The Compound and Friends - The World You Knew Is Never Coming Back with Morgan Stanley’s Michael Zezas

Episode Date: June 19, 2026

On episode 247 of The Compound and Friends, ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Michael Batnick⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ and ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Downtown Josh Brown⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ are joined by Michael Zezas, Deputy Global Head of Research at Morgan Stanley, to discuss: AI capex, data centers, productivity gains, prediction markets, the 2026 midterms, the Fed, enterprise software, and why policy calls are so difficult to translate directly into investment outcomes. This episode is sponsored by Public and Vanguard. To learn more about Public, visit https://public.com/Compound. To learn more about Vanguard bonds, visit https://vanguard.com/audio. Sign up for The Compound Newsletter and never miss out: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠thecompoundnews.com/subscribe⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Instagram: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠instagram.com/thecompoundnews⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Twitter: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠twitter.com/thecompoundnews⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ LinkedIn: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠linkedin.com/company/the-compound-media/⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ TikTok: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠tiktok.com/@thecompoundnews⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Josh Brown are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. The Compound Media, Incorporated, an affiliate of ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Ritholtz Wealth Management⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. For additional advertisement disclaimers see here ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://ritholtzwealth.com/advertising-disclaimers⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Investments in securities involve the risk of loss. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. The information provided on this website (including any information that may be accessed through this website) is not directed at any investor or category of investors and is provided solely as general information. Obviously nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. See our disclosures here: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://ritholtzwealth.com/podcast-youtube-disclosures/⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ DISCLOSURES: For important disclosures, stock price charts and equity rating histories regarding companies that are the subject of this public appearance, please see the Morgan Stanley Research Disclosure Website at www.morganstanley.com/researchdisclosures, or contact your investment representative or Morgan Stanley Research at 1585 Broadway, (Attention: Research Management), New York, NY, 10036 USA. For valuation methodology and risks associated with any price targets referenced in this research report, please contact the Client Support Team as follows: US/Canada [phone]; Hong Kong [phone]; Latin America [phone] (U.S.); London [phone]; Singapore [phone]; Sydney [phone]; Tokyo [phone]. Alternatively, you may contact your investment representative or Morgan Stanley Research at 1585 Broadway, (Attention: Research Management), New York, NY 10036 USA. Public Disclosure: Paid for by Public Investing. Brokerage services by Open to the Public Investing Inc, member FINRA & SIPC. Advisory services by Public Advisors LLC, SEC-registered adviser. Complete disclosures available at https://public.com/disclosures Learn more about your ad choices. Visit megaphone.fm/adchoices

We are going to have so much fun. All right. I promise. I like that. Thank you for coming. Yeah. Thanks for having me. So, you know who Michael is friends with?

It's not Graham. It's Colin. But I knew he came from somebody. Colin Roche? Yeah. Oh, I love Colin Roche. How do you know? My guy, college.

Oh, you're kidding me. Yeah. But I just watched on the, on the train home. Yeah. Lari of Arabia. Are you going to listen to me? Yes. It's four hours.

You're going to have to watch it like a TV show. I'll watch like a TV show. I'll watch like 40 minutes a night. It's four hours, but they, they, digitally restored it for Netflix. Is that with Jake Gyllenhaal? You had, no. It's from 1962.

Everyone's dead. Some of the best actors, whoever lived, like literally whoever lived. And I'll let you watch it. I won't tell you anymore. Thank you. Thank you for...

So I met Freaky Friday, too. Thank you for spoiling disclosure. That doesn't sound like something that I was going to put any time. Lawrence of Arabia. Digitally remastered for Netflix. So, Michael, I'm a big movie fan. Okay.

to the extent that I kind of like to roll dog everything, meaning I don't want to know anything. Like, you can't avoid the trailer for Disclosure Day. Yeah. But I don't want to hear, I don't want to look at the reviews or Rotten Tomatoes. I just want to, I just want it with clean eyes.

That's fair. Because I'm very, I'm easily manipulated or influenced. The bar is set too high, the bar set too low. So Josh gave a full review yesterday without me asking for that. That was awesome. Or was it? Disclosure Day. He's like, the aliens weren't that,

I don't know. I'm not going to ruin it for anybody else. Like you did it for me. I didn't mean to do that. I gave a full. You gave a full review. No, I was talking to you like, you saw it already. Give me a full review.

Seven, seven out of ten. Well, listen, I do most of my movie watching on an airplane these days. Yeah, I understand. Huge airplane movie guy. Yeah. I saw, I saw this in the theater. It didn't need to be seen in the theater. Yeah.

But I figured it's Spielberg, it's aliens. I'm going to go in the theater. It was like, yeah. There was that whole, like, guerrilla marketing campaign about it, right? That, like, it secretly was actually going to disclose that there were aliens? Yes. That didn't happen? Wait, did we get a, did we decide?

Oh, yes, you were right. I'm right. He said, like, Jesus. How about how to say their name? That's like, that's what Josh. My instinct was Jesus. Yeah, that's right. Yeah, that's right.

Okay. I thought the Z might be silent. I wasn't sure. No, no, it's a Greek name. And you know what? We say it wrong. Like, Zesus is the way my family says it. But it should be something more like Zezas or something like that.

Oh, really? Yeah. That's too tough. Well, exactly. I'm like, I don't even say it the right way. It's Jesus. Rhymes with Jesus. I had another question.

you're the deputy. Yeah. Who's the head of research? Katie Hubertie. I did know that. All right. All right. Buck stops with her.

Yeah. All right. I did know that. She's great. All right. How are we looking? We doing good? Yep.

It's an important man. Johnny O. Only in my own mind. Are you watching the World Cup? What office do you working? 1585. Okay. At least square.

Yeah. All right. Yeah. How long have you been in that office? That office since 2010. I've been with Morgan Stanley for 19 years. Part of that was in 522 5th Avenue when we still had that place. Okay. You interact with the wealth guys? Oh yeah. It started in wealth, actually. Yeah. Yeah. We had this SMA platform and wealth management. And that's a, I got started

munis and corporates there. Yep. Okay. All right. Cool. We're going to have, I promise. We're going to have some fun. Good. Good. Good. Good. Good to go. All right. Do the collect, Nicole. Whoa, whoa, whoa. Stop the clock. Here's a word from our sponsor. It feels like there are two types of investing platforms right now. You've got the legacy brokerages that look like they were designed in 1997. And then you've got the new wave that looked at investing and thought, you know what this needs? Sports betting.

Neither seem like a great place to build your wealth. That's where public comes in. It's the modern investing platform for those who take it seriously. Stocks, options, bonds, crypto, they have it all. And the energy, they're not spending on building a casino. it's going into AI. Public is the only investing platform where you can create agents

that can monitor the market, manage your cash, and execute your trades. Just enter a prompt, approve the workflow, and put your agent to work. Go to public.com slash compound to get started. That's public.com slash compound paid for by public investing,

full disclosures in podcast description. Today's show is brought to you by Vanguard to all the financial advisors listening. Let's talk bonds for a minute. Capturing value and fixed income is not easy. Bond markets are massive, murky, and let's be real. Lots of firms throw a couple flashy funds your way and call it a day, but not Vanguard. Vanguard bonds are institutional quality. Institutional quality isn't a tagline. It's a commitment to your clients. It means top grade products across the board. The lineup includes over 80 bond funds. They're actively managed by

a 200-person global squad of sector specialists, analysts, and traders. So if you're looking to give your clients consistent results, year in, year out, go see the record for yourself at vanguard.com slash audio. That's vanguard.com slash audio. All investing is subject to risk, Vanguard Marketing Corporation distributor. Welcome to The Compound and Friends. All opinions expressed by Josh Brown, Michael Batnick, and their castmates are solely their own opinions and do not reflect the opinion of Riddholt's wealth management.

This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Riddholt's wealth management may maintain positions in the securities discussed in this podcast. Ladies and gentlemen, welcome to, what did we say, 247, episode 247 of the compound in France. My name is downtown Josh Brown, here with my co-host, Mr. Michael Batnik. Hello, hello. Michael, I swear this. It's more serious as it goes on.

Michael, Michael Zezis is joining us today. We're super excited about it. First-time guest on the show. Michael is the Deputy Global Head of Research for Morgan Stanley, where he joined the firm in 2007 as a credit analyst and portfolio manager. In 2010, he became the head of municipal credit strategy, followed by head of U.S. public policy research in 2016. He has been a member of institutional investors,

All America Fixed Income Research Team since 2013, and by Smith's research and Gratings, as an All-Star first team member from 2014 to 2021. Of course, in 2022, he fell off. Yeah. It was a tough year. Things haven't been as good since then, but we are going to revive his career today. Let's do it. All right.

Dude, thank you for being here. Thanks for him. So Morgan Stanley, they seem to be doing okay. Yeah. Not bad. Okay. Not bad. As a shareholder, I'm pretty happy.

I think that, I think Gorman was incredible. And you don't have to agree, but I'm sure you agree. I do. Okay. Just, he figured out if we're going to build a true wealth franchise, what's the most important thing to the people working there? There have to be clients. There has to be demand. Seems, it seems pretty logical.

Seems logical, but you'd be amazed. So a lot of large firms have wealth managers who have to go out and find their own clients or sitting around waiting for something. happen. And Morgan Stanley very brilliantly, I think, acquires E-Trade. They buy the business that's now Morgan Stanley at work. And they just buy these funnels to push more people toward the wealth management people. And as a result, I think it's probably the fastest growing Wall Street wealth management business. I mean, do you know if it is or I think it is? That sounds right. I don't know exactly. But I mean... $20 trillion? Yeah, that's what in terms of assets. Very confident in my assertion.

$20,000? Yeah. All right. Thanks. No, and I... I know you played a big part in that, but I'm just saying it's... Yeah, well, like a little part for the few years of them. Listen, I like to think that as someone who, you know, covered Munis for a decade,

spent a lot of time with our wealth management field effort, talking to clients across the spectrum. Listen, I'm biased because I'm in research. I like to think some of our intellectual capital has something to do with that, too. Of course. ability for us to leverage that and to turn it into solutions for clients. Okay. Still doing plenty of that. Whatever you guys are doing, it worked.

All right. How do you go from Muni coverage, which is like one of the ultimate zoom ins on Wall Street to like this big picture global macro dude? Yeah. Well, I think it has a lot to do with how Muni's changed in, you know, like 2008, 2009, right? So before that and before the financial crisis, everything in Muni Land was wrapped by the monolined insurers. And so you basically had one credit counterparty. It was the monolines.

Everything was AAA. When that went away, all of a sudden, you needed credit analysts to start looking at everything that was underlying. Right. And that was sort of dovetailed with everything that started going on with the sovereign debt crisis in Europe. There were all sorts of narratives that came into the market, like the Meredith Whitney's 60 Minutes. Were you in the, you were on the Muni side? when that Meredith Whitney scare. Oh, yeah.

Oh, yeah. I mean, and I remember talking to hedge funds at that time, trying to explain the difference between greasing the rollover debt that was like 150% of its revenue in any given year versus California, which is paying like 5% in PNI. Right. Right. And so getting into those discussions, you realize

the public policy aspect of municipal credit was really, really important to clients at a micro level. And then, you know, in terms of defining returns, I mean, it's fixed income product, right? So like you were going to have to have a view about all the different sort of intersection of things that were driving treasury markets, not just monetary policy, fiscal policy, tax policy. So I sort of adopted this approach as a munich strategist that was that was, I was trying to be somewhat different than our peers, right? Like, Muni strategy was this field where like everybody else had been around for like 20. years and I was like the low cost option that got brought in right I was like okay well instead of doing the thing where I'm going to like calculate carry and roll down at every tenor and say this looks a

little bit better than that one like by the hospitals not the roads yeah right right there's my research yeah like let's look at this more from a macro perspective not just like what's going on in the world but also like what are the big secular trends that govern the market govern its behavior establish priors that way, have a framework for setting up portfolios, and then iterate on top of that. And the heavy dose of that had to be tax policy during President Obama's first term, and a lot of his health care policy. And so I got in the practice of having to be effectively like a DC watcher or DC analyst. And I also have a master's degree in public policy.

So it was kind of a natural place for me to say, okay, this may or may not become law. And if it does, I can tell you down to like the balance sheet and income statement level what it's going to mean for this municipality versus that. In 2016, I was, I don't know, lucky or unlucky enough to be the person that the folks were in the research department back then tapped to say, listen, clients are asking a lot of questions about what happens if Donald Trump wins. He's not going to win, but like let's try and answer these questions on a multi-asset basis. So I did that. It was a good stretch assignment. And then, of course, when he wins, the questions ever stopped. It became this kind of permanent research-focused area.

So that's how you become, like, the public policy research guy. Pretty much. Yeah, not by design by accident. Like, most of my good career moves have been by accident as opposed to design. Yeah. So, all right, but so everyone in the industry is getting those questions. Yeah. So, but you are at that time at one of the largest investment banks in the world.

Yeah. So I would imagine the volume is higher. Yeah. But also the level at which people are making investment decisions based on what you say is significant. Yeah. You were also in uncharted waters. We had never seen a first presidential term like that. Yeah.

So how did you navigate that and actually give people something that was meaningful, but not commit to something where you couldn't have possibly known the outcome? Well, I think the first thing is we came into that environment with a really good collaborative culture as a research department. So I could define with a decent degree of conviction on my own, like what I thought of Trump presidency was going to mean in terms of this policy will happen, this one won't, and here are kind of ones that are uncertain. But in any case, you know, now let's like map out the fundamental impacts. And we had enough people with enough collaborative interest to do that, that we were able to put together roadmaps into the election in 2016 and then throughout 2017. or like, okay, if tax policy happens this way versus that way, it's going to mean, you know, this fundamentally for this sector, let's compare it to valuation and let's, right? So there's enough people to collaborate with in a good culture that we could work on a cross-asset,

cross-region basis to map all this stuff out. So really, like, credit to my colleagues and to the culture of Morgan Stanley. You know, from there, it did start feeling like we were, like, chasing her tail a little bit. And this is where I always try to, if I can't. like carve out time, be like, can we step back and put together like a secular theme or like a framework that we can, we think it's going to be durable for years. And so it became pretty obvious in 2017 that this was not business as usual. And a lot of clients were asking us to question, hey, like, when is this going back to business as usual? Okay. Like, you know, we were starting to

flirt with tariffs. Those income in the play in 2018. Um, but, you know, President Trump calling CEOs into the White House, like all sorts of stuff that just, you know, now seems like quaint, but then just seemed wild. These were, to your point, these were bombs being dropped on the market on a daily, he would tweet at the CEO of Pfizer and voice his displeasure over drug pricing. And Pfizer would lose $50 billion in market cap. Yeah. Like, these were not trivial things.

Now we look back and we laugh because, you know, none of those bombs actually detonated and did any lasting damage. But, like, in that moment, market participants were, like, shocked. Like, oh, wait a minute. Yeah. The White House is now a player on the chessboard. Yeah. And is the queen, frankly.

Right. So we'd be taking those style of questions from hedge fund managers, but then, you know, official institutions overseas, central banks, be like, okay, just like, tell us how long we need to, like, white knuckle this until things go back to it to normal. When is it going to be 2005 again? Right. Yeah. And so, and my view was, and we ended up putting a lot of work around, it was like things are not going back to normal. In fact, what you're seeing is kind of what American voters have elected. Maybe they haven't elected the tactical application of it.

But when you kind of look back, a lot of things had changed underneath the surface. It's like Jake Sullivan, who is National Security Advisor under Biden, talks about it as the new Washington consensus. It's sort of very clear in hindsight. But the old Washington consensus was like, you know, whether you're Republican or Democrat, going back to the early 80s all the way, you know, maybe let's call it until the financial crisis, you agreed on certain things. You're like free trade's a good idea. The government should not be involved in the economy.

Multilateral institutions are good, right? Soft power in the U.S. is a good idea. And now, if you look at like, voting, voter attitudes, they're like, we didn't really see the value in any of that. Yeah. Now, maybe they don't see the value in, like, jacking tariffs up all the way or going to war in the Middle East, right? Or that's what the polling would suggest.

But they don't see value in supporting some of those principles that were kind of key to this U.S.-led principles-based laissez-faire economics, international economic system that, like, everyone could- It didn't benefit them. Right. Or at least they didn't see that. those benefits, right? It benefited, but not in a direct enough way where they said, yes, I care about NATO or I care

about NAFTA or I think it's good that China is in the WTO. They either were very against those things because they hadn't seen any real wage growth in 15 years. Their communities had opioid addiction problems and they had family members who were sent into wars of choice. And they just looked at it. After 15 years of that shit, they were like, this isn't helping me. I'm not getting ahead.

The economy is leaving me behind. I want to vote for volatility. I want somebody to break everything. Yeah. And so, like, you could see that right in front of your face. Right. And if the counter argument is, well, let me explain to you why free trade has been really good relative to like a past you didn't actually experience.

Yeah. What's that saying when you're explaining, you're losing? Right. So that's not to say that voters have elected the optimal outcome here, but it's what they've chosen, right? So you arrived at that in the late 20 teens, like, not only is this very different, but also it's not going back. Yeah. And it's probably going further. Yeah.

And so this was the genesis of our whole multipolar world thematic. So brag about that because you were right. This is, I'll quote you to you and then you can react. From 2020, our call was and is that there's been a regime change driven by shifting voter preferences. And with it comes the need for financial decision makers of all kind to invest with the understanding that the best benefits of globalization were behind us. And that geopolitical fragility is on the rise. Okay, great. We're six years hence.

Great call. Yeah. Okay. Yeah. I mean, now identifying this early was, I think, important. but it was also sort of complicated at the time to understand when these trends would actually manifest in like real, you know, tangible, investable themes, right? Because, you know, you, I think we said with a high degree of confidence, like trade barriers are going up, they're not coming down, right?

And, you know, obviously Biden was president in between Trump's two terms. And we always run an investor survey ahead of the election. And the investor survey ahead of 2020, most investors said, yeah, that Trump winning would be better for markets than Biden. But if you answered Biden was better for markets, you were also very likely to answer a separate question on the survey that said, oh, well, Biden's going to take tariffs down. We're going to roll them back. Right. And then we didn't.

Which was wrong. Because it's, first of all, like, if there's, it's not as if the Democrats and Biden wanted to go back to some free trade norm with China. And in fact, they kind of want to do the opposite. but their tactics were very different. So, of course, you wouldn't bring down tariffs proactively if you're trying to negotiate with China. So the point that, like, the direction of travel on trade barriers,

whether they're going to be tariff or non-tariff-driven, was pretty obvious. The direction of travel on industrial policy, which is to say the government getting more involved, was pretty obvious. So you just needed time to work out in terms of manifesting into, okay, money being spent on, for lack of,

of a better term re-industrialization. Reshoring, on-shoring, whatever you want to call it. Yeah, and then, of course, with the U.S. sort of exercising a different stature on the global stage and some of these geopolitical conflicts coming together, Russia, Ukraine, now the U.S. and Iran, sort of highlighting some very critical choke points. You know, corporate America, sea suites across the globe kind of get the message. Like, we, you know, we can no longer sort of optimize for globalization. we need what our investment bankers call an anti-fragile strategy.

So you're starting to get these supply chain shifts to work around those choke points to work around those other sensitivities. Some of them self-imposed by the U.S. or trade barriers to say we don't want people doing this kind of business in China. And it takes a long time and a lot of money to rewire those things. I would say no stock better exemplifies what you're talking about than Intel. So this is a company that was ridiculed for having a dollar. adopted the strategy of we're going to be the fab that's based in North America, not Taiwan.

Yeah. And we are going to build microchip plants in Arizona, because of course. And the stock price, I think de-rates, I don't know, 20 multiple points. Yeah. It's almost like a single digit. It almost trades like an auto maker. And then they start losing money. And all of a sudden, there's this idea driven in part by what you're talking.

talking about White House directly, but also sort of the needs of the industry, post-lockdowns, and post-inflation is like, we can't rely on just chips from, you know, Taiwan. We need to actually have stuff that gets made here. And there's a total rethink on Intel. And then they join the AI parade. Yeah. And then you see a stock go from, I don't know where it was, $15 to $80. Yeah.

And that's a lot of market cap along the way. You think that's, like, sort of what we're getting at. Yeah, and it's a good example here of some of the policy continuity, right? Because obviously the government took a stake. Right. They took a stake in Intel, which is a big departure. And where'd that come from? That came from the Chips Act, which was something that was completed on a bipartisan basis when Joe Biden was president.

So there's actually a fair amount of continuity across these industrial policy choices. And I'd argue, you know, we're starting to get questions about the midterms, midterm elections. I think that's going to be a lot more noise than signal, any outcome there. There's not a lot of policy change that comes out of different midterm election outcomes. Policy continuity is actually far more important. So that, and like we haven't even started talking about AI yet, you sort of have, like, AI is kind of this like exogenous technological shock driving tons of CAPEX. And then I'd say a largely like a policy driven, okay, impetus to just.

well, we're going to spend a lot of money to rewire global commerce in a way that we think suits our values better. Is that economically optimal or not? I think an economist would probably say not, but it almost doesn't even matter what the answer to that question is. But like, you know... It's good for winning elections. So that's why it's the policy. Well, and either way, we're going to spend trillions of dollars trying to figure it out. Michael, I think it's really hard to draw a direct line from policy to investing. all of the time.

You say it's noisy now. I think it's always noisy. And I think maybe this has an inkling to deal with the rise of the prediction markets because there is so much geopolitical uncertainty. And even if you get a policy call right or whatever, you then have to nail how investors are going to react to that. And now it's like, well, F all that.

Let's just go straight to the source. Like, will this happen yes or no? I don't have to bet on this and then industrialists. Will the Democrats take the house or not? I don't need to figure out what stuff. stocks to buy. Right. Will CPI come in? Will CPI come in hot or cold? And then I have to figure out, well, man, our stocks extended? Do I buy gold? Do I sell gold? Yeah. Right. Yeah. No, if you're talking about a sort of, first of all, we really like prediction markets as another probability

assessment of what's going to happen. I don't think I have any edge on predicting election outcomes. We, you know, we know the uncertainty is implied by polls. Okay. I think sometimes people put a lot of false precision on polls. If you treat them with a healthy amount of uncertainty that they deserve and you understand polling errors, none of the election outcomes over the last, you know, few cycles would have been all that surprising. Prediction markets, I think, are just like another very useful comparison to the polls and they help you with that. Yeah, I mean, to the extent you want to express like a pure view on a certain outcome, like that's, that matters. I mean, the world that I travel in tends to be like, well, can they use prediction markets to hedge a certain outcome?

Yeah. And that's far more complicated. But just a tying, tying policy. Yeah. And sorry to cut you up, but tying policy to investing. That's not easy. It's intellectually very stimulating. But that's like really hard.

Well, because my thought is this. Like, if you get, if you understand the long-term implications of a policy choice, which can't be done in a vacuum, like, you can't. Like, we, you know, if we think, you know, like going into last year. Okay. We knew tariffs were going higher. Where are they going to go as high as like the average effective rate of like 30%,

which is kind of where, you know, things were going on Liberation Day, where they're going to settle somewhere in between? You know, we have a base case written down of somewhere in between. I think the average effective rate is sitting in like the sort of like 12 to 15% range now. That's roughly where we were coming into last year, though. We had it kind of kicking in more later. well then we've got to okay so we can apply that to goods we've got to work with our economists we're going to feed it through the inflation forecast that's going to feed into the central bank policy

that's going to feed into every single macro market estimate that we have and obviously to the we're dealing with you know the consumer analysts and anyone else who's affected by it to make sure that like okay we we think we understand the policy here's multiple scenarios for it now you have to contextualize that within all the other sort of variables driving the price of your asset class. So in that sense, like there we don't really put together playbooks like this policy equals, you know, X or what. Because you can't because it's got other things happening. It's a, it's a, it's a multivariable problem. Well, that's a great example.

So last, so last year, if, if in January, I had told you two months from now, the president's going to sit in the Rose Garden and put this poster board up, with specific tariffs for every country, and some of them are going to be insane levels that nobody has in their estimates. Yeah. And then he's going to reverse because the stock market's going to have a negative reaction,

but still, they're going to be 15%, let's say. Yeah. And in some industries higher, and there's still going to be like all sorts of rhetoric about tariffs for the rest of the year. So I told you this last January, it comes to pass in March.

Okay. But had I given, not you, the colloquial you, had I given the street, definitive. This is what's going to happen. The tariffs would be 5x higher. But what would everyone do? They would immediately drop their earnings estimates, especially for industrials.

And they would probably lower the multiple that we'd be willing to pay for stocks. In both cases, they would have been drastically wrong directionally. So we had huge earnings expansion, which is the AI story. And we had, I think, multiples rising throughout the course of last year. Yeah. So that's why it's. to Michael's question, like, even if you nail the outcome of a policy. Yeah.

It has to be considered, yeah, this is a multivary. There's too many other things. And like in that, like last year, like much credit to Seth Carpenter and the economics team. A lot of our competitors went straight to recession call. Within like a day. Yeah. And we're out there. There's a lot of other things counterbalancing this in addition to the uncertainty around

the negotiations themselves. So it has to be dealt with in that way. And listen, like, I like to think that we, there's a reason that we try to have such a collaborative culture in such a cross-asset, cross-region culture. It's because any of these problems affecting any individual asset class coverage area is a multivariable problem. And that's how we put ourselves out to clients, I'll say based on like our readership data, our follow-on engagement data, that's what they like. Like, if you're doing collaborative work, you're going to get more than one standard deviation engagement than other folks. And it's, you know, it's also, by the way, like what LLMs have a hard time doing. So we're just going to lean more and more into it.

What is what LMs have a hard time doing? Doing basically, like, with a simple. Cross asset or cross discipline. Cross discipline, cross asset. And like, listen, maybe there are some agent orchestrations in the future, which might help with that. but, you know, certainly right now, giving a generalist, a big thematic question that has a lot of variable inputs into it and saying, figure this out working with an LLM, we get really low success rate with that.

We've been testing that a lot ourselves. We talk to LM optimization specialists. That seems to be low success rate. So it's something that even coming into the AI environment, we leaned into culturally because we thought there was a lot of alpha there. but now we think it's just increasingly a part of the strategy of how we have to serve as clients. So we'll get to the stuff, obviously. But we mentioned the tariff stuff.

And even if you could have predicted perfectly, not to believe at this point, but the markets move so fast these days. Yeah. So, so fast. So you could be thinking about the implications and the market could be pricing in, you know, whatever is going to eventually happen. John Ketham chart for it, please. We're looking at the policy uncertainty index versus the VIX. and there is a gigantic spread between the two. And usually they're directionally correlated.

But there seems to be such a heightened level of geopolitical uncertainty that is not really translating into equity markets. And you saw this during the war where everyone's scratching their head. It's like, wait a minute. This was supposed to be the Black Swan event. Everybody was supposed to was expecting if this happens, all right, S&P limit down, crude ups, whatever, doubled. And like for 30 years, someday we're going to bomb Iran and they're going to close the straight of Hormuz and it's going to be lights out for the global economy.

And I think the VIX got to 50. Maybe. Maybe for five minutes. The transmission mechanism between elevated geopolitical uncertainty and equities and fixed income and other instruments, it's a really weird disconnect. It is. And I've got theories. I don't have any great explanations. But I think one of them is, I think when you're, when you're, when you're, you're, when you.

you're dealing with something that take into its logical end is potentially existential for the economy and markets, maybe sometimes your optimal strategy is to put a really low probability on it actually going all the way through. So World War III. Right. What was that our Cashin said about the bombs? Yeah. Cashin from the New York Stock Exchange told the story about his first week at work is early 60s.

And the rumor going around the floor was the missiles from. Cuba were in the air. So he's running around trying to get sell orders off and his boss grabs him by the collar and says, Art, what are he doing? He said, the missiles are in the air. I'm selling. Yeah. He said, no, no, no, no. You buy when the missiles are in the air. Because if they hit, who cares? Yeah. If they don't hit, that's where all the money is made. And there were no missiles, thankfully. Yeah. I mean, I hate to be so, like, cavalier about it. But like, but I think there's a lot of wisdom in that. I mean, we, I think it was like, the camera was 2017 or 2018 when North Korea was testing a bunch of missiles and there's a

lot of rhetoric between the U.S. and North Korea going on. And, you know, our Korean investors wanted some research around that to help them navigate and hedging. And you're like, is the what do you want me to tell you? Is the really a hedge? Research? Yeah. Right. Yeah. So, um, dig a hole. Right. Right. It's, yeah. So, I mean, not to suggest that, straighter who removes closure is nearly as existential as that. But it's not irrational, in my view, to presume that an administration, which has shown itself to be sensitive to economic, not perfectly sensitive, right? I'm not one of those people who's like, oh, like, the White House is never,

you know, is going to react. Like, with someone's to get the question, like, what percentage down does SPX have to be before the White House reverse his course? It's not that simple. But at least there some sensitive. Not that far off either. But I think the market, I think the White House is aware of the 200-day moving average. Yeah. I think the Fed is too. Yeah.

And I think anybody that suggests otherwise is just not really paying that close attention. But we seem to pull rabbits out of hats. We get in the vicinity of like an actual down. I don't think anyone wants to cause a bare market. Yeah. Especially if they're just giving speeches. Yeah. I mean, that's fair.

I guess the end of the idea I would say is, It's not irrational for investors to see positive outcomes around some of these friction points. And then, of course, they could be proven wrong over time. Well, they were right. I mean, the other thing is, earnings estimates kept rising and 100% right. Yeah. Before we do the AI story, which we'll finish with, I do want to get to investing in a multipolar world. And this is so this is new for most people who are in the market.

they haven't they haven't been alive at a time where all of a sudden the Europeans and the Japanese decide it's in their best interest to not just leave everything to America and to start thinking about their own ability to build and mechanize and defend and to me like that's one of the bigger changes of this era and it's sort of I guess started with the Ukrainian the conflict in Ukraine

and then I guess is Israel and Iran, and it's just like every step forward seems to make the numbers go higher. Let's put this chart up, total reinvestment and re-industrialization in Europe. And the U.S., not that this is all military, obviously, but just like just this idea, everybody needs their own supply chains. Germany, France, Italy, can't just be tourist destinations. Like, they have to be industrialized countries again, and they have to get serious about not relying on China or the U.S. and that, I think there's a huge investment implications,

and I think they're actually positive. Yeah. So I look at overseas stocks last year, had a great year, and maybe sometimes what certain country markets need is a little bit of fear and a little bit of paranoia for the animal spirits to get going. Yeah. I mean, it's not a historical to suggest

we've had some great bull markets as a result of building for war. It's just reality. No, that's historically accurate. There's another way to say it. But, I mean, if you're going to spend on capital and productive capacity, whatever it's catalyzed by, you know, at least in the early stages, it's basic algebra in terms of how it drives growth. You know, there's always the lingering questions and the questions will linger for AI also about,

like, what's the ultimate ROI on this? But I just don't think we're not there. Does that make these countries more invest? Does that make just? Japan developed X-US more investable from an equity perspective. The fact that these countries are now going through this sort of cathartic moment where they're shaking off the post-World War II stasis, and they're getting serious now about re-industrializing.

We think so, but would like nuance it a bit differently for like Europe versus Japan. Like Europe is about industrialization, defense, and, you know, Marina Zavlov, who's our European equity strategist, has a good theory of the case around Europe being kind of a sneaky AI beneficiary, right, just because of how, you know, asset-heavy those businesses are and how, like, there could be some good productivity gains there. It's not asset-heavy, it's heavy asset. He had an acronym.

You're right. I'm sorry. I don't know if he's heard about this. We'll allow it. Sorry, we'll allow it. Halo. Halo. I got, I know, I know. In Japan, yeah, there was already some stuff going on before all this came in the play, right? There was a lot of corporate governance reform, a little bit more nationalism than we've seen in a few decades.

And like some healthy inflation creeping in. And like, by the way, you've got a household base there that like 50% is invested in deposits. I think the number is about like $7 trillion. So risk-averse, sort of sclerotic markets. Well, there was getting better now. For a generation, there was not really a reason they had to think differently. Right. So the short answer is, yeah, so it's just like nuance of the bid based on each region.

Okay. I want to ask you about, I want to ask you about AI because like it's almost like to discuss anything else misses probably the biggest cycle of. of KAPX that any of us will ever see. Yeah. If the numbers even get close to their projections, is it like $15 trillion over the next 10 years or whatever people are saying? I mean, who knows, but...

You guys have an estimate for $2.9 trillion in global KACBX. That's just for... Until 28. And that's just for the data centers. And that's before the robots even show up. And that's before everything goes autonomous. And that's before Mars. Like, there are a lot of other things that...

Okay. Yeah. So are we like in the fourth inning of AI spend or is this like, has the game even started yet? How do you talk to in groups of investors about whether or not they've missed a lot of the gains or like what's still to come? Is there is there room to make new investments today? Yeah. I think there's plenty of room. I don't know if it's first inning or fourth inning.

It's early. I think nobody really knows. Right. Yeah. And I mean, so Stephen Bird who runs our thematic research team. and talk about people who started their career in one area and to become specialized and really valuable in another area. He was our energy and utilities analysts for years. Okay.

So he's very sleepy area, but gets pulled into becoming an AI expert because, well, all this stuff's got to get powered. Yeah. And, like, no one knows more than him about whether or not we can power this and how it's going to happen and the step functions. Oh, that's interesting. Yeah, yeah. And he's great. He runs all over a thematic research now. So I think the short answer is in terms of the buildout, still pretty early stages in terms of the compute that the hyperscalers say that they want to develop, right?

And so whether or not you think the hyperscalers are going to get super high ROI or something that's good, either way, like they're going to pay to develop a lot more of it. And the sort of governors, the constraints around that build out, which are energy and labor, maybe a little. a little bit of policy. If anything, sort of, like, is making that a bit earlier stage. Things are going maybe slower than the people who want to invest in this. So this gets back into your area of expertise. You know this big concentration of data centers in Virginia for reasons that are really interesting.

It's where AOL started. Yeah. The first data center was there to serve them. Yeah. And then as a result, it's like the data center capital of the world. Yeah. But you are starting to hear stories about communities that either for environmental reasons or for just the reasons of we don't like AI. Yeah.

But you're starting to see sort of grassroots. It's not very loud. It's not. It's not. It's not. It's not. It's not. It's not.

You know, the concept of AI definitely has like a PR problem. Big time. And in, yeah, you're seeing it manifest in kind of a nonpartisan way, right? It's not, Virginia, California, Oklahoma. Like, you know, it doesn't really... It's not red or blue. Yeah. It's different people objecting to it for different reasons.

Right. It's not... Listen, it's a risk we have to watch. It's not yet big enough relative to the build-out and where build-outs can happen around data centers and other, you know, like other parts of the infrastructure for it to, like, matter all that much. But we have to watch it. But the other thing is it like, is it early as not... You know, our economics team has about a quarter of GDP growth this year coming from...

just like the buildout of the current buildout of AI. Like really very little baked in from a productivity perspective. So that's the other aspect of it. Oh, just the construction aspect of it is driving the just the just like the yeah, just like the literally laying laying down pipes and building structures. Okay. Do you think a productivity boom is coming? Yeah, we think so.

I think it's hard to time it exactly, right? I mean, listen, speaking to someone who's actively trying to put AI into all of our processes in the department. and, you know, my boss, Katie Hubert, he's been, like, very forward looking on this. And even before I stepped into this position, sort of driving this and all sorts of, like, innovative takes on how on the future of research that require AI being linked into the process. Yeah, industrializing this stuff in large organizations and unlocking that productivity is, you know, sometimes easier said than done.

The individual productivity that somebody might be experiencing at home or if they're starting a business from scratch using some of these tools. That could be mind-boggling. But inside of a large organization where you're linking workflows and people together, take time. My only point being that, like, do you see major productivity gains this year, next year, it wouldn't surprise me if it still takes a little bit. But the direction of travel is pretty clear.

Don't you have to see it in tech companies themselves first? They're already very productive companies. But I just, it struck me that like we're selling all the same. AI and we expect the recipients of the technology to be able to run their businesses more efficiently. Yeah. And of course, we want to hear about restaurants with rising profit margins. Yeah. And we want to hear about hotel companies and an insurance company. Of course. Yeah.

But like, wouldn't the first place we see it be at the technology companies themselves who are actually developing the tech? And I mean, and listen, just going by what they report about themselves, they're seeing that. And I would say that our team does a lot of primary research on this. So we cover about 3,400 stocks globally. Stephen Bird and Katie will do this thing periodically where every analyst has to sort of map their coverage into whether you're an AI enabler, an AI adopter, and to what degree based on your assessment of the company. And then we'll do surveys of the management of the company.

of those companies and will also scrape the transcripts, the earnings transcript to those companies to see who's actually reporting something tangible about an AI. So is it 20% of the S&P seeing tangible benefits in their financial statements from the use of AI? Yeah. So it's so MSCI world, the number is exactly right. But like it's, I think at the beginning of last year was like 20%, we're up into like the 30s now. So it's, it's climbing. And then for for companies that we mapped as AI adopters, from 2024, 2025, the average EBIT expansion

was 2X faster than the non-adopters. So the benefits are there. They're starting to rise. But, you know, to the point of it, like, specifically translating into, like, GDP, like that, like, that's a bit of a different measurement problem.

But in any case, you're starting to see the tangible benefits show up in earnings for sure. So right now it is a lot of charts in here. John, let's pull up chart my God. I sound like Mike Francesca.

Which are we looking at it. Chart 20. You wish. Chart 20.2. Okay. We're looking at the consensus 2027 EPS change for AI infrastructure stocks.

Insane. 42%. The S.P 500 at 10%. and the S&P 500 XAI infrastructure, just 3%. Man, this better go up for this to work. Yeah. I mean, I think it will. No, I mean, we think it will too, but you're right.

There's been this, at least in terms of like the broadening theme, okay, and this is not my area of expertise. But, you know, so I'm going to do my best Mike Wilson for a second here. There's been the divergence between the, you know, actual earnings broadening and like the price broadening out. And we expect those things to reconcile. But you're right. Like it hasn't shown up in enough places quite yet.

I mean, stocks are front running that. Like, are you saying this stock? No, or backwards. The other way. Okay.

Yeah. So it's a good year for the S&P on a, on a headline basis. But percent of stocks positive is below average, not substantially so. It's average. It's about average. Yeah.

We keep hearing that the next, leg of this bull market will happen away from the AI, hyper-scalers, and we'll broaden out to the rest of the market. And like, obviously, every sector has its own reasons for rallying or not rallying. Energy is obvious. Housing related is obvious, like what the drivers are there. But do you need, do you guys, as a house view, do you guys think we actually even need this broadening out and we need to see all these AI users start beating earnings?

or can we just continue on the way we've gone with this sort of concentrated subset of AI champions driving all the growth and the market hold up? It's interesting way to phrase the question. I don't know if we'd say you need it, but that's the way we think it's going to happen. You think it'll play out that way? Yeah.

Does that be very positive for a lot of investors? Yeah. Okay. Because people that are not exposed enough to AI or looking at the tape and they're saying, well, is everyone having so much fun? Yeah. Yeah, I mean, so we, you know, we do a sort of big collaborative mid-year-year-in-year-ahead outlook process every single year where you bring together all the strategists, the economists.

And for the last two cycles, we've been pretty consistent on broadening out of equities in the U.S. Plus some of the secular trends we talked about overseas and equities kind of lean things. And it's not that bonds are a bad place to be, but they're going to serve more as a, diverse fire coupon like returns, et cetera, because you're in a, you know, secular enough growth environment driven by a lot of these kind of major Cappex trends that, you know, that's going to be the norm for a couple of years. You know what? You know what's interesting?

So we're seeing this right now. The Mag 7, like meta and Microsoft, I know it's just too. And they're acting like shit. And Invidi got smackdown after trying to break out. That's not acting awesome. The Mag 7 are up 70 basis points year to date. The equal weight S&P is up 11%. Yeah.

The NASDAQ 100, this is wild. You have the Mag 7 or flat, which is 40% of the cues. And the NASDAQ 100 is up 19% year to date. I don't know what the equal weight version is. It's obviously got to be more than that. So the NASDAQ equal weight is up, huh? Delete this, John. It's not up more than that.

But whatever. The NASDAQ 100 is up 19% year to date. without its largest stocks doing all that much as a group. So, all right, so maybe that broadening thing is already taking place. Okay, here it is. Here it is. Here it is. This is what I was looking for.

Equal weight tech. Again, the mag seven are flat. Equal weight tech. R-SPT is the ticker is up 39% year-to-date. Yeah. So we got the broadening in tech. Yeah. That's good.

Yeah, that's a crazy spread. I'll start somewhere. I want to ask you about the midterms. Are you getting a lot of? questions from investors, hedge funds, whatever. You said earlier in the show, you think it's mostly going to be noise that comes out of that and there will be policy continuity. Is there a way where that goes wrong? Or what are people asking about this cycle? I suppose the way that view is wrong is if either Democrats or Republicans win so big that they

Which is not the forecast. No. Well, and you ask about predictions. markets earlier. I think coming in here, prediction markets had Dems at like an 80% chance to take the House and to take both the House and the Senate. It's kind of a toss up about 50-50. But if you map out... Senate comes down to Maine

basically or... Right, exactly. And it's like, and the thing is, right, so the point is, if it comes down to one of those states, you're talking about the Dems getting to like 50, 51 seat, but like, you know if they got to 52-53 seats, you don't have filibuster

or proof majority to push anything meaningful through. You definitely don't have the majority to overcome any veto. So if, you know, like if clients question are like, oh, well, is the tax cuts I got past a couple years ago, are those at risk? No, right? I mean, because I believe the Democrats are sincere in wanting to reform that, but they don't, they're not going to have the votes and they certainly aren't going to have the White House for another couple of years.

Okay. So it's more, and like, can they rest back the power on like trade and tariffs? Again, practically speaking, not. Like, it is their, you know, Congress over years delegated that authority to the president. They can take it right back, but you need the votes in order to do it. So there's no political shock that we don't think there's a political shock coming at some point this fall based on anything that we're seeing currently. I don't think so. And you're not giving people the impression that there's going to be some sort of fireworks.

Yeah, I mean, here's the caveat. could there be knee-jerk reaction in the markets if you get a result that is surprising on election night in favor of a change of power, right? So, you know, Democrats effectively take control both chambers do better than expected. And the next day, the next week, you know, anything that's associated with like a positive, right? So, you know, the tax benefits from the OBBBA, you know, the sort of sectoral distribution of those, a lot of that's been sort of more small-cap-friendly.

Like, could you see some temporary weakness there on like a knee-jerk that, oh, this presages that three years down the line, there's going to be a major tax change. No one's going to trade on that. I mean, right. And if they did, I would say, fade that, right? That's not the right way to think about it. Because in two years till the next election cycle, might as well be 100 years. What's the most surprising question that you've gotten from an institutional investor or a hedge fund manager this year?

What made you think the hardest or what made you really have to go to the drawing board? Well, I'll tell you what. Like, we got a lot. When the Iran stuff started, there wasn't questions about whether or not straight or Hormuz would become a choke point. But there were a lot of, like, very technical questions about, like, you know, How much oil is going through? Who can get it through there? You know, what are sort of the, like, puts and takes around, like, the Gulf Coast countries and their involvement?

And that's another thing where we just had, like, pulling a team effort. And... Not a big whore-moos expert going into that? Going into it, no. I will say, like, I am. I literally... I knew what it was on the map. I knew that...

It's on the right side. All right. I knew that, like, well, it's just the contingency planning playbook. If Iran gets attacked, that's sort of the, if they view it as existential. Make it sound so obvious. I don't think our military knew that. Well, it's, you seem not to have had a plan for that. It would be, I think our military probably knew that.

Like, it's a question of whether or not you thought it would happen. And I'll say this in fairness to that debate. You have to go back, I think, too. I'm not going to get this exactly right. there was something called the tanker wars back in the 80s was like the last time Iran ever really shot at some ships. And it was widely thought it would be not in their self-interest to do that unless they felt like an existential crisis because otherwise it would sort of turn the world against them. Well, clearly this feels pretty existential to them. In any case-

reached that threshold where they said, yeah, we're doing this. Right. I mean, I think it's self-evident. So, you know, so the question is, we start getting are like really all about the technical aspects. How many ships can go through under what conditions, et cetera. You know, credit to Martin Ratz, who's our commodities analyst out of London, who I just knows the puts and takes of the oil market is certainly as well as anyone that I know. And to his ability to lean into using some of these AI tools that we now have for people, who's able to like wire things up pretty quickly using open source information to like map out, right, like exactly what could flow through at what.

rate under which conditions. And so that was a hard question I got. I didn't answer it. But I knew this is, I think, a testament to the firm. Like, we can get you the right person. Michael, what impact do you think all this AI and the ability for everybody to know everything really fast is going to have on markets? That's such a fascinating thing to think about.

It's, yeah, that's a great question. Because I think a lot of what we know. or a lot of what we think about as being very smart people in markets, like that level of intelligence, I think, has become table stakes pretty soon, right? The ability to layer Monte Carlo analysis on a financial model. It's not like any, we're the first people who have ever thought of Monte Carlo analysis, but like now you can just do it really easily, right,

and without having to, like, hire a statistician and have a supercomputer operating next to you. Or do like large-scale document. analysis, right? Like, you know, let's score bond indenture documents. Let's do 40,000 of them a time. Let's map on the spreads and let's see opportunities. Like stuff like that, which I call like level three research, stuff that you just couldn't have done before. You need an army of bodies. And now you don't. Right. Now it's a powerful chip. Right. And somebody that knows how to get the best out of the machine with the right prompt. Yeah. Which is a skill.

I suppose. It's a, but you remove a big competitive advantage from gigantic research organizations. Well, I guess, but so you need the human judgment there also at the end of the day.

Right. So you, you, you remove the need for to have a giant research. However, you also increase the possibility and the probability

that people, just like there's AI slop in, you know, like video and the stuff you see on, like, Instagram, there could be tons of, like, research slop, right? You'll get over.

fit. Like the machine wants to please us. Right. It wants to give us what we seem to want because it's, every business on earth is now an engagement business. Yeah. Every business is Netflix and TikTok. Yeah. So the machine doesn't want you to turn it off. Yeah. So it will, to your point, keep asking the question. It'll eventually give you something that sounds right. Yeah. And even like, yeah, like before I said, you know, it's not like no one's ever heard of Monte Carlo analysis before, but just hearing about it and knowing how to do it the right way or two different things, right?

So you said, I don't know the word used was wisdom or experience, but, like, I actually think that's an important difference. Judgment. Judgment, right. Like, what's saying, what's the difference between wisdom and knowledge? Tomato is a fruit you got.

But you don't put it in a fruit salad. Knowledge. Wisdom is you don't put tomato in a food salad. Right. So, like, that's still really, really important. And I think you need a, like, network of experts to really sort through that noise or you could start making some big mistakes and judgment. So what happens in the future when everyone's enabled like this, it might not look

all that different than now where there's people chasing narratives and that aren't right. And ultimately they get proven wrong and people are wiser and, you know, operate better, more sustainably over time. Before we let you out of here, can we do like a little Morgan Stanley research lightning round? Sure. Okay. What's the house view on employment in the AI era? Are you guys optimistic that the new jobs will come along on time so that we don't have like a big air pocket? Or do you guys think there are going to be some tough years for young workers before these new opportunities present themselves or maybe some other option that I'm not thinking of? I mean, I would say optimistic until proven

otherwise kind of like eyes wide open. So our economists done a lot of work breaking down the sort of mapping the types of work and the economic data that map over to the skills that are considered disruptible. I'm trying to see where is the unemployment, unemployment cohorts higher and lower than others. And like you squint. Legal and accounting. Yeah. And like you squint.

You see some difference in like youth unemployment. but like you got to squint at the moment. And so I'd say, I'd say mostly optimistic but vigilant. Not that you're going to make stock picks, but Enterprise SaaS, the SaaSpocalypse. What was the Morgan Stanley outlook for,

I mean, this is, I think, the standout negative group of the year. Yeah. And these are some very large companies, companies that you guys are probably covering all of them. Yeah. What is Morgan Stanley saying to people? they ask about, are values being created there? Or is it going to be harder than maybe the,

maybe harder to make money there going forward? Well, I mean, I think both it's going to be harder there fundamentally and there's value being created. And we think a lot of what happened in the markets was overblown. The ability for these companies to industrialize in a way that individuals in a large organization, you know, might not necessarily be able to do things for themselves. It means that there's still a moat there. You think that's enough of an moat that would justify investment in these companies or? Yeah, I mean, I'm not expert enough to say on those specific companies, but just like conceptually, I would say, like, we're not a buyer of the idea that everyone's just going to write software for themselves. Well, the Morgan Stanley Research Budget

include as much money going to end. enterprise SaaS three years from now as it does today, or will compute and anthropic bills eat a bigger chunk of that expenditure? Like, you obviously don't know for sure, but if you had to guess directionally, where it seems to be heading. I mean, it's a good question because it's hard to, like, distinguish between just like buying the tokens and then some of the other service providers that plug into them. I mean, listen, I think our budget going towards tech solutions probably going to be.

pointed higher, at least a percentage of the budget. But like a lot of the solutions that, you know, that Katie and her team are putting together really boil down to making sure it's not just about like token usage. It's also about having the right data plugged in and the right sort of, you know, like use cases that that kind of come from that. So I'm not trying to avoid your question. I just think it's it's not as simple. And like we don't know.

Too hard. We don't know. Most lightning around ever. Sorry. Well, too hard. Yeah. How about yes? I'll say yes. Here's an easier question.

How do Morgan Stanley clients feel about Kevin Warsh and the new Fed? Yeah, I would say fine. Bond market seems okay. Yeah, right. So far, he hasn't had to do much. So, yeah, I think the answer is fine, which is a boring answer. But there would be, I think, far more anxiety if you'd gone with one of these less, traditional names that have been thrown out there.

People are really embracing unorthodox economic view. Or somebody coming from pure politics. Yeah, or someone who was perceived to be just somebody who's going to take a phone call from the White House. And I would say this, even in that situation, we probably would have leaned against the concept that the Fed substantially compromised. As Seth and our Econ team point out all the time, we're like, there's a whole committee there.

There's not just one person. And so, sure, communication could get scramble. There's all, it could get confusing. But it wouldn't necessarily, if you just looked back on it in history on like a chart with like what what the policy rate was relative to inflation and growth, it might not look all that crazy. Now we don't have to deal with that hypothetical debate, really. I mean, we got, you know, we still have to pay attention. He's traditional enough. Yeah.

Now, now let's see if we're right. I mean, we're going to, we're about to learn. But yeah. So the short answer is fine. So on balance, Morgan Stanley is like not the most bullish on the street, but you guys are pretty constructive on most asset classes. And sort of like if the earnings growth delivers, we don't get a worst geopolitical situation in Middle East. And the interest rate picture is probably just more of the same. Like if those things hold constant, we should finish out the year in pretty good shape.

Yeah, I think that's right. And it's largely buoyed by the secular. trends and themes that are driving this around CAPX and you know, AI and dealing with this transition to a multipolar world. I want to tell you, we really learned a lot from you today and thank you so much for coming to the show.

Did you have fun today? I did and I really appreciate you guys giving me the opportunity. You want to come back sometime? Of course. Are you busy tomorrow? No. Yeah, what time? Like 7.30 am sure? Dude, thank you so much being part of the show. Where can people find more

from you and from your team? If somebody says, Michael Zezis is great. I want to hear more of what he has to say. What's the right place to go? Morgan Stanley Institute. Go the webpage. Sign up for the Morgan Stanley Institute newsletter. We're bringing together all the thought leadership across the firm

for all types of financial decisions. The Morgan Stanley Institute has been Michael Zezas. Thank you guys so much for listening. Thanks for watching. Have a great weekend. We'll talk to you soon. Spotify. It's Jay Shetty.

Are you one of those media strategy people? scrolling through spreadsheets, searching for an audience that pays twice as much attention to your ads than they do on social, let me introduce you to fans. And they're here with me on Spotify. Trust me, I know fans. They don't skip, they stay for hours. They don't move on, they manifest. They're not a demographic group, they're fans. Spotify Advertising, you're among fans.