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Cathie Wood responds to Elon Musk: Tech will 'bend curve' on inflation

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Cathie Wood responded to Elon Musk flagging the surge in price pressures. Yahoo Finance's Brian Cheung, Julie Hyman and Brian Sozzi share the details.

Video Transcript

- Welcome back to Yahoo Finance Live. I feel like I have to say the word kind of quietly because it's going to get people all riled up. But hyperinflation is back in the news after a bunch of Titans in the business world really were chatting about it, of course, on Twitter because it's 2021.

But want to show you this tweet that came from Elon Musk responding to Ark's Cathie Wood. Cathie Wood was kind of talking about the idea of inflation maybe being due to these supply constraints and might not be as persistent as some people are worried about.

Elon Musk and Tesla responding I don't know about long term. But short term, we are seeing strong inflationary pressure. And to provide even more context, that original Cathie Wood tweet was in response to Jack Dorsey, who tweeted about four days ago that quote hyper inflation is going to change everything. It's happening.

OK. So let's try to keep this civilized here. But I'm going to go to Julie on this one. And then I'll allow Brian to respond with a rebuttal. What's the big takeaway from these people?

And it is significant that it is these people that are talking about it, right? But--

- Yes.

- The discourse happening on Twitter, the depth of it. What are your general thoughts?

- I mean, first of all, it's pretty clear that hyperinflation is not happening full stop. It's just not. This is not the 1970s. We are not seeing the same magnitude compressed into a short period of time of inflation.

We are seeing inflation. And I thought it was remarkable, actually that Elon Musk's response to Kathy Wood was very muted, especially by Elon Musk standards. And yes, of course, Musk is seeing inflationary pressure. He's seen his input costs go up. He's been raising Tesla prices pretty consistently through the balance of the year.

But I think the fact that these folks are talking about it publicly on Twitter and these high profile people are discussing it, just again, hammers home the idea that inflation is in the zeitgeist right now for the first time in a very long time because it's happening for the first time in a very long time. So it makes sense that it's going to be part of the broader discussion.

What's interesting is that wood is-- is taking the other side of it and talking about how she like many inflation east for years was calling for inflation that was not materializing. It is only now materializing as we have supply shocks that are causing prices to go up.

She says on the other side of it, we could actually see deflation. And that goes back to the question that you earlier posed to Lori Kawashima Brian Cheung, which was what happens when these supply bottlenecks then open up.

Will we see a flood of goods and will we see prices go down? I don't know if that's the case. But it's interesting that she's looking at that and looking at the long term effects of technology driven productivity as a deflationary pressure point.

- So maybe we need a-- maybe we need a new term. Maybe it's not traditional hyperinflation. Maybe it's hyperinflation light. Because this is what I do know.

- It's just inflation. That's all it is. It's just--

- You're right. Hyper and then light would cancel out. It would just be-- what-- what-- what I do know is that it's costing me significantly more to go to the bathroom. It's costing me significantly more to wipe my nose when I have a cold all because Kimberly Clark said this week they're seeing significant inflation.

And they're raising prices yet again. It's costing me significantly more to shave my face every morning because PG is raising prices on Gillette razors. These are significant--

- Let him finish. Let's let him finish here.

- When I think-- when the cost of a razor blade goes up, 7% to 10%, I mean, I'm not made of money here. That is a big price increase on consumers. And that price those price increases are going to have to come out of somewhere.

It's costing me more. If I wanted to go to a movie, it's costing more to eat the frozen dinners that I enjoy from Conagra Brands because of inflation. It may be not hyperinflation guys. But 10%, 15%, in some cases, 20% increases on prices.

I mean, those are big increases, you may not feel it necessarily when you go down the shopping aisles. But check the bill after you had a Target, Walmart, Kroger, or Safeway because it's coming right out of your pocket.

- So if I could-- if I could just happen to you. It is absolutely true that, especially if you are on the lower income spectrum of American workers, this is hurting you, right? If you have single digit single mid digit inflation, that is going to hurt you because those are the types of things that you have to buy. It's not the price of a tomahawk steak, it is the price of toiletries. It is the price of food, which the Fed might not include in its headline measurement. That is all important.

However, what is often lost in the inflation argument is that it's very rarely about the price increases themselves. Because as long as people are also getting paid more and if wage gains are outpacing the aggregate pace of inflation. If you're being paid more, you can afford to cover those price increases.

Again, that's not to say that's going to be the case for every single person. But when you look at the month of September, wages going up by a year over year rate of 4.6%, which if inflationary pressures do end up abating, that will be below the pace of what those wage gain increases are. That's the reason why the Fed is trying to keep that easy money going.

Now, whether or not that story ends up being true, it is certainly the case that we need a few more months to figure out where that's going to settle. But if it is indeed the case that it's a ship that's anchored off the side of LA, that's the reason for the cost price increases as opposed to these companies that are just deciding that they want more margins by increasing their prices by 20% to 25%. Those are completely different narratives. That's just my take.

- I mean, and Brian Sozzi-- listen, we know the Firebird is-- is a cost sink. We understand, OK? But I have faith in you that you can afford 7% to 10% more for your razors and your toilet paper.

Maybe-- maybe I'm making assumptions I shouldn't. But that's, that's the position I'm going to stick.

- These are big price increase. We'll leave it at that.