WEBVTT - Lisa Shalett Talks Oil Shocks to Equities, Thematic Investing

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news. Lisa Shellett has been

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<v Speaker 1>around the black fourteen fifteen times. She was fourteen years old,

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<v Speaker 1>she was at Alliance Bernstein working for Sandy Bernstein years ago.

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<v Speaker 1>Drives a ship at Morgan Stanley. What I love about

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<v Speaker 1>your note is you say, get over it. It's a

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<v Speaker 1>complex situation. How do you sustain an investment plan given

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<v Speaker 1>legitimate complexity.

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<v Speaker 2>I think you can't sustain one plan. You can't be anchored.

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<v Speaker 2>We're our watchword right now is hyper vigilance. One of

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<v Speaker 2>the things that has been very interesting to us that

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<v Speaker 2>has differentiated twenty twenty six from you know, really the

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<v Speaker 2>first three years of this bull market has been underneath

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<v Speaker 2>the surface of the index. We've had extraordinary dispersion of

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<v Speaker 2>individual stock performance. So if you're a stock picker, which

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<v Speaker 2>I grew up being and haven't really been able to

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<v Speaker 2>do for the past fifteen seventeen years, this is you know, Christmas,

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<v Speaker 2>and there's lots and lots of things to do below

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<v Speaker 2>the surface, and so hypervigilance is one way to plan.

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<v Speaker 2>But I think the second element of this tom is

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<v Speaker 2>that you know, we're marveling at how little risk premia

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<v Speaker 2>is really being priced into this market given the complexity.

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<v Speaker 2>I mean, not to you know, venture into hyperbole, but

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<v Speaker 2>you know, this is a situation that is currently militarily

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<v Speaker 2>involving thirteen fourteen different countries. Now, I don't want to

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<v Speaker 2>say the words world war, but you know this is

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<v Speaker 2>this is the closest in my lifetime and so to me,

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<v Speaker 2>you know, you know, putting that complexity together with the

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<v Speaker 2>fact that we're now seeing you know, from the policy side,

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<v Speaker 2>what feels to me like not just a response but

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<v Speaker 2>almost a panic in terms of the global desire to

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<v Speaker 2>release energy reserves and the IEA in particular, you know,

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<v Speaker 2>going out after you know, twenty five to thirty percent

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<v Speaker 2>of reserves.

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<v Speaker 3>Ten days in.

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<v Speaker 2>Yeah, that means you only have two two thirds left.

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<v Speaker 1>The heritage of Morgan Stanley starts with a woman named

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<v Speaker 1>Mary who used to put out a deck eighty pages.

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<v Speaker 1>I hated or you had to read every page of it.

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<v Speaker 1>You people own the analysis of technology, particularly on the

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<v Speaker 1>Left coast. Is this the mother of all opportunities in

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<v Speaker 1>a software AI scare?

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<v Speaker 2>I don't know that I'd call it the mother of

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<v Speaker 2>all opportunities. I mean twenty twenty two, the selloff in

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<v Speaker 2>twenty twenty two is a pretty good opportunity because that

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<v Speaker 2>was so focused on technology. But there are a lot

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<v Speaker 2>of things to do, and we are, you know, picking

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<v Speaker 2>through the rubble. We're picking through, you know, some of

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<v Speaker 2>the software. We're funding it from some of the semiconductor makers.

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<v Speaker 2>In fact, you know, I'm trying to remind people that

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<v Speaker 2>semiconductors are actually cyclical and typically trade on normalized earnings,

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<v Speaker 2>not peak earnings.

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<v Speaker 3>People, Lisa, you are the CIO of Morgan Stanley Wealth Management,

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<v Speaker 3>and you just wrote that US equity resilience in the

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<v Speaker 3>face of Warren oil shocks is largely unprecedented, like such

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<v Speaker 3>as like we're seeing and you're going back at least

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<v Speaker 3>eighty years here. I mean the investors you're talking to, you,

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<v Speaker 3>do you find more of them interested in bargain hunting

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<v Speaker 3>in the current environment or looking to put on protection

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<v Speaker 3>or looking for safe haven places to hide in the

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<v Speaker 3>current environment. What have your conversations with client's been like, So.

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<v Speaker 2>It really depends on where you sit. For much of

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<v Speaker 2>our private wealth, business, family offices, ultra high net worth individuals,

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<v Speaker 2>they're much more defensive. They're much more concerned about about,

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<v Speaker 2>you know, risk premium about being defensive about having some

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<v Speaker 2>cash on the sidelines. But you know, the more institutional folks,

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<v Speaker 2>uh have still have some animal spirit here, and uh

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<v Speaker 2>you know, have have kind of deep belief that this

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<v Speaker 2>is going to be over quickly and that the underlying

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<v Speaker 2>fundamental story of profit acceleration because of AI still lives.

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<v Speaker 3>So what about some of these I'm going to go there,

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<v Speaker 3>quantum computing, bitcoin mining, flying taxi companies, new energy, all

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<v Speaker 3>these kind of you know, small cap growth stocks, all

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<v Speaker 3>these meme themes. What are your thoughts there? I mean,

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<v Speaker 3>do you still tell investors, hey, you know you want

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<v Speaker 3>to you know, you have to be exposed in order

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<v Speaker 3>to benefit from it, right, I mean, like, is it

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<v Speaker 3>is it a non non zero probability that you're basically

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<v Speaker 3>telling investors, hey, you know you can't just run and

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<v Speaker 3>hide from some of these some of these sectors.

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<v Speaker 2>So absolutely, we are fundamental believers in thematic investing. I know,

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<v Speaker 2>you know, Tom has my colleague Ellen Zentner on very often,

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<v Speaker 2>and she's she's running thematic for us. But what we're

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<v Speaker 2>doing is we're trying to access those opportunities more in

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<v Speaker 2>venture capital today and in growth private equity than we

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<v Speaker 2>are in the public market. What we've said is that

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<v Speaker 2>public small cap, we believe is really experienced adverse selection.

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<v Speaker 2>That the level of the lack of profitability in the

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<v Speaker 2>Russell two thousand, for example, is just so uninspiring.

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<v Speaker 1>I'll say my book. Folks, Listen carefully to what Michelle

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<v Speaker 1>just said. There, profit is everything. Yeah, this is from

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<v Speaker 1>late magdal Lord to side at lcre Well.

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<v Speaker 3>I guess what we're saying is that in some of

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<v Speaker 3>those sectors, Tom, you know, the real companies, the real

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<v Speaker 3>profit orient the ones who are actually making money and

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<v Speaker 3>are going to benefit, they're not publicly traded.

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<v Speaker 1>Came up in Phoenix with Cam Dawson the other day.

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<v Speaker 1>Great panel. I'm sorry. Profit matters. It's all there is

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<v Speaker 1>to it. So here's what I did, Lise. I did

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<v Speaker 1>this just for you. I pulled up the Dow. It's

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<v Speaker 1>a winsor war chart Herman vagg Okay nineteen thirty nine

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<v Speaker 1>all the way out to nineteen forty six. I lectured

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<v Speaker 1>about the Guadalcanal low of nineteen forty two, the absolute

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<v Speaker 1>bottom of a perfect war, and then a moonshot for

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<v Speaker 1>equities off of nineteen forty two. Do stocks go up

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<v Speaker 1>in war.

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<v Speaker 2>It depends. But I think look, fundamentally, yes, you know, fundamentally,

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<v Speaker 2>wars are reflationary, right, whether we're talking about you know,

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<v Speaker 2>just a world based on the inflation and the nominals,

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<v Speaker 2>or we're talking about defense spending and quote unquote the

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<v Speaker 2>military industrial complex. Wars get economies moving and doing things well.

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<v Speaker 3>For audience, If you ever have the benefit of reading

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<v Speaker 3>Lisa Shallitt's work, you know you're going to see that

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<v Speaker 3>she knows everything from equities to fixed income, to commodities,

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<v Speaker 3>you name it. But hidden within her note is a

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<v Speaker 3>little bit on emerging markets, tom and she is suggesting

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<v Speaker 3>that investors focus on Latin America as opposed to Asia.

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<v Speaker 3>And I'm curious, is that more driven by what's going

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<v Speaker 3>on in the energy markets, the fact that Asian economies

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<v Speaker 3>tend to be oil importers, or is there something else there?

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<v Speaker 2>So there's something else going on. Certainly the oil and

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<v Speaker 2>energy dynamics have reinforced that dichotomy between Latin and and Asia.

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<v Speaker 2>But what had gotten our attention really is, you know,

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<v Speaker 2>the the change in US policy to the extent that

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<v Speaker 2>that uh, you know, the new Monroe doctrine or or

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<v Speaker 2>new implementation of it. That that creates backing for a

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<v Speaker 2>more business centric or or business oriented and less progressive

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<v Speaker 2>governments down there that are stable, that are are attracting

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<v Speaker 2>investment that is sponsored by US, development of supply chains.

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<v Speaker 2>That's a good thing, and uh you know, that's part

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<v Speaker 2>of our thesis of of why you should be looking

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<v Speaker 2>down there.

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<v Speaker 1>Lisa, thank you so much for coming. I really appreciate the.

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<v Speaker 2>Stem my pleasure

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<v Speaker 1>Sporting Morgan stand Lisa driving all of their wealth management

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<v Speaker 1>uh work here