WEBVTT - Lisa Shalett Talks Fed Cuts

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio News. One of our faith

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<v Speaker 1>guests on these markets is Lisha's Shalott. She's a chief

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<v Speaker 1>investment officer for Morgan Stanley Investment Management. You've heard of them.

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<v Speaker 1>They're pretty good over there. I've competed against in my

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<v Speaker 1>whole career. I had some wins, I had some losses

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<v Speaker 1>over the years, but they're pretty good. Lisa, we got

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<v Speaker 1>to start with gold. I don't know what's going on.

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<v Speaker 1>Do you have any idea what's going on? I mean,

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<v Speaker 1>who's behind this stuff?

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<v Speaker 2>So I don't know if we have an idea, we

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<v Speaker 2>have a hypothesis, right, So, you know, I know, over

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<v Speaker 2>the last couple of weeks, a lot of folks have

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<v Speaker 2>talked about gold as maybe a hedge to some of

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<v Speaker 2>the frauthiness in the equity market, et cetera. But we've really,

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<v Speaker 2>you know, been on this extraordinary run for the past

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<v Speaker 2>quite frankly three years since the bullmarket began in the

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<v Speaker 2>fall of twenty twenty two, with gold massively outperforming stocks.

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<v Speaker 2>And so one of the things that you know, we've

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<v Speaker 2>begun to think about is not just dollar debasement, but

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<v Speaker 2>whether or not folks are really worried about fiat currencies

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<v Speaker 2>more broadly around the world, and as folks really truly

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<v Speaker 2>think about whether or not there is a credible, reliable

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<v Speaker 2>future for stable coins and for crypto whether some of

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<v Speaker 2>this ecosystem needs to collateralize itself with gold away from

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<v Speaker 2>fiat currencies. And so one theory we have is that

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<v Speaker 2>some of these players may be trying to build some

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<v Speaker 2>reserves in the yellow metal.

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<v Speaker 3>Gold massively outperforming stocks. I wanted to go there because

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<v Speaker 3>this is not the correlation that we're accustomed to. And

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<v Speaker 3>as we talk about kind of the uniqueness of this moment,

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<v Speaker 3>perhaps the weirdness of this moment, what does that tell you?

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<v Speaker 3>How does that kind of shape the way that you're

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<v Speaker 3>looking at these markets?

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<v Speaker 2>Well, it really requires some creativity because a lot to

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<v Speaker 2>your point, all of these correlations are breaking down. And

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<v Speaker 2>so one of the hypotheses that we have is that,

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<v Speaker 2>you know, we've got this scenario where, yes, we haven't

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<v Speaker 2>seen inflation in the real economy, but perhaps we're really

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<v Speaker 2>starting to see inflation in financial assets. Just too much

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<v Speaker 2>liquidity from everywhere around the world slashing around looking for

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<v Speaker 2>places to go, and in the everything rally, you know,

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<v Speaker 2>we're seeing you know, folks by you know, everything from

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<v Speaker 2>from gold to stocks, to bonds to currencies.

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<v Speaker 1>I was like this quote in your notes, Lisa Booth.

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<v Speaker 1>Markets are meant to be written, not timed. That's very

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<v Speaker 1>good what we have heard, you know, maybe over the

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<v Speaker 1>last year or two, but really the last two, three,

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<v Speaker 1>four weeks. It's just the concern about AI and it's

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<v Speaker 1>been such a big catalyst for the broader equity markets overall,

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<v Speaker 1>not just the tech space. But now we're starting to

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<v Speaker 1>see some of these circular deals where this company's investing

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<v Speaker 1>in open AI, who's then investing back and buying stuff

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<v Speaker 1>and doing all that kind of circular stuff kind of feels.

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<v Speaker 3>A little odd.

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<v Speaker 1>Is it odd to you? Does it feel frothy to you?

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<v Speaker 1>How do you think about that?

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<v Speaker 2>It does? And you know, for us, whenever these trends

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<v Speaker 2>are transparent and trackable, which they really were for the

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<v Speaker 2>last three or four years, you could say, I see

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<v Speaker 2>the order book, I see the cash flow. I understand

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<v Speaker 2>how they're going to fund these cap X plans. But

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<v Speaker 2>in the literally in the last eight to ten weeks,

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<v Speaker 2>the deal making, the pace of the deal making and

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<v Speaker 2>the interconnectedness of all of it is starting to suggest

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<v Speaker 2>to us that we're getting to that part of the

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<v Speaker 2>cycle where you know, the analysts start making up new terms.

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<v Speaker 2>You know, this RPO and revenue that's been accounted for

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<v Speaker 2>that's still to be accounted for. It, you know, kind

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<v Speaker 2>of hearkens back to the eyeballs and and you know

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<v Speaker 2>some of the words we made up during the peak

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<v Speaker 2>of the Internet. And so what our hope is here

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<v Speaker 2>is that as these deals are rolled out, that the

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<v Speaker 2>companies are making the effort to really help us map

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<v Speaker 2>what is real, what is on the come and what

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<v Speaker 2>is you know, potentially just a promise that could vaporize

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<v Speaker 2>if the demand isn't there.

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<v Speaker 3>As we think about the potential for froth or bubbles,

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<v Speaker 3>what's the time horizon that you're looking at. What's what's

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<v Speaker 3>the time by which these companies have to kind of

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<v Speaker 3>prove find the proof and the putting here that what

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<v Speaker 3>they're doing is actually leading to something that's that's beyond

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<v Speaker 3>just significant cap backs over and over again.

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<v Speaker 2>Yeah, So what we've you know, talked about is how

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<v Speaker 2>critical twenty twenty six is, and probably the second half

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<v Speaker 2>of twenty twenty six. And the reason is because the

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<v Speaker 2>gains that we can really, you know, credibly get from

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<v Speaker 2>multiple expansion. Feels like we're getting to that point of

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<v Speaker 2>exhaustion and earnings need to come through. The controversy is not,

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<v Speaker 2>you know, are their earnings for you know, the hyper scalers.

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<v Speaker 2>I think everyone believes that. The question is are there

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<v Speaker 2>productivity improvements from some of the folks who are implementing

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<v Speaker 2>and and again we're I think we're willing to hold

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<v Speaker 2>our breath for another six to nine months, but I

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<v Speaker 2>think by by next summer, people are going to start saying, hey,

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<v Speaker 2>show me the money.

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<v Speaker 3>Yep, yep.

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<v Speaker 1>How about are there certain sectors that's screening well for

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<v Speaker 1>you guys right now? We're going to stand the best management.

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<v Speaker 2>Yeah, I mean, obviously I need to be careful about uh,

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<v Speaker 2>you know, not talking my book, but you know, our

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<v Speaker 2>favorite sector for the last eighteen months has been financials. Obviously,

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<v Speaker 2>you know, maybe a tough tape to report into this morning,

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<v Speaker 2>but these numbers I think from the sector, you know,

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<v Speaker 2>look reasonably strong to us. They obviously will have the

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<v Speaker 2>tailwind of likely a steeper yield curve next year of

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<v Speaker 2>some uh you know, deregulation in addition to a deal backdrop.

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<v Speaker 2>So I think that that's kind of an ideal environment

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<v Speaker 2>for them, and financials should be a place where we

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<v Speaker 2>start to see stories at least of Jenai implementation driving

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<v Speaker 2>margin expansion.

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<v Speaker 3>At least A few minutes ago, you mentioned dollar strength

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<v Speaker 3>or dollar weakness. I guess it's like glass half fuller

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<v Speaker 3>class empty. But I'm curious how much that has been

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<v Speaker 3>driving your thinking over the last few months. The weekend

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<v Speaker 3>dollar that we've seen, and I look at the Bloomberg

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<v Speaker 3>Dollar Spot Index up a little bit here today, seeing

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<v Speaker 3>a little bit more strength today. But the story has

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<v Speaker 3>been one of a weeker dollar, And how is that

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<v Speaker 3>shaping your view of things?

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<v Speaker 2>It certainly, you know, does play into it. I mean,

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<v Speaker 2>we've had a view that inflation is going to be sticky.

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<v Speaker 2>And what folks need to remember is, while you know

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<v Speaker 2>a weeker dollar can certainly be helpful for the earnings

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<v Speaker 2>dynamics for large multinationals who trade around the world and

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<v Speaker 2>their competitiveness, a weeker dollar actually inhibits our ability to

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<v Speaker 2>effectively price imports. And when you multiply that by tariffs,

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<v Speaker 2>it's actually an even bigger headwind. So, you know, we

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<v Speaker 2>do think that that weeker dollar is relevant to the

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<v Speaker 2>real economy into some of the forecasts here.

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<v Speaker 1>Las, thank you so much for joining us. Really appreciate it.

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<v Speaker 1>Lisa Schallee. She's a chief investment officer for Morgan Stanley

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<v Speaker 1>Investment Management.