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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: Stocks higher as the post election rally picks up steam

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Speaker 2: investors welcoming President elect Donald Trump's treasury pick Scote Besson.

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Speaker 2: Mike Wilson of Morgan Stanley went in on the equity outlook,

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Speaker 2: writing with heart landing risks reduced this fall, the FED

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Speaker 2: cutting interest rates, business cycle indicators showing science of life

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Speaker 2: and the potential for an animal spirits rebound post the election.

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Speaker 2: The path of earnings growth should be upward as we

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Speaker 2: head through twenty twenty five. Mike joins us now for more.

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Speaker 2: Mikeel morning, Good Morning's good to see how unusually wide

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Speaker 2: are the range of outcomes for twenty twenty five for

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Speaker 2: you in the team, Well.

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Speaker 3: It's about the same as it was in the mid year.

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Speaker 4: I mean we moved to this sort of view because

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Speaker 4: the outcomes of the you know, the election, the economic outcome,

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Speaker 4: rates policy, ETCA is also wider. So you know, we

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Speaker 4: have to take that into an account and we did

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Speaker 4: a pretty good job I would say this year of

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Speaker 4: moving that around, meaning as the economic outlook changed through

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Speaker 4: the summer into the fall. I mean that's really the

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Speaker 4: game now is just trying to get ahead of these

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Speaker 4: sort of it's because it's going to remain uncertain. You

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Speaker 4: all were just discussing the new cabinet positions. Yeah, I

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Speaker 4: mean they don't even know yet. I mean they're going

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Speaker 4: to try to figure this out. That's the challenge. And

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Speaker 4: I think the markets are going to as usual trade that.

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Speaker 3: So we're we're trying to do that as well for clients.

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Speaker 2: So you'll message the client's gone into twenty five being nimble.

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Speaker 2: You've got some sect depicts in there. The other way

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Speaker 2: you like is financials, the underway the sector you don't

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Speaker 2: like the consumer, both staples and discretionary. Can we start

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Speaker 2: with the consumer? What's not to like?

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Speaker 4: Yeah, well, I mean it's been week. I mean the

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Speaker 4: consumer has been softer. And this fits into our sort

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Speaker 4: of you know, our call we've had for a while,

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Speaker 4: which is that the government has just sort of crowded

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Speaker 4: out a lot of the economy, right, I mean, the

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Speaker 4: low end, mid end consumer, low end mid.

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Speaker 3: End businesses quite frankly.

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Speaker 4: So that's something we are now thinking about, right, this changeover,

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Speaker 4: I mean, this is this is why Trump won, This

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Speaker 4: is why the Republicans won. They want change, Consumers want change.

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Speaker 4: So let's see if they can execute. But that's something

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Speaker 4: that we're we have a short leash on now. On

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Speaker 4: the consumer side, i'd say we're looking to maybe upgrade

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Speaker 4: certain consumer stacks if they can pull off some of

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Speaker 4: these policy challenges that they're going to try to navigate.

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Speaker 4: And look, I think on the financials, that's we've been

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Speaker 4: overweight financials. It's been a terrific group and the question

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Speaker 4: there is and was how much further can it go?

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Speaker 4: But look, once again, policy deregulation, you know, Basil three

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Speaker 4: coming off.

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Speaker 3: I mean, these things are all positive drivers that should.

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Speaker 4: Continue to help that sector at least on a relative basis.

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Speaker 2: Policy challenges and changes for the consumer, what changes would

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Speaker 2: you need to see? Well, well, grade a bigger cohort

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Speaker 2: of those names.

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Speaker 4: I think that once again it's this crowding out things.

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Speaker 4: So this is this is a big picture of you.

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Speaker 4: But if they can shrink the government, and by the way,

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Speaker 4: it's gonna take years, so this is not going to

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Speaker 4: happen in six months, and that's why we were not

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Speaker 4: upgrading consumers yet. But if you're able to shrink the

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Speaker 4: size of the government, kind of get them off the

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Speaker 4: back of small businesses to some degree you can't this

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Speaker 4: animal spirit thing is real. And then of course if

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Speaker 4: you can get you know, balance sort of you know,

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Speaker 4: the rate situation under control, where term premium is you know,

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Speaker 4: balanced with with the budget. You know, that's those are

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Speaker 4: the kinds of things that can actually spur consumer spending,

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Speaker 4: consumer confidence, which has really been in the doldrums.

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Speaker 3: How much is it? Also tax policy?

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Speaker 1: Essentially, if people pay fewer taxes, they can go out

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Speaker 1: and spend more on.

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Speaker 3: Gucci or anything else.

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Speaker 4: I mean, I mean, quite frankly, the consumer has been

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Speaker 4: having a hard time spending money on food, you know.

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Speaker 3: So let's start with that.

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Speaker 4: Let's start with just getting inflation sort of under control,

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Speaker 4: you know, getting people's confidence about the economy going forward

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Speaker 4: and willingness to sort of look forward and spend on things,

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Speaker 4: invest in things. I think one of the biggest areas

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Speaker 4: that is really undperformed is consumer durables because rates are

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Speaker 4: still too high.

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Speaker 3: The level of rates are still too high.

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Speaker 4: Now, I don't think we're going to be able to

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Speaker 4: see rates come down any faster because of this administration,

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Speaker 4: but over time.

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Speaker 3: That's I think that's the key.

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Speaker 4: If we can get rates down to a plausible level,

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Speaker 4: rate of wages increase to offset the inflation that's already

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Speaker 4: in the economy, the consumer will fare better.

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Speaker 1: There are a lot of other questions like tariffs and

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Speaker 1: how that could potentially affect some of these companies, But

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Speaker 1: there's a broader point here, which is that specific sectors

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Speaker 1: are going to respond very differently to policy changes going

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Speaker 1: forward and don't necessarily have the same kind of macroeconomic

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Speaker 1: overlay that they've had in recent years. And I wonder

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Speaker 1: how much you're sort of seeing that play out to

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Speaker 1: healthcare in particular, because it's been one outlier over the

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Speaker 1: past two weeks, You've seen it go down some six

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Speaker 1: percent because of the overhaul that clearly is lining up

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Speaker 1: with some of the picks for cms and hhs. Do

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Speaker 1: you lean into that or do you see these opportunities.

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Speaker 4: Well, there's both. I mean, there's going to be risk

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Speaker 4: here too. I mean, by the way, once again, the

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Speaker 4: markets are very smart about this. They've punished big food

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Speaker 4: companies because of perhaps Bobby Kennedy's appointment.

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Speaker 3: Same thing for pharmaceuticals. So the bad news is.

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Speaker 4: Sort of already getting priced in that regard, but the

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Speaker 4: positive story in healthcare quite frankly, it's just an efficiency story.

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Speaker 4: It's no different than the government. This is going to

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Speaker 4: take years. If we can make the deployment of health care,

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Speaker 4: the delivery of healthcare more efficient, that's going to create

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Speaker 4: great opportunity for certain types of businesses. But this is

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Speaker 4: to come right. This is this is why we need

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Speaker 4: to be nimble and think about, Okay, we're going to

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Speaker 4: it's not all going to happen at once. So there's

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Speaker 4: going to be moments of fear, doubt and uncertainty, and

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Speaker 4: that's going to create the opportunity.

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Speaker 3: We think through twenty twenty five.

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Speaker 5: You keep coming back to efficiency. Do you think Elon

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Speaker 5: Musk and the vake Ramaswami could dogify the economy.

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Speaker 4: I think they're there's a good chance that we can

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Speaker 4: not necessarily cut all the spending they're talking about, but

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Speaker 4: if we can just freeze spending. Remember the key here

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Speaker 4: is fiscal sustainability, which is just let's grow the government

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Speaker 4: slower than that we're growing nominal GDP if you can

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Speaker 4: get into that position. So Scott Besson has said, you

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Speaker 4: know this part of his plan, let's just get the

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Speaker 4: fiscal diffensit done to three percent.

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Speaker 3: We're not talking about going to zero.

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Speaker 4: But if we can just get the three percent, that's

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Speaker 4: in a much more sustainable place, which is one of

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Speaker 4: the reasons why I think that the bomb market is reacting,

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Speaker 4: at least initially somewhat positively to this. One of the

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Speaker 4: key negatives or risks that we see in the short

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Speaker 4: term had been term premium.

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Speaker 3: If term premium contained to widen.

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Speaker 4: Out, that's a real risk for multiple So I'm encouraged

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Speaker 4: by the reaction initially, but I'm also not confident to

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Speaker 4: say that this is going to be Oh, it's a

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Speaker 4: straight path from here to there.

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Speaker 5: What do you think the north star is with all

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Speaker 5: is said and done of this administration, Because you have

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Speaker 5: things like tax cuts, but things like as well as

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Speaker 5: tariffs which in a blanket response many economists say could

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Speaker 5: be inflationary, but they ran on getting inflation down. Is

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Speaker 5: that the number one key thing that Trump wants to

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Speaker 5: make sure inflation comes down for Americans to afford groceries.

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Speaker 4: Well, I think that because mandate was prices are too high.

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Speaker 4: That's They're probably three main issues. Prices are too high,

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Speaker 4: unacceptable immigration, We've got to fix that. And then this

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Speaker 4: idea of these never ending wars and like spending money

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Speaker 4: over like unnecessarily and many Americans' eyes, So he's.

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Speaker 3: Going to take try and take all three of those.

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Speaker 4: It's a kind of an America First policy with the

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Speaker 4: sort of added twist that we're also going to try

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Speaker 4: and redistribute the income in a way that's more like

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Speaker 4: you taxing people and then distributing it that way is inefficient.

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Speaker 4: If you can somehow reduce taxes and get the income

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Speaker 4: redistributed at the wage level, that's really really good. I

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Speaker 4: think that would be the goal. Once again, all comes

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Speaker 4: down to execution.

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Speaker 1: When you say nimble and being nimble as an investor,

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Speaker 1: are you saying trade frequently? Is this going to be

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Speaker 1: the most active trading year that you can imagine for

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Speaker 1: the team in twenty twenty five.

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Speaker 4: Yeah, I think that's a really good way to put it.

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Speaker 4: I would say we've been more active in that regard

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Speaker 4: trading the underlying as opposed to focusing so much on

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Speaker 4: the index. We are probably we're going to be offering

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Speaker 4: more trades for clients. And when I say trade is

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Speaker 4: not day trade, it's three to six months, you know,

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Speaker 4: rotating around the portfolio in a way that there's actually

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Speaker 4: you can do that in size. We're not going to say, hey,

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Speaker 4: you know, do these things that larger clients can't do.

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Speaker 4: But three to six month trades is a lot faster

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Speaker 4: than sort of a twelve month view.

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Speaker 1: Do you see the breakdown of correlations that have traditionally

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Speaker 1: held true, whether it's with yields and the effect on

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Speaker 1: stocks and some of the macro economic overlays. Are they

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Speaker 1: going to become less relevant as there are these sort

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Speaker 1: of rotating trades three to six months that kind of

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Speaker 1: go through sectors and specific names.

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Speaker 3: No, I think they.

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Speaker 4: Become more important. I think the macro will always play

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Speaker 4: a role.

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Speaker 3: I do hope.

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Speaker 4: And expect perhaps next year that we can see more

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Speaker 4: micro opportunity.

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Speaker 3: And what I mean by that is that.

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Speaker 4: Because of the economy and the setup that policy that

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Speaker 4: we've had. By the way, this is not just the

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Speaker 4: last four years. This is the last twenty years. This

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Speaker 4: crowding out right, it's the big get bigger that have

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Speaker 4: and have not the k economy.

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Speaker 3: They're sort of familiar with.

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Speaker 4: That to me is going to be the key. Can

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Speaker 4: we move from sort of a very narrow participation in

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Speaker 4: the economy both from a consumer and corporate standpoint is

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Speaker 4: something that's broader. If that happens, that's going to create

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Speaker 4: more micro opportunity. But it doesn't mean you can ignore

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Speaker 4: interest rates other policy changes because that's what's going to

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Speaker 4: affect the micro opportunity.

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Speaker 2: Why does that leave to MAC seven some of these

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Speaker 2: dominant companies.

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Speaker 4: I mean, I think you're already seeing it. It's like

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Speaker 4: there's going to be more winners going. It's gonna be

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Speaker 4: separations of winners and losers there too. One thing we

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Speaker 4: know about, you know, cycles over time, is that the winner,

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Speaker 4: the big winners of the last ten or twenty years,

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Speaker 4: are not the big winners of the next ten or

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Speaker 4: twenty years. And so we've talked about this a lot,

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Speaker 4: we've written.

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Speaker 3: About it like AI.

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Speaker 4: To me, the big exciting part of AI is not

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Speaker 4: the guys who are building AI today and the picks

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Speaker 4: and shovels who have already won. It's the application layer

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Speaker 4: who's going to who's going to develop and deliver the

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Speaker 4: solutions that take advantage of this new compute platform to

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Speaker 4: deliver the efficiency for corporate America for consumers, much like

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Speaker 4: email did or web browsers or software as a service.

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Speaker 4: I mean, you think about the big winners of the Internet.

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Speaker 4: It wasn't the carriers who spend all this money and

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Speaker 4: put it in the ground. It was the companies that

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Speaker 4: built the application layers to build better mouse traps.

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Speaker 3: Going forward.

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Speaker 2: You rite about some of this earlier this year. You

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Speaker 2: said the folks at the moment of the equity market

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Speaker 2: was on the AI enablers, which was the chips companies,

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Speaker 2: the videos of this world. Where are we in that process?

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Speaker 2: Are we moving away from that yet?

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Speaker 4: Well, we're still in it. I mean there's still companies

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Speaker 4: that are still benefiting. But that's all very narrow too.

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Speaker 4: By the way, there aren't that many beneficiaries of the spin,

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Speaker 4: which has been unusual. It's very different than the nineties

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Speaker 4: we had hundreds of beneficiaries. So I think we're still

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Speaker 4: in that phase, and we're going to transition to now

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Speaker 4: the adopter phase, like who can actually use this stuff,

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Speaker 4: which so far is only the hyperscalers the route. Once again,

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Speaker 4: the really exciting part is is the ones who can

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Speaker 4: actually take this platform, build applications and then deliver it

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Speaker 4: to dummies like me.

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Speaker 3: And make me more productive.

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Speaker 4: Right, just the average person to say, I don't need

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Speaker 4: to be a technologist, but I understand how this application

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Speaker 4: works and how it can make me more efficient and

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Speaker 4: doing my job, which is you know, looking at stocks,

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Speaker 4: you know, these mass wants of data in a way

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Speaker 4: that I can actually understand and deliver that to clients.

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Speaker 2: We've known each other a while. I have to say,

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Speaker 2: you sound pretty excited about next year in a way

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Speaker 2: that I've not heard you for a long time.

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Speaker 4: Yeah, I mean we're now always you know, one way,

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Speaker 4: So I would say we're we've been excited about this

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Speaker 4: for six months and it's just now we can kind

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Speaker 4: of see it in a way where where we can see.

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Speaker 3: A broadening out. We see it in the numbers.

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Speaker 4: We've been waiting for this, So in the last two

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Speaker 4: quarters we've actually seen a broadening out of the earning

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Speaker 4: story for the first time, even before the election outcome. Okay,

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Speaker 4: so this is this is a two step process. It's

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Speaker 4: going to be you know, noisy stocks are expensive. Okay,

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Speaker 4: that's you know, that's something we have to understand. The

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Speaker 4: markets are ahead of this already. Let's not think that

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Speaker 4: we're discovering the light bulb here. Okay, the markets have

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Speaker 4: already done this. So but yes, I think there's a

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Speaker 4: wider path now, A wider set of opportunities, which to

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Speaker 4: me is more exciting.

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Speaker 2: You spent a lot of time speaking to clients over

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Speaker 2: the last few months, I'm sure about the outlook for

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Speaker 2: twenty twenty five. What are the most skeptical about. What's

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Speaker 2: the biggest pushback you get?

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Speaker 4: Well, evaluation has been I've been skeptical in that quite frankly.

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Speaker 4: So it's still people are uncomfortable with the evaluation in

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Speaker 4: the equity markets. But then when you think about, well, okay,

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Speaker 4: well what else is there out there, and then you

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Speaker 4: look at the US versus other markets too, So that's

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Speaker 4: probably the biggest one. The second one is just it

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Speaker 4: still feels unstable, you know, I mean, like geopolitics, the political.

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Speaker 3: You know, angst in this country is like that resolved.

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Speaker 4: I mean, there's still this very bifurcated political environment. People's

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Speaker 4: economic situations are very bifurcated.

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Speaker 3: That makes people uncomfortable.

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Speaker 4: So I think that's the part that people just it's

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Speaker 4: hard to get uber bullish when you have all these

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Speaker 4: things that are are kind of holding in your sense.

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Speaker 2: There's some clients and of course you're not going to

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Speaker 2: name many, but you sense the summer finding it difficult

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Speaker 2: to divorce their political bias away from their economic views.

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Speaker 2: Have they learned the lesson of twenty sixteen seventeen?

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Speaker 4: I mean, most clients are more objective. Investment clients are

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Speaker 4: more objective with that because they have to be right,

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Speaker 4: because there's this thing called this, you know, the price

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Speaker 4: that makes them be objective about the outcome. That doesn't

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Speaker 4: mean they don't hold by personal biases.

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Speaker 3: We all do. That's natural.

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Speaker 4: I do think twenty sixteen maybe change that a bit,

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Speaker 4: but we're all forced to perform, and whether it's a

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Speaker 4: political bias or it's a style bias, you have to

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Speaker 4: navigate that and be flexible.

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Speaker 2: Just to put a bow on this conversation, the essence

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Speaker 2: of this conversation when you talked about the administration was

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Speaker 2: the real potential for real change. When I asked you

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Speaker 2: about whether some of these kinds are skeptical about twenty

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Speaker 2: twenty five. Are they skeptical about anything in the administration's agenda?

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Speaker 2: Do you think maybe they should be paying more attention to.

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Speaker 3: Well, we've wrote about this this weekend.

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Speaker 4: I mean there's a tremendous ment skepticism on whether they

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Speaker 4: can actually streamline the government because it's just I mean,

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Speaker 4: people have tried this before.

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Speaker 3: This is not like a.

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Speaker 4: New idea, right, so it's difficult. I mean, and we

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Speaker 4: all know about these roadblocks that are kind of built

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Speaker 4: into the system that you know, the appropriation is the

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Speaker 4: way you get the money.

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Speaker 3: They have to be spent.

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Speaker 4: You know, the civil liberties laws, which are good laws

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Speaker 4: to protect people's rights on jobs.

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Speaker 3: But it's just it's almost like.

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Speaker 4: You're fighting against this giant blob, and people are very

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Speaker 4: skeptical that you could beat the blob. And I think

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Speaker 4: that's an area where we need to be a little

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Speaker 4: bit more open mind. I'm more up prominded about that

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Speaker 4: because this is what the American people want. When I

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Speaker 4: want when I forget about talking to investment clients, when

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Speaker 4: I talk to people on the ground, people look at

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Speaker 4: the government and they say, hey, government does a lot

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Speaker 4: of great things for me, okay, but I have to

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Speaker 4: worry about my job all the time. I have to

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Speaker 4: operate in a different world. Why should they be operating

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Speaker 4: in a different environment. And I just think there's opportunity

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Speaker 4: and this is also potentially liberating for people in the government.

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Speaker 4: There are really good employees in the government, Okay, they

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Speaker 4: just play for a bad team. You know, it's like,

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Speaker 4: let's take a good player and a bad team and

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Speaker 4: let's putting them on on a better team and then

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Speaker 4: probably get more productivity out of that person.

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Speaker 3: I think that's exciting. It's a lot of risk.

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Speaker 4: Okay, it's going to be a really messy road yep,

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Speaker 4: but that that to me is

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Speaker 2: Interesting looking forward to confident with you, it's good to

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Speaker 2: say my worst in there of Morgan Stanley on The

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Speaker 2: Lasist