Host (2:44)

Jim, what do you make about this rotation? We've seen out of some higher growth areas, most notably software, into, I don't know, more value parts of the market, maybe even the small and mid caps that spooked a lot of folks who thought software and tech broadly was a good place to be.

Jim Carrey (3:02)

Well, it's a great example of why you want to have a diversified portfolio. Right. So we've come off of a market over the past couple of years that's been highly concentrated. Mag 7, mag 7, mag 7. And people just forgot about the other 493. Right. In the S&P 500. And the point here is that if we get this rise in economic growth, this higher productivity, there should be a cyclical broadening of the markets. Look at the ISM data. ISMs are well above 50 right now. Even new orders are around 57. You've got the manufacturing above 52. You've got GDP growth which is still pretty reasonable. Jobs, you know, market seems pretty stable. So let's, let's keep our eye on the bigger picture and in the reality here is that I do think that the cyclical broadening of the markets is actually really healthy for, you know, for more diversified growth.

Co-Host (3:57)

When you listen to your economics team, is the vector in goods inflation. Usually it's a disinflation and all of a sudden in the last six months. Jim. Karen, I got goods inflation and rising inflation. Is that going to reverse and get back to quote unquote normal?

Jim Carrey (4:14)

No, I don't think it will. I think that we have gone through a period of time and this goes back to 2001 when China joined the WTO that goods inflation was relatively flat down.

Co-Host (4:25)

Yeah.

Jim Carrey (4:26)

And it was all about services inflation and everything else. So therefore overall inflation was able to stay low. Now we're in a different, different place.

Co-Host (4:35)

Jim Carrey and into trouble this morning.

Host (4:37)

Oh yeah, absolutely.

Co-Host (4:38)

Do you, do you agree with the Posen orsag thesis of food 4% inflation?

Jim Carrey (4:46)

I do not. I think the number is probably around two and a half to three. That's likely where we're going to stabilize. I don't think we're going to see below 2 for a while unless we see a recession.

Co-Host (5:00)

That's brilliant. See how he did that? He's so trained by compliance. I mean he just absolutely Adam Posen out on Twitter this morning recapitulating the how we get to that worry of higher inflation. The, the, the, the, the release you will the reaction function is through maybe a higher wage which we really haven't seen yet. Well that's a bet. That's an outlier as many people have said to us. Jim Carrey and with us and we'll stay with us with Morgan Stanley Investment Management as we go to the nation's inflation report, usually midweek, it's on a Friday because of that brief government shutdown is well, we'll you know, give you the headline data folks, but then we dive into it and give you the nuances we can. On Bloomberg through the morning, Jim Carrey, this is Morgan Stanley. I go to a weaker dollar out there, but some real churn in the market as well. And we see it in Jim Carrey in space, as they say in the bond market. Jim Carrey and with a 10 year yield, 4.07% with a substantial move over the last two, three days. Can you at Morgan Stanley model a 3.99% 10 year yield?

Jim Carrey (6:12)

Well, I mean it's certainly lower than what we would have expected it to be. It's really a question in terms of how we think the Fed starts to react to this. Does the Fed now start to see a clear Runway to cutting rates maybe more aggressively because inflation as we just saw is maybe coming down a bit, maybe, maybe a bit faster than many people are expecting. I'm still in the camp that there's maybe one more cut this year, possibly two. So and I think that's pretty much well in the price at this point as far as where the two year treasury is currently trading. And so I think it's going to be very difficult for the 10 year yield to stay below 4% for any material period of time unless you believe there's going to be a significant flattening and we don't and we think the curve's going to stay relatively steep around 60 basis points or so.

Co-Host (7:05)

We welcome all of you across America. Bloomberg surveillance commercial free to the 9 o' clock hour. Michael Ball awaiting us as well. And Veronica Clark will join us from Citigroup here in a moment. Paul Sweeney with Morgan Stanley's Jim Carrey.

Host (7:19)

Jim, this is a pretty eventful week for the Federal Reserve. Lots of data. It's a data rich week and I guess the takeaway is boy, we got a pretty solid labor market. We saw that on Wednesday and now We've got an inflation environment that continues to be pretty reasonable out there. Boy, the Fed could go either way here. They could sit on their hands or they could cut rates. How do you think they're going to interpret this week's data?

Jim Carrey (7:43)

I think at the moment they're probably still leaning towards potentially one more cut this year if the inflation numbers are coming down. But we also have to understand that the unemployment rate did tick down from 4.4 to 4.3%. Now, could that be seasonal? Could that be an aberration? Maybe we need to see a couple of more numbers, which is why I don't think the Fed's going to do anything, you know, in the first quarter of this year or probably they're going to have to wait until the second quarter, maybe late second quarter. So I think the way the Fed is likely to interpret this is that we have inflation that seems to be stabilizing. That's good news. A labor market that also seems to be stabilizing. But we need a little bit more confidence in that. You brought this point up earlier. What about wages?

Host (8:28)

Right.

Jim Carrey (8:29)

So, you know, I think the big complaint out there, and I did a podcast on this, which was to make a $20 hamburger afford again. And my point was that, you know, the price of that hamburger is not likely coming down. What's going to make it more affordable is that incomes and wages need to start to go up, but they have to go up in a non inflationary way. And the way that happens, this is the magic trick that the economy does is through higher productivity. So higher productivity is the non inflationary speed limit on growth, meaning that you could have higher wages, better growth.

Announcer (9:03)

But.

Jim Carrey (9:04)

But that higher wages doesn't necessarily increase goods, inflation or anything like that. That's what productivity does. Right now the productivity numbers are accelerating higher. So it is likely if we get a recovery, that these incomes and wages can go up without creating the inflation. And that's what makes the $20 hamburger more affordable.

Co-Host (9:23)

See how clear he does that? It's not as we learned that if you're at the Bowdoin Observatory in physics in February and it's 20 below zero and you get the telescope, it's clearer because it's cold air. That's how you get to think that clearly.

Host (9:41)

And then he says that bad. And then he says, I got to get to California. To California.

Co-Host (9:46)

Smart move tech as well, Jim Carrera and go write a report. He is brilliant at Morgan Stanley. We appreciate Mr. Karen's expertise here.

Jim Carrey (9:55)

Should it stay or should it go. What if I mess it up? What if I have to pay taxes?

Announcer (10:02)

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