The Compound and Friends: The World You Knew Is Never Coming Back with Morgan Stanley’s Michael Zezas
On episode 247 of The Compound and Friends, Michael Batnick and Downtown Josh Brown
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The Compound and Friends: The World You Knew Is Never Coming Back with Morgan Stanley’s Michael Zezas
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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.
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Transcript
Josh Brown: We are going to have so much fun.
Michael Zezas: All right.
Josh Brown: I promise.
Michael Zezas: I like that.
Josh Brown: Thank you for coming.
Michael Zezas: Yeah, thanks for having me.
C: So you know who Michael is friends with? It's not Graham. It's Colin. But I knew he came from somebody.
Josh Brown: Colin Roche?
Michael Zezas: Yeah.
Josh Brown: Oh, I love Colin Roach. How do you know?
Michael Zezas: College.
Josh Brown: Oh, you kidding me? Yeah, but I just watched on the. On the. On the train home.
C: Yeah.
Michael Zezas: Larry of Arabia.
Josh Brown: Are you going to listen to me?
Michael Zezas: Yes.
Josh Brown: It's four hours. You're going to have to watch it like a TV show.
C: I watch like a TV show. I watch, like, 40 minutes a night.
Josh Brown: It's four hours. But they digitally restored it for Netflix.
C: Is that with Jake Gyllenhaal?
Josh Brown: Yeah. No, it's from 1962. Everyone's dead. Some of. Some of the best actors who ever lived. Like, literally whoever lived. And I'll let you watch it. I won't tell you anymore.
C: Thank you.
Josh Brown: Thank you for talking about Freaky Friday.
C: Thank you for spoiling disclosures.
Michael Zezas: That doesn't sound like something I was going to put anything.
Josh Brown: Lawrence. Lawrence of Arabia, digitally remastered for Netflix.
C: So, Michael, I'm a. I'm a big movie fan.
Michael Zezas: Okay.
C: To the extent that I kind of like to raw dog everything. Meaning don't. I don't want to know anything. Like, you can't avoid that. 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 to with. With clean eyes. Because I'm very. I'm easily manipulated or influenced. The bar set too high. The bar set too low. So Josh gave a full review yesterday
Michael Zezas: without me asking of decision or it was.
C: He's like, the aliens warned that, you know, I'm not going to ruin for anybody else like you.
Josh Brown: Sorry, I didn't mean to do that. I gave a full. No, I was talking to you like you saw it already. Because.
C: Full review.
Josh Brown: Seven. Seven out of ten.
Michael Zezas: Well, listen, I do most of my movie watching on an airplane these days, so.
C: Huge airplane movie guy.
Michael Zezas: Yeah, I saw.
Josh Brown: 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 gonna go in the theater. It was like.
Michael Zezas: Yeah, there was that whole, like, guerrilla marketing campaign about it, right? That, like, secretly was actually gonna disclose that there were aliens.
Josh Brown: Yes.
Michael Zezas: That didn't happen.
Josh Brown: Wait, did we get. Did we get a. Did we. Did we decide.
C: Oh, yes. You were Right.
Josh Brown: I'm right.
Michael Zezas: He said, like, don't know how to say the name.
Josh Brown: And I said, that's like.
C: That's what Josh said.
Josh Brown: My instinct was Zeus.
Michael Zezas: Yeah, that's right. Yeah, that's right. Okay.
C: I thought the Z might be silent. I wasn't sure.
Michael Zezas: No, no, it's a Greek name. And you know what? We say it wrong. Like, Zezus is the way my family says it, but it should be something more like Zezas or something like that.
Josh Brown: Oh, really?
Michael Zezas: Yeah, that's too. Well, exactly. I'm like. I don't even say it the right way. It's Ezus, rhymes with Jesus.
Josh Brown: I had another question.
Michael Zezas: Yeah.
Josh Brown: You're the deputy.
Michael Zezas: Yeah.
Josh Brown: Who's the head of research?
Michael Zezas: Katie Huberty.
Josh Brown: I didn't know that. All right, all right.
Michael Zezas: Buck stops with her.
Josh Brown: Yeah, all right. I did know that. She's great. All right. How we looking? We doing good? Yep. He's an important man, Johnny.
Michael Zezas: You're only in my own mind.
C: Are you watching the World Cup?
Josh Brown: What office do you work in?
Michael Zezas: 1585.
Josh Brown: Okay.
Michael Zezas: Times Square. Yeah.
Josh Brown: All right.
Michael Zezas: Yeah.
Josh Brown: How long have you been in that office?
Michael Zezas: That office? Since 2010. I've been with Morgan Stanley for 19 years. A part of that was in 522 Fifth Avenue when we still had that place.
Josh Brown: Okay. Do you interact with the wealth guys?
D: Oh, yeah.
Josh Brown: Do you?
Michael Zezas: It started in wealth, actually.
Josh Brown: Yeah.
Michael Zezas: Yeah, we had this SMA platform in wealth management, and that's. I got started in munis and corporates there.
Josh Brown: Yep. Okay. All right, cool. We're gonna have. I promise we're gonna have some fun today. Good. All right, good. We're good to go. All right, do the click. Nicole.
C: Whoa, whoa, whoa. Stop the clock. Here's a word from our sponsor.
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D: Welcome to the Compound and Friends. All opinions expressed by Josh Brown, Michael Batnik and their castmates are solely their own opinions and do not reflect the opinion of Redholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast.
Josh Brown: Ladies and gentlemen, welcome to what did we say 247 episode 247 of the compound and Friends. My name is Downtown Josh Brown here with my co host Mr. Michael Batnik.
D: Hello.
Josh Brown: Hello Michael. I swear this gets more serious as it goes on. Michael. Michael Zesus 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 US 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 gradings as an all star first team member from 2014 to 2021. Of course in 2022 he fell off.
Michael Zezas: Yeah, it was a tough year.
Josh Brown: Things haven't been as good since then. But we are going to revive his career today.
Michael Zezas: Let's do it. All right.
C: Dude.
Josh Brown: Thank you for being here.
Michael Zezas: I really appreciate it.
Josh Brown: So Morgan Stanley, they seem to be doing okay.
Michael Zezas: Yeah, not bad. Okay, not bad. As a shareholder I'm pretty happy.
Josh Brown: I think that. I think Gorman was incredible. And you don't have to agree, but I'm sure you agree But I do okay. Just he figured out if we're gonna 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.
Michael Zezas: Seems, it seems pretty logical.
Josh Brown: 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 to 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 there. I mean, do you know if it is or I think it is.
Michael Zezas: That sounds right. I don't know exactly.
Josh Brown: But I mean, $20 trillion.
Michael Zezas: Yeah, that's what. In terms of very confident in my assertion.
Josh Brown: 20 trillion.
C: Yeah.
Michael Zezas: All right.
Josh Brown: That's right.
Michael Zezas: No, and I, I know you played
Josh Brown: a big part in that, but I'm just saying.
Michael Zezas: Yeah, well, like a little part for the fears. Awesome. But 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 had something to do with that too, and the ability for us to leverage that and to turn it into solutions for clients. So. Okay, still doing plenty of that.
Josh Brown: Well, whatever you guys are doing, it worked.
C: All right, how did 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.
Michael Zezas: Yeah, Well, I think it has a lot to do with how munis changed in, you know, like, like 2008, 2009. Right. So before that and before the financial crisis, everything in Muniland was wrapped by the monoline 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 60 Minutes.
Josh Brown: Were you in the, you were on the muni side when that Meredith Whitney scare.
Michael Zezas: Oh, yeah. Oh yeah. I mean, and I remember talking to hedge funds at that time, trying to explain the difference between greasinging the rollover Debt that was like 150% of its revenue in any given year versus California, which is paying like 5% in P and I. Right. And so getting into those discussions, you realize the public policy aspect of municipal credit was really, really important to clients. A micro level. And then in terms of defining returns, it's fixed income product. So you were going to have to have a view about all the different 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 muni strategist 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 tender and say this looks a little bit better than that one, like
Josh Brown: let's, oh, buy the hospitals, not the roads.
Michael Zezas: Yeah, right, right.
Josh Brown: There's my research.
Michael Zezas: 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 healthcare policy. And so I got in the practice of having to be effectively like a D.C. watcher or D.C. 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, 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 on 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 good stretch assignment. And then of course when he wins, the questions ever stopped. It became this kind of permanent research.
Josh Brown: So that's how you become like the public policy research guy with the bank?
Michael Zezas: Pretty much, yeah. Not by design, by accident. I felt like most of my good career moves have been by Accident as opposed to design.
Josh Brown: Yeah. So. All right, but. So everyone in the industry is getting those questions.
Michael Zezas: Yeah.
Josh Brown: So. But you are at that time at one of the largest investment banks in the world.
Michael Zezas: Yeah.
Josh Brown: So I would imagine the volume is higher.
Michael Zezas: Yeah.
Josh Brown: But also the level at which people are making investment decisions based on what you say is significant.
Michael Zezas: Yeah.
Josh Brown: You were also in uncharted waters. We had never seen a first presidential term like that.
Michael Zezas: Yeah.
Josh Brown: So how did you. 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?
Michael Zezas: 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 what I thought a 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, now let's 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, we're like, okay, if tax policy happens this way versus that way, it's going to mean this fundamentally for this sector. Let's compare it to valuation and let's. Right. So there was 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, credit to my colleagues and to the culture of Morgan Stanley. From there, it did start feeling like we were chasing our tail a little bit. And this is where I always try to. If I can carve out time to be like, can we step back and put together a secular theme or a framework that 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 the question, hey, like, when is this going back to business as usual? Okay. Like, you know, we were starting to flirt with tariffs. Those didn't come into play in 2018, 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.
Josh Brown: 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. These were not trivial things. Now, we look back and we laugh because none of those bombs actually detonated and did any lasting damage. But in that moment, market participants were shocked. Like, oh, wait a minute, the White House is now a player on the chessboard.
Michael Zezas: Yeah.
Josh Brown: And is the queen, frankly.
Michael Zezas: Right. So we'd be taking those style questions from hedge fund managers, but then, you know, official institutions, overseas, central banks would be like, okay, just like, tell us how long we need to like white knuckle this until things go back to normal.
Josh Brown: And then when is it going to be 2005 again?
Michael Zezas: Right, yeah. And so 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. Like Jake Sullivan, who was National Security Advisor under Biden, talks about as the new Washington Consensus. It's sort of very clear in hindsight, but the old Washington consensus was like, whether you're Republican or Democrat, going back to the early 80s all the way, 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. Soft power in the US Is a good idea. And now if you look at voter attitudes, they're like, we don't really see the value in any of that now. Maybe they don't see the value in jacking tariffs up all the way or going to war in the Middle east, or at least 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 US led principles based laissez faire economics, international economic system, that everyone could that benefit them. Right. Or at least they didn't see those benefits.
Josh Brown: Right, 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. Like, yeah, 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 yeah, they just looked around 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. Right. I want to vote for volatility. I want somebody to break everything.
Michael Zezas: Yeah. And so, like, you could see that right in front of your face. 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, you're explaining, you're losing. Right. Like, so that's not to say that voters have elected the optimal outcome here, but it's what they've chosen. Right.
Josh Brown: So you arrived at that in the late 20 teens. Like, not only is this very different, but also it's not going back.
C: Yeah.
Josh Brown: And it's probably going further.
Michael Zezas: Yeah. And so this was the genesis of our whole multipolar world thematic.
Josh Brown: So brag about that because you were right. 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.
Michael Zezas: Yeah.
Josh Brown: Okay.
Michael Zezas: 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 real tangible investable themes. Because I think we said with a high degree of confidence, trade barriers are going up, they're not coming down. And obviously Biden was president in between Trump's two terms, and we always run an investor survey ahead of the election. In the investor survey ahead of 2020, most investors said 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 gonna take tariffs down, we're gonna roll them back.
Josh Brown: And then we didn't.
Michael Zezas: Which was wrong because first of all, it's not as if the Democrats and Biden wanted to go back to some free 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 the direction of travel and 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 a better term, reindustrialization, reshoring on shoring,
Josh Brown: whatever you want to call it.
Michael Zezas: Yeah. And then of course with the US sort of exercising a different stature on the global stage and some of these geopolitical conflicts coming together, Russia, Ukraine, now the US and Iran sort of highlighting some very critical choke points. Corporate America, C suites across the globe kind of get the message we can no longer sort of optimize for globalization. We need what our investment bankers call an antifragile 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 US or trade bearers. To say we don't want people doing this kind of business in China and takes a long time and a lot of money to reward.
Josh Brown: I would say no stock better exemplifies what you're talking about than Intel. So this is a company that was ridiculed for having adopted this strategy of we're going to be the fab that's based in North America, not Taiwan, and we are going to build microchip plants in Arizona because of course, and the stock price, I think derates, I don't know, 20 multiple points. It's almost like a single digit. It almost trades like an automaker and then they start losing money. And all of a sudden there's this idea driven in part by what you're 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. And then you see a stock go from, I don't know where it was, $15 to $80.
Michael Zezas: Yeah.
Josh Brown: And that's a lot of market cap along the way. Do you think that's like sort of what we're, what we're getting at?
Michael Zezas: Yeah. And it's a good example here of some of the policy continuity. Right. Because obviously the government took a stake. Where did they.
Josh Brown: Right. They take a stake in intel, which is a big departure.
Michael Zezas: 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 we're starting to get questions about the midterms and 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 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 you know, it almost doesn't even matter what the answer to that question is.
Josh Brown: But like, you know, it's good for winning elections. So that's, that's why it's the policy.
Michael Zezas: Well, and, and either way, we're going to spend trillions of dollars trying to figure it out.
C: Michael, I think it's, 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.
Josh Brown: Yeah.
C: And I think maybe this has an inkling to do 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 what. How investors are going to react to that.
Michael Zezas: Yeah.
C: And now it's like, well, f all that, that's just go to the straight to the source, like, will this happen? Yes or no? I don't have to bet on this.
Josh Brown: And then will the Democrats take the House or not? I don't need to figure out what stocks to buy.
C: Right.
Michael Zezas: Will CPI come in?
C: Will CPI come in hot or cold? And then I have to figure out, well, man, are stocks extended?
Josh Brown: Do I buy gold? Do I sell gold?
Michael Zezas: Yeah, no, listen, if you're talking about a sort of. First of all, we really like prediction markets as another probability assessment. What's going to happen? I don't think I have any edge on predicting election outcomes. We, you know, we know the uncertainties 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 few cycles would have been all that surprising. Prediction markets, I think, are just another very useful comparison to the polls. And they help you with that. Yeah, I mean, to the extent you want to express a pure view on a certain outcome, like 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? And that's far more complicated because just
C: tying policy, and sorry to cut you off, but tying policy to investing, that's not easy. It's intellectually very stimulating. But that's really hard.
Michael Zezas: Well, because my thought is this. If you understand the long term implications of a policy choice, which can't be done in a vacuum. If we think going into last year, okay, we knew tariffs were going higher, were they going to go as high as the average effective rate of 30%, which is where things were going on Liberation Day, where they're going to settle somewhere in between. We have the base case written down of somewhere in between. I think the average effective rate is sitting in the 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 in 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 the consumer analysts and anyone else who's affected by it to make sure that like, okay, 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, we don't really put together playbooks like this policy equals
Josh Brown: X or yeah, it's got things happening.
Michael Zezas: It's a multivariable problem.
Josh Brown: Well, that's a great example. So last year, if in January I had told you two months from now, the president's gonna sit in the Rose Garden and put this poster board up with specific tariffs for every country. And some of them are gonna be insane levels that nobody has in their estimates. And then he's gonna reverse because the stock market's gonna have a negative reaction, but still they're gonna be 15%, let's say, and in some industries, higher. And there's still gonna 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 5x higher.
Michael Zezas: Yeah.
Josh Brown: So what. 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. So that's why it's to Michael's question, like even if you nail the outcome of a policy.
Michael Zezas: Yeah. It has to be considered. Yeah. Multivariate.
Josh Brown: There's too many other things.
Michael Zezas: 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 a day. Yeah. And we're not 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, I like to think that 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 our readership data, our follow on engagement data. That's what they like. If you're doing collaborative work, you're going to get more than one standard deviation engagement than other folks. And it's also by the way, like what LLMs have a hard time doing. So we're just going to lean more
Josh Brown: and more into what is what LLMs have a hard time doing.
Michael Zezas: Doing basically like with a simple cross
Josh Brown: asset or cross discipline.
Michael Zezas: Cross discipline, cross asset. And like listen, maybe there are some agent orchestrations in the future which might help with that. But 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 of that. We've been testing that a lot ourselves. We talked to LLM 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 service clients.
C: So we'll get to the AI stuff obviously. But we mentioned the tariff stuff and even if you could have predicted. Perfectly. Not to belabor this point, but the markets move so fast these days.
Michael Zezas: Yeah.
C: 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, can you Throw up Chart 4, 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, 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, during the, 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 was expecting. If this happens, all right, S and P, limit down, crude ups, whatever, doubled,
Josh Brown: and for 30 years, someday we're going to bomb Iran and they're going to close the Strait of Hormuz and it's going to be lights out for the global economy. And I think the Vix got to 50, maybe.
C: I don't.
Josh Brown: Five minutes.
C: The transmission mechanism between elevated geopolitical uncertainty and equities and fixed income and other instruments. It's a really weird disconnect.
Michael Zezas: 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 dealing with something that, taken to 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 3, right?
C: What was the story that Art Cashin said about the bombs?
Josh Brown: Yeah, Cashin from the New York Stock Exchange told the story about his first week at work, his 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 you doing? He said, the missiles are in the air. I'm selling. He said, no, no, no, no, no. You buy when the missiles are in the air because if they hit, who cares if they don't hit? That's where all the money is made. And there were no missiles, thankfully.
Michael Zezas: Yeah, I mean, I hate to be so cavalier about it, but I think there's a lot of wisdom in that. I mean, we, I think it was like, I can't remember, it was 2017 or 2018, when North Korea was testing a bunch of missiles. And there was a lot of rhetoric between the US And North Korea going on. And our Korean investors wanted some research around that to help them navigate and hedging. And you're like, what do you want
Josh Brown: me to tell you? Is there really a hedge research?
Michael Zezas: Right. Yeah. So dig a hole. Right, Right. Yeah. So I mean not to suggest that straighter Hormuz 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 is going to react with. Sometimes we get the question like what percentage down does SPX have to be before the White House reverses course of. It's not that simple, but at least there is some sense.
Josh Brown: Not that far off either. But I think the market, I think the White House is aware of the 200 day moving average.
Michael Zezas: Yeah.
Josh Brown: I think the Fed is too.
Michael Zezas: Yeah.
Josh Brown: 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 downtrend. I don't think anyone wants to cause a bear market, especially if they're just giving speeches.
Michael Zezas: Yeah, I mean that's, that's fair. I, I, I guess the ending I would say is it's not irrational for, for investors to see positive outcomes around some of these friction points. And then of course they could be proven wrong over time.
C: Well, they were right. I mean the other thing is earnings estimates kept rising and 100%. Right.
Michael Zezas: Yeah.
Josh Brown: 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 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 sort of, I guess started with the Ukrainian, the conflict in Ukraine and then I guess Israel and Iran and it 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.
Michael Zezas: Yeah.
Josh Brown: 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 US and that I think there are Huge investment implications, and I think they're actually positive. 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. I mean, it's not ahistorical to suggest we've had some great bull markets as a result of building for war. It's just reality.
Michael Zezas: 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. We're not there.
Josh Brown: Does that make these countries more. Does that make Japan, does that make developed ex 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 reindustrializing.
Michael Zezas: We think so. But would nuance it a bit differently for Europe versus Japan. Europe is about industrialization, defense. And Marina Zavolak, who's our European equity strategist, has a good theory or the case around Europe being kind of a sneaky AI beneficiary. Right. Just because of how asset heavy those businesses are and how there could be some good productivity gains there.
C: It's not asset heavy, it's heavy asset. He had an acronym.
Michael Zezas: You're right. I'm sorry.
Josh Brown: We'll allow it.
Michael Zezas: Sorry.
Josh Brown: We'll allow it.
Michael Zezas: Halo. Halo. I know, I know. In Japan, you know, there was already some stuff going on before all this came into play, right. There was a lot of corporate governance reform, a little bit more nationalism than we've seen in the few decades. And then 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, right?
Josh Brown: Sort of sclerotic markets. Well, there was getting better now for a generation.
Michael Zezas: There was not really a reason they had to think differently.
C: Right.
Michael Zezas: So the short answer is yes. So just like nuance of the bits based on each region.
Josh Brown: 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 capex that any of us will ever see.
Michael Zezas: Yeah.
Josh Brown: If the numbers even get close to the projections.
Michael Zezas: Yeah.
Josh Brown: Is it like $15 trillion over the next 10 years or whatever people are saying? I mean, who knows?
C: But you guys have an estimate for $2.9 trillion in global CAC backs.
Michael Zezas: That's just 45 to 28 till 28. And that's just for, that's just for the data centers and that's before the
Josh Brown: 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.
Michael Zezas: Yeah.
Josh Brown: So are we like in the fourth inning of AI spend or is this like, has the game even started yet? How do you, like, 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?
Michael Zezas: Yeah, I think there's plenty of room. I don't know if it's first inning or fourth inning. It's early.
Josh Brown: I think. Nobody really knows.
Michael Zezas: 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 they become specialized and really valuable in another area. He was our energy and utilities analyst for years to these very sleepy area, but gets pulled into becoming an AI expert because well, all this stuff's got to get powered.
C: Yeah.
Michael Zezas: And like no one knows more than him about whether or not we can power this and how it's going to happen in the step function.
Josh Brown: Oh, that's, that's interesting.
Michael Zezas: Yeah, yeah. And he's great. He runs all of our thematic research now. So the short answer is in terms of the build out, 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 they're going to pay to develop a lot more of it. And the sort of governors, the constraints around that build out, which, which are energy and labor, maybe 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 actually.
Josh Brown: So this gets back into your area of expertise. No, we know there's big concentration of data centers in Virginia for reasons that are really interesting. It's where AOL started saying the first data center was there to Serve them.
Michael Zezas: Yeah.
Josh Brown: And then as a result, it's like the data center capital of the world.
Michael Zezas: Yeah.
Josh Brown: 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. I don't think it's anything of consequence.
Michael Zezas: But 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. Virginia, California, Oklahoma.
Josh Brown: It's not red or blue.
Michael Zezas: Yeah.
Josh Brown: Different people objecting to it for different reasons.
Michael Zezas: Right. 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 parts of the infrastructure for it to matter all that much. But we have to watch it. But the other thing I'd say because you're like, is it early? Is it not? Our economics team has about a quarter of GDP growth this year coming from just the build out of the current build out of AI. Really very little baked in from a productivity perspective. So that's the other aspect of it.
Josh Brown: Oh, just the construction aspect of it is driving.
Michael Zezas: Yeah.
Josh Brown: Just like the literally laying down pipes and building structures. Okay.
C: Do you think a productivity boom is coming?
Michael Zezas: 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 my boss, Katie Hubert, he's been very forward looking on this and even before I stepped into this position, sort of driving this and all sorts of innovative takes 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 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, it could take time. My only point being that do you see major productivity gains this year, next year? It wouldn't surprise me if it still takes a little, but the direction of travel is pretty clear.
Josh Brown: Don't you have to see it in tech companies themselves first? They're already very productive companies. But it struck me that we're selling all this AI and we expect the recipients of the technology to be able to run their businesses more efficiently. And of course we want to hear about restaurants with rising profit margins. And we want to hear about hotel companies and insurance companies. 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?
Michael Zezas: 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, you know, we, we cover about 3400 stocks globally. Stephen Bird and Katie will do this thing periodically where every analyst has to map their coverage into whether you're an AI enabler, an AI adopter, beneficial, and to what degree, based on your assessment of the company. And then we'll do surveys of the management of those companies and we'll also scrape the transcripts, the earnings transcripts of those companies to see who's actually reporting something tangible about.
Josh Brown: So is 20% of the S and P seeing tangible benefits in their financial statements from the use of AI?
Michael Zezas: Yeah, so MSCI World, the number's exactly right. But like it's. I think at the beginning of last year it was like 20%. We're up into like the 30s now, so it's climbing. And then for companies that we mapped as AI adopters, from 2024 to 2025, the average EBIT expansion was 2x faster than the non adopters. So the benefits are there, they're starting to rise, but to the point of it specifically translating into gdp, that's a bit of a different measurement problem. But in any case, you're starting to see the tangible benefits shift. Show up in earnings for sure.
C: So right now it is a lot of charts in here. John, let's pull up chart. My God, sound like Mike. Francesa. Which are we looking at? Chart 20.
Josh Brown: You wish.
C: 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.
Michael Zezas: Yeah, I mean, I think.
C: I mean, I think it will.
Michael Zezas: 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 gonna, I'm gonna do my best. Mike Wilson, for a second here, there's been the divergence between the actual earnings broadening and the price broadening out. And we expect those things to reconcile. But you're Right. It hasn't shown up in enough places quite yet.
C: Meaning stocks are front running that. Are you saying this?
Michael Zezas: No, backwards. The other way.
Josh Brown: So it's a good year for the S and P on a headline basis. Um, but percent of stocks positive is below average. Not substantially so.
C: It's average.
Josh Brown: It's about, it's about average.
Michael Zezas: Yeah.
Josh Brown: We keep hearing that the next leg of this bull market will happen away from the AI hyperscalers and will 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.
Michael Zezas: Yeah.
Josh Brown: 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?
Michael Zezas: It's an interesting way to phrase the question. I don't know if we'd say you need it but, but that, that's the way we think it's going to happen.
Josh Brown: You think it'll play out that way? Yeah, that'd be very positive for a lot of investors.
Michael Zezas: Yeah.
Josh Brown: Okay. Because people that are not exposed enough to AI are looking at the tape and they're saying why is everyone having so much fun?
Michael Zezas: Yeah, yeah. I mean so we, you know, we do a sort of big collaborative mid year and year ahead outlook process every single year where you bring together all the strategists, the economists and for the last two cycles been pretty consistent on broadening out of equities in the US plus some of the secular trends we talked about overseas in equities kind of leading things. And it's not that bonds are a bad place to be, but they're going to serve more as a diversifier coupon like returns, et cetera, because you're in a secular enough growth environment driven by a lot of these kind of major capex trends that that's going to be the norm for a couple years.
C: You know what's interesting? So we're seeing this right now, the Mag 7 like Meta and Microsoft. I know it's just two and they're acting like shit. And Nvidia got Smackdown after trying to break out. It's not acting awesome. The Mag 7 are up 70 basis points year to date. The equal weight S and p is up 11%.
Michael Zezas: Yeah.
C: The NASDAQ 100. This is wild. You have the MAG7 or flat which is 40% of the QS 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
Josh Brown: 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.
C: Here it is, Here it is. This is what I was looking for. Equal weight tech again the max 7 are a flat equal weight tech RSPT is the ticker is up 39% year to date.
Josh Brown: Yeah, so we got the broadening. We got the broadening in tech. Yeah, that's good.
C: That's a crazy spread.
Michael Zezas: Gotta start somewhere.
Josh Brown: I wanna 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?
Michael Zezas: I suppose the way that view is wrong is if either Democrats or Republicans win so big that they.
Josh Brown: Which is not the forecast.
Michael Zezas: No.
C: Well.
Michael Zezas: And you asked about prediction markets earlier. I think coming in here prediction markets had dems 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.
Josh Brown: And it comes down to Maine basically or.
Michael Zezas: 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 even if they got to 52, 53 seats, you don't have filibuster proof majority to push anything meaningful through. You definitely don't have the majority to overcome any veto. So if clients question like oh well is the tax cuts that got passed a couple years ago, are those at risk? No. Right. I mean because I believe the Democrats are sincere in wanting to rest reform that but 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 can they wrest back the power on trade and tariffs again practically speaking not it is their 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.
Josh Brown: So there's no political shock. We don't think there's a political shock coming at some point this fall based on anything that we're seeing currently?
Michael Zezas: I don't think so.
Josh Brown: And you're not giving people the impression that there's gonna be some sort of fireworks. Yeah.
Michael Zezas: 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 Democrats effectively take control of both chambers, do better than expected. And the next day, the next week, anything that's associated with a positive, so the tax benefits from the obbba, the sort of sectoral distribution of those, a lot of that's been sort of more small cap friendly. Could you see some temporary weakness there on a knee jerk that, oh, this presages that three years down the line there's going to be a major tax change.
Josh Brown: No one's going to trade on that.
Michael Zezas: Right. And if they did, I would say fade that. Right. That's, that's not the right way to think about it because in two, two years till the next election cycle might as well be 100 years.
Josh Brown: 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?
Michael Zezas: 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 up 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 to like pull in a team effort. And you're not a big Hormuz expert going into that. Going into it. No, I will say like I, I, I literally, I, where 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,
Josh Brown: make it sound so obvious. I don't think our military knew that. Well, he seemed not to have had a plan for that, so it would
Michael Zezas: 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, to. I'm not going to get this exactly right, but there was something called the Tanker wars back in the 80s. It 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
Josh Brown: them in any case reached that threshold where they said, yeah, we're doing this. Right.
Michael Zezas: Right. I mean, I think it's self evident. So, you know, so the questions 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 just knows the puts and takes of the oil market 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. He's able to wire things up pretty quickly using open source information to map out 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.
C: Michael, what impact do you think all this AI and the ability for everybody to know everything really fast.
Michael Zezas: Yeah.
C: Is going to have on markets? That's such a fascinating thing to think about. It's.
Michael Zezas: 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 is going to come table stakes pretty soon. Right. The ability to layer Monte Carlo analysis on a financial model, again, 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, let's score bond indenture documents. Let's do 40,000 of them a time. Let's map in the spreads and let's see opportunities, like stuff like that, which I call it like level three research. Stuff that you just couldn't have done before.
Josh Brown: You needed an army of bodies and now you don't. Now it's A. It's a powerful chip.
Michael Zezas: Right.
Josh Brown: And somebody that knows how to get the best out of the machine with the right prompt.
Michael Zezas: Yeah.
Josh Brown: Which is a skill, I suppose.
C: It's a. It's a.
Josh Brown: You remove a big competitive advantage from gigantic research organizations.
C: Well, I guess, but. So you. You need the human judgment there also
Michael Zezas: at the end of the day. Right. So you remove the need to have a giant research. However, you also increase the possibility and the probability that people just. Like, there's AI slop in video and the stuff you see on Instagram. There could be tons of research slop. Right.
Josh Brown: You'll get overfit. Like, the machine wants to please us. It wants to give us what we seem to want because it's. Every business on Earth is now an engagement business.
Michael Zezas: Yeah.
Josh Brown: Every business is Netflix and TikTok.
Michael Zezas: Yeah.
Josh Brown: So the machine doesn't want you to turn it off.
Michael Zezas: Yeah.
Josh Brown: So it will. To your point, keep asking the question. It'll eventually give you something that sounds right.
Michael Zezas: Yeah. And even like, like, like before I said, we know, 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 are two different things. Right. So you said. I don't know, the word used was wisdom or experience. But, like, actually, I think that's an important difference.
Josh Brown: Judgment. Judgment.
Michael Zezas: Right. Like, what's that saying? What's the difference between wisdom and knowledge?
Josh Brown: Like, tomato is a fruit. You got it, but you don't put
Michael Zezas: it in a fruit salad.
Josh Brown: Knowledge, wisdom is. You don't put tomato in a fruit salad.
Michael Zezas: 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 in 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 that aren't right and ultimately they get proven wrong and people are wiser and operate better, more sustainably over time.
Josh Brown: Before we let you out of here, can we do a little Morgan Stanley research? Lightning round?
Michael Zezas: Sure.
Josh Brown: 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?
Michael Zezas: 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 in the economic data that map over to the skills that are considered disruptible and trying to see where is the employment. Unemployment cohorts higher and lower than others.
Josh Brown: And like legal, Legal and accounting.
C: Yeah.
Michael Zezas: 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.
Josh Brown: Not that you're going to make stock picks, but enterprise SaaS. The SaaS apocalypse was the Morgan Stanley outlook for, I mean this is, I think, the standout negative group of the year. And these are some very large companies, companies that you guys are probably covering, all of them. What, what is Morgan Stanley saying to people that ask about our values being created there or is it going to be harder than maybe the, the maybe harder to, to make money there going forward?
Michael Zezas: Well, I mean, I think both. It's, 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 means that there's, there's still a moat there.
Josh Brown: You think it's enough of an emote that would justify investment in these companies or.
Michael Zezas: Yeah, I mean, I'm not expert enough to say on those specific companies, but I 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.
Josh Brown: Will the Morgan Stanley research budget include as much money going to enterprise SaaS three years from now as it does today? Or will compute and anthropic bills eat a bigger chunk of that expenditure? You obviously don't know for sure, but if you had to guess directionally, where does it seem to be head?
Michael Zezas: It's a good question because it's hard to distinguish between just 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 as a percentage of the budget. But a lot of the solutions that Katie and her team are putting together really boil down to making sure it's not just about token usage. It's also about having the right data plugged in and the right sort of use cases that come from that. So I'M not trying to avoid your question. I just think it's, it's, it's not as simple and like, we don't.
Josh Brown: Yeah, well, hard.
Michael Zezas: We don't know.
C: First lightning round ever.
Michael Zezas: Sorry.
Josh Brown: Well, it's hard.
Michael Zezas: Yeah. How about. Yes.
Josh Brown: Here's an easier que. Here's an easier question. How do Morgan Stanley clients feel about Kevin Marsh and the new Fed?
Michael Zezas: Yeah, I would say fine.
Josh Brown: Bond market seems okay.
Michael Zezas: Yeah. Right.
Josh Brown: I think so far he hasn't had to do much, but.
Michael Zezas: 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 Kevin Hassett
Josh Brown: or somebody coming from pure politics. Yeah.
Michael Zezas: Or someone who is perceived to be just somebody who's going to take a phone call from the world White House and like. But, and I would say this, even in that situation, we probably would have leaned against the concept that the Fed substantially compromised as or Seth and our econ team point out all the time, like there's, there's a whole committee there. There's not just one person. And so sure, communication could get scrambled. 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 gotta, you know, we still have to pay attention.
Josh Brown: He's traditional enough.
Michael Zezas: Yeah. Now, now let's, let's see if we're right. I mean, we're gonna, we're about to learn. But yeah. So the, the short answer is fine.
Josh Brown: Okay. 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 worse geopolitical situation in the Middle East. And the interest rate picture is probably just more of the same. If those things hold constant, we should finish out the year in pretty good shape.
Michael Zezas: Yeah, I think that's right. And it's largely buoyed by the secular trends and themes that are driving this around capex and AI and dealing with this transition to a multipolar world.
Josh Brown: 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?
Michael Zezas: I did and I really appreciate you guys giving me the opportunity.
Josh Brown: You want to come back sometime?
Michael Zezas: Of course.
Josh Brown: Are you busy tomorrow?
Michael Zezas: No. What time? Like 7:30am sure, dude.
Josh Brown: Thank you so much for being part of the show. Where can people find more from you and from your team? If somebody says Michael Zesus is great, I want to hear more of what he has to say. Say, what's the right place to go?
Michael Zezas: Morgan Stanley Institute Go to 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.
Josh Brown: The Morgan Stanley Institute. This has been Michael Zezas. Thank you guys so much for listening. Thank you for watching. Have a great weekend. We'll talk to you soon.
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