It's probably safe to assume that the debt ceiling risk dominates the inflation narrative over the coming weeks. Those with large portfolios to navigate through the challenging environment ahead have an unenviable task at hand. Tactical traders may benefit from sitting this one out for now – a luxury not possible for many. The ‘easy money' was in the run up in early January. Since then, it's been a minefield of blow ups to avoid. If we were still managing money, we'd have likely caught the early move and given back the performance in dribs and drabs.
The Wilson psychedelic trip continues
In a recent podcast from Morgan Stanley (MS), Mike Wilson, the #1 Wall Street equity strategist according to Institutional Investor magazine, (unsurprisingly) fails to admit to his bad call on Q1 earnings. Wilson blames low expectations set by comparisons with the same period last year, when the Omicron variant was causing business disruptions. But some of us are left wondering what strain of magic mushrooms he's taken for his hallucinations to persist. Wilson's flawed analysis and nonsensical reasoning is fascinating to observe, as is his ability to keep doubling down. Despite being divorced from the reality of the average client, Wilson continues to receive more airtime than other analysts at MS.
A season like Harry Maguire's
It is worth questioning who these clients are that voted for Wilson in Institutional Investor surveys. Perhaps they are the same individuals who spent their entire EPL fantasy football budget on purchasing Harry Maguire. Even Maguire's club, Manchester United, recognizes the need to bench him despite paying a record transfer fee for the player. This only serves to overshadow the good work produced by other analysts at MS.
Wilson is not the only Wall Street analyst experiencing a season akin to that of Maguire.
At least we understand the Kostin Contra
Previously, we have also mentioned the Kostin contra, a term coined after David Kostin, Wilson's counterpart at Goldman Sachs. However, at least with Kostin, we have an understanding of how he arrives at his S&P 500 targets. We have no doubt that he diligently performs his work, likely motivated by his background as a REITs analyst. Discounted cash flow models for stocks are a valid approach in this sector – not so much with the high growth stocks that dominate the US benchmark equities performance. If Kostin were to update his S&P 500 targets regularly, we anticipate the contra element would diminish. Kostin is acutely aware of the uncertainty in his forecasts and therefore does not base his entire investment thesis on justifying a poor macro call. Clients who can look beyond an analyst's headline market call can still gain valuable insights from their discussions. Often the best analysts are the worst stock pickers.It's reasonable to conclude that the majority of Wall Street clients cannot distinguish between sound analysis and a series of arbitrary coin tosses that coincidentally align with market price action. As long as this remains the case, our job is made a little easier.
A masterclass event in London
Thus far, we have only endorsed five books written by three authors who have significantly influenced our approach in all aspects, ranging from evaluating research to designing products.
1) Thinking Fast and Slow by Danny Kahneman.
2) Unelected Power and Global Discord by Paul Tucker.
3) Principled Spying and How Spies Think by David Omand.
King College London is hosting an open lecture on Global Discord by Sir Paul Tucker with Sir David Omand as a panelist this coming Thursday, May 11th (2023). There are still some free tickets available for this event.
