Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Mike Wilson joins us here, chief US Equity Strategists and
Speaker 2: CIO at a little shop called Morgan Stanley. I started
Speaker 2: yesterday was my fortieth anniversary on Global Wall Street, and
Speaker 2: throughout my entire career, Morgan Stanley has, in my opinion,
Speaker 2: the best tech research on Global Wall Street. You think
Speaker 2: about Mary Meeker, Frank Quatron on the banking side and
Speaker 2: all that kind of stuff. Mike, what are you guys
Speaker 2: saying about AI these days? How was? What's that's the
Speaker 2: theme arguably of our career more than Internet. What are
Speaker 2: you guys saying about that?
Speaker 1: Yeah, I mean it's it's it's more of the same.
Speaker 1: So I mean a little known fact. I guess as
Speaker 1: I started the I was the original tech sales tech
Speaker 1: you know, desk analysts in the nineties, and so I
Speaker 1: saw front row seat to the whole all good boom
Speaker 1: and bust of that.
Speaker 3: Henry Blodgett, who Frank Quatrone.
Speaker 1: Yeah, I mean, so all these names and everything else.
Speaker 1: So anyways, the point is that this is just another Capex,
Speaker 1: This is just a this is the next tech cycle, okay,
Speaker 1: And so there are a lot of similarities. There are
Speaker 1: a lot of differences, but we're we're in the mix.
Speaker 1: That we're in the middle of it right now, and
Speaker 1: that's what we've been saying, and that continues. And the
Speaker 1: reason why I feel confident it's not at the end
Speaker 1: of the road yet is because the capital markets are
Speaker 1: still funding this and the companies are being rewarded for it.
Speaker 1: Meaning and we look at this carefully. You know, capex
Speaker 1: to sales ratio is a factor is being rewarded in
Speaker 1: the marketplace, Okay. In other words, if you're spending more,
Speaker 1: the stock goes up. Now, eventually that will start. There'll
Speaker 1: start to be a head wind and we'll figure out
Speaker 1: when that is and when that starts to happen. You
Speaker 1: got to worry. The other thing I would be paying
Speaker 1: attention to is credit spreads, right, And so for some companies,
Speaker 1: their credit spreads have blown out or cdss have gone
Speaker 1: up because at the margin we're seeing at the margins,
Speaker 1: some companies are not being rewarded for higher cappacks now
Speaker 1: because they're viewed as a loser. Okay, but that broadly speaking,
Speaker 1: that's not the case yet. So there's usually early warning signs.
Speaker 1: There's canaries in the coal mine and tell you, Okay,
Speaker 1: they're overspending. I'll say this. This is probably not a
Speaker 1: house for you, but it's my view. There's one chance
Speaker 1: there's gonna be mal investment here. Okay, yeah, just like
Speaker 1: every major camp except but that's not a crazy statement. Okay,
Speaker 1: it's different in fracking. It's no different in railroads, no
Speaker 1: different electricity cycles. So but we're we're probably not there yet.
Speaker 1: We don't know. And the other thing to keep in
Speaker 1: mind is that the marginal cost of compute, the marginal
Speaker 1: cost of the product itself, has to go to zero
Speaker 1: for it to work.
Speaker 3: It will go to zero.
Speaker 1: There'll be all you could eat plan. So, but we're
Speaker 1: in that transition period. You know, there's going to be
Speaker 1: I think we're now in the transition from the picks
Speaker 1: and shovels to the adopters. We're seeing, like actual adopters
Speaker 1: of the technology are becoming more efficient, you know, driving revenue,
Speaker 1: not just cutting costs by hiring fewer people. That transition
Speaker 1: could last probably several years, and then ultimately, you know,
Speaker 1: we'll have we'll have the other side of it.
Speaker 3: By the way, Jim Chainos was on with Tom and
Speaker 3: Scarlett last Friday on Bloomberg Money, their new program every
Speaker 3: Friday at noon, And of course he's a short seller
Speaker 3: and he's talking his book to some extent, but he
Speaker 3: did say that, you know, during the dot com era,
Speaker 3: at the tail end, earnings were up thirty percent and
Speaker 3: the next year they were down forty because people were
Speaker 3: putting in these massive orders due to a huge Capex
Speaker 3: ramp up, and then all of a sudden they disappeared.
Speaker 3: How do you know when we're going to get there?
Speaker 3: Because I know you look at forward earnings and earnings
Speaker 3: revisions that are still are they still to the upside?
Speaker 1: Yeah? So we are seeing a peak rate of change
Speaker 1: though in a revision breath in a lot of different areas.
Speaker 1: And you know one of those is semiconductors where we
Speaker 1: haven't seen it roll over, but it's at such a
Speaker 1: high level it can't sustain. So think about this. Since
Speaker 1: chat chipet was announced in I guess November twenty two,
Speaker 1: now we've had three decent corrections in this bull cycle
Speaker 1: of Campex. Three different times we've seen these stocks go
Speaker 1: down thirty to fifty percent. So we can have a
Speaker 1: thirty to fifty percent draw down and still have the
Speaker 1: long cycle intact, and that's what I expect to see,
Speaker 1: you know, I suspect we'll see another one of those scares.
Speaker 1: And by the way, you know in March the memory
Speaker 1: stacks were down thirty to forty percent should have bottom,
Speaker 1: and then they went out five times. So you know,
Speaker 1: like trying to trade that back and forth is for
Speaker 1: the for the pros only, you know, we try to
Speaker 1: do that a little bit, but like for the average person.
Speaker 1: So I don't think it's the end. But but boy,
Speaker 1: I mean you to think that you can't have these
Speaker 1: big kind of you know, cycnical resets, it's pretty naive.
Speaker 2: Morgan Stanley Equity trading desk.
Speaker 1: Serious people, they know what they're doing.
Speaker 2: Serious people. Man, I traded against them for years. I'm
Speaker 2: not sure I ever made it good on that. Hey, Mike,
Speaker 2: when you see meg IPOs like SpaceX, like anthropic, like
Speaker 2: open ayiic coming, does that tell you anything about the
Speaker 2: market in general?
Speaker 1: Well, the appetite is still there. I mean, like that's
Speaker 1: what I said earlier, Like, you know, the market is
Speaker 1: absorbing a lot of paper. And it's not just in equities,
Speaker 1: by the way, it's in the.
Speaker 2: Credit I mean video came out with a bond.
Speaker 1: I mean, we've seen massive credit offerings, which means what
Speaker 1: it means that the market is funding these expenditures. It's
Speaker 1: it's unlikely these companies are going to raise the money
Speaker 1: and not spend it, okay. So that's why you're very
Speaker 1: so excited about semi conductors. But to your point, Matt earlier, like,
Speaker 1: you know, the market's not dumb okay like and people say, oh,
Speaker 1: this is what happened in the news today. I mean,
Speaker 1: do I care if I'm an equity guye do I
Speaker 1: really care? Not really, because it's usually the market singing
Speaker 1: six months in advance. And that's why we look at
Speaker 1: these indicators like revision breath because they're lead their canary
Speaker 1: that tells me things are accelerating. I mean, one of
Speaker 1: the reasons we got so bullish last year we were
Speaker 1: debating this on on the on the other show, is
Speaker 1: we saw the revision bread just going and we had
Speaker 1: a different view, but that was our we're almost cheating, right.
Speaker 1: We can see like in three months, which can happen
Speaker 1: to actual earnings. It's it's a tell. And so that's
Speaker 1: why I'm so focused right now that we're such at
Speaker 1: such high levels on rate to change, then it has
Speaker 1: to come off a bit. But I don't think it's
Speaker 1: the end. It's a it's a reset, a little bit
Speaker 1: on the on the rate to change.
Speaker 3: By the way, I normally anchor Bloomberg Open Interest, which
Speaker 3: airs on Bloomberg Television weekdays from nine am to eleven am.
Speaker 3: Are you doing that today or Mike Wilson frequent guest, Yeah,
Speaker 3: I'm doing that today as well. But radio, well, I
Speaker 3: prefer radio, to be honest, I doubled I listened to
Speaker 3: this program every every day, so it's a real honor
Speaker 3: to be on with you. Lou Wang from Bloomberg News
Speaker 3: were a great piece last week. I think about all
Speaker 3: of the equity coming to market in the next two years.
Speaker 3: JP Morgan estimates one and a half trillion dollars of
Speaker 3: net equity coming to market, as opposed to the last
Speaker 3: twenty years we've seen twelve trillion dollars taken out of
Speaker 3: the market through corporate buybacks. Is that about face concerning
Speaker 3: to you?
Speaker 1: Yeah, I mean once again that can lead to correction.
Speaker 1: So I mean we've been very focused in the last
Speaker 1: two months. As you read our research, you'll know, like
Speaker 1: on liquidity. Okay. So and by the way, earlier this
Speaker 1: year people were kind of bearish on the economy, embarish
Speaker 1: on that basically that things were going to be softer
Speaker 1: on earnings. That turned out to be true. But what
Speaker 1: they should have been focused on was that the FED
Speaker 1: was kind of transitioning. They were going from being less
Speaker 1: dubbish on rate guidance but then more dubbish on liquidity.
Speaker 1: So that actually helped stocks to bottom in March. I'll
Speaker 1: just tell you right now that that liquidity picture is
Speaker 1: actually somewhat deteriorating now. So today's meeting with the new
Speaker 1: FED chair is going to be important to say, Okay, well,
Speaker 1: how are you going to think about the r ANDP,
Speaker 1: the reserve management programer purchases, and how you're going to
Speaker 1: think about, you know, managing kind of liquidity picture in
Speaker 1: the face of liquidity being sucked out of the marketplace.
Speaker 1: And there's three draws on liquidity now. One is all
Speaker 1: this issuance both in equity and fixed income. The other
Speaker 1: one is is on the economy itself. Right, the economy
Speaker 1: itself is absorbing capital in the way that we haven't seen.
Speaker 1: So the other big change matt from not just the
Speaker 1: fact that we're seeing net issuance perhaps, but we're also
Speaker 1: seeing net consumption of liquidity in the real economy. We
Speaker 1: have been investing for twenty years right in a world
Speaker 1: of financial oppression, so that just means it's more volatile.
Speaker 1: They're going to get this more volatile world, but it
Speaker 1: also leads to higher nominalo GDP growth. That's why I'm
Speaker 1: not worried about earnings growth at all. I'm worried about
Speaker 1: the multiple and these sort of draw downs that you
Speaker 1: get because of this volatility on liquidity and then the
Speaker 1: pequated change on revisions.