Ark Investment Management CEO Cathie Wood sees the possibility of a hard landing, as the velocity of money slows down amid the banking crisis.
Wood fell back on a basic economics equation to explain her point in a Twitter Space hosted by Pensions & Investment’s editor-in-chief Jennifer Ablan on Tuesday.
“MV is equal to PQ,” she said, adding that it is an identity.
P and Q refer to prices and quantity, and their product gives the nominal GDP, she said. The other side of the equation has money. She added.
Money was at a negative 3% year-over-year, while GDP was up 7.4% year-over-year, the fund manager said. What has plugged the difference is the velocity of money, she said.
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The Ark Invest founder said, with the bank runs, the velocity of money has flattened out and was turning down now. On a sequential basis, velocity has turned down, and on a year-over-year basis, it may not due to the base effects and other factors, she added.
“That tells us that nominal GDP growth is going to slow down dramatically first and we probably are going into a hard landing because the Fed doesn’t see this,” she added.
“I am bracing for a hard landing,” Wood said.
A hard landing suggests a sharp economic downturn following a period of rapid growth. As opposed to this, a soft landing refers to a slowdown in economic conditions at an acceptable pace,
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