Speaker 1: Bloomberg Audio Studios, podcasts, radio News. One of our faith
Speaker 1: guests on these markets is Lisha's Shalott. She's a chief
Speaker 1: investment officer for Morgan Stanley Investment Management. You've heard of them.
Speaker 1: They're pretty good over there. I've competed against in my
Speaker 1: whole career. I had some wins, I had some losses
Speaker 1: over the years, but they're pretty good. Lisa, we got
Speaker 1: to start with gold. I don't know what's going on.
Speaker 1: Do you have any idea what's going on? I mean,
Speaker 1: who's behind this stuff?
Speaker 2: So I don't know if we have an idea, we
Speaker 2: have a hypothesis, right, So, you know, I know, over
Speaker 2: the last couple of weeks, a lot of folks have
Speaker 2: talked about gold as maybe a hedge to some of
Speaker 2: the frauthiness in the equity market, et cetera. But we've really,
Speaker 2: you know, been on this extraordinary run for the past
Speaker 2: quite frankly three years since the bullmarket began in the
Speaker 2: fall of twenty twenty two, with gold massively outperforming stocks.
Speaker 2: And so one of the things that you know, we've
Speaker 2: begun to think about is not just dollar debasement, but
Speaker 2: whether or not folks are really worried about fiat currencies
Speaker 2: more broadly around the world, and as folks really truly
Speaker 2: think about whether or not there is a credible, reliable
Speaker 2: future for stable coins and for crypto whether some of
Speaker 2: this ecosystem needs to collateralize itself with gold away from
Speaker 2: fiat currencies. And so one theory we have is that
Speaker 2: some of these players may be trying to build some
Speaker 2: reserves in the yellow metal.
Speaker 3: Gold massively outperforming stocks. I wanted to go there because
Speaker 3: this is not the correlation that we're accustomed to. And
Speaker 3: as we talk about kind of the uniqueness of this moment,
Speaker 3: perhaps the weirdness of this moment, what does that tell you?
Speaker 3: How does that kind of shape the way that you're
Speaker 3: looking at these markets?
Speaker 2: Well, it really requires some creativity because a lot to
Speaker 2: your point, all of these correlations are breaking down. And
Speaker 2: so one of the hypotheses that we have is that,
Speaker 2: you know, we've got this scenario where, yes, we haven't
Speaker 2: seen inflation in the real economy, but perhaps we're really
Speaker 2: starting to see inflation in financial assets. Just too much
Speaker 2: liquidity from everywhere around the world slashing around looking for
Speaker 2: places to go, and in the everything rally, you know,
Speaker 2: we're seeing you know, folks by you know, everything from
Speaker 2: from gold to stocks, to bonds to currencies.
Speaker 1: I was like this quote in your notes, Lisa Booth.
Speaker 1: Markets are meant to be written, not timed. That's very
Speaker 1: good what we have heard, you know, maybe over the
Speaker 1: last year or two, but really the last two, three,
Speaker 1: four weeks. It's just the concern about AI and it's
Speaker 1: been such a big catalyst for the broader equity markets overall,
Speaker 1: not just the tech space. But now we're starting to
Speaker 1: see some of these circular deals where this company's investing
Speaker 1: in open AI, who's then investing back and buying stuff
Speaker 1: and doing all that kind of circular stuff kind of feels.
Speaker 3: A little odd.
Speaker 1: Is it odd to you? Does it feel frothy to you?
Speaker 1: How do you think about that?
Speaker 2: It does? And you know, for us, whenever these trends
Speaker 2: are transparent and trackable, which they really were for the
Speaker 2: last three or four years, you could say, I see
Speaker 2: the order book, I see the cash flow. I understand
Speaker 2: how they're going to fund these cap X plans. But
Speaker 2: in the literally in the last eight to ten weeks,
Speaker 2: the deal making, the pace of the deal making and
Speaker 2: the interconnectedness of all of it is starting to suggest
Speaker 2: to us that we're getting to that part of the
Speaker 2: cycle where you know, the analysts start making up new terms.
Speaker 2: You know, this RPO and revenue that's been accounted for
Speaker 2: that's still to be accounted for. It, you know, kind
Speaker 2: of hearkens back to the eyeballs and and you know
Speaker 2: some of the words we made up during the peak
Speaker 2: of the Internet. And so what our hope is here
Speaker 2: is that as these deals are rolled out, that the
Speaker 2: companies are making the effort to really help us map
Speaker 2: what is real, what is on the come and what
Speaker 2: is you know, potentially just a promise that could vaporize
Speaker 2: if the demand isn't there.
Speaker 3: As we think about the potential for froth or bubbles,
Speaker 3: what's the time horizon that you're looking at. What's what's
Speaker 3: the time by which these companies have to kind of
Speaker 3: prove find the proof and the putting here that what
Speaker 3: they're doing is actually leading to something that's that's beyond
Speaker 3: just significant cap backs over and over again.
Speaker 2: Yeah, So what we've you know, talked about is how
Speaker 2: critical twenty twenty six is, and probably the second half
Speaker 2: of twenty twenty six. And the reason is because the
Speaker 2: gains that we can really, you know, credibly get from
Speaker 2: multiple expansion. Feels like we're getting to that point of
Speaker 2: exhaustion and earnings need to come through. The controversy is not,
Speaker 2: you know, are their earnings for you know, the hyper scalers.
Speaker 2: I think everyone believes that. The question is are there
Speaker 2: productivity improvements from some of the folks who are implementing
Speaker 2: and and again we're I think we're willing to hold
Speaker 2: our breath for another six to nine months, but I
Speaker 2: think by by next summer, people are going to start saying, hey,
Speaker 2: show me the money.
Speaker 3: Yep, yep.
Speaker 1: How about are there certain sectors that's screening well for
Speaker 1: you guys right now? We're going to stand the best management.
Speaker 2: Yeah, I mean, obviously I need to be careful about uh,
Speaker 2: you know, not talking my book, but you know, our
Speaker 2: favorite sector for the last eighteen months has been financials. Obviously,
Speaker 2: you know, maybe a tough tape to report into this morning,
Speaker 2: but these numbers I think from the sector, you know,
Speaker 2: look reasonably strong to us. They obviously will have the
Speaker 2: tailwind of likely a steeper yield curve next year of
Speaker 2: some uh you know, deregulation in addition to a deal backdrop.
Speaker 2: So I think that that's kind of an ideal environment
Speaker 2: for them, and financials should be a place where we
Speaker 2: start to see stories at least of Jenai implementation driving
Speaker 2: margin expansion.
Speaker 3: At least A few minutes ago, you mentioned dollar strength
Speaker 3: or dollar weakness. I guess it's like glass half fuller
Speaker 3: class empty. But I'm curious how much that has been
Speaker 3: driving your thinking over the last few months. The weekend
Speaker 3: dollar that we've seen, and I look at the Bloomberg
Speaker 3: Dollar Spot Index up a little bit here today, seeing
Speaker 3: a little bit more strength today. But the story has
Speaker 3: been one of a weeker dollar, And how is that
Speaker 3: shaping your view of things?
Speaker 2: It certainly, you know, does play into it. I mean,
Speaker 2: we've had a view that inflation is going to be sticky.
Speaker 2: And what folks need to remember is, while you know
Speaker 2: a weeker dollar can certainly be helpful for the earnings
Speaker 2: dynamics for large multinationals who trade around the world and
Speaker 2: their competitiveness, a weeker dollar actually inhibits our ability to
Speaker 2: effectively price imports. And when you multiply that by tariffs,
Speaker 2: it's actually an even bigger headwind. So, you know, we
Speaker 2: do think that that weeker dollar is relevant to the
Speaker 2: real economy into some of the forecasts here.
Speaker 1: Las, thank you so much for joining us. Really appreciate it.
Speaker 1: Lisa Schallee. She's a chief investment officer for Morgan Stanley
Speaker 1: Investment Management.