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