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[, the tech runup that we've seen in terms of stocks, uh, and this, of course, after the Fed uh, and its first rate cut of the year last week and the inflation data that we get out on Friday. Joining us now is CEO and founder of Arc Invest, Kathy Wood. Good morning, Kathy. Morning, Caroline. So, you've hotooted it from our TV studio into the radio studio.
We really appreciate your time. Um, we want to start on the H1B visa change with President Donald Trump. It seems that he has sided with MAGA's anti-immigration wing rather than the tech executives that we saw him dining with only a few weeks ago. How much of a concern is it to you in terms of limiting those highskll tech employees, tech workers for some of the big names that you invested in?
Yes. Um, well, I think this is part of a much broader negotiation particularly with India in mind. uh those negotiations have not finished. Uh and of course this uh is very important to India. Uh I think that our tech executives understand that that that this is a part of a broader uh negotiation. I think this the the suddeness the Friday announcement and the lack of clarity uh threw a lot of people including us uh the clarity now is this applies only to new uh H-1B visas.
Uh so I I think longer term uh this ad uh administration has said that it is very interested in bringing foreigners who have been educated in the US uh into the US workforce. Uh and I think longer term that's that's the way we should think about that. So you see a change coming. This is punishment for India and the impact on the US as a side effect that will change.
It's a negotiation negotiation with India. Longer term, I think President Trump and his team want to keep as much innovation talent, technology talent as possible in the US. Can I just ask you long term though given the Trump administration wants to keep as much talent uh you also have other countries raising the possibility of their own form of golden visas perhaps seeing this as an opportunity to attract the same high-skilled talent to their own countries.
Could there be longerterm ramifications if this H1B visa application fee does actually stay the higher fee? Sure. I think this is I I call this regulatory arbitrage. other companies uh countries should be looking at this as an opportunity to attract the best and the brightest. As I said, I don't think this is long-term for the United States, but uh sees the moment.
Okay, that's interesting that this is Yeah, Jim, go ahead. Sorry. Yeah, no, no, I just wanted to pivot back back to macro. uh you know earlier this year uh you mentioned in one of an interviews that you conducted that the US had just started to exit a rolling recession that started back in 2022 and was on the path to recovery and of course the Fed then went on to cut interest rates only last week in your opinion were the Fed too late to cut interest rates um I think there have been signals that the Fed should cut interest rates uh for some time but there's something else brewing uh so this rolling recession we think is uh evolving into a rolling recovery and you'll see weakness in employment.
A lot of that is about uh productivity. Companies are harnessing AI tools and substituting uh capital for labor. Uh and I think a lot of people are going to think that that that this is another sign that we're heading into a deep recession. We do not think that's the case. We think that uh deregulation uh lower taxes the I don't think people understand in the United States what has just happened to corporate tax rates uh the rate itself has stayed at 21% but when we incorporate accelerated depreciation on structures equipment domestic R&D software the effective corporate tax rate in the US could be now as low as 10%.
So I I hear a lot of talk about you know the dollar's demise and so forth. We actually think that the dollar will turn around because the return on invested capital in the US thanks to deregulation and tax policies is going to increase relative to the return on invested capital elsewhere. So, a little contrarian point of view, but uh uh that's what we think.
And we also think this rolling recovery will lead next year into uh an economic boom, a productivitydriven economic boom. And uh I think this has been engineered by this administration. Get the bad news out of the way as quickly as possible because next year is the midterm elections. So, it's a tax cutting environment, deregulated environment, AI environment that boosts productivity.
And so, I mean, this this is very much what what President Trump and the Republican administration believes. Others are concerned about it triggering inflation. Um, are are you not concerned about that issue? Uh, if productivity is the reason we're going to see accelerated growth, not at all. In fact, productivity is one of the po most potent anti-inflationary forces.
We would not be surprised to see inflation drop below 2% next year and head for zero because we think the productivity gains are that profound. Let me ask you about the huge capex spending plans that many of the US uh hyperscalers have. You know, we're talking about the hundreds of billions of dollars a year, and one company's investment is another company's revenue, as in the case of Nvidia.
If there starts to be a marginal slowdown in just the scale of capex investment, would that not mark a turnaround in terms of just how much bullishness there is about the promises of artificial intelligence right now? Well, I I I'm like everyone else are very I'm very surprised at how willing these companies are uh to spend massive amounts on um in this space.
But what what what what we're not seeing is all the companies who were starting to move into this space and have capitulated uh and we're down to the big four uh so open AI anthropic uh XAI and Gemini which is Google uh and I think they are moving further ahead and those are the companies who are really spending the the markets are are not funding as freely the the other competitor competitors.
Uh I know here in in Europe uh that there are a few. So there will be regional specific large language models as well. Uh but in terms of the global large language models, uh I think we're down to the big four and they are duking it out. That's why we're hearing so much about these capital spending plans.
they're really talking to one another, you know, and willing to um throw as much capital as possible to leapfrog one another. But if you'll notice the performance uh characteristics of these LLMs, uh while OpenAI is still ahead on uh at the margin, uh the others are getting closer and one we haven't talked about is Meta Platform.
uh they are as you know Mark Zuckerberg is aqua hiring out of these companies that are not going to make it right so he's attracting a lot of capital and is probably going to uh try and get back in the game with his opensource strategy what are the opportunities in China then that's the other big story is around deepsek and the huge focus that China has on so much of the new technological world but AI in particular Deep Seek and others.
Yes, I think uh President Xi Ping uh um directed the economy a couple of years ago to new productive forces. Uh and that's all about technology and competing aggressively uh in the technology uh arena. Uh and we think competition is a great thing as long as it's rational. And uh on that score uh President Xiinping's uh uh discussion about or recent pronouncement and his team's pronouncement that uh they want to move away from involution which means massive commoditization uh in uh in areas like electric vehicles.
That is very positive. So is he starting to focus on profitability because these companies have to spend so much? I think so and that's a good thing. Kathy, thank you so much for being with us. Really great to uh speak to you and hear your views on the H-1B uh visa story as well as technological advances in China. Kathy Wood is CEO and founder of Ark Invest. This is Bloomberg.
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