Cathie's Ark Logo

ARK Monthly Webinar Summary and Notes: November 9, 2021

March 28th 2023

Table of Contents

  • Infrastructure Bill
  • Inflation: China Slowdown and Commodities
  • Inflation: Velocity of Money
  • Will ARK Face Capacity Constraints Innovation Comes Back Into Favor?
  • Bitcoin Valuation
  • Metaverse
  • Jack Dorsey, Square, and Bitcoin
  • El Salvador's Adoption of Bitcoin
  • NFTs and Play-To-Earn
  • Tesla
  • Adoption of Additive Manufacturing
  • COVID Vaccine Developments and Biggest Winners
  • CAR-T Cells and Solid Tumors
  • Amazon and PayPal Partnership
  • Zillow, Opendoor, and iBuying
  • National Debt and Monetary Policy


Infrastructure Bill


Cathie Wood: "We predicted at some point that the infrastructure bill would pass without the economic and social bill. And that actually happened a few hours after we made that prediction.

In terms of this second bill, which contains a lot of onerous tax measures, although many fewer or fewer than there were before, I have a feeling that's going to have trouble getting through at all. Especially because Senator Manchin, who's one of the gating factors here is concerned, not only about inflation and debt, but he's now talking a lot more about taxes and the revamping of the tax code to which he objects.

So I'd be surprised if it gets through, especially because I believe that the house is putting back a lot of the measures that had been negotiated upwards before."

Phil here... Here are some of the items in the $1tril infrastructure bill.

Inflation: China Slowdown and Commodities

Cathie Wood: "In terms of inflation--we go into a lot more detail on the YouTube video--we are very much focused on this word, transitory versus not. What we did not expect was the supply chain problems to extend this far into the future. And so supply chain is really messing up pricing among other things.

So that has been unexpected and throws into question, is this transitory inflation? How long is this going to last? What I'd like to focus on is the first question here, are investors underestimating the impact of China on economic growth and inflation?

I think a lot of investors are not as focused perhaps as we are on what is going on in China. And one of the reasons is if you look at aggregate commodity price indicators, and specifically oil prices, they don't seem to have skipped a beat. But if you look underneath the covers, you find out there are some serious price declines already underway and they would be, or they seem to be more associated with China, I would say than anywhere else in the world.

So iron ore prices peaked at $240 earlier this year, and they've dropped below $100, so more than 50% decline. That $100 mark, I remember being a marker on the upside when prices crossed 100, I was like, "Oh man, this is a completely new era.


Now they're back below 100 and they tried to rally and broke down again. So that's interesting.

Digital commodities as represented by DRAM, those prices are down about 30%."

Phil here... In the computer world DRAM is what's more generally called memory. It's in all of your digital devices: laptops, phones, tablets, etc.

While difficult to ascertain "digital commodity" prices as a whole. DRAM let's us infer demand for, what are now, commonplace digital goods because memory is in everything.

This is also not just a China measure but a measure for DRAM globally. Though there are special implications for falling DRAM prices as China is the largest manufacturer of DRAM.

Back to Cathie...

"Copper is starting to fall 10 to 15%. It's holding fairly firm. So I think that's why a lot of investors and advisors are not looking at China because when China catches a cold, commodities catch pneumonia.

You're seeing pneumonia in iron ore and perhaps DRAM prices. We're seeing some troubling indicators in China. The dollar denominated junk bond yield has surpassed 25%.

Now this is not just real estate, although real estate is a big part of this. It's alldollar denominated junk bonds. And we have not seen that level of interest rates since '08, '09. And they reached nothing close to that level during the COVID crisis last year.

So that's really saying something '08, '09. And we're also seeing the Chinese administration bear down even more on real estate, as well as not only financial services companies, but financial services regulators. And I really do believe that China is playing with fire here.

The other thing we're seeing on the real economy front there is the PMI for manufacturing has dropped below 50% for two consecutive months.


So that means the manufacturing sector in China is contracting.

We're also seeing imports disappointing relative to expectations. Now they're still strong, although they're against COVID numbers last year. So the expectation for October was a gain of 26.2%. Instead, the gain was 20.6. So they're beginning to miss the mark there as well.

We are wondering if China is the equivalent of Japan in 1989. Japan put the kibosh on real estate and the commodity price spiral that was underway because of that. And with thoughts that Japan was going to become the largest economy in the world, those unraveled. As you know, the Nikkei is not back to even 1999 levels.

So we're beginning to wonder if that's true. If it is true, then this cyclical commodity price inflation is going to unwind and spread to more commodities than the ones I just mentioned. And then of course, and we go into this in detail. There are two secular reasons we expect deflation more than we would expect inflation. And they have to do with disruptive innovation and creative disruption."


Inflation: Velocity of Money

Cathie Wood: "Will the velocity of money turnaround and flame the supply chain related inflation fire?

I began my career in the late '70s when the velocity of money was increasing because... velocity is the rate at which money turns over in the economy. Technically, it is GDP divided by the money supply.

In the late '70s, velocity was moving up fairly dramatically because consumers and businesses were saying, "Wow, this inflation problem is a lot more persistent than I expected." So I'm going to buy now before inflation and interest rates go up further. It was reinforcing the inflation. It was accelerating the inflation dynamic.

We have seen, since, 2008, '09, velocity fall. And the reason is a lot of caution, of course. But there has been a sense, and you can see it in innovation especially that prices fall. I can wait to buy my electric vehicle because the prices will be lower in the future and maybe I'll even get subsidies. So it's been a little bit the opposite, although we have had the supply chain interruption and the COVID crisis itself constrict supply.

We're seeing velocity flatten out here, but it has not turned, it has flattened out for the last few quarters and is actually starting to inch down again.

M2 Velocity of Money 1958 - Present


M2 Velocity of Money Q3 2019 - Q3 2021


So that is reassuring in terms of inflation. If velocity continues to fall here or again, starts declining again, that will take the sting out of inflation.

Now, just one more concept there around this notion of velocity. Velocity, as I mentioned, is GDP divided by money supply. GDP is the production of goods and services over any time period. What appears to be happening as velocity moves back down is the rate at which money turns over in terms of GDP and economic activity is slowing down, where is it going? Where is that money going?

Well, it's going into assets. We've seen the stock market up all year, the bond market--after a little bit of indigestion--rallying again, interest rates coming down again. Crypto assets as well, and even within the stock market, when there was a lot of confusion, the two sectors that have done the best this year, energy up nearly 55%, financial services roughly 35%.

They are pointing more towards inflation, but then you've got the next two best sectors, real estate and consumer discretionary would be hurt by inflation and rising interest rates. So the stock market's not quite sure what's going on.

Finally, housing, if you consider that an asset, and many people do, of course, then those prices have been going up as well.

I will note however that we are paying close attention to Ivy Zelman's call, and we've been wondering some of the same things about the housing market. Is there so much speculation because of private equity funds just plowing money into real estate and the iBuying race to buy homes and then renovate them and flip them?

Well, that came to a little bit of a screeching halt, at least the second, the iBuying. You'll notice that Zillow shut down its iBuying. So that could be a bit of a warning on housing."


Will ARK Face Capacity Constraints Innovation Comes Back Into Favor?


Ren: "We will be releasing a new blog. It will be titled, Should the Capacity For Innovation Expand Over Time? We're expecting that to be out next week. So the chart here, I'm just going to give you a kind of a sneak peek of this blog.

The total market value of companies related to the five innovation platforms that we center our research around was approximately seven trillion dollars. The pandemic has really accelerated the adoption of these underlying technologies because they've solved so many problems that both businesses and consumers were faced with throughout the pandemic.

This acceleration has led to the market cap doubling in only one year to 14 trillion at the end of 2020. We do believe that this growth will continue. And that's because of the convergence of these technologies.

According to our recent research, we believe that the total business value and wealth creation related to these five innovation platforms could be nearing 200 trillion by 2030. In this blog, we outline how we believe capacity and liquidity around innovation specifically in the public equity markets is expanding.

We know that innovation cuts across geographies, sectors, market caps. And there's been three recent major developments that have really contributed to that expansion in terms of the universe of innovative public companies.

The first has been, we've seen more private companies going public, right? A longer trend has been more private companies staying private for longer, that is starting to reverse as we're seeing a spike in... Just in the last two years, there's been a surge in IPOs, direct listings and now SPACs. So allowing these companies, these private companies to go public even easier via spec.

Many of them are within our scope and centered around innovation. So our universe is expanding.

We're also seeing that these innovative public companies are doing more secondaries, right? And that is also improving the liquidity of these underlying names. Again, we've seen this just from within the names that we cover, but more broadly as a trend, we're seeing the secondary offerings start to surge in just the last two years.

The second development we've seen is that there's been new innovation indexes that have been launched. So MSCI launched a suite of innovation indexes, the main one being the MSCI ACWI IMI innovation index. If you look at the entire suite of five indices, they are comprised of close to 1,000 stocks. These are all how they define innovative stocks.

So that is making investing in innovation more widespread and accessible. It's also a tool that we can use to pull some third-party research on kind of what's happening to the universe as MSCI has had these indices in place and they have data going back to 2013, I believe. So we include some of that third-party research in there and what MSCI have seen compared to what we're seeing for innovation in the public equity markets.

Finally we've seen innovation expand globally, right? Innovation is broadening out. I mentioned it cuts across geographies and the US has been kind of the epicenter for innovation, but we're seeing this become more global. there are more opportunities and that opens up further capacity and increase of the universe.  Again, MSCI is also seeing this data as well."


Bitcoin Valuation

Yassine Elmandjra: "We just published the final part of a three-part series, introducing a framework to evaluate Bitcoin. I think this is particularly useful as Bitcoin continues to make all time highs.  We're receiving several questions on where we think Bitcoin is in the market cycle so we've kind of introduced this framework for active managers to analyze Bitcoin's price action.

In the same way that a government statistical agency publishes data about a country's population and economy or a public company publishes quarterly financial statements disclosing growth rates and earnings, Bitcoin provides a real time global ledger that publishes data about the network's activity and their economics.

In this series, we show how market participants can source this data to analyze Bitcoin in more depth than is possible with any other traditional asset. And we categorize the depth of this analysis with a three layer period.

The first layer, which was highlighted in the previous parts, we show how on chain data can be used to assess the general health of the network, including network security, monetary integrity, transparency, and usage.

In the second layer, we highlight how on chain data can be used to assess the behavior of buyers and sellers by disclosing holder positions and cost basis at any given time.

And then finally, the third layer, which is the core of our discussion in part three, we leveraged the two lower layers to provide relative value metrics that identify short to mid-term inefficiencies in Bitcoin's price.

And so you can think of these metrics as analogous to an enterprise value to EBITDA ratio and traditional equity analysis. This is particularly useful for active managers who may want to trade around Bitcoin's volatility. The most popular example is the market value to realize value or MVRV ratio.


Basically, the MVRV ratio is the market capitalization divided by the realized capitalization, which measures the price of Bitcoin relative to the average cost basis of all market participants.

So just to make a distinction between market cap and realized cap, market cap aggregates the value of all Bitcoin in circulation at current prices, whereas realized cap values each Bitcoin at the price of its last move, which is basically a proxy for cost basis.

When MVRV is below one, as you can see in the chart, the aggregate market is standing at a loss, which historically has marked cyclical bottoms. Conversely, when market cap rises dramatically relative to the average cost, Bitcoin is typically poised for large-scale profit-taking. So when looking at the chart, historically, Bitcoin tops out when the MVRV ratio surpasses four. Where are we today?

You can see MVRV is now standing at around three, which is a range typically associated with neutral territory.

Another example, which is one of the five original ARK metrics that we introduced in part three, is the realized profits to value ratio, the RPV ratio.

Basically, the RPV Ratio is the realized on chain profits in USD divided by the realized capitalization, which measures the difference between daily profit taking behavior and the buyer's average cost basis.

A ratio of one, which theoretically is impossible, and it has never really occurred, but it would indicate that every Bitcoin is moving on that particular day. Historically, as you can see on the chart, when profit takers have moved around 2% of their holdings or more in one day, the market hits a cyclical top.

Conversely, when they've moved only around 0.001% of their coins in a day, the market is in the process of bottoming. So if you can see where we are today after reaching pretty significant levels of exuberance when we hit 64k earlier this year, the RPV ratio has pretty much reset to much healthier levels.

It again, shows that we are in neutral territory, or pretty much in the middle of the market cycle."


Metaverse

Listener Question: "What does ARK think of all the recent news around the metaverse and what is the longterm vision?"

Nick Grous:  "Obviously, there's been a ton of news. I think it's really exciting when you have some of the largest companies in the world, whether it be Facebook, which is now Meta and Microsoft talking about this new vision for what the internet could look like. It's very exciting to us.

I think in terms of what's been shared recently in the news, whether it be from Meta or Microsoft, I'm still getting used to saying Meta, not Facebook, has been focused primarily on the end consumers' interaction with what the metaverse will be. I think what we're going to start seeing over time is companies beginning to talk about more of the building blocks needed for the metaverse.

To give a little more background there, when you look at what Meta announced and what Microsoft announced, a lot of this is centered around a vision for increased adoption of augmented reality and virtual reality and the virtual worlds that will end up being used in ubiquitous kind of like what we're used to with social media sites today. Just an entirely different experience, one that is 100X more immersive, something that you are fully walking around inside of everything that you've seen from these recent news pieces.

I think that's a very interesting piece of the metaverse and it's something that when you think about it, that is one of the most exciting portions of it, but there's so much underlying technology that needs to be built out first.

This is a very long story. Facebook's talking about this as a decade long story, Microsoft as well. I think one is that you have this centralized version and then a decentralized version of the metaverse. We think that there's going to be a pathway that kind of falls in between where you have centralized players and decentralized players combining to create all ultimately known as the metaverse."

Follow Up Question: "Do you think decentralization will play a role in that?

Nick Grous: "I think the underlying pipes, the digital infrastructure, all of that I think is going to gear towards more decentralization and there's already a term being built up in kind of the web 2.0, which is described as web 3.0, and that's really where crypto is being used to build out decentralized standards that we can then build on top of so that when you enter one company's virtual world, you can bring with you all of your assets, your digital identity.

Then when you jump to another virtual world, everything that you've bought, you can carry with. Very much like how we interact in the physical world today. Just being able to replicate that digital ownership of not just your own identity, but assets as well. We think decentralized standards are going to play a critical role in that."


Jack Dorsey, Square, and Bitcoin

Listener Question: "What are the implications of Jack Dorsey's tweet about Bitcoin?"

Yassine Elmandjra: "This was a really interesting highlight from Square's earnings call last week where Jack basically doubled down on Square's commitment remaining Bitcoin focused.

One of the questions that was asked was whether Square was ever going to extend into crypto beyond Bitcoin, like buying and selling other cryptocurrencies. And Jack quite bluntly said that they weren't."

Phil here... here's the Q&A from the Square earnings call...

Analyst Question: Jack, I want to follow up on your prepared remarks regarding bitcoin. Are you looking to expand into crypto beyond bitcoin buy and sell, for example, buy and sell of other cryptocurrencies and also enabling your users to kind of engage in defined NFT ecosystems?

Jack Dorsey:  We're not. Our focus is on helping bitcoin to become the native currency for the Internet. And so we want to -- we have a number of initiatives towards that goal. Cash App is just one. We're going to be building a hardware wallet. We're exploring bitcoin mining, a consumer device to mine bitcoin at home or in a business or Seller businesses, in fact.

We believe this focus is important. We believe it's right. And a lot of it has to do with the resilience, the fundamentals, the principles that bitcoin offers. And we also want to make sure that we're giving back to the community as much as possible. And this is also reflected in our approaches for bitcoin wallet, bitcoin mining and our new business unit called TBD, which is focused on building a developer platform to enable more ideas around decentralized finance on the bitcoin stack and on the stability that it offers and all the resilience that's had over the decade plus.

So we're going to release more details on what TBD is doing with a white paper on November 19. And we're really excited about the direction and excited about our focus.

Back to Yassine...

"Another focus is on helping Bitcoin become the native currency of the internet. I think this is quite a bold stance to take in light of all the momentum we've seen outside of Bitcoin this market cycle. "

Phil here again... here's the Q&A on Bitcoin becoming the native currency of the internet...

Analyst Question: "are you planning to offer a pay-with-bitcoin feature through Cash App Pay at some point"

Jack Dorsey: "In terms of Cash App Pay and bitcoin and specifically lightning functionality probably in that realm, it's definitely something that the foundation will allow. And we're -- as I said before, like our focus is on helping bitcoin to be the native currency for the Internet. So currency aspects of it and of the network are really important to us, and we're going to do more in that space."

Back to Yassine...

"I do think that the focus will end up being a huge positive for Bitcoin and Square in the long run, especially if we do end up entering a prolonged bear market like we've seen in previous market cycles.

One of the things that Jack emphasized was that the focus is important. So for Bitcoin to succeed in the way that he wants it to succeed, that the only way to do that is to have their entire crypto efforts be focused on Bitcoin.

If you hear Jack speak about Bitcoin, a lot of the interest comes from Bitcoin's resilience, its fundamentals, its principles that quite frankly, other crypto networks haven't really provided to date. And we've started to see some of the initiatives that Square is now spearheading just in the last few quarters outside of the Square crypto, which is that independent subsidiary focused on funding and supporting open source development.

So in the last two quarters, Square announced three major Bitcoin specific initiatives that are in the works.

The first is a consumer Bitcoin hardware wallet. The second is a Bitcoin mining system. Both of these will be focused on helping Bitcoin reach a mainstream audience while also strengthening the network and ecosystem.

Jack's emphasis is really on decentralizing Bitcoin as much as possible. So offering the ability for users to custody their private keys, but then even more than that, mine their own Bitcoin as a consumer. I think it's going to do wonders for Bitcoin's overall distribution.

Then the third is this new business unit that we don't know the details yet of, and there's going to be a white paper published later this month, but there's one called TBD, which is focused on building an open developer platform with the goal of making it easy to create non-custodial, permissionless, and decentralized financial services with the focus on Bitcoin.

It's really interesting that they aren't even seeing some of the practical applications outside of Bitcoin and seeking to basically absorb that functionality directly on Bitcoin instead of diversifying away from it.

I'll finish by saying that earlier this year, ARK organized a Bitcoin-specific conference called The B Word, which featured a moderated conversation between Cathie, Jack, and Elon Musk. If you haven't already watched it, I'd highly recommend watching it and taking note of the way that Jack talks about Bitcoin, views Bitcoin, and really how philosophically aligned he is with it. You can just tell in the tone of his voice that this is not a way for him to get richer. This is a way for him to really unlock economic empowerment in emerging markets.

And I feel like he just thinks Bitcoin is by far ahead of the game when it comes to offering those tools for freedom outside of just 'getting rich', quote unquote."


El Salvador's Adoption of Bitcoin


Yassine Elmandjra: "The El Salvador news has been quite promising just in terms of countries' abilities to onboard users to this decentralized permissionless network in Bitcoin.

Some of the latest numbers that we've seen are that there are now over three million active users on the Chivo Wallet, which is the El Salvador's Bitcoin wallet.

There are two million dollars daily of flows in the Chivo Wallet through remittances. And if you were to analyze that, that is about 12% of total remittances and about 2% of GDP in El Salvador.

For context as to what that three million number looks like relative to traditional bank accounts, there is an estimate that adults in El Salvador, there are about 1.9 million adults with bank accounts. So already 33% more people in El Salvador use this Chivo Wallet than they have bank accounts.

What's been also interesting to see is given the most recent run that Bitcoin has had, and we estimate that El Salvador's cost basis is around $40,000, they've been able to fund some really interesting initiatives, including building a veterinary hospital and 20 new schools from Bitcoin gains. So we're starting to see some of the practical applications of being a first mover in El Salvador's most recent moves."


NFTs and Play-To-Earn


Listener Question: "How is NFT gaming and the rise of P2E models going to disrupt the gaming ecosystem? Will companies like Skillz and Roblox have to adopt?"

Nick Grous: "I think over time, we're going to see a lot of the more traditional gaming companies begin to experiment in the NFT space.

If you look at what's happened over the last 10 years within the gaming space, we've moved from pay to play: paying upfront for a copy of the game. To now free to play. But when you talk about free to play, the large majority of the revenue is actually driven off of in game assets, whether it be currency skins, you name it.

I think NFTs lend themselves very well to that type of atmosphere and environment when you're spending in a virtual world. And this gets back to the centralized versus decentralized argument.

If you have a number of different game developers adopt a decentralized standard, there will be essentially a pipe and an access way for you as an individual to own certain assets within one game and then take them into another game and explore that game with everything you've just bought in the previous game.

Think about jumping from Fortnite to Call Of Duty and being able to carry with you and use the assets you had bought in one game in the other. And that's kind of the promise of the overall or the overarching vision of crypto within gaming.

Then you also get into the play-to-earn, sorry, which I think is maybe not the best term. We actually internally talk about it more as play-and-earn, because it shouldn't just be about earning that begins to mess with the mechanics of the game play.

But earning should be and can be something that happens within the game as you spend more time, those assets virtually should accrue more value, especially when you put it on an overarching scale of how much time do I spend in the real world versus in these virtual worlds?

Well, if we continue to shift and spend more and more time in the virtual world, then our assets are going to accrue value. And I think when you look at the overall space in gaming, the assets that have been built up there in terms of content, IP, and the virtual worlds already built, these are going to be some of the most prolific virtual spaces users spend time and they're more diverse.

They're just naturally set up very well to capitalize on this shift. And NFTs, I think will be a major part in how we understand assets in these spaces."


Tesla

Listener Question: "Would you just want to share your broad comments on Tesla?"

Cathie Wood: "I think the thesis that Tesla, first of all, that electric vehicles are going to gain share as battery costs came down, that's playing out. And we've seen stunning numbers in the last year. Last year during a down year for the auto sector, electric vehicle sales, I think were up 15% globally, somewhere in that range. Actually, the range might be 15 to 30%. Tasha and Sam can correct me.

Then this year as the traditional auto sector has been suffering from supply chain issues associated with older chips, not leading edge chips, Tesla sales have been booming. And I think we're beginning to understand now that its share gains are more sustainable than we once thought. So that is adding to our confidence.

The next big move in Tesla probably will occur, I think the electric vehicle tailwind will sustain it, but the next big aha moment I think for the market is when we see some success on the full self-driving or autonomous front.

We heard an interesting story last week during our brainstorm from someone who's in the pilot test, he got a very good score, good driving score. And so it was one of the select few. And he basically said, "When it works, it's like a dream. It's like unbelievable, unbelievable experience. When it doesn't work, it can be terrifying. The whole idea with these loyal pilot test individuals is that they want to help Tesla understand the corner cases.

They have two buttons now to flag those corner cases for Tesla. So I actually think this is how AI always works. It doesn't work, it doesn't work, it doesn't work, it doesn't work. When it works, it's amazing. And we think Tesla is in the pole position for that result here in the United States."

Tasha Keeney: "I think we have looked at sort of the question of, could Tesla do this over the next five years successfully? Previously we had thought that might be a 50% probability. We're working on updating that work now. But I think the important things to look out for are really the confidence to roll full self-driving beta out to more customers.

That's something, as Cathie said, it's not perfect. We don't expect it to be, but Tesla's using sort of all of its customers as really willing mechanical tucks, if you will, to correct the system. That's the competitive advantage that it has over others participating in this space. I think we'll learn a lot over the next year in terms of how that's playing out."

Sam Korus: "I'll just touch on the battery side. Recently, there's rumored deals between Tesla and CATL for 45 gigawatt hours of lithium iron phosphate cells, which would be enough for roughly 700 to 800,000 vehicles. The reason that this is significant is because those cells are less energy dense. They're also cheaper than the nickel rich battery cells.

Why this is uniquely beneficial for Tesla is that their vehicles have such high drive train efficiency that they can use these less energy dense cells and still achieve acceptable range. This kind of puts them in this unique spot where they can go down to this lower price point and still offer a great vehicle that will accommodate users range needs at that lower price point."

Cathie Wood: "And I'll just add on, today, I guess one of Tesla's, maybe he was the head of China. He sees a $25,000 car in the not too distant future. And talk about affordable, that I think will be below a Toyota Camry today."


Adoption of Additive Manufacturing


Listener Question: "What is preventing or slowing mass adoption of additive manufacturing?"

Tasha Keeney: "I'd say looking back at the history of additive manufacturing over the past 5+ years, I think the question has really been where is the growth?

I think that going a few years back, what could have been holding growth back was there was additional materials development needed. The industries that 3D printing was breaking into had a lot of regulatory requirements. It sort of just took time to get things approved and actually into end use products as opposed to prototypes which is where 3D printing started.

Now, I actually think that we're seeing a lot of exciting beginnings for additive manufacturing. By that, I mean this is one of the many technologies that covers that saw a lot of benefits from the pandemic. These companies are still experiencing the supply chain troubles that we're seeing everywhere else and so is their customer base.

But because of those troubles, we're also seeing companies experiment more with 3D printing because they have to change things. The inventory and manufacturing methods that they were previously using aren't necessarily working in the current paradigm. They're going to turn to new technology like 3D printing to get parts faster on demand when they need them.

So I think that we're seeing a lot of seeds being planted both back in 2020 when 3D printing was used to print a lot of parts during that pandemic. And now that should set 3D printing up for the next five years in terms of breaking through to that end use part market."


COVID Vaccine Developments and Biggest Winners


Listener Question: "What are your thoughts on the latest innovations with COVID vaccines and pills, and then which companies will be the biggest winners and are there implications beyond just COVID?"

Ali Urman: "We had some really interesting data that was announced on COVID as we have basically for the past year and a half. But this time they were about COVID antivirals or other things from vaccines, which I think is a welcome change.

Pfizer announced that it's COVID antiviral which is an oral therapeutic, reduced hospitalization risk and death by about 89% versus placebo. So incredibly high.

Merck also announced with its partner, Ridgeback Biotherapeutics, earlier this month that its COVID antiviral reduced hospitalizations and death by around 50%.

So [crosstalk 00:44:44] also recently announced data. So they have a systemic therapy, so a little bit different than the first two, but also really interesting as it's not a vaccine. And they found that they could reduce COVID-19 infection by about 82%.

The difference there is they also said that it's going to be for about eight months, and this was based on a trial that they did with the National Institute of Allergy and Infectious Diseases. It's not FDA approved currently, but it is authorized for the treatment of high-risk patients.

There are some groups that may not respond or can't take a vaccine. Those patients that are immunocompromised, those patients that may have specific allergies. So we think other approaches are necessary and obviously very interesting. We also believe that these sort of bucketed medications that are antivirals or antibiotic in nature are important steps to really pushing us into the endemic phase.

We don't expect that these medication will replace vaccines though, but rather we think that they're going to help in developing nations and also in curbing the spread of COVID-19 and breakout cases.

These are really going to be innovative therapeutics that are in a very saturated vaccine market. We don't think there will be one company necessarily that will be the biggest winner, but of course, there's a huge unmet need. So many will be able to help in this sort of transition to the endemic phase. And of course, we believe that there will be implications beyond just COVID as there are with any therapeutic. There will be multiple possible indications for where this could be helpful."



CAR-T Cells and Solid Tumors


Ali Urman: "A good place to start here is what is CAR-T? On the Cleveland Clinic website, they have a really good chart which explains what is CAR-T.

Essentially you're a patient, you have cancer, you go to a clinic or a hospital, your blood will be collected. Then from that at the hospital, they will then take the T cells and they'll separate it and remove it from your blood. The remaining blood is then returned to the patient.

What they then do is they take the T cells and they genetically modify them to be cancer killing. And when we say CAR, it stands for "chimeric antigen receptor" and that's added to these T-cells to make them cancer killing.

They're then grown and they grow into millions and millions of CAR T cells. The patient will typically then get a chemotherapy, and that just allows for there to be room for that patient to get the new cells. And then the CAR T cells are then delivered to that patient.

There's going to be several innovations we believe in this field. So one of them is going to be from going to liquid to solid tumor as the question suggests. We documented that actually in our big ideas deck last year, another innovation will be to go from autologous to allogeneic cells. And then even from allogeneic cells, from donor derived to iPSC cells. So just for one quick sentence maybe on each of those...

We're shifting from liquid tumors to solid tumors as the question suggests. There's a huge unmet need. 88% of diagnosed cancers are solid tumors, and we do not have an approved CAR T cell therapy for solid tumors. We do for liquid tumors. It was approved in 2017.

We estimated in our big ideas deck that perhaps we would have a CAR T therapy for solid tumors in 2025. That's due to the acceleration and the pace of innovation. But we'll have to see if that will be the case or not.

As I mentioned, another shift we see is autologous from allogeneic. So autologous means you use your own cells. Allogeneic means you use a donor or an off the shelf approach.

Obviously, this could have tremendous promise in terms of things like cost, scalability, product consistency. You'd be able to redose easier because you wouldn't have to go through the outlined process above several times. It would just be off the shelf.

You could also have expanded access to the sickest patients because you wouldn't have to wait for that time that the cells were being expanded in the lab. So those are some of the shifts that we see happening and perhaps you'd even get from donor derived to induced pluripotent stem cells. So you wouldn't actually have to go to the patient or to a donor."


Amazon and PayPal Partnership


Listener Question: "Would you share your thoughts on PayPal's, Venmo and Amazon partnership?"

Max Friedrich: "Yesterday PayPal released their Q3 earnings and while they missed on several metrics, they did announce a big partnership together with Amazon. In the words of Dan Schulman, PayPal's CEO, this is the start of the journey that they will have together with Amazon.

What they announced is that starting next year, over 80 million Venmo active users can purchase products on Amazon using the Venmo pay checkout button on Amazon. And while this itself is a pretty significant monetization event or kind of coming strategy for Venmo, there also is, you can put that into a broader context around PayPal.

First, just as I touched on the monetization opportunity for Venmo, I think in all fairness, you probably have to mention that from a takeaway perspective, Amazon does have a lot of leverage in these kinds of discussions. So it's probably fair to say that PayPal or Venmo probably is not able to monetize transactions on Amazon at as high a rate as some other pages, but again, it's still a significant event.

But to the broader point, actually, this plays really into the strategy that Dan Schulman, the PayPal CEO has laid out on PayPal's last investor day, which is around the integration of commerce into both the Venmo app, but also into PayPal's recently launched super app. This is bringing together the merchant base of PayPal with the consumer base of PayPal. And this could be one of the beginning of that and as well, the beginning of a partnership between Amazon and PayPal.

I guess that on the one hand it's probably significant for Venmo from a monetization perspective, but a broader point really is around PayPal's efforts around building out the commerce part of their digital wallet. We're going to follow this very closely and it's going to be interesting where it leads with Venmo and PayPal's broader plans to really build commerce into their digital wallets."


Phil here... Even given this partnership announcement ARK did not buy back into PayPal after having drastically scaled out over the past six months...


Cathie Wood: "I'll just add that some people might be surprised that PayPal is down so much today on when it makes such an announcement with Amazon...

But it also reported last night and maybe Max, you want to talk about some of the results there."

Max Friedrich: "I would first make a broader point about the dynamic that we see in, especially I think this quarter, but also to some extent, last quarter in the earnings of e-commerce stocks. These companies that really benefited from the COVID pandemic kind of from work from home and all these trends is that I think there was kind of the spotlight over the past 12, 18 months now was really on them.

Analysts have looked at them very closely and have had high expectations. And the companies themselves obviously were benefiting from the situation as well. So they also had high expectations, which they communicated as relative to higher guidance and so forth.

So I think you had kind of a situation where different dynamics were coming together that were maybe creating little bit unrealistic expectations and those factors are now married with the global supply chain situation that these companies reference. We think that it has contributed to these companies such as PayPal, but also Shopify to some extent, Square to some extent as well missing expectations and in some cases also missing their own guidance.

If we want to quickly touch on PayPal, I think you can say this played out to some extent, they missed on several metrics and as well saw their revenue in the fourth quarter and for the full year below the consensus as well as on the new active user additions.

They also came in just at or below--if you subtract some of the users that they got through recent acquisitions--their previously stated guidance. I think those were kind of the factors that were playing into more mixed results yesterday from PayPal. But as we just discussed on the other hand, they had this big Amazon win, which is good for Venmo and opens up to further opportunities they have in regards to bringing in commerce into their apps and to their digital wallets."

Cathie Wood: "Just one more thing you might want to touch on, Max, which is at least the way we've been perceiving it, many of PayPal's actions recently have seemed somewhat defensive relative to Square, which is especially from a marketing point of view, very creative. And you might want to add more color there."

Max Friedrich: "I think if you look at the two companies, they were founded 10 years apart. PayPal is a much bigger company than Square. It's a much more mature company than Square. It's probably fair to say that processes differ, culture differs.

I think it's very consistent with what we have talked about over the last few years is that we still see Square really being the leader in innovation in the fintech space, in the public markets, and in the digital wallet space, really across public and private markets. So we continue to see Square as the leader and Venmo and others as the followers.

You can look at that from different kinds of perspectives, from a marketing perspective where Square and Cash App has very savvy marketing strategies, has really embedded itself into urban culture, youth culture.

And in a way, Venmo also had a head start to be honest. It was starting a few years earlier and still obviously has very strong momentum, but many would say that they have missed really building on top of that.

There are also other things you can look at if you look at the app, Venmo itself and compare it to Cash App. From a user experience, there's more latency sometimes when using features. You can maybe suspect that the underlying technological infrastructure might be a little bit older than Cash App's.

So yeah, I think there are multiple things you can point to. If you look at the product innovation, Venmo was purely a P2P product for a number of years, has slowly built up a debit card, slowly built up a credit card. But it's nowhere near right now where Cash App is from a product perspective where you have multiple products with very high engagement across the kind of proprietary boost program that Cash App has, Bitcoin purchases and so forth.

We can look at it from a number of perspectives and still can say in our opinion that Cash App continues to be the leader and others, including Venmo continue to be the followers."


Zillow, Opendoor, and iBuying


Listener Question: "Cathie, you mentioned that last week Zillow announced its plans to shut down Zillow Offers. Maybe could you expand on that in terms of ARK's updated view on Zillow."

Cathie Wood: "Yes, we were quite surprised. We saw that they put the program on hold, I guess, seven to 10 days prior to their announcement to shutting it down. We just thought they were being prudent and basically looking at the velocity of sales in the market and just holding back as perhaps the white hot market turned to just hot. And yeah, that was not the case at all. And they decided to just shut it down.

Now, I remember listening three years ago to Richard Barton talk about, whom I've followed since Expedia. Then he founded Zillow. And then he took a hiatus, a very long hiatus from Zillow but came back. He said, "Now we're ready for the dream I had when I founded the firm."

And of course, this dream entailed or should've entailed a tremendous amount of artificial intelligence and savviness given how low the margins are in the iBuying world, which was the opposite of Zillow's model, which had very high gross margins in the 80 to 90% range. And offers would be lucky to have 20 to 30% if even that. So we thought this had been a very calculated move in and that Zillow, given its superior information, the Zestimates database would be able to capitalize on the opportunity unlike others.

I think what we've learned is maybe they did not bring in the AI expertise that they needed. And this market became very unstable. They looked like heroes in the second quarter and fools in the third quarter.

Heroes meaning it did so much better than expected, but then there was a pricing shift. And I also think supply chain problems hampered the rate at which they were able to turn over the houses after renovating them.

In the call, Richard Barton used the words, he didn't use existential threat, but that's what he meant. He didn't want to put the company at risk. In other words, maybe the DNA here was just so different. Now, they're going back to their high margin stripes. So they won't be a one-stop solution, which was the dream.

They're taking all the friction out of the process. They're going back to advertising and they'll keep mortgages and insurance and some of the higher margin categories more in line with their DNA.

So we'll see how this works and we'll get some important information from Opendoor this afternoon."

Phil here.. Opendoor did report and the numbers were good enough to send the stock up 16% the following day. They certainly aren't failing in their mission to be a one-stop shop for residential real estate transactions...

For the moment, this does appear to be a DNA thing for Zillow. But there's a lot of proving left to do for OPEN as we keep an eye out for how they'll weather a downturn in residential real estate.

Worth nothing that ARK did not purchase OPEN after these earnings so it appears a wait-and-see approach is in effect.

Back to Cathie...

"And I know Redfin has commented recently. If you don't have the right kind of AI expertise in this market and get in over your skis, it is a recipe for some real problems. So you'll see that we did respond on the Zillow side, especially in the flagship, which is not just a fintech portfolio...


In the FinTech portfolio, we do think there is a tremendous opportunity to pull friction out of the system. So if Opendoor and some of these other companies are able to pull off the one-stop solution, that could be a tremendous advantage for them.

We're going to be watching the space very carefully. We've taken our position sizes down but by our research and calculations, taking the friction out of this process should deliver enormous returns to the successful companies. And it could be, and Zillow seemed to hint in its own presentation that they might partner with an iBuying service. And, or who knows? Maybe acquire if someone else is really able to do it that much better.

So we don't have all the facts. We know what happened to Zillow. I think it's a DNA problem. And we'll get a lot more information from the other companies and then move on from there."


National Debt and Monetary Policy

Listener Question: "Do you think there will be an impact related to the US and EU national debt as it specifically relates to monetary policy?"

Cathie Wood: "I think the essence of the question is will monetary authorities be able to raise interest rates without toppling over companies and maybe even sectors which are highly reliant on debt right now?

I actually think we're in more of a Japan like situation. Again, if our thoughts on velocity are correct, and I'll just add one more point there. If we're right on the deflationary trends associated with inflation, then I think we will be right on our assumption that velocity will resume its decline.

The one way to get out of debt, it's actually a very regressive tax, but is through inflation. And so that might be also the nature of the question. Do they want inflation in order to eat away at the debt in real terms and make it less onerous?

I don't think so.

That said, I think it would be very hard to get secular inflation going from here. I know that sounds a little counter intuitive, especially given how headlines are reading today. But we're seeing a lot of signs, as I mentioned in my opening, that China on the cyclical side, innovation on the secular side will drive inflation down and cause surprises to the low side of expectations in interest rates.

And I think seeing our bond yields drop as these inflation numbers were ramping up and we're actually higher than most thought, including us, is testimony to that."

10-year yield