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Morgan Stanley’s Pick says a paradigm shift has begun in markets. What to expect


Trader at the NYSE floor, June 1, 2022.

Source: NYSE

According to Bloomberg, global markets are beginning to shift. This is after nearly 15 years of low interest rates. Morgan Stanley co-President Ted Pick.

The transition from the economic conditions that followed the 2008 financial crisis and whatever comes next will take “12, 18, 24 months” to unfold, according to Pick, who spokeThis week’s New York Financial Conference.

“It’s an extraordinary moment; we have our first pandemic in 100 years. In 75 years, we have the first European invasion. Pick also stated, “We have our first worldwide inflation in 40 years.” The combination of the pandemic, war and inflation signals a paradigm shift. This signalizes the end to 15 years financial repression.

Wall Street’s highest-ranking executives issued dire warnings regarding the economy last Wednesday, lead by JPMorgan ChaseChief Executive Officer Jamie DimonAccording to, a hurricane is “right out there, just down the road.” coming our way.” This sentiment was also echoed by Goldman SachsJohn Waldron was the one to call the “shocks to system” overlapping. Even regional bank CEO Bill Demchak said he thought a recession was unavoidable.

Instead of just raising alarms, Pick — a three-decade Morgan Stanley veteran who leads the firm’s trading and banking division — gave some historical context as well as his impression of what the tumultuous period ahead will look and feel like.

Fire and Ice

Markets will be dominated by two forces – concern over inflation, or “fire,” and recession, or “ice,” said Pick, who is considered a front-runner to eventually succeed CEO James Gorman.

Pick stated, “There will be periods when it feels intensely hot, and others where it feels cold, so clients have to learn how to deal with that.”

Wall Street banks expect certain Wall Street businesses to boom while others will remain idle. Fixed-income traders were around for many years after the financial crash. dealt with artificially becalmed marketsThey have less work to do. Pick predicts that central banks will begin to struggle with inflation and traders in government bonds and currencies will increase their activity.

As companies face uncertainty, merger activity has slowed down, at least temporarily. JPMorgan reported last month that the second quarter’s investment banking fees plunged by 45%, but trading revenue rose up to 20%.

Pick stated that the banking calendar is quieter as people try to determine if this paradigm shift will occur sooner or later.

Ted Pick, Morgan Stanley

Source: Morgan Stanley

The “Goldilocks” are short-term if there is economic growth and inflation slows in the second quarter of the year. narrativeHe said that markets will benefit from this. Dimon, who cited the Ukraine war’s effect on fuel prices and Federal Reserve’s moves to shrink its balance sheets, said it was worth noting. pessimisticIt is possible that the scenario above will be realized.

The push and pull of inflation and the recession worries won’t end overnight. You can pick from several instances when the “financial” era after 2008 was referred to. repression” — a theory in which policymakers keep interest rates low to provide cheap debt funding to countries and companies.

“The 15 years of financial repression do not just go to what’s next in three or six months… we’ll be having this conversation for the next 12, 18, 24 months,” Pick said.

“Real interest rates”

In the past era, low interest rates or even negative rates were the norm. There have also been measures to inject cash into the system (commonly called quantitative easing) including bond-buying programmes and other money injections. These moves penalized savers, and promoted excessive borrowing.

Central banks made it easier for investors to accept more risk in order to gain yield by draining the risk out of the global financial system over many years. Profitable companies have been kept afloatAccess to affordable debt. In recent years, thousands have blossomed with an emphasis on money burning and growth-at all-costs.

The battle against inflation is now a priority for central banks. They will impact everyone, credit card holders to billionaires aspiring in Silicon Valley. Venture capitalists have been instructingStartups must preserve cash in order to achieve actual profitability. Online savings accounts are now offering interest rates closer to 1%.  

However, such changes could prove to be very difficult. Some analysts are concerned about Black Swan-type developments in the financial system’s plumbing, such as the burst of “the greatest hedge fund manager”. credit bubble“The history of humanity.” 

Pick believes that from the rubble of this transition period will rise a new business cycle.

“This paradigm shift at some point will bring in a new cycle,” he said. It’s been so many years since we had to think about what the world would look like with real interest rate and capital cost that can distinguish winners from losers, win stocks from lose stocks.