{"id":456,"date":"2024-09-10T16:11:05","date_gmt":"2024-09-10T16:11:05","guid":{"rendered":"https:\/\/europaskolos.lt\/index.php\/2024\/09\/10\/transcript-mike-wilson-morgan-stanley\/"},"modified":"2024-09-10T16:11:05","modified_gmt":"2024-09-10T16:11:05","slug":"transcript-mike-wilson-morgan-stanley","status":"publish","type":"post","link":"https:\/\/europaskolos.lt\/index.php\/2024\/09\/10\/transcript-mike-wilson-morgan-stanley\/","title":{"rendered":"Transcript: Mike Wilson, Morgan Stanley"},"content":{"rendered":"<p> <br \/>\n<\/p>\n<div>\n<p><iframe style=\"width: 100%; max-width: 660px; overflow: hidden; border-radius: 10px;\" data-lazy-type=\"iframe\" data-src=\"https:\/\/embed.podcasts.apple.com\/us\/podcast\/from-investment-banker-to-cio-with-mike-wilson\/id730188152?i=1000668522835\" height=\"175\" frameborder=\"0\" sandbox=\"allow-forms allow-popups allow-same-origin allow-scripts allow-storage-access-by-user-activation allow-top-navigation-by-user-activation\" data-mce-fragment=\"1\"><span data-mce-type=\"bookmark\" style=\"display: inline-block; width: 0px; overflow: hidden; line-height: 0;\" class=\"lazy lazy-hidden mce_SELRES_start\">\ufeff<\/span><\/iframe><\/p>\n<p><noscript><iframe style=\"width: 100%; max-width: 660px; overflow: hidden; border-radius: 10px;\" src=\"https:\/\/embed.podcasts.apple.com\/us\/podcast\/from-investment-banker-to-cio-with-mike-wilson\/id730188152?i=1000668522835\" height=\"175\" frameborder=\"0\" sandbox=\"allow-forms allow-popups allow-same-origin allow-scripts allow-storage-access-by-user-activation allow-top-navigation-by-user-activation\" data-mce-fragment=\"1\"><span data-mce-type=\"bookmark\" style=\"display: inline-block; width: 0px; overflow: hidden; line-height: 0;\" class=\"mce_SELRES_start\">\ufeff<\/span><\/iframe><\/noscript><\/p>\n<p>\u00a0<\/p>\n<p>The transcript from this week\u2019s, <em>MiB: Mike Wilson, Morgan Stanley<\/em>, is below.<\/p>\n<p>You can stream and download our full conversation, including any podcast extras, on Apple Podcasts, Spotify,\u00a0YouTube, and Bloomberg. All of our earlier podcasts on your favorite pod hosts can be found here.<\/p>\n<p style=\"text-align: center;\">~~~<\/p>\n<p><strong>Barry Ritholtz<\/strong>: This week on the podcast, I have an extra special guest. Mike Wilson has been with Morgan Stanley since 1989, rising up through the ranks of institutional sales, trading, investing, banking to eventually becoming Chief Investment Officer and Chief US Equity Strategist. He has a very interesting approach to thinking about market valuations and strategies and when to deploy capital, when to go with the crowd, when to lean against the crowd, and has amassed and excellent track record. In doing so, I thought this conversation was really quite fascinating, and I think you will also, especially if you\u2019re not only interested in equity, but curious as to how to combine various aspects of market functions, valuation, economic cycle, fed actions into one coherent strategy. I thought this was fascinating, and I think you will also, with no further ado, my conversation with Morgan Stanley, Mike Wilson. Mike Wilson, welcome to Bloomberg.<\/p>\n<p><strong>Mike Wilson<\/strong>: Thanks, Barry. It\u2019s great to be here. It<\/p>\n<p><strong>Barry Ritholtz<\/strong>: It\u2019s great to have you. I\u2019ve been looking forward to this. Let\u2019s, let\u2019s talk a little bit about your background. You get A B, BA from University of Michigan (Go Blue!), MBA from Kellogg at Northwestern. Was investing always the career plan?<\/p>\n<p><strong>Mike Wilson<\/strong>: Yeah, you know, it was in some way, shape or form. I mean, you know, my mom was a financial advisor in the early eighties. She was kind of an inspiration with a single parent, family household. She was basically making ends meet and she, you know, with that time, a woman in as a broker was, you know, really kind of a, an endangered species Wow. And didn\u2019t exist at all. So she got me interested looking at stocks at a young age. And of course I got hooked early because probably to this day, my largest percentage winner of all time was the first stock I ever picked when I was 13 years old. So<\/p>\n<p><strong>Barry Ritholtz<\/strong>: What was that stock?<\/p>\n<p><strong>Mike Wilson<\/strong>: So I was 13 years old in 1980. A boy, I can imagine. I picked Nike. It worked out pretty well and ended up paying for a good chunk of tuition. And of course, once you have a winner like that, you\u2019re, you\u2019re kind of in. So I, I went to school. I didn\u2019t think I would be necessarily doing what I\u2019m doing today, but I knew that I was gonna be interested in financial markets of some kind, and I think I probably ended up in the right place. It took a long time to kinda get to the right role, but, but yeah, I mean, I\u2019ve always had a, an interest in, in markets for sure.<\/p>\n<p><strong>Barry Ritholtz<\/strong>: Do you still have that Nike?<\/p>\n<p><strong>Mike Wilson<\/strong>: I don\u2019t actually. I sold it. I finally sold it, all of it, I believe in the late nineties. So I left a lot on the table. Yeah, yeah, yeah. But it\u2019s still my biggest winner, but I still left, but still<\/p>\n<p><strong>Barry Ritholtz<\/strong>: \u00a0Right. That\u2019s a good run. 20 years in Nike It\u2019s good that that was the fat part of the curve with them. So I can\u2019t help but notice Michigan, Northwestern in Chicago, and then you come to New York City. What was that transition like from a quiet Midwestern upbringing to New York City?<\/p>\n<p><strong>Mike Wilson<\/strong>: Yeah, I mean, it really was a kind of a, you know, a turbulent sort of emotional thing for me. But I had changed schools so many times through my childhood. I lived in Illinois, I lived in Texas and went to a bunch of different schools, so, so like new adventures was not, not, you know, a challenge for me. But yeah, the big city was, it was a big change. I was a, I\u2019m a rural guy, kind of grew up in a, you know, farm town in Illinois and in Texas, which is in Dallas, but not really a farm town, but it, you know, more rural, definitely more Midwestern southern even. And so, yeah, New York was eyeopening<\/p>\n<p><strong>Barry Ritholtz<\/strong>: And New York in the 1990s was like a BoomTown party. Totally. What, what was that first decade like as a, a junior level banker at, at Morgans Stanley?<\/p>\n<p><strong>Mike Wilson<\/strong>:\u00a0 A Lot of fun. I mean, a lot of fun. I mean, you know, you work long hours, but you\u2019re kind of burning the candle at both ends. You\u2019re, you know, it\u2019s sort of, Work hard, play hard,<\/p>\n<p><strong>Barry Ritholtz<\/strong>: Right That\u2019s what your twenties are for. Yeah.<\/p>\n<p><strong>Mike Wilson<\/strong>:\u00a0 And nothing bad, nothing we shouldn\u2019t be doing. And it was great the nineties still to this day. I mean, it felt, and, and America was really booming. It wasn\u2019t just New York City. I mean, it was almost a, a coming of age for the entire country as, you know. I mean, the late nineties was sort of, you could say peak USA in many ways. We can measure that in a, in a lot of different ways. And, and New York was, you know, a big part of that. So it was, it was a lot of fun. It was exciting.<\/p>\n<p><strong>Barry Ritholtz<\/strong>: What, what were your experiences like as a junior? I banker,<\/p>\n<p><strong>Mike Wilson<\/strong>: Not so fun. I mean, you know, it, you\u2019re learning, but it\u2019s, you know, it, it\u2019s a entry level job and it\u2019s not glamorous. You\u2019re, you\u2019re punching the clock pretty heavy hours, but boy, you\u2019re surrounded by some really smart people and you\u2019re, you\u2019re working on things that are, are forcing you to grow intellectually. It really challenges your resolve. Do you want to be in this business? You know, do, do you wanna, because it, it\u2019s constant as you know. I mean, being in the, in the investment business, being in, in the financial services business, it\u2019s, it\u2019s a constant, you know, evolution. You know, you have to improve your skills. You have to evolve your skills, and if you don\u2019t, you, you kind of die.<\/p>\n<p><strong>Barry Ritholtz<\/strong>: I had a John Mack on the show last year, and, and one of the things that really struck me was his respect and reverence for the culture at Morgan Stanley. Tell a little bit about your, your experiences dealing with Morgan Stanley culture.<\/p>\n<p><strong>Mike Wilson<\/strong>: Yeah, I mean, for me, it, I mean, it was perfect because I, you know, I grew up very independent. You know, my mom put that on me early. And so Morgan Stanley\u2019s kinda the same way. It\u2019s, it\u2019s, it\u2019s your career to manage tremendous support internally to make sure that you have what you need. But, but generally they encourage you to explore your limits. And so that to me has always been a very endearing part of the Morgan Stanley culture. It\u2019s served me well. It\u2019s challenged me. It\u2019s made me kind of better, it\u2019s forced me to, to grow and do different jobs. That\u2019s, to me is the biggest takeaway.<\/p>\n<p><strong>Barry Ritholtz<\/strong>: And 35 years one firm your whole career, that\u2019s a rarity in the modern era. What\u2019s kept you there your entire career?<\/p>\n<p><strong>Mike Wilson<\/strong>: It\u2019s just what I said. I mean, they\u2019ve been, they\u2019ve given me the opportunity to do a lot of different things. I don\u2019t think I could have spent 35 years at any firm doing the same job function. It\u2019s just, I need a variety. And so I would probably say that I\u2019ve had six or seven careers over that 35 year period. And that\u2019s what\u2019s kept me interested. It\u2019s, it\u2019s been exciting. It\u2019s been, you know, it\u2019s been a thrill of a lifetime to be able to, to do these different types of careers.<\/p>\n<p><strong>Barry Ritholtz<\/strong>: So we were chatting earlier about our holding periods, getting longer as we get older. You and I both started as traders. What was that experience like? Again, 1990s big institutional activity at Morgan Stanley. What was your trading career like?<\/p>\n<p><strong>Mike Wilson<\/strong>: Yeah, well that came later. So I was really investment banking. And then I went into really more of a sales role in the nineties. And then I became more of a prop trader in the two thousands sort of post the tech bubble. And I was involved in trading tech stocks, proprietarily, you know, helping the desk make money before, you know, before that became abolished, you know, post GFC. Right, right. And, and that was a, another incredible growing experience. I mean, as you know, you know, trading forces you to really look inward. You know, you\u2019re basically competing against yourself, right? You\u2019re your own worst enemy. You\u2019re your own best friend. You know, it\u2019s a love hate thing. The p and l is everything. And, you know, I discovered I didn\u2019t really like that, to be honest. I don\u2019t, I didn\u2019t, I didn\u2019t enjoy, you know, being married to a, a screen every day. That to me is, is not investing, that\u2019s trading. And, and I, I\u2019m not a trader. I mean, I understand trading. I\u2019m more of somebody who is intermediate term. I\u2019m a cycles person as opposed to a trading person.<\/p>\n<p><strong>Barry Ritholtz<\/strong>: The question that comes to my mind, because of my experience doing something very similar, is I find that trading has influenced how I look at investing. What, what has your experience been now that your time horizon is much longer? How did your experience as a trader in the two thousands impact how you see the world? Well,<\/p>\n<p><strong>Mike Wilson<\/strong>: It absolutely helps. I mean, you know, because it forces you to be honest about, you know, your positioning and it forces you to, to revisit like, why am I involved in this call or position, and does it still make sense? And that trader instinct forces you to be honest with yourself, where I think if you hadn\u2019t done, if I hadn\u2019t done that, I probably wouldn\u2019t be as, you know, open- minded to things changing and, and oh yeah, I could be wrong. You know, it\u2019s funny to me, a lot of people are afraid to admit they\u2019re wrong. I\u2019m, I\u2019m happy to admit that I\u2019m wrong because that\u2019s how a trader closes out a position.<\/p>\n<p><strong>Barry Ritholtz<\/strong>:\u00a0That\u2019s exactly right.<\/p>\n<p><strong>Mike Wilson<\/strong>: I, you know what I mean? Like, you gotta say, I\u2019m wrong. And then, okay, I, I\u2019ve gotta do something different. And, and I think, you know, my worst mistakes have been when I\u2019ve been unable to admit that I\u2019m wrong. And so the trading experience helped me to kind of get past that.<\/p>\n<p><strong>Barry Ritholtz<\/strong>: The line I recall my head trader drumming into my head was, \u201cIt\u2019s okay to be wrong. It\u2019s unacceptable to stay wrong.\u201d (Correct) So, so you hold two roles, and if someone asks me, what are the two best gigs in all of Morgan Stanley? My answers would be, I don\u2019t know, either Chief US Equity Strategist or Chief Investment Officer, you have both of those titles. How does that work? How do you handle both of those?<\/p>\n<p><strong>Mike Wilson<\/strong>: Well, I mean, you know, that\u2019s also evolved over time. I mean, they\u2019re very different constituents. So I would say the challenge of having those roles is that our institutional clients are much shorter term. And, you know, Morgan Stanley has all types of different clients. We have institutional clients, we have retail clients, we have, you know, pension funds, we have endowments. And so it\u2019s, it\u2019s sort of managing that, all of those different constituents with communication. So that, that\u2019s the challenge. I wouldn\u2019t say I like one better than the other, but what I would say is I do find more personal satisfaction in helping the asset owner clients who really need the help. Okay. You know, let\u2019s be honest, most of the institutional clients, you know, they\u2019re pretty sophisticated and they\u2019re looking for an edge. You know, they value our research. They say they value other people\u2019s research, they value the conversations, but they don\u2019t necessarily need your help as much as, say, a, a retail client or somebody who is really entrusting their entire net worth to the firm.<\/p>\n<p>00:10:16 So it\u2019s just different, you know, and, and, and what I find challenging and satisfying is that every meeting I do, I almost gotta put on a different hat. You know, I go into a meeting and I\u2019m talking to somebody who\u2019s really doesn\u2019t care at all about next week. And they don\u2019t even care about this year. They\u2019re thinking about five, 10 years down the road. Right. It\u2019s a completely different conversation. In fact, we end up talking about their business, how they made their wealth. That\u2019s really fascinating to me. Whereas if I\u2019m going into a typical institutional meeting, it\u2019s almost like, you know, wash, rinse, repeat, okay, here\u2019s what\u2019s going on right now, here\u2019s how we\u2019re thinking about it. Which is valuable, but it\u2019s a totally different meeting.<\/p>\n<p>00:10:49 (Speaker Changed) Huh. Really interesting. So I\u2019m looking at all the various roles you\u2019ve had at Morgan Stanley over the past three and a half decades. Investment banker, trader, salesman, strategist, product manager, and of course chief investment officer. What\u2019s your favorite role? And if you could create just one sort of amalgam of it, what, what would that look like?<\/p>\n<p>00:11:15 (Speaker Changed) Yeah, that\u2019s an interesting question. I mean, I would say, you know, I had a lot of fun working on the trading desk. I was younger. We had a group of people kinda the same age. You know, you\u2019re rowing the boat. It\u2019s a tight team of 15 people or so. And that, that role was essentially, I, I, I sort of built what we call institutional sector sales, sort of a desk analyst role. We were the first firm to do that. I was a TMT specialist. And then I built out that effort over the course of, I don\u2019t know, five, six years for every industry. And it was a, it was kinda like your team, and we built it from scratch. Now, every firm has those, has that role. So we were the original, we were the OG on that. And it was a, it was a very cohesive group of people.<\/p>\n<p>00:11:58 We were analysts, we were also traders. We were dealing with clients from a sales standpoint. We were making calls, we were working with our research department, and we\u2019d even work with capital markets, you know, to help them price or think about deals in our sectors. So it was a very comprehensive role, but also specialized. That to me was, I had the most fun, but I did it for almost 10 years, you know, so I kind of hit my expiration date, you know what I mean? Right. And so I wouldn\u2019t wanna be doing that now because I did it. And that\u2019s why I always think about my life, which is the next thing I do is gonna be something totally different. I don\u2019t even know what it\u2019s going to be yet, but I mean, I\u2019m not retiring. I, I\u2019ll be working till, you know, God help me out, live a long life, and I\u2019ll be doing this for a long time. Huh.<\/p>\n<p>00:12:37 (Speaker Changed) Really interesting. Alright, so you cover a lot of, really, what are my favorite topics? The, the five things that are within your purview, US equity markets and trends, economic indicators, how political events, impact markets, corporate earnings, and then federal reserve policies. That\u2019s the big five in my book. I, I love that area. There\u2019s always things to talk about. We, we were chatting earlier and I said, I get a lot of questions and emails from clients. Those are the five areas that 95% of the questions that come in cover. How did you narrow it down to these five? What do you like talking about most when you\u2019re having conversations with clients?<\/p>\n<p>00:13:20 (Speaker Changed) Well, to me it\u2019s all just about the, the riddle. You know, you\u2019re just trying to solve a giant puzzle. I mean, that\u2019s what, that\u2019s what makes markets so exciting to me. It\u2019s a, it\u2019s the marrying, quite frankly, of macro and micro. So I have a, a deep background in micro, mainly the TMT space. And then I developed this macro affinity starting in 2000, really? 2009, 10 in that role. And so marrying the two to me is the advantage. You know, the way we kind of laid this out, and we originally took over coverage of US equity strategy. We said, look, there\u2019s four pillars to our strategy. First of all, we\u2019re cycle analysts. Not to be confused as psychoanalysts, but it\u2019s kinda related, right? Understanding cycles is critical.<\/p>\n<p>00:14:00 (Speaker Changed) Are we talking market cycles, economic cycles, fed cycles, everything<\/p>\n<p>00:14:04 (Speaker Changed) Both. But generally starts with the economic cycle. Where are you in the economic cycle? And then they\u2019re the business cycle effectively. And then understanding that there are also market cycles. And marrying those two is also a big part of our framework. So you have to have some sort of fundamental framework. Mine has always been based on rate of change analysis. So to me, when people look at data, a lot of times, I don\u2019t think they look at data the right way. Now, I, I feel like we educated the street in many ways going back 15, 20 years ago about this rate of change analysis going back to the early two thousands. And now people are kind of onto it, and I\u2019m, I\u2019m not saying the only person thinking about rate of change, but it has become a mu a much bigger feature. So the rate of change matters way more than the level in every indicator you\u2019re looking at.<\/p>\n<p>00:14:47 (Speaker Changed) In other words, are we accelerating or decelerating rather than specific points or,<\/p>\n<p>00:14:51 (Speaker Changed) Exactly. And that can apply to macro data and it can apply to micro data. And that should tell you whether or not an asset\u2019s probably going to be appreciating or depreciating. So that\u2019s one part of our framework. Second part of our framework is valuation fundamental work. You know, earnings analysis, predicting earnings, whereas a valuation based on kind of where we are in the cycle. And then of course, policy is a huge impact on, you know, how that cycle can be<\/p>\n<p>00:15:18 (Speaker Changed) Affected. When we say policy, do we mean fed policy? Do we mean fiscal policy? We mean everything, yeah.<\/p>\n<p>00:15:23 (Speaker Changed) All types of policy, but mainly fiscal and monetary, also geopolitical events. And that\u2019s probably the least important for us because they\u2019re so hard to predict. Right. But, but definitely fiscal and monetary policy. And I think that that\u2019s probably taken on a much bigger role in the last 20 years than it was prior to that 20 year period. The policy now has a outsized impact on markets than it did 20 years ago. Huh.<\/p>\n<p>00:15:46 (Speaker Changed) Really interesting. Yeah. Not too long ago you wrote, this is a humbling business. That\u2019s a attitude I completely share, but I don\u2019t see a lot of people in our industry discussing that. Tell us a little bit about what makes this such a humbling business.<\/p>\n<p>00:16:03 (Speaker Changed) Well, first of all, it\u2019s, it\u2019s extremely competitive. Probably the smartest, most motivated people in the world that you\u2019re competing against. And it\u2019s, and you\u2019re also competing against yourself to try and figure out what\u2019s going to happen. So that\u2019s, that\u2019s number one. So your probability of being correct Okay. Is low, right? I mean, like, if you\u2019re 50 50 or 60 40 on your ideas, you\u2019re really good. Okay. Think about overachievers. You know, when you, and then we recruit, you know, we talk to people, young people always say, you probably haven\u2019t even ever had a B on your report card. They can\u2019t imagine getting a B, well get ready to have a bunch of F\u2019s. You know, and that\u2019s humbling is to say, Hey, you know, like, this is difficult and you\u2019re gonna be wrong a lot. And, and really the humility is important because, you know, failure is all about how you deal with it. You know, you\u2019re all gonna be wrong, okay. At some point. And how do you deal with that failure? Do you, do you double down on your mistakes? Do you, do you deny that you made a mistake? Do you learn from your mistake? And to me, that\u2019s, that really encompasses why I like it so much, because you\u2019re forced to grow. You\u2019re always forced to be growing as a person, as a colleague, as a client service person. And you\u2019re always, you\u2019re constantly learning and, and relearning. So.<\/p>\n<p>00:17:18 (Speaker Changed) So let\u2019s talk about some of that learning. I\u2019ve tracked your career over the years, and I don\u2019t know, a decade or two ago you were more inclined to make bigger, bolder predictions. Now I kind of see you as doing more nuanced strategies. You emphasize relative value. You\u2019re looking for where is an edge I can share with clients versus let\u2019s see if we can, you know, get the big one, right? Why has that philosophy evolved over time and and how do you implement it?<\/p>\n<p>00:17:50 (Speaker Changed) Yeah, I would say it, I wouldn\u2019t say it\u2019s changed completely. I think that there are times in the markets where, you know, the big pitch is easier to go after. I still, I\u2019m, I\u2019m a big elephant hunter. Yeah. I mean, I, I still view myself as, I tend to be more contrarian because I think that\u2019s where you make the big money. All my good calls have been going against the grain, whether it\u2019s bullish or bearish. I would say, you know, we get tagged with being, you know, more bearish and bullish. I would say we\u2019re just more balanced, you know, but we, when we make big calls in the past, they tend to be at important turning points. And of course we don\u2019t get all those right either. But I still enjoy that. We, lately we have not been doing as much of that. Because going back to what I said a minute ago, policy has been so important in the last, really since Covid that it has kind of screwed up some of our indicators in a way where it hasn\u2019t been as easy to have that conviction level that you get run over by policy, both on the upside and the downside.<\/p>\n<p>00:18:50 And so what, what we feel like we have an edge in is calling those relative value trades. And we\u2019ve had great success in that in the last 12 to 18 months, even though perhaps maybe our market call in the last 12 months has been not as good. Well,<\/p>\n<p>00:19:02 (Speaker Changed) Let\u2019s give you some credit where credit is due. Earlier this year you had said, Hey, we\u2019re, we\u2019re very overdue for a 10% correction in the market. And pretty much, you know, July and August, that\u2019s about what we\u2019ve seen in 2024. Do you find it easier to conceptualize market activity when things become more volatile? How do market dislocations affect your ability to read the tea leaves?<\/p>\n<p>00:19:28 (Speaker Changed) Well, I mean, market dislocation always creates sort of opportunity. You know, this year has been very, it\u2019s been very calm from a volatility standpoint, and that\u2019s somewhat boring, right? So we felt like in early July that, you know, that had gotten kind of extreme. There was stuff that was, you know, peering its way out and the risk reward was not as good. Now, 10% corrections are very common, right? You know, they\u2019re not like, that\u2019s not really that big of a bold call that\u2019s just saying, Hey, things are extended. It worked out. Timing was actually quite good. Okay, great. What I, what I would say is that, you know, the, the ability to, to, to read the tea leaves, I would view myself as very good at that. And that, that\u2019s not a humble statement, but I think it\u2019s an accurate statement. Like that\u2019s, we\u2019ve built our career being able to see around the corner maybe a little bit earlier than some people, because we look at the market so closely, the market tells you kind of what\u2019s about to happen.<\/p>\n<p>00:20:23 Once again, you can\u2019t always be accurate, but I would say a lot of our clients rely on us sometimes to help them see around the corner. And they know that we\u2019re not afraid to help them look around the corner. Okay? Whether it\u2019s bullish or bearish, that doesn\u2019t really matter. It\u2019s more of like, what\u2019s not priced right now. What is priced right now is a soft landing. And that is the base case scenario for most people. So you have to ask yourself, okay, well what happens if that soft landing narrative is challenged doesn\u2019t mean it\u2019s a hard landing, just means that it\u2019s challenged. Well, that means valuations are probably too high. And, and that could set off a chain reaction that that\u2019s why you get a correction. That, that was kind of the rationale back in, in early July. Those types of calls don\u2019t come around every week. Right. Those types of calls tend to happen when things are extreme levels. You see the risk reward being unbalanced and you take a swing.<\/p>\n<p>00:21:13 (Speaker Changed) Well, let\u2019s talk about a swing you took, you got 2022 very right. You said things were expensive and not prepared for a fed hiking cycle. And lo and behold, not only were stocks down 20 plus percent bonds were down 15%. It was a pretty awful year. You got the macro picture right. What, what led you to identify that correctly and what made the two years that followed 2022 so, so challenging?<\/p>\n<p>00:21:42 (Speaker Changed) Yeah, I mean, I think, well, what set us up was we, you know, we got the low right in 2020 for the right reasons. We kinda came into the pandemic, more bearish than most. \u2019cause we thought it was late cycle. Then we got the pandemic and it was to us a really fat pitch, right? So we were very aggressive in 2020 and 2021. And you know, we, we don\u2019t get necessarily a lot of credit, but, you know, our clients give us credit. We caught all of that upside. And so part of that call was just like, look, we\u2019ve had this massive move. It\u2019s mainly because of policy. Okay? We\u2019ve overshadow, we\u2019ve had, we\u2019ve had over consumption from the pandemic and all the benefits that were sent out to people. Valuations are now outta touch with the reality. The fed\u2019s gonna have to raise rates. We kinda use this interesting narrative called fire and ice, right? The inflation will lead to, you know, basically slow down because have to raise rates. And that all narrative just really worked nicely having been so right in 20 20, 20 21. On the upside, the call to kind of faded into 21 was actually pretty easy. Where we, where we didn\u2019t get right, was that we didn\u2019t think they\u2019d raise 500 basis points. So we in some ways we in<\/p>\n<p>00:22:45 (Speaker Changed) In 18 months.<\/p>\n<p>00:22:46 (Speaker Changed) No, I mean, so like that, that actually made us feel then, oh my goodness, they probably overdid it. Right? And that\u2019s gonna lead to probably a hard landing in 2023. But we weren\u2019t alone in that view, by the way.<\/p>\n<p>00:22:57 (Speaker Changed) So, so let\u2019s talk about this a sec. Yeah. \u2019cause man did so many macro economists and strategists, they might\u2019ve gotten 22, right? But 23 and 24 was perplexing. And we continued to hear recession, recession, recession throughout. I\u2019m not saying you, I\u2019m saying the street throughout 23, the first half of 24, as of August of 2024, there are no signs of a recession. Yeah. The yield curve is still inverted. It\u2019s less inverted than it was. And the som rule arguably ticked off. Although Claudia Som says it may not be indicating a recession now. But how did so many of the traditional economists types get this recession wrong?<\/p>\n<p>00:23:40 (Speaker Changed) Well, I mean, a lot of the traditional indicators were a flashed a wrong sign. I mean, you know, historically that probably would\u2019ve played out. And my personal view is that we had incredible policy support last year, mostly on the fiscal side. Right. Which essentially allowed the cycle to extend itself. I mean, if you take out the government spending, you probably are on a recession in a private economy. And, and look, many people have highlighted this too, ourselves included. We, we have been in a recession in many sectors, kinda a rolling recession. Yes. A term that we sort of invented in 2018, which I regret now. \u2019cause now people kinda use it in a way, which I think is misused. But anyways, we can leave that where it is. And I, I guess this is where I come out the story, which is I don\u2019t think that they\u2019ve extinguished the risk of a hard landing.<\/p>\n<p>00:24:26 Okay. Because now we\u2019re going into a period where probably fiscal support is gonna have to wane. And we have election, obviously that could affect that too. And also policy now from the Fed may be late and forthcoming. We don\u2019t know the answer yet. So I think it\u2019s almost like a mere image of last year where everybody was so certain it was gonna be a recession. And of course that majority was wrong. Now everybody\u2019s so certain it\u2019s gonna be a soft landing. Who\u2019s to say that they\u2019re not gonna be wrong? You just don\u2019t know. So I think that\u2019s where I, that\u2019s where I come out on the market overall as the index level. We\u2019re not as bullish as others because we don\u2019t think the multiples reflect that there\u2019s still this risk that\u2019s probably 20, 30% at least, that you could end up in a hard landing at some point in the next 12 months. And that\u2019s definitely not priced.<\/p>\n<p>00:25:06 (Speaker Changed) So, so you bring something up that I\u2019m fascinated by and, and it, it plays right to the economist getting the recession wrong in 23 and 24. And that\u2019s your focus on government, both fiscal and monetary support for the economy. When, when we have a year, like 2020, like the pandemic, when the CARES act, and there were three Cares Act, but the first Cares Act was something like 10% of GDP. We hadn\u2019t seen anything like that since World War ii. Shouldn\u2019t that force people to kind of rethink their models when suddenly a few trillion dollars unexpectedly is gonna pour into the economy. I, I remember Jeremy Siegel jumping up and down professor at Wharton saying, this is gonna cause inflation. And nobody paid him any attention back in 2020. Shouldn\u2019t that government support that you are referring to force us to kind of rethink our models a little<\/p>\n<p>00:26:01 (Speaker Changed) Bit. And we did. And that\u2019s why we got 20, 20, 21. So right, because we agreed with Professor Siegel in April of 2020. We said, look out for the inflation. And the people thought we were nuts. They were<\/p>\n<p>00:26:11 (Speaker Changed) Right. The pushback was pretty fierce to that fierce,<\/p>\n<p>00:26:13 (Speaker Changed) Fierce. We got more pushback, by the way, being bullish in March and April of 2020 than being bearish in 22. \u2019cause people say we were being insensitive to like, you know, the, the disease and we\u2019re not being insensitive. We\u2019re just trying to do our job. And anyways, the, the point is that that boom bust, we compared exactly to World War ii. We wrote extensively about this. The way we adjusted it was we said, okay, these cycles now are going to be hotter, but shorter. And that\u2019s why in 2021 into 21, we said, okay, this is the peak of the cycle rate of change. Which by the way, turned out to be really accurate. We got people out of all the high flying meme stocks and all that, like in March of 21, because we said, this is silly. This is all just covid over consumption.<\/p>\n<p>00:26:53 Right. It\u2019s gonna be payback. So we did adjust all that, but once again, Barry is, you, you can\u2019t get everything right. You know, so that\u2019s right. So we feel like that narrative is still right on track. We didn\u2019t trade it particularly well. Okay. Now what we did trade well was our defensiveness and our quality bid, staying away from small caps. We got out of the memes, you know, the, the high flying multiple stocks, people try to keep buying those and just got carried out. And what I find interesting is, you know, if you\u2019re, if you\u2019re bear and wrong, you know, you get, you get carried out. Okay. And people just hate that. But the reality is, is that if you\u2019re bullish and wrong, you destroy way more capital if you\u2019re telling people to buy these crazy things that have no valuation support. So it\u2019s, it\u2019s just kind of ironic, and I\u2019ll just throw this out as a bit of an advertisement, but like, we run a portfolio of 10 stocks, a concentrated portfolio,<\/p>\n<p>00:27:41 (Speaker Changed) 10 stocks, 10<\/p>\n<p>00:27:42 (Speaker Changed) Stocks, that\u2019s it. Wow. And so the last six and a half years, that portfolio has outperformed the s and p by almost 800 basis points annually. Wow. Annually, okay. That\u2019s huge. With very little drawdowns. And we\u2019ve, and we\u2019ve been underweight the mag seven by like 90%. So No kidding.<\/p>\n<p>00:27:56 (Speaker Changed) I was immediately assumed it was, it was all mag seven.<\/p>\n<p>00:27:59 (Speaker Changed) No, because mag seven killed you in 22. Right? Right. That\u2019s right. So in 22, that portfolio was actually up, and it\u2019s, and it\u2019s long only. So now what I\u2019m saying is that calling the s and p 500 is not really that important to making money. Right? Making money is, you know, pivoting into things that maybe are unloved, getting outta things that are over love at the right time and not overstaying your welcome. And that\u2019s where I think our research and our advice has been really quite good.<\/p>\n<p>00:28:27 (Speaker Changed) So, so here\u2019s what I\u2019m kind of intrigued by. You have all these different roles. You\u2019re looking at all these different aspects of the market, of the economy, of, of various government policies. How do you take that massive information and communicate it to both the Morgan Stanley staff, the sales team, the brokers, the asset managers, and the investing public? I know you do a weekly podcast on your perspective of the market. How do you get all of this information to your audience on a timely basis?<\/p>\n<p>00:29:02 (Speaker Changed) Yeah, it\u2019s, it\u2019s a, it\u2019s a challenge. I would, I would say, of all the things, all the skills that I\u2019ve acquired over the years, probably my best skill is communication. That, that, whether it\u2019s verbal, written media of some kind, you know, people say, I have a face for radio, this is this podcast. Me too. Yeah, the podcast is better. But the point is, is I\u2019m pretty clear. Pe there\u2019s usually, there\u2019s not really any uncertainty about what I\u2019m saying. I could be wrong, but it\u2019s very clear, and people like the clarity of the messaging. So we write a note every week. There\u2019s a cadence to it, right? We\u2019ve developed this cadence with our clients every Monday at, you know, 12:00 AM in the morning, the no comes out. So people are waiting for that. Or we do, we, we do these regular touch points and that regular communication, whether it\u2019s to the institutional community, to the retail community, to our endowment community, whatever that might be.<\/p>\n<p>00:29:54 And of course, then we do a lot of marketing. We do a lot of one-on-one meetings, you know, group events, et cetera. So it\u2019s all those touch points. And the challenge is that we have to deliver the message, depending on who the audience is. When it becomes challenging is if I\u2019m doing a media segment and that maybe the messaging is more for the institutional community, but then the retail community picks up on it and it\u2019s really not for them or vice versa. That\u2019s where it becomes a bit of a challenge. And that\u2019s one of the reasons why I\u2019m now more focused on the institutional side. Do<\/p>\n<p>00:30:24 (Speaker Changed) You ever find yourself, when you\u2019re putting these weekly conversations together, looking at the flow and saying, you know, most of the time this, these data series are just trending, and it\u2019s when either there\u2019s a major reversal or a big outlier that it\u2019s interesting, but all right, it\u2019s consistent with last month\u2019s trend and the previous month\u2019s trend. Do you look at that stuff and say, we don\u2019t really need to talk about ISM again, do we? Or how, how do you deal with that?<\/p>\n<p>00:30:51 (Speaker Changed) Well, I mean, it, look, it comes down to what we think is the most important thing this week. We also, you know, it\u2019s a bit of an art in terms of, okay, when do you press it? When do you lay low? When do you make a relative value call? When do you make a market call? You know, it\u2019s like, well, where\u2019s the opportunity right now? We can kind of go anywhere. The beauty of my job is I can kind of talk about anything. I can talk about rates, I can talk about credit, I can talk about stocks. So that\u2019s, that gives me a wide range of things that I can have something relevant to say every week.<\/p>\n<p>00:31:18 (Speaker Changed) Huh, really, really interesting. So there\u2019s a phrase of yours that you use that I, I\u2019m fascinated by. It\u2019s almost a wartime phrase you had written. The fog of uncertainty reveals new investment opportunities. Explain,<\/p>\n<p>00:31:34 (Speaker Changed) Well, that\u2019s when things are mispriced the most, right? When things are, when things are certain, you tend to get pretty accurate pricing. And of course that\u2019s dangerous too, because<\/p>\n<p>00:31:42 (Speaker Changed) It\u2019s, I was gonna say, sometimes you get certainty in the wrong direction. Correct.<\/p>\n<p>00:31:45 (Speaker Changed) But when things are really confusing, like during Covid for example, you get incredible value opportunities that popped up because nobody knew anything including us, but we knew the price. And that was the main reason we got bullish in March of 2020, was that we were waiting for equity risk premiums to blow out. And they did. And I\u2019m like, well, it doesn\u2019t really matter. It doesn\u2019t really matter what happens if I\u2019m buying this at a 700 basis point equity risk premium, and yes, I\u2019m gonna make money. Okay, I\u2019m gonna, I\u2019m gonna make money. Maybe not next week. Now it turned out it was, it was actually the low. But I mean, like, that\u2019s when value, like valuation typically doesn\u2019t matter, but when it matters, it\u2019s all that matters. Hmm. And the fog of uncertainty creates those mismatches, by the way, creates on the upside too. So for example, in early 2021, we made a pretty important call, which was that all the, the meme stocks were going bananas, right? Because the free money that was floating around, right? Like, well, these prices are, this is not gonna end well. And it sure it didn\u2019t.<\/p>\n<p>00:32:39 (Speaker Changed) Right? Ne never does.<\/p>\n<p>00:32:41 (Speaker Changed) It never does.<\/p>\n<p>00:32:41 (Speaker Changed) Right. How is the fog of uncertainty today? Is it, it\u2019s clearly not March, 2020, but there is a sense that people have no idea which direction we\u2019re gonna head.<\/p>\n<p>00:32:53 (Speaker Changed) I would say that right now, there, there is more certainty in people\u2019s minds than reality. Okay. And that\u2019s really where the opportunity comes up, which meaning there seems to be a lot of certainty about how things are gonna play out, not economically, but also from an earning standpoint. But I\u2019ve heard these same arguments now for four to six months. Four to six quarters, quite frankly, about this re-acceleration in certain things, which does, it keeps being deferred. Okay. There\u2019s also a lot of certainty apparently around Fed policy because they guide, which I don\u2019t think there\u2019s any certainty around. They don\u2019t<\/p>\n<p>00:33:24 (Speaker Changed) Know. I, I mean, the street has, let\u2019s be blunt, been dead wrong about what the Fed was gonna do. I it feels like it\u2019s a year and a half already. Yeah.<\/p>\n<p>00:33:32 (Speaker Changed) The Fed has been wrong. It\u2019s a hard job. You know, I remember, I\u2019ll just go back to an example, but in December of 2021, there was 50 basis points of Fed hikes priced in to the next year. Okay. And I was remember talking to clients going like, like, do you, that\u2019s light. Do you think this makes sense? I mean, they, they we\u2019re runaway inflation, and the Fed has told you they\u2019re gonna start raising rates. And they\u2019re like, well, yeah, it could be more, but like, that\u2019s what the Fed\u2019s telling us. Oh, okay. Well, I mean, so I, I find that, you know, this, and this goes back to, you know, 2003 with Regulation fd, that\u2019s when everything kind of changed. Well, it changed in two ways. So the Fed changed with Greenspan, right. With all this forward guidance. And then of course, it\u2019s just gotten more and more and more you had dot plot now, and it just, it just compounded when you give people a little bit of information, they want more. So the Fed has provi now provides so much information, they can\u2019t even tie their shoes without telling us first. Okay.<\/p>\n<p>00:34:26 (Speaker Changed) To be fair, when you and I first started, we didn\u2019t, the fed didn\u2019t even announce they were tightening. You would just see activity in the bond market. Exactly. And someone would say, Hey, it looks like the Fed raised rates. Now, not only do they tell us they\u2019re raising rates, we get the transcript from the meetings,<\/p>\n<p>00:34:41 (Speaker Changed) And then they have to basically go through every line and they\u2019re like parsing each word. It\u2019s gotta the point now where it\u2019s almost debilitating. Okay. Because the, the markets are almost unable to trade away from this sort of formal guidance. Now that served a purpose to a point. Now I think it\u2019s, it\u2019s outgrown its usefulness in many ways. Okay.<\/p>\n<p>00:34:58 (Speaker Changed) Do, does the Fed lose something by giving up the elements of surprise, the ability to shock the markets? I<\/p>\n<p>00:35:06 (Speaker Changed) Think so. I, I, but more importantly, what ends up happening is the market now gravitates to, you know, pricing in the same outcome, right? No one is willing to go away from the, the dot plot or the, like, it, it, the market rarely gets away from the guidance. And I, I bring that up because it\u2019s the same thing in a stock market now, right? With Regulation fd. And now we have an entire industry dedicated to company conference calls, right? So if you look at the variance in estimate analyst estimates, it has absolutely narrowed dramatically over the last 15 or 20 years in the mid or late nineties when hedge funds became a thing and active managers were doing their thing, the variance in estimates were, was all over the place because we didn\u2019t have this such formal guidance. And so the, the irony here is that in the effort to reduce uncertainty, you actually end up creating more volatility because invariably those estimates are gonna end up being wrong at some point, and everybody\u2019s in the same position.<\/p>\n<p>00:36:06 (Speaker Changed) Hmm. Real, really interesting. So, so you mentioned earlier your focus on cycles, not just economic cycles and business cycles, but market cycles tell a little bit about where are we in the economic cycle and where are we in the market cycle today?<\/p>\n<p>00:36:20 (Speaker Changed) So we\u2019re, we\u2019re pretty convinced that we\u2019re late cycle now, late cycle periods gonna last for years. I mean, the late nineties is a great example of that. I mean, we\u2019re on forever, and so we don\u2019t know when it ends, but it, it\u2019s very hard to argue that we\u2019re mid cycle or early cycle because where unemployment is, I mean, you\u2019re, you\u2019re basically at the 50 or low and it\u2019s kind of turning up. So we\u2019re, we think we\u2019re pretty much late cycle, and that informs us where to be within the markets. That\u2019s why quality large caps have done so well. Quality growth in particular, that\u2019s what works. And this idea, you\u2019re gonna go back to small caps or low quality cyclical, it\u2019s just, it doesn\u2019t work. But people I don\u2019t think understand or appreciate where we are, or they have a different view about where we are in the economic cycle.<\/p>\n<p>00:36:59 So that\u2019s one example on the, on the price cycle or market cycles, I mean, that tends to be around kind of fed policy kind of be where, where the interest rate cycle is. Well, there too, it would suggest that we\u2019re late cycle because the curves inverted has been inverted for two years. We\u2019re now about to re steepen and go positive again. That also would argue that you want to have your risk kind of dialed back, at least from a beta standpoint. You don\u2019t wanna be invested in lower quality balance sheet businesses. You know, credit tends to do much better than equities. That has been the case on a risk adjusted basis. Bonds tend to be a better buy that\u2019s starting to work now. So yeah, I mean there\u2019s, there\u2019s all kinds of things that we look at. And then of course, there\u2019s individual stock cycles, which we pay attention to quite a bit. So we do use a lot of technical analysis. One of the reasons we\u2019re con contrarian is I tend to fade. I I fade exhaustion, exhaustion meaning things get overbought or things get oversold. I like to, I like to kind of press into those, into those points.<\/p>\n<p>00:37:54 (Speaker Changed) Hmm. That\u2019s really kind of interesting. So you mentioned the inverted yield curve, and now that that\u2019s dis inverting and, and starting to steepen, everybody tends to focus on the inversion, but that\u2019s not where recessions occur. It\u2019s after the yield curve inversion unwinds and things begin to steepen. So what are your thoughts on the possibility of a recession in 2024 or, or more likely 2025? Well,<\/p>\n<p>00:38:20 (Speaker Changed) Once again, like our house call is as it\u2019s soft landing\u2019s most likely outcome. We don\u2019t have the answer. Okay. And I don\u2019t think the curve is res steepened in a way that would signal that, you know, recession is more likely than not yet, but that can change. So we\u2019re very focused on that. And usually when the curve and re steepens from the front end, meaning the Fed is catching up, this is why I\u2019m very focused right now on the two year yield relative to fed funds. So two year yields got almost 185 basis points below fed funds, you<\/p>\n<p>00:38:48 (Speaker Changed) Would think is anticipating<\/p>\n<p>00:38:49 (Speaker Changed) Massive cuts, right? Like not 50 basis points, okay. Or 75. It\u2019s, it\u2019s, it\u2019s predicting 185 basis points of cuts over the next probably, you know, 12 to 18 months, which is a pretty aggressive fed cutting cycle. And that\u2019s all it\u2019s telling you. It\u2019s just telling you the, that the, the likelihood that the Fed is behind the curve is gone up once again, not a recession, but the risk of a hard landing has gone up all else equal.<\/p>\n<p>00:39:14 (Speaker Changed) If, if the market thinks we\u2019re getting almost 200 basis points in cuts. It sounds like the bond market is anticipating a recession right now.<\/p>\n<p>00:39:21 (Speaker Changed) The good news is that has narrowed, so the spread now between two years and fed funds is down to 1 45. Why? Because the claims numbers were better. We got some, you know, ISM services data was a little bit better. So this like fear that, you know, got priced in really quickly is now subsided a bit. Doesn\u2019t mean it\u2019s, it is extinguished. It just means that we, you know, the pendulum is swinging back again. And so we\u2019re focused on that. We\u2019re watching it closely. I would say the jury is out, we don\u2019t know.<\/p>\n<p>00:39:46 (Speaker Changed) So markets in 2024 had a great first half of a year. A lot of people expected to build on that 10, 12, 14% gains depending on which markets you were looking at. You\u2019ve come out and said, I think it\u2019s a low probability that there\u2019s a whole lot more upside for the rest of the year. Tell us what you\u2019re looking at there and, and why do you think, hey, the most of the gains for 2024 have already been had.<\/p>\n<p>00:40:12 (Speaker Changed) So all of the gains really since October of last fall has been multiple expansion in anticipation of a fed cutting cycle and a re-acceleration in growth. So we went from 17 times earnings s and p earnings in October of last fall to 22 times earnings in June. Well, that\u2019s about as rich as you can get. So I\u2019m pretty comfortable saying that multiples are likely to come down as the Fed cuts. That\u2019s also something I think people don\u2019t appreciate once the Fed, like it\u2019s easier to travel than arrive. So as you\u2019re moving to the Fed cuts, that\u2019s the best part of the cycle. And we wrote about that at the end of last year when we sort of, you know, threw in the towel that we were gonna have this, you know, hard landing. We thought there\u2019d be a rally, okay, we didn\u2019t think we\u2019d go to 5,700.<\/p>\n<p>00:40:56 But needless to say that that\u2019s what happened. But the best part of that rally has now occurred. So when the fed starts cutting, multiples usually go down and there\u2019s just not enough earnings growth to offset a 10 to 15% multiple contraction between here and the end of the year. We have like 8% growth built in for next year\u2019s earnings growth. So that\u2019s the math. I mean, you\u2019re just, you have a net drag from the multiple contraction relative to what the earnings growth is going to be, even in the soft landing outcome. So I would argue that we prob the highs for the year in the s and p are probably in, that doesn\u2019t mean it\u2019s a cataclysm, right? Okay. It just means that the risk reward now is not particularly attractive.<\/p>\n<p>00:41:36 (Speaker Changed) So you have this very nuanced take that I\u2019m intrigued by what you\u2019re describing is somewhat cautious. However, the nuance is pullbacks are opportunities for investors to put money into high quality growth companies that have strong financials and high earnings potential. That\u2019s a very nuanced position relative to the highs are in for the year. And, and we should expect a bumpy road from here.<\/p>\n<p>00:42:03 (Speaker Changed) Well, it\u2019s a little bit of both. I mean, I, I would say that I think the trajectory is down. I mean, 19 times, you know, next year\u2019s numbers is, you know, which would be the end of the year is lower than what we\u2019re trading today. It\u2019s sort of that low 5,000 as opposed to 5,400 at<\/p>\n<p>00:42:16 (Speaker Changed) The end of the, but what is that five, 6%? Exactly. That\u2019s not exactly, it\u2019s bumpy, you know, end of world. It\u2019s<\/p>\n<p>00:42:20 (Speaker Changed) Bumpy. Like you said, it\u2019s bumpy. It\u2019s not a, you know, that\u2019s the way you phrased the question. So I think it is gonna be bumpy and that\u2019s not, forget that we\u2019re going into this election season. There are some other things going on around the world. There is still excess leverage in the system that I\u2019m not sure how that\u2019s gonna be resolved necessarily. China\u2019s not providing the impetus that people were hoping for from a growth standpoint, right? So we just, you know, we just, we need to take a little bit of a, of a break, you know, and it could just be a consolidation period at the index level, which once again lends me to say I wanna be up the quality curve and I wanna skew more defensive than growth, because that\u2019s typically what works from the Fed cuts.<\/p>\n<p>00:42:55 (Speaker Changed) Let\u2019s talk about another nuanced position that you have that I, I find fascinating. Everybody\u2019s been so focused on the artificial intelligence enablers, Nvidia and all the other semiconductor chip companies. But you\u2019ve made the argument that investors should begin to shift from those AI enablers to the AI adopters as the big next opportunity. Talk about that. \u2019cause that\u2019s really a fascinating concept. Yeah,<\/p>\n<p>00:43:24 (Speaker Changed) I mean that\u2019s the tech, that\u2019s sort of my technology background speaking, right? I mean, that\u2019s how these cycles work. You buy the picks and shovels or the enablers initially, and then the real money, the real opportunity is with the companies that can actually deploy that technology into a new business model. So if you think about the 1990s is a good example. Everybody will understand the enablers were the telecom companies, the silicon companies, the telecom equipment companies,<\/p>\n<p>00:43:48 (Speaker Changed) Cisco, JDS, Uniphase, all, all these companies that nobody really, the average investor had no idea what their hardware was really doing,<\/p>\n<p>00:43:55 (Speaker Changed) Right? But these were spectacular stocks and, and that was in the build out of the internet itself. But if you think about who actually ended up building the big stocks, the ones that really worked from the internet, it\u2019s, it\u2019s the Mag seven, right? You know, I mean X you know, the one semi country company that has gone crazy here recently, but generally these are the businesses that took the internet and then built incredible business models kind of for free. I mean, they didn\u2019t have to, they didn\u2019t have to spend the money to build the superhighway, right? The guys who built the super highway, those stocks have been terrible.<\/p>\n<p>00:44:26 (Speaker Changed) Well, Metromedia Fiber and Global crossing, they, they spent thousands of dollars a mile and then got sold for pennies on the dollar. But that\u2019s how you end up with YouTube and Facebook and Correct. And, and Netflix.<\/p>\n<p>00:44:39 (Speaker Changed) So that\u2019s why it\u2019s interesting now, Barry, where, you know, so obviously the hyperscalers have been the big winners of the last era, and there\u2019s nothing wrong with these businesses or companies, okay? They\u2019re great, but they\u2019re now the ones spending all the money on this next generation cloud or ai, whatever you wanna call it. Oh, by the way, AI just to be clear, is really just an extension of machine learning, right? It\u2019s not, you know, I\u2019m not sure we\u2019re gonna have really artificial intelligence. I mean that\u2019s a, that\u2019s a, that\u2019s a interesting way to get people excited. Okay? It\u2019s just another investment cycle. There will be use cases in business models that are very profitable, built on the backbone of those cloud networks. Okay, great. We don\u2019t even know who those companies are yet. Okay. My guess is they\u2019re gonna reside in areas where, where great efficiencies are needed. For example, in healthcare, which we were talking about earlier, right? Like a lot of eff in efficiencies in healthcare, well, you know, somebody\u2019s gonna come up with a solution to kind wr out that inefficiency, okay? And there\u2019s massive opportunity for that using machine learning. I don\u2019t know who those companies are yet. Okay? But those are gonna be really the fat pitch that\u2019s gonna be where the real wealth, that the 10, 20 30 baggers, because these companies now, they can\u2019t grow 10 fold. They\u2019re, they, they\u2019re already too big. You know what I\u2019m saying?<\/p>\n<p>00:45:47 (Speaker Changed) It, it\u2019s amazing when you look in the healthcare space, they still use fax machines. I mean literally have your doctor fax the prescription Yeah. To the, why can\u2019t you do email? It\u2019s not secure. Some of this is technology. Some of this is just, you know, having one focused business methodology that, that seems to not be rooted 2030 for what is fax machine 40 years old. It it, it\u2019s amazing. So it\u2019s not so much AI as just a rapid adoption of better technologies and AI helps. How, how, how do we conceptualize that?<\/p>\n<p>00:46:26 (Speaker Changed) It\u2019s just faster processing, right? And then once again, it\u2019s about the solution that it\u2019s built around that, right? The internet was a really interesting development, but I remember 1995 and you remember this like I did, you know, we\u2019re sitting around in the desk and all of a sudden they\u2019re like, oh, there\u2019s this thing called email, right? That we\u2019re gonna introduce like, what is this? But it was such an easy application.<\/p>\n<p>00:46:46 (Speaker Changed) But don\u2019t email clients. You have to get compliance. Not yet to approve that. Not yet. Not yet. Do you, do you recall back in the day where you literally had to have approval to send emails? It\u2019s amazing that that a adoption period was a decade plus long. But<\/p>\n<p>00:46:59 (Speaker Changed) It was fast. It was, I mean it was pretty immediate and, and anybody, you know, could type, could, could use email. And email was, I think still to this day, one of the biggest productivity enhancements I\u2019ve ever seen in my, you know, lifetime Now the browser was the other Yeah. You know, killer app. And now the problem was there weren\u2019t any websites to go to for a while, but those two sort of apps to me were so obvious, much more obvious than say, chat GPT is okay, at least so far. We\u2019ll see where that goes right now. It, you know, it does homework for high school students and can help you and I write a nice poem to, to a loved one or help us write a speech or something. Great. But like, is it really enhancing productivity in a meaningful way? Like we can\u2019t use that yet to, it doesn\u2019t, we can\u2019t trust it for the numbers, we can\u2019t trust it for mission critical type analysis yet. Right?<\/p>\n<p>00:47:45 (Speaker Changed) It, it, it\u2019s a research addendum, but it still hallucinates. And so my favorite story is I, I had Bill Dudley, the New York Fed in as a guest and I used chat GBT just to see if I missed anything. And thanks to chat GBTI learned that he was a linebacker for the Detroit Lions in the 1950s, which kind of interesting \u2019cause he was also born in the 1950s chat. GBT couldn\u2019t figure out two different William Dudley\u2019s that\u2019ll eventually get worked out. At what point? And, and, and this goes right back to your AI adopters, look, we\u2019re all internet companies, we\u2019re all phone companies. We use all these technologies. At what point in the future do the other 490 companies in the s and p 500, not the AI and not enablers, but the adopters, when do they start to see the productivity benefits from ai? How far off is that in the future<\/p>\n<p>00:48:43 (Speaker Changed) When the, you know, hyperscalers or somebody else hands them a solution? It\u2019s a package solution. I mean, it\u2019s no different than software in the nineties, right? It\u2019s not like you and I were gonna go develop office or we\u2019re gonna go develop Excel. You know, we, but somebody developed that for us to be deployed it in our enterprise and our employees became very productive. So we just need the development of those applications. That\u2019s the second phase. The other problem that we haven\u2019t solved yet is the electricity. You know, the power consumption, the heat, you know, and also to build these things out. It takes time and Right. So that\u2019s, there, there are some, there are some snafus in here that will, you know, retard the expansion and growth of,<\/p>\n<p>00:49:22 (Speaker Changed) But, but all those things are solvable. Of course, they, it\u2019s just a matter of time, you know, but, but is it, and money, is it decades or is it years?<\/p>\n<p>00:49:30 (Speaker Changed) Oh no, it\u2019s years. But I don\u2019t think it\u2019s fast enough to prevent where we are in the economic cycle. Once again, going back to, I think there\u2019s people making the argument that, oh, not only did the fiscal kind of bridge us another year, but now AI is gonna extend the cycle another three or four years. I\u2019m just not in that<\/p>\n<p>00:49:49 (Speaker Changed) Belief because that\u2019s the next cycle. That\u2019s<\/p>\n<p>00:49:51 (Speaker Changed) The next cycle. That\u2019s what to get. That\u2019s what\u2019s gonna be, that\u2019s what\u2019s gonna wanna get excited about when valuations come in at some point in the next 12 months, is my guess. And there\u2019s a, a fat pitch that people have forgotten about.<\/p>\n<p>00:50:02 (Speaker Changed) All right. Last of, of our standard questions. When you look at a market where we are today, when you look at an economy, where we are today, what are your favorite metrics to, to focus on? Whether it\u2019s valuation or, or the economy or inflation. What, what are your big three that you\u2019re, you\u2019re watching?<\/p>\n<p>00:50:20 (Speaker Changed) So once again, it goes back to rate of change. And a lot of the key metrics, I say the key metrics I\u2019m focused on now are things like revision factors. So earnings revision factors, that\u2019s what stocks are most highly correlated to. That\u2019s now rolling over. So the rate of change on that is in a bad slope, which means valuations come down. Doesn\u2019t mean it has to go to, you know, negative, right? But, you know, it can go negative and then we\u2019ll have to adjust, you know, our targets further. Right now it\u2019s in a correction phase From a finance standpoint, from a economic standpoint, it\u2019s all the labor data. Okay. That\u2019s all that matters to me. Now. Everything else is kind of secondary. If the, if the claims data and the payroll data stays, okay, soft landing is the outcome. If that deteriorates further, I don\u2019t think it can deteriorate a whole lot further before the markets start to get nervous.<\/p>\n<p>00:51:03 (Speaker Changed) In our last five minutes, let\u2019s jump to our favorite questions that we ask all our guests. And we\u2019ll do this in a, a speed round. Starting with tell us what you\u2019re streaming, what, what\u2019s keeping you entertained these days?<\/p>\n<p>00:51:16 (Speaker Changed) Yeah, I\u2019m watching sort of an eclectic group now. The bear, I dunno if you\u2019ve seen that show. Love. Love it. We just finished season three, which I didn\u2019t love Season three as much.<\/p>\n<p>00:51:24 (Speaker Changed) Season two is still better, but three was interesting. Yeah,<\/p>\n<p>00:51:27 (Speaker Changed) It\u2019s all good. It\u2019s just great character studies, which, which we enjoy. My wife and I have enjoyed that, that series, we just finished it. Other than that, the offer, if you\u2019ve seen that? No. So the offer is about the making of the movie, the Godfather.<\/p>\n<p>00:51:39 (Speaker Changed) We were just talking about this over the weekend.<\/p>\n<p>00:51:41 (Speaker Changed) Spectacular. We\u2019re not done with that yet, but it\u2019s<\/p>\n<p>00:51:43 (Speaker Changed) Because I can\u2019t remember the last time I saw Godfather two. It had to be decades. Yeah. Oh ago. And someone said, watch the offer. It\u2019s based on the book that the producer exactly did. And people said, when you go back and rewatch it, e everything has different context. It\u2019s<\/p>\n<p>00:51:59 (Speaker Changed) Spectacular. So I would recommend that. And then I\u2019m watching a, a Pete Rose documentary right now. I\u2019m in the third of the fourth. And it, it was not what I expected. So I, I like to watch a lot of documentaries and that one is pretty fascinating.<\/p>\n<p>00:52:11 (Speaker Changed) Huh. Really interesting. Tell us about your mentors who helped shape your career.<\/p>\n<p>00:52:15 (Speaker Changed) Well, I mean this, I dunno if this is gonna sound right or, you know, dishonest, but it\u2019s true. It\u2019s basically my mom and my wife. I mean, these are the two strongest women I\u2019ve ever met in my life. They\u2019ve been extremely honest with me and forced me to grow. And, and so those are the two most important for sure. There\u2019s no one person, but many colleagues and many clients, I would say clients have shaped my views on the markets probably more than colleagues because, you know, they\u2019re actually putting skin in the game. And they\u2019ve also helped me make good career decisions and judgments. It,<\/p>\n<p>00:52:50 (Speaker Changed) It\u2019s such an interesting observation you\u2019re making because we sort of forget how clients force us to rethink certain things. Or someone asked you a question where you think the answer is obvious, but you don\u2019t wanna just give them a quick answer. So you do the homework and you discover, oh, this is a lot more complicated than I originally thought. I\u2019m, I\u2019m glad you brought that up. \u2019cause it comes up so frequently and I think we, we don\u2019t pay it enough attention. Yeah, it\u2019s real, really insightful. Let\u2019s talk about books. What are some of your favorites? What are you reading right now?<\/p>\n<p>00:53:23 (Speaker Changed) You know, if, if it was up to my wife, I\u2019d be reading like a book a week. She\u2019s a literary giant, so she\u2019s always handing me books. Right. And I am kind of an eclectic reader, but I would say some of my favorite books are The Boys in the Boat. That\u2019s<\/p>\n<p>00:53:37 (Speaker Changed) New series now, also, right?<\/p>\n<p>00:53:38 (Speaker Changed) Yeah. There\u2019s a movie. I, I didn\u2019t watch the movie \u2019cause the book was just so detailed. It was fantastic of like all the classic books. My favorite was Catcher in the Rye. It\u2019s kind of a coming of age story, you know, animal Farm and those types of things. And then like the, the trashy type stuff. You know, like one of my favorites of all time still to this day is the firm, I dunno if you remember reading the John Grisham novel<\/p>\n<p>00:54:02 (Speaker Changed) Came a, a Tom Cruise movie, right? Yeah.<\/p>\n<p>00:54:04 (Speaker Changed) But I mean, like, so like, you know, that\u2019s, that\u2019s the gamut of it right now. I mean, I read, I read so much for work that I don\u2019t probably read enough books like day to day, but I\u2019d like to read more.<\/p>\n<p>00:54:13 (Speaker Changed) Huh. Really interesting. Our final two questions. What sort of advice would you give to a recent college grad interested in a career in investing?<\/p>\n<p>00:54:24 (Speaker Changed) Well, the, the, the advice I do give them is just real. This is not a sexy business. Okay? This is, this is a grinder business. So if you come into this business, understand, like we talked earlier, you\u2019re gonna be wrong a lot. You gotta have some humility. You are gonna be a lot of highs and lows when things are feeling really good. Take it down a notch when things are feeling really horrible. Don\u2019t, you know, kill yourself. And it\u2019s just, it\u2019s gonna be a roller coaster and it takes a long time to become even close to being a domain expert in anything in this business. There\u2019s so many smart people, there\u2019s so much changing all the time. You know, you, you gotta put 10 years in before you know anything. Hmm. And I think that, you know, I think that\u2019s really good advice to a young person. I wish I had had that advice. \u2019cause you know, we\u2019re all ball eyed coming outta college thinking we\u2019re gonna change the world. And the reality is, this is a, this is a long road. I mean, 35 years, I\u2019m still learning every day.<\/p>\n<p>00:55:20 (Speaker Changed) Hmm. Really interesting answer. And our final question, what do you know about the world of investing today? You wish you knew back in 1989 when you were first getting started?<\/p>\n<p>00:55:31 (Speaker Changed) Well, I guess part of it\u2019s what I just said, that it\u2019s, you know, it\u2019s, it\u2019s not a sprint, it\u2019s a marathon. You know, cut yourself some slack along the way. You\u2019re gonna make some wrong turns. And I would say enjoy it, you know, because it\u2019s, it\u2019s, it\u2019s a journey and it\u2019s a journey not just about like the people you\u2019re working with and the people you\u2019re helping your clients. It\u2019s learn about yourself. This is a struggle with yourself. I mean, figuring out markets is an internal battle. It\u2019s like, probably the book I should have mentioned was reminiscences of a stock operator. Sure. I mean, I\u2019ve read that like five times and I still go back and refer to it sometimes. I,<\/p>\n<p>00:56:09 (Speaker Changed) I call that the first behavioral economics book.<\/p>\n<p>00:56:12 (Speaker Changed) I, I would agree. And it\u2019s a fictional character, but it\u2019s a real life experience of this is how it goes down. And understanding your faults, your own fault understanding your weaknesses and your strengths. You know, when to press it, when not to press it. And then, and then, you know, unfortunately, and that story ends up with, you know, killing himself. Right.<\/p>\n<p>00:56:33 (Speaker Changed) Because<\/p>\n<p>00:56:34 (Speaker Changed) It, it just, it eats away at you. So that\u2019s, that\u2019s really what I wish I know 30 years ago, like, it\u2019s gonna, it\u2019s gonna take a pound of flesh.<\/p>\n<p>00:56:40 (Speaker Changed) Right. Really interesting. Mike, thank you for being so generous with your time. We have been speaking with Mike Wilson, chief US Equity strategist and Chief Investment Officer of Morgan Stanley. If you enjoy this conversation, check out any of the 500 or so we\u2019ve done over the past 10 years. You can find those at iTunes, Spotify, YouTube, wherever you find your favorite podcast. And check out my new podcast at the Money short, 10 minute conversations with experts about everything that affects you and your money, earning it, spending it, and most importantly, investing it at the money in the Masters in Business podcast feed. I would be remiss if I did not thank the crack team that helps us put these conversations together each week. John Wasserman is my audio engineer. A tick of is my project manager, Anna Luke is my producer. Sean Russo is my researcher. Sage Bauman is the head of podcasts at Bloomberg. I\u2019m Barry Ritholtz, you\u2019ve been listening to Masters in Business on Bloomberg Radio.<\/p>\n<p>\u00a0<\/p>\n<p style=\"text-align: center;\">~~~<\/p>\n<p>\u00a0<\/p>\n<p><iframe class=\"lazy lazy-hidden\" style=\"width: 100%; max-width: 660px; overflow: hidden; background: transparent;\" data-lazy-type=\"iframe\" data-src=\"https:\/\/embed.podcasts.apple.com\/us\/podcast\/masters-in-business\/id730188152\" height=\"450\" frameborder=\"0\" sandbox=\"allow-forms allow-popups allow-same-origin allow-scripts allow-storage-access-by-user-activation allow-top-navigation-by-user-activation\" data-mce-fragment=\"1\"><\/iframe><\/p>\n<p><noscript><iframe style=\"width: 100%; max-width: 660px; overflow: hidden; background: transparent;\" src=\"https:\/\/embed.podcasts.apple.com\/us\/podcast\/masters-in-business\/id730188152\" height=\"450\" frameborder=\"0\" sandbox=\"allow-forms allow-popups allow-same-origin allow-scripts allow-storage-access-by-user-activation allow-top-navigation-by-user-activation\" data-mce-fragment=\"1\"><\/iframe><\/noscript><\/p>\n<p>\u00a0<\/p>\n<p>\u00a0<\/p>\n<p>\u00a0<\/p>\n<div class=\"printfriendly pf-button pf-button-content pf-alignleft\"><img decoding=\"async\" class=\"pf-button-img\" src=\"https:\/\/cdn.printfriendly.com\/buttons\/printfriendly-button.png\" alt=\"Print Friendly, PDF &amp; Email\" style=\"width: 112px;height: 24px;\"\/><\/div>\n<\/div>\n<p><br \/>\n<br \/><a href=\"https:\/\/ritholtz.com\/2024\/09\/transcript-mike-wilson\/\">Source link <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>\ufeff \ufeff \u00a0 The transcript from this week\u2019s, MiB: Mike Wilson, Morgan Stanley, is below. You can stream and download our full conversation, including any podcast extras, on Apple Podcasts, Spotify,\u00a0YouTube, and Bloomberg. All of our earlier podcasts on your favorite pod hosts can be found here. ~~~ Barry Ritholtz: This week on the podcast, [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":12,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"om_disable_all_campaigns":false,"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[3],"tags":[314,214,215,49,315],"class_list":["post-456","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-ekonomika-finansai-bankininkyste","tag-mike","tag-morgan","tag-stanley","tag-transcript","tag-wilson"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/europaskolos.lt\/index.php\/wp-json\/wp\/v2\/posts\/456","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/europaskolos.lt\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/europaskolos.lt\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/europaskolos.lt\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/europaskolos.lt\/index.php\/wp-json\/wp\/v2\/comments?post=456"}],"version-history":[{"count":0,"href":"https:\/\/europaskolos.lt\/index.php\/wp-json\/wp\/v2\/posts\/456\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/europaskolos.lt\/index.php\/wp-json\/wp\/v2\/media\/12"}],"wp:attachment":[{"href":"https:\/\/europaskolos.lt\/index.php\/wp-json\/wp\/v2\/media?parent=456"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/europaskolos.lt\/index.php\/wp-json\/wp\/v2\/categories?post=456"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/europaskolos.lt\/index.php\/wp-json\/wp\/v2\/tags?post=456"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}