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Speaker 1: All right, well, some guests need no introduction and joining

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Speaker 1: us right now on Bloomberg Radio and also on Bloomberg Television.

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Speaker 2: We're delighted to have back with us.

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Speaker 1: Of course our convest founder, CEO and CIO, Kathy would

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Speaker 1: we wanted to actually talk to her because there's so

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Speaker 1: much going on, certainly this week, whether it's today when

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Speaker 1: it comes to the jobs report, but it's also what's

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Speaker 1: been going on with open AI. So looking forward to

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Speaker 1: just bringing her in and welcoming her, I should say,

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Speaker 1: on Bloomberg Radio, but also on Bloomberg Television. All right,

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Speaker 1: let's get to Kathy Wood joining us. Kathy, great to

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Speaker 1: have you here with us.

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Speaker 2: How are you. I'm great, Carol, thank you so much

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Speaker 2: for inviting me. Well, it's good to have you here.

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Speaker 1: There is a lot going on, and we were saying,

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Speaker 1: obviously we want to kind of start macro, which we

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Speaker 1: often do with you. And first up the upbeat labor market,

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Speaker 1: the Fed finally now cutting interest rates. You've been beating

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Speaker 1: the drum for some time about the Fed to cut rates.

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Speaker 1: At the same time, we had Treasury Secretary former Treasury

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Speaker 1: Secretary Loarry Summers out saying the half a point cut

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Speaker 1: was a mistake. Stanley Druckenmailer, the hedge fund billionaire. He

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Speaker 1: believes the FED shin of cut rates at the most

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Speaker 1: most recent meeting. He thinks that the Central Bank has

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Speaker 1: boxed itself into a corner by guiding for even more

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Speaker 1: rate cuts ahead. Do you think the FED rate cut

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Speaker 1: was a mistake.

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Speaker 2: Absolutely not, not at all. It's been very interesting to

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Speaker 2: watch the revisions in economic activity. Until this report, their

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Speaker 2: revisions in the employment numbers had been down, and they

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Speaker 2: were much weaker than had originally been reported. You know,

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Speaker 2: we look at earnings reports and look at their revenues,

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Speaker 2: and we're seeing a lot of companies showing negative revenues.

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Speaker 2: So you know, the headline numbers are heavily influenced recently,

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Speaker 2: certainly in terms of some of the upward revisions in

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Speaker 2: personal income by transfer payments. That's government stimulus and interestingly dividends.

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Speaker 2: But if you look at the economy, the cyclical part

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Speaker 2: of the economy is sick. It's sick. If you look

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Speaker 2: at the sectors in the economy, one by one, they've

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Speaker 2: been falling into a recession no matter what the headline

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Speaker 2: numbers say. Housing went down immediately when the Fed started

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Speaker 2: raising rates. We're down twenty to forty percent. Still, that's

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Speaker 2: a recession. You've got non residential construction in recession autos.

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Speaker 3: Very week, Kathy. I know it's a backward looking number,

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Speaker 3: But then what do you make of today's payrolls report

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Speaker 3: two hudred and fifty four thousand jobs added to the

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Speaker 3: economy for the month of September. Now, it doesn't sat

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Speaker 3: seem recessionary.

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Speaker 2: So if you just let me finish him, I'll get

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Speaker 2: to that in one minute. So we've got those sectors,

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Speaker 2: and then you've got the small and medium business sector.

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Speaker 2: Their confidence is at eight to nine levels. And we've

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Speaker 2: got certain pricing measures, certainly the cyclical ones that have

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Speaker 2: been deflationary. Actually, so one thing that I do think

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Speaker 2: is going on that is helping is as prices are

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Speaker 2: coming down and the consumers getting better and better deals

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Speaker 2: and they're spending, So I think that is sustaining. You

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Speaker 2: know a lot of people say real growth causes inflation.

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Speaker 2: In this case, and actually in history most times, if

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Speaker 2: you cut prices, you'll get more activity the consumer as

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Speaker 2: long as the labor market hangs in here, and yes,

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Speaker 2: today was very reassuring that way, as long as the

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Speaker 2: labor market hangs in here and companies like Walmart and

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Speaker 2: Costco and auto companies either increase their discounts or cut

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Speaker 2: their prices, I think the activity will come and the

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Speaker 2: labor market will continue to hang in, but if they

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Speaker 2: try and jack prices back up. It was very interesting

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Speaker 2: to see FedEx, after turning positive in revenues and then

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Speaker 2: turning negative year over year on revenues, basically saying they're

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Speaker 2: going to use prices to make it up. I think

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Speaker 2: that's going to backfire, and I'll think I think during

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Speaker 2: the next year you'll under that many people will understand

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Speaker 2: how deflationary the undercurrents are in the economy. Now, deflation

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Speaker 2: is not always bad. Part of it is because of innovation,

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Speaker 2: technologically enabled innovation. The car prices EV prices are coming down,

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Speaker 2: their costs are coming down too. So I think there's

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Speaker 2: a lot of confusion in terms of what's going on

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Speaker 2: out there because productivity is stronger than expected, giving companies

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Speaker 2: the latitude to cut prices and salvage margins, so that

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Speaker 2: if that sustains.

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Speaker 1: Great Kathy, when we talked with you earlier this year,

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Speaker 1: let's go back to March for a moment. You mentioned

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Speaker 1: the possibility of inflation going negative this year. You also

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Speaker 1: talked about unemployment going above five percent. Are those still

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Speaker 1: your calls?

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Speaker 2: Yeah, we would this year. I mean, we're going to

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Speaker 2: have to push it out because inflation did levitate as

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Speaker 2: companies tried to price to make up for shortfalls and

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Speaker 2: unit growth. It levitated in the three and a half

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Speaker 2: to four percent range. Now it's broken below three and

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Speaker 2: we're hearing more and more companies, you know, basically trying

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Speaker 2: to attract consumer attention with lower prices. So yes, if

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Speaker 2: you look at money growth on a year over year basis,

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Speaker 2: it was negative for I think about a year and

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Speaker 2: a half. Maybe more money is a leading indicator for inflation,

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Speaker 2: and we do believe that inflation will go much lower

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Speaker 2: than people expect right now. Wouldn't be surprised to see

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Speaker 2: it go negative, especially especially if the consumer is worried

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Speaker 2: about job loss, whether because of AI and automation generally

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Speaker 2: or what have you. So the saving rate tends to

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Speaker 2: go up during those periods, and that will mean we

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Speaker 2: believe that companies will have to price even more aggressively.

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Speaker 2: In terms of over five percent unemployment rate, we could

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Speaker 2: see it. We could see it. I will say today

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Speaker 2: gave me pause in terms of this productivity dynamic and

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Speaker 2: sort of the Okay, companies may not if they get

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Speaker 2: the productivity growth from existing employees, they may not feel

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Speaker 2: like laying them off. They can lower prices to keep

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Speaker 2: consumer demand going.

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Speaker 3: Hey, Kathy, Election Front Center. We're just month and change

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Speaker 3: out from the election here in the US, and I'm

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Speaker 3: wondering how this dynamic, in your view changes whether President

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Speaker 3: Trump is re elected or we see a Harris administration.

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Speaker 1: And I wonder who you would support to in terms

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Speaker 1: of what you think is good for the US economy

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Speaker 1: and America.

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Speaker 2: Okay, So our focus is on innovation, and something very

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Speaker 2: important happened this past year. We were very concerned that

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Speaker 2: excessive regulation was driving innovation off our shores, particularly when

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Speaker 2: it came to crypto or digital assets. We've had a

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Speaker 2: very hostile regulator, and the same I would say is

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Speaker 2: true of the FTC in terms of denying M and A,

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Speaker 2: because that has prevented a lot of innovative companies from

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Speaker 2: enjoying liquidity events by selling out to bigger companies. I

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Speaker 2: think we're hearing from both both candidates that those two

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Speaker 2: jobs are on the line maybe for that reason, and

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Speaker 2: we're seeing more alignment that innovation solves problems and so

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Speaker 2: we should not discourage it. So from that point of view,

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Speaker 2: you know, I'm happy to see the bipartisan movement here.

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Speaker 2: You know, we'll favor lower regulations every day when it

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Speaker 2: comes to innovation. I don't think tariffs are a great

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Speaker 2: a great thing at all for innovation and for economic activity.

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Speaker 2: So there's something on both sides that will give us pause.

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Speaker 2: But the most important thing is the biggest impedience to innovation.

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Speaker 2: We think that that we're developing clarity around what's going

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Speaker 2: to happen at the SEC and the FTC.

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Speaker 1: So do you think one thing is better than one

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Speaker 1: of the candidates, I should say, is better for the

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Speaker 1: investment environment for companies versus the other.

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Speaker 2: So here I'm going to revert to being the CEO

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Speaker 2: of a company, where you know I'm representing both sides,

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Speaker 2: and I'm focusing therefore on innovation, which is of primary

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Speaker 2: concern to us. And I've given you a sense of

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Speaker 2: where we think both sides are on innovation regulations. That

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Speaker 2: the one the one that will lower more regulations because

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Speaker 2: regulations are strangling this economy. Strangling small business, strangling big business.

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Speaker 2: That's a very important one. Wells would be as well.

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Speaker 1: So fair enough, fair enough, Well, let's talk innovation. Which

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Speaker 1: is your world?

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Speaker 2: AI?

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Speaker 1: Big news this week Open Aiyes, raising six and a

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Speaker 1: half billion a new funding, one hundred fifty seven billion

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Speaker 1: dollar valuation. Are put in two hundred and fifty million dollars,

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Speaker 1: the Wall Street Journal reminding us that that's the minimum

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Speaker 1: amount required to open up their financial document. So why

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Speaker 1: this investment, Why are you interested? And what did you

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Speaker 1: learn about the company and its growth trajectory or about

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Speaker 1: the business to be quite fair looking at those financial documents.

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Speaker 2: Well, we've been doing research on AI for ten years now.

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Speaker 2: That's why we were so early into in Vidia, and

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Speaker 2: you know we've obviously taken it down in most of

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Speaker 2: our portfolios out of the flagship. One of the things

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Speaker 2: that we've been looking for is the next big play,

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Speaker 2: and you know, we think Nvidia is still a fine stock,

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Speaker 2: but in terms of the unexpected out there, we do

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Speaker 2: think it's going to be in the software layers. And

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Speaker 2: as you know, Palenteer has been a big position for

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Speaker 2: us in the top ten UiPath as well. It had

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Speaker 2: a stumble, but it's coming back now, and I think

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Speaker 2: as more and more people understand how well positioned it is,

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Speaker 2: it will do very well. But a lot of the

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Speaker 2: software companies that we think are going to benefit are

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Speaker 2: in the private sector. And I'm thrilled that we have

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Speaker 2: a venture fund. That is really our purpose here is

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Speaker 2: to democratize venture capital, so that for five hundred dollars,

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Speaker 2: you know, anyone can get access to open ai, which

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Speaker 2: is the third largest position, or SpaceX, which is the

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Speaker 2: largest position. But if you look at software, many people say, well,

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Speaker 2: we have so many software companies in the public markets,

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Speaker 2: what do you mean? And what we mean by that

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Speaker 2: is we think that the software world's going to change

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Speaker 2: fairly dramatically, and we're going to see a shift, maybe

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Speaker 2: a share shift, away from software as a service towards

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Speaker 2: platform as a service, so so think about Palenteer and

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Speaker 2: Foundation models an infrastructure as a service so cloud. And

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Speaker 2: the reason for that is because engineers are going to

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Speaker 2: be made so much more productive, developers so much more

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Speaker 2: productive by open ai and Anthropic and XAI and and

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Speaker 2: Google and Meta Meta's Lama three. We're going to see

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Speaker 2: companies customizing their own software, customizing software for their own

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Speaker 2: companies as opposed to just going automatically to know one

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Speaker 2: size fits all software as a service.

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Speaker 3: Hey, Kathy, forgive me. We only have a couple of

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Speaker 3: minutes left, so I want to get in a few

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Speaker 3: more questions here. I don't mean to keep interrupting you,

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Speaker 3: but you mentioned closing out your stake in nvidio. You

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Speaker 3: did that in the Flagship Arc Innovation Fund last year,

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Speaker 3: but you also told us back in March that you

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Speaker 3: use some of that to buy into Coinbase. Since February

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Speaker 3: of twenty twenty three, Coinbase is up a bit more

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Speaker 3: than one hundred and fifty percent, no question, a great return.

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Speaker 3: But in Vidia up nearly five hundred percent since that time.

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Speaker 3: Do you regret that move last year?

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Speaker 2: If you had Look, if I had bought both Coinbase

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Speaker 2: and Innvidia and sold something else, would I have been

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Speaker 2: happier about that decision? Sure, I would have been happier. Actually,

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Speaker 2: from the time we bought Coinbase to the time maybe

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Speaker 2: we were talking to you, or whenever we measured it,

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Speaker 2: Coinbase actually had done better than in Nvidia. It has

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Speaker 2: come back in in Vidia has had another big run.

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Speaker 2: But we're now really focused on the future, and so

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Speaker 2: software to us is going to be a huge opportunity.

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Speaker 2: Foundation models. We think we'll deliver fifteen trillion dollars around

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Speaker 2: that in the next five to ten years in market cap.

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Speaker 2: That's from a standing start, So and we'll see what

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Speaker 2: happens to video over that time. You know, I think, is.

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Speaker 1: There something that could make you buy into Envideo at

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Speaker 1: this point or added to your flag jat, I mean,

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Speaker 1: I know you owe some but yeah.

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Speaker 2: Yeah, yeah, if the if the price came down. You know, again,

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Speaker 2: I think I must say one of perhaps my weaknesses

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Speaker 2: in a momentum market is watching, you know, watching a

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Speaker 2: lot of momentum drive the stock and realizing that a

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Speaker 2: lot of people who never owned it are getting in

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Speaker 2: and my weak holders. So you know that that factored

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Speaker 2: into my thinking. But you know, we enjoyed if you

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Speaker 2: if we got into Nvidia forty cents based on this

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Speaker 2: stock in twenty fourteen, so you know, wherever we got out,

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Speaker 2: we were extremely happy with what It's been the third

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Speaker 2: largest contributor to our flagship fund. So you know, tactically

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Speaker 2: sure we would have loved to still have it, you know,

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Speaker 2: at you know, a bigger position in the portfolios. But

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Speaker 2: again We're all about the future, and our research is

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Speaker 2: focusing us on this software layer that has has huge

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Speaker 2: amounts of appreciation.

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Speaker 1: Ahead, let's go to Tesla, number one holding in your

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Speaker 1: flagship our innovation ETF. It's down about forty percent. It's

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Speaker 1: an all time high back in November of twenty twenty one.

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Speaker 1: Little change here to date. You know, when when do

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Speaker 1: you decide? You know, in terms of Tesla, you know

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Speaker 1: it's a different marketed EV market. You understand, you know

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Speaker 1: what's going on in that marketplace more than ever. You know,

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Speaker 1: what is your thinking.

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Speaker 2: About Tesla today?

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Speaker 1: You've got an estimate of twenty six hundred dollars a

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Speaker 1: share for twenty twenty nine. What gets us there? And

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Speaker 1: just quickly sorry, we've only got about thirty seconds.

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Speaker 2: Autonomous mobility think ten ten October ten. Here that is

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Speaker 2: going to focus analysts not just on a VS but

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Speaker 2: on the autonomous opportunity. Tesla is the largest AI project

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Speaker 2: in the world. Talk about shifting resources from Nvidia into Tesla.

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Speaker 2: We think longer term that is going to prove to

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Speaker 2: be a very good view.

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Speaker 1: We know you have to run, so appreciate your time.

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Speaker 2: B well.

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Speaker 1: Kathy Wood. Of course, of ARC invests, joining us right

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Speaker 1: here on Bloomberg BusinessWeek, on radio and TV,