Original Release on May 11th, 2023: While personal computer sales were on the decline before the pandemic, signs are pointing to an upcoming boost.----- Transcript -----Welcome to Thoughts on the Market. I'm Erik Woodring. Morgan Stanley's U.S. IT Hardware Analyst. Along with my colleagues, bringing you a variety of perspectives, today I'll discuss why we're getting bullish on the personal computer space. It's Thursday, May 11th, at 10 a.m. in New York. PC purchases soared during COVID, but PCs have since gone through a once in a three decades type of down cycle following the pandemic boom. Starting in the second half of 2021, record pandemic driven demand reversed, and this impacted both consumer and commercial PC shipments. Consequently, the PC total addressable market has contracted sharply, marking two consecutive double digit year-over-year declines for the first time since at least 1995. But after a challenging 18 months or so, we believe it's time to be more bullish on PCs. The light at the end of the tunnel seems to be getting brighter as it looks like the PC market bottomed in the first quarter of 2023. Before I get into our outlook, it's important to note that PCs have historically been a low growth or no growth category. In fact, if you go back to 2014, there was only one year before the pandemic when PCs actually grew year-over-year, and that was 2019, at just 3%. Despite PCs' low growth track record and the recent demand reversal, our analysis suggests the PC addressable market can be structurally higher post-COVID. So at face value, we're making a bit of a contrarian bullish call. This more structural call is based on two key points. First, we estimate that the PC installed base, or the number of pieces that are active today, is about 15% larger than pre-COVID, even excluding low end consumer devices that were added during the early days of the pandemic that are less likely to be upgraded going forward. Second, if you assume that users replace their PCs every four years, which is the five year pre-COVID average, that about 65% of the current PC installed base or roughly 760 million units is going to be due for a refresh in 2024 and 2025. This should coincide with the Windows 10 End of Life Catalyst expected in October 25 and the 1 to 3 year anniversary of generative A.I. entering the mainstream, both which have the potential to unlock replacement demand for more powerful machines. Combining these factors, we estimate that PC shipments can grow at a 4% compound annual growth rate over the next three years. Again, in the three years prior to COVID, that growth rate was about 1%. So we think that PCs can grow faster than pre-COVID and that the annual run rate of PC shipments will be larger than pre-COVID. Importantly though, what drives our bullish outlook is not the consumer, as consumers have a fairly irregular upgrade pattern, especially post-pandemic. We think the replacements and upgrades in 2024 and 2025, will come from the commercial market with 70% of our 2024 PC shipment growth coming from commercial entities. Commercial entities are much more regular when it comes to upgrades and they need greater memory capacity and compute power to handle their ever expanding workloads, especially as we think about the potential for A.I. workloads at the edge. To sum up, we're making a somewhat contrarian call on the PC market rebound today, arguing that one key was the bottom and that PC companies should outperform in the next 12 months following this bottom. But then beyond 2023, we are making a largely commercial PC call, not necessarily a consumer PC call, and believe that PCs have brighter days ahead, relative to the three years prior to the pandemic. Thanks for listening. If you enjoy the show, please leave us a review on Apple Podcasts and share Thoughts on the Market with a friend or colleague today.

With the rapid adoption of electric vehicles, onshoring the critical battery supply chain poses significant challenges and will drive sizable investments.----- Transcript -----Welcome to Thoughts on the Market. I'm Adam Jonas, Head of Morgan Stanley's Global Auto and Shared Mobility Team. Along with my colleagues bringing you a variety of perspectives, today we'll be talking about the global EV battery supply chain. It is Thursday, June 1st at 9 a.m. in New York. The rapid adoption of electric vehicles has brought to investor attention some rather inconvenient truths. We all know EVs require batteries, but today's battery supply chain involves some high environmental externalities, emissions, water usage, labor practices. And 70 to 90% of the upstream battery supply chain runs through the People's Republic of China. Re-architecting and on-shoring the EV battery supply chain is easier said than done. In our recent Global Insights report, we introduced a framework centered on two core variables. One, the rate of EV adoption, faster versus slower, and two EV supply chain sourcing, China dependent versus more diversified. At the crux of our analysis is the tradeoff between near-term EV penetration and on-shoring policies. Billions of taxpayer dollars are being thrown at an industry where the technology is still in its early stages of finding scalable industrial standards. Even as mineral extraction, refining and battery assembly all occurred on-shore, you still have to consider that battery manufacturing involves high carbon emissions and EVs require more energy intensive metals vis-à-vis internal combustion vehicles. We explore three scenarios across our framework. First, the China case, which entails rapid EV penetration, increasing the West's dependance on China. Second, the derisking case, which entails a more diversified supply chain with rapid even adoption requiring significant policy action. And third, the slow EV case, where the focus on on-shoring translates to more gradual EV adoption and continued prevalence of internal combustion vehicles versus market expectations. With this report, I brought together my research colleagues across autos, batteries, mining and clean tech, to assess implications for sectors and stocks that are better positioned or more challenged based on our scenario framework. We assess policy gaps and break down CapEx spend totaling up to 7 to $10 trillion. In our view, it may require well over a decade to achieve industrialization and standardization, gated by a host of geopolitical, environmental and economic considerations. If we're going to make batteries in the West, we're going to have to make them differently. The materials must be sourced, processed and refined far more sustainably. So we ask what is the new fracking equivalent for lithium? The lithium ion battery is the most consequential technology for decarbonizing transportation. Yet lithium is associated with supply shortages, intensive water consumption and permitting bottlenecks. Technologies that mitigate carbon emissions do exist, like direct lithium extraction, battery recycling, solid state batteries and others. But the journey of U.S. and European battery on-shoring will involve scaling these technologies. This is where innovation levered by the private sector and accelerated by the taxpayer can play a deterministic role. So who wins in a rewired battery supply chain? Ultimately, we think it'll be those firms that employ cost efficient and environmentally sustainable technologies in strategically beneficial geographies. Thanks for listening. If you enjoy the show, please share Thoughts on the Market with a friend or colleague, or leave us a review on Apple Podcasts. It helps more people find the show.

While an agreement on suspending the debt ceiling seems likely to make it through Congress, investors may want to monitor bank deposits for lingering risks.----- Transcript -----Welcome to the Thoughts on the Market. I'm Michael Zezas, Global Head of Fixed Income and Thematic Research for Morgan Stanley. Along with my colleagues bringing you a variety of perspectives, I'll be talking about the U.S. debt ceiling and its impact on markets. It's Wednesday, May 31st at 9 a.m. in New York. Today should bring a key step forward in resolving the debt ceiling dispute in Washington, D.C.. After the White House and Republican leadership reached an agreement over the weekend to pair a debt ceiling increase with a fiscal plan that caps spending growth for a time, the legislative plan advances to a vote in the House today. That vote is expected to succeed, with the only question being by how big a majority. After that, the deal moves to the Senate, which will likely have to work the weekend to enact the legislation before the June 5th X-date. So it seems then that we're closer to taking a key negative catalyst off the table for markets and the economy. As you might recall from our prior podcasts, without a debt ceiling resolution before the X-date, the White House may have had to choose from some less than ideal options to avoid default. For example, they could have prioritized payments to bondholders over other governmental obligations, but that could have interrupted up to 18% of personal income in the U.S., creating substantial economic risk. Further, the fiscal deal that enabled this raise of the debt ceiling doesn't appear to contain substantial enough spending cuts in the short term to hamper the economy. The Congressional Budget Office says it will cut deficits by about $70 billion in the first year, a very small number in the context of a roughly 26 and a half trillion dollar U.S. economy. But there's one lingering risk worth monitoring. When the debt ceiling is raised, Treasury will start issuing Treasury bills to rebuild the balance in its general account so it can pay its obligations. That action could reduce deposits in the banking system, to the extent that they are bought by investors that aren't money market funds. We can't say that this would definitively be a negative catalyst for, say, midcap banks which have been dealing with deposit outflows, but it's a risk market participants will have to continue to monitor. Thanks for listening. If you enjoy the show, please share Thoughts on the Market with a friend or colleague, or leave us a review on Apple Podcasts. It helps more people find the show. 

As congress debates a debt ceiling deal, investors are proactively purchasing Treasury bills and thus causing a drain on the reserves which could amplify risks.----- Transcript -----Welcome to Thoughts on the Market. I'm Seth Carpenter, Morgan Stanley's Global Chief Economist. Along with my colleagues bringing you a variety of perspectives, today I'll be talking about the U.S. debt ceiling amid recent volatility in the banking sector. It's Tuesday, May 30th at 10 a.m. in New York. The looming deadline for the U.S. debt ceiling has been a significant concern for markets. In similar standoffs in both 2011 and 2013, the Congress raised the debt limit only at the last minute. The closer we got to the so-called "X-date", the more the Treasury ran down the amount of Treasury bills outstanding to stay under the limit. Bills maturing around the X-date were seen as less desirable and their prices fell a bit, but the scarcity of other bills made their price go up, and therefore, their yield fall. The bills market got dislocated, as we say, but the story did not end with the increase in the debt limit. To restock its account at the Fed, the Treasury issued a lot of Treasury bills, pulling in cash from the market. One lesson we can take from history is that there is short term volatility, but everything gets resolved in the end. But before we do that, it's worth considering what aspects of the world are different now than back in 2011 or 2013. Since February, the concerns about the banking sector's balance sheet have heightened financial stability questions. Although our baseline view is that the recent developments are more idiosyncratic than systemic, the uncertainty is substantial. That potential fragility is one key difference between now and then. Another key difference between now and previous episodes is the existence of the Fed's reverse repo facility, the RRP, which now stands at about two and a quarter trillion dollars. As short term interest rates have risen, depositors have taken cash out of banks and shifted it to money funds, and money fund managers have been putting the proceeds into the Fed's RRP facility. This transaction takes reserves away from the banking sector. As we get closer to the X-date and Treasury bills have fallen in yield, money funds have had additional incentive to shift their holdings into the RRP. At a time of volatility in the banking sector, this drain on reserves could amplify the risks. But Congress raising the debt limit would not be the end of the story. The Treasury will want to restock its account of the Fed from near zero back to its recent target of about $500 billion. And to do so, the Treasury will be issuing at least $500 billion in Treasury bills to replenish its account and maybe as much as $1.2 trillion in the second half of 2023. Some of the bills will go to money funds, and thus the Treasury's account can rise as the RRP facility falls. But whatever amount of the Treasury bills are purchased by investors other than these  money funds, well that will result in yet another drain on bank reserves. The flows are large and will be coming at a time of continued uncertainty for banks balance sheets. Even after the Congress raises the debt limit, it will not quite be the time to breathe a heavy sigh of relief. Thanks for listening. And if you enjoy the show, please leave us a review on Apple Podcasts, and share Thoughts on the Market with a friend or colleague today.

Optimistic investors have pushed stocks and bond yields to the high end of the recent range. But inflation, banks and the debt ceiling status are still raising questions that have gone unanswered.----- Transcript -----Welcome to Thoughts on the Market. I'm Andrew Sheets, Chief Cross-Asset Strategist for Morgan Stanley. Along with my colleagues bringing you a variety of perspectives, I'll be talking about trends across the global investment landscape and how we put those ideas together. It's Friday, May 26th at 2 p.m. in London. A hot topic of conversation at the moment is that three big questions that have loitered over the market since January still look unresolved. The first of these is whether inflation is actually coming down. Surprisingly, high inflation was a dominant story last year and a major driver of the market's weakness. A number of low inflation readings in January gave a lot of hope that inflation would now start to fall rapidly, as supply chains normalized and the effect of central bank policy tightening took effect. Yet the data since then has been stubbornly mixed. Headline inflation is coming down, but core inflation, which excludes food and energy, has moderated a lot less. In the U.S., the annualized rate of core consumer price inflation over the last three, six and 12 months is all about 5%. Today's reading of Core PCE, the Fed's preferred inflation measure, came in above expectations. And in both the UK and the Eurozone, core inflation has also been coming in higher than expected. We still think inflation moderates as policy tightening hits and growth slows, but the improvement here has been slow. One reason our economists think that would take quite a bit of economic weakness to push the Fed, the European Central Bank or the Bank of England, to cut rates this year. That ties nicely into the second issue. Over the last two months, there's been a lot more excitement that the Federal Reserve may now be done raising interest rates, thanks to all of the tightening they've already done and the potential effect of recent U.S. bank stress. But with still high core inflation and the lowest U.S. unemployment rate since 1968, this issue is looking much less resolved. Indeed, in just the last two weeks, markets have moved to price in an additional rate hike from the Fed over the summer. Third and more immediate is the U.S. debt ceiling. Risks around the debt ceiling have been on investors' radar since January, but as U.S. stocks have risen this month and volatility has been low, we've sensed more optimism, that a resolution here is close and that markets can move on to other things. But like inflation or Fed rate increases, the U.S. debt ceiling still looks like another key debate with a lot of questions. U.S. Treasury bills or the cost of insuring U.S. debt, have shown more stress, not less, over the last week. As of this morning, a one month U.S. Treasury bill is yielding over 6%. Optimism that inflation is now falling, the Fed has done hiking and the debt ceiling will get resolved, have helped push both stocks and bond yields to the high end of the recent range. But with these issues still raising a lot of questions, we think that may be as far as they go for the time being, presenting an opportunity to rotate out of stocks and into the aggregate bond index. Thanks for listening. Subscribe to Thoughts on the Market on Apple Podcasts, or wherever you listen, and leave us a review. We'd love to hear from you.