ARK's Cathie Wood 'bracing for a hard landing,' sees Tesla at $1,600 per share

ARK Investment Management CEO Catherine "Cathie" Wood said she's "bracing for a hard landing" in the U.S. economy after the Federal Reserve "made a mistake" by raising rates too high and too quickly.

In a Twitter Spaces interview Tuesday with Pensions & Investments Editor-in-Chief Jennifer Ablan, Ms. Wood said: "The Fed has made a big mistake. Credit default swaps have been warning us" about a coming banking crisis since January 2022. "And then the inverted yield curve (in Treasuries) telegraphed that again in July."

Ms. Wood predicted a "hard landing, given the Fed's current stance."

Asked if she thought the Fed was done raising rates, she said: "They should be done."

With the current banking crisis, "money velocity is flattening" and nominal gross domestic product should slow down dramatically, she said.

"The Fed doesn't see this," Ms. Wood added. "They're looking at lagging indicators."

However, "if the Fed were to cut rates by 200 basis points, recognizing the seriousness of the condition we're in," that might turn around the capital markets, she said.

Ms. Wood's firm manages the flagship $7.3 billion ARK Innovation ETF, $1.9 billion ARK Genomic Revolution ETF and the $1.2 billion ARK Next Generation Internet ETF.

"We're moving from a liquidity crisis to an insolvency crisis. A liquidity crisis is abrupt, with bank runs, and those seem to be under control. When it comes to solvency, these banks still have problems. The first problem is what everybody now understands — an interest-rate mismatch. From a liquidity point of view, they've plugged the hole. However this will bleed out over earnings."

"It's been one of our larger positions. As we examine the barriers to entry, the competition, the battery technology, Tesla is the only one with its own AI-designed chip" in its electric vehicles. The most important barrier to entry is the "body of real-world driving data. Tesla has 3 million robots driving around the world. We think they're much further along than anyone."

Ms. Wood estimated Tesla shares could reach $1,600 by 2026, one-third of which would come from earnings in its electric vehicles business and two-thirds from its autonomous vehicles business. Tesla shares closed Monday at $191.81

"Bitcoin is a flight to safety," Ms. Wood said. "The bitcoin network is decentralized and the most secure network. It's the most transparent network and it's auditable. When we had the implosions of opaque institutions like FTX, bitcoin the network and ethereum did not skip a beat. They satisfied all margin calls. They're overcollateralized. I keep pounding that drum. Bitcoin and ethereum haven't skipped a beat."

"Look at the source document that Hindenburg (Research) used" accusing Block's Cash App platform of fraud, Ms. Wood said, referring to the recent report from the research firm.

"When I was on the Block earnings calls during COVID, they allowed customers to ask questions. They came on and expressed such gratitude. They called banks trying to get PPP (Paycheck Protection Program), but banks wouldn't pick up the phone or wouldn't get them money from anywhere from 10 days to three weeks. Cash App has one of the best cybersecurity teams in the country, it has to; it serves low-end consumers who are bankless, and small-business merchants. They had a much better outcome. Hindenburg ... I have no respect for."

Asked about the outlook for a Securities and Exchange Commission-approved spot bitcoin exchange-traded fund, Ms. Wood cited Grayscale Investments' case against the SEC. Grayscale sued the SEC following the SEC's June 29, 2022, order denying the conversion of the $17 billion Grayscale Bitcoin Trust to a spot bitcoin exchange-traded product. Grayscale contends that the SEC has arbitrarily treated a proposed spot bitcoin ETP differently from the way it treats bitcoin futures ETPs.

The SEC "has approved a bitcoin futures ETF, which is subject to swaps risk, but it will not approve a bitcoin spot ETF, which is not subject to that risk," Ms. Wood said.

"So, it's highly inconsistent, and I think the SEC will lose the Grayscale case," she said. "They just lost the Binance-Voyager (Digital) case, Binance is being allowed to buy out Voyager assets and there is another case — yes, the Ripple case — it seems like they might be on the way to losing that as well. So yes, we do think there's going to be a bitcoin ETF."

Ms. Wood said a decision in the Grayscale case could come in June, "and then I would expect the choice to be put to the SEC: Either you shut down the bitcoin futures ETF that you approved, or … you approve a bitcoin spot ETF."