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From Investment Banker to CIO with Mike Wilson · Masters in Business

• 0:02
  Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. This is Master's in
• 0:09
  Speaker 1: Business with Barry Ridholds on Bloomberg Radio.
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  Speaker 2: This week on the podcast, I have an extra special guest.
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  Speaker 2: Mike Wilson has been with Morgan Stanley since nineteen eighty nine,
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  Speaker 2: rising up through the ranks of institutional sales, trading, investing,
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  Speaker 2: banking to eventually becoming chief investment Officer and chief US
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  Speaker 2: equity strategist. He has a very interesting approach to thinking
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  Speaker 2: about market valuations and strategies and when to deploy capital,
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  Speaker 2: when to go with the crowd, when to lean against
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  Speaker 2: the crowd, and has amassed and excellent track record in
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  Speaker 2: doing so. I thought this conversation was really quite fascinating,
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  Speaker 2: and I think you will also, especially if you're not
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  Speaker 2: only interested in equity, but curious as to how to
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  Speaker 2: combine various aspects of market functions, valuation, economic cycle, fed
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  Speaker 2: actions into one coherent strategy. I thought this was fascinating
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  Speaker 2: and I think you will also. With no further ado,
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  Speaker 2: my conversation with Morgan Stanley's Mike Wilson. Mike Wilson, Welcome
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  Speaker 2: to Bloomberg.
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  Speaker 1: Thanks Bary, it's great to be here.
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  Speaker 2: It's great to have you. I've been looking forward to this.
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  Speaker 2: Let's talk a little bit about your background. You get
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  Speaker 2: a BBA from University of Michigan, Go Blue, NBA from
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  Speaker 2: Kellogg at Northwestern. Was investing always the career plan.
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  Speaker 1: Yeah, you know, it was in some way, shape or form.
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  Speaker 3: I mean, you know, my mom was a financial advisor
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  Speaker 3: in the early eighties. She was kind of an inspiration.
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  Speaker 3: With a single parent family household, she was basically making
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  Speaker 3: ends meet, and she, you know, with that time, a
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  Speaker 3: woman as a broker was, you know, really an endangered species.
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  Speaker 3: It didn't exist at all. So she got me interested
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  Speaker 3: looking at stocks at a young age. And of course
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  Speaker 3: I got hooked early because probably to this day, my
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  Speaker 3: largest percentage winner of all time was the first stock
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  Speaker 3: I ever.
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  Speaker 1: Picked when I was thirteen years old.
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  Speaker 2: What was that stuff?
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  Speaker 1: So I was thirteen years.
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  Speaker 3: Old in nineteen eighty A boy, I can't imagine. I
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  Speaker 3: picked Nike, worked out pretty well and ended up paying
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  Speaker 3: for a good chunk of tuition. And of course, once
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  Speaker 3: you have a winner like that, you're kind of in.
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  Speaker 1: So I went to school.
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  Speaker 3: I didn't think I would be necessarily doing what I'm
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  Speaker 3: doing today, but I knew that I was going to
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  Speaker 3: be interested in financial markets of some kind, and I
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  Speaker 3: think I probably ended up in the right place. It
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  Speaker 3: took a long time to kind of get to the
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  Speaker 3: right role, but but yeah, I mean I've always had
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  Speaker 3: an interest in markets.
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  Speaker 1: For sure.
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  Speaker 2: Do you still have that Nike I don't.
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  Speaker 1: Actually I sold it. I finally sold it, all of it,
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  Speaker 1: I believe, in the late nineties. So I left a
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  Speaker 1: lot on the table. Yeah. Yeah, it was still my
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  Speaker 1: biggest winner.
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  Speaker 2: But still, right, that's a good run.
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  Speaker 1: Yeah, that's good.
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  Speaker 2: That was the fat part of the curve with them.
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  Speaker 2: So I can't help but notice a Northwestern in Chicago
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  Speaker 2: and then you come to New York City. What was
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  Speaker 2: that transition like from a quiet Midwestern upbringing to New
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  Speaker 2: York City.
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  Speaker 1: Yeah, I mean it really was.
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  Speaker 3: It kind of a you know, a turbulent sort of
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  Speaker 3: emotional thing for me. But I had changed school so
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  Speaker 3: many times through my childhood. I lived in Illinois, I
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  Speaker 3: lived in Texas, and went to a bunch of different schools,
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  Speaker 3: so so like new Adventures was not not you know.
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  Speaker 1: A challenge for me. But yeah, the big city was.
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  Speaker 1: It was a big change. That was I'm a rural guy.
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  Speaker 3: I kind of grew up on a you know, farmtown
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  Speaker 3: in Illinois and in Texas which is in Dallas, but
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  Speaker 3: not really a farm town, but you know, more rural
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  Speaker 3: definitely more Midwestern, southern even And so yeah, New York
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  Speaker 3: was eye opening.
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  Speaker 2: And New York in the nineteen nineties was like a
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  Speaker 2: boomtown party totally. What was that first decade like as
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  Speaker 2: a junior level banker at Morgan's down A lot of fun.
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  Speaker 1: I had a lot of fun.
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  Speaker 3: I mean, you know, you work long hours, but you're
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  Speaker 3: kind of burning the candle at both ends.
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  Speaker 1: You're you know, it's sort of that's.
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  Speaker 2: What your twenties are. Four.
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  Speaker 3: Yeah, work hard, play hard, and nothing bad, nothing we
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  Speaker 3: shouldn't be doing. And it was great the nineties still
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  Speaker 3: to this day. I mean it felt in America was
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  Speaker 3: really booming. It wasn't just New York City. I mean
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  Speaker 3: it was almost a coming of age for the entire country,
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  Speaker 3: as you know. I mean, the late nineties was sort
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  Speaker 3: of you could say peak USA in many ways. We
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  Speaker 3: can measure that in a lot of different ways, and
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  Speaker 3: New York was, you know, a big part of that.
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  Speaker 1: So it was a lot of fun. It was exciting.
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  Speaker 2: What were your experience is like as a junior I
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  Speaker 2: banker and.
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  Speaker 1: Not so fun.
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  Speaker 3: I mean, you know you're learning, but it's you know,
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  Speaker 3: it's an entry level job and it's not glamorous. You're
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  Speaker 3: punching the clock pretty heavy hours.
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  Speaker 1: But boy, you're.
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  Speaker 3: Surrounded by some really smart people and you're working on
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  Speaker 3: things that are are forcing you to grow intellectually. It
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  Speaker 3: really challenges your resolve. Do you want to be in
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  Speaker 3: this business?
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  Speaker 1: You know?
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  Speaker 3: Do you want to because it's constant as you know,
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  Speaker 3: I mean being in the in the investment business, being
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  Speaker 3: in the financial services business, it's it's a constant you know, evolution.
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  Speaker 3: You know, you have to improve your skills. You have
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  Speaker 3: to eve all of your skills, and if you don't,
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  Speaker 3: you kind of die.
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  Speaker 2: So I had a John Mack on the show last
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  Speaker 2: year and one of the things that really struck me
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  Speaker 2: was his respect and reverence for the culture at Morgan Stanley.
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  Speaker 2: Tell a little bit about your your experiences dealing with
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  Speaker 2: Morgan Stanley culture.
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  Speaker 3: Yeah, I mean for me, I mean it was perfect
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  Speaker 3: because I you know, I grew up very independent. You know,
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  Speaker 3: my mom put that on me early, and so Morgan
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  Speaker 3: Stanley's kind of the same way. It's your career to manage,
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  Speaker 3: try to permitted support internally, to make sure that you
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  Speaker 3: have what you need, but to generally encourage you to
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  Speaker 3: explore your limits. And so that to me has always
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  Speaker 3: been a very endearing part of the Morgan Stanley culture.
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  Speaker 3: It served me well, it's challenged me, it's made me
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  Speaker 3: kind of better. It's forced me to grow and do
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  Speaker 3: different jobs. That's, to me, is the biggest takeaway.
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  Speaker 2: And thirty five years one firm, your whole career, that's
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  Speaker 2: a rarity in the modern era. What's kept you there
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  Speaker 2: your entire career.
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  Speaker 3: It's just what I said, I mean, they've given me
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  Speaker 3: the opportunity to do a lot of different things. I
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  Speaker 3: don't think I could have spent thirty five years at
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  Speaker 3: any firm doing the same job function.
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  Speaker 1: It's just I need a variety.
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  Speaker 3: And so I would probably say that I've had six
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  Speaker 3: or seven careers over that thirty five year period, and that's.
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  Speaker 1: What's kept me interested.
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  Speaker 3: It's been exciting, it's been you know, it's been a
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  Speaker 3: thrill of a lifetime to be able to do these
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  Speaker 3: different types of careers.
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  Speaker 2: So we were chatting earlier about our holding periods getting
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  Speaker 2: longer as we get older. You and I both started
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  Speaker 2: as traders. What was that experience like again, nineteen nineties,
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  Speaker 2: big institutional activity at Morgan Stanley. What was your trading
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  Speaker 2: career like?
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  Speaker 3: Yeah, that came later, So I was really investment banking,
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  Speaker 3: and then I went into really more of a sales
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  Speaker 3: role in the nineties, and then I became more of
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  Speaker 3: a prop trader in the two thousand, sort of post
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  Speaker 3: the tech bubble, and I was involved in trading tech
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  Speaker 3: stocks proprietarily, you know, helping the desk make money before
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  Speaker 3: you know, before that became abolished, you know, POSTGC, right,
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  Speaker 3: and and that was another incredible growing experience. I mean,
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  Speaker 3: as you know, you know, trading forces you to really
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  Speaker 3: look inward. You know, you're basically competing against yourself, right,
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  Speaker 3: You're your own worst enemy, You're your own best friend.
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  Speaker 1: You know.
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  Speaker 3: It's a love hate thing. The P and L is everything.
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  Speaker 3: And you know, I discovered I didn't really like that,
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  Speaker 3: to be honest, I don't.
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  Speaker 1: I didn't. I didn't enjoy you know, being married to
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  Speaker 1: a screen every day. That to me is is not investing.
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  Speaker 1: That's trading. And I'm not a trader.
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  Speaker 3: I mean, I understand trading I'm more of somebody who
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  Speaker 3: is intermediate term. I'm a cycles person as opposed to
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  Speaker 3: a trading person.
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  Speaker 2: So the question that comes to my mind because of
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  Speaker 2: my experience doing something very similar is I find that
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  Speaker 2: trading has influenced how I look at investing. What has
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  Speaker 2: your experience been now that your time horizon is much longer,
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  Speaker 2: how did your experience as a trader in the two
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  Speaker 2: thousands impact how you see the world?
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  Speaker 1: Well, it absolutely helps.
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  Speaker 3: I mean, you know, because it forces you to be
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  Speaker 3: honest about you know, your positioning, and it forces you
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  Speaker 3: to revisit like why am I involved in this call
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  Speaker 3: or position?
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  Speaker 1: And does it still make sense?
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  Speaker 3: And that trader instinct forces you to be honest with
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  Speaker 3: yourself where I think if you hadn't done I hadn't
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  Speaker 3: done that, I probably wouldn't be, as you know, open
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  Speaker 3: minded to things changing. And oh yeah, I could be wrong.
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  Speaker 3: You know, it's funny to be a lot of people
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  Speaker 3: are afraid to admit the wrong. I'm happy to admit
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  Speaker 3: that I'm wrong, because that's how a trader closes out.
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  Speaker 1: A position that's exactly right.
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  Speaker 3: I mean, like you guys, say I'm wrong, and then okay,
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  Speaker 3: I've got to do something different, and I think, you know,
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  Speaker 3: my worst mistakes have been when I've been unable to
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  Speaker 3: admit that I'm wrong, and so the trading experience helped
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  Speaker 3: me to kind of get past that.
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  Speaker 2: The line I recall my head trader drumming into my
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  Speaker 2: head was it's okay to be wrong, it's unacceptable to
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  Speaker 2: stay wrong.
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  Speaker 1: Correct.
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  Speaker 2: So you hold two roles, and if someone asked me
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  Speaker 2: what are the two best gigs in all of Morgan Stanley,
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  Speaker 2: my answers would be, I don't know, either chief US
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  Speaker 2: Equity Strategist or Chief Investment Officer. You have both of
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  Speaker 2: those titles. How does that work? How do you handle
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  Speaker 2: both of those?
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  Speaker 1: Well?
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  Speaker 3: I mean, you know that's also evolved over time. I
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  Speaker 3: mean they're very different constituents. So I would say the
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  Speaker 3: challenge of having those roles is that our institutional clients
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  Speaker 3: are much shorter term, and you know, Morgan Stanley has
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  Speaker 3: all types of different clients. We have institutional clients, we
• 9:32
  Speaker 3: have retail clients, we have you know, pension funds, we
• 9:35
  Speaker 3: have endowments, and so it's sort of managing that all
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  Speaker 3: of those different constituents with communication. So that's the challenge.
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  Speaker 3: I wouldn't say I like one better than the other.
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  Speaker 3: But what I would say is I do find more
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  Speaker 3: personal satisfaction in helping the asset owner clients who really
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  Speaker 3: need the help. Okay, you know, let's be honest. Most
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  Speaker 3: of the institutional clients, you know, they're pretty sophisticated and
• 10:01
  Speaker 3: they're looking for an edge. You know, they value our research,
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  Speaker 3: they say, they value other people's research, they value the conversations,
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  Speaker 3: but they don't necessarily need your help as much as
• 10:10
  Speaker 3: say a retail client or somebody who is really entrusting
• 10:14
  Speaker 3: their entire network to the firm.
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  Speaker 1: So it's just different, you know.
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  Speaker 3: And what I find challenging and satisfying is that every
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  Speaker 3: meeting I do, I almost got to put on a
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  Speaker 3: different hat. You know, I go into a meeting and
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  Speaker 3: I'm talking to somebody who really doesn't care at all
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  Speaker 3: about next week, and they didn't even care about this year.
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  Speaker 3: They're thinking about five, ten years down the road. It's
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  Speaker 3: a completely different conversation. In fact, we end up talking
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  Speaker 3: about their business, how they made their wealth. That's really
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  Speaker 3: fascinating to me, Whereas if I'm going into a typical
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  Speaker 3: institutional meeting, it's almost like, you know, wash Rent's repeat. Okay,
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  Speaker 3: here's what's going on right now, here's how we're thinking
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  Speaker 3: about it, which is valuable, but it's a totally different meeting.
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  Speaker 2: Huh. Really interesting. So I'm looking at all the various
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  Speaker 2: roles you've had at Morgan Stanley over the past three
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  Speaker 2: and a half decades, investment banker, trader, salesman, strategist, product manager,
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  Speaker 2: and of course chief investment officer. What's your favorite role
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  Speaker 2: and if you could create just one sort of amalgam
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  Speaker 2: of it, what would that look like.
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  Speaker 1: Yeah, that's an interesting question.
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  Speaker 3: I mean I would say, you know, I had a
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  Speaker 3: lot of fun working on the trading desk.
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  Speaker 1: I was younger.
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  Speaker 3: We had a group of people kind of the same age,
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  Speaker 3: and you're rowing the boat. It's a tight team of
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  Speaker 3: fifteen people or so. And that role was essentially I
• 11:32
  Speaker 3: sort of built what we call institutional sector sales, sort
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  Speaker 3: of a desk analyst role. We were the first firm
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  Speaker 3: to do that. I was a TMT specialist and then
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  Speaker 3: I built out that effort over the course of I
• 11:44
  Speaker 3: don't know, five six years for every industry, and it
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  Speaker 3: was a it was kind of like your team, and
• 11:48
  Speaker 3: we built it from scratch. Now, every firm has those
• 11:52
  Speaker 3: has that role. So we were the original. We're the
• 11:54
  Speaker 3: og on that and it was a it was a
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  Speaker 3: very cohesive group of people. We were analysts, were also traders.
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  Speaker 3: We were dealing with clients from a sales standpoint, we
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  Speaker 3: were making calls, we were working with our research department,
• 12:06
  Speaker 3: and we'd even work with capital markets, you know, to
• 12:07
  Speaker 3: help them price or think about deals in our sector.
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  Speaker 3: So it was a very comprehensive role but also specialized.
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  Speaker 3: That to me was had the most fun. But I
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  Speaker 3: did it for almost ten years, you know, so I
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  Speaker 3: kind of hit my expiration date, you know what I mean,
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  Speaker 3: And so I wouln't want to be doing that now
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  Speaker 3: because I did it. And that's why I always think
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  Speaker 3: about my life, which is the next thing I do
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  Speaker 3: is going to be something totally different. I don't even
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  Speaker 3: know what it's going to be yet, but I mean,
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  Speaker 3: I'm not retiring. I'll be working till you know, God
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  Speaker 3: helped me out a little long life, and I'll be
• 12:36
  Speaker 3: doing this for a long time.
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  Speaker 2: Huh. Really interesting? All right, So you cover a lot
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  Speaker 2: of really one of my favorite topics, the five things
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  Speaker 2: that are within your purview US equity markets and trends,
• 12:49
  Speaker 2: economic indicators, how political events impact markets, corporate earnings, and
• 12:55
  Speaker 2: then federal reserve policies. That's the big five in my book.
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  Speaker 2: I love that area. There's always things to talk about.
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  Speaker 2: We were chatting earlier and I said, I got a
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  Speaker 2: lot of questions and emails from clients. Those are the
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  Speaker 2: five areas that ninety five percent of the questions that
• 13:11
  Speaker 2: come in cover. How did you narrow it down to
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  Speaker 2: these five? What do you like talking about most when
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  Speaker 2: you're having conversations with clients.
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  Speaker 3: Well, to me, it's all just about the riddle. You know,
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  Speaker 3: you're just trying to solve a giant puzzle. I mean,
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  Speaker 3: that's that's what makes markets so exciting to me. It's
• 13:29
  Speaker 3: the marrying quite frankly, of macro and micro. So I
• 13:32
  Speaker 3: have a deep background in micro mailing the TMT space,
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  Speaker 3: and then I developed this macro affinity starting in two
• 13:39
  Speaker 3: thousand and really twenty nine to ten in that role,
• 13:43
  Speaker 3: and so marrying the two to me is the advantage,
• 13:46
  Speaker 3: you know. The way we kind of laid this out,
• 13:48
  Speaker 3: and we originally took over coverage of US equity strategy,
• 13:51
  Speaker 3: we said there's four pillars to our strategy. First, of all,
• 13:53
  Speaker 3: we're cycle analysts, not to be confused with psychoanalyst, but
• 13:57
  Speaker 3: it's kind of related. Understanding cycles is critical.
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  Speaker 2: Are we talking market cycles, economic cycles? Cycles?
• 14:04
  Speaker 3: Every but generally starts with the economic cycle. Where are
• 14:07
  Speaker 3: you in the economic cycle? And then they're the business
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  Speaker 3: cycle effectively, and then understanding that there are also market
• 14:12
  Speaker 3: cycles and marrying those two is also a big part
• 14:15
  Speaker 3: of our framework. So you have to have some sort
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  Speaker 3: of fundamental framework. Mine has always been based on rate
• 14:19
  Speaker 3: of change analysis. So to me, when people look at data,
• 14:23
  Speaker 3: a lot of times, I don't think they look at
• 14:24
  Speaker 3: data the right way. Now I feel like we educated
• 14:29
  Speaker 3: the street in many ways going back fifteen to twenty
• 14:31
  Speaker 3: years about this rate of change analysis, going back to
• 14:34
  Speaker 3: the early two thousands, and now people are kind of
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  Speaker 3: onto it. I'm not saying the only person thinking about
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  Speaker 3: rate to change, but it has become a much bigger feature.
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  Speaker 3: So the rate of change matters way more than the
• 14:45
  Speaker 3: level in every indicator you're looking at.
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  Speaker 2: In other words, oh, were you accelerating or decelerating rather
• 14:50
  Speaker 2: than specific points or exactly.
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  Speaker 3: And that can apply to macrodata, and it can apply
• 14:55
  Speaker 3: to microdata, and that should tell you whether or not
• 14:58
  Speaker 3: an asset is probably going to be appreciating or deep creciating.
• 15:00
  Speaker 3: So that's one part of our framework. The second part
• 15:02
  Speaker 3: of our framework is valuation fundamental work, you know, earnings analysis,
• 15:07
  Speaker 3: predicting earnings, whereas a great valuation based on kind of
• 15:10
  Speaker 3: where we are in the cycle. And then of course,
• 15:12
  Speaker 3: policy is a huge impact on how that cycle can
• 15:17
  Speaker 3: be effected.
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  Speaker 2: When we say policy, do we mean fed policy, do
• 15:20
  Speaker 2: we mean fiscal policy?
• 15:21
  Speaker 1: We mean everything?
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  Speaker 3: Yeah, all types of policy, but mainly fiscal and monetary.
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  Speaker 3: Also geopolitical events, and that's probably the least important for
• 15:29
  Speaker 3: us because they're so hard to predict, right, But definitely
• 15:32
  Speaker 3: fiscal and monetary policy. And I think that that's probably
• 15:36
  Speaker 3: taken on a much bigger role in the last twenty
• 15:39
  Speaker 3: years than it was prior to that twenty year period.
• 15:42
  Speaker 3: That policy now has a outsized impact on markets and
• 15:45
  Speaker 3: it did twenty years ago.
• 15:46
  Speaker 2: Huh. Really interesting. Not too long ago you wrote this
• 15:50
  Speaker 2: is a humbling business. That's an attitude I completely share.
• 15:56
  Speaker 2: But I don't see a lot of people in our
• 15:57
  Speaker 2: industry discussing that. Tell us a little bit about what
• 16:01
  Speaker 2: makes this such a humbling business.
• 16:03
  Speaker 3: Well, first of all, it's extremely competitive, probably the smartest,
• 16:07
  Speaker 3: most motivated people in the world that you're competing against.
• 16:10
  Speaker 3: And it's and you're also competing against yourself to try
• 16:12
  Speaker 3: and figure out what's going to happen. So that's that's
• 16:14
  Speaker 3: number one. So your probability of being correct okay is low, right,
• 16:19
  Speaker 3: I mean, like if you're fifty to fifty or sixty
• 16:22
  Speaker 3: forty on your ideas, you're really good.
• 16:25
  Speaker 1: Okay.
• 16:26
  Speaker 3: Think about overachievers, you know, when you and we recruit,
• 16:29
  Speaker 3: you know, we talk to people young people always say
• 16:31
  Speaker 3: you probably haven't even ever had a B on your
• 16:33
  Speaker 3: report card. They can't imagine getting a B. Well, get
• 16:36
  Speaker 3: ready to have a bunch of f's, you know. And
• 16:39
  Speaker 3: that's humbling is to say, hey, you know, like this
• 16:41
  Speaker 3: is difficult and you're going to be wrong a lot.
• 16:45
  Speaker 3: And really the humility is important because you know, failure
• 16:49
  Speaker 3: is all about how.
• 16:49
  Speaker 1: You deal with it.
• 16:50
  Speaker 3: You know, you're all going to be wrong, okay at
• 16:52
  Speaker 3: some point, and how do you deal with that failure?
• 16:54
  Speaker 3: Do you do you double down on your mistakes? Do
• 16:56
  Speaker 3: you do you deny that you made a mistake? Do
• 17:00
  Speaker 3: you learn from your mistake? And to me, that's that
• 17:03
  Speaker 3: really encompasses why I like it so much because you're
• 17:08
  Speaker 3: forced to grow.
• 17:09
  Speaker 1: You're always forced to be growing as a person.
• 17:12
  Speaker 3: As a colleague, as a client service person, and you're
• 17:15
  Speaker 3: always you're constantly learning and relearning.
• 17:18
  Speaker 2: So let's talk about some of that learning. I've tracked
• 17:21
  Speaker 2: your career over the years, and I don't know, a
• 17:24
  Speaker 2: decade or two ago, you are more inclined to make
• 17:28
  Speaker 2: bigger boulder predictions. Now I kind of see you as
• 17:31
  Speaker 2: doing more nuanced strategies. You emphasize relative value you're looking for,
• 17:38
  Speaker 2: where as an edge I can share with clients versus
• 17:41
  Speaker 2: let's see if we can, you know, get the big
• 17:43
  Speaker 2: one right. Why has that philosophy evolved over time and
• 17:48
  Speaker 2: how do you implement it?
• 17:50
  Speaker 3: Yeah, I would say I would say it's changed completely.
• 17:53
  Speaker 3: I think that there are times in the markets where
• 17:57
  Speaker 3: you know, the big pitch is easier to go after.
• 18:00
  Speaker 3: I still I'm a big elephant hunter. I mean, I
• 18:03
  Speaker 3: still view myself as I tend to be more contrarian
• 18:08
  Speaker 3: because I think that's where you make the big money.
• 18:10
  Speaker 3: All my good calls have been going against the grain,
• 18:14
  Speaker 3: whether it's.
• 18:14
  Speaker 1: Bullish or bearish.
• 18:16
  Speaker 3: I would say, you know, we get tagged with being
• 18:18
  Speaker 3: you know, more bearish and bullish. I would say, we're
• 18:20
  Speaker 3: just more balanced, you know. But when we make big
• 18:23
  Speaker 3: calls in the past, they tend to be at important
• 18:26
  Speaker 3: turning points, and of course we don't get all those
• 18:28
  Speaker 3: right either, but I still enjoy that we Lately we
• 18:31
  Speaker 3: have not been doing as much of that because going
• 18:33
  Speaker 3: back to what I said a minute ago, policy has
• 18:35
  Speaker 3: been so important in the last really since COVID that
• 18:40
  Speaker 3: it has kind of screwed up some of our indicators
• 18:42
  Speaker 3: in a way where.
• 18:43
  Speaker 1: It hasn't been as easy to.
• 18:45
  Speaker 3: Have that conviction level that you get run over by policy,
• 18:48
  Speaker 3: both on the upside and the downside. And so what
• 18:51
  Speaker 3: we feel like we have an edge in is calling
• 18:53
  Speaker 3: those relative value trades, and we've had great success in
• 18:55
  Speaker 3: that in the last twelve to eighteen months, even though
• 18:58
  Speaker 3: perhaps maybe our market call in the last twelve months
• 19:01
  Speaker 3: has been not as good.
• 19:02
  Speaker 2: Well, let's give you some credit where credit is due.
• 19:05
  Speaker 2: Earlier this year you had said, hey, we're very overdue
• 19:09
  Speaker 2: for a ten percent correction in the market, and pretty much,
• 19:13
  Speaker 2: you know, July and August, that's about what we've seen
• 19:16
  Speaker 2: in twenty twenty four. Do you find it easier to
• 19:20
  Speaker 2: conceptualize market activity when things become more volatile, How do
• 19:25
  Speaker 2: market dis locations affect your ability to read the tea leaves?
• 19:28
  Speaker 3: Well, I mean, market dislocation always creates sort of opportunity.
• 19:32
  Speaker 3: You know, this year has been very it's been very
• 19:34
  Speaker 3: calm from a volatility standpoint, and that's somewhat boring, right,
• 19:38
  Speaker 3: So we felt like in early July that you know,
• 19:41
  Speaker 3: that had gotten kind of extreme. There was stuff that was,
• 19:44
  Speaker 3: you know, peering its way out, and the risk reward
• 19:47
  Speaker 3: was not as good. Now ten percent corrections are very common,
• 19:50
  Speaker 3: you know, They're not like, that's not really that big
• 19:52
  Speaker 3: of a bold call. That's just saying, hey, things are extended.
• 19:55
  Speaker 3: It worked out. Timing was actually quite good. Okay, great.
• 20:00
  Speaker 3: What I would say is that, you know, the ability
• 20:03
  Speaker 3: to read the tea leaves, I would view myself as
• 20:07
  Speaker 3: very good at that. And that's not a humble statement,
• 20:10
  Speaker 3: but I think it's an accurate statement. Like that's we've
• 20:12
  Speaker 3: built our career being able to see around the corner,
• 20:16
  Speaker 3: maybe a little bit earlier than some people because we
• 20:19
  Speaker 3: look at the market so closely. The market tells you
• 20:22
  Speaker 3: kind of what's about to happen. Once again, you can't
• 20:25
  Speaker 3: always be accurate. But I would say a lot of
• 20:26
  Speaker 3: our clients rely on us sometimes to help them see
• 20:29
  Speaker 3: around the corner. And they know that we're not afraid
• 20:32
  Speaker 3: to help them.
• 20:33
  Speaker 1: Look around the corner.
• 20:34
  Speaker 3: Okay, whether it's bullish or bearish, that doesn't really matter.
• 20:36
  Speaker 3: It's more of like, what's not priced right now? What
• 20:39
  Speaker 3: is priced right now is a soft landing, and that
• 20:42
  Speaker 3: is the base case scenario for most people. So you
• 20:45
  Speaker 3: have to ask yourself, Okay, well, what happens if that
• 20:48
  Speaker 3: soft landing narrative is challenged? Doesn't mean it's a hard landing,
• 20:51
  Speaker 3: just means it's challenged. Well, it means evaluations are probably
• 20:54
  Speaker 3: too high, and that could set off a chain reaction.
• 20:58
  Speaker 3: That that's why you get a correction that would kind
• 21:00
  Speaker 3: of the rationale back in early July. Those types of
• 21:03
  Speaker 3: calls don't come around every week, right, Those types of
• 21:06
  Speaker 3: calls tend to happen when things are extreme levels. You
• 21:10
  Speaker 3: see the risk reward being unbalanced, and you take a swing.
• 21:13
  Speaker 2: Well, let's talk about a swing you took. You got
• 21:16
  Speaker 2: twenty twenty two, very right. You said things were expensive
• 21:20
  Speaker 2: and not prepared for a fed hiking cycle, and lo
• 21:24
  Speaker 2: and behold, not only were stocks down twenty plus percent,
• 21:28
  Speaker 2: bonds were down fifteen percent. It was a pretty awful year.
• 21:32
  Speaker 2: You got the macro picture right, What led you to
• 21:36
  Speaker 2: identify that correctly? And what made the two years that
• 21:40
  Speaker 2: followed twenty twenty two so so challenging?
• 21:42
  Speaker 3: Yeah, I mean, I think what set us up was
• 21:44
  Speaker 3: we you know, we got the low right in twenty
• 21:47
  Speaker 3: twenty for the right reasons. We can't came into the
• 21:50
  Speaker 3: pandemic more embarrassed than most because we thought it was
• 21:53
  Speaker 3: late cycle. Then we got the pandemic and it was
• 21:55
  Speaker 3: to us a really fat pitch. So we were very
• 21:58
  Speaker 3: aggressive in twenty twenty in twenty twenty one, and you know,
• 22:02
  Speaker 3: we don't get necessarily a lot of credit, but our
• 22:04
  Speaker 3: clients give us credit. We caught all that upside and
• 22:08
  Speaker 3: so part of that call was just like, look, we've
• 22:10
  Speaker 3: had this massive move. It's mainly because of policy. Okay,
• 22:13
  Speaker 3: we've overshot, We've had we've had over consumption from the pandemic,
• 22:17
  Speaker 3: and all the benefits that were sent out to people
• 22:19
  Speaker 3: evaluations are now out of touch with the reality. The
• 22:21
  Speaker 3: fens you have to raise rates. We kind of use
• 22:24
  Speaker 3: this interesting narrative called fire and ice. Right, the inflation
• 22:26
  Speaker 3: will lead to, you know, basically slow down because I
• 22:29
  Speaker 3: have to raise rates, and that all narrative just really
• 22:31
  Speaker 3: worked nicely. Having been so right in twenty twenty and
• 22:34
  Speaker 3: twenty twenty one. On the upside, the call to kind
• 22:36
  Speaker 3: of fade into twenty one was actually pretty easy. Where
• 22:39
  Speaker 3: we where we didn't get right was that we didn't
• 22:43
  Speaker 3: think they'd raise five hundred basis points.
• 22:44
  Speaker 1: So we in some ways in eighteen months.
• 22:46
  Speaker 3: No, I mean so like that that actually made us
• 22:49
  Speaker 3: feel then, oh my goodness, they probably overdid it and
• 22:52
  Speaker 3: that's going to lead to probably a hard landing in
• 22:54
  Speaker 3: twenty twenty three.
• 22:55
  Speaker 1: But we weren't alone in that view, by the.
• 22:57
  Speaker 2: Way, So let's talk about this that because Man did
• 23:01
  Speaker 2: so many macro economists and strategists, they might have gotten
• 23:05
  Speaker 2: twenty two right, but twenty three and twenty four was perplexing,
• 23:09
  Speaker 2: and we continued to hear recession, recession, recession throughout I'm
• 23:13
  Speaker 2: not saying you, I'm saying the street throughout twenty three,
• 23:17
  Speaker 2: the first half of twenty four. As of August of
• 23:20
  Speaker 2: twenty twenty four, there are no signs of a recession. Yeah,
• 23:24
  Speaker 2: the yield curve is still inverted, it's less inverted than
• 23:27
  Speaker 2: it was, and the Sam rule arguably ticked off, although
• 23:31
  Speaker 2: Claudia Sam says it may not be indicating a recession now.
• 23:34
  Speaker 2: But how did so many of the traditional economists types
• 23:39
  Speaker 2: get this recession wrong?
• 23:40
  Speaker 3: Well, I mean a lot of the traditional indicators were
• 23:43
  Speaker 3: a flashed wrong sign. I mean historically that probably would
• 23:48
  Speaker 3: have played out. And my personal view is that we
• 23:52
  Speaker 3: had incredible policy support last year, mostly on the fiscal side,
• 23:56
  Speaker 3: which essentially allowed the cycle to extend itself. I mean,
• 24:00
  Speaker 3: if you take out the government spending, you probably are
• 24:02
  Speaker 3: in a recession in a private economy. And look, many
• 24:05
  Speaker 3: people have highlighted this too, ourselves included. We have been
• 24:08
  Speaker 3: in a recession in many sectors, kind of a rolling recession,
• 24:11
  Speaker 3: a term that we sort of invented in twenty eighteen,
• 24:13
  Speaker 3: which I regret now because now people kind of use
• 24:15
  Speaker 3: it in a way which I think is misused. But anyways,
• 24:18
  Speaker 3: we can leave that where it is, and I guess
• 24:20
  Speaker 3: this is where I come out in the story, which is,
• 24:22
  Speaker 3: I don't think that they've extinguished the risk of a
• 24:25
  Speaker 3: hard landing, okay, because now we're going into a period
• 24:28
  Speaker 3: where probably fiscal support is going to have to wane,
• 24:30
  Speaker 3: and we have election obviously that could affect that too,
• 24:33
  Speaker 3: and also a policy now from the Fed maybe late
• 24:36
  Speaker 3: and forthcoming. We don't know the answer yet, so I
• 24:38
  Speaker 3: think it's almost like a mere image of last year.
• 24:40
  Speaker 3: Everybody was so certain it was going to be a recession,
• 24:43
  Speaker 3: and of course the majority was wrong. Now everybody's so
• 24:46
  Speaker 3: certain it's going to be a soft landing. Who's to
• 24:48
  Speaker 3: say that they're not going to be wrong. You just
• 24:50
  Speaker 3: don't know. So I think that's where I come out
• 24:53
  Speaker 3: on the market. Overall, at the index level, we're not
• 24:54
  Speaker 3: as bullish as others because we don't think the multiples
• 24:57
  Speaker 3: reflect that there's still this risk that's probably twenty thirty
• 25:01
  Speaker 3: percent at least, that you could end up in hard
• 25:04
  Speaker 3: landing at some point in the next twelve months, and
• 25:05
  Speaker 3: that's definitely in that price.
• 25:07
  Speaker 2: So you bring something up that I'm fascinated by, and
• 25:10
  Speaker 2: it plays right to the economists getting the recession wrong
• 25:14
  Speaker 2: in twenty three and twenty four, and that's your focus
• 25:17
  Speaker 2: on government, both fiscal and monetary support for the economy.
• 25:23
  Speaker 2: When we have a year like twenty twenty, like the pandemic,
• 25:26
  Speaker 2: when the Cares Act and there were three CARES Act,
• 25:29
  Speaker 2: But the first Cares Act was something like ten percent
• 25:33
  Speaker 2: of GDP. We hadn't seen anything like that since World
• 25:35
  Speaker 2: War Two. Shouldn't that force people to kind of rethink
• 25:38
  Speaker 2: their models when suddenly a few trillion dollars unexpectedly is
• 25:43
  Speaker 2: going to pour into the economy. I remember Jeremy Siegel
• 25:46
  Speaker 2: jumping up and down, professor at Wharton, saying this is
• 25:49
  Speaker 2: going to cause inflation, and nobody paid him any attention
• 25:53
  Speaker 2: back in twenty twenty. Shouldn't that government support that you're
• 25:57
  Speaker 2: referring to force us to kind of rethink our models
• 26:01
  Speaker 2: a little bit.
• 26:02
  Speaker 3: And we did, and that's why we got twenty twenty
• 26:04
  Speaker 3: twenty one so right, because we agreed with professional single.
• 26:06
  Speaker 3: In April of twenty twenty, we said look out for
• 26:09
  Speaker 3: the inflation, and people thought we were nuts.
• 26:11
  Speaker 1: Right.
• 26:11
  Speaker 2: The pushback was pretty fierce there, fierce.
• 26:13
  Speaker 3: We got more pushback, by the way, being bullish in
• 26:15
  Speaker 3: March and April of twenty twenty than being bearish in
• 26:18
  Speaker 3: twenty two because people say we were being insensitive to like,
• 26:21
  Speaker 3: you know, the disease, and we're not being insensitive. We're
• 26:23
  Speaker 3: just trying to do our job. And anyways, the point
• 26:26
  Speaker 3: is that that boom bust we compared exactly to World
• 26:29
  Speaker 3: War Two. We wrote extensively about this. The way we
• 26:32
  Speaker 3: adjusted it was we said, okay, these cycles now we're
• 26:34
  Speaker 3: going to be hotter but shorter. And that's why in
• 26:39
  Speaker 3: twenty twenty one into twenty one we said, okay, this
• 26:41
  Speaker 3: is the peak of the cycle.
• 26:42
  Speaker 1: Rate to change, which by the way, turned out to
• 26:44
  Speaker 1: be really accurate. We got people out of all the
• 26:46
  Speaker 1: high flying meme stocks and all that, like in March
• 26:49
  Speaker 1: of twenty one, because we said, this is silly, this
• 26:52
  Speaker 1: is all just COVID over consumption. It's going to be payback.
• 26:55
  Speaker 1: So we did adjust all that.
• 26:57
  Speaker 3: But once again, barrious, you can't get everything right, you know,
• 27:00
  Speaker 3: so we feel like that narrative is still right on track.
• 27:03
  Speaker 3: We didn't trade it particularly well. Okay, Now, what we
• 27:06
  Speaker 3: did trade well was our defensiveness and our quality bid
• 27:09
  Speaker 3: staying away from small caps. We got out of the memes,
• 27:12
  Speaker 3: you know, the high flying multiple stocks. People try to
• 27:15
  Speaker 3: keep buying those and just got carried out. And what
• 27:18
  Speaker 3: I find interesting is, you know, if you're if you're
• 27:20
  Speaker 3: burishing wrong, you know, you get you get carried out. Okay,
• 27:24
  Speaker 3: and people just hate that. But The reality is is
• 27:26
  Speaker 3: that if you're bullish and wrong, you destroy way more
• 27:30
  Speaker 3: capital if you're telling people to buy these crazy things
• 27:33
  Speaker 3: that have no valuation support. So it's it's just kind
• 27:35
  Speaker 3: of ironic, and I'll just throw this out as a
• 27:37
  Speaker 3: bit of an advertisement. But like, we run a portfolio
• 27:39
  Speaker 3: of ten stocks, that concentrated portfolio ten stocks, ten stocks,
• 27:43
  Speaker 3: and so the last six and a half years, that
• 27:45
  Speaker 3: portfolio has outperformed the S and P by almost eight
• 27:48
  Speaker 3: hundred basis points annually. Wow, annually, that's huge with very
• 27:52
  Speaker 3: little draw downs. And we've and we've been underweight to
• 27:54
  Speaker 3: the Max seven by like ninety percent.
• 27:55
  Speaker 2: So no kidding, I was just immediately assumed it was
• 27:58
  Speaker 2: it was all mag seven Max.
• 28:00
  Speaker 1: Haven' killed you in twenty two, Right twenty two, that
• 28:02
  Speaker 1: portfolio was actually up and it's long only.
• 28:05
  Speaker 3: So now what I'm saying is that calling the S
• 28:08
  Speaker 3: and P five hundred is not really that important to
• 28:12
  Speaker 3: making money.
• 28:13
  Speaker 2: Right.
• 28:13
  Speaker 3: Making money is, you know, pivoting into things that maybe
• 28:17
  Speaker 3: are loved, getting out of things that are overloved at
• 28:20
  Speaker 3: the right time, and not overstaying your welcome. And that's
• 28:22
  Speaker 3: where I think our research and our advice has been
• 28:26
  Speaker 3: really quite good.
• 28:27
  Speaker 2: So here's what I'm kind of intrigued by. You have
• 28:31
  Speaker 2: all these different roles. You're looking at all these different
• 28:34
  Speaker 2: aspects of the market, of the economy, of various government policies.
• 28:40
  Speaker 2: How do you take that massive information and communicate it
• 28:44
  Speaker 2: to both the Morgan Stanley staff, the sales team, the brokers,
• 28:48
  Speaker 2: the asset managers, and the investing public. I know you
• 28:53
  Speaker 2: do a weekly podcast on your perspective of the market.
• 28:57
  Speaker 2: How do you get all of this information to your
• 29:00
  Speaker 2: audience on a timely basis.
• 29:02
  Speaker 3: Yeah, it's it's a challenge I would I would say,
• 29:06
  Speaker 3: of all the things, all the skills that I've acquired
• 29:09
  Speaker 3: over the years, probably my best skill is communication. That
• 29:13
  Speaker 3: whether it's verbal, written media of some kind. You know,
• 29:18
  Speaker 3: people say I have a face for radios pot two. Yeah,
• 29:21
  Speaker 3: the podcast is better. But the point is is I'm
• 29:23
  Speaker 3: pretty clear. There's usually there's not really any uncertainty about
• 29:27
  Speaker 3: what I'm saying. I could be wrong, but it's very
• 29:29
  Speaker 3: clear and people like the clarity of the messaging.
• 29:32
  Speaker 1: So we write it out every week.
• 29:33
  Speaker 3: There's a cadence to it, right, We've developed as cadence
• 29:36
  Speaker 3: with our clients. Every Monday at you know, twelve am
• 29:40
  Speaker 3: in the morning the note comes out, so people are
• 29:42
  Speaker 3: waiting for that, or we do we do these regular
• 29:45
  Speaker 3: touch points and that regular communication, whether it's to the
• 29:49
  Speaker 3: institutional community, to the retail community, to our endowment community.
• 29:54
  Speaker 1: Whatever that might be. And of course then we do
• 29:55
  Speaker 1: a lot of marketing.
• 29:56
  Speaker 3: We do a lot of one on one meetings, you know,
• 29:58
  Speaker 3: group events, et cetera. So it's all those touch points,
• 30:01
  Speaker 3: and the challenge is that we have to deliver the
• 30:05
  Speaker 3: message depending on who the audience is. When it becomes
• 30:08
  Speaker 3: challenging is if I'm doing a media segment and that
• 30:12
  Speaker 3: maybe the messaging is more for the institutional community, but
• 30:14
  Speaker 3: then the retail community picks up on it and it's
• 30:17
  Speaker 3: really not for them, or vice versa. That's where it
• 30:19
  Speaker 3: becomes a bit of a challenge, and that's one of
• 30:21
  Speaker 3: the reasons why I'm now more focused on the institutional side.
• 30:24
  Speaker 2: Do you ever find yourself when you're putting these weekly
• 30:27
  Speaker 2: conversations together, looking at the flow and saying, you know,
• 30:32
  Speaker 2: most of the time these data series are just trending,
• 30:35
  Speaker 2: and it's when either there's a major reversal or a
• 30:38
  Speaker 2: big outlier that it's interesting. But all right, it's consistent
• 30:42
  Speaker 2: with last month's trend, in the previous month's trend, do
• 30:45
  Speaker 2: you look at that stuff and say, we don't really
• 30:47
  Speaker 2: need to talk about ism again, do we? Or how
• 30:50
  Speaker 2: do you deal with that?
• 30:51
  Speaker 3: Well, I mean it comes down to what we think
• 30:53
  Speaker 3: is the most important thing this week. We also, you know,
• 30:56
  Speaker 3: it's a bit of an art in terms of Okay,
• 30:58
  Speaker 3: when do you press it? When do you lay low?
• 31:00
  Speaker 3: When do you make a relative value call? When do
• 31:02
  Speaker 3: you make a market call? You know, it's like, well,
• 31:04
  Speaker 3: where's the opportunity right now? But we can kind of
• 31:06
  Speaker 3: go anywhere. The beauty of my job is I can
• 31:08
  Speaker 3: kind of talk about anything. I can talk about rates,
• 31:10
  Speaker 3: I can talk about credit, I can talk about stocks.
• 31:12
  Speaker 3: So that's that gives me a wide range of things
• 31:15
  Speaker 3: that I can have something relevant to say every week.
• 31:18
  Speaker 2: Huh, really really interesting. So there's a phrase of yours
• 31:22
  Speaker 2: that you use that I'm fascinated by. It's almost a
• 31:25
  Speaker 2: wartime phrase. You had written, the fog of uncertainty reveals
• 31:31
  Speaker 2: new investment opportunities.
• 31:33
  Speaker 3: Explain, Well, that's when things are mispriced the most right,
• 31:36
  Speaker 3: when things are when things are certain, you tend to
• 31:39
  Speaker 3: get pretty accurate pricing.
• 31:41
  Speaker 1: And of course that's dangerous too, because.
• 31:43
  Speaker 2: I was going to say, sometimes you get certainty in
• 31:45
  Speaker 2: the wrong direction.
• 31:45
  Speaker 3: Correct, But when things are really confusing, like during COVID,
• 31:48
  Speaker 3: for example, you had incredible value opportunities that popped up
• 31:52
  Speaker 3: because nobody knew anything, including us, but we knew the price.
• 31:57
  Speaker 3: And that was the main reason we got bullish in
• 31:59
  Speaker 3: March of twenty twenty was that we were waiting for
• 32:02
  Speaker 3: equity risk premiums to blow out, and they did, and
• 32:04
  Speaker 3: I'm like, well, doesn't really matter. Does really matter what
• 32:07
  Speaker 3: happens if I'm buying this at a seven hundred basis
• 32:09
  Speaker 3: point equity risk premium and yes, I'm gonna make money. Okay,
• 32:11
  Speaker 3: I'm gonna I'm gonna make money. Maybe not next week.
• 32:13
  Speaker 3: Now it turned out it was actually the low. But
• 32:16
  Speaker 3: I mean, like, that's when val evaluation typically doesn't matter,
• 32:19
  Speaker 3: But when it matters, it's all that matters. And the
• 32:21
  Speaker 3: fog of uncertainty creates those mismatches by the way, it
• 32:25
  Speaker 3: creates on the upside too. So for example, in early
• 32:27
  Speaker 3: twenty twenty one, we made a pretty important call, which
• 32:30
  Speaker 3: was that all the meme stocks are going bananas, right
• 32:33
  Speaker 3: because the free money that was floating around like, well,
• 32:36
  Speaker 3: these prices are this is not gonna end well, and
• 32:38
  Speaker 3: it's sure it didn't.
• 32:40
  Speaker 2: Right, never does it never does right? How is the
• 32:43
  Speaker 2: fog of uncertainty today? Is that it's clearly not March
• 32:47
  Speaker 2: twenty twenty, but there is a sense that people have
• 32:50
  Speaker 2: no idea which direction we're gonna head.
• 32:53
  Speaker 3: I would say that right now there there is more
• 32:56
  Speaker 3: certainty in people's minds than in reality. Okay, and that's
• 33:01
  Speaker 3: really where the opportunity comes up, which meaning there seems
• 33:05
  Speaker 3: to be a lot of certainty about how things are
• 33:06
  Speaker 3: going to play out, not economically but also from an
• 33:09
  Speaker 3: earning standpoint. But I've heard these same arguments now for
• 33:11
  Speaker 3: four to six months, four to six quarters, quite frankly,
• 33:14
  Speaker 3: about this reacceleration in certain things which it keeps being deferred.
• 33:18
  Speaker 1: Okay.
• 33:19
  Speaker 3: There's also a lot of certainty apparently around FED policy
• 33:21
  Speaker 3: because they guide, which I don't think there's any certainty
• 33:24
  Speaker 3: around they don't know.
• 33:25
  Speaker 2: I mean, the street has, let's be blunt, been dead
• 33:28
  Speaker 2: wrong about what the FED was going to do. It
• 33:31
  Speaker 2: feels like it's a year and a half for ready, Yeah.
• 33:32
  Speaker 1: The Fed has been wrong. Okay, it's a hard job.
• 33:35
  Speaker 1: I mean, you know.
• 33:35
  Speaker 3: I remember I'll just go back to an example, but
• 33:37
  Speaker 3: in December twenty twenty one, there was fifty basis points
• 33:41
  Speaker 3: of FED hikes priced in to the next year, okay,
• 33:45
  Speaker 3: And I was remember talking to clients going like, do
• 33:48
  Speaker 3: you I think this makes sense? I mean they were
• 33:51
  Speaker 3: runaway inflation and the FED has told you they're going
• 33:53
  Speaker 3: to start raising rage and like, well, yeah, it could
• 33:56
  Speaker 3: be more, but like that's what the Fed's telling us.
• 33:58
  Speaker 3: Oh okay, well, I mean so that you know this.
• 34:01
  Speaker 3: And this goes back to you know, two thousand and
• 34:03
  Speaker 3: three with regulation FD, that's when everything kind of changed.
• 34:08
  Speaker 1: Well it changed in two ways. So the FED changed with.
• 34:11
  Speaker 3: Green span right with all this forward guidance, and then
• 34:13
  Speaker 3: of course it's just gotten more and more and more
• 34:15
  Speaker 3: dot plot now and it just it's just compounded. You
• 34:18
  Speaker 3: give people a little bit of information, they want more.
• 34:20
  Speaker 3: So the FED is now provide so much information they
• 34:23
  Speaker 3: can't even tie their shoes without telling us first.
• 34:26
  Speaker 2: To be fair, when you and I first started, we
• 34:29
  Speaker 2: didn't the FED didn't even announce they were tightening. You
• 34:31
  Speaker 2: would just see activity in the bond market exactly, and
• 34:34
  Speaker 2: someone would say, hey, it looks like the FED raised rates. Now,
• 34:37
  Speaker 2: not only do they tell us the raising rates, we
• 34:39
  Speaker 2: get the transcript.
• 34:40
  Speaker 3: From the meetings, and then they have to basically go
• 34:42
  Speaker 3: through every line and they're like parsing each word. It's
• 34:45
  Speaker 3: got to the point now where it's almost debilitating, okay,
• 34:48
  Speaker 3: because the markets are almost unable to trade away from
• 34:51
  Speaker 3: this sort of formal guidance. Now that served a purpose
• 34:54
  Speaker 3: to a point. Now I think it's it's outgrown its
• 34:57
  Speaker 3: usefulness in many ways.
• 34:59
  Speaker 2: Does the FED lose something by giving up the elements
• 35:03
  Speaker 2: of surprise, the ability to shock the markets?
• 35:06
  Speaker 1: I think so.
• 35:07
  Speaker 3: But more importantly, what ends up happening is the market
• 35:10
  Speaker 3: now gravitates to you know, pricing in the same outcome. Right,
• 35:14
  Speaker 3: No one is willing to go away from the dot
• 35:17
  Speaker 3: plot or the like. The market rarely gets away from
• 35:20
  Speaker 3: the guidance. And I bring that up because it's the
• 35:23
  Speaker 3: same thing in a stock market now right with regulation
• 35:26
  Speaker 3: FD and now we have an entire industry dedicated to
• 35:29
  Speaker 3: company conference calls.
• 35:31
  Speaker 1: So if you look at.
• 35:32
  Speaker 3: The variance in estimate analyst estimates, it has absolutely narrowed
• 35:37
  Speaker 3: dramatically over the last fifteen or twenty years. In the
• 35:40
  Speaker 3: mid or late nineties, when heads funds became a thing,
• 35:43
  Speaker 3: and active managers were doing their thing. The variance and
• 35:46
  Speaker 3: estimates was all over the place because we didn't have
• 35:50
  Speaker 3: this such formal guidance. And so the irony here is
• 35:53
  Speaker 3: that in the effort to reduce uncertainty, you actually end
• 35:58
  Speaker 3: up creating more volatility because invariably those estimates are going
• 36:02
  Speaker 3: to end up being wrong at some point and everybody's
• 36:04
  Speaker 3: in the same position.
• 36:07
  Speaker 2: Really interesting, So you mentioned earlier your focus on cycles,
• 36:11
  Speaker 2: not just economic cycles and business cycles, but market cycles
• 36:15
  Speaker 2: tell a little bit about where are we in the
• 36:18
  Speaker 2: economic cycle and where are we in the market cycle today.
• 36:20
  Speaker 3: So we're pretty convinced that we're late cycle now. Late
• 36:24
  Speaker 3: cycle period's gonna last for years. I mean, the late
• 36:26
  Speaker 3: nineties is a great example of that. I mean went
• 36:28
  Speaker 3: on forever, and so we don't know when it ends.
• 36:31
  Speaker 3: But it's very hard to argue that we're mid cycle
• 36:33
  Speaker 3: or early cycle because we're unemployment is I mean, you're
• 36:36
  Speaker 3: basically at the fifty year low and it's kind of
• 36:38
  Speaker 3: turning up. So we think we're pretty much late cycle,
• 36:41
  Speaker 3: and that informs us where to be within the market.
• 36:44
  Speaker 3: So that's why quality large caps have done so well.
• 36:47
  Speaker 3: Quality growth in particular, that's what works, and this idea
• 36:49
  Speaker 3: they're going to go back to small caps or low
• 36:51
  Speaker 3: quality cycle, it's just it doesn't work. But people, I
• 36:54
  Speaker 3: don't think understand or appreciate where we are, or they
• 36:56
  Speaker 3: have a different view about where we are in the
• 36:58
  Speaker 3: economic cycle. So one example on the on the price
• 37:02
  Speaker 3: cycle or market cycles, I mean that tends to be
• 37:05
  Speaker 3: around kind of Fed policy kind of bee where the
• 37:08
  Speaker 3: interest rate cycle is well there too. It would suggest
• 37:11
  Speaker 3: that we're lated cycle because the curves inverted, has been
• 37:12
  Speaker 3: inverted for two years, we're now about to resteep it
• 37:15
  Speaker 3: and go positive again. That also would argue that you
• 37:18
  Speaker 3: want to have your risk kind of dialed back, at
• 37:20
  Speaker 3: least from a beta standpoint. You don't want to be
• 37:22
  Speaker 3: invested in lower quality balance sheet businesses. You know, credit
• 37:26
  Speaker 3: tends to do much better the inequities. That has been
• 37:29
  Speaker 3: the case on a risk adjusted basis. Bonds tend to
• 37:31
  Speaker 3: be a better buy. That's starting to work now. So yeah,
• 37:34
  Speaker 3: I mean there's there's all kinds of things that we
• 37:35
  Speaker 3: look at, and then of course there's individual stock cycles
• 37:38
  Speaker 3: which we pay.
• 37:39
  Speaker 1: Attention to quite a bit.
• 37:40
  Speaker 3: So we do use a lot of technical analysis One
• 37:42
  Speaker 3: of the reasons we're kind of contrarying is I tend
• 37:45
  Speaker 3: to fade like I fade exhaustion, exhaustion meaning things get
• 37:48
  Speaker 3: ever bought or things get over sold. I like to
• 37:51
  Speaker 3: I like to kind of press into those into those points.
• 37:54
  Speaker 2: That's really kind of interesting. So you mentioned the inverted
• 37:57
  Speaker 2: yield curve, and now that that's dis and starting to
• 38:01
  Speaker 2: steep in, everybody tends to focus on the inversion, but
• 38:05
  Speaker 2: that's not where recessions a car. It's after the yield
• 38:08
  Speaker 2: curve inversion on wines and things begin to steep in.
• 38:12
  Speaker 2: So what are your thoughts on the possibility of a
• 38:14
  Speaker 2: recession in twenty twenty four or more likely twenty twenty five.
• 38:20
  Speaker 3: Well, once again, like our house call is as soft
• 38:22
  Speaker 3: landing's most likely outcome, we don't have to answer, okay,
• 38:25
  Speaker 3: And I don't think the curve is resteeping in a
• 38:27
  Speaker 3: way that would signal that the recession is more likely
• 38:30
  Speaker 3: than not yet, but that can change. So we're very
• 38:33
  Speaker 3: focused on that. And usually when the curve and resteepings
• 38:35
  Speaker 3: from the front end, meaning the.
• 38:37
  Speaker 1: FED is catching up.
• 38:38
  Speaker 3: This is why I'm very focused right now in the
• 38:40
  Speaker 3: two year yield relative to FED funds. So two year
• 38:44
  Speaker 3: yield's got almost one hundred and eighty five basis points
• 38:46
  Speaker 3: below FED funds, you.
• 38:47
  Speaker 2: Would think is anticipating massive cuts, right.
• 38:50
  Speaker 3: Like, not fifty basis points, okay, or seventy five. It's
• 38:53
  Speaker 3: predicting one hundred and eighty five basis points of cuts
• 38:56
  Speaker 3: over the next probably you know, twelve to eighteen months,
• 38:58
  Speaker 3: which is a pretty aggressive FED cutting cycle. And that's
• 39:01
  Speaker 3: all it's telling you. It's just telling you that the
• 39:04
  Speaker 3: likelihood that the FED is behind the curve is gone
• 39:07
  Speaker 3: up once again. Not a recession, but the risk of
• 39:11
  Speaker 3: a hard landing has gone up.
• 39:13
  Speaker 1: All else equal.
• 39:14
  Speaker 2: If the market thinks we're getting almost two hundred basis
• 39:17
  Speaker 2: points and cuts, it sounds like the bond market is
• 39:20
  Speaker 2: anticipating a recession right now.
• 39:21
  Speaker 3: The good news is that has narrowed. So the spread
• 39:24
  Speaker 3: now between two years and FED funds is down to
• 39:26
  Speaker 3: one forty five. Why because the claims numbers were better.
• 39:29
  Speaker 3: We got some you know, ism services data was a
• 39:31
  Speaker 3: little bit better. So this like fear that you know,
• 39:34
  Speaker 3: got priced in really quickly is now subsided. A bit
• 39:37
  Speaker 3: doesn't mean it's extinguished. It just means that we you know,
• 39:39
  Speaker 3: the pendulum is swinging back again, and so we're focused
• 39:42
  Speaker 3: on that.
• 39:43
  Speaker 1: We're watching it closely. I would say the jury is out.
• 39:45
  Speaker 1: We don't know.
• 39:46
  Speaker 2: So markets in twenty twenty four had a great first
• 39:50
  Speaker 2: half of a year. A lot of people expected to
• 39:53
  Speaker 2: build on that ten twelve, fourteen percent gains. Depending on
• 39:57
  Speaker 2: which markets you were looking at, you I've come out
• 40:00
  Speaker 2: and said, I think it's a low probability that there's
• 40:03
  Speaker 2: a whole lot more upside for the rest of the year.
• 40:06
  Speaker 2: Tell us what you're looking at there and why do
• 40:08
  Speaker 2: you think. Hey, the most of the gains for twenty
• 40:11
  Speaker 2: twenty four have already been had.
• 40:13
  Speaker 3: So all of the gains really since October of last
• 40:16
  Speaker 3: fall has been multiple expansion in anticipation of a FED
• 40:20
  Speaker 3: cutting cycle and a reacceleration in growth. So we went
• 40:24
  Speaker 3: from seventeen times earnings SMP earnings in October of last
• 40:28
  Speaker 3: fall to twenty two times earnings in June.
• 40:31
  Speaker 1: Well, that's about as rich as you can get.
• 40:33
  Speaker 3: So I'm pretty comfortable saying that multiples are likely to
• 40:37
  Speaker 3: come down as the FED cuts. That's also something I
• 40:40
  Speaker 3: think people don't appreciate. Once the FED like it's easier
• 40:42
  Speaker 3: to travel than arrive, so as you're moving to the
• 40:46
  Speaker 3: FED cuts. That's the best part of the cycle. We
• 40:48
  Speaker 3: wrote about that at the end of last year when
• 40:50
  Speaker 3: we sort of you know through in the tiel that
• 40:51
  Speaker 3: we were going to have this you know, hard landing.
• 40:54
  Speaker 1: We thought there'd be a rally.
• 40:55
  Speaker 3: Okay, we didn't think we go to fifty seven hundred,
• 40:56
  Speaker 3: but needless to say that that's what happened. But the
• 40:59
  Speaker 3: best part of that rat has now occurred. So when
• 41:01
  Speaker 3: the FED starts cutting, multiples usually go down and there's
• 41:05
  Speaker 3: just not enough earnings growth offset a ten to fifteen
• 41:09
  Speaker 3: percent multiple contraction between here and the end of the year.
• 41:12
  Speaker 3: We have like eight percent growth built in for next
• 41:15
  Speaker 3: year's earnings growth. So that's the math. I mean, you're
• 41:18
  Speaker 3: just you have a net drag from the multiple contraction
• 41:21
  Speaker 3: relative to what the earnings growth is going to be,
• 41:23
  Speaker 3: even in the soft landing outcome. So I would argue
• 41:25
  Speaker 3: that we prob the highs for the year and the
• 41:28
  Speaker 3: SMP are probably in. That doesn't mean it's a cataclysm, okay,
• 41:32
  Speaker 3: just means that the risk reward now is now particularly attractive.
• 41:36
  Speaker 2: So you have this very nuance take that. I'm intrigued
• 41:40
  Speaker 2: by what you're describing as somewhat cautious. However, the nuances
• 41:45
  Speaker 2: pullbacks are opportunities for investors to put money into high
• 41:49
  Speaker 2: quality growth companies that have strong financials and high earnings potential.
• 41:55
  Speaker 2: That's a very nuanced position relative to the highs are
• 41:59
  Speaker 2: in for the year, and we should expect a bumpy
• 42:02
  Speaker 2: road from here.
• 42:03
  Speaker 3: Well, it's a little bit of both. I mean, I
• 42:04
  Speaker 3: would say that I think the trajectory is down. I
• 42:06
  Speaker 3: mean nineteen times. You know, next year's numbers is you know,
• 42:10
  Speaker 3: which is the end of the year is lower than
• 42:12
  Speaker 3: where we're training today. It's sort of that low five
• 42:14
  Speaker 3: thousands is supposed to fifty four hundred.
• 42:16
  Speaker 2: But what is that five six percent? Not exactly like
• 42:20
  Speaker 2: you said, that's.
• 42:21
  Speaker 3: Pumpy, it's not, you know, that's the way you phrase
• 42:23
  Speaker 3: the question. So I think it is going to be bumpy.
• 42:25
  Speaker 3: And that's to forget that we're going into this election season.
• 42:29
  Speaker 3: There are some other things going on around the world.
• 42:31
  Speaker 3: There is still excess leverage in the system that I'm
• 42:33
  Speaker 3: not sure how that's going to be resolved. Necessarily, China's
• 42:36
  Speaker 3: not providing the impetus that people were hoping for from
• 42:38
  Speaker 3: a growth standpoint, So we just you know, we just
• 42:41
  Speaker 3: we need to take a little bit of a of
• 42:42
  Speaker 3: a break, you know, and it could just be a
• 42:44
  Speaker 3: consolidation period at the index level, which once again lends
• 42:48
  Speaker 3: me to say, I want to be up the quality
• 42:50
  Speaker 3: curve and I want to skew more defensive than growth,
• 42:53
  Speaker 3: because that's typically what works when the FED cuts.
• 42:55
  Speaker 2: Let's talk about another nuanced position that you have that
• 42:58
  Speaker 2: I find fascinating. Everybody's been so focused on the artificial
• 43:03
  Speaker 2: intelligence enablers and Video and all the other semiconductor chip companies,
• 43:10
  Speaker 2: but you've made the argument that investors should begin to
• 43:14
  Speaker 2: shift from those AI enablers to the AI adopters as
• 43:19
  Speaker 2: the big next opportunity. Talk about that, because that's really
• 43:23
  Speaker 2: a fascinating concept.
• 43:24
  Speaker 3: Yeah, I mean that's sort of my technology background speaking, right.
• 43:27
  Speaker 3: I Mean, that's how these cycles work. You buy the
• 43:29
  Speaker 3: picks and shovels or the enablers initially, and then the
• 43:32
  Speaker 3: real money, the real opportunity, is with the companies that
• 43:35
  Speaker 3: can actually deploy that technology into a new business model.
• 43:39
  Speaker 3: So if you think about the nineteen ninety as a
• 43:41
  Speaker 3: good example, everybody will understand the enablers were the telecom companies,
• 43:45
  Speaker 3: the Silicon companies, the telecom equipment companies.
• 43:48
  Speaker 2: Cisco, JDSUNI, Phase, all these companies that nobody, really the
• 43:52
  Speaker 2: average investor had no idea what their hardware was really doing.
• 43:56
  Speaker 3: Right, But these were spectacular stocks, and that was in
• 43:59
  Speaker 3: the build out of the Internet itself. But if you
• 44:02
  Speaker 3: think about who actually ended up building the big stocks,
• 44:05
  Speaker 3: the ones that really worked from the Internet, it's the
• 44:09
  Speaker 3: mag seven, right, you know, I mean X you know
• 44:12
  Speaker 3: one semi counter company that has gone crazy here recently,
• 44:14
  Speaker 3: But generally, these are the businesses that took the Internet
• 44:17
  Speaker 3: and then built incredible business models kind of for free.
• 44:21
  Speaker 1: I mean they didn't have to.
• 44:22
  Speaker 3: They have to spend the money to build a super highway, right,
• 44:24
  Speaker 3: the guys who built a super highway, those stocks have
• 44:26
  Speaker 3: been terrible.
• 44:26
  Speaker 2: Well, Metromedia, Fiber and Global Crossing. They spent thousands of
• 44:31
  Speaker 2: dollars a mile and then got sold for pennies on
• 44:34
  Speaker 2: the dollar. But that's how you end up with YouTube
• 44:36
  Speaker 2: and Facebook and correct and Netflix.
• 44:39
  Speaker 3: So that's why it's interesting now, Barry where you know.
• 44:41
  Speaker 3: So obviously hyperscalers have been the big winners of the
• 44:43
  Speaker 3: last era, and there's nothing wrong with these businesses or companies. Okay,
• 44:47
  Speaker 3: they're great, but they're now the ones spending all the
• 44:49
  Speaker 3: money on this next generation cloud or AI whatever you want.
• 44:53
  Speaker 1: To call it.
• 44:54
  Speaker 3: By the way, AI, just to be clear, is really
• 44:56
  Speaker 3: just an extension of machine learning. It's you know, I'm
• 44:58
  Speaker 3: not sure we're going to have really artificial intelligence. I mean,
• 45:01
  Speaker 3: that's an interesting way to get people excited. Okay, it's
• 45:04
  Speaker 3: just another investment cycle. There will be use cases in
• 45:07
  Speaker 3: business models that are very profitable built on the backbone
• 45:10
  Speaker 3: of those cloud networks. Okay, great, We don't even know
• 45:13
  Speaker 3: who those companies are yet.
• 45:15
  Speaker 1: Okay.
• 45:15
  Speaker 3: My guess is they're going to reside in areas where
• 45:18
  Speaker 3: great efficiencies are needed, for example, in healthcare, which we
• 45:20
  Speaker 3: were talking about earlier, right, like a lot of inefficiencies
• 45:23
  Speaker 3: in healthcare. Well, you know, somebody's going to come up
• 45:25
  Speaker 3: with a solution to kind of ring out that inefficiency. Okay,
• 45:29
  Speaker 3: and there's massive opportunity for that using machine learning. I
• 45:33
  Speaker 3: don't know who those companies are yet, Okay, but those
• 45:36
  Speaker 3: are going to be really the fat pitch that's going
• 45:38
  Speaker 3: to be where the real wealth at the ten twenty
• 45:40
  Speaker 3: thirty baggers. Because these companies now they can't grow tenfold.
• 45:44
  Speaker 3: They they're already too big, you know what I'm saying.
• 45:47
  Speaker 2: It's amazing when you look in the healthcare space, they
• 45:50
  Speaker 2: still use fax machines. I mean literally have your doctor facts,
• 45:56
  Speaker 2: the prescription to the Why can't you do email? It's
• 46:00
  Speaker 2: not secure? Some of this is technology, some of this
• 46:04
  Speaker 2: is just, you know, having one focused business methodology that
• 46:10
  Speaker 2: seems to not be rooted twenty thirty four. What is
• 46:13
  Speaker 2: fax machine? Forty years old? It's amazing. So it's not
• 46:18
  Speaker 2: so much AI as just a rapid adoption of better
• 46:22
  Speaker 2: technologies and AI helps. How do we conceptualize that?
• 46:26
  Speaker 1: It's just faster processing? Right?
• 46:28
  Speaker 3: And then once again, it's about the solution that it's
• 46:30
  Speaker 3: built around that.
• 46:31
  Speaker 1: Right.
• 46:31
  Speaker 3: The Internet was a really interesting development. But I mean
• 46:34
  Speaker 3: nineteen ninety five, and you remember this, like I did
• 46:37
  Speaker 3: you know, We're sitting around in the desk and all
• 46:39
  Speaker 3: of a sudden they're like, oh, there's this thing called
• 46:41
  Speaker 3: email that we're going to introduce.
• 46:43
  Speaker 1: You Like, what is this? But it was such an
• 46:45
  Speaker 1: easy apple.
• 46:46
  Speaker 2: But don't email clients. You have to get compliance. I
• 46:48
  Speaker 2: still prove that yet. Do you recall back in the
• 46:51
  Speaker 2: day where you literally had to have approval to send emails.
• 46:54
  Speaker 2: It's amazing that that adoption period was a decade plus long, but.
• 46:59
  Speaker 1: It was fat. It was.
• 47:00
  Speaker 3: I mean, it was pretty immediate and anybody you know,
• 47:03
  Speaker 3: could type, could could use email, and email was I
• 47:06
  Speaker 3: think still to this day, one of the biggest productivity
• 47:09
  Speaker 3: enhancements I've ever seen in my lifetime. Now, the browser
• 47:12
  Speaker 3: was the other killer app. And now the problem is,
• 47:15
  Speaker 3: weren't any websites to go to for a while. But
• 47:18
  Speaker 3: those two sort of apps to me were so obvious,
• 47:22
  Speaker 3: much more obvious than.
• 47:22
  Speaker 1: Say, chat GPT is okay, at least so far. We'll
• 47:26
  Speaker 1: see where that goes.
• 47:27
  Speaker 3: Right now, you know, it does homework for high school
• 47:30
  Speaker 3: students and can help you and I write a nice
• 47:32
  Speaker 3: poem to a loved one, or help us write a
• 47:34
  Speaker 3: speech or something great. But like, is it really enhancing
• 47:37
  Speaker 3: productivity in a meaningful way? Like, we can't use that
• 47:40
  Speaker 3: yet it doesn't. We can't trust it for the numbers,
• 47:43
  Speaker 3: we can't trust it for mission critical type analysis yet.
• 47:45
  Speaker 2: Right, it's a research a dendum, but it still hallucinates.
• 47:51
  Speaker 2: And so my favorite story is I had Bill Dudley
• 47:54
  Speaker 2: the New York Fed and as a guest, and I
• 47:57
  Speaker 2: used chat GPT just to see if I missed anything,
• 48:01
  Speaker 2: And thanks to chat GBT, I learned that he was
• 48:05
  Speaker 2: a linebacker for the Detroit Lions in the nineteen fifties,
• 48:08
  Speaker 2: which kind of interesting because he was also born in
• 48:11
  Speaker 2: the nineteen fifties. Chat gbt couldn't figure out two different
• 48:15
  Speaker 2: William Dudley's that'll eventually get worked out. At what point
• 48:20
  Speaker 2: and this goes right back to your AI adopters. Look,
• 48:24
  Speaker 2: we're all Internet companies, we're all phone companies. We use
• 48:27
  Speaker 2: all these technologies. At what point in the future do
• 48:31
  Speaker 2: the other four hundred and ninety companies in the s
• 48:34
  Speaker 2: and P five hundred, not the AI enablers, but the adopters,
• 48:38
  Speaker 2: when did they start to see the productivity benefits from AI?
• 48:42
  Speaker 2: How far off is that in the future.
• 48:43
  Speaker 3: When the you know, Hyperscalers or somebody else hands them
• 48:46
  Speaker 3: a solution, it's a package solution. I mean, it's no
• 48:49
  Speaker 3: different than software in the nineties, right, sound like you
• 48:51
  Speaker 3: and I were going to go develop Office or we're
• 48:54
  Speaker 3: going to go develop Excel, you know, But somebody developed
• 48:57
  Speaker 3: that for us. We deployed it in our enterprise and
• 49:00
  Speaker 3: our employees became very productive. So we just need the
• 49:03
  Speaker 3: development of those applications. That's the second phase. The other
• 49:07
  Speaker 3: problem that we haven't solved yet is the electricity, you know,
• 49:09
  Speaker 3: the power consumption, the heat you know, and also to
• 49:13
  Speaker 3: build these things out it takes time, and so that's there.
• 49:16
  Speaker 3: There are some there are some snaff oos in here
• 49:18
  Speaker 3: that will you know, retard the expansion and growth of
• 49:22
  Speaker 3: But but.
• 49:22
  Speaker 2: All those things are solvable. It's just a matter of time,
• 49:25
  Speaker 2: you know.
• 49:26
  Speaker 1: But but is it money?
• 49:28
  Speaker 2: Is it decades or is it years?
• 49:30
  Speaker 3: Oh?
• 49:30
  Speaker 1: No, it's years.
• 49:31
  Speaker 3: But I don't think it's fast enough to prevent where
• 49:35
  Speaker 3: we are in the economic cycle. Once again, going back
• 49:38
  Speaker 3: to I think there are people making the argument that, oh,
• 49:40
  Speaker 3: not only did the fiscal kind of bridge us another year,
• 49:43
  Speaker 3: but now AI is going to extend the cycle another
• 49:47
  Speaker 3: three or four years.
• 49:48
  Speaker 1: I'm just out of that belief because that's the next cycle.
• 49:51
  Speaker 1: That's the next cycle. That's what to get, that's what's
• 49:52
  Speaker 1: going to be.
• 49:53
  Speaker 3: That's what you're gonna want to get excited about when
• 49:56
  Speaker 3: valuations come in at some point in the next twelve months,
• 49:59
  Speaker 3: is my guess. And there's a fat pitch that people
• 50:01
  Speaker 3: have forgotten about.
• 50:02
  Speaker 2: All right, last of our standard questions when you look
• 50:07
  Speaker 2: at a market where we are today, When you look
• 50:09
  Speaker 2: at the economy where we are today, what are your
• 50:12
  Speaker 2: favorite metrics to focus on, whether it's valuation or the
• 50:17
  Speaker 2: economy or inflation, what are your big three that you're
• 50:20
  Speaker 2: you're watching.
• 50:21
  Speaker 3: So, once again it goes back to ry to change
• 50:22
  Speaker 3: on a lot of the key metrics. I say, the
• 50:24
  Speaker 3: key metrics I'm focused on now are things like revision factors,
• 50:27
  Speaker 3: So earnings revision factors, that's what stocks are most highly
• 50:30
  Speaker 3: correlated to. That's now rolling over. So the rate to
• 50:34
  Speaker 3: change on that is in a bad slope, which means
• 50:36
  Speaker 3: valuation has come down. It doesn't mean it has to
• 50:37
  Speaker 3: go negative, but you know, it can go negative and
• 50:40
  Speaker 3: then we'll have to adjust, you know, or targets further.
• 50:43
  Speaker 3: Right now, it's in a correction phase from a From
• 50:46
  Speaker 3: that standpoint, From an economic standpoint, it's all labor data. Okay,
• 50:49
  Speaker 3: That's all that matters to me.
• 50:50
  Speaker 2: Now.
• 50:51
  Speaker 3: Everything else is kind of secondary. If the claims data
• 50:53
  Speaker 3: and the payroll data stays okay, soft landing is the outcome.
• 50:57
  Speaker 1: If that deteriorates further.
• 50:58
  Speaker 3: I don't think it can deteriorate a whole lot further
• 51:00
  Speaker 3: before the market start to get nervous.
• 51:03
  Speaker 2: In our last five minutes, Let's jump to our favorite
• 51:06
  Speaker 2: questions that we ask all our guests, and we'll do
• 51:09
  Speaker 2: this in a speed round, starting with tell us what
• 51:13
  Speaker 2: you're streaming, what's giving you entertain these days?
• 51:16
  Speaker 1: Yeah, I'm watching sort of an eclectic group.
• 51:18
  Speaker 3: Now, The Bear. I don't know if you've seen that show.
• 51:22
  Speaker 3: We just finished season three, which I didn't love.
• 51:24
  Speaker 1: The season three is.
• 51:24
  Speaker 2: Season two is still better, but three was interesting.
• 51:27
  Speaker 3: Yeah, it's all good. It's just great character studies, which
• 51:29
  Speaker 3: which we enjoy. My wife and I have enjoyed that series.
• 51:32
  Speaker 3: We just finished it. Other than that, the offer, if
• 51:34
  Speaker 3: you've seen that, no, So the offer is about the
• 51:37
  Speaker 3: making of the movie The Godfather.
• 51:39
  Speaker 2: We were just talking about this over the week.
• 51:41
  Speaker 1: Spectacular. We're not done with that yet, but it is.
• 51:43
  Speaker 2: But I can't remember the last time I saw Godfather too.
• 51:46
  Speaker 2: It had to be decades, yeah, ago. And someone said,
• 51:50
  Speaker 2: watch the offer. It's based on the book that the
• 51:52
  Speaker 2: producer exactly did. And people said, when you go back
• 51:56
  Speaker 2: and rewatch it, everything has a different context.
• 51:59
  Speaker 3: It's spectacular. So I would recommend that. And then I'm
• 52:01
  Speaker 3: watching a Pete Rose documentary right now. I'm in the
• 52:05
  Speaker 3: third of the fourth and it wasn't not what I expected.
• 52:07
  Speaker 3: So I like to watch a lot of documentaries, and
• 52:10
  Speaker 3: that one is pretty fascina really interesting.
• 52:12
  Speaker 2: Tell us about your mentors who helped shape your career.
• 52:15
  Speaker 3: Well, I mean, this is all it is going to
• 52:17
  Speaker 3: sound the writer, you know, dishonest, but it's True's basically
• 52:20
  Speaker 3: my mom and my wife. I mean, these are the
• 52:23
  Speaker 3: two strongest women I've ever met in my life. They've
• 52:26
  Speaker 3: been extremely honest with me and forced me to grow,
• 52:32
  Speaker 3: and so those are the two most important.
• 52:33
  Speaker 1: For sure. There's no one.
• 52:36
  Speaker 3: Person, but many colleagues and many clients. I would say
• 52:39
  Speaker 3: clients have shaped my views on the market's probably more
• 52:43
  Speaker 3: than colleagues, because you know, they're actually putting skin in
• 52:46
  Speaker 3: the game, and they've also helped me make good career
• 52:49
  Speaker 3: decisions and judgments.
• 52:51
  Speaker 2: It's such an interesting observation you're making because we sort
• 52:54
  Speaker 2: of forget how clients force us to rethink certain things.
• 53:00
  Speaker 2: Or someone asked you a question where you think the
• 53:02
  Speaker 2: answer is obvious, but you don't want to just give
• 53:04
  Speaker 2: them a quick answer, so you do the homework and
• 53:07
  Speaker 2: you discover, oh, this is a lot more complicated than
• 53:10
  Speaker 2: I originally thought. I'm glad you brought that up because
• 53:12
  Speaker 2: it comes up so frequently, and I think we don't
• 53:16
  Speaker 2: pay it enough atention. It's really insightful. Let's talk about books.
• 53:20
  Speaker 2: What are some of your favorites? What are you reading
• 53:22
  Speaker 2: right now?
• 53:23
  Speaker 3: You know, if it was up to my wife, I'd
• 53:25
  Speaker 3: be reading like a book a week. She's a literary giant,
• 53:28
  Speaker 3: so she's always handing me books. And I'm kind of
• 53:31
  Speaker 3: an eclectic reader. But I would say some of my
• 53:33
  Speaker 3: favorite books are The Boys in the Boat.
• 53:37
  Speaker 1: Now series.
• 53:37
  Speaker 3: Now also, yeah, there's a movie. I didn't watch the
• 53:40
  Speaker 3: movie because the book was just so detailed. It was fantastic.
• 53:44
  Speaker 3: Like all the classic books, my favorite was Catcher.
• 53:47
  Speaker 1: In the Rye.
• 53:48
  Speaker 3: It's kind of a coming out of age story, you know,
• 53:51
  Speaker 3: animal farm and those types of things, and then like
• 53:54
  Speaker 3: the trashy type stuff, you know, like one of my
• 53:56
  Speaker 3: favorites of all time still to this day is The Firm.
• 54:00
  Speaker 3: If you remember reading the John Grisham novel became a
• 54:02
  Speaker 3: Tom Kruise move. Yeah, but I mean, like so like
• 54:04
  Speaker 3: you know, that's it's a gamut of it right now.
• 54:07
  Speaker 3: I mean, I read so much for work. I don't
• 54:10
  Speaker 3: probably read enough books, Like day to day, but I'd
• 54:12
  Speaker 3: like to read more.
• 54:13
  Speaker 2: Huh really interesting. Our final two questions, what sort of
• 54:17
  Speaker 2: advice would you give to a recent college grad interest
• 54:21
  Speaker 2: in the career in investing.
• 54:24
  Speaker 3: Well, the advice I do give them is just, really,
• 54:28
  Speaker 3: this is not a sexy business.
• 54:30
  Speaker 1: Okay, this is this is a grinder business.
• 54:34
  Speaker 3: So if you come into this business, understand, like we
• 54:36
  Speaker 3: talked earlier, you're gonna be wrong a lot. You gotta
• 54:39
  Speaker 3: have some humility. You're gonna be a lot of highs
• 54:41
  Speaker 3: and lows. When things are feeling really good, take it
• 54:44
  Speaker 3: down a notch. When things are feeling really horrible, don't
• 54:47
  Speaker 3: you know, kill yourself. And it's just it's gonna be
• 54:50
  Speaker 3: a roller coaster. And it takes a long time to
• 54:55
  Speaker 3: become even close to being a domain expert in anything
• 54:59
  Speaker 3: in this business. There's some many smart people. There's so
• 55:01
  Speaker 3: much changing all the time. You know, you got to
• 55:04
  Speaker 3: put ten years in before you know anything. And I
• 55:07
  Speaker 3: think that, you know, I think that's really good advice
• 55:09
  Speaker 3: to a young person. I wish I had had that advice,
• 55:11
  Speaker 3: because you know, we're all ball eyed coming out of
• 55:13
  Speaker 3: college thinking we're going to change the world, and the
• 55:15
  Speaker 3: reality is this is a this is a long road.
• 55:17
  Speaker 3: I mean thirty five years, I'm still learning every day.
• 55:20
  Speaker 2: Really interesting answer. And our final question, what do you
• 55:24
  Speaker 2: know about the world of investing today you wish you
• 55:26
  Speaker 2: knew back in nineteen eighty nine when you were first
• 55:29
  Speaker 2: getting started.
• 55:31
  Speaker 3: Well, I guess part of it is what I just
• 55:32
  Speaker 3: said that it's a you know, it's not a sprint,
• 55:35
  Speaker 3: it's a marathon. You know, cut yourself some slack along
• 55:41
  Speaker 3: the way. You're going to make some wrong turns, and
• 55:44
  Speaker 3: I would say, enjoy it, you know, because it's it's
• 55:50
  Speaker 3: it's a journey, and it's a journey not just about
• 55:53
  Speaker 3: like the people you're working with and the people you're
• 55:54
  Speaker 3: helping your clients. It's joarning about yourself. This is a
• 55:57
  Speaker 3: struggle with yourself. I mean, figuring out markets is an
• 56:00
  Speaker 3: internal battle. It's like probably the book I should have
• 56:03
  Speaker 3: mentioned was Reminiscences of a Stock Operator I have. I've
• 56:06
  Speaker 3: read that like five times and I still go back
• 56:08
  Speaker 3: and refer to it sometimes.
• 56:09
  Speaker 2: I call that the first behavioral economics book.
• 56:13
  Speaker 3: I would agree, and it's a fictional character, but it's
• 56:15
  Speaker 3: a real life experience of just how it goes down
• 56:19
  Speaker 3: and understanding your faults, your own fault. Understanding your weaknesses
• 56:25
  Speaker 3: and your strengths, you know when to press it when
• 56:27
  Speaker 3: not depress it. And then and then you know, unfortunately
• 56:30
  Speaker 3: and that story ends up with you know, killing himself
• 56:33
  Speaker 3: because it just it eats a way too. So that's
• 56:36
  Speaker 3: that's really what I wish I know thirty years ago,
• 56:37
  Speaker 3: like it's gonna it's gonna take a pound of.
• 56:39
  Speaker 2: Flesh, right, Really interesting, Mike, thank you for being so
• 56:43
  Speaker 2: generous with your time. We have been speaking with Mike Wilson,
• 56:48
  Speaker 2: chief US equity strategist and chief investment officer of Morgan Stanley.
• 56:53
  Speaker 2: If you enjoy this conversation, check out any of the
• 56:55
  Speaker 2: five hundred or so we've done over the past ten years.
• 57:00
  Speaker 2: You can find those at iTunes, Spotify, YouTube, wherever you
• 57:03
  Speaker 2: find your favorite podcast. And check out my new podcast,
• 57:08
  Speaker 2: At the Money, short ten minute conversations with experts about
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• 57:21
  Speaker 2: Masters and Business podcast feed. I would be remiss if
• 57:25
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• 57:27
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• 57:31
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  Speaker 2: Anna Luke is my producer. Sean Russo is my researcher.
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• 57:42
  Speaker 1: I'm Barry Rayhelts.
• 57:43
  Speaker 2: You've been listening to Masters in Business on Bloomberg Radio.