Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Stocks higher as the post election rally picks up steam
Speaker 2: investors welcoming President elect Donald Trump's treasury pick Scote Besson.
Speaker 2: Mike Wilson of Morgan Stanley went in on the equity outlook,
Speaker 2: writing with heart landing risks reduced this fall, the FED
Speaker 2: cutting interest rates, business cycle indicators showing science of life
Speaker 2: and the potential for an animal spirits rebound post the election.
Speaker 2: The path of earnings growth should be upward as we
Speaker 2: head through twenty twenty five. Mike joins us now for more.
Speaker 2: Mikeel morning, Good Morning's good to see how unusually wide
Speaker 2: are the range of outcomes for twenty twenty five for
Speaker 2: you in the team, Well.
Speaker 3: It's about the same as it was in the mid year.
Speaker 4: I mean we moved to this sort of view because
Speaker 4: the outcomes of the you know, the election, the economic outcome,
Speaker 4: rates policy, ETCA is also wider. So you know, we
Speaker 4: have to take that into an account and we did
Speaker 4: a pretty good job I would say this year of
Speaker 4: moving that around, meaning as the economic outlook changed through
Speaker 4: the summer into the fall. I mean that's really the
Speaker 4: game now is just trying to get ahead of these
Speaker 4: sort of it's because it's going to remain uncertain. You
Speaker 4: all were just discussing the new cabinet positions. Yeah, I
Speaker 4: mean they don't even know yet. I mean they're going
Speaker 4: to try to figure this out. That's the challenge. And
Speaker 4: I think the markets are going to as usual trade that.
Speaker 3: So we're we're trying to do that as well for clients.
Speaker 2: So you'll message the client's gone into twenty five being nimble.
Speaker 2: You've got some sect depicts in there. The other way
Speaker 2: you like is financials, the underway the sector you don't
Speaker 2: like the consumer, both staples and discretionary. Can we start
Speaker 2: with the consumer? What's not to like?
Speaker 4: Yeah, well, I mean it's been week. I mean the
Speaker 4: consumer has been softer. And this fits into our sort
Speaker 4: of you know, our call we've had for a while,
Speaker 4: which is that the government has just sort of crowded
Speaker 4: out a lot of the economy, right, I mean, the
Speaker 4: low end, mid end consumer, low end mid.
Speaker 3: End businesses quite frankly.
Speaker 4: So that's something we are now thinking about, right, this changeover,
Speaker 4: I mean, this is this is why Trump won, This
Speaker 4: is why the Republicans won. They want change, Consumers want change.
Speaker 4: So let's see if they can execute. But that's something
Speaker 4: that we're we have a short leash on now. On
Speaker 4: the consumer side, i'd say we're looking to maybe upgrade
Speaker 4: certain consumer stacks if they can pull off some of
Speaker 4: these policy challenges that they're going to try to navigate.
Speaker 4: And look, I think on the financials, that's we've been
Speaker 4: overweight financials. It's been a terrific group and the question
Speaker 4: there is and was how much further can it go?
Speaker 4: But look, once again, policy deregulation, you know, Basil three
Speaker 4: coming off.
Speaker 3: I mean, these things are all positive drivers that should.
Speaker 4: Continue to help that sector at least on a relative basis.
Speaker 2: Policy challenges and changes for the consumer, what changes would
Speaker 2: you need to see? Well, well, grade a bigger cohort
Speaker 2: of those names.
Speaker 4: I think that once again it's this crowding out things.
Speaker 4: So this is this is a big picture of you.
Speaker 4: But if they can shrink the government, and by the way,
Speaker 4: it's gonna take years, so this is not going to
Speaker 4: happen in six months, and that's why we were not
Speaker 4: upgrading consumers yet. But if you're able to shrink the
Speaker 4: size of the government, kind of get them off the
Speaker 4: back of small businesses to some degree you can't this
Speaker 4: animal spirit thing is real. And then of course if
Speaker 4: you can get you know, balance sort of you know,
Speaker 4: the rate situation under control, where term premium is you know,
Speaker 4: balanced with with the budget. You know, that's those are
Speaker 4: the kinds of things that can actually spur consumer spending,
Speaker 4: consumer confidence, which has really been in the doldrums.
Speaker 3: How much is it? Also tax policy?
Speaker 1: Essentially, if people pay fewer taxes, they can go out
Speaker 1: and spend more on.
Speaker 3: Gucci or anything else.
Speaker 4: I mean, I mean, quite frankly, the consumer has been
Speaker 4: having a hard time spending money on food, you know.
Speaker 3: So let's start with that.
Speaker 4: Let's start with just getting inflation sort of under control,
Speaker 4: you know, getting people's confidence about the economy going forward
Speaker 4: and willingness to sort of look forward and spend on things,
Speaker 4: invest in things. I think one of the biggest areas
Speaker 4: that is really undperformed is consumer durables because rates are
Speaker 4: still too high.
Speaker 3: The level of rates are still too high.
Speaker 4: Now, I don't think we're going to be able to
Speaker 4: see rates come down any faster because of this administration,
Speaker 4: but over time.
Speaker 3: That's I think that's the key.
Speaker 4: If we can get rates down to a plausible level,
Speaker 4: rate of wages increase to offset the inflation that's already
Speaker 4: in the economy, the consumer will fare better.
Speaker 1: There are a lot of other questions like tariffs and
Speaker 1: how that could potentially affect some of these companies, But
Speaker 1: there's a broader point here, which is that specific sectors
Speaker 1: are going to respond very differently to policy changes going
Speaker 1: forward and don't necessarily have the same kind of macroeconomic
Speaker 1: overlay that they've had in recent years. And I wonder
Speaker 1: how much you're sort of seeing that play out to
Speaker 1: healthcare in particular, because it's been one outlier over the
Speaker 1: past two weeks, You've seen it go down some six
Speaker 1: percent because of the overhaul that clearly is lining up
Speaker 1: with some of the picks for cms and hhs. Do
Speaker 1: you lean into that or do you see these opportunities.
Speaker 4: Well, there's both. I mean, there's going to be risk
Speaker 4: here too. I mean, by the way, once again, the
Speaker 4: markets are very smart about this. They've punished big food
Speaker 4: companies because of perhaps Bobby Kennedy's appointment.
Speaker 3: Same thing for pharmaceuticals. So the bad news is.
Speaker 4: Sort of already getting priced in that regard, but the
Speaker 4: positive story in healthcare quite frankly, it's just an efficiency story.
Speaker 4: It's no different than the government. This is going to
Speaker 4: take years. If we can make the deployment of health care,
Speaker 4: the delivery of healthcare more efficient, that's going to create
Speaker 4: great opportunity for certain types of businesses. But this is
Speaker 4: to come right. This is this is why we need
Speaker 4: to be nimble and think about, Okay, we're going to
Speaker 4: it's not all going to happen at once. So there's
Speaker 4: going to be moments of fear, doubt and uncertainty, and
Speaker 4: that's going to create the opportunity.
Speaker 3: We think through twenty twenty five.
Speaker 5: You keep coming back to efficiency. Do you think Elon
Speaker 5: Musk and the vake Ramaswami could dogify the economy.
Speaker 4: I think they're there's a good chance that we can
Speaker 4: not necessarily cut all the spending they're talking about, but
Speaker 4: if we can just freeze spending. Remember the key here
Speaker 4: is fiscal sustainability, which is just let's grow the government
Speaker 4: slower than that we're growing nominal GDP if you can
Speaker 4: get into that position. So Scott Besson has said, you
Speaker 4: know this part of his plan, let's just get the
Speaker 4: fiscal diffensit done to three percent.
Speaker 3: We're not talking about going to zero.
Speaker 4: But if we can just get the three percent, that's
Speaker 4: in a much more sustainable place, which is one of
Speaker 4: the reasons why I think that the bomb market is reacting,
Speaker 4: at least initially somewhat positively to this. One of the
Speaker 4: key negatives or risks that we see in the short
Speaker 4: term had been term premium.
Speaker 3: If term premium contained to widen.
Speaker 4: Out, that's a real risk for multiple So I'm encouraged
Speaker 4: by the reaction initially, but I'm also not confident to
Speaker 4: say that this is going to be Oh, it's a
Speaker 4: straight path from here to there.
Speaker 5: What do you think the north star is with all
Speaker 5: is said and done of this administration, Because you have
Speaker 5: things like tax cuts, but things like as well as
Speaker 5: tariffs which in a blanket response many economists say could
Speaker 5: be inflationary, but they ran on getting inflation down. Is
Speaker 5: that the number one key thing that Trump wants to
Speaker 5: make sure inflation comes down for Americans to afford groceries.
Speaker 4: Well, I think that because mandate was prices are too high.
Speaker 4: That's They're probably three main issues. Prices are too high,
Speaker 4: unacceptable immigration, We've got to fix that. And then this
Speaker 4: idea of these never ending wars and like spending money
Speaker 4: over like unnecessarily and many Americans' eyes, So he's.
Speaker 3: Going to take try and take all three of those.
Speaker 4: It's a kind of an America First policy with the
Speaker 4: sort of added twist that we're also going to try
Speaker 4: and redistribute the income in a way that's more like
Speaker 4: you taxing people and then distributing it that way is inefficient.
Speaker 4: If you can somehow reduce taxes and get the income
Speaker 4: redistributed at the wage level, that's really really good. I
Speaker 4: think that would be the goal. Once again, all comes
Speaker 4: down to execution.
Speaker 1: When you say nimble and being nimble as an investor,
Speaker 1: are you saying trade frequently? Is this going to be
Speaker 1: the most active trading year that you can imagine for
Speaker 1: the team in twenty twenty five.
Speaker 4: Yeah, I think that's a really good way to put it.
Speaker 4: I would say we've been more active in that regard
Speaker 4: trading the underlying as opposed to focusing so much on
Speaker 4: the index. We are probably we're going to be offering
Speaker 4: more trades for clients. And when I say trade is
Speaker 4: not day trade, it's three to six months, you know,
Speaker 4: rotating around the portfolio in a way that there's actually
Speaker 4: you can do that in size. We're not going to say, hey,
Speaker 4: you know, do these things that larger clients can't do.
Speaker 4: But three to six month trades is a lot faster
Speaker 4: than sort of a twelve month view.
Speaker 1: Do you see the breakdown of correlations that have traditionally
Speaker 1: held true, whether it's with yields and the effect on
Speaker 1: stocks and some of the macro economic overlays. Are they
Speaker 1: going to become less relevant as there are these sort
Speaker 1: of rotating trades three to six months that kind of
Speaker 1: go through sectors and specific names.
Speaker 3: No, I think they.
Speaker 4: Become more important. I think the macro will always play
Speaker 4: a role.
Speaker 3: I do hope.
Speaker 4: And expect perhaps next year that we can see more
Speaker 4: micro opportunity.
Speaker 3: And what I mean by that is that.
Speaker 4: Because of the economy and the setup that policy that
Speaker 4: we've had. By the way, this is not just the
Speaker 4: last four years. This is the last twenty years. This
Speaker 4: crowding out right, it's the big get bigger that have
Speaker 4: and have not the k economy.
Speaker 3: They're sort of familiar with.
Speaker 4: That to me is going to be the key. Can
Speaker 4: we move from sort of a very narrow participation in
Speaker 4: the economy both from a consumer and corporate standpoint is
Speaker 4: something that's broader. If that happens, that's going to create
Speaker 4: more micro opportunity. But it doesn't mean you can ignore
Speaker 4: interest rates other policy changes because that's what's going to
Speaker 4: affect the micro opportunity.
Speaker 2: Why does that leave to MAC seven some of these
Speaker 2: dominant companies.
Speaker 4: I mean, I think you're already seeing it. It's like
Speaker 4: there's going to be more winners going. It's gonna be
Speaker 4: separations of winners and losers there too. One thing we
Speaker 4: know about, you know, cycles over time, is that the winner,
Speaker 4: the big winners of the last ten or twenty years,
Speaker 4: are not the big winners of the next ten or
Speaker 4: twenty years. And so we've talked about this a lot,
Speaker 4: we've written.
Speaker 3: About it like AI.
Speaker 4: To me, the big exciting part of AI is not
Speaker 4: the guys who are building AI today and the picks
Speaker 4: and shovels who have already won. It's the application layer
Speaker 4: who's going to who's going to develop and deliver the
Speaker 4: solutions that take advantage of this new compute platform to
Speaker 4: deliver the efficiency for corporate America for consumers, much like
Speaker 4: email did or web browsers or software as a service.
Speaker 4: I mean, you think about the big winners of the Internet.
Speaker 4: It wasn't the carriers who spend all this money and
Speaker 4: put it in the ground. It was the companies that
Speaker 4: built the application layers to build better mouse traps.
Speaker 3: Going forward.
Speaker 2: You rite about some of this earlier this year. You
Speaker 2: said the folks at the moment of the equity market
Speaker 2: was on the AI enablers, which was the chips companies,
Speaker 2: the videos of this world. Where are we in that process?
Speaker 2: Are we moving away from that yet?
Speaker 4: Well, we're still in it. I mean there's still companies
Speaker 4: that are still benefiting. But that's all very narrow too.
Speaker 4: By the way, there aren't that many beneficiaries of the spin,
Speaker 4: which has been unusual. It's very different than the nineties
Speaker 4: we had hundreds of beneficiaries. So I think we're still
Speaker 4: in that phase, and we're going to transition to now
Speaker 4: the adopter phase, like who can actually use this stuff,
Speaker 4: which so far is only the hyperscalers the route. Once again,
Speaker 4: the really exciting part is is the ones who can
Speaker 4: actually take this platform, build applications and then deliver it
Speaker 4: to dummies like me.
Speaker 3: And make me more productive.
Speaker 4: Right, just the average person to say, I don't need
Speaker 4: to be a technologist, but I understand how this application
Speaker 4: works and how it can make me more efficient and
Speaker 4: doing my job, which is you know, looking at stocks,
Speaker 4: you know, these mass wants of data in a way
Speaker 4: that I can actually understand and deliver that to clients.
Speaker 2: We've known each other a while. I have to say,
Speaker 2: you sound pretty excited about next year in a way
Speaker 2: that I've not heard you for a long time.
Speaker 4: Yeah, I mean we're now always you know, one way,
Speaker 4: So I would say we're we've been excited about this
Speaker 4: for six months and it's just now we can kind
Speaker 4: of see it in a way where where we can see.
Speaker 3: A broadening out. We see it in the numbers.
Speaker 4: We've been waiting for this, So in the last two
Speaker 4: quarters we've actually seen a broadening out of the earning
Speaker 4: story for the first time, even before the election outcome. Okay,
Speaker 4: so this is this is a two step process. It's
Speaker 4: going to be you know, noisy stocks are expensive. Okay,
Speaker 4: that's you know, that's something we have to understand. The
Speaker 4: markets are ahead of this already. Let's not think that
Speaker 4: we're discovering the light bulb here. Okay, the markets have
Speaker 4: already done this. So but yes, I think there's a
Speaker 4: wider path now, A wider set of opportunities, which to
Speaker 4: me is more exciting.
Speaker 2: You spent a lot of time speaking to clients over
Speaker 2: the last few months, I'm sure about the outlook for
Speaker 2: twenty twenty five. What are the most skeptical about. What's
Speaker 2: the biggest pushback you get?
Speaker 4: Well, evaluation has been I've been skeptical in that quite frankly.
Speaker 4: So it's still people are uncomfortable with the evaluation in
Speaker 4: the equity markets. But then when you think about, well, okay,
Speaker 4: well what else is there out there, and then you
Speaker 4: look at the US versus other markets too, So that's
Speaker 4: probably the biggest one. The second one is just it
Speaker 4: still feels unstable, you know, I mean, like geopolitics, the political.
Speaker 3: You know, angst in this country is like that resolved.
Speaker 4: I mean, there's still this very bifurcated political environment. People's
Speaker 4: economic situations are very bifurcated.
Speaker 3: That makes people uncomfortable.
Speaker 4: So I think that's the part that people just it's
Speaker 4: hard to get uber bullish when you have all these
Speaker 4: things that are are kind of holding in your sense.
Speaker 2: There's some clients and of course you're not going to
Speaker 2: name many, but you sense the summer finding it difficult
Speaker 2: to divorce their political bias away from their economic views.
Speaker 2: Have they learned the lesson of twenty sixteen seventeen?
Speaker 4: I mean, most clients are more objective. Investment clients are
Speaker 4: more objective with that because they have to be right,
Speaker 4: because there's this thing called this, you know, the price
Speaker 4: that makes them be objective about the outcome. That doesn't
Speaker 4: mean they don't hold by personal biases.
Speaker 3: We all do. That's natural.
Speaker 4: I do think twenty sixteen maybe change that a bit,
Speaker 4: but we're all forced to perform, and whether it's a
Speaker 4: political bias or it's a style bias, you have to
Speaker 4: navigate that and be flexible.
Speaker 2: Just to put a bow on this conversation, the essence
Speaker 2: of this conversation when you talked about the administration was
Speaker 2: the real potential for real change. When I asked you
Speaker 2: about whether some of these kinds are skeptical about twenty
Speaker 2: twenty five. Are they skeptical about anything in the administration's agenda?
Speaker 2: Do you think maybe they should be paying more attention to.
Speaker 3: Well, we've wrote about this this weekend.
Speaker 4: I mean there's a tremendous ment skepticism on whether they
Speaker 4: can actually streamline the government because it's just I mean,
Speaker 4: people have tried this before.
Speaker 3: This is not like a.
Speaker 4: New idea, right, so it's difficult. I mean, and we
Speaker 4: all know about these roadblocks that are kind of built
Speaker 4: into the system that you know, the appropriation is the
Speaker 4: way you get the money.
Speaker 3: They have to be spent.
Speaker 4: You know, the civil liberties laws, which are good laws
Speaker 4: to protect people's rights on jobs.
Speaker 3: But it's just it's almost like.
Speaker 4: You're fighting against this giant blob, and people are very
Speaker 4: skeptical that you could beat the blob. And I think
Speaker 4: that's an area where we need to be a little
Speaker 4: bit more open mind. I'm more up prominded about that
Speaker 4: because this is what the American people want. When I
Speaker 4: want when I forget about talking to investment clients, when
Speaker 4: I talk to people on the ground, people look at
Speaker 4: the government and they say, hey, government does a lot
Speaker 4: of great things for me, okay, but I have to
Speaker 4: worry about my job all the time. I have to
Speaker 4: operate in a different world. Why should they be operating
Speaker 4: in a different environment. And I just think there's opportunity
Speaker 4: and this is also potentially liberating for people in the government.
Speaker 4: There are really good employees in the government, Okay, they
Speaker 4: just play for a bad team. You know, it's like,
Speaker 4: let's take a good player and a bad team and
Speaker 4: let's putting them on on a better team and then
Speaker 4: probably get more productivity out of that person.
Speaker 3: I think that's exciting. It's a lot of risk.
Speaker 4: Okay, it's going to be a really messy road yep,
Speaker 4: but that that to me is
Speaker 2: Interesting looking forward to confident with you, it's good to
Speaker 2: say my worst in there of Morgan Stanley on The
Speaker 2: Lasist