Speaker 1: Hey, Odd Loots listeners, We're coming to DC.
Speaker 2: We're finally doing it, Joe. It's going to be our
Speaker 2: first live show in Washington, DC, our nation's capital. It's
Speaker 2: also finally going to be the time where we actually
Speaker 2: talk about the Jones Act.
Speaker 1: We've been talking about doing the Jones Act episode of
Speaker 1: Odd Lots for a long time and it's become this
Speaker 1: recurring joke that we've never done on But we're going
Speaker 1: to do it in grand style because we're going to
Speaker 1: be doing it live in DC and it's actually going
Speaker 1: to be a debate.
Speaker 3: Yeah.
Speaker 2: So we have Sarah Fuentes from the Transportation Institute. She's
Speaker 2: going to be taking the pro side, and we also
Speaker 2: have Colin Graybou of the Cato Institute. He'll be taking
Speaker 2: the against side. It's going to be really interesting to
Speaker 2: see how all of that shakes out.
Speaker 1: In addition to that, we're going to be speaking with
Speaker 1: Blair Levin, who was around during the telecom bubble, and
Speaker 1: we have Andrew Ferguson, the new head of the FTC,
Speaker 1: the one who's replaced Lena Kong. We're going to be
Speaker 1: talking about mergers and acquisitions and all that stuff. So
Speaker 1: it should be a really fun name.
Speaker 2: If you want to come and join us for that evening,
Speaker 2: it's going to be on March twelfth at the Miracle Theater.
Speaker 2: Go to Bloomberg dot com forward slash odd Lots and
Speaker 2: you can find the link to purchase tickets. We hope
Speaker 2: to see you there.
Speaker 4: Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2: Hello and welcome to another episode of the Odd Lots Podcast.
Speaker 2: I'm Tracy Allaway.
Speaker 1: And I'm Jill Wisenthal Joe.
Speaker 2: I love it when we do live events. It's very fun.
Speaker 2: Sometimes there's audience participation, which is great. We get to,
Speaker 2: you know, sit on stage and look important. And this
Speaker 2: week we were on a very important stage. We were
Speaker 2: at the Bloomberg invest Conference. This is our flagship conference
Speaker 2: of the year, and we got to speak to someone
Speaker 2: who I've wanted to interview for quite a long time.
Speaker 1: I like doing live events, for sure, but you know,
Speaker 1: I also love the comfort of my headphone. It's not
Speaker 1: having to worry about how I look.
Speaker 2: I do get nervous about guests showing up.
Speaker 1: I get nervous, but that's always and they've always showed up.
Speaker 1: We've never done a live event where the guests didn't
Speaker 1: show up.
Speaker 3: Oh you're going to jinx it now, I know, but
Speaker 3: that's right.
Speaker 1: But on Tuesday, March forward, we were down at the
Speaker 1: Bloomberg invest conference and we got to interview Kathy Would.
Speaker 2: That's right. So Kathy Would famously the founder and CEO
Speaker 2: of ARC Invest, famously an investor in some pretty big
Speaker 2: tech names like Tesla. So we got to ask her,
Speaker 2: you know, questions about Elon Musk and things like that,
Speaker 2: and basically just hear what she thinks is coming down
Speaker 2: the pipeline in the upcoming years in terms of technology.
Speaker 2: She's very optimistic, Joe.
Speaker 1: She's very optimistic. She expects to see a golden age
Speaker 1: of tech investing, a golden age for American business, bigger
Speaker 1: than the Reagan era, as she called it. So take
Speaker 1: a listen to our interview with Kathy.
Speaker 2: So, the big story in markets right now is a
Speaker 2: widespread sell off in the past couple of days, But
Speaker 2: even before then, we saw something specifically focused on AI,
Speaker 2: and the worries seemed to come out of nowhere. Suddenly
Speaker 2: everyone was talking about deep Seek, this Chinese AI model,
Speaker 2: and we saw a really intense sell off. Were you
Speaker 2: aware of deep Seek before that day? And how big
Speaker 2: a problem. Do you think something like that is for USAI.
Speaker 3: Actually we were aware of deep seek are one. I
Speaker 3: think the paper came out in December, so our analysts
Speaker 3: had poured over it and thought it was a very
Speaker 3: interesting model. I think the surprise and the question was around,
Speaker 3: wait a minute, did this take only six million dollars
Speaker 3: to build this large language model? And did they really
Speaker 3: do it on a high end workstation? Are we going
Speaker 3: to need all this data center capacity after? And I
Speaker 3: think with time we've learned that they did a lot
Speaker 3: of pre training before. Apparently they have fifty thousand, fifty
Speaker 3: thousand cluster of GPUs which helped with the pre training. Nonetheless,
Speaker 3: as some of our finest technology experts, Sam Altman and
Speaker 3: Jensen Wang included, they commented they were terribly impressed by
Speaker 3: the algorithm itself. And I think what we were impressed
Speaker 3: by is it's open source. Anyone can use it. So
Speaker 3: here we go. Meta Platforms was really the open source
Speaker 3: platform large language model. Now we have deep Seek, and
Speaker 3: I think yesterday another one came out Kung Fu.
Speaker 1: Oh I totally, I totally missed that one. I love
Speaker 1: trying the new ones.
Speaker 4: I'll try it.
Speaker 1: I'll try it tomorrow. Right now, we're recording this March fourth,
Speaker 1: when the market sold off, was this concern like, oh, well,
Speaker 1: the greater efficiency mean at the margins, less demand for
Speaker 1: chips or less impulse to build out data centers.
Speaker 3: And there's no.
Speaker 1: Hard evidence so that you know, there's you know, the
Speaker 1: big tech company's enormous CAPEX budgets every single year and
Speaker 1: they're throwing out these unbelievable numbers their hints here and there.
Speaker 1: Have you observed anything tangible, say, over the last several
Speaker 1: weeks that to you suggests that there is some change
Speaker 1: at the margin deep seek aside in how much businesses, hyperscalers,
Speaker 1: et cetera are throwing at AI right now, I.
Speaker 3: Have not seen any change.
Speaker 1: In there's no evidence of the power.
Speaker 3: Of these models is profound. And if anything, we just
Speaker 3: had a conversation with one of the largest m we're under,
Speaker 3: an NDA said, I can't talk about which one providers.
Speaker 3: And it's clear that nation's educational systems and enterprises are
Speaker 3: all saying we have got to do this. This is
Speaker 3: transformational in so many ways. Many are talking and thinking
Speaker 3: about productivity and efficiency, but others are thinking about deep research,
Speaker 3: especially with the new reasoning models and deep researches one
Speaker 3: of them and are just blown away by the results
Speaker 3: that we're getting. So I'm not seeing any slowdown at all.
Speaker 2: So you mentioned the fact that deep seek is open source,
Speaker 2: and that was a big differentiator between it and some
Speaker 2: other models. I know you're a big fan of open source.
Speaker 2: How do you incorporate that aspect into I guess an
Speaker 2: investment analysis? And also, did open AI make a mistake
Speaker 2: by not going open source?
Speaker 3: Well, we've been tracking closed models and open source for
Speaker 3: quite ever since the chat GPT moment, and what you'll
Speaker 3: see is the goal closed models have been ahead of
Speaker 3: the open source models, but if you look at the
Speaker 3: slope of the line of the performance improvement, open source
Speaker 3: is actually a steeper slope. So the reason I love
Speaker 3: open source is it is helping along the competition, helping
Speaker 3: the movement along, helping it go faster. And I think
Speaker 3: that open source nipping at the heel of closed is
Speaker 3: a very good thing.
Speaker 1: So, you know, chaed GPT came on to everybody's radar.
Speaker 1: I guess it's late twenty twenty two, and I think objectively,
Speaker 1: anyone who spends any time with these tools in a sense,
Speaker 1: just absolutely jaw dropping, right. Are you surprised, however, that
Speaker 1: we're like this far into it and the tools are
Speaker 1: so in some sense extraordinary, But we can talk about
Speaker 1: some of the flaws and limitations, and yet we really
Speaker 1: haven't seen much of a macro impact from their use.
Speaker 1: We haven't seen some sector of the economy or the
Speaker 1: labor force get laid off. We haven't seen some major
Speaker 1: surge in measured productivity gains, although that's infamously hard to measure.
Speaker 1: Are you surprised any sense by the existence of the
Speaker 1: technology and what seems like sort of a modest macro impact.
Speaker 3: So I do think productivity has been boosted to some extent,
Speaker 3: And you're right, it's very difficult to measure this. My
Speaker 3: background's economics, and in the eighties, productivity was a big
Speaker 3: question mark, and we saw how flawed the measurements are
Speaker 3: and probably still are. So I can only tell you
Speaker 3: the rate of uptake is so much is that enterprises
Speaker 3: are seeing a difference. Maybe if they're not laying people off,
Speaker 3: they're not hiring them, And that's because these AI tools
Speaker 3: are making their own, especially engineers, so much more productive. Right,
Speaker 3: So you just don't have to hire that next person.
Speaker 3: If you've seen the number of coding employees in the
Speaker 3: United States has dropped like a cliff, I mean off
Speaker 3: a cliff. It hasn't dropped like a cliff. It's dropped
Speaker 3: off a cliff. And I don't know if you've seen
Speaker 3: that chart. So that very much has happened as engineers
Speaker 3: just become more and more productive. You know, one of
Speaker 3: the things that we're wondering is, Okay, what part of
Speaker 3: the software stack will this traditional software stack will this impact?
Speaker 3: And we think the AI revolution what we see already
Speaker 3: losing share to some extent. It is still growing, but
Speaker 3: losing share is software as a service. And you know,
Speaker 3: I think we're all paying very close attention to the
Speaker 3: revenue growth dynamics of these companies. A Salesforce, dot com
Speaker 3: revenue growth isn't picking up. In fact, it continues to decelerate.
Speaker 3: I think it's next quarter will be I think seven percent,
Speaker 3: down from nine percent. That's not what's supposed to happen here,
Speaker 3: and so I think that might be what you're referring
Speaker 3: to Wit a minute. Where are the top line dynamics,
Speaker 3: where are they coming from? Well, I think we have
Speaker 3: a lot of entrepreneurs in a lot of garages or
Speaker 3: in R and D centers who are creating the next
Speaker 3: big thing. And you know, we look at two profound
Speaker 3: ramifications of AI that we understand, we've been reaching researching
Speaker 3: them for so long. The largest AI project on Earth
Speaker 3: is robotaxis autonomous driving networks. We think that's going to
Speaker 3: drive eight to ten trillion dollars in revenue globally in
Speaker 3: the next five to ten years, up from zero now.
Speaker 3: So that's called embodied embodied AI. The most profound application
Speaker 3: of AI, we believe is going to be in healthcare,
Speaker 3: and the convergence of sequencing technologies, artificial intelligence and new
Speaker 3: technologies like Crisper gene editing are already curing diseases sickle
Speaker 3: cell disease and beta thllocemia cured. Chrisper Therapeutics has that cure.
Speaker 3: It is generating revenue. Now. People find this one very
Speaker 3: hard to believe because it hasn't happened before. But the
Speaker 3: R and D explosion in healthcare is like nothing I've
Speaker 3: ever seen, and we think we're going to return to
Speaker 3: the golden age for healthcare. I started in the eighties
Speaker 3: when genentech had taken off and created the Golden age
Speaker 3: for healthcare. Back then, returns to R and D back
Speaker 3: then we're in the thirty percent range. Today for the
Speaker 3: broad based pharma biotech field, the returns are down in
Speaker 3: the four percent range. We think with all of these
Speaker 3: new tailed, new tools and the incredible productivity being added
Speaker 3: to research and discovery in the healthcare space, we're going
Speaker 3: back to the golden age where returns on R and
Speaker 3: D could be thirty forty percent plus.
Speaker 2: Since you mentioned robotaxis, we got to talk about Tesla.
Speaker 2: Of course, obviously a big component of your portfolio. Elon
Speaker 2: Musk seems very busy nowadays. To put it mildly, as
Speaker 2: an investor, do you worry at all that he has
Speaker 2: perhaps distracted from, ostensibly the day to day running of
Speaker 2: the company.
Speaker 3: We've been getting this question practically since the beginning, So
Speaker 3: Tesla and then he starts all these other companies, right,
Speaker 3: and people were saying, does that not concern you? So
Speaker 3: I'll answer that first, then we'll bring in the government overlay.
Speaker 3: The reason it doesn't concern us is Elon Musk is
Speaker 3: probably the inventor of our age. But who understands that
Speaker 3: we're in the midst of the most profound convergence among
Speaker 3: technologies really catalyzed by AI. And he understands that the
Speaker 3: name of the game in terms of who's going to
Speaker 3: win all this through all of this are those companies
Speaker 3: that number one, have deep domain expertise. They take AI
Speaker 3: seriously and they're investing in it. And perhaps most important,
Speaker 3: they have data that no one else has, proprietary data.
Speaker 3: Think of all the data spewing out from all of
Speaker 3: these companies, even Neuralink, that's biological data. And the most
Speaker 3: prolific data explosion out there is in the healthcare space.
Speaker 3: We have thirty seven trillion cells in our body and
Speaker 3: they turn over every quarter. And now we have something
Speaker 3: called single cell sequencing that we can combine with AI
Speaker 3: to unlock the secrets of life, health and death. And
Speaker 3: that's what we're going to do. He understands that Neuralink's
Speaker 3: a part of this. Okay overlay in the government sector.
Speaker 3: I agree, he's doing something certainly for his country.
Speaker 2: I know he believes that he's tweeting a lot, that's
Speaker 2: for sure. He's tweeting a lot.
Speaker 3: He always has tweeted a lot, right, He always is
Speaker 3: tweeted a lot. Anyways, So he's I think what we
Speaker 3: have found with his companies and we own in our
Speaker 3: venture fund, the private ones as well of course as Tesla,
Speaker 3: and as we go through the quarterly reports and dialogue
Speaker 3: with management, critical to us is that he is keeping
Speaker 3: his eye on the technology balls that are his competitive
Speaker 3: or barrier to entry. And what Elon is expert at
Speaker 3: doing is if there's a bottleneck, he'll go in there
Speaker 3: and blow it up, and he will use first principles thinking.
Speaker 3: And he's surrounded himself by business people and engineers who
Speaker 3: want to work on the hardest projects in the world,
Speaker 3: the hardest projects that are going to help transform the
Speaker 3: way we live and work and so forth. Doje is
Speaker 3: another big project. It's not his full time job, even
Speaker 3: though one would not know that. But we have talked
Speaker 3: to our counterparts and you know, we aren't talking to
Speaker 3: Elan as much these days, but to other very important
Speaker 3: decision makers and they're really not skipping a beat. Now.
Speaker 3: The politics of what's going on have hit sales and
Speaker 3: so yes, that is true, that is why, and we
Speaker 3: knew that was going to happen. So there are a
Speaker 3: couple of calls this year, actually probably three. We knew
Speaker 3: model why it was going to be completely refreshed, largest
Speaker 3: selling car in the world that is beginning to happen
Speaker 3: throughout the world. And if the Model threees refresh as
Speaker 3: any indication this, this should work out very well. Perhaps
Speaker 3: more important is the lower cost car that they are
Speaker 3: going to put out in the first half of this year,
Speaker 3: so thirty thousand dollars or less and think less, especially
Speaker 3: with different credits. This is going to open up Tesla
Speaker 3: to a whole new market, as Elon says, and people
Speaker 3: don't believe him in this political dynamic, but its problem
Speaker 3: isn't demand. There are people who have been waiting for
Speaker 3: a car that just can't afford it, and they're very
Speaker 3: excited to have their first Tesla. So that's the second thing.
Speaker 3: The third thing, and we've watched this very closely. As
Speaker 3: you all know autonomous, We do believe well. They're launching
Speaker 3: in Austin in June. Another important milestone. Now analysts have
Speaker 3: to integrate into their models what autonomous will mean for Tesla,
Speaker 3: and so anyone who's been viewing Tesla as an EV
Speaker 3: manufacturer is going to have to go back to the
Speaker 3: drawing board and realize that the gross margins of its
Speaker 3: autonomous network. It's autonomous platform will be in the seventy
Speaker 3: to ninety percent range, whereas their EV gross margins are
Speaker 3: in the mid teens. Right now, that's a double tape.
Speaker 3: This is turning into US software as a service model
Speaker 3: and that finally, I think will bring technology investors and
Speaker 3: analysts into this stock. They understand SaaS and how different
Speaker 3: the model is compared to an EV model. And the
Speaker 3: other thing about the AI opportunity and autonomous is its
Speaker 3: winner take most. And we do believe that Tesla will
Speaker 3: be in the is in the pole position here in
Speaker 3: the United States. Anyone who's tried a Weiymo car as
Speaker 3: I have in fans, big, big fans. If you look
Speaker 3: at Big Ideas twenty twenty five, which is our annual report,
Speaker 3: you will see why. And kudos to Weimo. I agree
Speaker 3: it's a delightful ride. But in terms of the economics,
Speaker 3: for Weimo, car is uneconomic, totally economic. It's going to
Speaker 3: be very difficult for them to scale without deciding to
Speaker 3: lose a lot of money. And you'll feel you'll find
Speaker 3: that delineated in Big Ideas twenty twenty five.
Speaker 1: Since you mentioned the stock and the idea of like
Speaker 1: tech investors coming back, Let's talk about tech stocks because
Speaker 1: obviously they've gotten really hit hard over the last week.
Speaker 1: But overall, you know, there was that furious post election
Speaker 1: rally sometimes you know, the various peaks in things. December,
Speaker 1: there's been this decline. What's going on? Is there a
Speaker 1: macro story behind the tech sell off when you look
Speaker 1: at how the markets behaved, what's your answer?
Speaker 3: Well, I think, I mean fear and greed is you know,
Speaker 3: a constant trade off. And I think after the election,
Speaker 3: the day after the election, the market started broadening out
Speaker 3: enormously away from just the mag six towards our kind
Speaker 3: of stock. And the reasons for that include deregulation. Deregulation
Speaker 3: or regulation has been a menace for innovation generally. But
Speaker 3: even the FTC not only allowed not allowing M and
Speaker 3: A and not allowing strategic price discovery to say, hey,
Speaker 3: this new innovation is going to be worth a lot
Speaker 3: and we need it.
Speaker 1: Now, the FTC is keeping the same merger guidelines. Pardon
Speaker 1: the FTC is maintaining the merger guiden guidelines. So we
Speaker 1: haven't seen this big anyway.
Speaker 3: I think, I think I think we will see it.
Speaker 3: I think deregulation is critical to this administrative administration's mandate.
Speaker 3: It feels it's one of and it's one of the
Speaker 3: most important variables, because if you think about what was
Speaker 3: going on before no M and A, even if companies
Speaker 3: didn't compete directly with one another, they disallowed so much
Speaker 3: M and A that you know, the big companies kind
Speaker 3: of could sit back fat DOWMN and happy, and their
Speaker 3: shareholders didn't want them to buy anything because that would
Speaker 3: take away from their own whether it's share repurchases or
Speaker 3: profit or profit sharing and so forth. So I think,
Speaker 3: I think that this administration is going to provide a
Speaker 3: really beautiful runway from a regulatory point of view for innovation.
Speaker 3: And I feel that what is also behind this, as
Speaker 3: you might imagine China with deep seek as we were
Speaker 3: talking about, okay, they're on our tail right, Well, the
Speaker 3: Trump administration is extremely competitive and has China in focus.
Speaker 3: Shall we say, So this is this is a very
Speaker 3: this is a good news thing. So let's let's do this.
Speaker 3: The other reason I think the market took off, or
Speaker 3: there are many reasons, but I think tax rates coming
Speaker 3: down broadly, which I think they will as an offset
Speaker 3: to some of the tariffs. And I understand tariffs. I
Speaker 3: don't like tariffs. Tariffs are taxes. But if you listen
Speaker 3: to Kevin Haszard, it seems there's a quid pro quode
Speaker 3: developing here where Wait a minute, in the early days,
Speaker 3: in the early days of our country, all of government
Speaker 3: was funded by tariffs, all of it, and now very
Speaker 3: little of it. I think they might be into a
Speaker 3: little bit of a rebalancing game. And what the clue
Speaker 3: there is in terms of tax rate reductions? What are
Speaker 3: the first ones they've announced, tips, social Security? And over
Speaker 3: time those are very appealing to the lower to middle
Speaker 3: income demographic. Right, I think lowering all tax rates are
Speaker 3: going to is going to be much more acceptable with
Speaker 3: that kind of dynamic at work as well. He's looking
Speaker 3: out for the little guy like he said he would, right,
Speaker 3: And so I think, as a student of Art Laugher,
Speaker 3: lowering tax rates deregulation is we think going to is
Speaker 3: going to recreate something like the Reagan Revolution. But I
Speaker 3: think it's going to be bigger. It's going to be
Speaker 3: bigger because there are five innovation platforms now fourteen different technologies.
Speaker 3: Whereas back then it was the PC, it's the PC
Speaker 3: now we have five robotics, energy storage, AI, blockchain technology,
Speaker 3: multiomix sequencing five at the same time. They involve fifteen
Speaker 3: different technologies, and they're converging autonomous taxi networks, convergence of robotics,
Speaker 3: energy storage, and AI. Those are each Each one of
Speaker 3: those has its own s curve, and now they're going
Speaker 3: to be feeding one another. I mean, I think the
Speaker 3: Reagan Revolution I was there and it was so enjoyable.
Speaker 3: It was the heyday, golden age of active equity management.
Speaker 3: And I think that's coming back. I think it's coming
Speaker 3: back big time. I think this will dwarf that, and
Speaker 3: that was pretty good.
Speaker 2: I want to ask a sort of general question about
Speaker 2: your investing strategy, and I know you emphasize that you're
Speaker 2: making long term bets on transformational technology like AI, which
Speaker 2: we've been discussing, or robotaxis.
Speaker 3: I guess my.
Speaker 2: Question is, at some point the promise of that world
Speaker 2: has to come to fruition and actually be monetized. Do
Speaker 2: you ever set yourself deadlines for positive turns or is
Speaker 2: there a time frame you have in your mind for
Speaker 2: when this will pay off?
Speaker 3: So we are our investment time horizon is five years,
Speaker 3: what's very important about the way we do our research.
Speaker 3: The most important variable in terms of determining how quickly
Speaker 3: these technologies are going to scale is units now and
Speaker 3: something called rights law. I don't know if you want
Speaker 3: me to go into it. It's a relative of More's law.
Speaker 3: It's a way to understand how quickly the cost associating
Speaker 3: with the associated with each technology or falling. So we
Speaker 3: have had a good sense of all of these technologies
Speaker 3: cost decline dynamics. What was one of the biggest things
Speaker 3: that happened over the last five years. Unit growth plunged
Speaker 3: during COVID, and then we faced all of these massive
Speaker 3: supply construcs that hurt the rate of change for some
Speaker 3: of our technologies. We're on the other side of that.
Speaker 3: We are on the other side of that. In fact,
Speaker 3: we're on the other side of three major headwinds over
Speaker 3: the last four years that really hurt our strategy. First
Speaker 3: was the boombust associated with COVID and all of the
Speaker 3: accesses around that. Second, interest rates, very importantly a response
Speaker 3: twenty fourfold increase in little more than a year's time.
Speaker 3: That was a major shock to the system. Now, do
Speaker 3: higher interest rates always hurt our strategy? Not at all.
Speaker 3: In fact, twenty seventeen and eighteen we had some of
Speaker 3: our best years one in and up year, one in
Speaker 3: a down year for the market when we were up,
Speaker 3: interest rates growing up both years. I think we've just
Speaker 3: been through a very unusual circumstance. So we're done with
Speaker 3: the interest rate headwind and we're done. If you think
Speaker 3: about it. Today, the long bond yield hit four point
Speaker 3: one two percent. I don't know where it ended, but
Speaker 3: who expected that a few months ago. That's telegradet graphing
Speaker 3: something and I'll get into that in just one minute.
Speaker 3: But interest rates, they're not going up. We do not
Speaker 3: believe they're going up. Second was the concentration in the
Speaker 3: market towards the mag six, and that really started after
Speaker 3: eighth nine. This desire for large cap, lots of cash
Speaker 3: and yes, touches, something sexy like AI right, so that
Speaker 3: went into overdrive. We've never seen a more concentrated market
Speaker 3: in our history, not even the Great Depression, which was
Speaker 3: a binary will this company survive or not back then.
Speaker 3: So to see the same kind of underlying fear and
Speaker 3: crowding into a few names tells me there's been a
Speaker 3: lot of fear out there. I think the first sort
Speaker 3: of impact of the election was okay, some of that
Speaker 3: fear can dissipate. Now we have a whole new set
Speaker 3: of fears, but we can talk about that in a second.
Speaker 3: So we think that the market will it has started
Speaker 3: and will continue to broaden out. This market if it
Speaker 3: continued towards MEG six not a healthy market, just not
Speaker 3: by definition. Two things happen after a major concentration one
Speaker 3: of two things, either a bear market like tech and
Speaker 3: telecombust and early seventies, the end of the nifty to fifty,
Speaker 3: or the other four major episodes of concentration. The other
Speaker 3: four major ones ended up in bull markets that broadened out.
Speaker 3: We think that has started, there will be two and FROs.
Speaker 3: Maybe the most important and surprising to many people of
Speaker 3: the headwinds which we are no longer facing is valuation.
Speaker 3: If you look at enterprise value to IBADAT, which is
Speaker 3: our chow and metrics, so the entire cap structure divided
Speaker 3: by ibadah, which is not subject to financial engineering, you'll
Speaker 3: see that our portfolio and we worked with SMP adjusting
Speaker 3: for SBC and R and D and we can go
Speaker 3: into that if you want our portfolio basically hit a
Speaker 3: market multiple during the encry trade unwind, and after these
Speaker 3: last few weeks we're getting close there again. Relative to
Speaker 3: the SMP. Our portfolios really are at the low point
Speaker 3: in terms of that valuation metric throughout all of our history.
Speaker 3: So the valuation headwind is gone. I think what's shaking
Speaker 3: the market up right now is a recession. Now. We
Speaker 3: have been saying since the FED jacked rates up so
Speaker 3: quickly that we've been in a rolling recession for the
Speaker 3: last three years, and housing the housing market certainly agrees
Speaker 3: with that. Aut punk small businesses have been decimated. They
Speaker 3: couldn't get credit for a time. Their net income is
Speaker 3: down thirty percent over the last three year three yesh years,
Speaker 3: So one sector after another gave way with small and
Speaker 3: medium business. Really that's the backbone of employment, right The
Speaker 3: last shoot to drop is consumer. Walmart just telegraphed we're
Speaker 3: beginning to lose the consumer, and Walmart had been saying
Speaker 3: high end had been a source of their incremental surprises
Speaker 3: to the upside, Target and Best Buy today, so I
Speaker 3: think we're at the last leg. It is the consumer,
Speaker 3: and why is this happening. I think the velocity of
Speaker 3: money is slowing down dramatically, and in fact, if you
Speaker 3: look at sequentially, it dropped in the fourth quarter and
Speaker 3: it looks like it'll drop again. What does that mean?
Speaker 3: Means people are holding onto their money. Why, Well about
Speaker 3: I'm going to say say, if you include federal, state,
Speaker 3: and local government and quasi government in the healthcare and
Speaker 3: education space, we're probably looking at thirty percent of the
Speaker 3: people out there saying I don't know if my job
Speaker 3: is safe. And then you've got another layer of people
Speaker 3: out there in the higher income end of the spectrum saying,
Speaker 3: wait a minute, AI can do a lot of my job.
Speaker 3: What's going on here? And you see that with the
Speaker 3: coding fall off. So you've got uncertainty right now. But
Speaker 3: what is this going to do? Is going to give
Speaker 3: President Trump's administration and Chairman Powell all kinds of degrees
Speaker 3: of freedom. If we do have negative GDP growth, We're
Speaker 3: already seeing long rates coming down. What's that telling us? Yep,
Speaker 3: real activities coming in. But I think the shocker going forward,
Speaker 3: consider the source I've been saying this for a while,
Speaker 3: is that inflation is going to surprise shockingly on the
Speaker 3: low side of expectations.
Speaker 1: Kathy Wood. Thank you so much for joining od Lots
Speaker 1: at Bloomberg invest.
Speaker 3: Thank you, thank you very much for inviting me.
Speaker 1: Thank you.
Speaker 2: That was our conversation with the CEO and founder of
Speaker 2: ARC Invest, Kathy Wood, recorded live at the Bloomberg Invest Conference.
Speaker 2: I'm Tracy Alloway. You can follow me at Tracy Alloway.
Speaker 1: And I'm Jill Wisenthal. You can follow me at the Stalwart.
Speaker 1: Follow our guest Kathy Wood, She's at Kathy d.
Speaker 4: Wood.
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