Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Carol Master along with Tim Stenovik, live here at Bloomberg
Speaker 2: Headquarters in New York City. Well, twenty twenty six, as
Speaker 2: you know, oft and running follows three years of double
Speaker 2: digit gains for the S and P five hundred, a
Speaker 2: total gain of around eighty percent over those three years.
Speaker 2: Three years of back to back gains as well, that's
Speaker 2: the S and P. Three years of back to back
Speaker 2: gains also for the Nasdaq one hundred, a total gain
Speaker 2: of about one hundred and thirty percent there. And yet
Speaker 2: even with the stock market gains in the US in
Speaker 2: twenty twenty five last year, measured against equities worldwide minus
Speaker 2: the US stocks have risen around thirty percent, roughly double
Speaker 2: the S and P five hundreds gain. That's according to
Speaker 2: the MSCIS Index. Here to talk about twenty twenty six
Speaker 2: the economy investment ideas. Great to have back with us
Speaker 2: the founder, CEO and CIO of ARC invest Kathy, which
Speaker 2: he joins us from Saint Petersburg, Florida.
Speaker 3: Kathy, great to have you your happy new year.
Speaker 1: Happy new year, Carol and Tim. Very happy to be
Speaker 1: here again.
Speaker 2: Well, it's great to have you here, And I want
Speaker 2: to start with what stocks did here in the US
Speaker 2: really well last year, But if you look at global stocks,
Speaker 2: you could say that there was certainly some underperformance by
Speaker 2: the US.
Speaker 3: You've invested in a.
Speaker 2: Lot of US names, but also a lot outside the US,
Speaker 2: And I think about Chinese companies buid by Ali Baba.
Speaker 2: Are you looking for more opportunities outside the US at
Speaker 2: this point or And I wonder if you think it's
Speaker 2: time for maybe US stocks a takele.
Speaker 1: I think we're very focused on the deregulation, lower taxes
Speaker 1: and what we believe will be lower inflation, much lower
Speaker 1: inflation and lower interest rates in the US. And we
Speaker 1: think the combination of those is actually going to drive
Speaker 1: the returns on invested capital in the US up relative
Speaker 1: to those in the rest.
Speaker 3: Of the world.
Speaker 1: And I think many people are underestimating, especially on the
Speaker 1: corporate tax side, that thanks to the new depreciations schedules,
Speaker 1: our effective corporate TEX rate not the statutory, but the
Speaker 1: effective will drop to one of the lowest in the
Speaker 1: world at roughly ten percent, certainly near a record low
Speaker 1: for the US.
Speaker 4: So do you think, Kathy, that's not priced in yet
Speaker 4: to US equities like have investors not realized that and
Speaker 4: therefore it's not pricing.
Speaker 1: You know, it's very interesting. Maybe a lot of your
Speaker 1: guests have been talking about the depreciation schedules, how massively
Speaker 1: they are going to encourage capital investment here in the
Speaker 1: United States. So we've never had full depreciation in year
Speaker 1: one of manufacturing facilities, full depreciation in the first year
Speaker 1: of service. That means corporations will get huge tax refunds
Speaker 1: that they will be able to reinvest into innovation because
Speaker 1: we also equipment domestic R and D and software those
Speaker 1: three full depreciation first year of service that has been legislated.
Speaker 1: Normally we get oh, a few years of this, you
Speaker 1: know this cut and not cut, but that has been legislated.
Speaker 1: Now it's all the time. So we don't think people
Speaker 1: understand how profound some of these tax changes are.
Speaker 2: So what does that mean for something like the AI
Speaker 2: trade specifically, Kathy, where I think people are worried about
Speaker 2: pockets of it with a you know, being in a
Speaker 2: bit of a bubble. Does it benefit everyone who is
Speaker 2: somehow associated, whether it's the chip companies, whether it's the
Speaker 2: energy companies. Do you see the benefits playing out there
Speaker 2: and giving it more room to move to the upside.
Speaker 1: Absolutely absolutely. I mean we're having huge buildouts of data
Speaker 1: centers and power facilities, all of that, all of those
Speaker 1: depreciation schedules will apply to this boom in investment and
Speaker 1: contribute to it. So yes, any time in fact, Carol, Yeah, yeah,
Speaker 1: I was just going to say, many people think we're
Speaker 1: in a bubble, and yes, the data center spending last
Speaker 1: year was about five hundred billion dollars and you can
Speaker 1: see all of this in our Big Ideas Report. We
Speaker 1: just released it yesterday and thank you Bloomberg for featuring it.
Speaker 1: But five hundred billion dollars is a two and a
Speaker 1: half time's increase from where it had been trending for years.
Speaker 1: So big increase, no doubt about it. But we think
Speaker 1: that number needs to go to one point four trillion
Speaker 1: in the next five years to accommodate the AI boom
Speaker 1: that is now under way and is going to drive
Speaker 1: productivity gains incredibly.
Speaker 3: I want to get into that in just a moment.
Speaker 2: I'm really also pequked or interested in the healthcare aspect
Speaker 2: of it, because I feel like there's a lot going
Speaker 2: on before we do so we also so have your
Speaker 2: twenty twenty six outlook. And what's interesting is you note
Speaker 2: that this is an important economic historical moment.
Speaker 3: How so.
Speaker 1: Well, we are in a technology revolution, and many people
Speaker 1: thought that the Internet was a technology revolution, and to
Speaker 1: some extent it was. But today instead of just one
Speaker 1: major platform evolving, we have five so robotics, energy storage, AI,
Speaker 1: blockchain technology, and multiomic sequencing in the life science space,
Speaker 1: which which we believe is the most profound application of
Speaker 1: AI healthcare. And so this boom. If you look back
Speaker 1: at the railroad boom, the amount of investment that we
Speaker 1: saw back then was about six percent of GDP at
Speaker 1: its peak five to six percent. The Internet boom was
Speaker 1: more like the auto boom in the early nineteen hundreds,
Speaker 1: was more in the three to four percent of GDP range.
Speaker 1: We believe this this five platform innovation strategy or boom,
Speaker 1: is going to move to twelve percent of GDP, and
Speaker 1: we do believe also that productivity growth will accelerate to
Speaker 1: the four to six percent range and be sustained there.
Speaker 1: Normally we see a cyclical peak around there and then
Speaker 1: it falls back. We think it will be sustained and
Speaker 1: we think that by the end of this decade, real
Speaker 1: GDP growth could be averaging more than seven percent per year,
Speaker 1: and I know that sounds shocking, given that we've been
Speaker 1: at three percent for one hundred and twenty five years,
Speaker 1: but it is the history associated with technology revolutions. A
Speaker 1: step change up in GDP.
Speaker 4: Growthw the productivity increase, the GDP growth that you are
Speaker 4: forecasting as a result of these disruptive technologies. To what
Speaker 4: extent is that the result of fewer people doing more?
Speaker 4: My question is about job losses as a result of
Speaker 4: this technology, because if everything that investors are betting on
Speaker 4: when it comes to this AI revolution comes true, it
Speaker 4: means that companies aren't going to need as many people
Speaker 4: to do a lot more. What does that look like.
Speaker 1: Well, GDP growth at seven percent plus per year tells
Speaker 1: you there's going to be a lot of economic activity,
Speaker 1: more economic activity from a sustained growth point of view
Speaker 1: than we've seen in quite some time. The history of
Speaker 1: technology is it's a net job creator. In the early nineties,
Speaker 1: when developers were evolving the Internet, we could not have
Speaker 1: imagined uber or B and B back then, and I
Speaker 1: think the same as true now. We cannot imagine the
Speaker 1: kinds of jobs that are going to exist in the future.
Speaker 1: And the other thing that we're excited about from a
Speaker 1: job creation point of view is we're seeing new worlds
Speaker 1: being created. And by that I mean most of us
Speaker 1: think about Earth, but now we're moving into space, even
Speaker 1: data centers. We think elon leading that charge will start
Speaker 1: moving into space and we won't have the not in
Speaker 1: my backyard and the bureaucracy associated with data centers. There's
Speaker 1: going to be huge job creation around the space exploration
Speaker 1: and all of the opportunities out there. And then the
Speaker 1: other one, and you'll find this in our Digital Assets
Speaker 1: section of Big Ideas is the digital world immutable private
Speaker 1: property rights. We know from economic history the best way
Speaker 1: to lift people and countries out of poverty is with
Speaker 1: private property rights that are immutable. Well, that is now
Speaker 1: moving into the digital world for the first time thanks
Speaker 1: to blockchain technology. So we're not worried about job creation,
Speaker 1: but for those who are, because there is something happening
Speaker 1: that I know is concerning to many people. The unemployment
Speaker 1: rate for sixteen to twenty four year old has moved
Speaker 1: to twelve percent. Twelve percent, big increase. And what is
Speaker 1: that saying. That's saying that entry level jobs are not
Speaker 1: being created the way they used to be. To those people,
Speaker 1: I say, you know, you must have in your mind
Speaker 1: an idea for a new business, something that frustrates you,
Speaker 1: an unmet need. Well, now you can go to chat
Speaker 1: chebut you can go to Grock and you can have
Speaker 1: an assistant to help you build out that business. Just
Speaker 1: interview for jobs, but also think about new business ideas.
Speaker 1: I think we're going to see entrepreneurial explosion here.
Speaker 2: Well, and you know, speaking of entrepreneurial explosion, I think about,
Speaker 2: you know how long you have certainly been with Tesla
Speaker 2: and a backer of Elon.
Speaker 3: Musk a long time.
Speaker 2: And I think about, you know when we first talked
Speaker 2: and you likened him to mister Einstein, Albert Einstein. But
Speaker 2: I just wonder Elin at Davos earlier today and he
Speaker 2: talked about the Carmaker's fortunes will be increasingly dependent on
Speaker 2: humanoid machines. Kathy, how are you modeling this, I mean
Speaker 2: into the thesis of Tesla, and is that where the
Speaker 2: growth is more so than EV's for Tesla going.
Speaker 3: Forward without a doubt.
Speaker 1: We've always said Tesla is not an auto company. It
Speaker 1: is actually the convergence of three of the platforms I
Speaker 1: mentioned so robotics, energy storage, and AI. Each one of
Speaker 1: those technologies it has its own s curve, and now
Speaker 1: they're feeding each other and we're seeing that in robotaxis.
Speaker 1: Robotaxis we believe will account for ninety percent of Tesla's
Speaker 1: valuation by the end of the decade. We're in print
Speaker 1: at twenty six hundred. That includes nothing for Optimist robots,
Speaker 1: and we're beginning to understand how quickly Tesla is moving
Speaker 1: on that front. Why because it's the convergence of the
Speaker 1: same three technologies, robotics, energy storage, and AI. So I
Speaker 1: think that price target Obviously, if optimism is successful, and
Speaker 1: we believe it will be, we think that humanoid robots
Speaker 1: is evolving into a twenty six trillion dollar opportunity in
Speaker 1: the home half in manufacturing plans.
Speaker 4: We're speaking with Kathy Woods, CEO and CIO of ARC
Speaker 4: and Vest. Kathy, you mentioned Tesla. We're talking about Tesla
Speaker 4: the regulatory environment. Certainly, it's a less favorable regulatory environment
Speaker 4: for Tesla than it was just a few years ago,
Speaker 4: just two years ago, just one year ago. You also
Speaker 4: talked about the Trump administration and the ease of regulations
Speaker 4: that we're going to see through the Trump administration. You've
Speaker 4: talked about that with us in the past. I'm wondering,
Speaker 4: a year into his presidency, what do you still want
Speaker 4: to see in terms of deregulation. What have you not
Speaker 4: seen yet that you want to see.
Speaker 1: Well, I think it's constant shipping away in his first administration.
Speaker 1: I think I think President Trump said for every for
Speaker 1: every regulation you put in place, you have to take
Speaker 1: away too. And so it's a mindset in this administration,
Speaker 1: and I think we have it. We're seeing amazing deregulation
Speaker 1: in the healthcare on the healthcare front, and I don't
Speaker 1: think many people understand that the FDA has decided that
Speaker 1: animal testing is no longer necessary for monoclonal antibodies, and
Speaker 1: I don't think they're as aware of how the FDA
Speaker 1: is harnessing AI itself and encouraging the companies it regulates
Speaker 1: to start using AI. So I think it's a mindset shift,
Speaker 1: and I think it is happening. I think the most
Speaker 1: profound deregulation is taking place in the energy realm, and
Speaker 1: that's not just oil and gas and so forth.
Speaker 3: It's nuclear.
Speaker 1: If we in the seventies had not started regulating nuclear
Speaker 1: the way we did and driving construction costs up. Electricity
Speaker 1: prices today would be forty percent lower than they are,
Speaker 1: and so we think as nuclear comes on stream that
Speaker 1: it will serve to take some of the edge off
Speaker 1: of the increase to electricity prices that data centers are causing.
Speaker 2: Now, Hey, Kathy, just big broad in terms of you
Speaker 2: know all of the different funds that you have in
Speaker 2: the exposure. I'm just curious where you're seeing flows in
Speaker 2: and out. We've done some reporting on this, and we
Speaker 2: know some of your funds certainly showing some interest among investors.
Speaker 2: But we also talked about earlier this week about some
Speaker 2: of the withdrawals from the ARC innovation. What can you
Speaker 2: tell us specifically when it comes to flows and performance
Speaker 2: so far this year?
Speaker 3: What's working? What are investors interested in?
Speaker 1: Well, we have had a year to date. I think
Speaker 1: our ETFs have roughly a billion dollars in inflows. Heavily
Speaker 1: skewed to space exploration and defense for obvious reasons, and
Speaker 1: then autonomous technology and robotics. I think that autonomous taxis
Speaker 1: and drones very big parts of that fund as well.
Speaker 1: And then our flagship strategy is also starting to inflow.
Speaker 1: It had been held down by the multi omics theme.
Speaker 1: So this is what we used to call the genomic revolution,
Speaker 1: and it was a very difficult space even though the
Speaker 1: even though the innovation was taking place, the investment markets
Speaker 1: were not interested in it for a couple of reasons.
Speaker 1: One lots of investment now necessary, therefore not very high
Speaker 1: if any cash flows, and the cash cushions needed to
Speaker 1: be built up. We think they've done a lot in
Speaker 1: the last few years to become more efficient, and so
Speaker 1: we're beginning to see outperformance from that space as well,
Speaker 1: because now many people are beginning to understand we're seeing
Speaker 1: cures to disease, we're seeing early diagnosis thanks to AI
Speaker 1: and sequencing technologies.
Speaker 2: I want to pursue this further with you at a
Speaker 2: later date in some of the companies that are in
Speaker 2: that just thirty seconds, though, what's your best idea.
Speaker 3: You think for twenty twenty six at this point?
Speaker 2: And I know there's a lot in your research, but
Speaker 2: is there a best idea or narrative just quickly if
Speaker 2: you could well, So, the.
Speaker 1: Top three stocks in our flagship are Tesla. We think
Speaker 1: it has miles to go. We do take profits from
Speaker 1: time to time, but it could break out here in
Speaker 1: a big way as more and more analysts do their
Speaker 1: homework on robotaxis. Chrisper Therapeutics has moved into this second position.
Speaker 1: That company is curing sickle cell disease and beta thalasmia
Speaker 1: and has its eyes set on not just rare diseases,
Speaker 1: but curing the bad cholesterol problem, especially for those who
Speaker 1: have hereditary issues in that realm. That could be an
Speaker 1: enormous market and I don't think anyone is doing the
Speaker 1: modeling work there the way we are.
Speaker 2: I love it all right. Hopefully we can check back
Speaker 2: with you as the year plays out. Kathy, Thank you
Speaker 2: so much, really appreciate it. Kathy would of course be
Speaker 2: while former CEO, former founder, CEO of course, and CIO
Speaker 2: of ARC Invest joining us