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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: Carol Master along with Tim Stenovik, live here at Bloomberg

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Speaker 2: Headquarters in New York City. Well, twenty twenty six, as

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Speaker 2: you know, oft and running follows three years of double

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Speaker 2: digit gains for the S and P five hundred, a

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Speaker 2: total gain of around eighty percent over those three years.

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Speaker 2: Three years of back to back gains as well, that's

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Speaker 2: the S and P. Three years of back to back

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Speaker 2: gains also for the Nasdaq one hundred, a total gain

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Speaker 2: of about one hundred and thirty percent there. And yet

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Speaker 2: even with the stock market gains in the US in

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Speaker 2: twenty twenty five last year, measured against equities worldwide minus

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Speaker 2: the US stocks have risen around thirty percent, roughly double

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Speaker 2: the S and P five hundreds gain. That's according to

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Speaker 2: the MSCIS Index. Here to talk about twenty twenty six

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Speaker 2: the economy investment ideas. Great to have back with us

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Speaker 2: the founder, CEO and CIO of ARC invest Kathy, which

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Speaker 2: he joins us from Saint Petersburg, Florida.

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Speaker 3: Kathy, great to have you your happy new year.

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Speaker 1: Happy new year, Carol and Tim. Very happy to be

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Speaker 1: here again.

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Speaker 2: Well, it's great to have you here, And I want

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Speaker 2: to start with what stocks did here in the US

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Speaker 2: really well last year, But if you look at global stocks,

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Speaker 2: you could say that there was certainly some underperformance by

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Speaker 2: the US.

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Speaker 3: You've invested in a.

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Speaker 2: Lot of US names, but also a lot outside the US,

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Speaker 2: And I think about Chinese companies buid by Ali Baba.

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Speaker 2: Are you looking for more opportunities outside the US at

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Speaker 2: this point or And I wonder if you think it's

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Speaker 2: time for maybe US stocks a takele.

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Speaker 1: I think we're very focused on the deregulation, lower taxes

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Speaker 1: and what we believe will be lower inflation, much lower

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Speaker 1: inflation and lower interest rates in the US. And we

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Speaker 1: think the combination of those is actually going to drive

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Speaker 1: the returns on invested capital in the US up relative

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Speaker 1: to those in the rest.

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Speaker 3: Of the world.

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Speaker 1: And I think many people are underestimating, especially on the

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Speaker 1: corporate tax side, that thanks to the new depreciations schedules,

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Speaker 1: our effective corporate TEX rate not the statutory, but the

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Speaker 1: effective will drop to one of the lowest in the

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Speaker 1: world at roughly ten percent, certainly near a record low

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Speaker 1: for the US.

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Speaker 4: So do you think, Kathy, that's not priced in yet

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Speaker 4: to US equities like have investors not realized that and

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Speaker 4: therefore it's not pricing.

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Speaker 1: You know, it's very interesting. Maybe a lot of your

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Speaker 1: guests have been talking about the depreciation schedules, how massively

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Speaker 1: they are going to encourage capital investment here in the

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Speaker 1: United States. So we've never had full depreciation in year

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Speaker 1: one of manufacturing facilities, full depreciation in the first year

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Speaker 1: of service. That means corporations will get huge tax refunds

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Speaker 1: that they will be able to reinvest into innovation because

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Speaker 1: we also equipment domestic R and D and software those

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Speaker 1: three full depreciation first year of service that has been legislated.

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Speaker 1: Normally we get oh, a few years of this, you

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Speaker 1: know this cut and not cut, but that has been legislated.

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Speaker 1: Now it's all the time. So we don't think people

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Speaker 1: understand how profound some of these tax changes are.

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Speaker 2: So what does that mean for something like the AI

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Speaker 2: trade specifically, Kathy, where I think people are worried about

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Speaker 2: pockets of it with a you know, being in a

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Speaker 2: bit of a bubble. Does it benefit everyone who is

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Speaker 2: somehow associated, whether it's the chip companies, whether it's the

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Speaker 2: energy companies. Do you see the benefits playing out there

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Speaker 2: and giving it more room to move to the upside.

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Speaker 1: Absolutely absolutely. I mean we're having huge buildouts of data

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Speaker 1: centers and power facilities, all of that, all of those

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Speaker 1: depreciation schedules will apply to this boom in investment and

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Speaker 1: contribute to it. So yes, any time in fact, Carol, Yeah, yeah,

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Speaker 1: I was just going to say, many people think we're

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Speaker 1: in a bubble, and yes, the data center spending last

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Speaker 1: year was about five hundred billion dollars and you can

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Speaker 1: see all of this in our Big Ideas Report. We

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Speaker 1: just released it yesterday and thank you Bloomberg for featuring it.

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Speaker 1: But five hundred billion dollars is a two and a

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Speaker 1: half time's increase from where it had been trending for years.

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Speaker 1: So big increase, no doubt about it. But we think

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Speaker 1: that number needs to go to one point four trillion

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Speaker 1: in the next five years to accommodate the AI boom

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Speaker 1: that is now under way and is going to drive

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Speaker 1: productivity gains incredibly.

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Speaker 3: I want to get into that in just a moment.

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Speaker 2: I'm really also pequked or interested in the healthcare aspect

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Speaker 2: of it, because I feel like there's a lot going

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Speaker 2: on before we do so we also so have your

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Speaker 2: twenty twenty six outlook. And what's interesting is you note

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Speaker 2: that this is an important economic historical moment.

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Speaker 3: How so.

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Speaker 1: Well, we are in a technology revolution, and many people

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Speaker 1: thought that the Internet was a technology revolution, and to

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Speaker 1: some extent it was. But today instead of just one

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Speaker 1: major platform evolving, we have five so robotics, energy storage, AI,

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Speaker 1: blockchain technology, and multiomic sequencing in the life science space,

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Speaker 1: which which we believe is the most profound application of

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Speaker 1: AI healthcare. And so this boom. If you look back

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Speaker 1: at the railroad boom, the amount of investment that we

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Speaker 1: saw back then was about six percent of GDP at

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Speaker 1: its peak five to six percent. The Internet boom was

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Speaker 1: more like the auto boom in the early nineteen hundreds,

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Speaker 1: was more in the three to four percent of GDP range.

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Speaker 1: We believe this this five platform innovation strategy or boom,

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Speaker 1: is going to move to twelve percent of GDP, and

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Speaker 1: we do believe also that productivity growth will accelerate to

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Speaker 1: the four to six percent range and be sustained there.

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Speaker 1: Normally we see a cyclical peak around there and then

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Speaker 1: it falls back. We think it will be sustained and

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Speaker 1: we think that by the end of this decade, real

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Speaker 1: GDP growth could be averaging more than seven percent per year,

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Speaker 1: and I know that sounds shocking, given that we've been

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Speaker 1: at three percent for one hundred and twenty five years,

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Speaker 1: but it is the history associated with technology revolutions. A

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Speaker 1: step change up in GDP.

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Speaker 4: Growthw the productivity increase, the GDP growth that you are

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Speaker 4: forecasting as a result of these disruptive technologies. To what

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Speaker 4: extent is that the result of fewer people doing more?

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Speaker 4: My question is about job losses as a result of

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Speaker 4: this technology, because if everything that investors are betting on

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Speaker 4: when it comes to this AI revolution comes true, it

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Speaker 4: means that companies aren't going to need as many people

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Speaker 4: to do a lot more. What does that look like.

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Speaker 1: Well, GDP growth at seven percent plus per year tells

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Speaker 1: you there's going to be a lot of economic activity,

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Speaker 1: more economic activity from a sustained growth point of view

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Speaker 1: than we've seen in quite some time. The history of

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Speaker 1: technology is it's a net job creator. In the early nineties,

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Speaker 1: when developers were evolving the Internet, we could not have

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Speaker 1: imagined uber or B and B back then, and I

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Speaker 1: think the same as true now. We cannot imagine the

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Speaker 1: kinds of jobs that are going to exist in the future.

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Speaker 1: And the other thing that we're excited about from a

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Speaker 1: job creation point of view is we're seeing new worlds

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Speaker 1: being created. And by that I mean most of us

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Speaker 1: think about Earth, but now we're moving into space, even

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Speaker 1: data centers. We think elon leading that charge will start

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Speaker 1: moving into space and we won't have the not in

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Speaker 1: my backyard and the bureaucracy associated with data centers. There's

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Speaker 1: going to be huge job creation around the space exploration

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Speaker 1: and all of the opportunities out there. And then the

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Speaker 1: other one, and you'll find this in our Digital Assets

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Speaker 1: section of Big Ideas is the digital world immutable private

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Speaker 1: property rights. We know from economic history the best way

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Speaker 1: to lift people and countries out of poverty is with

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Speaker 1: private property rights that are immutable. Well, that is now

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Speaker 1: moving into the digital world for the first time thanks

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Speaker 1: to blockchain technology. So we're not worried about job creation,

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Speaker 1: but for those who are, because there is something happening

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Speaker 1: that I know is concerning to many people. The unemployment

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Speaker 1: rate for sixteen to twenty four year old has moved

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Speaker 1: to twelve percent. Twelve percent, big increase. And what is

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Speaker 1: that saying. That's saying that entry level jobs are not

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Speaker 1: being created the way they used to be. To those people,

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Speaker 1: I say, you know, you must have in your mind

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Speaker 1: an idea for a new business, something that frustrates you,

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Speaker 1: an unmet need. Well, now you can go to chat

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Speaker 1: chebut you can go to Grock and you can have

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Speaker 1: an assistant to help you build out that business. Just

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Speaker 1: interview for jobs, but also think about new business ideas.

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Speaker 1: I think we're going to see entrepreneurial explosion here.

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Speaker 2: Well, and you know, speaking of entrepreneurial explosion, I think about,

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Speaker 2: you know how long you have certainly been with Tesla

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Speaker 2: and a backer of Elon.

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Speaker 3: Musk a long time.

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Speaker 2: And I think about, you know when we first talked

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Speaker 2: and you likened him to mister Einstein, Albert Einstein. But

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Speaker 2: I just wonder Elin at Davos earlier today and he

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Speaker 2: talked about the Carmaker's fortunes will be increasingly dependent on

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Speaker 2: humanoid machines. Kathy, how are you modeling this, I mean

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Speaker 2: into the thesis of Tesla, and is that where the

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Speaker 2: growth is more so than EV's for Tesla going.

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Speaker 3: Forward without a doubt.

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Speaker 1: We've always said Tesla is not an auto company. It

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Speaker 1: is actually the convergence of three of the platforms I

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Speaker 1: mentioned so robotics, energy storage, and AI. Each one of

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Speaker 1: those technologies it has its own s curve, and now

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Speaker 1: they're feeding each other and we're seeing that in robotaxis.

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Speaker 1: Robotaxis we believe will account for ninety percent of Tesla's

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Speaker 1: valuation by the end of the decade. We're in print

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Speaker 1: at twenty six hundred. That includes nothing for Optimist robots,

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Speaker 1: and we're beginning to understand how quickly Tesla is moving

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Speaker 1: on that front. Why because it's the convergence of the

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Speaker 1: same three technologies, robotics, energy storage, and AI. So I

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Speaker 1: think that price target Obviously, if optimism is successful, and

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Speaker 1: we believe it will be, we think that humanoid robots

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Speaker 1: is evolving into a twenty six trillion dollar opportunity in

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Speaker 1: the home half in manufacturing plans.

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Speaker 4: We're speaking with Kathy Woods, CEO and CIO of ARC

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Speaker 4: and Vest. Kathy, you mentioned Tesla. We're talking about Tesla

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Speaker 4: the regulatory environment. Certainly, it's a less favorable regulatory environment

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Speaker 4: for Tesla than it was just a few years ago,

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Speaker 4: just two years ago, just one year ago. You also

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Speaker 4: talked about the Trump administration and the ease of regulations

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Speaker 4: that we're going to see through the Trump administration. You've

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Speaker 4: talked about that with us in the past. I'm wondering,

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Speaker 4: a year into his presidency, what do you still want

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Speaker 4: to see in terms of deregulation. What have you not

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Speaker 4: seen yet that you want to see.

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Speaker 1: Well, I think it's constant shipping away in his first administration.

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Speaker 1: I think I think President Trump said for every for

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Speaker 1: every regulation you put in place, you have to take

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Speaker 1: away too. And so it's a mindset in this administration,

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Speaker 1: and I think we have it. We're seeing amazing deregulation

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Speaker 1: in the healthcare on the healthcare front, and I don't

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Speaker 1: think many people understand that the FDA has decided that

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Speaker 1: animal testing is no longer necessary for monoclonal antibodies, and

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Speaker 1: I don't think they're as aware of how the FDA

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Speaker 1: is harnessing AI itself and encouraging the companies it regulates

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Speaker 1: to start using AI. So I think it's a mindset shift,

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Speaker 1: and I think it is happening. I think the most

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Speaker 1: profound deregulation is taking place in the energy realm, and

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Speaker 1: that's not just oil and gas and so forth.

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Speaker 3: It's nuclear.

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Speaker 1: If we in the seventies had not started regulating nuclear

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Speaker 1: the way we did and driving construction costs up. Electricity

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Speaker 1: prices today would be forty percent lower than they are,

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Speaker 1: and so we think as nuclear comes on stream that

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Speaker 1: it will serve to take some of the edge off

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Speaker 1: of the increase to electricity prices that data centers are causing.

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Speaker 2: Now, Hey, Kathy, just big broad in terms of you

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Speaker 2: know all of the different funds that you have in

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Speaker 2: the exposure. I'm just curious where you're seeing flows in

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Speaker 2: and out. We've done some reporting on this, and we

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Speaker 2: know some of your funds certainly showing some interest among investors.

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Speaker 2: But we also talked about earlier this week about some

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Speaker 2: of the withdrawals from the ARC innovation. What can you

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Speaker 2: tell us specifically when it comes to flows and performance

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Speaker 2: so far this year?

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Speaker 3: What's working? What are investors interested in?

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Speaker 1: Well, we have had a year to date. I think

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Speaker 1: our ETFs have roughly a billion dollars in inflows. Heavily

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Speaker 1: skewed to space exploration and defense for obvious reasons, and

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Speaker 1: then autonomous technology and robotics. I think that autonomous taxis

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Speaker 1: and drones very big parts of that fund as well.

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Speaker 1: And then our flagship strategy is also starting to inflow.

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Speaker 1: It had been held down by the multi omics theme.

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Speaker 1: So this is what we used to call the genomic revolution,

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Speaker 1: and it was a very difficult space even though the

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Speaker 1: even though the innovation was taking place, the investment markets

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Speaker 1: were not interested in it for a couple of reasons.

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Speaker 1: One lots of investment now necessary, therefore not very high

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Speaker 1: if any cash flows, and the cash cushions needed to

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Speaker 1: be built up. We think they've done a lot in

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Speaker 1: the last few years to become more efficient, and so

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Speaker 1: we're beginning to see outperformance from that space as well,

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Speaker 1: because now many people are beginning to understand we're seeing

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Speaker 1: cures to disease, we're seeing early diagnosis thanks to AI

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Speaker 1: and sequencing technologies.

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Speaker 2: I want to pursue this further with you at a

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Speaker 2: later date in some of the companies that are in

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Speaker 2: that just thirty seconds, though, what's your best idea.

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Speaker 3: You think for twenty twenty six at this point?

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Speaker 2: And I know there's a lot in your research, but

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Speaker 2: is there a best idea or narrative just quickly if

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Speaker 2: you could well, So, the.

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Speaker 1: Top three stocks in our flagship are Tesla. We think

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Speaker 1: it has miles to go. We do take profits from

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Speaker 1: time to time, but it could break out here in

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Speaker 1: a big way as more and more analysts do their

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Speaker 1: homework on robotaxis. Chrisper Therapeutics has moved into this second position.

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Speaker 1: That company is curing sickle cell disease and beta thalasmia

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Speaker 1: and has its eyes set on not just rare diseases,

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Speaker 1: but curing the bad cholesterol problem, especially for those who

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Speaker 1: have hereditary issues in that realm. That could be an

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Speaker 1: enormous market and I don't think anyone is doing the

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Speaker 1: modeling work there the way we are.

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Speaker 2: I love it all right. Hopefully we can check back

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Speaker 2: with you as the year plays out. Kathy, Thank you

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Speaker 2: so much, really appreciate it. Kathy would of course be

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Speaker 2: while former CEO, former founder, CEO of course, and CIO

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Speaker 2: of ARC Invest joining us