the population. They would prefer not to be dependent on politicians. This doesn’t involve the politicians.
So that’s the monetary revolution. And we think that it’s going to proliferate faster. Emerging markets are very interested, except for China of course. They’re interested in making the digital yuan —
Chris Hayes: Right.
Cathie Wood: — the reserve currency of Asia. And that’s fully controlled by people, what I’m discussing is not.
The second revolution is in the financial services industry. We do believe that DeFi, decentralized finance, is going to usurp the role of most financial services companies today. Most financial services companies are middlemen, and DeFi takes the middleman out of the equation.
In the early days, some of your viewers may know of LendingClub. And it took some middlemen out of the equation and was able to offer higher rates to savers and lower rates to borrowers and became very, very popular very quickly.
Well, put that on steroids. That’s what we have going on in DeFi. And again, it’s a global movement. All of these are global. They’re not being governed by any particular nationality. Now, regulators are now turning their sights on DeFi —
Chris Hayes: Yes.
Cathie Wood: — pretty aggressively. You saw in the chart how at least once a month, twice a month in the last year a regulator somewhere around the world has said, hey, we’ve got investigate this.
And that’s not a bad thing. I think in the United States my observation is that regulators want to protect the little guy, the average investor. That’s their mandate and that’s good. Prevent frauds and other such things.
And yet, I also found regulators not wanting to be blamed for preventing, at least here in the U.S., from participating in the next big thing, the next big Internet.
We have an ethos of innovation in this country interestingly, even though it seems today that investors are running away from it. It’s kind of the opposite of the tech and telecom bubble when they were falling all over themselves. That was a dream. This is the reality and they’re running away.
But regulators want to encourage innovation, so I think putting guardrails around is going to be a good thing for everyone. So that’s the second. And I don’t mean just saving and lending, I mean the full spectrum of financial services, almost anything out there.
And then, the third revolution is the next-generation Internet revolution. And that does include NFTs. And the way we like to describe NFTs is, again, first global, another big word, private, rules-based, property rights system, so scarce and verifiable.
Now, anyone who has read economic history knows the key to lifting countries and people out of poverty is to put in place a property rights system that is secure and verifiable and protected. So we think this is a very big idea. A lot of people think the benefits will accrue to the creator community. We love that idea, the creator community.
And it isn’t just art, right, and gaming. And it’s music. It’s we’re going to find out how creative people are as the NFT revolution evolves.
Chris Hayes: We’ll be right back with more of our Future of Innovation conversation after we take this quick break.
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Chris Hayes: So I want to sort of present kind of bearish cases or more dystopian visions along two of these lines and hear your response. So one is on the kind of crypto boom, broadly speaking, right?
If you read, “Manias, Panics, and Crashes,” the Charles Kindleberger book, which is, sort of, the canonical classic work on financial crises, you know, there’s a bunch of things about this that seem to have some real resonances with previous huge boom and bust bubbles.
A lot of times, you know, bubbles grow, and people think they can buy an asset and sell it to someone else. And then when they run out of sellers, then the thing crashes. That can be driven by what Kindleberger calls manias.
But there’s a real sense I think people have that, again, even if you think the blockchain technology is really innovative and fascinating, to the point you said about the first time when you have a platform that can do quite this thing at this scale, that there’s a mania happening maybe above that, that is going to end in tears.
And I’m just curious to hear your thoughts on that.
Cathie Wood: Yes. Well, what we’ve seen already in the short life of the blockchain world is booms and busts. We are very early. We are very early. And when you’re early into a new technology, this is not only a monetary system, but it’s really a new technology, a new platform.
In the early days, expect booms and busts. And what I analyze, as we’re going through the bust side of that roller coaster is how fragile or anti-fragile the ecosystem is. For example, May, a year ago, we went through a crash. I mean Bitcoin was considered a crash.
Chris Hayes: Right.
Cathie Wood: Bitcoin was cut in half and other crypto assets were cut by more than that. And I was fascinated to watch the DeFi ecosystem through all of that, because what I thought was going on was there was a lot of leverage. When you talk about speculation and mania, what happens is speculators are taking on leverage in order to capitalize on this boom.
Chris Hayes: Yes.
Cathie Wood: They don’t even understand what it is, some of the later ones getting in. They just know that their friend said, no, you got to get in. It’s been going up and up.
And then you have a crash and a shake-out. Last May, when that happened to DeFi, I thought that was a very important moment for DeFi, not maybe NFTs yet, but DeFi and for Bitcoin because the DeFi ecosystem did not skip a beat.
There were millions of people wiped out because they had taken on leverage. All they were doing was speculating. And yet the smart contract to operating system effectively didn’t skip a beat. It did not break down. That was very important.
You’re going to see some of these blockchains flame out over time. So we are in the process of natural selection when it comes to these ecosystems. So fully expect there are to be booms and busts.
When you talk about a mania you talk about the Tulip mania, what happens there is just one way up, pretty much, now with some bumps. But you know, to the point where everybody in the country convinces him or herself or themselves that, you know, they have to be a part of this movement because if they’re not, their wealth won’t grow.
And it’s a lot of FOMO, a fear of missing out. That is why I like these big corrections in crypto. And we get them regularly.
We have a team at ARK that monitors on-chain statics. And we’re going to start publishing a report to help others understand, hey, here are some really speculative indicators.
Chris Hayes: Interesting.
Cathie Wood: And during a crash, here are some interesting buying opportunities. Whenever we’ve hit this kind of capitulation before, you know, tiptoe in.
So we want to be a part of helping people navigate through this world because it’s going to be extremely volatile. It’s going to be extremely productive over time as well. It’s just we’re in the nascent stages of an early technology.
Chris Hayes: The other kind of, I think, you know, more pessimistic case about some of the technologies that you’ve outlined. There’s a book I love called “The Master Switch” by Tim Wu. He’s a law professor, and technologist and writer.
And the case he makes in that book, which I find quite persuasive and it’s a historical case, is basically you’ve got these, sort of, cycles of disruptive innovation. Tech innovations that tend to be very, very decentralizing and very powerfully, sort of, radical in their initial adoption against concentrated power and incumbent industries that end up then consolidating powerfully and becoming essentially the opposite of that.
And he’s got a great example. You know, he talks about the early days of radio. He talks about the early days of cinema, which is a story I didn’t know except when you read in the book, that before the studio system, he calls it America’s first YouTube era, where these cameras actually aren’t that expensive.
People are making movies and swapping around these films. They’re showing in other places. They’re making them in barns. They’re making them in their houses.
Cathie Wood: Yes.
Chris Hayes: And then what you get inevitably is the consolidation of the studio system and big Hollywood and all that goes away. Right? You have big budget films, a very small number of firms with a very tiny number of essentially studio presidents are deciding what everyone is going to see.
Cathie Wood: Yes.
Chris Hayes: And I’ve lived through that. I’m 42, so I’ve lived through one version of that with the Internet. Right?
Cathie Wood: Yes.
Chris Hayes: I lived through the version of the free and open Internet that I kind of came up on with Usenet groups and chats and this stuff that is now consolidated into Meta, Twitter, a bunch of very large companies that have essentially, kind of, consolidated that.
Is there something inherent to your mind about blockchain technology that immunizes against that or does it feel decentralizing now simply because we’re at the early part of it and that’s how it goes in the early part of it?
Cathie Wood: I think it’s partly that. But we had a rip-roaring debate about this at our brainstorm. And the question was, especially when it comes to the next-generation Internet NFTs, or NFTs in a way, they’re digital assets, do those who are buying digital assets, do they care about the question you just asked?
And what you see is, just like with the Internet, people didn’t care. They didn’t. They didn’t, until they did —
Chris Hayes: Right.
Cathie Wood: Until they did, right?
Chris Hayes: Well, that’s right. They didn’t, until they did, right, or they didn’t realize. I mean they were acting as consumers, and they were pursing ease of use.
Cathie Wood: Yes, convenience.
Chris Hayes: And these platforms were very well designed, and very simple and sort of pull people in. And then it’s like, wait a second.
Cathie Wood: Yes. So if you look at Bitcoin it is decentralized and it is the most robust and secure network out there.
Then you go into more and more centralization over time. So Ethereum’s a little more centralized, Solana even more so, Avalanche beyond that. And you keep going and you’re making trade-offs: decentralization for convenience.
And I think we’re certainly shining a spotlight on this, you know, what could happen longer run. But as I watched Solana, kind of, it was trying to out-Ethereum Ethereum, and the technology or we don’t know quite what has gone wrong. They said they fixed it the last time around, but they didn’t.
I think this single point of failure idea, when the technology is so critical to our digital lives, single point of failure, which is all around centralization and we’ve seen it happen with Facebook and some of the others —
Chris Hayes: Sure.
Cathie Wood: — is becoming more and more of a concern, especially if we’re building our lives, including our careers, on top of these platforms.
And so in terms of a global monetary system, we do not want that to be centralized. No single point of failure, no thank you. No counterparty risk.
In the case of NFTs, you know, we’re looking at the people who are involved in these worlds. And we will be writing and saying, OK, these are the trade-offs you’re making, if you’re sure you’re OK. But if you are building your wealth through these digital assets, if this is part of your wealth creation, you should be concerned about single points of failure and counterparty risk.
So I think education is really important here. We’re certainly going to do our role that a part of mission and values as a company is to educate not just investors but the public, parents, grandparents, you know.
Educate them about how the world’s changing so they can at least give advice to their children and their grandchildren about what is the right side of change. And the other side of that is help them avoid the creative destruction that these five platforms are going to cause throughout the traditional world order.
Chris Hayes: In terms of that when we look forward to the really broad kind of macro global view in the sort of, let’s say near- to medium-term future, next 10 to 20 years.
So one way that you can characterize the last 25 years or so, right, you have this sort of global Internet revolution. You had China enters the World Trade Organization. And you get the great, kind of like, what we call globalization, this sort of neo liberal economic regime broadly construed across the world.
You had increasing amounts of global capital available as countries went from poorer to richer and in profoundly unequal ways often. So that capital sort of accrues in these, sort of, pools. You’ve got a huge amount of capital seeking return.
And you’ve got this sort of sustained period of what is, like, the great disinflation, right. Incredibly low levels of inflation, combined with incredibly loose monetary policy both before and after the great financial crisis, remarkably.
Cathie Wood: Yes.
Chris Hayes: So you’ve got cheap money and capital and abundance in ways that probably you haven’t seen in a very long time.
And I wonder what you think about that vision, what those conditions look like in the next 20 years, if that trend continues or we’re hitting something new now, at a time when you have 7 percent inflation. No one’s ever experienced that in the last 20 or 30 years.
Cathie Wood: Yes.
Chris Hayes: But there’s a case that it’s entirely born of a very random thing, which is a once-in-a-century pandemic. There’s another case that it has to do with something deeper and more structural. How do you think through that?
Cathie Wood: Yes. Well, I started my career when I was in college. So I lived through the tail end of the ’70s inflation. I know what that was like. And I was working for an economist who was saying, oh, no, no, no, this is going away.
And it didn’t go away until Volcker choked it to death, right.
Chris Hayes: Yes.
Cathie Wood: And choked the economy with it.
Chris Hayes: Yes.
Cathie Wood: So I’ve been very blessed to have a career when we’ve seen inflation and interest rates pretty much coming down the entire time. And so, what is the call now?
We had the pandemic. We had been calling for inflation, I had no idea supply chain problems would last for almost two years. But it makes sense to me. There’s a supply shock. It’s a supply shock.
And I do believe what’s going to happen in the next year or so, and many years based on the technologies, is the greater risk. And it’s probably greater now because everyone’s sure inflation is the problem.
The greater risk is deflation for three reasons. Two of them are secular and one is cyclical. I’ll start with the secular.
Chris Hayes: Yes.
Cathie Wood: And it has to with innovation. So our research is grounded and centered on something called Wright’s Law, which measures what percentage costs decline for every cumulative doubling in the number of units produced in the new thing, like electric vehicles.
So if you look at battery technology, that number is 28 percent. That’s pretty rapid. If you look at DNA sequencing, that number is 40 percent. And we’re in our infancy there. And that’s on short-read sequencing; on long-read, it’s 28 percent. If you look at industrial robots, it’s 50 percent.
These are massive deflationary forces that we believe they’re entering prime time. And what will they do? If you’re talking about disruptive innovation, which is all we do, those innovations are here to disrupt the traditional world order, to solve problems, lower costs, increase productivity, increase efficiency, enable more creativity.
And they take middlemen out of the equation, think blockchain technologies. And they are going to probably displace, disintermediate, disrupt many industries: financial services, energy, anything still associated with retail, anything associated with the transportation sector broadly.
Those are huge swaths of the economy that are going to be disrupted. I was fascinated to watch Ford’s announcement that the F-150 Lightning E.V. production levels they had to double because the orders were that strong.
Chris Hayes: Yes.
Cathie Wood: And I’m cheering, yay, I want our companies to be successful, yay. The stock goes crazy. It goes to a level we have not seen since the year 2000, remember that. That’s the peak of the tech and telecom bubble.
What Ford’s stock is not discounting is what is going to happen to the other 98 percent of its revenue base, which is the internal combustion engine. What is going on? Values stocks, value stocks are in a bubble today.
Innovation stocks, they are the new deep value stocks, because no one’s willing to look out five years. They are just willing to look at valuations this year. Well, these companies are investing aggressively.
So a little bit off topic there, but think about that. Those industries being disrupted, what are they going to do? They’ve been leveraging up to buy back shares, to manufacture earnings, to satisfy short-term oriented shareholders, right?
Chris Hayes: Right.
Cathie Wood: Right? As their products are going obsolete, what will they have to do to service that debt? They’ll have to cut prices. And so those are the two secular forces. One is very good. Good deflation means —
Chris Hayes: Right.
Cathie Wood: — unit growth will explode in those new technologies. Bad deflation means these companies’ products are going obsolete and they need to service their debt.
And then the third, which is the most controversial right now, is the cyclical deflation. I don’t most people think about secular deflation. That’s why it’s the most controversial.
And what we believe is happening is that manufacturers of durable and non-durable goods have spent the last two years chasing after consumption. They were missing sales because they couldn’t get the supply.
Then, they started double order, triple order just to make sure they had supply. What we’re seeing now is a massive inventory build-up and the consumption is falling in real terms, real unit consumption is falling.
Chris Hayes: They’re going to overshoot on the other side. I mean essentially, they’re going to be —
Cathie Wood: Absolutely.
Chris Hayes: — wrong-footed —
Cathie Wood: Big time, big time.
Chris Hayes: — having been — having been short before, they’re now going to overproduce, overshoot and you’re going to see prices fall out.
Cathie Wood: Absolutely. And you know, there is something called the Baltic Freight Index, which measures shipping rates.
Chris Hayes: Yes.
Cathie Wood: It has collapsed. It has collapsed. I’m hearing from furniture companies, you know, they’re just loaded with inventory now. So, I think the risk here is recession and cyclical deflation as well.
Chris Hayes: That’s really interesting. I mean I think, you know, the inflation debate has been interesting for a variety of reasons.
But when you zero-in on this durable goods story, which seems to me the most important part of the story, I mean, there’s a huge just consumption substitution effect that happens, right, which is that —
Cathie Wood: Yes.
Chris Hayes: — there’s a supply shock, but there’s also just this enormous substitution of services for durable goods.
Cathie Wood: Absolutely.
Chris Hayes: You know, like, if you’re a family and you spend X amount on vacation, people don’t do that. Or can’t do that X amount eating out, X amount at the wedding that you were going to do or the family reunion. And so, they buy dishwashers.
You know, there’s a whole bunch of stuff. And that substitution seems to be a huge part of the story of what’s been driving the prices.
Cathie Wood: Absolutely. And you’re one of the few people, even the economists out in the financial services industry, with the exception of one that I know, Nancy Lazar (ph) at Cornerstone Macro (ph), even they do not understand how big a deal this is because goods, durables and non-durables, are only one-third of consumption.
Chris Hayes: Right.
Cathie Wood: Services, two-thirds of consumption.
Chris Hayes: Exactly.
Cathie Wood: So what you’re talking about was a massive shift.
Chris Hayes: Yes.
Cathie Wood: And I think it’s going to turn around this year.
Chris Hayes: Yes, and I think that that’ll be interesting, I mean, the question is whether you can get yourself to this. Again, this is short-term macro forecasting, but the degree to which you can get yourself to that Goldilocks situation when, if you get a shift back towards services, you get some rebalancing, prices come down and you can still retain that growth.
The big question underneath all that, which I think is like we’ve seen CapEx go up, which has been good. You know, some of this sort of hitting the supply barriers, it seems to have inspired investments to build out the productive capacity and economy that had been underfed.
I mean to your point about buybacks, right, like we had seen —
Cathie Wood: Yes.
Chris Hayes: — a whole generation of buybacks over CapEx —
Cathie Wood: Yes.
Chris Wood: — as the form of shareholder capitalism that we were getting. And everything now depends on huge amounts of CapEx expenditure in innovative technologies, particularly from my reading, particularly on replacing fossil fuels and creating the next energy economy, which is one of the biggest undertakings —
Cathie Wood: Right.
Chris Wood: — we ever will as human civilization.
Cathie Wood: Absolutely.
Chris Wood: That’s got to happen. Like, we’re toast if it doesn’t. And if it does, it seems like a very different economy falls out of that, I think.
Cathie Wood: Well, yes, it does. And in fact, you’ve hit upon the largest impact will be from autonomous taxi platforms, as we move to electric robots actually taking us around. By our estimates, and as you saw in Big Ideas, the productivity uplift during the next 10 years is going to be $27 trillion.
Now, to put that in perspective, I think it’s $26 trillion, the global economy’s GDP today is roughly $90 trillion. So think about that. This is a massive productivity wave that we’re going to see.
The one thing that I think is hurting psychology here is oil prices, and one of the reasons they are up is because of a supply shock. And it’s not just supply chain. It’s also pension funds saying to oil companies, I will not buy any more of your stock unless —
Chris Hayes: Right.
Cathie Wood: — you accelerate the shift to renewables. So what has happened is spending on fossil fuels has come down.
And so, if you look at every major recession, I’ll say in the last 40 years, energy prices usually are one of the triggers.
Chris Hayes: Yes.
Cathie Wood: Because they’re a huge tax on particularly low-income consumers. So I am concerned about that in the short-term, because although the Baker Rig Count is starting to go up now at a more rapid rate, again, responding to the price signal of higher oil prices.
Chris Hayes: Yes.
Cathie Wood: It hasn’t been fast enough. So we just have to wait for demand destruction to get the prices down. And we will.
Chris Hayes: To me, that’s one of the most promising and fascinating ways of conceiving of the future economy is that the entire industrial economy from the birth of industrial capitalism has been dependent on extracting billion-year-old sunlight from fossilized peat bogs to burn.
Cathie Wood: Yes.
Chris Hayes: And that has meant that those extractive industries are always central. They’re central geopolitically. They’re central economically. And there’s a supply constraint built in: you go to go find the stuff, you got to dig it out.
Cathie Wood: Oh, yes.
Chris Hayes: There’s a universe if we get this right of really bountiful, clean, essentially zero marginal dollar energy to be had that would completely reconfigure how all this stuff works.
Cathie Wood: Yes. Geopolitics would change completely. I mean, look at what Europe’s facing —
Chris Hayes: Yes.
Cathie Wood: — this winter, based on the Russia-Ukraine controversy. So yes, I agree with you.
Chris Hayes: I guess the last thing is, what is — of these technologies, a lot of these get a lot of ink and a lot of attention. Is there one that you feel like is underappreciated in the suite, in terms of the amount of attention it gets outside of specialists?
Cathie Wood: Yes, it’s the genomic revolution, the convergence of (ph), because we’re talking about real cures here. Because for the first time in history health care decision-making is going to be determined by science.
Now, it sounds crazy. We’ve had wonderful doctors, very learned, knowledgeable people. And yet they didn’t have the information they needed to help treat disease.
So now that DNA sequencing costs have dropped to $500 and will continue to drop, that rapid rate of growth that I told you about. We believe that DNA sequencing will become ubiquitous.
The access to it will increase dramatically because, even if people can’t pay, the data coming out of it is going to be so valuable towards informing us about what mutations are associated with what diseases and what treatments out there, especially gene editing and other gene therapies, would be appropriate for that particular mutation.
You know, I often say there are, depends if you want to say base pairs or not, but 3 billion to 6 billion bits of code in our genomes. Finding a mutation, think about how impossible that was in those 6 billion bits of code.
Chris Hayes: Yes.
Cathie Wood: Impossible. Now we can identify the mutation for a very low cost. And there are, thanks to artificial intelligence and gene editing, we believe we’re going to get to a point where not only will we discover cancer in stage 1, and that includes pancreatic cancer.
And I’ve talked one of the founders of Freenome, I posed the question because they are attempting to do this. I said, do you think that with artificial intelligence we will be able to figure out when the body is setting up for a mutation that might trip the switch for cancer?
And he said, yes.
So think about preventative medicine.
Chris Hayes: Wow.
Cathie Wood: Artificial intelligence, that converging that I’ve talked about, convergence would put that movement into overdrive. So we’re pretty excited about it.
And you know, because it’s such a tough topic to understand, and in Big Ideas, you can see how thick the science is. And many people’s eyes glaze over.
And you know, it’s much easier to get excited about autonomous vehicles, which will also save lives, by the way, a lot of lives. But the genomic revolution is going to change the course of health care.
Chris Hayes: Cathie Wood, founder, and CEO, and CIO of ARK Invest. That was a far more hopeful conversation about the future that I’m used to having. So thank you for doing that. I really appreciate it
Cathie Wood: Thank you, Chris. It was wonderful to be here. Thank you for inviting me.
Chris Hayes: Once again, my great thanks to Cathie Wood. I really found that conversation fascinating. A lot of those technologies, I hear people talk about them, particularly the blockchain stuff, and I start to get a little like: is this real or not?
And we’ve done stuff on the show, two episodes on the blockchain. If you’re interested in cryptocurrency, we talk to Joe Weisenthal. If you’re interested in NFTs we talk to Kevin Roose. So look those up.
But again, it’s not going away. I mean, I think there was some sense of like, oh, this is a crazy fad and bubble. And I have moved past any part of me that used to think that.
So the question is, what is this really going to do and how do we grapple with it? And I think, again, you heard sort of the bullish case there, but I think it’s pretty interesting to consider.
Our four-part WITHpod “Future of” miniseries continues. Next up in our feed, authors and podcasters Ann Friedman and Aminatou Sow on the Future of Friendship.
Aminatou Sow: The thing that allows a relationship where you see someone only twice a year to, you know, not like atrophy is a vulnerability of saying I want to see you more.
Ann Friedman: As your responsibilities shift, your time changes and all of that. But you can still decide that you’re in a period where you’re like, I really need to be making some friends right now. Like, this is the carve-out in the calendar.
Chris Hayes: “Why Is This Happening?” is presented MSNBC and NBC News, produced by the “All In” team and features music by Eddie Cooper. You can see more of our work, including links to things we mentioned here, by going to nbcnews.com/whyisthishappening.
Tweet us with the hashtag #WITHpod, email WITHpod@gmail.com. “Why Is This Happening?” is presented by MSNBC and NBC News, produced by the “All In” team and features music by Eddie Cooper. You can see more of our work, including links to things we mentioned here, by going to nbcnews.com/whyisthishappening.