Knock on Wood

Cathie Wood, the queen of the tech underworld, was back in the news yesterday, giving more evidence that she has lost her mind. From Bloomberg:

‘Cathie Wood, founder and CEO of Ark Investment Management, said that innovation stocks are in “deep value territory” as Friday trading saw continued declines, with the S&P 500 falling 1%.

‘“After correcting for nearly 11 months, innovation stocks seem to have entered deep value territory,” she wrote in a blog post she said was intended to share ARK’s thought process. “We take advantage of volatility during corrections and concentrate our portfolios toward our highest conviction stocks.”’

But where is the real ‘deep value?’. In tech companies with no earnings and, most likely, no future? Or in things that have nothing to do with tech at all?

This week, a hush settles over Christendom.

Despite the invention of the steam-powered loom, internal combustion engines, double-entry bookkeeping, hip hop music, and the metaverse, real life goes on. Real people worship…suffer…make fools of themselves…and die. Real bells ring out one year and in another. Real friends grasp hands…take off their masks, and embrace.

We get fewer emails. Business slows. People turn their thoughts to other things. Visions of sugarplums…or 1,000% crypto gains…dance in their heads.

We’re dreaming of a white Christmas, too. Of course, we might find a snow-covered country in the metaverse; but the more the make-believe world races ahead, the more we yearn for the steady plod of the real one.

Rough seas ahead

Yesterday, after more tests, we came to France. We had hoped to take the ferry, but the ferries between France and Ireland are all booked up.

‘Brexit’ was the one-word explanation at Irish Ferries.

But this is not a good time to make the sea crossing, anyway. The waves can be rough. So we took a plane from Dublin to Paris…and then a car down to our house.

A son was already there, he had prepared a jolly, warm fire in the kitchen. Another son and his family arrive tomorrow. Other parts of the family come soon after.

This morning…it was freezing cold…and white…as the treetops glistened with frost. Later in the day, temperatures rose and we enjoyed the soft, melancholy stillness of midwinter.

And now we are back at work at our outpost in la France profonde.

‘Have you seen the wolf,’ we asked a neighbour.

‘Yes, everybody’s seen him now. And this is the season that the young males leave their families and go off on their own. So, there are more and more sightings…

‘…and they say that a pack of them is settling in in the area. We’re just going to have to learn to live with them again, just as we used to.

‘The wolves are coming…and the people are going. That’s what’s happening around here. The young go to the cities…and the old die.’

The small towns and countryside, in France, Spain, and Italy, are emptying. Birth rates have tumbled. Houses are vacant. Immigration keeps populations from falling, but the immigrants go to cities. And the young go to the metaverse.

‘Our whole way of life is departing,’ he continued. ‘Young people spend all their time on their Facebook or iPhone connections. They don’t know how to make a fire, let alone sausages.’

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God’s work

Change is constant. And not always what you hope for. New technology solves some problems, and creates others. Split the atom and you get nuclear power…and Nagasaki. Develop the internet and you get Zoom meetings…and Facebook.

This year, some people may even celebrate the holidays in the metaverse. They will take leave of their families, retreat to dens and basements, and enter into the ersatz life waiting for them there.

Cathie Wood believes that tech ‘innovations’ are ‘God’s work’. That is where our deliverance will come from, she believes. Or, at a minimum, choose the right ones and you will get rich.

As for Bitcoin [BTC] — probably the most ‘disruptive’ and ‘innovative’ of any new tech of the 21^st century — she says it will go to $560,000, giving investors an almost 1,000% upside.

She further says, after much ‘soul searching’, that her ETF should return 40% per year for the next five years, a total return of 437% by 2026.

But perhaps Ms Wood should have searched elsewhere. Are the stocks in her ETF really ‘deep values’ at today’s prices? We checked the P/E ratio. Alas, ‘N/A’ it says. Because, while the companies have plenty of price, P, they have no earnings, E, to compare them too. Value usually refers to how much you get for your money, in ARK you don’t get much.

And what kind of hocus-pocus is behind her $560,000 price for bitcoin? The world has never seen such a thing; what possible reference could she have? None, most likely.

Ditto, the 40% per year. Not impossible…but what are the odds that Ms Wood has latched onto the few new techs that will not only survive five years of newer techs…but also grow into profitable, real companies?

How likely is it that they bring a salvation equal to the virgin birth…or at least a passing enjoyment to rival a well-made eggnog?

Regards,

Bill Bonner,
For The Daily Reckoning Australia

PS: Our publication The Daily Reckoning is a fantastic place to start your investment journey. We talk about the big trends driving the most innovative stocks on the ASX. Learn all about it here.