Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2: This is Bloomberg Business Week with Carol Messer and Tim
Speaker 2: Stenebek on Bloomberg Radio.
Speaker 3: All right, well some guests need no introduction and joining
Speaker 3: us right now on Bloomberg Radio and also on Bloomberg Television.
Speaker 3: We're delighted to have back with us. Of course, our
Speaker 3: co invest founder, CEO and CIO, Kathy would We wanted
Speaker 3: to actually talk to her because there's so much going on,
Speaker 3: certainly this week, whether it's today when it comes to
Speaker 3: the jobs report, but it's also what's been going on
Speaker 3: with Open AI. So Kathy, great to have you here
Speaker 3: with us. How are you.
Speaker 1: I'm great, Carol, thank you so much for inviting me.
Speaker 3: Well, it's good to have you here. There is a
Speaker 3: lot going on, and we were saying, obviously we want
Speaker 3: to kind of start macro, which we often do with you.
Speaker 3: And first up the upbeat labor market, the Fed finally
Speaker 3: now cutting interest rates. You've been beating the drum for
Speaker 3: some time about the Fed to cut race. At the
Speaker 3: same time, we had Treasury Secretary former Treasury Secretary Larry
Speaker 3: Summers out saying the half a point cut was a mistake.
Speaker 3: Stanley Druckenmiller, the hedge fund billionaire. He believes the FED
Speaker 3: shin of cut rates at the most most recent meeting.
Speaker 3: He thinks that the central Bank has boxed itself into
Speaker 3: a corner by guiding for even more at rate cuts ahead.
Speaker 3: Do you think the FED rate cut was a mistake.
Speaker 1: Absolutely not, not at all. It's been very interesting to
Speaker 1: watch the revisions in economic activity. Until this report, their
Speaker 1: revisions in the employment numbers had been down, and they
Speaker 1: were much weaker than had originally been reported. You know,
Speaker 1: we look at earnings reports and look at their revenues,
Speaker 1: and we're seeing a lot of companies showing negative revenues.
Speaker 1: So you know, the headline numbers are heavily influenced recently,
Speaker 1: certainly in in terms of some of the upward revisions
Speaker 1: in personal income by transfer payments. That's government stimulus and
Speaker 1: interestingly dividends. But if you look at the economy, the
Speaker 1: cyclical part of the economy is sick. It's sick. If
Speaker 1: you look at the sectors in the economy, one by one,
Speaker 1: they've been falling into a recession no matter what the
Speaker 1: headline numbers say. Housing went down immediately when the FED
Speaker 1: started raising rates, we're down twenty to forty percent. Still,
Speaker 1: that's a recession. You've got non residential construction in recession
Speaker 1: autos very.
Speaker 2: Week, Kathy. I know it's a backward looking number, but
Speaker 2: then what do you make of today's payrolls report? Two
Speaker 2: hundred and fifty four thousand jobs added to the economy
Speaker 2: for the month of September and doesn't sat recessionary.
Speaker 1: So if you just let me finished him up, I'll
Speaker 1: get to that in one minute. So we've got those sectors,
Speaker 1: and then you've got the small and medium business sector.
Speaker 1: Their confidence is at eight to nine levels, and we've
Speaker 1: got certain pricing measures, certainly the cyclical ones that have
Speaker 1: been deflationary. Actually, So one thing that I do think
Speaker 1: is going on that is helping is as prices are
Speaker 1: coming down and the consumers getting better and better deals
Speaker 1: and they're spending, So I think that is sustaining. You
Speaker 1: know a lot of people say real growth causes inflation
Speaker 1: in this case, and actually in history most times, if
Speaker 1: you cut prices, you'll get more activity the consumer as
Speaker 1: long as the labor market hangs in here and yes,
Speaker 1: today was very reassuring that way. As long as the
Speaker 1: labor market hangs in here and companies like Walmart and
Speaker 1: Costco and auto companies either increase their discounts or cut
Speaker 1: their prices. I think the activity will come and the
Speaker 1: labor market will continue to hang in, but if they
Speaker 1: try and jack prices back up. It was very interesting
Speaker 1: to see FedEx, after turning positive in revenues and then
Speaker 1: turning negative year over year on revenues, basically saying they're
Speaker 1: going to use prices to make it up. I think
Speaker 1: that's going to backfire, and I'll think I think during
Speaker 1: the next year you'll under that many people will understand
Speaker 1: how deflationary the undercurrents are in the economy. Now, deflation
Speaker 1: is not always bad. Part of it is because of innovation,
Speaker 1: technologically enabled innovation. The car prices EV prices are coming down,
Speaker 1: their costs are coming down too. So I think there's
Speaker 1: a lot of confusion in terms of what's going on
Speaker 1: out there because pro productivity is stronger than expected, giving
Speaker 1: companies the latitude to cut prices and salvage margins, so
Speaker 1: that if that sustains.
Speaker 3: Great Kathy, when we talked with you earlier this year,
Speaker 3: let's go back to March for a moment. You mentioned
Speaker 3: the possibility of inflation going negative this year. You also
Speaker 3: talked about unemployment going above five percent. Are those still
Speaker 3: your calls?
Speaker 1: Yeah, we would this year. I mean, we're going to
Speaker 1: have to push it out because inflation did levitate as
Speaker 1: companies tried to price to make up for shortfalls and
Speaker 1: unit growth. It levitated in the three and a half
Speaker 1: to four percent range. Now it's broken below three and
Speaker 1: we're hearing more and more companies, you know, basically trying
Speaker 1: to attract consumer attention with lower prices. So yes, if
Speaker 1: you look at money growth on a year over year basis,
Speaker 1: it was negative for I think about a year and
Speaker 1: a half. Maybe more money is a leading indicator for inflation,
Speaker 1: and we do believe that inflation will go much lower
Speaker 1: than people expect right now. Wouldn't be surprised to see
Speaker 1: it go negative, especially especially if the consumer is worried
Speaker 1: about job loss, whether because of AI and automation generally
Speaker 1: or what have you. So the saving rate tends to
Speaker 1: go up during those periods, and that will mean we
Speaker 1: believe that companies will have to price even more aggressively
Speaker 1: in terms of over five percent unemployment rate, we could
Speaker 1: see it. We could see it, I will say today
Speaker 1: gave me pause in terms of this productivity dynamic and
Speaker 1: sort of the Okay, companies may not if they get
Speaker 1: the productivity growth from existing employees, they may not feel
Speaker 1: like laying them off. They can lower prices to keep
Speaker 1: consumer demand going.
Speaker 2: Hey, Kathy, election front and center. We're just a month
Speaker 2: and change out from the election here in the US,
Speaker 2: and I'm wondering how this dynamic, in your view changes
Speaker 2: whether President Trump is re elected or we see a
Speaker 2: Harris administration.
Speaker 3: And I wonder who you would support to in terms
Speaker 3: of what you think is good for the US economy
Speaker 3: and America.
Speaker 1: Okay, So our focus is on innovation, and something very
Speaker 1: important happened this past year. We were very concerned that
Speaker 1: excessive regulation was driving innovation off our shores, particularly when
Speaker 1: it came to crypto or digital assets. We've had a
Speaker 1: very hostile regulator, and the same I would say is
Speaker 1: true of the FTC in terms of denying M and A,
Speaker 1: because that has prevented a lot of innovative company from
Speaker 1: enjoying liquidity events by selling out to bigger companies. I
Speaker 1: think we're hearing from both both candidates that those two
Speaker 1: jobs are on the line. Maybe for that reason, and
Speaker 1: we're seeing more alignment that innovation solves problems and so
Speaker 1: we should not discourage it. So from that point of view,
Speaker 1: you know, I'm happy to see the bipartisan movement here.
Speaker 1: You know, we'll favor lower regulations every day when it
Speaker 1: comes to innovation. I don't think tariffs are a great
Speaker 1: a great thing at all for innovation and for economic activity.
Speaker 1: So there's something on both sides that will give us pause.
Speaker 1: But the most important thing is the biggest impedimence to innovation.
Speaker 1: We think that that we're developing clarity around what's going
Speaker 1: to it at the SEC and the FTC.
Speaker 3: So do you think one thing is better than one
Speaker 3: of the candidates I should say is better for the
Speaker 3: investment environment for companies versus the other.
Speaker 1: So here I'm going to revert to being the CEO
Speaker 1: of a company where you know I'm representing both sides,
Speaker 1: and I'm focusing therefore on innovation, which is of primary
Speaker 1: concern to us. And I've given you a sense of
Speaker 1: where we think both sides are on innovation regulations. That
Speaker 1: the one the one that will lower more regulations, because
Speaker 1: regulations are strangling this economy, strangling small business, strangling big business.
Speaker 1: That's a very important one. Wells would be as well.
Speaker 3: So fair enough, fair enough, Well, let's talk innovation. Which
Speaker 3: is your world? AI? Big news this week Open Aiyes,
Speaker 3: raising six and a half billion a new funding, one
Speaker 3: hundred and fifty seven billion dollar valuation. Are put in
Speaker 3: two hundred and fifty million dollars, the Wall Street Journal
Speaker 3: reminding us that that's the minimum amount required to open
Speaker 3: up their financial document. So why this investment, Why are
Speaker 3: you interested? And what did you learn about the company
Speaker 3: and its growth trajectory or about the business to be
Speaker 3: quite fair looking at those financial documents.
Speaker 1: Well, we've been doing research on AI for ten years now.
Speaker 1: That's why we were so early into in VIDIAU and
Speaker 1: you know, we've obviously taken it down in most of
Speaker 1: our portfolios out of the flagship. One of the things
Speaker 1: that we've been looking for is the next big play.
Speaker 1: And you know, we think Nvidia is still a fine stock,
Speaker 1: but in terms of the unexpected out there, we do
Speaker 1: think it's going to be in the software layers. And
Speaker 1: as you know, Palenteer has been a big position for
Speaker 1: us in the top ten UiPath as well. It had
Speaker 1: a stumble, but it's coming back now. And I think
Speaker 1: as more and more people understand how well positioned it is,
Speaker 1: it will do very well. But a lot of the
Speaker 1: software companies that we think are going to benefit are
Speaker 1: in the private sector. And I'm thrilled that we have
Speaker 1: a venture fund. That is really our purpose here is
Speaker 1: to democratize venture capital, so that for five hundred dollars,
Speaker 1: you know, anyone can get access to open ai, which
Speaker 1: is the third largest position, or SpaceX, which is the
Speaker 1: largest position. But if you look at software, many people say, well,
Speaker 1: we have so many software companies in the public markets,
Speaker 1: what do you mean? And what we mean by that
Speaker 1: is we think that the software world's going to change
Speaker 1: fairly dramatically, and we're going to see a shift, maybe
Speaker 1: a share shift, away from software as a service towards
Speaker 1: platform as a service, so so think about Palenteer and
Speaker 1: Foundation mods an infrastructure as a service so cloud. And
Speaker 1: the reason for that is because engineers are going to
Speaker 1: be made so much more productive, developers so much more
Speaker 1: productive by open ai and Anthropic and xai and and
Speaker 1: and Google and Meta Meta's Lama three. We're going to
Speaker 1: see companies uh customizing their own software, customizing software for
Speaker 1: their own companies as opposed to just going automatically to
Speaker 1: you know, one size fits all software as a service.
Speaker 2: Hey, Kathy, forgive me. We only have a couple of
Speaker 2: minutes left, so I want to get in a few
Speaker 2: more questions here. I don't mean to keep interrupting you,
Speaker 2: but you mentioned closing out your stake in vidio. You
Speaker 2: did that in the Flagship Ar Innovation Fund last year,
Speaker 2: but you also told us back in March that you
Speaker 2: used some of that to buy into Coinbase. Since February
Speaker 2: of twenty twenty three, Coinbase is up a bit more
Speaker 2: than one hundred and fifty percent, no question, a great return,
Speaker 2: But in Vidia up nearly five hundred percent since that time.
Speaker 2: Do you regret that move last year?
Speaker 1: If you had look if I, if I had bought
Speaker 1: both Coinbase and in Vidia and sold something else, would
Speaker 1: I have been happier about that decision? Sure, I would
Speaker 1: have been happier. Actually, from the time we bought Coinbase
Speaker 1: to the time maybe we were talking to you, or
Speaker 1: whenever we measured it, Coinbase actually had done better than
Speaker 1: in Nvidia. It has come back in in Vidia's had
Speaker 1: another big run. But we're now really focused on the future,
Speaker 1: and so software to us is going to be a
Speaker 1: huge opportunity. Foundation models we think will deliver fifteen trillion
Speaker 1: dollars around that in the next five to ten years
Speaker 1: in market cap. That's from a standing start, So and
Speaker 1: we'll see what happens to video over that time. You know,
Speaker 1: I think, is there something.
Speaker 3: That could make you buy into end video at this
Speaker 3: point or added to your flag jat, I mean, I
Speaker 3: know you owe some but yeah, yeah.
Speaker 1: Yeah, if the if the price came down. You know, again,
Speaker 1: I think I must say one of perhaps my weaknesses
Speaker 1: in a momentum market is watching, you know, watching a
Speaker 1: lot of momentum drive the stock and realizing that a
Speaker 1: lot of people who never owned it are getting in
Speaker 1: and my week holders, so you know that that factored
Speaker 1: into my thinking. But you know, we enjoyed if you
Speaker 1: if we got into Nvidia forty cents based on this
Speaker 1: stock in twenty fourteen, so you know, wherever we got out,
Speaker 1: we were extremely happy with what It's been the third
Speaker 1: largest contributor to our flagship fund. So you know, tactically,
Speaker 1: sure we would have loved to still have it, you know,
Speaker 1: at you know, a bigger position in the portfolios. But again,
Speaker 1: we're all about the future, and our research is focusing
Speaker 1: us on this software layer that has has huge amounts
Speaker 1: of appreciation.
Speaker 3: Ahead, let's go to Tesla, number one holding in your
Speaker 3: flagship our innovation ETF. It's down about forty percent. It's
Speaker 3: an all time high back in November of twenty twenty one.
Speaker 3: Little change here to date. You know, when when do
Speaker 3: you decide? You know, in terms of Tesla, you know
Speaker 3: it's a different marketed EV market You understand, you know
Speaker 3: what's going on in that marketplace more than ever. You know,
Speaker 3: what is your thinking about Tesla today? You've got an
Speaker 3: estimate of twenty six hundred dollars a share for twenty
Speaker 3: twenty nine. What gets us there? And just quickly sorry,
Speaker 3: we've only got about thirty seconds.
Speaker 1: Autonomous mobility think ten ten October tenth. Here that is
Speaker 1: going to focus analysts not just on avs, but on
Speaker 1: the autonomous opportunity. Tesla is the largest AI project in
Speaker 1: the world. Talk about shifting resources from Nvidia into Tesla.
Speaker 1: We think longer term that is going to prove to
Speaker 1: be a very good year.
Speaker 3: We know you have to run, so appreciate your time.
Speaker 3: Be well. Kathy Wood, of course, of ARC invests joining
Speaker 3: us right here on Bloomberg BusinessWeek, on radio and TV,