WHEN: Today, Wednesday, January 22, 2020
WHERE: CNBC’s “Squawk Box” – Live from the World Economic Forum in Davos, Switzerland
Following is the unofficial transcript of a CNBC interview with Morgan Stanley CEO James Gorman on CNBC’s “Squawk Box” (M-F 6AM-9AM) live from the World Economic Forum in Davos, Switzerland today, Wednesday, January 22nd. Following is a link to video from the interview on CNBC.com:
All references must be sourced to CNBC.
ANDREW ROSS SORKIN: Okay. Joining us right now to talk about where Wall Street is and the markets and maybe get some reaction to what President Trump had to say to Joe, James Gorman is here. He’s the CEO of Morgan Stanley. It feels, and I don’t know if we should think that Davos is the contraindicator, but people are quite happy. And people are quite happy with President Trump, too.
JAMES GORMAN: You know, it’s hard not to be happy with the economy. I mean, we have got 50-year low unemployment rates in the U.S. The global growth has held up. The Fed instead of raising rates has been cutting rates through 2009. And the market is at a record-high. I mean, this is a hard crowd, right? Because it’s a big echo chamber. So, if the first-person coming in is unhappy then that kind of bleeds the pool. But, no, it’s very positive and I think for, you know, good cause.
ANDREW ROSS SORKIN: To the extent that you worry about anything what would it be? This is usually a hand wringing kind of place.
JAMES GORMAN: You know, I think you have got to worry about long-term China’s economy is slowing. It has been for some time. And that will inevitably impact global growth and impact China. So, against the backdrop of the China deal, which I’m glad we got a deal.
ANDREW ROSS SORKIN: Right.
JAMES GORMAN: You know, that’s very clearly what’s going on in the Middle East. You know, it’s almost like a second Arab Spring coming through in Lebanon and Iran. I think, you know, the Middle East has been in our lifetime a problem from decade to decade. But, that’s a worry. Listen, the markets are expensive. But the economy is doing well. So, do I worry about that? Not excessively.
ANDREW ROSS SORKIN: Are you buying — you know, we’ve had a lot of people, whether it’s David Tepper or Ray Dalio or Paul Tudor Jones, there’s sort of a sense of buy with both hands right now–buy the market with both hands.
JAMES GORMAN: Yeah, I don’t like buying–when everybody is buying with both hands you generally want to sell.
ANDREW ROSS SORKIN: Right.
JAMES GORMAN: So—
JOE KERNEN: Tepper’s not — You’re talking about Mike Wilson again. Tepper is not one of your strategists. Tepper’s not everybody. He’s not Mike Wilson.
JAMES GORMAN: Yeah, yeah–different opinion, Joe, at our shop.
JOE KERNEN: Obviously.
JOE KERNEN: Who gets the good ones and who gets the bad ones?
JAMES GORMAN: The public gets to listen to everybody.
JOE KERNEN: –so they don’t know what the hell to do.
JAMES GORMAN: It’s all information.
JOE KERNEN: No, but the point was actually in talking to Tepper was what we had an endless parade of sell side analysts that work for firms like yours that a lot of times spend more of their time making sure they’re not going to be wrong one way or the other. And all the sell side guys were talking about, ‘Yeah, we’re looking at maybe mid-single digits for the next year.’ So, not everyone’s buying. Tepper, I would say that that was against the consensus to say that after all we have seen I’m expecting a lot more. So, I don’t think – I disagree that that shows that everyone is buying at this point. I think these two guys—but they did— Druckenmiller, as well, said they are ready for any signs at this point to maybe slow the horse down and get off.
JAMES GORMAN: Well, you want to be. I mean, we’re ten years into one of these cycles. There’s no book that says though shall last that long before a recession. But, historically, recessions have come about every seven years. So, it’s a 15% —
JOE KERNEN: Not in Australia.
JAMES GORMAN: Not in Australia. But, Australia has a unique advantage which is its very close to China and China buys a lot of the Australian dirt.
JOE KERNEN: And kangaroos. And wallabies.
JAMES GORMAN: So, it’s a good situation down there. But, no, listen, you know, I’m not – I wouldn’t be buying — to my point, I’m not buying with both hands if that’s a question. But—
ANDREW ROSS SORKIN: Because you’re waiting—
JAMES GORMAN: —it’s very hard to fight this market.
ANDREW ROSS SORKIN: Well, that’s the question. I mean, this is—
JAMES GORMAN: Earnings are going up at the same P/E model and by definition, stock pricings are going up. One of the things that I’ve said over the years and probably on this show is I’m always surprised by people are surprised that the market is an all-time high. In a growing economy that is growing, by definition, corporate earnings are growing, unless you cut the multiple, the market should finish logically every single day at an all-time high. Now, it doesn’t, of course. But if you stand back from the market 10 to 20 feet from a chart, it looks like a straight line from bottom left to part right.
BECKY QUICK: A big part of the reason that those who are optimistic about the stock market right now is that they point to what the Fed is doing. The Fed changed course so dramatically just over a year ago with lower interest rates. Obviously, that presents its own challenges for the banks who have to live with the lower interest rates. Where do you see the Fed heading this year? Do you see them changing that?
JAMES GORMAN: I would be very surprised if there’s action this year. You know, you would need, for them to reverse and raise rates, I think would be catastrophic in the scenario given the way sentiment is, given that we’re in an election year. To keep cutting rates and moving towards negative interest rates is obviously extremely unattractive. So, I think the Fed has enormous self-interest in playing out this economic strength with rates at historically low levels. QE has been feeding the economy. I mean, there’s no compelling reason to keep cutting at this point.
ANDREW ROSS SORKIN: What do you make of bank company valuations like your own?
JAMES GORMAN: A little better than I felt two weeks ago, actually. Because our stock is up 10%.
ANDREW ROSS SORKIN: So, that wasn’t strictly a function of earnings. That was a function of guidance, right?
JAMES GORMAN: It was a function of our annual strategic review where we layout what we think we can do in a normalized environment over the next two to four years. Short-term two years and then longer-term. Listen, banks have been the unloved sector of the last couple of years, and you know, that will turn and I think it’s starting to turn. Bank failure–historically, I always thought that you sold banks at 2.5 times book and you bought them at 1.25. Post-crisis, with the new capital level, those ratios dropped. But, you know, we were trader at 1 times book, at .9 book, a month ago. .9 book, and we just came off record earnings. How is this possible? So, the banks have been undervalued. And you’ll see a lot of movement, I think, in all the bank stocks.
BECKY QUICK: You got a little frustrated with the analysts on the earnings call – the most recent earnings call. I think you called them the kids in the backseat.
JAMES GORMAN: No, I made a little joke. You see, I was one of ten children. My dad had a huge Dodge Phoenix. And, when we went to our family’s place in the Outback, we’d all sit in the backseat. There’s like seven kids in the backseat. My Mom and Dad and one of the older ones in the front. And, you know, we’d keep saying, ‘Dad. Are we there yet? Are we there yet?’ And he’d say, ‘Shut up.’ It’s a little bit like, ‘Did you reach your goals yet? Did you reach them?’ ‘Yeah, we kind of did. So, relax a little bit.’
ANDREW ROSS SOKIN: Do you imagine –
JAMES GORMAN: You have to have a little fun on these calls. I have done a lot of them.
ANDREW ROSS SOKIN: Do you imagine there will ever be consolidation again at the top where firms like yours are?
JAMES GORMAN: I think for G-SIFIs to merge with G-SIFIs, that’s a heavy lift. And I don’t see that happening. I mean, certainly in this country. I cannot speak–some other regions of the world you could argue there’s actually compelling sort of industrial logic. You know, in the U.S., it’s hard to argue. But, you know, within the G-SIFIs there are very, very large banks and large banks. So, it’s a huge difference in size. So, some of those can and should be growing. And you’re seeing below that, you know, the BB&T SunTrust deal is an example. TD Ameritrade and Schwab is an example. There are transactions happening because it’s expensive to run these businesses. The technology, the cyber prevention, managing data, data privacy. All of these issues, they all cost money. And people always move to where you’ve got scale economics.
ANDREW ROSS SORKIN: Do you think that the U.S. banks are behind relative to the European Banks, relative to even China and the platforms. I’m thinking of Ant Financial and what is happening there. It’s sort of a spectacular success story. And, you know, what is going on China in the banking world relative to what is – it’s like we are like 100 years behind. It feels that way.
JAMES GORMAN: Yeah, I think that’s a little harsh. I mean, you know, you could argue the core banking sector, the regulated large banks in this country, are ahead of the Chinese banks. They certainly historically have been more independent of the government. So, I think the fact that Ant Financial has done well—look at what, you know, look at Schwab and Ameritrade. I mean, there are great digital and direct players in this country that have done phenomenally well. Some of the online lenders are doing it. Some of the payment systems, the Venmo’s, the Squares. So, I don’t think of us as behind. No.
ANDREW ROSS SORKIN: One of the other big themes here at Davos, and we’ve been sort of batting it around for the last few days, is this idea of sustainability and the Larry Fink letter and what Microsoft is doing. Everybody is coming out with some kind of plan around sustainability and how that is or is not going to change business and whether it’s real or whether it’s virtue signaling and marketing. Where do you come down?
JAMES GORMAN: It’s a bit of both. The reality is, in my opinion, what has gone on with climate change, I mean, just being an Australian and watching what is happening down there. A bigger part of Australia than the size of Switzerland has just burnt. I mean, a billion animals and wildlife have been destroyed. I mean, it’s pretty historic. I grew up in a country where you had bush fires every ten years. But there was nothing like this. And it’s obviously all over the world. So, listen, I’m not a scientist but it’s kind of hard to argue with the facts that the globe is warming right now. And that man is contributing.
JOE KERNEN: But you could argue that that was the cause of the brush fires though. It’s .8 of a degree Celsius in the last 100 years. So, I mean, you can’t attribute every single adverse weather event.
JAMES GORMAN: No, you can’t.
JOE KERNEN: Has there been management of the land down there that was burning? How many were set? How much arson was involved? Was it 200 fires that were set down there, James? How many?
JAMES GORMAN: But Joe I started my career as a lawyer in Australia working on the 1983 bush fires which were the most damaging in the country’s history.
JOE KERNEN: So, in a 4 billion-year-old planet you know these were unprecedented, what you saw in the last 30 years?
JAMES GORMAN: I’m not going to debate climate change with you.
JOE KERNEN: Okay. Good.
JAMES GORMAN: But I certainly think facts are suggestive that the climate is warming. And it’s a good thing that we’re having the conversation.
JOE KERNEN: I don’t think — brush fires and climate change – that is not — that’s a tenuous link at this point. Floods in India and — you know.
JAMES GORMAN: A brave person wouldn’t make some linkage between those. But, you’re a brave man.
JOE KERNEN: Alright.
ANDREW ROSS SORKIN: James Gorman. Thank you for being here. We appreciate it. Great conversation.
JAMES GORMAN: My pleasure.
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