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