January 13, 2022

The SCOTUS decision on the Biden vaccine mandate for the private sector was a huge hurdle cleared today.  This should bolster an already tight employment situation. 

And with that, we may see the upward pressure on wages pickup.  The wage reset has already happened at the low end.  The higher earners are next, and are well positioned to command higher wages.  

Hotter wage growth will only add fuel to the inflation fire.

With this, the inflation situation and (consequently) the interest rate outlook haven’t been a good formula for the high multiple tech stocks. 

On that front, let’s take a look at a victim of this environment, and a potential destabilizing force to keep an eye on for markets:  Cathie Wood’s infamous ARK ETFs. 

As you likely know, she has been a financial media darling (likely thanks to a well compensated PR agency), as a leading investor in the “companies of the future.” Just a year ago, she had amassed more than $60 billion in ETF assets. It’s since been cut in half.

As the tide is going out on the growth trade, people are realizing that the structure of an ETF isn’t a fit for a private equity-like investment process.

What does that mean? The ARK ETFs give intraday liquidity to investors investing in long-term structural themes. It’s a mismatch. And that can create forced buying when things are going higher (over inflating some of these tech stocks, as we’ve seen), and forced selling when things aren’t working (which can spiral to the downside).

We’re seeing the latter. As you can see in the chart below (the orange line), some of the excess from the “companies of the future” has been rapidly unwinding. And as you can also see, it may be a bad influence on the “money of the future.”