The risks facing investors and the global economy are myriad and growing. We asked three of the most visionary people in the financial industry what they’re most worried about over the next five to 10 years: Cathie Wood, whose Ark Investment Management attracted billions of dollars in the past year after her tech-focused bets trounced the market in 2020; Mohamed El-Erian, chief economic adviser to Allianz SE and a Bloomberg Opinion columnist; and Scott Minerd, chairman of Guggenheim Investments.
Their comments have been edited for length and clarity.
A Wave of Deflation
CATHIE WOOD
Founder, Ark Investment Management
The underlying assumption out there is that we’re in an inflationary period turbocharged by supply-chain disruptions. I’ve seen a lot of markets and started in the business during the ’70s. I was in college when inflation was raging. So I know what that is. And I truly believe we’re not going back there and that anyone planning for it is probably going to be making some mistakes.
Instead, we see three major deflationary forces brewing.
On the innovation side, we’re in a period today like we’ve never been in. You have to go back to the telephone, electricity and automobile to see three major technologically enabled sources of innovation evolving at the same time. Today, we have five platforms: DNA sequencing, robotics, energy storage, artificial intelligence and blockchain technology—all of which are deflationary.
In artificial intelligence, training costs are dropping by 68% per year. What does that mean? We’re going to see a boom in a lot of products that use AI and therefore are better, cheaper, faster and more creative.
There’s also DNA sequencing costs. To sequence the first whole human genome, it took $2.7 billion and 13 years of computing power. That was 2003. Eighteen years later, we’re down to $500 and a few hours of computing power. For every cumulative doubling in the number of whole human genomes sequenced, costs drop 40%.
This is going to transform health care, helping us discern which health-care dollars we’re wasting. And we think more than half of all health-care dollars are wasted today.
Then we have electric vehicles and battery pack system technology. For every cumulative doubling in electric vehicles sold, those costs dropped by 28% for the battery, which means the EV costs are going to be dropping roughly 15% every time we see a doubling in sales and we’re in electric vehicle sales infancy right now. Another is industrial robots. Those costs are also dropping more than 20% for every cumulative doubling.
The good news is that this is good deflation, which causes a boom in economic activity, at least where the innovation is taking place.
The corollary to this is bad deflation. Since the tech and telecom bust and the ’08-’09 financial meltdown, there’s been a significant increase in risk aversion in the market. And so many investors and analysts invest very closely to their benchmarks. They don’t want to stray much.