The impact of tech on the Buffet indicator
In 2021, Elon Musk asked Cathie Wood, the famous tech-focused investor from Ark investments, what is her explanation for the high Buffet indicator (a ratio of US stock market/GDP). Cathie suggests a few reasons:
- while the indicator maintained its pattern over the last 100 years, in the late 1800s was much higher, suggesting tech infection points (telephone. electricity & automobile back then)
- the new tech is deflationary, making lowering the basket included in GDP. So denominator goes down while the numerator.
- as bonds yields ~1-3%, money is gonna move to other assets, like stocks.
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