Home Stock Market Commentary Does Cathie Wood Push The Envelope of SEC Regulations In Her Predictions?...

Does Cathie Wood Push The Envelope of SEC Regulations In Her Predictions? – Mike Swanson

Every bull market cycle sees a new top guru rise to the top and then eventually fade away. Cathie Wood has not faded away so far, and in fact still has a strong cult following of investors who have kept putting more money into her funds all year despite the losses they have incurred. She did a wild interview on Bloomberg last week full of more of her predictions about the future, including her opinions about virtual crypto currencies.

I like to follow a wide group of market commentators, who have different opinions. Some are bearish and some are bullish and by looking at both I can gauge both sides of the argument, so to speak, and see how they are dealing to changes in the market.

I don’t believe that anyone has been as successful at using social media to promote themselves in the financial world as she has in the past few years, if you judge by assets collected and fees made from investors since January 2020. She has aligned messaging and content totally with what the internet algorithms want.

Here is the interview.

I want to share with you some of my thoughts about what she had to say here.

Here are some key moments in the video with the time marked so you can jump and see them for yourself:

1)In the first 30 seconds she says that she believes that her portfolios are going to deliver incredible growth in a five year time horizon from the current price point.

She basically is saying if you buy ARKK or one of her investments funds now and hold for five years you will make a lot of money. She has made this type of money making prediction multiple times on financial TV shows in the past year. I’m not a lawyer, but my understanding is if you are a registered investment advisor that it is actually against SEC rules to tell people if you invest with me or in my fund you will make a lot of money. It’s basically against the rules to predict future returns. Not even investment newsletters or trading services run by people who are not registered investment advisors are allowed to do that. I cannot run a trading service and promise you will make money. Yet, she does this sort of thing, and keeps doing it, and the TV producers that create these shows never seem to have a problem with that. I don’t believe I have ever seen any other fund manager on CNBC or Bloomberg do this.

It’s a little different when they write about her in print.

In December of 2021 she claimed in a market commentary piece on her website that her ARRK ETF ““could deliver a 40% compound annual rate of return during the next five years.” A Bloomberg article had this comment about that, “The language used in the post would likely run afoul of regulators if used in a fund prospectus, according to Jeremy Senderowicz, an ETF lawyer at Vedder Price in New York. But since it’s included in Ark’s marketing material, and uses the crucial word “could,” it may not be breaking any rules, he said.”

“Most active managers can’t say anything, let alone that. They are overburdened by lawyers and PR. One of the reasons Cathie I think has been so successful is that she’s not, as the person running this small indie shop. That being said, it’s possible to go too far,” Bloomberg’s ETF analyst is quoted in the article as saying.

In March, as her fund was down 50% from its high, she was on CNBC predicting “spectacular returns” for ARKK in the next five years. She claimed a lot her investors were averaging down and “You’d be amazed if you average down over time, how quickly a strategy can come back above that average. And if we’re right, significantly above that average over the next five years.”

The ARKK ETF is down 60.92% as of the December 1st close year to date.

What is clear is that no one can predict future returns like she does. All we can do is look at the trends and hope we got them right, or the past record of an investment manager, if you are looking to invest with someone, but no one can truly predict what will happen, so to basically promise people returns is completely beyond the pale in the investment world. Smart investors diversify, because they know they cannot predict the future.

2)During the first minute of this video, she is asked why should people trust cypto now in the wake of FTX and the crash in so many crypto stocks like COIN. Her answer is she believes in the “technology” of Bitcoin, Blockchain, and is excited about “hash rates.” Her answer is pure technobabble, but people who easily believe this type of talk can basically be guided into believing anything by her. They are capable of ignoring her real investment track record and failed predictions. She suggests that the recent stock share crash in Coinbase is based on nothing but “more fear” and that there is nothing wrong with the crypto market. She says that the size of the FTX default is small in comparison with Lehman Brothers and Madoff so is not a systemic threat.

That I agree with her on.

3)At the 5:30 mark….She says she is not worried about the crypto markets as FTX was the whale. And because “we found the whale” during this crypto decline, she thinks it is time to buy. Well, who knows if there aren’t more giant crypto frauds. And besides, crypto currencies have no intrinsic fundamental value. Their only value is pure price speculation, making them the closest thing to pure gambling there is in the financial markets. One is better off putting money into a slot machine, trying to hit a jackpot, then buying any of these virtual currencies at this point. If I am right, it is now simply a slowly dying market. Either way, if you want to beat the market you want to buy those things beating the market, outperforming the S&P 500, and Bitcoin is doing the complete opposite of that. She claims it’s worthwhile because of “underlying technology” and “underlying roles” the crypto currency plays “in this new world” so “we will recover pretty quickly.”

This is technobabble.

People have been saying these of things for years and look where crypto is at now.

)At 7:15 she is asked about SBF of TFX. I will say nothing about the irony of her comments here at 7:30. I start to fall asleep and lose attention as more and more Bitcoin predictions for a one million price target are given by her. She claims what is happening now is a “battle test” of crypto and it will come out and triumph. No evidence is given to back up this opinion by her. It is pure hype.

)At 14:00 she is asked about Elon Mask. Now it gets interesting again. The interviewer says that she owns private shares of Twitter. Cathie Wood immediately praises Elon Musk. She says that she owned Twitter “for quite awhile” and “sold it into the rumors Elon was going to buy it.” “So it moves into the $60’s, I think it got to $70, and we sold there” and “had been watching from the sidelines.”

I don’t know how she sold her position over $60, because the stock never got over $55 a share this year.

Regardless, she now owns private shares, because she participated as an investor in Elon Musk’s takeover of Twitter, putting 12% of her venture fund into it.

She predicts in this interview that Elon will “open up the algorithms” and Twitter will grow and be a success. The interviewer points out that Twitter revenue has collapsed as advertisers have pulled out. She mocks them as “auto companies” trying to compete with Tesla. She argues that Twitter is not an advertising company and in the long-run you have to think about it now as a future technology, including a “super app” using “artificial intelligence,” of which she says Musk is an expert of. Now she sounds like Zuckerberg talking about the Metaverse and Facebook. This is interesting, so she is a bit of a Twitter insider and is basically saying that Twitter itself, as we now know it, is not going to be profitable, but this super app will appear one day and make the company huge. This seems like a lot of blue sky hope hype, but a line that may be given to convince others to do future Twitter debt raises and financings.

)At 20:00 she says the Federal Reserve needs to stop raising rates because “we will see deflation.” She has been saying that for a year and a half and been wrong over and over again as CPI went up instead of down. She seems to get a little angry here.

When you look at the ARKK chart it’s a disaster.

Notice the relative strength ratio on the bottom of the chart, which shows that ARKK has been lagging the S&P 500 all year.

If you want to own a millstone own ARKK.


To beat the market look for those things outperforming the S&P 500 and beating the market.