Bloomberg Audio Studios, Podcasts, radio News. This is a Masters in Business with Barry Ritholts on Bloomberg Radio this week.

Bloomberg Audio Studios, Podcasts, radio News. This is a Masters in Business with Barry Ritholts on Bloomberg Radio this week.

Really an extra extra special guest. Lisa Shalitt, chief Investment Officer at Morgan Stanley, has had a number of fascinating roles in Wall Street, which is kind of amusing considering she had no interest in working on Wall Street and yet she was CEO and chairman at Sanford Bernstein. She was CIO at Merrill Lynch Asset Management, and now CIO at both Morgan Stanley Wealth Management and runs their asset on location models and their outsourced chief investment Officer model, So she's seen this industry from all sides. Not only is CEO running operations running a substantial firm, but as CIO for Morgan Stanley is over six trillion dollars, she is directly responsible for one hundred billion dollars. There are a few people in this industry who understand what it's like to work with institutions, work with families, work with individuals as well as work with advisors and brokers the way Lisa does. She absolutely has a unique background and a unique perch on wealth management and what's going on in the world. I found this conversation to be absolutely fascinating, and I think you will also, with no further ado, my conversation with Morgan Stanley's Lisa Shallion.

Really an extra extra special guest. Lisa Shalitt, chief Investment Officer at Morgan Stanley, has had a number of fascinating roles in Wall Street, which is kind of amusing considering she had no interest in working on Wall Street and yet she was CEO and chairman at Sanford Bernstein. She was CIO at Merrill Lynch Asset Management, and now CIO at both Morgan Stanley Wealth Management and runs their asset on location models and their outsourced chief investment Officer model, So she's seen this industry from all sides. Not only is CEO running operations running a substantial firm, but as CIO for Morgan Stanley is over six trillion dollars, she is directly responsible for one hundred billion dollars. There are a few people in this industry who understand what it's like to work with institutions, work with families, work with individuals as well as work with advisors and brokers the way Lisa does. She absolutely has a unique background and a unique perch on wealth management and what's going on in the world. I found this conversation to be absolutely fascinating, and I think you will also, with no further ado, my conversation with Morgan Stanley's Lisa Shallion.

Thank you. It's great to be here, Baik.

Thank you. It's great to be here, Baik.

Great to have you. I've really been looking forward to this conversation. You have an absolutely bonkers CV. We'll get into that in a little bit. I'm just old better than the alternative, I like to say it, right, But let's start with your background in your career Applied mathematics and economics from Brown and then a Harvard MBA. That sounds like you were on a career path to a Wall Street quant from early on. Tell us what what the career plans were?

Great to have you. I've really been looking forward to this conversation. You have an absolutely bonkers CV. We'll get into that in a little bit. I'm just old better than the alternative, I like to say it, right, But let's start with your background in your career Applied mathematics and economics from Brown and then a Harvard MBA. That sounds like you were on a career path to a Wall Street quant from early on. Tell us what what the career plans were?

Not at all? Right? I in college, I was a drivetime disc jockey. I you know, abhord the idea of working on Wall Street. Uh, and so you know, coming out of school, once I realized that journalists and folks in radio don't make much money in the long run. No offense, h this is my side hustle to anyone around here. You know, I thought I was going to take the high road and be a management consultant. So that's what I did for the first job.

Not at all? Right? I in college, I was a drivetime disc jockey. I you know, abhord the idea of working on Wall Street. Uh, and so you know, coming out of school, once I realized that journalists and folks in radio don't make much money in the long run. No offense, h this is my side hustle to anyone around here. You know, I thought I was going to take the high road and be a management consultant. So that's what I did for the first job.

So what changed your mind to say, all right, let me let me go see what these finance bros On Wall Street are all about.

So what changed your mind to say, all right, let me let me go see what these finance bros On Wall Street are all about.

Yeah. So, you know, I did the consulting thing both before and after business school, and you know, fundamentally, I was never home. I was traveling and on an airplane all the time. I was literally arriving back home Saturday mornings, leaving Sunday nights. You know, I was starting to hit that you know those magic numbers in the thirties when women are like, if I don't get it done now, it's now or never. So I took the plunge. I quit. I did not have a job, and I said, Okay, I'm going to go out there and see what's going on. I knew that I wanted to work with clients. That was one of the pieces of the consulting gig that appealed to me. I wanted to work with super smart people also, something I had loved in that career, and I really just you know, wanted to be somewhere where I was constantly learning and growing. Right, and I'm a New Yorker, So I was coming home most of the search people at that time, you know, said to me, the only place ago if you want to do that, is Wall Street. I kind of balked, and they said, but there's just this one place. There's this one place, and the one place for those on Wall Street in the mid nineties that was very special, was very independent, was Sanford Bernstein. I walked in the door and I literally fell in love. I can honestly tell you from the minute I walked in the door, I knew I was home, and I always thought I would die there. But obviously, you know, life is long and stuff happens. But it was a wonderful, wonderful It was the seminal chapter in my career.

Yeah. So, you know, I did the consulting thing both before and after business school, and you know, fundamentally, I was never home. I was traveling and on an airplane all the time. I was literally arriving back home Saturday mornings, leaving Sunday nights. You know, I was starting to hit that you know those magic numbers in the thirties when women are like, if I don't get it done now, it's now or never. So I took the plunge. I quit. I did not have a job, and I said, Okay, I'm going to go out there and see what's going on. I knew that I wanted to work with clients. That was one of the pieces of the consulting gig that appealed to me. I wanted to work with super smart people also, something I had loved in that career, and I really just you know, wanted to be somewhere where I was constantly learning and growing. Right, and I'm a New Yorker, So I was coming home most of the search people at that time, you know, said to me, the only place ago if you want to do that, is Wall Street. I kind of balked, and they said, but there's just this one place. There's this one place, and the one place for those on Wall Street in the mid nineties that was very special, was very independent, was Sanford Bernstein. I walked in the door and I literally fell in love. I can honestly tell you from the minute I walked in the door, I knew I was home, and I always thought I would die there. But obviously, you know, life is long and stuff happens. But it was a wonderful, wonderful It was the seminal chapter in my career.

I'm trying to remember. Did they get rolled up with Pimcohen from Alliance? Is that right? So Alliance burning?

I'm trying to remember. Did they get rolled up with Pimcohen from Alliance? Is that right? So Alliance burning?

So Sanford ce Bernstein was independent. When founder mister Bernstein passed, we needed to settle his estate and a decision was made to merge with Alliance Capital, which was a growth shop at the time. We thought it would be synergistic because the asset management business of Sanford Bernstein, as everyone I think knows, was a deep value shop, right, and so that merger happened. I want to say, somewhere in the in the early two thousands, we became Alliance Spernstein, and you know then, you know, we kind of wrote it to till the Great Financial Crisis, and our deep value exposure to financials kind of helped unwind us quite a bit. And I think, you know, Alliance Spernstein really spun for quite a long time. It took, you know, a long long time to get out of that mess. I left because I got tired of firing all my friends.

So Sanford ce Bernstein was independent. When founder mister Bernstein passed, we needed to settle his estate and a decision was made to merge with Alliance Capital, which was a growth shop at the time. We thought it would be synergistic because the asset management business of Sanford Bernstein, as everyone I think knows, was a deep value shop, right, and so that merger happened. I want to say, somewhere in the in the early two thousands, we became Alliance Spernstein, and you know then, you know, we kind of wrote it to till the Great Financial Crisis, and our deep value exposure to financials kind of helped unwind us quite a bit. And I think, you know, Alliance Spernstein really spun for quite a long time. It took, you know, a long long time to get out of that mess. I left because I got tired of firing all my friends.

That's tough, Yeah, because you were not just in the investing side, you were chair and CEO, chief executive officer. Yes, that's got to be a very difficult experience right in the teeth of the financial price it.

That's tough, Yeah, because you were not just in the investing side, you were chair and CEO, chief executive officer. Yes, that's got to be a very difficult experience right in the teeth of the financial price it.

Was got awful. And really, you know, the trauma was when lu Sanders, who at the time had been the storied CEO of the firm, he had been my personal rabbi, when he was asked to step down, and you know, therein began I think the unraveling and a little bit of the the loss of that you know, cultural juice that had kind of historically made that firm special.

Was got awful. And really, you know, the trauma was when lu Sanders, who at the time had been the storied CEO of the firm, he had been my personal rabbi, when he was asked to step down, and you know, therein began I think the unraveling and a little bit of the the loss of that you know, cultural juice that had kind of historically made that firm special.

So you leave Sanford Bernstein then, which had really become Alliance Bernstein end up at Merrill Lynch where eventually your same role chief investment officer for Bank America Merrill Lynch Wealth Management. First, was there still remnants of Mother Merrill when you joined post merger?

So you leave Sanford Bernstein then, which had really become Alliance Bernstein end up at Merrill Lynch where eventually your same role chief investment officer for Bank America Merrill Lynch Wealth Management. First, was there still remnants of Mother Merrill when you joined post merger?

There were certainly remnants, So you know, just to reframe, you know, folks who are Wall Street historians will understand this chapter. One of the reasons I went to meryll Is I was recruited by one of my best friends, who is Sally Crotchek.

There were certainly remnants, So you know, just to reframe, you know, folks who are Wall Street historians will understand this chapter. One of the reasons I went to meryll Is I was recruited by one of my best friends, who is Sally Crotchek.

Oh.

Oh.

Really, Sally and I grew up at Sanford Bernstein together as baby analysts, and at that time she was running you know, the Merrill Lynch brokerage business for b of A, and she hired me to come in and be the chief investment officer at Wealth Management. If you remember, during this period of time was right after the financial crisis, the worst of it. It was twenty ten, twenty eleven, and you know, she had kind of gone to bat very controversially asking the bank to protect clients on some of the products that had gone bad, and that didn't go so well for her, and within four months of my arrival she actually heard that she was fired on TV. We were together in her office, and there was literally a cry on on the bus atom of the screen that says, you know, Crawcheck to leave Bank of America Marylynch.

Really, Sally and I grew up at Sanford Bernstein together as baby analysts, and at that time she was running you know, the Merrill Lynch brokerage business for b of A, and she hired me to come in and be the chief investment officer at Wealth Management. If you remember, during this period of time was right after the financial crisis, the worst of it. It was twenty ten, twenty eleven, and you know, she had kind of gone to bat very controversially asking the bank to protect clients on some of the products that had gone bad, and that didn't go so well for her, and within four months of my arrival she actually heard that she was fired on TV. We were together in her office, and there was literally a cry on on the bus atom of the screen that says, you know, Crawcheck to leave Bank of America Marylynch.

Well, that was sweet of them to do it that way. You know, I have a vivid recollection from the people we were talking, Yeah, Franco and Dave Roseen Kergan. I know a lot of Rich Barnstein and all these people I know from the two thousands Yes era Merrill Lynch. And one of the fascinating things about Sally Kratchek was her defense of the Merrill Lynch brands Yes post merger, and she really helped turn around a malaise just a lack of office morale amongst here. You have this storied name that was picked up on the cheap during the financial crisis and was wildly underperforming as an organization. And full credit to her for really saving Merri Lynch as a name and turning tens of thousands of people's jobs around. She really did you's work there, didn't she?

Well, that was sweet of them to do it that way. You know, I have a vivid recollection from the people we were talking, Yeah, Franco and Dave Roseen Kergan. I know a lot of Rich Barnstein and all these people I know from the two thousands Yes era Merrill Lynch. And one of the fascinating things about Sally Kratchek was her defense of the Merrill Lynch brands Yes post merger, and she really helped turn around a malaise just a lack of office morale amongst here. You have this storied name that was picked up on the cheap during the financial crisis and was wildly underperforming as an organization. And full credit to her for really saving Merri Lynch as a name and turning tens of thousands of people's jobs around. She really did you's work there, didn't she?

Yes?

Yes?

Absolutely, So you become chief investment officer for Bank America Merrill Lynch Wealth Management. What did you take away from that? You've had this role in several organizations, what was really unique and special about Bank America Marill Lynch.

Absolutely, So you become chief investment officer for Bank America Merrill Lynch Wealth Management. What did you take away from that? You've had this role in several organizations, what was really unique and special about Bank America Marill Lynch.

Yeah. So what you know, when I was running the wealth management business, you know, reflecting on my experience with Sanford Bernstein, Sanford Bernstein was what we call a closed shop, right, all the clients were getting proprietary Sanford Bernstein asset management product. And when I arrived at Merrill Lynch, it was really my first exposure to really entrepreneurial, extremely talented and aggressive financial advisors who were operating with what we in the industry call an open architecture platform right where they could you know, kind of place best of brief product with their clients. And so that opened a whole new world for me in thinking about asset allocation and thinking about advice, and thinking about active and passive constructions together, thinking about alternatives, and so you know, what made Merrill extraordinarily special were the financial advisors who were just spectacular to your point, the Thundering Herd.

Yeah. So what you know, when I was running the wealth management business, you know, reflecting on my experience with Sanford Bernstein, Sanford Bernstein was what we call a closed shop, right, all the clients were getting proprietary Sanford Bernstein asset management product. And when I arrived at Merrill Lynch, it was really my first exposure to really entrepreneurial, extremely talented and aggressive financial advisors who were operating with what we in the industry call an open architecture platform right where they could you know, kind of place best of brief product with their clients. And so that opened a whole new world for me in thinking about asset allocation and thinking about advice, and thinking about active and passive constructions together, thinking about alternatives, and so you know, what made Merrill extraordinarily special were the financial advisors who were just spectacular to your point, the Thundering Herd.

Yep, yep, remember those those ads from like the sixties and sevenss on TV. They were absolutely unique. So culturally I have to think Sanford Bernstein and Merrill Lynch were both very different. What did you bring from those two organizations to your work at Morgan Stanley, either philosophically or cultural.

Yep, yep, remember those those ads from like the sixties and sevenss on TV. They were absolutely unique. So culturally I have to think Sanford Bernstein and Merrill Lynch were both very different. What did you bring from those two organizations to your work at Morgan Stanley, either philosophically or cultural.

Yeah. So I think from from my time at San for Bernstein, I like to think I brought, you know, kind of my love of original research, my love of you know, that independent streak, that desire to really you know, call out conflict of interest and say no, this is you know, this is what the numbers really tell you. I like to think I brought that. I think, you know, from Merrill it was really that appreciation of how do you work through financial advisor so and you know, as a chief investment officer, how do you earn the trust of financial advisors to have influence? Right, because they're what stand between you and the client. And so, you know, I think I think I started that process in my career at Meryl. I think in many ways I still wake up every day and I think I've got more to learn in terms of how to be a better partner to financial advisors today at Morgan Stanley.

Yeah. So I think from from my time at San for Bernstein, I like to think I brought, you know, kind of my love of original research, my love of you know, that independent streak, that desire to really you know, call out conflict of interest and say no, this is you know, this is what the numbers really tell you. I like to think I brought that. I think, you know, from Merrill it was really that appreciation of how do you work through financial advisor so and you know, as a chief investment officer, how do you earn the trust of financial advisors to have influence? Right, because they're what stand between you and the client. And so, you know, I think I think I started that process in my career at Meryl. I think in many ways I still wake up every day and I think I've got more to learn in terms of how to be a better partner to financial advisors today at Morgan Stanley.

And what It's kind of interesting given the open architecture at Merrill and the proprietary work at Alliance Earnstein, Morgan Stanley's a little bit of both. You have consilient research and a number of people running their own funds that are specific to Morgan Stanley as well as the open architecture. How do you look at the combination of both closed and open together.

And what It's kind of interesting given the open architecture at Merrill and the proprietary work at Alliance Earnstein, Morgan Stanley's a little bit of both. You have consilient research and a number of people running their own funds that are specific to Morgan Stanley as well as the open architecture. How do you look at the combination of both closed and open together.

Yeah, well, look, I think it does a lot of things. First, it avails me of some of the best colleagues on the planet, right, so I'm surrounded not only by folks in the wealth management business, but obviously I'm attached to one of the best equity in trading franchises globally. And then to your point, you know, connected to pms that you know are walking the floors with me. But look, you know, I want to be really clear when I think about my clients. We're arm's length, so proprietary product might be appropriate for them if they're open to it. If, on the other hand, they say conflicts of interest matter a lot to me, I want everything to totally transparent. We have those options as well. So you know, I think about it as as you know, we we work with clients. We do what clients are in their best interest. And I know it sounds a little bit like an advertisement, but I really believe that.

Yeah, well, look, I think it does a lot of things. First, it avails me of some of the best colleagues on the planet, right, so I'm surrounded not only by folks in the wealth management business, but obviously I'm attached to one of the best equity in trading franchises globally. And then to your point, you know, connected to pms that you know are walking the floors with me. But look, you know, I want to be really clear when I think about my clients. We're arm's length, so proprietary product might be appropriate for them if they're open to it. If, on the other hand, they say conflicts of interest matter a lot to me, I want everything to totally transparent. We have those options as well. So you know, I think about it as as you know, we we work with clients. We do what clients are in their best interest. And I know it sounds a little bit like an advertisement, but I really believe that.

Well, the next question, the obvious question is who are the clients? Are they institutions, are they households? Are they a little bit of both?

Well, the next question, the obvious question is who are the clients? Are they institutions, are they households? Are they a little bit of both?

Yeah. So, as you may know, Barry, you know, over the last you know, really decade since since Gorman acquired Smith Barney, we've been expanding our footprint in terms of the client segments that we are focused on serving really exponentially. So while you might once upon a time have thought about, you know, the Morgan Stanley Financial Advisors as as you know, serving that ultra high net worth you know, core client, you know, now we're you know, serving folks in the mass market through e trade, We're serving family offices, We're serve institutions. We've done acquisitions in the stock plan businesses and the retirement businesses. You noted in my bio that I run help run one of our ocio businesses, our outsource where we're working with foundations and endowments and family offices. So now we're everywhere, and we're serving every type of wealth client internationally, domestic, self directed through a brokerage account, all the way through complete discretionary.

Yeah. So, as you may know, Barry, you know, over the last you know, really decade since since Gorman acquired Smith Barney, we've been expanding our footprint in terms of the client segments that we are focused on serving really exponentially. So while you might once upon a time have thought about, you know, the Morgan Stanley Financial Advisors as as you know, serving that ultra high net worth you know, core client, you know, now we're you know, serving folks in the mass market through e trade, We're serving family offices, We're serve institutions. We've done acquisitions in the stock plan businesses and the retirement businesses. You noted in my bio that I run help run one of our ocio businesses, our outsource where we're working with foundations and endowments and family offices. So now we're everywhere, and we're serving every type of wealth client internationally, domestic, self directed through a brokerage account, all the way through complete discretionary.

I recall back in the day Morgan Stanley as well, they're kind of a Goldman Sachs want to bee and that is no longer the case, it's the best of Goldman, the best of Merril and on. This is really inside baseball stuff. So I apologize to listeners, but on the league tables to say who's number one and underwriting, who's number one? In attracting new wealth management, who's number one in self directed? Like, you guys are competitive across the board, and it's not like the old days where Goldman has a good year and they you know, take the top spot everywhere. That doesn't seem to happen anymore. It seems like the industry has become so competitive you want to be in the top five or top ten. But the days of you know, taking number one with a bullet across all these different areas, they really seem to have faded.

I recall back in the day Morgan Stanley as well, they're kind of a Goldman Sachs want to bee and that is no longer the case, it's the best of Goldman, the best of Merril and on. This is really inside baseball stuff. So I apologize to listeners, but on the league tables to say who's number one and underwriting, who's number one? In attracting new wealth management, who's number one in self directed? Like, you guys are competitive across the board, and it's not like the old days where Goldman has a good year and they you know, take the top spot everywhere. That doesn't seem to happen anymore. It seems like the industry has become so competitive you want to be in the top five or top ten. But the days of you know, taking number one with a bullet across all these different areas, they really seem to have faded.

Yeah, they have. I mean, I think that ours is a business in almost every segment that requires a lot of scale, and as you know, developing scale very often means investing aggressively in tech, investing aggressively in talent, and you've got to pick your spots right. And so you know, to your point, I think every you know segment today is a little bit of a gunfight. I like to think that you know, in core wealth management, Morgan Stanley, and you know where we've come, you know, first under James Gorman and now hopefully under Ted Picks. Leadership is really you know, differentiating us and allowing us to pull away from the pack at least in wealth management.

Yeah, they have. I mean, I think that ours is a business in almost every segment that requires a lot of scale, and as you know, developing scale very often means investing aggressively in tech, investing aggressively in talent, and you've got to pick your spots right. And so you know, to your point, I think every you know segment today is a little bit of a gunfight. I like to think that you know, in core wealth management, Morgan Stanley, and you know where we've come, you know, first under James Gorman and now hopefully under Ted Picks. Leadership is really you know, differentiating us and allowing us to pull away from the pack at least in wealth management.

And you mentioned the investment in technology and people and the ability to scale at your size, and there's only you know, a dozen or two companies that can make this claim that flywheel begins to become very self reinforcing, and you have the ability to just continue to add divisions to fill in. Oh we're a little soft here. Let's let's bulk this up a little bit and put a little muscle on it because we have the ability to offer these services to all our clients. What's it been like watching the how long have you there?

And you mentioned the investment in technology and people and the ability to scale at your size, and there's only you know, a dozen or two companies that can make this claim that flywheel begins to become very self reinforcing, and you have the ability to just continue to add divisions to fill in. Oh we're a little soft here. Let's let's bulk this up a little bit and put a little muscle on it because we have the ability to offer these services to all our clients. What's it been like watching the how long have you there?

You're there almost thirteen?

You're there almost thirteen?

They're over at dteen. Yeah, so and from twenty twelve to twenty twenty five, that's a huge run. A lot of big financial players, Vanguard, black Rock going down the list have really added some heft, So is Morgan Stanley. What's been like watching that over the past decade plus.

They're over at dteen. Yeah, so and from twenty twelve to twenty twenty five, that's a huge run. A lot of big financial players, Vanguard, black Rock going down the list have really added some heft, So is Morgan Stanley. What's been like watching that over the past decade plus.

Yeah, it's been extraordinarily exciting for us. Obviously, you always want to be working in a growth business, and so you know, we've been in a situation where we're hiring people, which is always exciting. We're going after new types of clients, new problems, new situations, which keeps you on your toes and keeps you growing, and you know, really completely new business segments. I mean, I can't tell you how to your point that flywheel between moving up market into institutions feeds your self directed business. I mean, let me just give you an example. Let's assume that we are administering a stock plan for a large corporate client. Now we're going in and we're saying to that corporate client. Instead of you know, having a financial advisor going to the country club on Saturday acquiring a client, mono we mono one at a time, we're now walking into a c suite and saying to that CFO or that chief talent officer, Hey, can we provide all of your employees with a financial wellness program? Can we give every single one of your employees a free financial plan? Can we give every single one of your employees a account or advice you know, to their first you know, purchase in a five twenty nine account. Things like that where suddenly you're acquiring clients at scale.

Yeah, it's been extraordinarily exciting for us. Obviously, you always want to be working in a growth business, and so you know, we've been in a situation where we're hiring people, which is always exciting. We're going after new types of clients, new problems, new situations, which keeps you on your toes and keeps you growing, and you know, really completely new business segments. I mean, I can't tell you how to your point that flywheel between moving up market into institutions feeds your self directed business. I mean, let me just give you an example. Let's assume that we are administering a stock plan for a large corporate client. Now we're going in and we're saying to that corporate client. Instead of you know, having a financial advisor going to the country club on Saturday acquiring a client, mono we mono one at a time, we're now walking into a c suite and saying to that CFO or that chief talent officer, Hey, can we provide all of your employees with a financial wellness program? Can we give every single one of your employees a free financial plan? Can we give every single one of your employees a account or advice you know, to their first you know, purchase in a five twenty nine account. Things like that where suddenly you're acquiring clients at scale.

Huh, really really interesting. So let's talk a little bit about Morgan Stanley. We mentioned you a previously at Alliance Bernstein and then you were at Bank America Merrill Lynch. What led you to make the jump to Morgan Stanley.

Huh, really really interesting. So let's talk a little bit about Morgan Stanley. We mentioned you a previously at Alliance Bernstein and then you were at Bank America Merrill Lynch. What led you to make the jump to Morgan Stanley.

So I had when, as I noted, I'd gone to work at Meryl very much to partner with my very good friend Sally Kratchek, and after she had left, I made the decision that without her there, I kind of felt among the you know, the thundering herd without a rabbi, if you will, And I left it. At that point, I really thought I was going to do my own thing. I thought I was going to do something entrepreneurial. I thought I might join an RIA or form my own RIA at that point, and I just I got a call from Greg Fleming. Greg Fleming was one of the co presidents at Morgan Stanley at the time, and he said, look, you know, I have a lot of contacts over there at Merrill Lynch. The financial advisors really love you, you know, come on in and meet our team. And so I I did, and you know, I had a very similar feeling to that feeling I had when I first went into Bernstein of you know, these are just great people and I would enjoy working with the people. And you know, before I knew it, there I was, you know, sitting next to Mike Wilson, who I know, you know, Mike was taking a stint of rotation through wealth management, and you know I joined I joined him to build the team and and really you know, create the platform that we have today. When when Morgan Stanley and Smith Barney were merging, there was really no centralized CIO office. It was the only place that that that talent was coming from was from Smith Barney, from the Smith Barney side, And so we wanted to recraft a more Morgan Stanley integrated firm offering, and so I joined Mike Wilson to help build that.

So I had when, as I noted, I'd gone to work at Meryl very much to partner with my very good friend Sally Kratchek, and after she had left, I made the decision that without her there, I kind of felt among the you know, the thundering herd without a rabbi, if you will, And I left it. At that point, I really thought I was going to do my own thing. I thought I was going to do something entrepreneurial. I thought I might join an RIA or form my own RIA at that point, and I just I got a call from Greg Fleming. Greg Fleming was one of the co presidents at Morgan Stanley at the time, and he said, look, you know, I have a lot of contacts over there at Merrill Lynch. The financial advisors really love you, you know, come on in and meet our team. And so I I did, and you know, I had a very similar feeling to that feeling I had when I first went into Bernstein of you know, these are just great people and I would enjoy working with the people. And you know, before I knew it, there I was, you know, sitting next to Mike Wilson, who I know, you know, Mike was taking a stint of rotation through wealth management, and you know I joined I joined him to build the team and and really you know, create the platform that we have today. When when Morgan Stanley and Smith Barney were merging, there was really no centralized CIO office. It was the only place that that that talent was coming from was from Smith Barney, from the Smith Barney side, And so we wanted to recraft a more Morgan Stanley integrated firm offering, and so I joined Mike Wilson to help build that.

So, so let's talk a little bit about what goes into managing one hundred plus billion dollars in assets. How do you develop that, how do you think about asset allocation? And how do you think about the end clients? Given how broad your audience and clients are, how do you create a set of options that checks all the boxes that you know you need to check? To do this right but also gives a broad variety of clients what they're looking for.

So, so let's talk a little bit about what goes into managing one hundred plus billion dollars in assets. How do you develop that, how do you think about asset allocation? And how do you think about the end clients? Given how broad your audience and clients are, how do you create a set of options that checks all the boxes that you know you need to check? To do this right but also gives a broad variety of clients what they're looking for.

Yeah, so Barry for US asset allocation. All asset allocations starts with financial planning, and all financial planning starts with the client. But you can't do a financial plan without having what we call capital market assumptions. You know, what do we think every asset class is going to do over the next three, five, ten, twenty years. Our customization of asset allocation really starts with financial planning. That is the lynch pin, and we fundamentally believe that you've got to understand a client's cash flow, that the client has to understand their own cash flows. You know. One of the things that I know, you know, having worked with a lot of clients, is very often clients don't know themselves right the the good old fashion, Hey, I'm kind of aggressive, I'm kind of conservative. Those are such non normative terms. You never know, are we talking about politics, are we talking.

Yeah, so Barry for US asset allocation. All asset allocations starts with financial planning, and all financial planning starts with the client. But you can't do a financial plan without having what we call capital market assumptions. You know, what do we think every asset class is going to do over the next three, five, ten, twenty years. Our customization of asset allocation really starts with financial planning. That is the lynch pin, and we fundamentally believe that you've got to understand a client's cash flow, that the client has to understand their own cash flows. You know. One of the things that I know, you know, having worked with a lot of clients, is very often clients don't know themselves right the the good old fashion, Hey, I'm kind of aggressive, I'm kind of conservative. Those are such non normative terms. You never know, are we talking about politics, are we talking.

About you know, how about whatever the market did the past six months?

About you know, how about whatever the market did the past six months?

And so so, working through the behavioral pieces, the getting to know your client, the working through a plan with them, really getting into what are their hopes, wishes, dreams, you know, what does money mean to them? Why have they accumulated it? How have they accumulated it? H What do they hope their legacy will be? Does it have to do with a charity, you know, a cause, a family member or members and build a plan from them?

And so so, working through the behavioral pieces, the getting to know your client, the working through a plan with them, really getting into what are their hopes, wishes, dreams, you know, what does money mean to them? Why have they accumulated it? How have they accumulated it? H What do they hope their legacy will be? Does it have to do with a charity, you know, a cause, a family member or members and build a plan from them?

Huh? Really really quite interesting. So, since you've joined Morgan Stanley, and I'm going to assume this isn't a coincidence, their focus has increasingly been on the wealth management side of the business, which was a big change to the nineteen nineties and the two thousands, tell us a little bit about why and how this focus shifted and what your role.

Huh? Really really quite interesting. So, since you've joined Morgan Stanley, and I'm going to assume this isn't a coincidence, their focus has increasingly been on the wealth management side of the business, which was a big change to the nineteen nineties and the two thousands, tell us a little bit about why and how this focus shifted and what your role.

Is in that. Sure. So look, I think you know this is I think history is going to be extraordinarily kind to James Gorman. I think James I feel so extraordinarily lucky to have served in the firm while he was the CEO. I think, you know, strategically, you know, back during the financial crisis, he developed a vision and that vision was I believe that the wealth management business is a growth oriented business. I believe it needs scale, and I believe that when combined with the more cyclical markets based businesses or the banking based businesses, can add ballast and create shareholder value. And I think that he embraced that vision, and that vision had kind of three chapters to it. The first was, you know, let's buy Smith Barney and get physical scale, right, just the physical scale of a large number of advisors. Let's invest aggressively in technology to support those advisors. I think the second part of that growth was to say, let's transform how we serve our clients and the client segments that we serve. And they started to explore these other acquisitions. First the acquisitions of these stock plan businesses, which are essentially tech businesses, tech platform businesses, but would allow us to go from acquiring clients one at a time to in groups. And then you know, the last piece of the strategy was really you know, let's let's go after E Trade and Eat Advance and acquire those and then we'll have the machinery so that you can, you know, acquire clients at the early stages of their life cycle, allow them to be self directed, and ultimately graduate to advice, so that your financial advisors actually constantly have a source of new clients, of new wealth clients that they don't have to be at the country club every single weekend.

Is in that. Sure. So look, I think you know this is I think history is going to be extraordinarily kind to James Gorman. I think James I feel so extraordinarily lucky to have served in the firm while he was the CEO. I think, you know, strategically, you know, back during the financial crisis, he developed a vision and that vision was I believe that the wealth management business is a growth oriented business. I believe it needs scale, and I believe that when combined with the more cyclical markets based businesses or the banking based businesses, can add ballast and create shareholder value. And I think that he embraced that vision, and that vision had kind of three chapters to it. The first was, you know, let's buy Smith Barney and get physical scale, right, just the physical scale of a large number of advisors. Let's invest aggressively in technology to support those advisors. I think the second part of that growth was to say, let's transform how we serve our clients and the client segments that we serve. And they started to explore these other acquisitions. First the acquisitions of these stock plan businesses, which are essentially tech businesses, tech platform businesses, but would allow us to go from acquiring clients one at a time to in groups. And then you know, the last piece of the strategy was really you know, let's let's go after E Trade and Eat Advance and acquire those and then we'll have the machinery so that you can, you know, acquire clients at the early stages of their life cycle, allow them to be self directed, and ultimately graduate to advice, so that your financial advisors actually constantly have a source of new clients, of new wealth clients that they don't have to be at the country club every single weekend.

So what you're describing is you're starting with clients that have no minimum and they're self directed to d trade. I don't mean this in a negative way. They sort of move up or graduate to a little more full service. They want a financial plan, they want some advice, they want to think about whether it's saving for home or college, or or or retirement. And then the next step up seems to be full on wealth management, where you're dealing with philanthropy, generational wealth transfer, a lot of bells and whistles, including a state planning tax. You guys offer the full suite of.

So what you're describing is you're starting with clients that have no minimum and they're self directed to d trade. I don't mean this in a negative way. They sort of move up or graduate to a little more full service. They want a financial plan, they want some advice, they want to think about whether it's saving for home or college, or or or retirement. And then the next step up seems to be full on wealth management, where you're dealing with philanthropy, generational wealth transfer, a lot of bells and whistles, including a state planning tax. You guys offer the full suite of.

Services, absolutely, and I think one of the things that a lot of folks don't know about us is we're the eight hundred pound gorilla in actually offering alternatives to private wealth clients. You know, we are larger than some of our well known competitors by a factor, and so what that means is we're now in a position we're literally about eighty percent of the alternatives that I would show you as a client are either you know, first look, meaning we're getting the first look or or best price by a lot.

Services, absolutely, and I think one of the things that a lot of folks don't know about us is we're the eight hundred pound gorilla in actually offering alternatives to private wealth clients. You know, we are larger than some of our well known competitors by a factor, and so what that means is we're now in a position we're literally about eighty percent of the alternatives that I would show you as a client are either you know, first look, meaning we're getting the first look or or best price by a lot.

So it's funny because you mentioned Gorman taking over from his predecessor. Yeah, John macko Mac, who I've had on the show, who was just delightful. But the Mac era of Morgan Stanley seemed to have more successfully navigated the financial crisis than many of their competitors, And part of me can't help but feel that coming out of the crisis in better shape than so many others really allowed more instantly to blow up over the next fifty when when everybody else had blown up during the financial crisis in the bad way, they really bulked up in the good way. Following that is is that a fair assessment?

So it's funny because you mentioned Gorman taking over from his predecessor. Yeah, John macko Mac, who I've had on the show, who was just delightful. But the Mac era of Morgan Stanley seemed to have more successfully navigated the financial crisis than many of their competitors, And part of me can't help but feel that coming out of the crisis in better shape than so many others really allowed more instantly to blow up over the next fifty when when everybody else had blown up during the financial crisis in the bad way, they really bulked up in the good way. Following that is is that a fair assessment?

That that is a fair assessment, Barry, I think I look at it in a very particular way. A host of our competitors were forced quote unquote into the arms of the big banks, right, So the the b of a Meryll situation, right, Jp, Morgan exactly you had you had, you know, city had to make choices around Smith Barney. It was very, very hard what what Mac and James Gorman did to rescue Morgan Stanley. And literally they talk about it as an overnight rescue where half the employees were packing the boxes just like everybody else, uh, and the other half were were on the phone with colleagues in Japan. And as you may recall, what saved Morgan Stanley was a huge equity infusion from MUFG, from Mitsubishi Financial Group. And what was wonderful about that is, not only was it premised on a fantastic, you know, partnership, but it was an arms length partnership that allowed the business to be rescued but not devoured. And I think that for some of our competitors who were suddenly during the Great Financial Crisis inside you know, systemically important banks, their knees right just by sheer dint of size got squashed a little bit because the bank obviously had, you know, the CEOs of City, the CEO of Chase, the CEO at Wells, the CEO at b of A. You know, they're sitting there with the Fed and the SEC every five minutes. Now I'm not saying Morgan Stanley wasn't at those meetings, but the stakes were different because we weren't a commercial bank with a balance sheet the size that those guys have.

That that is a fair assessment, Barry, I think I look at it in a very particular way. A host of our competitors were forced quote unquote into the arms of the big banks, right, So the the b of a Meryll situation, right, Jp, Morgan exactly you had you had, you know, city had to make choices around Smith Barney. It was very, very hard what what Mac and James Gorman did to rescue Morgan Stanley. And literally they talk about it as an overnight rescue where half the employees were packing the boxes just like everybody else, uh, and the other half were were on the phone with colleagues in Japan. And as you may recall, what saved Morgan Stanley was a huge equity infusion from MUFG, from Mitsubishi Financial Group. And what was wonderful about that is, not only was it premised on a fantastic, you know, partnership, but it was an arms length partnership that allowed the business to be rescued but not devoured. And I think that for some of our competitors who were suddenly during the Great Financial Crisis inside you know, systemically important banks, their knees right just by sheer dint of size got squashed a little bit because the bank obviously had, you know, the CEOs of City, the CEO of Chase, the CEO at Wells, the CEO at b of A. You know, they're sitting there with the Fed and the SEC every five minutes. Now I'm not saying Morgan Stanley wasn't at those meetings, but the stakes were different because we weren't a commercial bank with a balance sheet the size that those guys have.

But even more importantly is you're at Alliance Bernstein. Bernstein gives up control in the merger. You're at Meryl, Meryl gives up control in the merger, third times a charm when you end up at Morgan Stanley. Mitsubishi had a substantial steak, but they didn't take a controlling steak, and the local US based management were able to continue making the choices they made. I have to think that was just a giant home run investment for our MUFG. That has to be just a giant winner for them.

But even more importantly is you're at Alliance Bernstein. Bernstein gives up control in the merger. You're at Meryl, Meryl gives up control in the merger, third times a charm when you end up at Morgan Stanley. Mitsubishi had a substantial steak, but they didn't take a controlling steak, and the local US based management were able to continue making the choices they made. I have to think that was just a giant home run investment for our MUFG. That has to be just a giant winner for them.

And I And you know, I think if again, if you go back and look at it, you know where where are the Morgan Stanley stock bottomed and where we are today? Like I said, I think the history books are going to be quite kind to mister Gorman.

And I And you know, I think if again, if you go back and look at it, you know where where are the Morgan Stanley stock bottomed and where we are today? Like I said, I think the history books are going to be quite kind to mister Gorman.

And you know, you you talked about some of the acquisitions Smith Barney, Eating Vance. I'm trying to remember the direct indexer you bought. I didn't know if it came through Eaton Vance. Yes, what was that? Parametric?

And you know, you you talked about some of the acquisitions Smith Barney, Eating Vance. I'm trying to remember the direct indexer you bought. I didn't know if it came through Eaton Vance. Yes, what was that? Parametric?

Yes? Yes, so yeah, so fantastic, Uh Memory Barry, because that has been transformational as you know, indexing, tax management, Uh, direct indexing or the ability to customize are you know, all demands and and it's a tech it's a very tech heavy business. So Parametric was buried inside of Eating Vance. It is you know definitely diamonds in the rough that we got and now is a key capability offering within the suite of products.

Yes? Yes, so yeah, so fantastic, Uh Memory Barry, because that has been transformational as you know, indexing, tax management, Uh, direct indexing or the ability to customize are you know, all demands and and it's a tech it's a very tech heavy business. So Parametric was buried inside of Eating Vance. It is you know definitely diamonds in the rough that we got and now is a key capability offering within the suite of products.

Huh. Really fascinating. So let's talk a little bit about what's going on these days, and I want to start with a quote of yours that I really like. We're all long term investors until the market goes down, and we're recording this in the midst of a pretty healthy sell off in February and March, especially now that the new North American tariffs seem to be taking place. Tell us, what why do we give up our long term perspectives once the market starts heading south.

Huh. Really fascinating. So let's talk a little bit about what's going on these days, and I want to start with a quote of yours that I really like. We're all long term investors until the market goes down, and we're recording this in the midst of a pretty healthy sell off in February and March, especially now that the new North American tariffs seem to be taking place. Tell us, what why do we give up our long term perspectives once the market starts heading south.

So there's the emotions and then there's the math, right, So what I always say is that you know what the Nobel Prize winners and behavioral economics will tell you is that emotionally, losses hurt four to five times more than gains satisfy. And that's actually intuitively appropriate because typically our wealth, we feel it has taken blood, sweat and tears to acquire or accumulate. And when we experience a loss, right, a fifty percent loss can happen right in a very short period of time, But to round trip and recover our high water mark. We've got to be up one hundred percent, right, which may take us twice the three times as long. And so the math is asymmetric. The emotions are asymmetric, and fear, as we know, just the same way. When things are running hard and you feel like you've got the pomo and the missing out, it's greed. When you know there's a lot of red on the screen, people are you know, your stomach's you know, totally seizing up, and it's about fear. I don't want to experience loss. I don't want to have to make a decision of what do I do here?

So there's the emotions and then there's the math, right, So what I always say is that you know what the Nobel Prize winners and behavioral economics will tell you is that emotionally, losses hurt four to five times more than gains satisfy. And that's actually intuitively appropriate because typically our wealth, we feel it has taken blood, sweat and tears to acquire or accumulate. And when we experience a loss, right, a fifty percent loss can happen right in a very short period of time, But to round trip and recover our high water mark. We've got to be up one hundred percent, right, which may take us twice the three times as long. And so the math is asymmetric. The emotions are asymmetric, and fear, as we know, just the same way. When things are running hard and you feel like you've got the pomo and the missing out, it's greed. When you know there's a lot of red on the screen, people are you know, your stomach's you know, totally seizing up, and it's about fear. I don't want to experience loss. I don't want to have to make a decision of what do I do here?

Yeah, the asymmetries are really fascinating. I am not a fan of Vegas or casinos, but I go there as a sociologist and I always find it amusing that right off the casino floor is a big, beautiful jewelry store filled with lots of expensive watches, and because those gains, it's house money. It's ephemeral, but losses are an existential thread. It currently feels like the world is coming to an end. Exact for get down fifty percent. We're recording this five six, seven percent off the highs and people are talking like it's the end of the world. Let's talk about another one of your quotes, that kind of quote my eye, which was discussing the Great normalization? What is the Great normalization?

Yeah, the asymmetries are really fascinating. I am not a fan of Vegas or casinos, but I go there as a sociologist and I always find it amusing that right off the casino floor is a big, beautiful jewelry store filled with lots of expensive watches, and because those gains, it's house money. It's ephemeral, but losses are an existential thread. It currently feels like the world is coming to an end. Exact for get down fifty percent. We're recording this five six, seven percent off the highs and people are talking like it's the end of the world. Let's talk about another one of your quotes, that kind of quote my eye, which was discussing the Great normalization? What is the Great normalization?

So, you know, we've been trying to remind clients how extraordinary in financial history the past fifteen years have been. Since the Great Financial Crisis, We've had an unprecedented level of Federal Reserve involvement. We've had markets that have been buttressed by the Federal Reserve balance sheet, that have been buttressed by a disproportioned amount of time having financial repression or low rates, rates being held down. We've had gone through the COVID crisis, which stimulated unprecedented fiscal stimulus. As a share of GDP and performance, what clients have actually experienced If you go back to March of two thousand and nine, right, and you and I remember March of two thousand and nine, the bottom we were probably looking at an S and P five hundred that was trading in the mid six hundred.

So, you know, we've been trying to remind clients how extraordinary in financial history the past fifteen years have been. Since the Great Financial Crisis, We've had an unprecedented level of Federal Reserve involvement. We've had markets that have been buttressed by the Federal Reserve balance sheet, that have been buttressed by a disproportioned amount of time having financial repression or low rates, rates being held down. We've had gone through the COVID crisis, which stimulated unprecedented fiscal stimulus. As a share of GDP and performance, what clients have actually experienced If you go back to March of two thousand and nine, right, and you and I remember March of two thousand and nine, the bottom we were probably looking at an S and P five hundred that was trading in the mid six hundred.

Sixty six six. I remember the devil's bottom.

Sixty six six. I remember the devil's bottom.

The devil's bottom, and look at where we are now. Even though we're off, we're still up. During that time nine x nine x over fifteen years. So I tell people what, let's put this in perspective, What that kind of mathematically translates to is we've for fifteen years, we've compounded at about fifteen percent per year. So that's two times normal for a business cycle. Let's call it a you know, where we had two very short recessions, two back to back very long business cycles. Not normal. What was also not normal is during that time the degree to which US exceptionalism and the US outperformed the rest of the world. I mean, we were outperforming every year, year in year out by six hundred and seven hundred basis points per year. And so when we you know, kind of came into January of twenty twenty five, we were starting to talk to folks about, look at where the dollar is versus virtually every other currency, super strong. Look at the share of US equities versus the rest of the world. We're ten percent of the world's population, we're twenty five percent of the world's GDP, we're thirty three percent of global corporate profits, but we were sixty seven percent of all stock market gap just extreme. And so what we were starting to talk to clients about is, look, this is an extraordinary amount of large s, and a lot of it has come from FED accommodation from stimulus. Now we're on the other side of that. We have a very robust economy. We've relevered the economy, if you will. Where the leverage of the private sector, the household sector, the corporate sector that got us into the Great financial crisis that's been healed. Right. We have households that can still carry for the most part, their interest burdens.

The devil's bottom, and look at where we are now. Even though we're off, we're still up. During that time nine x nine x over fifteen years. So I tell people what, let's put this in perspective, What that kind of mathematically translates to is we've for fifteen years, we've compounded at about fifteen percent per year. So that's two times normal for a business cycle. Let's call it a you know, where we had two very short recessions, two back to back very long business cycles. Not normal. What was also not normal is during that time the degree to which US exceptionalism and the US outperformed the rest of the world. I mean, we were outperforming every year, year in year out by six hundred and seven hundred basis points per year. And so when we you know, kind of came into January of twenty twenty five, we were starting to talk to folks about, look at where the dollar is versus virtually every other currency, super strong. Look at the share of US equities versus the rest of the world. We're ten percent of the world's population, we're twenty five percent of the world's GDP, we're thirty three percent of global corporate profits, but we were sixty seven percent of all stock market gap just extreme. And so what we were starting to talk to clients about is, look, this is an extraordinary amount of large s, and a lot of it has come from FED accommodation from stimulus. Now we're on the other side of that. We have a very robust economy. We've relevered the economy, if you will. Where the leverage of the private sector, the household sector, the corporate sector that got us into the Great financial crisis that's been healed. Right. We have households that can still carry for the most part, their interest burdens.

Very very low historically.

Very very low historically.

Right.

Right.

It's not the total debt, it's the debt relative to discretionary come exactly exactly.

It's not the total debt, it's the debt relative to discretionary come exactly exactly.

Corporations that still have an extraordinarily relative low locked in cost to capital. And what's become relevered is the federal balance sheet and the government balance sheet. And now here we are in every couple of decades, we have to go through these periods where there's heat in the economy, and inflation is one manifestation of the heat. Real growth and investment is another manifestation of the heat. But the other manifestation is you probably have overdone it on the stimulus and you've got to pull it back and there's going to be some pain. So when we talk about normalization. We say, look, we're not going back to two percent interest rates, normal cost of capital in an economy like Americas that has real fundamental growth of two percent and real inflation or experienced inflation of two and a half to three, which is what we've had for the last eighty years, right, not two percent target that the Fed says. Right. What that tells you is that long term rates used to be normal at five to six percent, right, that's not crazy, right, and yet the market continued to sell it at twenty two times forward multiple. So what we've been saying is part of the great normalization is over the next couple of years, we think long rates start to move towards five to six percent like they were in the aughts, in the two thousands and in the nineties, right, and multiples start mean reverting a little bit to seventeen. And that's the great normalization. Your earnings actually start growing into those multiples.

Corporations that still have an extraordinarily relative low locked in cost to capital. And what's become relevered is the federal balance sheet and the government balance sheet. And now here we are in every couple of decades, we have to go through these periods where there's heat in the economy, and inflation is one manifestation of the heat. Real growth and investment is another manifestation of the heat. But the other manifestation is you probably have overdone it on the stimulus and you've got to pull it back and there's going to be some pain. So when we talk about normalization. We say, look, we're not going back to two percent interest rates, normal cost of capital in an economy like Americas that has real fundamental growth of two percent and real inflation or experienced inflation of two and a half to three, which is what we've had for the last eighty years, right, not two percent target that the Fed says. Right. What that tells you is that long term rates used to be normal at five to six percent, right, that's not crazy, right, and yet the market continued to sell it at twenty two times forward multiple. So what we've been saying is part of the great normalization is over the next couple of years, we think long rates start to move towards five to six percent like they were in the aughts, in the two thousands and in the nineties, right, and multiples start mean reverting a little bit to seventeen. And that's the great normalization. Your earnings actually start growing into those multiples.

You mentioned the two percent target of the Federal Reserve. Did you work with Roger Ferguson when he was at Meryl. No, I did not, But he eventually became vice chairman of the Federal Reserve. Yes, and put out this delightful research piece that said the two percent inflation target comes from a New Zealand television show in the nineteen eighties and it has nothing whatsoever to do with the modern economy. I'm to this day delighted by that. And I don't understand why the Federal Reserve continues to be so locked in on two percent, which we had in the twenty tens when yes, deflation was at risk. Correct Now that we've moved from a monetary regime to a physical regime, three percent seems to make more sense and we're there, We're there. I don't know why they're stuck on that. I think they're just afraid of making mistake Again. Part of the normalization that, hey, the Fed's a little behind the curve with what's going on in the rest of the economy.

You mentioned the two percent target of the Federal Reserve. Did you work with Roger Ferguson when he was at Meryl. No, I did not, But he eventually became vice chairman of the Federal Reserve. Yes, and put out this delightful research piece that said the two percent inflation target comes from a New Zealand television show in the nineteen eighties and it has nothing whatsoever to do with the modern economy. I'm to this day delighted by that. And I don't understand why the Federal Reserve continues to be so locked in on two percent, which we had in the twenty tens when yes, deflation was at risk. Correct Now that we've moved from a monetary regime to a physical regime, three percent seems to make more sense and we're there, We're there. I don't know why they're stuck on that. I think they're just afraid of making mistake Again. Part of the normalization that, hey, the Fed's a little behind the curve with what's going on in the rest of the economy.

No, exactly, And I think one of the things that has the market having to adjust is this idea of a data driven FED. Right in a world where the Fed's the only headline and the FED is giving forward guidance, it's really easy to have low vall and for everyone to just ride momentum. But in a normal world where the FED has to respond to economic data, you and I know economic data is a manifestation of human behavior. It's volatile, right, So the FED is going to be more volatile. Policy is going to be more volatile. It means your interest rate curve, your yield curve, needs to have some term premium in it. Remember that. And that's part of the Great normalization. You know. I do the math when I do some of my chats with the younger folks on the team, and I say, okay, real growth, inflation, term premium, see this thing. It's been zero or negative for the last fifteen years. That's not normal.

No, exactly, And I think one of the things that has the market having to adjust is this idea of a data driven FED. Right in a world where the Fed's the only headline and the FED is giving forward guidance, it's really easy to have low vall and for everyone to just ride momentum. But in a normal world where the FED has to respond to economic data, you and I know economic data is a manifestation of human behavior. It's volatile, right, So the FED is going to be more volatile. Policy is going to be more volatile. It means your interest rate curve, your yield curve, needs to have some term premium in it. Remember that. And that's part of the Great normalization. You know. I do the math when I do some of my chats with the younger folks on the team, and I say, okay, real growth, inflation, term premium, see this thing. It's been zero or negative for the last fifteen years. That's not normal.

So wait, you're saying the thirty year bond should pay a higher yield than the ten year bond, higher than the two year. Yes, I'm not familiar with. It's been opposite for me, exactly. It's so hard.

So wait, you're saying the thirty year bond should pay a higher yield than the ten year bond, higher than the two year. Yes, I'm not familiar with. It's been opposite for me, exactly. It's so hard.

Exactly.

Exactly.

So another quote of yours, which I assume is related to this, is the era of set it and forget it is over? Is that what we're saying here?

So another quote of yours, which I assume is related to this, is the era of set it and forget it is over? Is that what we're saying here?

Yes, exactly. So you know what comes out of this idea of the Great normalization is it's also an era where we can't just passively close our eyes. By the S and P five hundred market cap weighted index and go to bed. It was a great fifteen year run. But our view is that as cost of capital readjusts as it's actually a positive number. This is where the skill of corporate management starts to differentiate winners and losers. And we move back to a world, right, and you and I grew up in this world, that that fun world where you're actually stock picking, where the research that individual fundamental analysts were doing mattered and you had to say, hey, hey, these guys are going to win because these management teams are taking strategies that can work, and these management teams are dropping the ball.

Yes, exactly. So you know what comes out of this idea of the Great normalization is it's also an era where we can't just passively close our eyes. By the S and P five hundred market cap weighted index and go to bed. It was a great fifteen year run. But our view is that as cost of capital readjusts as it's actually a positive number. This is where the skill of corporate management starts to differentiate winners and losers. And we move back to a world, right, and you and I grew up in this world, that that fun world where you're actually stock picking, where the research that individual fundamental analysts were doing mattered and you had to say, hey, hey, these guys are going to win because these management teams are taking strategies that can work, and these management teams are dropping the ball.

Huh. Really really super interesting given all of these changes that we're witnessing. And again this is something else you've written about, how do you separate the signal from the noise? What's your process for filtering out what's just the noisy data that's within the margin of error or just slightly beyond and genuine important market information.

Huh. Really really super interesting given all of these changes that we're witnessing. And again this is something else you've written about, how do you separate the signal from the noise? What's your process for filtering out what's just the noisy data that's within the margin of error or just slightly beyond and genuine important market information.

So this is the art, right, This is the art of all of it, is separating the noise in the signal. For us, the signal is always operates ultimately on just two axes. Is what's really going on in terms of the rate of change? In growth and what is going on in terms of the rate of change of inflation, because the rate of change of inflation is going to give you an indication of policy bias, of rate bias. And if you can focus on those two things and every single piece of data you get, you say, what does this mean for growth? What does this mean for inflation? You can try to keep yourself sane at night.

So this is the art, right, This is the art of all of it, is separating the noise in the signal. For us, the signal is always operates ultimately on just two axes. Is what's really going on in terms of the rate of change? In growth and what is going on in terms of the rate of change of inflation, because the rate of change of inflation is going to give you an indication of policy bias, of rate bias. And if you can focus on those two things and every single piece of data you get, you say, what does this mean for growth? What does this mean for inflation? You can try to keep yourself sane at night.

Huh So, I'm curious as to February was a tough month. We've seen volatility spike now up to twenty three or so. I haven't even looked at it today with markets off a couple of percent. The questions you're getting from clients, what are you hearing, What are you hearing about tariffs, about the post election regime change, about what's going on in geopolitics, what's lighting your phone up? And what are you telling these folks?

Huh So, I'm curious as to February was a tough month. We've seen volatility spike now up to twenty three or so. I haven't even looked at it today with markets off a couple of percent. The questions you're getting from clients, what are you hearing, What are you hearing about tariffs, about the post election regime change, about what's going on in geopolitics, what's lighting your phone up? And what are you telling these folks?

You know, obviously we would love to spend the bulk of our time talking about asset allocation as it corresponds to growth and inflation. Unfortunately, exactly to your point, Barry, we're spending a disproportionate amount of time out of our comfort zone being asked to respond to our understanding and our expectations for the economic impacts of policy, and what has complicated things, as you know, is that this administration has chosen to implement policy fast and furious, and in many cases quote unquote in parallel, right. I think that, you know, coming off of the election, coming off of the campaign season, a lot of us were trying, you know, to build models based on well, they're going to sequence things right, They're gonna you know, deliver some of the bad news early and then you know the candy will come at the end. I think what we're experiencing, especially after the last fifteen years of this kind of one or two note market right where it's been, what is the FED saying, oh generative AI looks like good headlines to seventeen lines a day of policy flood the zone. So clients are asking for certainty, they're asking for clarity, and it's hard. I'm going to be honest with you. So, look, we're in the camp and this is a pure economic view. I hope I'm not going to be accused of being political. Pure economists will tell you that tariffs, particularly if implemented over long periods of time and to the extent that they cause trade war reciprocity tend to be destructive to total global trade, and aggregate tend to be a one time inflationary problem and tend you know, to to really you know, kind of hurt the efficiency of markets, and so I think we're seeing some of that. I think it's very hard for CEOs and CFOs today to be making decisions not knowing what the policy duration is going to be. It's one thing to have a policy and say, okay, we're deregulating X, or here's the new tax policy for the next four years. I can work with that. When you tell me we're having twenty five percent tariffs on lumber, well how long, how much? Where aw's it going? You know? I think that's the big question is is the inconsistency of it and the questions of is this a negotiating tactic, what are we negotiating for? How do I model it?

You know, obviously we would love to spend the bulk of our time talking about asset allocation as it corresponds to growth and inflation. Unfortunately, exactly to your point, Barry, we're spending a disproportionate amount of time out of our comfort zone being asked to respond to our understanding and our expectations for the economic impacts of policy, and what has complicated things, as you know, is that this administration has chosen to implement policy fast and furious, and in many cases quote unquote in parallel, right. I think that, you know, coming off of the election, coming off of the campaign season, a lot of us were trying, you know, to build models based on well, they're going to sequence things right, They're gonna you know, deliver some of the bad news early and then you know the candy will come at the end. I think what we're experiencing, especially after the last fifteen years of this kind of one or two note market right where it's been, what is the FED saying, oh generative AI looks like good headlines to seventeen lines a day of policy flood the zone. So clients are asking for certainty, they're asking for clarity, and it's hard. I'm going to be honest with you. So, look, we're in the camp and this is a pure economic view. I hope I'm not going to be accused of being political. Pure economists will tell you that tariffs, particularly if implemented over long periods of time and to the extent that they cause trade war reciprocity tend to be destructive to total global trade, and aggregate tend to be a one time inflationary problem and tend you know, to to really you know, kind of hurt the efficiency of markets, and so I think we're seeing some of that. I think it's very hard for CEOs and CFOs today to be making decisions not knowing what the policy duration is going to be. It's one thing to have a policy and say, okay, we're deregulating X, or here's the new tax policy for the next four years. I can work with that. When you tell me we're having twenty five percent tariffs on lumber, well how long, how much? Where aw's it going? You know? I think that's the big question is is the inconsistency of it and the questions of is this a negotiating tactic, what are we negotiating for? How do I model it?

That kind of thing, And you know, it's really hard to get a handle on this because let's just use Canada and Mexico. The first tariff was floated and then it was quickly resolved and it felt, oh, this is just a negotiating tactic. The effect of the second twenty five percent tariffs on Mexico and Canada and ten percent tariffs on China. And it's not only surprising that it was done, it's kind of perplexing. What are we getting out of the tariffs with Canada When you look at some of the supposed bases for this. The fentanyl that comes into the United States is mostly brought in by US citizens and smugglers. It's not coming in from either Canadian lumber or oil, or televisions that are being built in Mexico and sent over the border. It's you know, it's kind of odd, especially given the North American Free Trade Agreement that was negotiated to replace NAFTA was Trump's tready. So the whole thing is kind of you know, clients don't like to hear you say I have no idea what's going on, and beware of people who say they do. But it really feels like this is sort of arbitrary and capricious, and we don't really know how this resolves. It's sort of grit your teeth and write it out. Is brace yourself, mauthora. That's what it feels like.

That kind of thing, And you know, it's really hard to get a handle on this because let's just use Canada and Mexico. The first tariff was floated and then it was quickly resolved and it felt, oh, this is just a negotiating tactic. The effect of the second twenty five percent tariffs on Mexico and Canada and ten percent tariffs on China. And it's not only surprising that it was done, it's kind of perplexing. What are we getting out of the tariffs with Canada When you look at some of the supposed bases for this. The fentanyl that comes into the United States is mostly brought in by US citizens and smugglers. It's not coming in from either Canadian lumber or oil, or televisions that are being built in Mexico and sent over the border. It's you know, it's kind of odd, especially given the North American Free Trade Agreement that was negotiated to replace NAFTA was Trump's tready. So the whole thing is kind of you know, clients don't like to hear you say I have no idea what's going on, and beware of people who say they do. But it really feels like this is sort of arbitrary and capricious, and we don't really know how this resolves. It's sort of grit your teeth and write it out. Is brace yourself, mauthora. That's what it feels like.

Just hold on and the way I always frame things, as I say to people, look what kind of risk premiums are there in the markets? When stocks are very expensive, as they have been for a while, here, it tells you risk premiums are tight. Right, things are quote unquote price for perfection. When credit spreads are tight, it tells you people are not requiring a premium for fear or default or uncertainty. Right when there are no term premiums in the in the United States Treasury curve, it's telling you the same thing. So look, if this were all happening against a backdrop where stocks were selling it fifteen times, where you know we had eight hundred you know, basis points, spreads in high yield, all this kind of stuff, you and I might be saying, Hey, guys, yes there's uncertainty, but this is a buying opportunity. Look, you know things are selling off off of fifteen multiple. Where do you think they're going to land at thirteen? We're going to buy here, but we're not there. Markets hate uncertainty, and they really hate uncertainty. When things are priced for perfection.