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