CATHIE WOOD: Well, our focus always from the beginning has been on disruptive innovation. And we believe that blockchain technology is one of the most disruptive innovation platforms evolving today. I think we've interviewed or I've interviewed with you a number of times, so you know, it's robotics, energy storage, artificial intelligence, blockchain technology, and multi-omic sequencing.

So it's one of the five major platforms we've been focused on since the beginning of Ark. We celebrate our 10th year anniversary in January. We took our first exposure in bitcoin when it was $250 in 2015. And we wrote a paper back then. And we knew we wanted to be involved back then and actually prior to that. The director of research and I at another firm had been focused on it.

This is the first global, digital, private, rules-based monetary system in history. It's a very big idea. When we wrote the paper in collaboration with Art Laffer-- you know Art Laffer, supply side economics, Laffer curve-- he said I've been waiting for this since they closed the gold window in 1971. So he's been waiting 50 years for this, right?

And he's so excited about everything crypto, but especially Bitcoin because he believes and it is true, monetary policy around the world is unhinged. It's not hinged to anything except human decision making. And this is going to put discipline, rigor, back into--

JULIE HYMAN: These particular products you're talking about.

CATHIE WOOD: Well, Bitcoin is. The monetary system is Bitcoin, and so yes the-- why now for these? We've been working with 21 Shares since I met Ophelia at an ETF confab in 2018. They had really just started their business. And I said, you know, we want to move towards crypto, you are completely crypto.

They were focused on the infrastructure, the regulations, really blazing a trail. They had to invent things in order to make this happen. And we knew that was not our core competency, but we did start talking. Our core competency is research on disruptive innovation, and they do research.

They do deep technical research on the market. Our research is on the disruptive innovation that it represents. And we've just been coming together for five years. It was a natural for us to come together. They are or 21 Shares is the largest crypto ETP provider in the world, $1.5 billion.

They have 35 different funds, most of them in Europe, in and around Europe. They were looking for a US entree, and we were looking for infrastructure and, you know, we're just delighted to be partnering with them, given how much groundwork they had to lay for this to happen.

JULIE HYMAN: Speaking of groundwork, on another product that you're working on-- of course, the spot bitcoin ETF, which you are also partnering with them on and you've got your filing in. There's a lot of filings in. Every day, seemingly, there is a new rumor about approval of one of these things. What are you hearing from the SEC at this point? There's a January deadline I know that people have been looking to. How confident are you that you're going to get approval?

CATHIE WOOD: , Well something has changed. So we had put in a number of times a filing, and we were just denied. Never got any questions, really, never got any response. This time, this summer, we got questions back from the SEC. Now, normally when you get questions from the SEC, you're just saying, oh, my goodness. We were thrilled to get questions back because it means they're engaged now.

Now, we have met a number of the research people at the SEC on the research side, and they are extremely sophisticated. They know what they're talking about. And the level of sophistication of their questions suggested, OK, now they're moving deeply into this. And we answered those questions. We have not heard back. That's a good sign too.

They never tell you that you've satisfied them. But if you don't hear from them, that usually means that you have satisfied the answers to the requests. So that was new. And the we also know that Blackrock got questions. We put our answers in first. I think they have followed. And I'm not sure about anyone else. That was different. And it says, OK, there's movement.

And we are the first in line just because we kept refiling. Others gave up. But we just kept refiling. We just kept-- and we became first in line. So David against Goliath, right? And that January 10 is the final deadline. They've been able to push it-- it's very orchestrated-- push it, push it. But the final, they either approve or deny on January 10.

JULIE HYMAN: What do you think?

CATHIE WOOD: Well, again, I mentioned something has changed.

JULIE HYMAN: Right.

CATHIE WOOD: That's good. The odds have gone up. There is only one wrinkle. Just occurred to us in the last couple of days. They will approve a number at once. It won't be just one. That would be choosing a winner, given the way ETFs work. But we know Grayscale wants to convert to an ETF. I don't know how practical that is or if the SEC will let them or if they need a special dispensation. I just don't know the rules.

Grayscale has said it will sue the SEC again if it denies the conversion. If they were to do that before January 10. I don't know if that would throw everything up in the air again.

JULIE HYMAN: For the others as well.

CATHIE WOOD: For everyone, yeah. I just don't know. I don't know.

JULIE HYMAN: So there's still a lot of unknowns out there. You mentioned you guys bought into bitcoin at 250 way back when. So the return from 250 to 35, 36 looks pretty good. But it's not 100,000 that I think you and I have talked about at various points or even loftier numbers. Where are we in that cycle?

CATHIE WOOD: So if we look at the reasons that bitcoin will scale-- so our base case is today $600,000 to $650,000. And our bull case based on the scarcity that is now developing-- we're at roughly 19 and 1/2 million bitcoin out there. There will only be 21 million ever, and we do believe that. We think that institutions-- if the SEC blesses a bitcoin ETF, institutions will feel like the coast is clear for them to pursue.

And we know a lot of institutions have been researching crypto assets for a while and do agree that it is a new asset class. Bitcoin was the first in a new asset class. We wrote a paper in 2000-- I think it was 16-- ringing the bell for a new asset class. And our director of digital assets said to me, do you realize that happened today? We rang the bell for a new asset class. I said, oh, I didn't make that connection.

Anyway, so institutions understand when there is a new asset class, there's an opportunity to diversify and increase returns per unit of risk. That's very important. They've also learned that bitcoin in particular can be a hedge against both inflation and deflation. Everyone understood the inflation part of it because right now, it's pretty much considered like digital gold, a hedge against inflation.

But we learned something very important during the March regional bank crisis. What happened to bitcoin then? Now, that was risk off and a deflationary vibe about it, right? Banks going bankrupt. Bitcoin went from 19,000 to almost 30,000, up 50%. What was that? That was proof of concept that it's a hedge against deflation too.

What can cause deflation in a financial crisis? It's counterparty risk. You don't know what is on the books of the banks and which ones are going to go bankrupt and which ones aren't, so there's a seizing up. So just get away from that. Move into an ecosystem where there is no counterparty risk.

That is bitcoin. Completely decentralized, completely transparent, and no counterparty risk. So I think more people are beginning to understand that, sure, it's a risk-on asset, but it's also a risk-off asset. And gold has some of that, but bitcoin has that on steroids, I would say.

JULIE HYMAN: We could talk for another 30 minutes about bitcoin, but I want to I want to cover some other topics with you that I want to move on to, and one of them is the Federal Reserve. Because you and I have talked about this before, and you've talked about that you think the Fed has been too aggressive in raising rates.

Looks like they might be done if the CPI numbers today are any indication and the conclusions that the market seems to be drawing. So where are we now in-- you've talked about that deflation is coming. We haven't been seeing it writ large as of yet. So what are your current thoughts on all of this?

CATHIE WOOD: Yeah. We're getting more proof of concept on deflation too. So it starts at the commodity level, always does, right? Copper prices peaked at $5. They're now about $3.50. Oil even . Is down to-- well, it's in the 70s. But even more interesting to us is gasoline is pointing to much lower oil prices. The demand destruction in gasoline right now because of the pricing is so high. I think gasoline demand was at around the Labor Day holiday. Hadn't been this low in 25 years, something like that.

Big demand destruction in all kinds of categories, including staples. Now the Procter and Gamble's and staples companies, they took full advantage of supply chain crisis and jacked prices up. Guess what? Their volumes are falling. That is not a good recipe for a manufacturing company. You want to keep your manufacturing plants running full time. And now they're seeing a pullback in unit volume.

We're seeing in the S&P 500 about a third of the S&P 500, a third of the companies are showing falling revenues. Falling revenues. That means the combination of units and pricing, that combination is down. If you look at commodity prices as measured by the Bloomberg commodity price index, they are today where they were in the early 80s. They've gone nowhere.

JULIE HYMAN: So then what is the implication for rates for the economy? I mean, the picture sounds dire from what you're talking about.

CATHIE WOOD: Well, M2 growth has been negative all this year on a year-over-year basis. The yield curve has been inverted all year. Actually, almost a year and a half now. Roughly a year and a half now.

JULIE HYMAN: But no recession yet.

CATHIE WOOD: Rolling recession. Housing-- by some measure-- sales, down 40%. That's a recession there. Auto sales, 15 million units. That's recessionary. Falling prices as units fall. That sounds recessionary. And that's happening in staples. Home Depot today, sure, it was one of the biggest beneficiaries.

But it's been 2 to 3 years now and it's still saying minus 3% same store sales growth. That's both price and profits. And deeper negative here in the US, minus 3.8%. So I'm looking at statistics and I'm listening to earnings calls. When I listen to earnings calls-- and I listen not just to ours, but to other more cyclical companies just to get a sense of the economy. You listen to them and you'd think we're in a recession.

Now, it depends on the area. In today's CPI, you saw auto prices coming down, you saw airline prices coming down. You saw education prices coming down. Oil and energy, transportation, we knew about. Rents, the pop last month reversed. It didn't go negative. But in the real world-- in the real world, we're hearing about serious rent declines or serious discounts like six months free or one year free.

So I think it's all around us. The fed is paying attention to lagging indicators. One is the CPI. It has gone from 9 to now roughly 3. We think it's going to turn negative before all is said and done. The other one is employment. Now, what the heck is going on in employment if what I just told you is true?

JULIE HYMAN: Right.

CATHIE WOOD: We know how many companies had such trouble finding anyone as we were coming out of COVID. They're reluctant to fire people even though their margins are starting to fall. So they don't want to go through that again. If their margins do get crushed as we think they will as they lose pricing power--

JULIE HYMAN: Then you could see what would happen.

CATHIE WOOD: --they will lay people off.

JULIE HYMAN: So then let me ask you, I mean, it seems like given all of this, the environment in the markets has been surprisingly risk-on as of late, right? Look at today-- not just today, though, but if you look at what investors are doing, you know, you guys are up this year and you tend to be a group of companies that is a risk-on trade, so to speak.

CATHIE WOOD: Yes.

JULIE HYMAN: So what gives then? Are people just looking past all of this? Are they looking ahead to a rebound from what you're talking about?

CATHIE WOOD: So until today, this year has been a tale of two markets. Through July, it was a risk-on. Why? Because the market was seeing surprises in terms of oil prices coming down, auto prices coming down and saying, oh, the Fed must surely be done.

And then we get a CPI print or a PCE print that disappoints and the Fed continuing to say, oh, no, no, no, no. We're higher for longer, and we absolutely will raise interest rates if we cannot see 2% inflation. So I think they're in the process of making a mistake. But in the beginning of the year, people were saying, OK, the numbers are coming down, inflation is doing what it should do.

Then we had this pause where, oh, is it? Are we stuck here at 3% to 4%? Many people think we are because they see these wage hikes going through. 10% per year, 6% per year, and they say, surely, we're back in a '70s style inflation. And that's what the Stanley Druckenmiller's and the bears out there are thinking.

We think that is absolutely wrong, that the resolution of that 10% push in wages per year will end up in lower margins. Big problem, not in higher prices. Big difference. Very big difference. And so I think it's from the end of July through-- really, it was through the end of October, we went through this big nervous period where the long bond yield started rising relative to the short term yields.

Still an inverted yield curve, but long yields were rising. It was a bear flattening not a bull flattening. A bull flattening is when short rates come down relative to long rates. So a bear flattening, went risk-off. People sold our strategy, sold anything risk-off and moved back to their benchmarks, moved into cash. Cash, huge amounts of cash on the sidelines.

Now we're getting more prints again that are saying, the Fed probably has overdone it. And you just listen to quarterly company calls, and you'll listen to these management teams, and we have lots of call backs with management and they say, why are you the only one seeing recession? Why can't the Fed see this? This is what we're going through. And I do think the Fed is using lagging indicators for monetary policy, which is unfortunate.

JULIE HYMAN: I want to turn to some of your individual holdings, but just quickly, what is 2024 look like for Ark for your strategy specifically?

CATHIE WOOD: I think we paid our dues during '21 and '22. We were down in '21 when the market hit all-time highs just on the expectation of rates going up. And then on the reality of rates going up, we were crushed in 2022. The market has discounted what the Fed has done. I don't think the Fed's going any further. If the market can feel comfortable that that is indeed the case, we don't have to have rates even come down.

We think they will. But we think that our-- certainly, our strategy has discounted the worst. I don't think value stocks have discounted the worst of the cyclical part of the recession. We tend to be recession-resistant. The last leg here is going to be consumption. And we'll see how the holidays fare, how deal-driven consumers are. We think they're really deal-driven.

JULIE HYMAN: Yeah, we're starting to hear some of that. OK. I want to turn to some individual stocks. I wouldn't call it a lightning round, but I want to dig into a couple of things. When we're talking about consumption, when we're talking about concerns, you would think it's going to affect one of your top holdings, and that is Tesla. And we've been hearing some commentary from the company that is not that positive. It's fallen to third in your portfolio. Is that why?

CATHIE WOOD: So what we did earlier this year-- it was especially in July, summer months-- we looked at Tesla up 150%, and many of our multi-omics names in the life science space, they were negative for the year. And this is portfolio management kind of 101. Huge profits there, losses here, let's do some rebalancing. And so we did that, but we did not sell after their quarter.

And we did hear Elon loudly and clearly and we had been anticipating it, consumer demand is weak. All that Tesla's price cuts have done is offset the interest rate hit. So really, the monthly payments haven't gone anywhere. Tesla will continue to cut prices because it can. Its technology costs are falling and it's profitable.

You'll notice that the GM and Ford have basically pulled back on their EV strategy and said, we can't do this unless it's profitable. Well, this is chicken and the egg. It can't be profitable for them just like it wasn't for Tesla until they scale. So if they're not going to scale, they won't be profitable.

Meanwhile, we do think the consumer preference shift towards electric vehicles is in full force. And you know, there will be demand destruction on the internal combustion engine side of the business. It won't disappear overnight, but the share gains will go to electric.

JULIE HYMAN: So no fundamental qualms on Tesla.

CATHIE WOOD: No. In fact, GM and Ford pulling away tells us Tesla's market share in our five-year investment time horizon is going to be higher than we thought. So absolutely not. Have we bought any back? Well, as I mentioned, many stocks during the summer period had waterfalls, especially in the multi-omic space because they tend to be earlier stage, much earlier than Tesla--

JULIE HYMAN: So you prefer to buy there rather than Tesla.

CATHIE WOOD: So we were buying because we really do believe we're at the end of the interest rate move.

JULIE HYMAN: There's one more stock I want to ask you about, but it's not one that you own. You can probably guess maybe. Nvidia.

CATHIE WOOD: Nvidia.

JULIE HYMAN: Any regrets?

CATHIE WOOD: We own it in more specialized strategies. That's the first thing. We've taken it down everywhere. The flagship strategy does not own it because of our research. Now, everyone knows Nvidia has been the enabler of these amazing breakthroughs in AI, but they're not thinking about who the prime beneficiaries are going to be. And we've taken a strong point of view on that.

Every stock in our portfolio practically is there with AI as a reason. There are four things they have in common. One, they have deep domain expertise in their own business. They're really good at what they do to begin with. Two, they have brought in AI expertise. They are taking this very seriously. Three, they have good distribution, preferably global but maybe US only or regionally.

And then after that, most important is proprietary data. Our companies have data that nobody else has. And they're going to be able to use the foundation models like OpenAI and Anthropic and Llama2, which is Meta's. Those are free. They're open source. And they with their own AI expertise will build specialized models on top of those using their proprietary data. And they will get to better answers than any of their competitors and continue to leave their competitors in the dust.

JULIE HYMAN: So this also implies that even if, say, Nvidia came down in price that you wouldn't add it back to the to the benchmark portfolio.

CATHIE WOOD: You know it's interesting. It came down in price at the end of last year like everything, and we did buy it back in because according to our estimates, it was going to be able, at its lowest, to deliver a 30% compound annual rate of return. We thought, based on our research, compliance is listing, a 30% at a compound annual rate of return. That's a good return.

It wasn't as good as many of the other stocks in our portfolio, but this is a special company. And to see it back down there, we said, OK, we'll put it-- and then it took off because more and more people were talking about ChatGPT and our other stocks continued to wallow. And so we did some readjustments at the beginning of the year again.

JULIE HYMAN: But going forward, do you think--

CATHIE WOOD: So we are always open. We are very much driven by that rate of return estimate based on our five-year model. And we focus on enterprise value . So that incorporates bonds so it's conservative, and EBITDA, Earnings Before Interest Taxes Depreciation and Amortization. You can't play games with those numbers like you can with EPS.

So we've got a very conservative profile. We think, just in terms of valuation-- that's a question we get a lot-- how can you pay these multiples? The reason we're paying these multiples now is because we want and we applaud that our companies invest aggressively now to capitalize on and be the winner takes most competitor out there.

And so what we assume is that the multiples you see on our stocks today are going to compress dramatically during the next five years to little more than market-like in terms of-- even though we don't believe that's the case. And our rate of return expectations are driven by revenue growth, margin growth fighting that headwind of multiple compression.

JULIE HYMAN: All right. Cathy, thank you so much for spending so much time with me. I appreciate it.

CATHIE WOOD: Of course. Thank you. Thank you so much.