Elon Musk And Cathie Wood Call Out Deflation Risks — What Investments Might Be Safe If They Are Right?

Deflation is a general decline in prices for goods and services, typically associated with a contraction in money supply and available credit in the economy. The value of money typically increases. It is often associated with periods of negative or stagnant economic growth — like the Great Depression, the Japanese economy in the 1990s and the early 2000s in the U.S. It tends to describe a declining economy.

Cathie Wood, founder, CEO and CIO of Ark Invest, has made news recently for a sort of spending spree. CNBC explained that her purchases came on the heels of the stock market’s worst sell-off of the year. Yahoo Finance used Bloomberg data to explain how much and what was purchased.

The story isn’t so much about the amount and the specifics of the spending spree; it's more about the timing. The big spending came on the same day the Nasdaq-100 index posted its worst one-day decline since March 2020.

Investing can be explained as “buy low, sell high,” and Wood made a big bet that now is the time to buy low. She thinks that you should act fast if you’re looking to get the most bang for your buck. Wood didn’t just walk the walk; she is talking the talk. And she’s not alone.

Tesla Inc. CEO Elon Musk is no stranger to controversy or bold predictions. Earlier this month, he shared his thoughts via Twitter and said that “a major Fed rate hike risks deflation.” He asserted earlier this year that recession was inevitable, and last year grimly tweeted that “if history is any guide, not many will make it past the next recession.”

Fed Chair Jerome Powell and Fed Governor Christopher Waller have both warned recently that people should expect a bit of pain as interest rates continue to rise. Inflation is higher than expected, and interest rates will remain above what was initially thought just a few months ago and are expected to stay there for a longer period of time. At its upcoming meeting, the Fed is expected to raise its key short-term rate by three-quarters of a point for the third consecutive time.

If this is all sounding like doomsday, it might be. The Fed's projected rates haven’t been seen since the pre-2008 crisis. Credit card borrowing rates are as high as they’ve been in decades, and mortgage rates were at their highest point in 14 years last week.

So, with a world in turmoil and experts like Musk and Wood in agreement that people are in for rough times — how can you keep your money safe?

One option is to follow the strategy of Wood herself, who invests in things like DraftKings Inc., Roku Inc., Zoom Video Communications Inc., Block Inc. and various healthcare and telehealth companies.

Or, you could avoid the stock market altogether. Jeffrey Gundlach — the Bond King — recommends Treasury bonds. He sees them as looking better than they have for over 10 years. The billionaire has also shared how to make a portfolio of bonds that could easily deliver 12%.

Finally, you could invest in assets that an inherently limited. When things are scarce, they become even more valuable. In times of turmoil, nothing may be more valuable than land. How can you tap into that market? You could make like Microsoft Corp. founder Bill Gates and invest in farmland. Real estate investment trusts (REITs) like Farmland Partners Inc. and Gladstone Land Corp. are enticing. Also appealing are crowdfunded options like AcreTrader, which allows for fractional ownership and produces great returns.

But land doesn’t just mean farming. Land can also net you the properties resting upon it. Consider this nugget from Arrived Homes CEO Ryan Frazier, who said that real estate investing in periods of deflation “have delivered outsized returns for investors over time.” 

Arrived Homes launched in 2021, becoming the first platform to provide SEC-qualified rental property investments to the market through fractional ownership. The company has been backed by Amazon.com Inc founder Jeff Bezos during two funding rounds and has already fractionalized over 160 single-family homes with a total value of over $60 million. 
Real estate is an option that has produced good gains, historically speaking. Even in tumultuous times, the housing market can prove lucrative for patient investors. Investors can even use platforms like Arrived Homes to buy equity shares of rental properties with as little as $100, yet capitalize on the same long-term gains that billionaires like Grant Cordone and Donald Bren have been receiving.

Photo: Courtesy of MoneyConf on flickr and Ark Investment