WEBVTT - Morgan Stanley's Mike Wilson Talks Labor Market

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news, and.

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<v Speaker 2>Char Jay Powell speaks later today, and that's ahead of

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<v Speaker 2>Friday's all important jobs report.

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<v Speaker 3>Automaker, seeing a run of bad news to Lantis joins

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<v Speaker 3>Volkswagen and Aston Martin and issuing the latest profit warnings,

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<v Speaker 3>partly blaming sluggish demand from China.

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<v Speaker 4>And this on m and a Monday, DirecTV and Dish

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<v Speaker 4>agreed to combine in a deal that we'll create the

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<v Speaker 4>biggest PATV provider.

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<v Speaker 5>In the US.

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<v Speaker 4>All that and more coming up, But let's take a

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<v Speaker 4>look at where markets are trading thirty minutes until the

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<v Speaker 4>bells ring. As Matt mentioned, not too great on this Monday.

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<v Speaker 4>Of course, we're coming off of several consecutive weeks of

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<v Speaker 4>solid gains, seeing some of the steam come out of

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<v Speaker 4>the market right now, out of that rally right now,

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<v Speaker 4>even with that big run in Chinese equities, you're not

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<v Speaker 4>seeing that good vibe music over there translate into the

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<v Speaker 4>US market. The S and P five hundred currently down about

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<v Speaker 4>two tenths of a percent, the NASAQ one hundred, your

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<v Speaker 4>big tech names which have been leading, currently down about

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<v Speaker 4>three tenths of a percent, and still a little bit

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<v Speaker 4>of a sell up in the bond market rate now

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<v Speaker 4>right now, matt you're not seeing that haven rush necessarily.

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<v Speaker 4>Ten year yields curly up about three basis points, all right,

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<v Speaker 4>in terms of.

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<v Speaker 5>The runs that we've seen.

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<v Speaker 3>Mohammed el Area and, a Bloomberg opinion columnist and the

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<v Speaker 3>president of Queen's College, Cambridge, highlighted this chart here on Twitter,

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<v Speaker 3>showing the S and P five hundred has put up

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<v Speaker 3>its best first nine months of the year since nineteen

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<v Speaker 3>ninety seven.

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<v Speaker 5>The index is up more than twenty percent year to.

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<v Speaker 3>Date, boosted by the fifth consecutive monthly gain in September.

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<v Speaker 3>The S ANDP has gained for ten of the last

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<v Speaker 3>eleven months.

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<v Speaker 5>So we've been doing pretty well so far this year.

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<v Speaker 2>May ging me smarter this Monday morning, Matthew. Let's take

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<v Speaker 2>a look under the hood as well. Here Stilantis, plunging

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<v Speaker 2>at the carmakers said its forecast for the year would

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<v Speaker 2>be lower as it plans to lower production.

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<v Speaker 5>Just taking a beating.

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<v Speaker 2>Now you have Stilantis down more than twelve point seven percent.

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<v Speaker 2>You have Ford also down three point two percent, three

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<v Speaker 2>point three percent, and it announced that it will install

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<v Speaker 2>free home chargers for ev buyers as competition heats up

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<v Speaker 2>in the auto sector. We'll talk more about that later

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<v Speaker 2>this hour. Also watching shares of Echo Star Corp. Up

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<v Speaker 2>about seven tens of one percent. Remember, Direct TV and Dish,

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<v Speaker 2>which is owned by EchoStar, have agreed to combine in

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<v Speaker 2>a deal that will create the biggest pay TV provider

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<v Speaker 2>in the United States. Interesting that it has been up

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<v Speaker 2>more than fifteen percent since Bloomberg had reported that the

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<v Speaker 2>deal would be happening.

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<v Speaker 5>Yeah, very interesting.

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<v Speaker 3>We're going to continue to talk about those mergers, but

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<v Speaker 3>right now I want to talk about rather takeovers. Interesting

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<v Speaker 3>as a merger. Right now, I want to talk about

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<v Speaker 3>what going on in China. Six consecutive days of gains there,

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<v Speaker 3>and they had a bomb today, nine percent up on

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<v Speaker 3>the CSI three hundred.

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<v Speaker 4>Yeah, best run since two thousand and eight or so.

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<v Speaker 4>It's been pretty amazing to watch the CSI three hundred.

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<v Speaker 4>It's now up over twenty percent year to date. It's

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<v Speaker 4>in a bull market. You rewind to just a week

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<v Speaker 4>ago this index was done by more than four percent

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<v Speaker 4>or just about so. I mean, the rate of change

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<v Speaker 4>here has been just incredible.

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<v Speaker 5>You're not really seeing it though.

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<v Speaker 4>In US equities and I think a lot of that

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<v Speaker 4>we can blame on Germany.

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<v Speaker 2>I think you also have to ask if it's real

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<v Speaker 2>or if it's a head fake, because twenty five percent

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<v Speaker 2>more than that over a five day period. The reality

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<v Speaker 2>is it's driven by stimulus. The underlying data is weak

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<v Speaker 2>as it is in Germany. I think the question is

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<v Speaker 2>how much of that does that spill over that weakness

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<v Speaker 2>abroad into the United States.

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<v Speaker 3>Yeah, Germany having obviously real problems, being the home of

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<v Speaker 3>three automakers, all of whom have their own issues, but

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<v Speaker 3>really it's Chinese imports and inflation that are the biggest

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<v Speaker 3>issue there. We're going to talk about Folkswagen, We're going

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<v Speaker 3>to talk about BMW.

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<v Speaker 5>We're going to talk about Daimler as well as Stilantis,

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<v Speaker 5>which is.

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<v Speaker 3>Kind of like an Italian Dutch US automaker French as well.

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<v Speaker 5>Later on in the program.

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<v Speaker 3>Right now, I want to focus on the US markets

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<v Speaker 3>with another chart Mohammed el Area highlighted on Twitter this week,

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<v Speaker 3>and it shows the strength of everything Else, the everything

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<v Speaker 3>else rally with the equal weighted SA outperforming by the

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<v Speaker 3>most since twenty twenty two.

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<v Speaker 5>With US Now is Morgan Stanley's.

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<v Speaker 3>Chief US equity strategists and CIO Mike Wilson. Regarding the

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<v Speaker 3>non farm payrolls number DOE out this Friday, Wilson says,

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<v Speaker 3>we would need to see an upside surprise to drive

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<v Speaker 3>a sustainable cyclical rotation in the US. And I understand

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<v Speaker 3>that good news would be good news for some parts

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<v Speaker 3>of the market. But wouldn't we want to see in

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<v Speaker 3>some ways a miss because then we could get a

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<v Speaker 3>bigger cut from the Fed in November.

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<v Speaker 6>Well, yeah, maybe it comes with a fine line. I mean,

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<v Speaker 6>the good news is good news until it's not because

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<v Speaker 6>then the fitness to raise rates too much. That was

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<v Speaker 6>the story before. Now it's bad news is good until

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<v Speaker 6>it's too bad. So look, I think there's three parts

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<v Speaker 6>to what happened in the last two weeks. Okay, First

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<v Speaker 6>of all, the FED gave us fifty. I think everybody

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<v Speaker 6>was kind of expecting twenty five right up until the

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<v Speaker 6>last minute, and so it was still an upside surprise.

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<v Speaker 1>And we had written about this.

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<v Speaker 6>We thought fifty going into the meeting, if they could

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<v Speaker 6>convey that it was not being done for growth concerned

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<v Speaker 6>reasons would be a positive. So we got that checked

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<v Speaker 6>the by And I don't think that was a shocker,

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<v Speaker 6>but it was a positive event. And then we got

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<v Speaker 6>the China stimulus, but that came in two pieces, don't

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<v Speaker 6>forget right. It came with the monetary stimulus initially, and

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<v Speaker 6>I would say most people, including us, were like, well,

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<v Speaker 6>that's interesting, but that's not going to do much. We

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<v Speaker 6>need we need fiscal stimulus. They're a deflation, right, We're

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<v Speaker 6>not going to get any action in real economy. So

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<v Speaker 6>then of course the policymakers came in because they listen,

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<v Speaker 6>and they said, okay, we'll do some fiscal too, and

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<v Speaker 6>then we got this massive move. So we've had a

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<v Speaker 6>twenty percent plus move in three days, which I would

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<v Speaker 6>say very few people captured.

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<v Speaker 1>All Right. The other thing you have to think about

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<v Speaker 1>that read it? Whys it up so much today?

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<v Speaker 6>Well, Japan sold off sharply over the weekend, so I

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<v Speaker 6>think you know, China has been a source of funds

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<v Speaker 6>for the Japan trade, for the India trade, all the

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<v Speaker 6>other em countries that have done well. Okay, and now

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<v Speaker 6>you may see some reversion back, but that feels pretty

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<v Speaker 6>overcooked to me at this moment. What we care about

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<v Speaker 6>in the US as the following is this going to

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<v Speaker 6>change the trajectory of growth in the US in a

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<v Speaker 6>meaningful way.

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<v Speaker 1>And the answer really is no.

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<v Speaker 6>It can maybe get some excitement and things like materials,

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<v Speaker 6>some of the industrial stocks who have direct leverage to

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<v Speaker 6>perhaps the China stimulus of some kind, But beyond that,

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<v Speaker 6>I think we need to see the labor market get

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<v Speaker 6>better in the US and we need to see the

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<v Speaker 6>policy changes from the FED have an impact on consumer.

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<v Speaker 2>Let's talk more about the labor market because clearly a

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<v Speaker 2>lot of investors are hinging on Friday's report.

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<v Speaker 5>How much could that.

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<v Speaker 2>Move the needle? And if you have a significant miss

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<v Speaker 2>to the downside, what that would would that mean for equities?

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<v Speaker 1>I mean for us. The labor market is everything now

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<v Speaker 1>and by the way, it's everything for the FED. So

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<v Speaker 1>you know, this is the sixty four trillion dollar question.

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<v Speaker 6>Did the FED cut fifty because they are actually worried

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<v Speaker 6>about the labor trends, which I think they should be

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<v Speaker 6>paying attention to that, or are they doing it because look,

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<v Speaker 6>inflations come down and they're too tight to begin with,

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<v Speaker 6>and so that they're able to it is effectally because

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<v Speaker 6>they can or because they need to. So the labor

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<v Speaker 6>market will tell us the answer to that. And you know,

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<v Speaker 6>we've been pretty straightforward about this. If the unemployment rate

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<v Speaker 6>goes up again, I think that's a clear negative.

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<v Speaker 1>If the undeplanment rate can.

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<v Speaker 6>Come down and jobs data is okay with any major revisions,

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<v Speaker 6>that would be a positive.

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<v Speaker 4>That's where I want to go. And you make that

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<v Speaker 4>point in your recent research that we need no material

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<v Speaker 4>downside revisions to the prior months. Unfortunately for the bulls,

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<v Speaker 4>we've seen that over and over again the past several

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<v Speaker 4>months of NFP reports. I mean, when it comes to

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<v Speaker 4>the quality of the data and these big revisions we

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<v Speaker 4>still are getting, how much can you really trust it?

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<v Speaker 6>Well, even cher Paul said that right, he talked about

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<v Speaker 6>the QCW revisions being so dramatic. This is what you

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<v Speaker 6>get in a slowdown. You get revisions to the downside,

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<v Speaker 6>just like when you have a recovery, all the revisions

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<v Speaker 6>are to the upside. So this is not abnormal. And

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<v Speaker 6>let's let's take a step back. This is what the

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<v Speaker 6>FED was going for when they raised race. This once again,

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<v Speaker 6>the big question is, you know, can they arrest the

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<v Speaker 6>down trend, stabilize and then see labor markets actually improve

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<v Speaker 6>next year.

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<v Speaker 1>We don't have the answer to that.

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<v Speaker 6>We're going to get two labor reports before the next

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<v Speaker 6>FED cut, before the next FED meeting, We're going to

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<v Speaker 6>get election, which you know, I think is probably slowing

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<v Speaker 6>hiring in the short term just because there's uncertain around that.

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<v Speaker 6>So yeah, it's going to be an interesting October, no

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<v Speaker 6>question about it.

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<v Speaker 3>You also point out that you say earnings revision breadth

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<v Speaker 3>is the best proxy for company guidance, and what exactly

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<v Speaker 3>do you mean by earnings revision breadth. It's a little

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<v Speaker 3>too much jargon for my mom, my mom, And you know,

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<v Speaker 3>what do you want to see and what is it

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<v Speaker 3>telling you?

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<v Speaker 6>That's by design, Matt, we have these special terms. You

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<v Speaker 6>know that you have only I know the answer, but no.

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<v Speaker 6>Earner's vision breath is very clear. So it's the leading

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<v Speaker 6>indicator for earnings revisions. So when I say earning revisions,

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<v Speaker 6>I mean our earnings going up or down, and revision

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<v Speaker 6>breath we look at because that tends to be a

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<v Speaker 6>leading indicator for whether it's going to be up or down.

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<v Speaker 1>Revision breath has been basically flat.

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<v Speaker 6>Now for the S and P five hundred for quite

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<v Speaker 6>a while, and for the Russell two thousand and small caps,

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<v Speaker 6>it's been negative. That explains a lot of why smaller,

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<v Speaker 6>low quality companies have underperformed, because the revision breath and

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<v Speaker 6>the earnings revisions subsequently have been poor.

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<v Speaker 1>So here's the thing for October.

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<v Speaker 6>Typically, seasonally, revision breath is negative going into or third

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<v Speaker 6>quarter earnings.

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<v Speaker 1>Why because fourth quarter estimates are always too high.

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<v Speaker 6>That's why stocks tend to that trade great in the

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<v Speaker 6>first half of October. So we'll see if that pattern

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<v Speaker 6>is changed. If we get positive revisions in the next

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<v Speaker 6>two weeks, boy, I'm going to be that's gonna be

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<v Speaker 6>a real big positive because that would be going against

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<v Speaker 6>the seasonal trend.

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<v Speaker 1>I expect them to be negative.

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<v Speaker 6>The question is will the market care because that's normal.

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<v Speaker 6>We'll see it's going to be once again a very

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<v Speaker 6>idiosyncratic earning season like it has been the last two

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<v Speaker 6>or three.

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<v Speaker 2>Well, that leads me to the question. We hit forty

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<v Speaker 2>two record closing highs in the S and P five

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<v Speaker 2>hundred last week Friday, and to today you have seen

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<v Speaker 2>a cooling of that upward trajectory. Is there any more

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<v Speaker 2>upside left in the S and P five hundred for

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<v Speaker 2>the rest of the year. One selection volatility cools.

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<v Speaker 4>Yeah.

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<v Speaker 6>I mean we wrote about this this weekend quite frankly.

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<v Speaker 6>I mean, this is our bulk case, which is that

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<v Speaker 6>the mount of policy stimulus, okay, has been tremendous, particularly

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<v Speaker 6>in the US, both fiscal and monetary, and that seems

0:09:52.000 --> 0:09:54.480
<v Speaker 6>to be somewhat coordinated now not only in the US

0:09:54.559 --> 0:09:57.200
<v Speaker 6>but also in China now and other central banks are

0:09:57.240 --> 0:10:01.120
<v Speaker 6>cutting rates, so that tends to allow multiple to expand further.

0:10:01.480 --> 0:10:04.120
<v Speaker 6>You know, I would say three weeks ago, myself and

0:10:04.200 --> 0:10:06.200
<v Speaker 6>most of the clients I speak with were in the

0:10:06.200 --> 0:10:08.360
<v Speaker 6>camp that we would have a tough four or five

0:10:08.400 --> 0:10:11.400
<v Speaker 6>weeks into the election and then you'd get a strong

0:10:11.520 --> 0:10:14.200
<v Speaker 6>rally into year end. But I'm starting to think maybe

0:10:14.200 --> 0:10:16.840
<v Speaker 6>it might be more the opposite. We may stay bid

0:10:17.000 --> 0:10:19.240
<v Speaker 6>into the election and then I think we get some

0:10:19.280 --> 0:10:23.160
<v Speaker 6>disappointment post election on the idea that fiscal's kind of

0:10:23.200 --> 0:10:26.439
<v Speaker 6>peaked right into the election, and also the FED then

0:10:26.520 --> 0:10:28.360
<v Speaker 6>is in fully priced. And then it comes down to

0:10:28.400 --> 0:10:31.280
<v Speaker 6>the numbers. Can we continue to deliver the numbers that

0:10:31.480 --> 0:10:33.080
<v Speaker 6>justified the multiple EXPANSI.

0:10:32.720 --> 0:10:33.360
<v Speaker 1>We've really had.

0:10:33.480 --> 0:10:35.240
<v Speaker 4>Well, we're going to talk more about politics in the

0:10:35.240 --> 0:10:37.319
<v Speaker 4>election in the next block. I want to go back

0:10:37.320 --> 0:10:39.120
<v Speaker 4>to what you were saying about earnings though, and the

0:10:39.559 --> 0:10:42.959
<v Speaker 4>earnings breath revisions. There was a really interesting note oubt

0:10:42.960 --> 0:10:45.320
<v Speaker 4>from Torsen slock Over at Apollo this morning, saying that

0:10:45.720 --> 0:10:49.120
<v Speaker 4>forty two percent of companies in the Russell two thousand

0:10:49.200 --> 0:10:51.960
<v Speaker 4>have negative earnings for the S and P five hundred.

0:10:51.960 --> 0:10:55.360
<v Speaker 4>For contrast, those big caps, that number is just six percent.

0:10:55.480 --> 0:10:58.640
<v Speaker 4>So even with these revisions that you're watching so closely,

0:10:58.679 --> 0:11:01.480
<v Speaker 4>in the idea that maybe the FED could cut more

0:11:01.480 --> 0:11:04.560
<v Speaker 4>aggressively from here, I mean, how careful do you have

0:11:04.640 --> 0:11:06.520
<v Speaker 4>to be about where you're picking your spots?

0:11:06.559 --> 0:11:08.800
<v Speaker 1>Absolutely, And we talked about this last time I was here.

0:11:09.480 --> 0:11:11.719
<v Speaker 6>We don't hate all small cap stocks, right, I mean

0:11:12.040 --> 0:11:14.360
<v Speaker 6>we hate the rustle because it's a low quality it.

0:11:14.360 --> 0:11:16.880
<v Speaker 1>We don't hate it. We think it's a low quality index.

0:11:17.240 --> 0:11:19.600
<v Speaker 6>And therefore, in this kind of environment, that's not the

0:11:19.640 --> 0:11:21.840
<v Speaker 6>instrument you really want to be long. That doesn't mean

0:11:21.880 --> 0:11:25.440
<v Speaker 6>there are some wonderful small cap stocks within that. And

0:11:25.760 --> 0:11:29.000
<v Speaker 6>this has been a very high alpha generating environment for

0:11:29.160 --> 0:11:31.040
<v Speaker 6>a lot of our clients are doing quite well generating

0:11:31.080 --> 0:11:34.160
<v Speaker 6>alpha this year because there are some very good lungs

0:11:34.320 --> 0:11:36.120
<v Speaker 6>and there are some very good shorts, and I think

0:11:36.120 --> 0:11:38.000
<v Speaker 6>that's the way we're continuing to approach it, whether we're

0:11:38.000 --> 0:11:41.520
<v Speaker 6>talking about small, large cap indicies or even within sectors,

0:11:42.040 --> 0:11:44.760
<v Speaker 6>and there we've been very clear we want to continue

0:11:44.800 --> 0:11:47.000
<v Speaker 6>to stay up the quality curve. We're not willing to

0:11:47.000 --> 0:11:48.840
<v Speaker 6>go down the quality curve. We don't think things are

0:11:48.920 --> 0:11:50.680
<v Speaker 6>cheap enough. We don't think the FED is far enough

0:11:50.679 --> 0:11:54.000
<v Speaker 6>ahead of the curve yet to stimulate interest there. That

0:11:54.040 --> 0:11:56.480
<v Speaker 6>could change if we see the labor data improve.

0:11:56.640 --> 0:11:58.120
<v Speaker 4>And Mike, I want to talk to you about the

0:11:58.120 --> 0:12:01.080
<v Speaker 4>potential impact of a strike along the ports. Of course,

0:12:01.120 --> 0:12:04.720
<v Speaker 4>you have union workers along East Coast ports and Gulf

0:12:05.080 --> 0:12:09.160
<v Speaker 4>ports coasts threatening the strike starting tomorrow October first, and

0:12:09.480 --> 0:12:11.760
<v Speaker 4>seems like there is a lot of daylight between the

0:12:12.040 --> 0:12:14.440
<v Speaker 4>two sides. To put it mildly, so if we were

0:12:14.440 --> 0:12:16.320
<v Speaker 4>to see a strike, if we were to see a

0:12:16.360 --> 0:12:19.719
<v Speaker 4>prolonged strike, how much of an economic impact could that have?

0:12:20.240 --> 0:12:22.200
<v Speaker 6>I think it's the second part what you said, it

0:12:22.240 --> 0:12:24.520
<v Speaker 6>has to be prolonged. I mean the good news is

0:12:24.520 --> 0:12:26.920
<v Speaker 6>that inventory levels are still quite high kind of across

0:12:26.920 --> 0:12:28.920
<v Speaker 6>the retail channel, so in some ways it may provide

0:12:28.920 --> 0:12:32.080
<v Speaker 6>some relief potentially that inventories can come down. Maybe there's

0:12:32.120 --> 0:12:34.959
<v Speaker 6>some extra pricing here as supplies get short. But if

0:12:34.960 --> 0:12:37.520
<v Speaker 6>it persists beyond a month or so, then it becomes

0:12:37.520 --> 0:12:39.640
<v Speaker 6>a real constraint and the cost start to really build up,

0:12:39.640 --> 0:12:41.800
<v Speaker 6>and then we have a margin pressure. And for the FED,

0:12:42.240 --> 0:12:43.880
<v Speaker 6>I mean, the FED then has this If let's say

0:12:43.880 --> 0:12:46.600
<v Speaker 6>this thing doesn't get negotiated, or it does get negotiated

0:12:46.600 --> 0:12:49.360
<v Speaker 6>in a way where wage increases are significant, does that

0:12:49.440 --> 0:12:52.800
<v Speaker 6>factor into twenty five or fifty next meeting. So there's

0:12:52.840 --> 0:12:55.760
<v Speaker 6>a lot of implications here. These are messy situations.

0:12:55.760 --> 0:12:55.880
<v Speaker 1>I do.

0:12:56.120 --> 0:12:58.600
<v Speaker 6>I'm not optimistic unfortunately, that it gets resolved this week.

0:12:58.679 --> 0:13:01.520
<v Speaker 6>Probably needs some more action before the two sides come together.

0:13:01.600 --> 0:13:03.960
<v Speaker 6>But as I said, I think it's the length of

0:13:03.960 --> 0:13:06.680
<v Speaker 6>the strike that will then determine the magnitude of the impact.

0:13:06.720 --> 0:13:09.480
<v Speaker 5>You're not known for your optimism, It's that true.

0:13:10.080 --> 0:13:13.040
<v Speaker 6>I'm generally a half class full guy. But in this case,

0:13:13.240 --> 0:13:14.319
<v Speaker 6>they think this is a tough one.

0:13:14.600 --> 0:13:14.880
<v Speaker 5>Yeah.

0:13:14.920 --> 0:13:17.599
<v Speaker 3>Well, I was thinking, what impact could this actually have

0:13:17.720 --> 0:13:21.960
<v Speaker 3>on the markets? An interesting story, you know, politically and economically,

0:13:22.400 --> 0:13:26.880
<v Speaker 3>But then I remembered what happened when that Evergreen.

0:13:26.440 --> 0:13:27.400
<v Speaker 5>Boat got stuck.

0:13:28.000 --> 0:13:31.680
<v Speaker 3>It was amazing, Yeah, in the Suez Canal and those

0:13:32.040 --> 0:13:36.360
<v Speaker 3>supply chain reverberations lasted for more than a year. Sure,

0:13:36.960 --> 0:13:39.120
<v Speaker 3>you know, I mean Aston Martin right now is its

0:13:39.160 --> 0:13:41.800
<v Speaker 3>profit warning is because of supply chain problems more than

0:13:41.800 --> 0:13:45.600
<v Speaker 3>it is China. Do you expect this could be a

0:13:45.640 --> 0:13:47.520
<v Speaker 3>real problem at that scale?

0:13:47.640 --> 0:13:49.760
<v Speaker 6>Well, sure, I mean we had the report issues during

0:13:49.800 --> 0:13:52.680
<v Speaker 6>the pandemic where you couldn't get workers to unload the cargo.

0:13:53.160 --> 0:13:56.240
<v Speaker 6>So it's just one more example of how fragile some

0:13:56.280 --> 0:13:59.680
<v Speaker 6>of these supply chains have become pre pandemic. Right We've

0:13:59.720 --> 0:14:03.600
<v Speaker 6>gone just in time inventory system globalization and manufacturing goods

0:14:03.600 --> 0:14:05.600
<v Speaker 6>halfway around the world and then shipping them from there,

0:14:05.920 --> 0:14:08.520
<v Speaker 6>and so you know, I think this is part of

0:14:08.559 --> 0:14:11.760
<v Speaker 6>the bigger question like how are companies thinking about managing inventories,

0:14:11.800 --> 0:14:13.760
<v Speaker 6>managing production, reshoring, etc.

0:14:14.120 --> 0:14:16.199
<v Speaker 1>Going forward? This is just one more example of that.

0:14:16.520 --> 0:14:18.520
<v Speaker 6>And labor costs has been something that's been a real

0:14:18.559 --> 0:14:21.000
<v Speaker 6>tail wind for thirty years, and maybe we can't be

0:14:21.040 --> 0:14:22.280
<v Speaker 6>that confident about that anymore.

0:14:22.360 --> 0:14:24.440
<v Speaker 4>Well, as you both point out, I mean we've been

0:14:24.480 --> 0:14:26.640
<v Speaker 4>through this before, We've seen this movie before, and the

0:14:26.760 --> 0:14:29.440
<v Speaker 4>argument is out there that companies maybe are a little

0:14:29.480 --> 0:14:31.680
<v Speaker 4>bit more flexible in their supply chain, so that maybe

0:14:31.720 --> 0:14:33.680
<v Speaker 4>they know a little bit more how to handle these

0:14:33.760 --> 0:14:34.520
<v Speaker 4>sort of crises.

0:14:34.560 --> 0:14:37.560
<v Speaker 2>Well, here's the question on that note. If you're worried

0:14:37.560 --> 0:14:41.240
<v Speaker 2>about wages going up being potentially inflationary, if you're worried

0:14:41.280 --> 0:14:45.520
<v Speaker 2>about inventory shrinking here to this extent that you have

0:14:45.600 --> 0:14:49.240
<v Speaker 2>to raise prices, then wouldn't both things be inflationary at

0:14:49.280 --> 0:14:50.560
<v Speaker 2>the end of the day. Do you still worry about

0:14:50.560 --> 0:14:53.440
<v Speaker 2>the trajectory of inflation when nobody seems to be as

0:14:53.480 --> 0:14:56.080
<v Speaker 2>worried about it anymore, except maybe if you're Michelle Bowman.

0:14:56.280 --> 0:14:59.000
<v Speaker 6>Yeah, I think, I mean the inflation situation short term,

0:14:59.040 --> 0:15:01.400
<v Speaker 6>I feel fairly confident and about But I think if

0:15:01.640 --> 0:15:04.400
<v Speaker 6>we don't have a further like, let's say things reaccelerate

0:15:04.440 --> 0:15:07.520
<v Speaker 6>here because China stimulus, which is a surprise we get

0:15:07.680 --> 0:15:11.160
<v Speaker 6>perhaps you know, gas prices continue to come lower. That's helpful,

0:15:11.160 --> 0:15:12.960
<v Speaker 6>and then the FED gets really ahead of the curve

0:15:13.000 --> 0:15:14.680
<v Speaker 6>and they start cutting rates again in a way where

0:15:14.680 --> 0:15:17.400
<v Speaker 6>people feel optimistic. Well, then, yeah, I think, then you're

0:15:17.440 --> 0:15:18.960
<v Speaker 6>going to be back into the other camp. This gets

0:15:18.960 --> 0:15:21.080
<v Speaker 6>back to our original thesis coming out of the pandemic,

0:15:21.080 --> 0:15:23.160
<v Speaker 6>which is going to be we're in sort of these.

0:15:23.000 --> 0:15:24.479
<v Speaker 1>Shorter hotter cycles.

0:15:24.760 --> 0:15:27.760
<v Speaker 6>We don't have all these tailwinds anymore, these relief valves

0:15:28.040 --> 0:15:30.320
<v Speaker 6>that we've had for the last thirty years of falling inflation,

0:15:30.440 --> 0:15:34.680
<v Speaker 6>falling interest rates, falling labor costs, outsourcing a production and

0:15:34.720 --> 0:15:37.600
<v Speaker 6>so these are all things that make the supply side

0:15:37.600 --> 0:15:40.760
<v Speaker 6>of the equation harder to manage, and that creates this

0:15:40.840 --> 0:15:43.440
<v Speaker 6>boom bust almost in the inflationary cycle. I'm not worried

0:15:43.440 --> 0:15:44.960
<v Speaker 6>about inflation right now, but I think it's a great

0:15:45.040 --> 0:15:46.360
<v Speaker 6>question for twenty twenty five.

0:15:46.600 --> 0:15:48.320
<v Speaker 4>And Mike, just quickly here before we let you go,

0:15:48.400 --> 0:15:50.360
<v Speaker 4>let's talk a little bit more about the US election.

0:15:50.440 --> 0:15:53.160
<v Speaker 4>There was an interesting note doubt from Evercore saying that, well,

0:15:53.160 --> 0:15:55.880
<v Speaker 4>in a century of returns, so that united government handley

0:15:55.880 --> 0:15:59.680
<v Speaker 4>outperforms divided this time could be different, that in this

0:16:00.120 --> 0:16:04.240
<v Speaker 4>specific scenario, actually a divided government might be better for markets.

0:16:04.240 --> 0:16:07.360
<v Speaker 4>And with that in mind and that history that we

0:16:07.480 --> 0:16:11.280
<v Speaker 4>have here, how closely are you watching the down value races?

0:16:11.680 --> 0:16:13.560
<v Speaker 6>I mean, I think the congressional election is way more

0:16:13.560 --> 0:16:17.040
<v Speaker 6>important for markets than the presidential election, Okay, and the

0:16:17.080 --> 0:16:20.480
<v Speaker 6>main reason is because of legislation. I would say that

0:16:20.800 --> 0:16:25.920
<v Speaker 6>a unified congressional outcome is definitely bad.

0:16:25.760 --> 0:16:28.520
<v Speaker 1>For bond markets. Okay, I'm not so sure about.

0:16:28.280 --> 0:16:31.560
<v Speaker 6>Stock markets because you'll probably get more stimulus, which is

0:16:31.600 --> 0:16:33.680
<v Speaker 6>going to be bad for the fiscal situation, but that

0:16:33.720 --> 0:16:36.160
<v Speaker 6>may be okay for stocks, right, because the stock market

0:16:36.200 --> 0:16:39.560
<v Speaker 6>likes growth. The stock market likes inflation. I mean, it's

0:16:39.600 --> 0:16:42.200
<v Speaker 6>a misunderstood concept, right. People think, oh, inflation is terrible

0:16:42.200 --> 0:16:45.240
<v Speaker 6>for stocks. Actually it's not true. When inflation was booming,

0:16:45.640 --> 0:16:47.560
<v Speaker 6>that's when we had the best breath in the stock market.

0:16:47.560 --> 0:16:49.840
<v Speaker 6>That's when the Russell two thousand was doing really well

0:16:50.200 --> 0:16:53.560
<v Speaker 6>because that's their pricing, that's their nominal GDP, that's their

0:16:53.600 --> 0:16:58.200
<v Speaker 6>nominal revenue growth. So I think to me, unified government

0:16:58.240 --> 0:17:00.560
<v Speaker 6>on the congressional side, you get more stimulus, probably better

0:17:00.600 --> 0:17:02.600
<v Speaker 6>for stacks and bonds. You know, if rates go up

0:17:02.600 --> 0:17:04.400
<v Speaker 6>too much, obviously it's not great for stacks.

0:17:04.400 --> 0:17:05.399
<v Speaker 1>Mike, great having you in.

0:17:05.520 --> 0:17:06.600
<v Speaker 5>Thanks so much for joining us.

0:17:06.680 --> 0:17:10.479
<v Speaker 3>Mike Wilson there from Morgan Stanley, US Equities Chief, US

0:17:10.560 --> 0:17:11.920
<v Speaker 3>equity strategist and CIO