If you are a young woman finishing up high school, in college or entering the workforce, consider this financial advice from senior Morgan Stanley women in Wealth Management.

Basic financial advice is hardly gender-specific—everyone needs to know how to budget, save and invest. Even so, social changes over the last 25 years have added to women’s choices, and with those choices there are new financial needs to consider.

More women are graduating from college and have the potential to land higher paying jobs as a result. They are also getting married less or looking to return to work after time off rearing children. Increasingly, women are also putting off having children until they’re in their late 30s and 40s.

We asked some of our most experienced women Financial Advisors and Managing Directors in Wealth Management what advice they give to young women today about financial health: how they can start, what they should do and the life scenarios they should consider along the way.

Time for a Reset

“Think of money and finance just like you think about your health and physical fitness,” says Deborah Montaperto, a Managing Director and Private Wealth Advisor at Morgan Stanley. “Do you take care of yourself by going to the gym and eating healthy things? Then what about your financial health, now and when you’re older? Money is just a tool that gives you flexibility and choice regarding your future.”

Budgeting Comes First

“The first thing anyone should learn is budgeting,” says Susan Kingsolver, a Managing Director and Private Wealth Advisor at Morgan Stanley. “There are plenty of free budgeting apps out there that you can use, which calculate exactly how much money you can afford to spend each day. It’s amazing how quickly these apps can change your behavior. All of a sudden that $5 coffee that was part of your daily life feels like a luxury item.”

Educate Yourself About Investing

 “Every woman needs to understand their finances and how their savings are invested, regardless of whether you have received it in gifts from family, or saved yourself,” says Mary Deatherage, Managing Director and  Private Wealth Advisor at Morgan Stanley.  “Get online and start looking for finance courses; learn about the power of compound interest. What’s the best way to pay for college? Educating yourself about how to invest will  strip the anxiety out of the conversation.” 

Find People You Trust

“Surround yourself with people you think you can trust regarding financial advice,” says Melanie Schnoll Begun, Managing Directors and Head of Philanthropy Management for Morgan Stanley’s Wealth Management business. “My first advisor was my Dad. When I went to college, I started saving and squirreling money away in my dresser drawer; and when I got married my husband advised me on how to invest. You need to have good advisors who truly understand what your goals are, your aspirations, and someone who makes you feel like no question is a silly one.”

Don’t Just Save: Invest

“Don’t let your caution or anxiety about investing handicap you,” says Deatherage. If you’re unsure about what to do when it comes to investing, then start slowly. Invest a small amount in something that’s simple to understand, like a mutual fund that just tracks the stock market’s S&P 500 Index. Learn about the index and get comfortable with that first. 

Plan for the Unplanned

Life is not linear and often doesn’t go according to plan, and that’s something young women should be mindful of,” says Montaperto. “My advice is that young women should save and invest thinking as if they might not find a partner who can help contribute to retirement funds, child-care and a home, for instance. There are also increasing numbers of women who are having children in their late 30s and 40s. If you think you might want to spend your 30s establishing yourself in your career, then you might want to consider saving for the costs of ensuring that you can have a child in your 40s.”

Be a Finance Savvy Stay-At-Home-Mom

“Women are more likely to step out of the workforce to look after children than their male spouses, so my advice would be that if that’s something you think you might want to do, then be aware of the implications,” says Montaperto. “First, you won’t be earning any money or contributing to retirement plans or your social security earnings for your combined assets if you’re married; or for yourself if you’re single. If you plan to stay out of work for many years, you might need to ensure that you have money saved for that time period as well as for re-training costs, so you can go back into the workforce.”

Stay Involved

“Women should always be involved with  family finances, whether that’s with their parents, their spouse, their children, or all of the above,” says Schnoll-Begun. “The worst thing is not knowing what your financial future looks like. If you don’t know what’s coming and don't have a financial roadmap, then how can you make plans? You should know your goals and plan wisely so that your future needs are taken of, and have a backup plan for the unpredictable in case you get divorced, have unexpected medical expenses, or your parents need your financial assistance.”

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Wynn Resorts could see its share price double as the company grows its market share in Macau, according to research by Morgan Stanley.

Wynn currently owns two casinos in Macau—the Wynn Macau opened in 2006 and the Wynn Palace opened in 2016.

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LONDON — Since Britain voted to leave the European Union last June, the economy has confounded the forecasts of almost every major economist and economic organisation, remaining resilient in the face of worries about future trade relationships around the world.

But in recent months, the first signs that British consumers — who have fuelled the UK economy's strength in the past handful of years — are starting to moderate their habits. If consumer spending is starting to tail off, that's a big problem.

The logic is simple — when people are worried about the state of their finances, they stop spending, and when people stop spending, that can signal serious problems on a macroeconomic scale.

How Brits will adjust their spending habits is unknown, but in a new survey, US banking giant Morgan Stanley has attempted to quantify what sorts of spending might be cut if times start to get tough as the brutal combination of rising inflation and stagnant wage growth hits.

Asking 1,000 people how they "might look to delay purchasing, or otherwise cut back spending, if they had to change their spending habits," Morgan Stanley found that not eating out, as well as putting off buying things like furniture and TVs.

Here are the key quotes from Morgan Stanley's UK economics team:

"When asked what they would do if they had to change their spending habits, the single most popular option for each item (ranging from clothing to mobile handsets to holidays) was to 'spend as normal' with the exception of eating out (where 'spending less often' was the marginally more popular choice)."

"Most consumers claim that they would continue spending as normal on food, domestic travel and utility bills. However, spending on 'big ticket' items (such as Furniture, Cars, electrical goods and major home improvement projects) would, in most cases, either be delayed or cut out altogether."

And here is the chart:

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It was supposed to be the age of the asset owner. 

Post-financial crisis, the investment banks that had once ruled finance were brought to their knees, and the asset managers suddenly had all the power.

Banks started retreating from certain business lines, with hedge funds and private equity firms stepping in. Big bank traders and research analysts jumped to the buy side. 

Well, according to Morgan Stanley and Oliver Wyman, the world might be beginning to shift back towards banks. 

"Our new work suggests that in a reversal of fortunes Asset Managers now face intensifying top-line pressures from cheap beta and regulations, while Banks are primed for upside with regulatory shifts helping to drive RoE up by ~300bps," the two said in their annual blue paper on the state of the finance industry, titled "The World Turned Upside Down."

The report said: 

"We see a reversal of fortunes for Wholesale Banks and Asset Managers. The effects of Quantitative Easing (QE) and bank regulation drove a more than $100BN divergence in revenues since 2011, with Asset Managers up $65BN and Wholesale Banks down $45BN. This now looks set to go into reverse."

With that in mind, Morgan Stanley has slashed earnings per share estimates for 2019 and 2021 for asset managers by double digit percentages. It also boosted 2021 EPS estimates for US banks, with a median increase of 7%.

Asset management pressures

For the fund management, it's all about fee pressure. The rise of passive management has led to widespread decreases in fees. The assumption that the top funds can charge higher fees is under attack, according to Morgan Stanley and Wyman. In other words, the cheapest fund wins.  

According to the reports, "Demand for Asset Management product is increasingly price elastic, not performance elastic – the correlation between performance and flows is breaking down." 

The report said: 

"Forecast ~5% pa global industry asset growth will not offset 10-15% fee compression in combination with further shift from active to passive resulting in global industry revenues flat to down 2016-2019. Fee rates could drop by 25-50% on lower returns in our bear case."

Big banks are back

On the other side of the sell-side, buy-side divide, investment banks are back in business. Fixed income, currencies and commodities revenue rebounded in 2016, and the prospect of deregulation on Wall Street has sent bank stocks soaring. 

The report said:

"For the first time in our Blue Paper series, we are looking for structural balance sheet growth, pinning 2016 as the low point of regulatory deleveraging. Wholesale banks have been on an intensive diet since 2011, as aggregate balance sheets shrank by a third. But now, a desire for higher quality growth has been instrumental in turning the tide of global politics."

It added:

"Regulation tempering expected to be most impactful in the US as new regulatory agency heads do not need Congress to legislate changes in the underlying Dodd-Frank Act to improve efficiency of capital and liquidity rules. This will help unlock the $83 billion in excess capital that the US moneycenter banks hold over the next five years. US Wholesale Banks will have increasing capacity to lend, trade and invest, supporting growth in the wholesale banking wallet."

Morgan Stanley and Wyman forecast that the return on equity for wholesale banking divisions will rise three percentage points in the next three years, with return on equity rising above the cost of equity for the first time since the financial crisis.

In Main Street language, that means banks are going to start generating attractive returns again after a decade of brutal cost-cutting and downsizing. 

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Domino's Pizza

Ticker: DPZ

Market Cap: $8.83 billion

List Price as of 3/17: $185.03

Industry: Hotel, Restaurants & Leisure

Michaels

Ticker: MIK

Market Cap: $4.31 billion

List Price as of 3/17: $22.27

Industry: Specialty Retail

AMC Networks

Ticker: AMCX

Market Cap: $3.98 billion

List Price as of 3/17: $58.54

Industry: Media

(Reuters) - Goldman Sachs, known for advising the world's richest and most powerful, is building a so-called robo-adviser geared to affluent customers, according to a job listing posted Monday on the bank's website.

A Goldman spokesman declined to comment.

The job posting for employees to help build the platform comes as Goldman is looking at ways to broaden its customer base outside the super wealthy, including making deeper inroads into new consumer-focused businesses.

The bank last year launched Marcus, its first major foray into consumer lending, as well as a complementary deposit-taking platform after acquiring GE Capital's online bank. It also acquired Honest Dollar, an online retirement savings platform for small businesses and startups.

The robo platform would sit within the bank's rapidly growing investment management division, according to the ad. The unit, which Goldman has been trying to build out in recent years to diversify its revenue, posted a record $1.38 trillion in assets under supervision at the end of 2016.

Goldman has for years grappled with how to tap into the mass affluent segment, broadly defined as those with less than $1 million in investable assets, without diluting the brand of its private wealth business which is considered a jewel within the bank, according to people familiar with the matter. Goldman's U.S. private wealth business typically advises clients with an account size of around $50 million.

Goldman has in the past considered expanding Ayco, a wealth advisory firm it purchased in 2003, as a way to push more deeply into the mass affluent segment, the people added.

While the robo-advice market was initially developed by startups such as Wealthfront and Betterment with ambitions of upending the traditional financial advice sector, large firms such as Charles Schwab and Vanguard have launched similar services.

Other large firms are partnering with or buying existing players.

UBS and Wells Fargo are partnering with online financial adviser SigFig, while BlackRock  acquired FutureAdvisor.

Morgan Stanley is launching its own robo-advisor later this year, primarily for the children of its existing clients. CEO James Gorman has said that firms which combine digital and human advice will be more successful in the future. 

(Reporting by Olivia Oran; additional reporting by Anna Irrera in New York; Editing by Cynthia Osterman)

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Lin-Manuel Miranda knows something about money.

The New York Times reported in June 2016 that the 37-year-old creator of the hit Broadway musical 'Hamilton' was positioned to make more than $6 million that year alone, thanks to his multiple roles (author, actor, rights-holder) in the production.

But it wasn't always that way. He told Morgan Stanley in an interview published on its website, "there is so much I wish I knew about money when I was first starting out my adult life."

In particular, he wishes he'd known more about credit. He told Morgan Stanley:

Growing up, I was always cautious about spending. In fact, I was so nervous about incurring debt that I didn't open my first credit card until age 28, after my first show had opened on Broadway. As a result, even though I had enough money in the bank, I didn't have sufficient credit history to purchase my first apartment. My father had to help me buy it by co-signing the mortgage. 

Miranda's story perfectly illustrates one of the greatest challenges of good credit: You never think about it until you need it. And if you never think about it, you probably don't have it.

For those of us who are as shy of credit cards as a 20-something Miranda, "credit" typically refers to two metrics: your credit history, which details your interactions with various creditors and loans, and your three-digit credit score, which illustrates your trustworthiness in three-digit shorthand for lenders who might be considering spotting you some cash.

You build credit by borrowing money, whether through credit cards, student loans, or other avenues, and then responsibly paying it back. The longer and more responsibly you engage with credit, the higher your score.

It sounds like something you don't need to worry about — what if I don't plan on borrowing money? — but Miranda's story perfectly illustrates how disregarding credit can trip you up. Even if you're not buying a home like he was, landlords and management companies in competitive real estate markets like New York are known for requesting your credit score. They might not deny you based on low or lacking credit, but you can bet they'll increase the interest rate of people who are less "credit-worthy," charging you more for the privilege of borrowing.

To stay on top of your credit, you can get your free credit report once per year at AnnualCreditReport.com, and your credit score — which might vary slightly from the official scores as determined by the three credit bureaus that generate it, but is pretty close to what a lender would see — as often as you'd like, for free, from Credit.com, Credit Sesame, or Credit Karma.

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Morgan Stanley No. 2 executive Colm Kelleher said it took a "WTF moment" to trigger a major revamp of his firm's fixed income business.

Kelleher, speaking at Morgan Stanley's European Financial Conference Tuesday, described the problems that business was facing a couple of years ago — and how he and Ted Pick, who runs sales and trading, decided to address it.

"Clearly we were all running outsized fixed income businesses — far too much capital, far too much leverage, far too much liquidity trapped in, very sloppy way of dealing with derivatives — all that stuff," Kelleher said.

Still, many banks held off from cutting back, fearing that if they cut too soon they might miss out on a hoped for rebound in revenues. Kelleher said that in the third quarter of 2015, the low point in global fixed income revenues, Morgan Stanley "had a WTF moment."

"It's like, what if we're wrong?" he asked rhetorically. 

Rather than pushing ahead with the status quo, hoping to capture some of the revenue rebound, Kelleher and Pick thought strategically about what changes to make to the business.

They asked themselves:

"What do we know about fixed income for the next three years in terms of secular change and whatever else that will make a difference? What's going electronic, what isn't? What's happening in terms of collateralization, counter-party credit and so on? What's happening in the credit markets? And what's happening with our investors in terms of portfolio turnover and so on?"

One thing that became clear was in rates and foreign exchange, Morgan Stanley was getting "the worst of both worlds," referring to the fact that the business was electronifying, compressing the bid–offer spread, while volumes weren't increasing. 

They also noticed that bonds had started trading differently in European credit markets. "The amount of primary trading to secondary has completely inverted," Kelleher said, attributing that to increased regulations. 

They downsized both of those businesses. All in all, Morgan Stanley laid off 25% of its fixed income headcount in the fourth quarter of 2015.

Since then, revenues have actually improved markedly. Revenues came in at $1.5 billion in the most recent quarter, the three months to December 31, well ahead of the $1.01 billion expected by analysts, and down only marginally from the third quarter. A year earlier, fixed income revenues in the fourth quarter came in at a paltry $550 million. 

"We have improved our fixed income business, we have definitely climbed up the counter-party rankings to very good positions, and we feel we got it right," Kelleher said. "Now does that mean I'm suddenly going to say, let's grow fixed income dramatically here? I'm not. Neither is Ted."

He said that we will see a gradual pickup in fixed income activity "when central banks get out of the way," but not a significant pickup for the next several years.

And when it does happen, "It won't be anything like in the glory days of leverage."

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Morgan Stanley President Colm Kelleher on Tuesday said his firm will definitely move staff out of London within the next two years — before the end of the negotiation period leading to the UK's departure from the European Union.

"It is the cost of doing business," Kelleher said when asked about applying for European licenses now.

"We can't wait two years to decide what we're going to have to do, and we will have certainly to move some people well before that two years is up in order get ready and to be prepared for what will happen."

He was speaking at Morgan Stanley's European Financial Services Conference.

British Prime Minister Theresa May will trigger EU divorce proceedings on March 29, launching two years of negotiations that will shape the future of Britain and Europe.

"Of course what's happening is we have various cities — Paris, Frankfurt, Dublin, and others — talking to us, and the rules are changing there as well," Kelleher said.

"They are changing the dynamic of where we will be and what we will be and what we will do."

He also said you may see some business moving to New York.

Kelleher said Morgan Stanley is trying to be as prudent and careful as can be in monitoring the Brexit negotiations, emphasizing that whatever the firm ends up doing will affect employees who have "children and so on"– so "you can't just order them around like units on a board."

Ultimately, he said, Brexit is a "distraction."

"I would much rather it hadn't happened, clearly," he said.

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Morgan Stanley's president, Colm Kelleher, on Tuesday provided some insight into how the firm's first-quarter results might look next month.

"It feels like the fourth quarter — maybe slightly better," Kelleher said at the Morgan Stanley European Financial Services Conference. "Within that, though, there's a change in the geography."

He specified that the firm's fixed income business was doing well this quarter, while client volumes are down in equities, which is Morgan Stanley's most important franchise. But, Kelleher said, things will remain "broadly in line with the fourth quarter."

In wealth management, he said, the firm is in line to achieve the margins it said it would for Q1. "I think Morgan Stanley continues to gain share," Kelleher said.

He said comparing the firm's performance to the first quarter of 2016 is not relevant because Morgan Stanley was "rebuilding the business" at that time.

The firm laid of 25% of its fixed income headcount at the end of 2015 in a major structural overhaul. Kelleher also described the thinking behind that process Tuesday.

Kelleher's predictions are in line with the JPMorgan analyst Kian Abouhossein's expectations for firms across Wall Street.

Fixed income, currency and commodities revenues are set to increase 34% in the first quarter from a year ago thanks to rising trading volumes, Abouhossein wrote in a note earlier this month, while the equities business is expected to see a contraction in revenues.

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Morgan Stanley's lead auto analyst, Adam Jonas, is now also being described the bank as a "shared mobility" researcher — a clear signal that among Wall Streeters, he's continuing his campaign to be the most out-there student of the disruption currently going on in the transportation business.

Jonas and his team cover General Motors, Ford, Fiat Chrysler Automobiles, Tesla, and rental car companies, among others. If Uber ever undertakes an IPO (perhaps with Morgan Stanley playing a role in, if not leading, the underwriting), then Jonas and his team will likely initiate coverage.

In the past few weeks, Jonas has unleashed a flurry of research, on Ford and FCA. He's also shared some comments on Intel's stunning $15-billion acquisition of Mobileye. It's important to see these

It's important not to see these notes in isolation, but rather as a part of an overall thesis that Jonas has been developing about the future of mobility. And while Jonas has focused a lot on how Tesla will change mobility, he more recently has honed in on the original equipment manufacturers or OEMs, which is the auto-industry term for the big car companies.

For the record, Jonas is bullish on Tesla (although not as bullish as he was about a year and a half year ago), cautious on Ford, and relatively bullish on FCA.

All about the data

On Intel's acquisition of Mobileye, Jonas argued that the deal "highlights the strategic value of the global auto sector at a time of unprecedented disruption."

He added that "Tech firms are hunting for ever more data. Miles = data. The world’s cars travel 10 trillion miles per year. First Harman… now MBLY? Who’s next?"

Data derived from the operation of networked automobiles — driven by humans or driving themselves — has become an immense area of exploration for both traditional automakers and upstarts. Ford CEO Mark Fields, for example, has begun to describe the 100-plus-year-old firm as an information company.

The nexus has been sudden to develop and is currently not well understood, but no one wants to get left out. That's why Intel's move to buy Mobileye, an Israeli company that specializes in self-driving tech, and the Samsung-Harman deal that Jonas alluded to are noteworthy. Tech companies with zero transportation expertise are diving into the space so they can profit from large amounts of data.

Jonas' view here represents an expansion of a theme he's developed around Tesla and its efforts to participate in the massive, Uber-powered evolution of ride-hailing and "de-owned" shared mobility. Repeatedly, he and his team have stressed that miles driven could be a superior metric when it comes to transportation investment, overruling legacy measures such as vehicle sales: sell the car once, harvest the data for the life of the vehicle.

Ford's good-bad bet?

In terms of the old-fashioned car business, Jonas is more worried about Ford than about FCA. His assessment is contradictory to the consensus of the industry itself, where FCA is considered most vulnerable to a downturn, encouraging CEO Sergio Marchionne to seek a merger partner (more on that later).

Jonas is concerned about Ford's finance operations, specifically as they relate to the changing dynamics of what consumers have been buying. This is from his note on the topic:

To Ford’s credit, the company made extraordinary cost reduction and global platform engineering efforts ("One Ford") beginning in 2006 that we believe enabled the firm to generate significant positive margins, possibly generating profit per unit in excess of $1,000 per passenger car in the US in the 2011 to 2014 time frame ... Cost reduction and engineering excellence made this possible, aided by a favorable balance of supply and demand for small and midsized cars during a time of $100 oil and $4 gasoline. As these conditions changed, we believe so did the desirability and profitability of these segments. Due to the sale of vehicles via financial instrument, we believe the full extent of this change may take several quarters to play out.

For many observers, Ford's performance over the past two years has been impressive, as it has sold a huge number of pickups and SUVs in the booming US market. However, Jonas may be onto something by reminding investors that Ford might have created a problem for itself back before and during the financial crisis, when its financing operations continued while competitors such as GM went bankrupt. 

The bottom line is that the Ford bet on smaller cars was smart, but only for a short period of time. Fortunately for the automaker, when the market swung back to SUVs and gas got cheap again, the carmaker had trucks to sell. But smaller, more fuel-efficient cars might not play the same role in the automaker's future. 

FCA-VW merger

When it comes to the ongoing circus of speculation around a possible FCA-Volkswagen merger, Jonas thinks the deal would greatly assist FCA in getting into the high-tech game:

VW has expanded its technological capability as quickly as possible, and has now officially embraced an [electric vehicle] strategy for 2025 ... FCA seems to have made fewer such investments, and has been the only OEM to date to sign a data-sharing agreement with Google — when other OEMs remain wary of giving away that future control over automotive content. Although the potential slow-down in the application of stringent US CAFE standards could give FCA breathing room, we think it would not put FCA in a better position globally.

Jonas has basically crossed the Rubicon when it comes to the future of transportation: he and his team see disruptive investments as not just potentially lucrative, but as an opportunity to join a radical change in the way we get around. Other analysts on Wall Street have begun to explore Jonas' themes, largely through Tesla and with an eye toward an Uber IPO and what GM is up to with its $500-million investment in Lyft.

But Jonas continues to put himself pretty far out there — without over-committing. For example, he isn't optimistic that Tesla can move beyond being a niche carmaker (he probably now sees greater potential for Tesla as a mobility provider and data aggregator/manager). 

It's a fascinating process to observe, and proof that although it's easy to be skeptical of sell-side analysts' motives, their arguments can be well worth following and following closely, as they construct themes about the future using companies as building blocks.

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Safety has been a preoccupation of consumers and carmakers for the past few decades, with some companies — like Volvo — making it their key selling point.

Automobiles are already far safer now than ever before, but advances in technology keep raising the bar for what consumers expect. And Morgan Stanley auto analyst Adam Jonas thinks the forthcoming Tesla Model 3, priced at $35,000 and expected to launch later this year, will lead the way in dramatic fashion.

Between 30,000 and 40,000 people are killed in car accidents every year in the US alone, so the stakes for drastically improved safety are high.

To a degree, technology is both helping and hurting: Sensors, airbags, crumple zones, and notably the Tesla Autopilot system have reduced the accident and fatality rate. But drivers are also more distracted than ever, with numerous in-vehicle gadgets and warning light vying for their attention, not to mention the deadly prevalence of people using smartphones while behind the wheel.

Jonas thinks that Tesla's impact on this will be thanks to the millions of miles Tesla's cars, particularly the high-volume Model 3, will rack up — something like 400 million per day, in Jonas' estimate. And these miles could be driven ten times more safely, with accidents reduced by 90%. For Jonas, this means that used cars lacking Tesla's safety and self-driving technologies will be worth significantly less on the auto market.

Linking 2 key ideas

Jonas is linking two key components of his overall thesis about the transformation of mobility. First, Tesla's ability to gather data and apply advanced safety features with its growing fleet if vehicles has the potential to greatly improve safety and, frankly, embarrass traditional carmakers who haven't yet rolled out competing technologies. 

Second, Jonas has been predicting some problems in the used-car market for some time. Recently, he's been noting that what we might call "pre-transformative-tech" vehicles — those lacking much in the way of advanced driver-assist features — will not just be less valuable than new cars that have the tech, they'll be unwanted and possibly even illegal.

You can see how this sets up.

If the Model 3 succeeds and puts millions of Autopiloted vehicles on the roads, it could have an impact on the safety statistics, demonstrating that its suite of technologies are demonstrably superior to everything else and compelling regulators to require similar tech on all vehicles, in order for them to pass testing required for registration in individual states. 

The analogy is to emissions technologies that became prevalent in the 1970s. The vast majority of new vehicles sold are now required to have the systems needed to pass emissions tests. A similar broad requirement could be applied to semi-self-driving-type technologies.

The major issue here is of course that if older vehicles are deemed significantly less safe than newer ones, the used car market could collapse. This wouldn't be a dire situation for older cars, whose values have fallen a long way and are no longer financed by their owners. But it would be catastrophic for newer used cars that lack Model 3-lever technology.

Bolt-on tech?

Why not just bolt on the newer tech to older cars, you might ask? 

Because it doesn't work. A tech solution for, say, a used Volkswagen Jetta might not get along with a used Chevy Cruze. Automakers have learned over the last two years that self-driving and driver-assist features need to be engineered into vehicles before they hit the assembly lines.

There is a possible upside for automakers that aren't Tesla. Elon Musk's company can't satisfy demand for 17 million new cars and trucks each year in the US, so if older vehicles have to be rapidly retired, automakers will have the opportunity to sell many newer, safer ones. Think back to the 1990s, when everybody who had a vast vinyl record collection converted to CDs and the music business saw arguably its best times.

We won't know how this all plays out until the Model 3 launches and starts to become more prevalent on the road. But Jonas is anticipating something very big and very far-reaching.

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A chasm between enthusiasm and results is opening in the US economy after the election of Donald Trump.

In a note to clients on Monday, Morgan Stanley economists Ellen Zentner and Robert Rosener laid out the difference between sentiment, defined by "soft data" like surveys and confidence indexes, and actual activity, defined by "hard data" like industrial production and retail sales.

We've noted the divergence of soft and hard data before, but it appears the gap is only growing.

"The divergence is stunning," Zentner and Rosener wrote. "Upside surprises appear to be completely driven by the soft data while hard data are simply coming in about as expected."

The difference was reinforced on Tuesday as the Conference Board's consumer confidence index surged to 125.6, its highest level since 2000.

To underscore this point, Zentner and Rosener looked at a few measures of expected GDP growth for the first quarter of 2017, including the New York Federal Reserve Bank's GDP tracker and the Atlanta Fed's GDPNow. From the note:

"Compare the New York Federal Reserve Bank's current 1Q GDP tracking vs ours — FRBNY is currently tracking 1Q GDP at 3.0% versus us around 1%. The difference is larger than usual and is being driven by the fact that the New York Fed incorporates soft data into its tracking (attempting to tie it econometrically to GDP, a very hard thing to do especially in real-time). Our method translates the incoming hard data into its GDP equivalent. Note that the Atlanta Fed's GDPNow tracking also focuses on hard data and is currently tracking 1% for 1Q GDP."

Put another way, the GDP trackers that measure actual economic activity are much weaker than the NY Fed's, which incorporates soft data.

This doesn't mean the two types of data couldn't converge. Improved sentiment could lead to more spending and thus greater economic activity. Conversely, the strong soft data could be a temporary bounce and eventually fall back to earth.

Zentner and Rosener think a mix of the two is most likely — a small boost to the hard data but not enough to justify the massive leap in soft data.

"Moreover, we do expect that the breadth of the 2Q rebound in hard data will be fairly limited, with a swing in consumption as the main driver of the expected 2Q upside, followed by a slightly better net trade and inventory profile," the note said. "As a consequence, we would not necessarily expect 'hard data' surprise indices to start racing higher if the factors behind the 2Q growth rebound remain narrowly confined to a few sectors as we expect."

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Morgan Stanley has handed a Wall Street legend a new role as the head of a newly created council focused on quantitative research. 

The US investment bank has named Martin L. Leibowitz, known as Marty, vice chairman of MorganStanley Research, and chair of a newly formed Research Quantitative Council.

The bank council will be made up of "nine quantitative specialists" across different segments of the investment bank, according to an internal memo announcing the appointments. 

"The nine members of the Council below are either engaged actively with quantitative clients or Ph.D. level quantitative researchers," according to the memo. 

The group will be tasked with ensuring "alignment between client demands and our quantitative research product," the internal memo said.

"It will also work to enhance the work of our fundamental strategists and analysts, and increase the overall effectiveness of the Department," the memo added.

Leibowitz joined Morgan Stanley in 2004 and currently leads a team that produces research on asset allocation, equity valuation, and a number of other areas. Before he joined Morgan Stanley, Leibowitz worked at TIAA, the retirement provider, as the firm's vice chairman and chief investment officer. 

In 2015, Leibowitz was named "Financial Engineer of the Year" by the International Association for Quantitative Finance. He has also penned over a hundred articles and several books including "Inside the Yield Book," which according to an internal memo is a staple in the bond field.  

"He is one of the very few recipients of three of the CFA Institute’s highest awards: the Nicholas Molodovsky Award in 1995, the James R. Vertin Award in 1998, and the Award for Professional Excellence in 2005," the memo said. "In November 1995, he became the first inductee into The Fixed Income Analyst Society’s Hall of Fame."

The other members of the Research Quantitative Council are: 

Elga Bartsch – Co-Head of Global Economics

Lancelot Comrie – Head of Systematic Alpha Service

Brian Hayes – Head of Equity Quantitative Research

Daniel Kenna – Managing Director, Prime Brokerage

Boris Lerner – Head of Quantitative Derivative Strategies U.S.

Stephen Penwell – Managing Director, Research

Andrew Sheets – Head of Cross Asset Strategy

Vishwanath Tirupattur – Head of Fixed Income Research, Americas

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• On March 27, Morgan Stanley published an equity research note on Snap, the social media company it helped take public, putting a $28 price target on the stock.
• Almost a day later, the bank issued a correction, changing a range of important metrics in its financial model but not the $28 price target.
• That has some on Wall Street raising doubts about the research and equity research more broadly.

Imagine the following scenario.

A Wall Street investment bank has just led the biggest tech initial public offering in years but makes a mistake in the first research note it publishes on the stock.

The error means the bank overstated the forecasted earnings over a five-year stretch by nearly $5 billion. Yet when the bank issues a correction and updates its earnings models, its price target on the shares remains the same.

How does that happen?

The answer says a lot about the weaknesses in Wall Street analyst research and the closely watched price targets published by big banks. Those numbers can move markets and underpin the Street's buy or sell recommendations on the shares. But they're also dependent on highly subjective calls by the research analysts, which often are themselves worth scrutinizing.

The bank in question is Morgan Stanley, and the company is Snap. Morgan Stanley led Snap's IPO, a $3.4 billion share sale deemed a huge success by Wall Street standards.

On March 27, nearly a month after the stock debuted, the bank published its first research note on shares of the newly public social media company, slapping a $28 price target on them. That's 23% above where the shares ended trading the week before, and the bank's advice to clients was to buy.

The note, written by Brian Nowak and his team, was a part of a flood of positive analyst commentary on the company, much of it from the investment banks that worked on the offering. The shares, which by then had lost some of their post-IPO glow, popped on the bullish sentiment.

About 22 hours later, Morgan Stanley issued a second note that on the first read looked nearly identical. But the new note lowered estimates for Snap's future earnings and included several other changes in the analysis.

Toward the bottom of the second page, in italics, the analysts wrote:

"We have corrected a tax calculation error in our model that overstated adjusted EBITDA in 2021-2025. We have updated the text and charts in the following note to reflect our estimate changes. Note that our revenue forecast and fundamental top-line drivers (DAUs, ad load, etc.) remain unchanged."

One other thing that didn't change, despite some significant adjustments to the financial model Morgan Stanley published? That $28-a-share price target.

Morgan Stanley's revised numbers cut Snap's adjusted EBITDA — earnings before interest, taxes, depreciation, and amortization — for 2021 through to 2025. In 2025 alone, the change amounted to a cut of $1.7 billion in estimated adjusted EBITDA.

Future earnings estimates are often a key determinant of an analyst's estimate of a company's current value. A lower earnings estimate, then, ought to lead to a revision in the price target, even by a small amount. It didn't work that way in Snap's case because Morgan Stanley also corrected some other assumptions in its model — changes that left the model out of sync with those used by others on Wall Street.

"It almost feels that they're backing into the numbers," said Charles Lee, a professor at the Stanford Graduate School of Business. "It just so happens that the two work out so that they don't have to change their price target.

"It's almost humorous," Lee added. "And, of course, it can be totally innocuous, and it just so happens they found two offsetting errors, and that's their opinion, and the price target should be unchanged. One has to sort of chuckle because there seems to be so much play in the numbers that they could have put anything in."

It's true analysts make many assumptions that may or may not prove accurate, but that they were changed with no material effect on the conclusion makes them unreliable, according to some.

"If the price target can be manipulated so easily, then they are not valuable and likely should not be relied upon," Lee Bressler, a portfolio manager at the hedge fund Carbon Investment Partners, told Business Insider.

Morgan Stanley declined to comment.

How it happened

The tax-calculation error significantly affected Morgan Stanley's estimates for margins, adjusted EBITDA, and free cash flow.

In the first note, Morgan Stanley said it saw "companywide adjusted EBITDA margins reaching 40% by 2025." In the second note, it said it expected margins to hit 30% by 2025.

Similarly, financial models had to be updated. Here's the model for discounted cash flow from the first note, with a breakdown of adjusted EBITDA for 2015 through 2025. Morgan Stanley put Snap's expected adjusted EBITDA at $6.57 billion and free cash flow at $4.05 billion in 2025.

Here's the second, with the revision to the expected adjusted EBITDA. In the updated note, Morgan Stanley forecast adjusted EBITDA to be $4.92 billion in 2025.

In other words, the revisions to the model cut Snap's 2025 adjusted EBITDA by about $1.7 billion. Free cash flow dropped to $2.42 billion, a decrease of $1.6 billion.

Despite those changed calculations, the price target did not change because Morgan Stanley also updated a range of other metrics. In the same italicized section of the updated research report, Morgan Stanley said:

"We have also corrected our discounted cash flow calculation so that it is consistent and comparable across our US internet coverage. More specifically, we are lowering our SNAP equity risk premium from 5.59% (an estimated pre-IPO rate) to 4.29% (consistent with other companies in our group). This change lowers our WACC to 8% (from 10%). On an aggregate basis, our price target is unchanged at $28/share."

What is WACC?

WACC is the weighted average cost of capital, a measure that takes into account the cost to a company of issuing equity and borrowing. It is one of many highly subjective numbers that analysts plug into their models.

In the model for discounted cash flow that Morgan Stanley used to value the company, WACC is used to adjust the value of future cash flows. The higher the WACC, the higher the discount applied to future cash flow and the lower the value of those future cash flows. A higher WACC would lower the value of the company.

The flip side is that when you lower the WACC, you raise the equity value.

In the original research report, Morgan Stanley put Snap's WACC at 9.7%. In the second report, Morgan Stanley lowered the WACC to 8%.

The effect? The negative effect of having to correct adjusted EBITDA was canceled out by the positive effect of correcting the WACC.

Morgan Stanley included a table in the second report showing the effect of changes in the WACC to the equity value. With a WACC of 8% and a long-term growth rate of 3.5%, Snap had an estimated equity value of $39.6 billion.

With a WACC of 9%, lower than Morgan Stanley's 9.7% original estimate, Snap's equity value would drop to $31.2 billion. That would mean a much lower price target than $28 per share.

Morgan Stanley's changed assumptions about Snap's WACC are in line with the figures it uses in research on other internet companies that have been public for some time.

For example, it lowered the WACC for Priceline in January to 8% from 10%, and it made a similar move with Expedia, lowering it to 7% from 9%.

It uses a WACC of 8% for Alphabet and Etsy and a 7.7% WACC for Amazon. It uses a 9% WACC for Facebook.

Still, the change put Morgan Stanley out of sync with its peers on Wall Street. Not every bank that worked the deal included a WACC in its research. However, most of those that did used a WACC significantly above the 9.7% and 8% figures that Morgan Stanley used.

Here are some of the relevant estimates from banks that worked on the deal:

• Credit Suisse: "We have used a weighted average cost of capital of 11% and a terminal growth rate of 3%."
• Deutsche Bank: "We use a WACC of ~16% in our DCF which assumes no debt in the capital structure."
• Jefferies: "Our $30 PT is based on 10-year DCF (12% WACC, 3.5% LTGR)."
• RBC Capital Markets: "Our $31 price target is also supported by a DCF, based on an 11% WACC and a 5% long-term growth rate."

Atlantic Equities, a bank that wasn't on the Snap deal, used an 11% WACC in its model.

It also means that Facebook, a $410 billion company that generated $10.2 billion in net income in 2016, has a higher WACC than Snap, a $26 billion company that hasn't yet turned a profit. One investor took issue with that, saying Snap should have a higher cost of equity than Facebook.

Morgan Stanley's $28 price target is on par with that of many of its peers, though. Goldman Sachs had a target of $27, Credit Suisse $30, and RBC Capital Markets $31.

Still, Morgan Stanley's changes to its assumptions that didn't change Snap's price target raise questions about the right valuation for Snap. It also raises important questions about the value of these models, especially when it comes from a bank that has an interest in the success of the IPO, Lee said.

"If you're an investor, anybody who really cares about the long-run value of this bet, you probably want to discount this [report] more than the others, given their affiliation" as IPO underwriter, he said.

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Morgan Stanley delivered earnings of $1 a share on revenue of $9.7 billion in the first three months of 2017.

The results were well ahead of analyst estimates. Analysts expected earnings of $0.90 a share on revenue of $9.3 billion, according to Bloomberg.

"We reported one of our strongest quarters in recent years," Morgan Stanley CEO James Gorman said.

The beat was driven by a big quarter for the investment-banking unit, with revenue of $5.2 billion up sharply from $3.7 billion a year earlier. Net income in the unit almost doubled to $1.7 billion.

That performance was in turn driven by a big rebound in fixed-income sales and trading revenue. Morgan Stanley reported fixed-income revenue of $1.7 billion, up from $873 million. The bank said the results reflected a "strong performance across all products and regions on improved market conditions compared with the prior year period."

Here are the key numbers:

• Revenue of $9.7 billion, up from $7.8 billion a year earlier.
• Net income of $1.9 billion, up from $1.1 billion a year ago.
• Compensation expense of $4.5 billion, up from $3.7 billion.
• Noncompensation expense of $2.5 billion, up from $2.4 billion.

Here are the results by business line:

Morgan Stanley was the last of the big banks to report results for the first three months of the year, and it echoed the results of JPMorgan, Bank of America Merill Lynch, and Citigroup, which all beat expectations with big gains in fixed-income revenue. Goldman Sachs, in contrast, missed by a distance, with the fixed-income unit underperforming.

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What's going on in the fixed income, currencies, and commodities business? It's the question that has dominated earnings calls for Morgan Stanley and Goldman Sachs this week, but for very different reasons. 

Morgan Stanley reported earnings of $1 a share on revenue of $9.7 billion in the first three months of 2017 on Wednesday, beating analyst estimates by a lot. The beat was driven by a big quarter for the investment-banking unit, with revenue of $5.2 billion, up sharply from $3.7 billion a year earlier. Net income in the unit almost doubled to $1.7 billion.

That performance was in turn driven by a big rebound in fixed-income sales and trading revenue. Morgan Stanley reported fixed-income revenue of $1.7 billion, up from $873 million. The bank said the results reflected a "strong performance across all products and regions on improved market conditions compared with the prior year period."

That performance is especially impressive, given Morgan Stanley slashed the size of its fixed-income unit in late 2015. The bank has managed to cut costs and staff while boosting revenues.

It also means that Morgan Stanley's first quarter fixed income revenues ($1.714 billion) were ahead of Goldman Sachs' fixed income revenues ($1.685 billion).

"We view these results as solid, particularly in light of GS's disappointing print yesterday, and expect MS shares should perform well on the back of the continued momentum in the business," UBS analyst Brennan Hawken said in a note. 

The fixed income performance had Wall Street analysts digging for more information on how Morgan Stanley has pulled it off. 

"We've been very pleased with the performance in that business," Morgan Stanley CFO Jonathan Pruzan said on a call. We're generating "significantly more revenues than before we had that restructuring," he said. "Our market share and momentum in that business has been good ... We feel confident that we will continue to be relevant to our clients."

Pruzan later added that the bank saw strength across all of the FICC components except foreign exchange. The credit business and macro businesses had a strong quarter, while commodities performed well, he said. Meanwhile, the foreign exchange business suffered in a period of low volatility.

Goldman Sachs, on the other hand, was answering questions about its FICC business for a very different reason. Like Morgan Stanley, Goldman Sachs also reported low foreign exchange revenues in the first quarter, but that's where the similarities ended. 

On Tuesday, Goldman Sachs reported first-quarter earnings that came up short, missing estimates by a distance. The results sent the stock price plummeting. Fixed income in particular disappointed, with revenue up just 1% from the first quarter of 2016 and down from the final three months of 2016.

The bank faced plenty of questions about why its fixed income performance was so underwhelming. 

"Sorry to give you a hard time on your first call," UBS analyst Brennan Hawken told Goldman Sachs' incoming CFO, Marty Chavez. "I'm still confused," he said of fixed income, currencies, and commodities. "I think I have some company."

Chavez, who is now deputy CFO but will step up to the CFO role next month, repeatedly cited low levels of volatility as a reason for the poor performance. Volatility in the currency and commodities markets were at two-year lows, he said, while realized volatility in the equity market was also at a historic low. When volatility is low, client activity is light, he said.

"We underperformed this quarter, and the underperformance was driven by commodities and currencies," Chavez said. 

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A young hotshot trader just quit Goldman Sachs for its arch rival.

Kerri Saperstein, who works in high-yield bond trading, has left the bank, according to people familiar with the matter. She is moving to take a similar role at Morgan Stanley, one of the people said.

Saperstein was named on Forbes' 30 under 30 list this year, where she was reported to be a bond trader running one of Goldman Sachs’ five high-yield market-making books.

Saperstein holds a bachelor's degree from the University of Pennsylvania, according to a wedding announcement in The New York Times. She joined Goldman Sachs in 2010.

The hire comes as Morgan Stanley is beating Goldman Sachs in some key areas. Morgan Stanley reported earnings of $1 a share on revenue of $9.7 billion in the first three months of 2017 on Wednesday, beating analyst estimates by a lot. That performance was driven by a big rebound in fixed-income sales and trading revenue. Morgan Stanley reported fixed-income revenue of $1.7 billion, up from $873 million.

That performance is especially impressive, given Morgan Stanley slashed the size of its fixed-income unit in late 2015. The bank has managed to cut costs and staff while boosting revenues.

It also means that Morgan Stanley's first quarter fixed income revenues ($1.714 billion) were ahead of Goldman Sachs' fixed income revenues ($1.685 billion). The fixed income performance had Wall Street analysts digging for more information on how Morgan Stanley has pulled it off. 

"We've been very pleased with the performance in that business," Morgan Stanley CFO Jonathan Pruzan said on a call. We're generating "significantly more revenues than before we had that restructuring," he said. "Our market share and momentum in that business has been good ... We feel confident that we will continue to be relevant to our clients."

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On Wednesday, ESPN announced a brutal round of layoffs, which is expected to hit about 100 employees, including dozens of on-air personalities.

These layoffs are high-profile and painful for ESPN, and on a surface level, seem to validate ESPN naysayers that think the sports giant is in the midst of a slow death march.

But while these layoffs do show that ESPN is dealing with the sting of digital disruption, they don’t mean the business is doomed, according to a recent report by analysts at Morgan Stanley, led by Benjamin Swinburne.

To understand how the layoffs fit into ESPN’s broader strategy, it’s helpful to delve into the two main issues that provoked them. The first is that ESPN has lost millions of subscribers in the last few years, which is putting pressure on the bottom line. The second is that SportsCenter needs to continue to modernize, quickly.

Let’s look at SportsCenter first.

“Driving force behind today's [layoffs] decision is different approach to @SportsCenter with increased emphasis on digital presence,” journalist James Miller tweeted Wednesday.

ESPN President John Skipper backed that up view in a memo Wednesday. “Our content strategy — primarily illustrated in recent months by melding distinct, personality-driven SportsCenter TV editions and digital-only efforts with our biggest sub-brand — still needs to go further, faster … and as always, must be efficient and nimble,” Skipper wrote.

Before the rise of the internet, SportsCenter was the undisputed king of sports programming. It set the narratives, and was a must-watch for all the highlight clips you didn’t want to miss.

“It was almost like MTV in the 80s and 90s. It was just one of those special cultural type of media outlets that was almost impossible to replicate,” Bleacher Report CEO Dave Finocchio told Business Insider last year.

But with the internet, highlight clips were online and blogs were churning out takes, sometimes before the game was even finished. SportsCenter had to change or lose relevancy.

And it has changed, especially recently. As Skipper referenced in his memo, ESPN has made an aggressive moves to turn the various SportsCenter offerings into shows with more personality. In sum: There's less focus on “highlights,” more on “talk show” elements, and a focus on the digital side.

The transition Skipper described in his memo is something SportsCenter can, and will, continue to make, but there will be some hurt along the way, and it may never be the juggernaut it once was.

Millions and millions of losses

SportsCenter hasn’t been the only pain point for ESPN. The other big one has been the major subscriber losses that have persisted for years. According to the latest estimates, ESPN has lost 12 million subscribers in the last six years, a drop of about 12%.

If this trend continues, it will be horrible for ESPN. ESPN makes money from advertising, but also directly gets paid $7.21 each month, per subscriber, for ESPN alone, and $9.06 for the ESPN family of networks. Losing 12 million subscribers hurts — a lot.

But there are reasons to be optimistic looking forward, according to analysts at Morgan Stanley. Why? The primary reason is that Morgan Stanley expects a lot of growth in new online TV bundles, targeted especially at younger viewers (known in the industry as "vMVPDs"). The pitch of many of these services is a lower-cost TV bundle — usually $40 or less for an entry-level package — for a smaller selection of channels you can watch on whatever device you want. A few of these services are already out, like DirecTV Now, Sling TV, Sony's Vue, and YouTube TV, and there's a Hulu offering on the horizon.

Morgan Stanley thinks these new services will draw people into the pay-TV ecosystem who either left (cord-cutters) or never had a package (cord-nevers).

“New entrants offering live streaming TV products (vMVPDs) could expand the overall market and stabilize total linear TV subscribers,” Morgan Stanley wrote in a recent report. Put another way: They could stop the slide of subscribers from traditional TV.

This isn't automatically great news for ESPN. In fact, it could be horrible if ESPN got dropped from some of the low-price bundles because of its high cost. But that hasn’t been the case so far, partially because of the power Disney has at the negotiating table.

“With ESPN included in multiple aggressively-priced video services already in the market or expected to launch soon, the pace and incremental nature of new vMVPD adoption could help improve volume headwinds over the next few years,” Morgan Stanley wrote. These new packages could give ESPN some breathing room on subscribers.

Here's a good illustration of how Morgan Stanley believes “Gold” (including Disney, Fox, CBS, NBC, and Time Warner) and “Silver (including Discovery, Viacom) network groups will fare over the next few years, in terms of subscribers:

That graph shows subscriber trends turning back toward positive.

That doesn’t mean ESPN will get back all those subscribers it lost, but it does mean Morgan Stanley expects “subscriber erosion trends to improve.” And it’s not just good news for ESPN, but for any cable network struggling with subscriber losses.

In all, Morgan Stanley thinks that online bundles will get 3 million subscribers by the end of 2017. Here’s how the analysts think it will break down:

If consumers are drawn in by these new bundles, and ESPN continues to have a prominent seat at the table, it could mean a slowing of the massive subscriber losses that have plagued ESPN in recent years. That doesn't mean there won't be more layoffs, especially as the business models for making money in places like Snapchat, or on ESPN's own app, mature, but it will give Disney investors a bit more confidence that ESPN is not in an inevitable decline.

Additional reporting by Cork Gaines.

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Since its 2015 spinoff from Fiat Chrysler Automobiles, Ferrari stock has performed exceptionally well: up 50% since the IPO and up a whopping 92% over the past 12 months.

Morgan Stanley auto analyst Adam Jonas has been a Ferrari bull since last year, and he just got more bullish.

Last November, he hiked his price target to $60 from $56 and later raised in to $72. In a note published on Monday, he pushed that number to $100.

Ferrari shares closed at $82 last Friday.

Jonas, a longtime Tesla bull, likes Ferrari so much that he has bumped Tesla from his top three picks in the auto sector to make room for the Italian manufacturer of exotic supercars. According to Morgan Stanley, Jonas "believes [Ferrari] can double its earnings in approximately five years, and he sees investors growing to appreciate the stability of its cash flows over the long term."

The analysis makes sense. Ferrari has been gradually upping production since the IPO, from a longtime former cap of 7,000 vehicles per year. Over the next few years, 10,000 isn't out of the question. Ferrari always has more demand than it can meet — by design — and it is both looking to expand in developing markets such as China and the Middle East while also offering profitable versions of its most expensive vehicles, like the $1-million-plus LaFerrari hypercar.

Ferrari was trading down slightly pre-market on Monday to $81.79.

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