• Morgan Stanley's wealth-management business produced record revenue in the third quarter.
• Most of its clients are very wealthy — its CEO says 98% of assets come from people with more than $100,000 at the bank.
• A growing opportunity is to lend these rich people, who often have illiquid assets like real estate or business equity, more money.

Morgan Stanley reported third-quarter earnings this week and landed a solid beat with earnings of $0.93 a share, higher than expectations of $0.81.

The company's thriving wealth-management business helped drive the strong quarter, reporting $4.2 billion in revenue — a record — up 9% from $3.9 billion a year ago. Revenue per wealth manager hit $1.1 million, up 10% from a year ago.

Key to keeping this business segment humming along is ensuring that its wealthy clients remain happy.

And its clients, who have entrusted the firm with $2.3 trillion, are very wealthy. CEO James Gorman said on the company's earnings call that only 2% of the business' assets were from clients with less than $100,000.

A major component to serving these clients is fairly mundane and straightforward, albeit profitable and thriving: manage their money and invest it, earning a fee in the process. Morgan Stanley now has a record $1 trillion worth of assets generating management fees, contributing $2.4 billion in revenue in the quarter.

The other $1.3 trillion in assets are in brokerage accounts, meaning people are largely managing the money themselves, and Morgan Stanley earns commissions and fees when it executes trades for these clients. This business is heading in the opposite direction, with third-quarter revenue declining 7% to $739 million in the past year.

Part of the firm's strategy is to shift more people from brokerage to the fee-based advisory accounts, which accounted for the majority of wealth-management revenue this quarter.

But another thing these millionaires and billionaires covet, beyond a competent, trustworthy, and prestigious place to park and invest their cash, is easy access to more cash.

Their assets are often tied up in illiquid holdings, such as real estate, art, yachts, or equity in the companies they've founded. They don't want to sell these assets, but they also want liquid cash to play around with, invest with, dote upon their family with, or fund their next business venture with.

Gorman explained during Tuesday's earnings call:

"These markets go in cycles, as we all know, and people want access to credit. They have large, illiquid positions. So concentrated stock and businesses they founded. And they don't necessarily want to liquidate that, and we're in a position where we're dealing with a lot of very, very wealthy people. I think 2% of our assets are with clients with less than $100,000 with us. So the vast majority have significant wealth, and it's a real competitive advantage now to be able to compete with the banks and offer these lending products."

Given their wealth and the high-quality assets they can put up as collateral, these are relatively safe people to lend to.

And lending to these clients is a big and growing business for the company, with loan volume increasing by 11% in the past year to $78 billion.

That helped boost quarterly net interest income in wealth management to $1 billion, up 16% from $885 million last year.

And, according to CFO Jonathan Pruzan, this is still a relatively untapped business for the firm.

"We still feel good about the lending opportunity within our wealth client segment," Pruzan said during the earnings call. "Penetration rates are still reasonably limited, and we've seen opportunities to continue to increase penetration there."

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• IBM's stock surged nearly 10% on Wednesday following a better-than-expected earnings report.
• Morgan Stanley sees reasons to be hopeful about the company, but other analyst firms are less optimistic.
• The company's revenues declined for the 22nd consecutive quarter. 

The future may be looking brighter for IBM. 

The venerable tech company's stock rallied early Wednesday and was up as much as 10% after its latest earnings report beat Wall Street's expectations and showed what some see as promising momentum.

IBM's third quarter results could mark an "inflection" point, Morgan Stanley financial analyst Katy Huberty said in a report issued Wednesday. The company's "organic" revenue growth — what it produced from building on its own products and services — and the fact that its gross margins — the difference between what a company charges customers for its products and services and its direct costs of producing and providing those products and services — declined less than they had been falling are signs the heretofore declining tech company could stage a successful rebound, she said. 

It was a positive omen for the company, which, despite beating analysts' expectations, reported its 22nd consecutive quarter of declining revenue. In the third quarter, IBM posted sales of $19.15 billion, which was down from $19.23 billion in the year-ago period, but above Wall Street estimates of $18.59 billion.

IBM's performance should improve if it acquires more customers in the cloud and uses its newly released z System mainframe to drive growth, Huberty wrote. 

Cannibals in the cloud

But even Huberty noted that IBM is in a transition period and success in the cloud, which provided 20% of the company's revenue in the third quarter, won't be easy. IBM runs the risk of its cloud business cannibalizing its core offerings, Huberty wrote. If the company isn't able to start making money off its investments in its Watson artificial intelligence technology and its other cognitive computer systems, that could hurt the company's profit margins, she said. 

IBM's cloud services likely won't be able to compete with Amazon Web Services or Microsoft Azure on price, Huberty said. But its various cloud service offerings ought to help it retain customer sales dollars. And those services could potentially offer better-than-expected margins, she said. 

"Can IBM win the cloud game? Not how you think," she said. 

Other analysts weren't as optimistic. At least seven financial analysts have hold ratings on IBM's stock. And at least two rate it as a sell.  

Industry analyst Patrick Moorhead of Moor Insights and Strategy, was also cautious on IBM's prospects. There are positive signs, he said. But he worried about the slow growth IBM's cognitive systems area recorded. That business' sales grew by just 3% in the third quarter, compared to 10% growth in hardware. Because cognitive systems is a new business for IBM, it should be growing much faster, Moorhead said. 

But IBM's not alone in struggling to transform itself from a traditional enterprise technology company to one that emphasizes cloud, mobile, and other products, he said. 

"HPE, Cisco Systems, and Dell EMC are in a very similar position," Moorhead said.

SEE ALSO: IBM's cloud business helped it top Wall Street revenue targets

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• Analysts at Morgan Stanley say hospitals are already feeling the repercussions of uncertainty surrounding the Affordable Care Act.
• According to their analysis, there is a correlation between the percentage of uninsured Americans and bad debt at hospitals.
• In Q3 2017, the percentage of uninsured Americans hit its highest rate since 2014.

In a note to clients out Monday morning, analysts at Morgan Stanley outlined what's in store for hospitals as uncertainty over the Affordable Care Act changes our healthcare system at large.

That is to say — they're considering what will happen as the ACA changes from Obamacare to Trumpcare. 

What they've found is unsettling, but unsurprising. There is "a strong relationship between uninsurance rate and average bad debt as a percentage of revenue for our coverage," according to the bank. 

That is to say that as fewer people are insured, hospitals will start to see their finances come under pressure. This isn't something to worry about in a few months or years, either. It's already happening. This quarter, the percentage of uninsured people in the US climbed to 12.3%, its highest rate since 2014. Analysts attribute that to the destabilization of exchanges, shorter enrollment periods and rising premiums — all factors that have pushed people, especially young people, away from the ACA. 

From Morgan Stanley:

"Challenging political and regulatory environment will likely impact bad debt / uncompensated care in our facilities coverage beyond 3Q17. Given the recent executive order by President Trump and subsequent decision to suspend CSR subsidies, we see near-term headwinds for hospitals through either low volume or increased bad debt (see here)...

As an analog, we note that the improvement in the uninsured rate from ~17% in 2013 to ~10% in 2016 saw an average improvement in bad debt /uncompensated care as a percentage of revenue of ~250 bps in our coverage. Now that the uninsured rate has moved 200 bps in the opposite direction over the past 3 quarters, we expect earnings pressure from increasing bad debt to persist as we head into 2018."

The bank notes that Lifepoint and Universal Health Services are in the most precarious positions of the companies in its coverage. 

Ultimately, however, this is going to impact everyone, especially the hospitals that will have to start making difficult choices that are disruptive for patients. They may have to stop providing certain services, or even be forced to sell off assets, changing access for patients.

Last week, the Federal Reserve's Beige Book survey of American business sectors had a warning about this kind of behavior. It was really short, but its implications for what our healthcare system will look like over the next few years is massive.

Here it is [emphasis ours]:

"Reports from healthcare firms remain mixed. Employers continue to streamline operations in an uncertain environment, with one major employer shifting jobs from low-profit to high-profit areas."

SEE ALSO: Wall Street found a parasite growing in the US economy that could spur the next recession

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• GM CEO Mary Barra was asked by Morgan Stanley's Adam Jonas if spinning off new businesses is under consideration.
• Barra deflected the question.
• GM thinks its current structure is best for scaling up self-driving cars.

General Motors reported third-quarter earnings on Tuesday, beating Wall Street expectations. 

On a conference call with analysts after earnings were announced, Morgan Stanley's Adam Jonas returned to a theme he has frequently explored as GM has developed new lines of business in self-driving vehicles and ride-hailing/sharing services.

Jonas thinks GM might be well-served by spinning off these operations to unlock value for shareholders; his inspiration is Fiat Chrysler Automobiles' exceptionally successful 2015 IPO of Ferrari, with stock of the Italian supercar company up 95% in 2017.

GM CEO Mary Barra deflected Jonas' questions about establishing new "legal entities." She said that GM was committed to achieving a "first mover" status with its new autonomous vehicles and that it intends to deploy new products "at scale."

She also noted that GM is currently orchestrating operations from Michigan to Israel to Canada and San Francisco, and for the moment the automaking giant needs to keep everything under one roof.

But she didn't rule out future spinoffs. She said that later GM would determine the best structure to return value to shareholders.

So GM won't be breaking itself up anytime soon — despite Wall Street's enthusiasm for the idea.

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Morgan Stanley has released the stocks its analysts think could lose more than half their value in the next 12-18 months.

These "secularly challenged stocks," as the bank calls its Wednesday report, are quite diverse, but a major portion of the list are retail chains.  The industries Morgan Stanley analysts are most bearish on span from mall-based clothing stores like Abercrombie & Fitch and American Eagle, to big box chains like Target, and even financial services companies like Western Union.

"Our economics team's longtime base case of a synchronous global recovery, modest increases in inflation pressures, and a gradual removal of monetary policy accommodation has now been embraced, by and large, by the consensus.”

While the report is quite pessimistic, it’s important to note that the possible drops are analysts' bear cases, or worst-case scenarios for the companies.

To compile the list, Morgan Stanley’s equity research team started with the full list of stocks its analysts rate as underweight. The bank then focused on stocks with an "unfavorable risk-reward skew," looking for stocks where the cons outweighed the pros.

Here are the 19 stocks Morgan Stanley says stand to lose the most from secular pressures in the next 12-18 months:

19. Tenneco

Ticker: TEN

Sector: Consumer Discretionary/Industrials 

Downside to bear: 53.1%

Market cap: $3.41 billion

Year-to-date performance: +0.03%

Source: Morgan Stanley

Get realtime TEN charts here>>

18. BorgWarner Inc.

Ticker: BWA

Sector: Consumer Discretionary/Industrials

Downside to bear: 54%

Market cap: $11 billion

Year-to-date performance: +28.93%

Source: Morgan Stanley

Get realtime BWA charts here>>

17. United Parcel Service

Ticker: UPS

Sector: Transportation

Downside to bear: 54.1%

Market cap: $103.8 billion

Year-to-date performance: +3.03%

Source: Morgan Stanley

Get realtime UPS charts here>>

• Morgan Stanley analyst Adam Jonas raised his target price for FCA and called it a top pick.
• Future IPO spinoffs are driving his optimism.
• FCA CEO Sergio Marchionne is likely to consider an IPO of Maserati in 2018.

We've come a long way from 2009, when Chrysler was headed into bankruptcy after a government bailout. Back then, even Chapter 11 was a plus: there were serious discussion in the White House about simply letting Chrysler go into liquidation.

Fiat and CEO Sergio Marchionne arrived to take Chrysler off the taxpayers hands (not right away, but eventually by buying all the Treasury's equity). Flash forward to 2017 and Morgan Stanley analyst Adam Jonas is so pleased with how far Marchionne and Fiat Chrysler Automobiles have come that on Thursday he upped his price target to 16 Euros from 15 Euros (FCA, headquartered officially in London, reports its financial in Euros, even though it trades on the  NYSE).

So let's call it about $19, versus where FCA is currently trading, roughly $17.

FCA is also Jonas' top pick in the auto sector.

But Jonas' positive outlook hinges on his expectation that FCA will continue to break itself up, spinning off lucrative assets just as it did with Ferrari in 2015 when the brand went public (Ferrari shares have risen almost 100% in 2017).

"FCA's track-record in strategic value enhancement speaks for itself," he wrote in a note to clients.  "Embedded within the FCA portfolio are some of the most attractive brands in the auto industry...."

He then listed Jeep and Maserati, both of which have been widely discussed of late as spinoff and acquisition possibilities.

Jonas is simply giving voice to chatter that's been prevalent in the financial community about FCA for years now. The Ferrari IPO was the test run, and it's worked out phenomenally well. Maserati could be next, and an IPO moment could arrive soon, as Marchionne intends to step down as CEO of FCA in 2019.

FCA plans to support the value of a stand-alone Maserati by adding the carmaker's SUV offerings; the Levante has been a success, and a smaller crossover will follow.

Jeep is a different story. Without it, FCA will effectively be a brand with "Chrysler" in its name that isn't really selling very Chrysler or Dodge products. Only RAM, the pickup-truck brand will remain.

That said, of all brands, Jeep is the most valuable, so it might be too tempting for Marchionne to keep it.

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• Many investors are worried that the time has come for an economic downturn.
• Morgan Stanley has compiled a list of stocks its analysts think are primed for growth regardless of macroeconomic conditions.

Morgan Stanley has released a list of stocks its analysts think could outperform markets regardless of what may happen to upset economic conditions.

These "secular growth stocks," as the bank calls its eighth annual report, out Wednesday, are companies in which the bank's analyst are bullish and see an upside beyond the usual business cycle.

"While our US Equity Strategy team has remained positive on an equity market they believe is 'Classic Late Cycle,' for some long-term investors, it may make sense to focus not on the cycle, but through the cycle," the bank said. "Indeed, Morgan Stanley Research has long focused on identifying multi-year secular trends — powerful long-term drivers that can reshape or disrupt economies, sectors, and business models."

To compile the list, Morgan Stanley screened the thousands of stocks generated revenue growth for the past three years. It then focused on those rated overweight or equal weight by its analysts to find which had a three-year compound-annual-growth-rate forecast of at least 15% for earnings per share and 10% for revenue.

Here are the 16 stocks that could see revenue with a CAGR of more than 20% through 2019:

SEE ALSO: These stocks could get cut in half over the next year — or worse

16. CyrusOne

Ticker: CONE

Sector: Telecom Services

Market cap: $5.65 billion

Revenue CAGR (2016-2019e): 20%

EPS CAGR (2016-2019e): 20%

Year-to-date stock performance: +27.5%

Source: Morgan Stanley

Get real-time CONE charts here>>

15. Nvidia

Ticker: NVDA

Sector: Technology

Market cap: $118.14 billion

Revenue CAGR (2016-2019e): 20%

EPS CAGR (2016-2019e): 23%

Year-to-date stock performance: +91.73%

Source: Morgan Stanley

Get real-time NVDA charts here>>

14. Veeva Systems

Ticker: VEEV

Sector: Technology

Market cap: $8.58 billion

Revenue CAGR (2016-2019e): 20%

EPS CAGR (2016-2019e): 18%

Year-to-date stock performance: +44.14%

Source: Morgan Stanley

Get real-time VEEV charts here>>

• Ford's business has arguably never been better.
• But Morgan Stanley analysts Adam Jonas thinks a massive restructuring is needed.
• Ford's challenge is to tell a story that investors will buy into, as they have with Tesla and Uber.

Ford has beaten analysts' earnings expectations every quarter of 2017 and is currently paying a whopping 5% total dividend yield. It also has almost $40 billion in cash.

You might not be able to accept that the carmaker is financially well-managed, but even then any obvious weaknesses (like South America) are currently being more than offset by the company's incredibly solid and highly profitable pickup-truck business in the US.

This doesn't look like an enterprise in need of a turnaround, and even the laggy share price, down 2.5% year-to-date while a peer such as GM is up over 20% and upstart Tesla is up 50%, could be seen as a buying opportunity.

But in a research note published Tuesday, Morgan Stanley analyst Adam Jonas argued that a turnaround is exactly what Ford needs.

"We think something has to give at Ford and strongly believe senior management understands the enormity of the challenges ahead," he wrote.

He then dived into 12 of what he called "restructuring" actions, including exiting the European market, exiting the South American market, effectively exiting the Chinese market by giving up Ford's joint venture there, and turning luxury brand Lincoln into some kind of Uber-copy.

Desperate moves

Many of these moves would be those of a desperate company, not one that's sitting on enough cash to stay in business for a major sales downturn and that could sell close to a million money-printing F-Series pickups this year. 

Jonas is one of Wall Street's more interesting thinkers when it comes to future of mobility, and he did bump his target price for Ford to $10 from $9 (shares are now trading at $12), but he's clearly a man in search of a story when it comes to the carmaker.

Ford's story, typically, isn't all that exciting. It rises and falls on pickups and SUVs. But those vehicles supply balance-sheet sturdiness in good times and have equipped the company to move forward with a lot of R&D and acquisitions to stay relevant in the transportation landscape of the future.

Of course, Jonas could be taking his cues from Ford's new CEO, Jim Hackett, who has focused on the need to make Ford "fit"— his term for preparing it for impending challenges. 

If that includes sweeping changes of the sort Jonas recommends, Morgan Stanley's "bull" case goes to $25 per share, more than double where the carmaker is at today.

Tricky position

Ford is in a tricky position. On the one hand, it can ignore Wall Street and do nothing. The company is in no way in crisis, and even 2017 US sales now look as if they'll come in higher than expected, perhaps nearly matching last year's record of 17.55 million.

On the other hand, it can make narrative gestures in the direction that Wall Street seems to want, adjusting strategy to compete with money-losing Tesla (higher market cap than Ford, $3.5 billion is cash), as well as Uber and its alleged disruption of a personal-vehicle-ownership model that, as current sales would indicate, shows no sign of disappearing anytime soon.

Jonas thinks Ford has a limited time to do the latter. And he's right because the US sales boom has to fade at some point, and then the story will return to fundamentals, eliminating all the futuristic speculation in favor of a simple question: "Is Ford making money?"

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• "Likely" that Britain will have a general election in 2018 as rifts in the Tory government intensify, according to Morgan Stanley.
• "With a minority government torn over Europe and facing a divisive choice between 'taking back control' and maintaining close links, we see another early election as likely," Jacob Nell and Melanie Baker say.
• Brexit uncertainty will continue to dampen the UK economy next year, they argue.

LONDON — It is "likely" that the UK will see another election in 2018 as Theresa May's government becomes increasingly divided, according to research from economists at Morgan Stanley.

The US bank's British economics team of Jacob Nell and Melanie Baker write in their European Economic Outlook that the Conservative Party is "torn." This disharmony will eventually lead to the government's untimely demise, they believe.

"With a minority government torn over Europe and facing a divisive choice between 'taking back control' and maintaining close links, we see another early election as likely," the pair write.

May's slender parliamentary majority means only a handful of hardline Brexiteers would need to rebel against her on the issue of Brexit to cause a disastrous government collapse. Her position has been further weakened in recent weeks following the resignations of key cabinet figures including Defence Secretary Michael Fallon and International Development Minister Priti Patel.

• SEE ALSO: One chart shows just how little time Britain has to sort out Brexit

Morgan Stanley's argument follows a similar line to one it made in September, when Nell and Baker said that the government will collapse in 2018.

Back then, Morgan Stanley's basic argument for suggesting that the government will collapse in 2018 was that May would be able to tread a tightrope of just about satisfying both the moderate and more radical wings of the Conservative Party — as well as the general public — until the end of 2017, but not for much longer.

Brexit talks are still failing to make any real progress, with key issues such as the Irish border and citizens' rights still needing to be resolved ahead of the European Council meeting next month. That meeting is crucial in the timeline of Brexit, as it is then when it will be decided whether "sufficient progress" has been made to allow talks to advance to their next stage.

If sufficient progress is not deemed to have been made, it effectively further shortens the UK-EU negotiation period even further, making the likelihood of a Brexit deal lower. Morgan Stanley's team do believe that a deal will be struck eventually, saying: "In the end, we expect an 11th hour deal to avoid a hard Brexit and allow time for further trade talks."

That deal, however, won't come before the uncertainty around Brexit has further weakened the British economy, the pair argue, with the chart below illustrating their argument:

"With investment deterred by uncertainty and real consumption squeezed by inflation, we see growth continuing to run at a sub-par rate of around 0.3%Q through 1H18," they write.

"We then expect rising uncertainty about the outcome of the Brexit talks and associated political turbulence to drive growth to a standstill in late 2018," they add.

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• Jeremy Corbyn is feuding with investment bank Morgan Stanley.
• It told investors his election could be a bigger risk to their interests than Brexit.
• Corbyn has fired back, saying Labour is a threat to Morgan Stanley and the "speculators and gamblers who crashed our economy in 2008."

Jeremy Corbyn has attacked Morgan Stanley after it warned investors his election would be a "bigger risk than Brexit," telling the investment bank: "You're right, we are a threat."

In a video posted on his social media accounts on Wednesday, the Labour leader criticised the bank for its role in the 2008 financial crisis, labelling it as one of the "speculators and gamblers who crashed our economy ... their greed plunged the world into crisis and we're still paying the price."

He went on: "Nurses, teachers, shopworkers, builders, just about everyone is finding it harder to get by, while Morgan Stanley’s CEO paid himself £21.5 million last year and UK banks paid out £15 billion in bonuses."

"Labour is a growing movement of well over half a million members and a government-in-waiting that will work for the many. So when they say we’re a threat, they’re right. We’re a threat to a damaging and failed system that’s rigged for the few."

Earlier this week, Morgan Stanley told investors in a report that Corbyn's leftwing politics could be an even bigger threat to their interests than leaving the European Union. "For the UK market, domestic politics may be perceived as a bigger risk than Brexit," it said.

"From a UK investor perspective, we believe that the domestic political situation is at least as significant as Brexit, given the fragile state of the current government and the perceived risks of an incoming Labour administration that could potentially embark on a radical change in policy direction."

In response that will do little to soothe anxieties in the British financial sector about a potential leftwing Labour government, Corbyn said: "Bankers like Morgan Stanley should not run our country but they think they do because the party they fund and protects their interest, the Conservative Party, is in Downing Street. They want to keep the Tories there because their rigged economy and their tax cuts for the richest work for them."

He accuses Morgan Stanley of playing a role in the financial crisis — and argues their support for the Tories has enabled "deeply damaging" austerity measures.

Here's Jeremy Corbyn's full response:

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• A note from US bank Morgan Stanley was widely quoted as saying Jeremy Corbyn was a "bigger risk than Brexit" to the UK economy.
• Corbyn hit back calling banks like Morgan Stanley "speculators and gamblers who crashed our economy."
• The bank's words, however, have been taken hugely out of context, and refer merely to the UK stock market.

LONDON — This week an unusual fight developed in the UK. The participants: Labour leader Jeremy Corbyn, and strategists at banking giant Morgan Stanley.

In a note published on Sunday, a team from the bank led by equity strategist Graham Secker published their annual outlook for the European stock markets. The outlook totalled 73 pages, but two small sentences grabbed all the headlines. 

On the surface, Secker and his team argued that a Corbyn government — now a very realistic possibility — would be "the most significant political shift in the UK" since Margaret Thatcher, and said it could be "a bigger risk than Brexit" to Britain's slowing economy.

Corbyn was not pleased.

In a video posted on social media on Wednesday, Corbyn attacked the bank, and bankers in general. He criticised Morgan Stanley for its role in the 2008 financial crisis, labelling it as one of the "speculators and gamblers who crashed our economy"

"Their greed plunged the world into crisis and we're still paying the price," he said.

"Nurses, teachers, shopworkers, builders, just about everyone is finding it harder to get by, while Morgan Stanley’s CEO paid himself £21.5 million last year and UK banks paid out £15 billion in bonuses."

The video struck a chord with Corbyn's backers, gaining hundreds of thousands of views, likes and shares on Twitter and Facebook.

The success of the message makes sense. Much of Corbyn's base support comes from those who feel disenfranchised and think bankers are actively trying to screw the little guy, so to see their leader attack those interests is a welcome sight.

In reality, Morgan Stanley's comments were taken wholly out of context.

Most media articles covering the "bigger risk than Brexit" comments failed to acknowledge that Morgan Stanley's team was not referring to the UK economy as a whole, but rather a very small segment of it — the stock market. In their true context, the quotes are far less bombastic.

Here's the full pair of quotes, as they appeared in Morgan Stanley's 2018 European Equity Outlook:

For the UK market, domestic politics may be perceived as a bigger risk than Brexit

From a UK investor perspective, we believe that the domestic political situation is at least as significant as Brexit, given the fragile state of the current Government and the perceived risks of an incoming Labour administration that could potentially embark on a radical change in policy direction. Against this backdrop, even if we see good progress in the Brexit negotiations, the scope for UK sensitive assets to rally may be muted, unless we also see an improvement in the government's position in opinion polls.

UK politics could see its biggest shift since the late 1970s

For much of the past 30 years and more, a change of government ultimately had a relatively limited impact on the UK equity market,as policy settings didn't change too dramatically. However, this may not be the case if we see a Labour government take power under its current leadership, given its very different policy approach. It is certainly plausible that the Labour Party could ultimately moderate some of its more radical policy ideas; the alternative could be the most significant political shift in the UK since the end of the 1970s.

Pretty innocuous, right? Morgan Stanley isn't trying to suggest that a Corbyn government would totally crash the economy, but instead merely believes that investors — who by their nature do not really like the unknown — would be put off by a Labour government coming to power, leading to a substantial, but not catastrophic, stock market correction.

For Corbyn, it is a perfect political play. He almost certainly knows that Morgan Stanley was just talking about the stock market, but that doesn't matter. Attacking the alleged vested interests of the banking sector is a perfect one-two punch that will enthuse and mobilise his core support, while also allowing him to play the victim and perfectly illustrate his —probably fair — belief that the establishment is running scared of the Labour Party in its current form.

We may yet find out whether Corbyn does cause the UK stock market to tank: Morgan Stanley itself believes that the UK is heading for a fresh general election next year.

Earlier this week, the bank's British economics team of Jacob Nell and Melanie Baker wrote in their European Economic Outlook that the Conservative Party is "torn." This disharmony will eventually lead to the government's untimely demise, they believe.

"With a minority government torn over Europe and facing a divisive choice between 'taking back control' and maintaining close links, we see another early election as likely."

Given that Corbyn effectively needs only 1,682 more votes in marginal constituencies to become prime minister, we might find out if Secker and his team's misinterpreted forecast comes true sooner than later.

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Morgan Stanley has launched its digital wealth management service, Morgan Stanley Access Investing, after a 6-month pilot.

The service is available on desktop and mobile (both iOS and Android). Access Investing was built entirely in-house and is fully automated.

The service is goal-oriented, has a $5,000 minimum investment, a 0.35% fee, and offers a range of 10 portfolios, some of which are active-passive and others fully passive and consisting of ETFs. Additionally, it includes a socially responsible option and multiple customization tools, the bank told BI Intelligence in a phone interview.

Access Investing has been designed to help Morgan Stanley pull in a new generation of users. Although the service is available to new customers, its primary purpose is to enable Morgan Stanley’s 16,000 financial advisors to better target current clients' children. These millennials currently have simpler financial needs, and less wealth than their parents, yet still need investment advice, says Morgan Stanley’s head of digital advice product development, Erik Jepson.

As such, an automated investment platform, with a lower price point thanks to the use of ETFs, should satisfy their requirements. As they accumulate wealth, they will develop more complex investment needs, and can then easily be transferred to Morgan Stanley’s bespoke — and more expensive — investment service, providing the bank with an effective cross-selling and client retention strategy.

Morgan Stanley's decision to precision target its service seems well thought out. The investment banking behemoth doesn't seem to be trying to compete directly with digital wealth manager startups like Betterment and Wealthfront for the broader US mass market, as its minimum investment suggests, but is instead using Access Investing to play to its strengths and focus on a demographic whose needs — current and future — it knows well already.

It's not the first US incumbent to take this route: Bank of America Merrill Lynch launched its automated platform, Merrill Edge Guided Investing, in February with a similar strategy in mind. As more banking giants jump on the digital investment bandwagon, this focus may pay off.

Sarah Kocianski, senior research analyst for BI Intelligence, Business Insider's premium research service, has put together a detailed report on the evolution of robo-advising that scopes the current market for robo-advisors, providing an updated forecast through 2022. In addition, it explains the different types of robo-advisors emerging, details how startups and incumbents are working to ensure the success of their products, and outlines what will happen to the market over the next 12 months.

Here are some of the key takeaways from the report:

• BI Intelligence forecasts that robo-advisors — investment products that include any element of automation — will manage around $1 trillion by 2020, and around $4.6 trillion by 2022. 
• Startups offering robo-advisors are struggling to acquire AUM due to overcrowding in the global robo-advisory market and lower than expected customer uptake. 
• Incumbents are rolling out their own robo-advisor products, a trend we expect to pick up in the period to 2022. 
• North America remains the leading robo-advisory market, but we expect Asia to catch up and outpace the region in terms of AUM managed by robo-advisors in the period to 2022. 
• There will be a winnowing of the startup robo-advisory market as only a few firms remain stand-alone, while incumbents looking to launch their own products will profit from purchasing the technology of startups that have fallen by the wayside, at low cost. 

 In full, the report:

• Provides a forecast for the volume of assets robo-advisors will manage by 2022.
• Outlines the current robo-advisory landscape.
• Explains how startups with robo-advisor products are evolving their business strategies. 
• Provides an outlook for the future of the robo-advising industry. 

Interested in getting the full report? Here are two ways to access it:

1. Subscribe to an All-Access pass to BI Intelligence and gain immediate access to this report and over 100 other expertly researched reports. As an added bonus, you'll also gain access to all future reports and daily newsletters to ensure you stay ahead of the curve and benefit personally and professionally. >>Learn More Now
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• FAANG stocks could be a victim of their own success in 2018, says Morgan Stanley.
• The outperformance of the tech-focused group could leave it vulnerable to some trend reversals that could weigh on performance, according to the firm.

All good things must come to an end. Which is why Morgan Stanley has already started brainstorming about what could derail torrid gains for scorching-hot tech stocks.

The FAANG group — which consists of Facebook, Amazon, Apple, Netflix and Google— has crushed the broader market in 2017, buoyed by strong earnings growth and a momentum-chasing mindset from investors looking to buy stock in proven winners.

And while Morgan Stanley isn't yet prepared to get outwardly bearish on FAANG heading into next year, it does note that there are some elements present that could slow the group's roll. They include:

1) A heavy concentration of broader market gains in FAANG

FAANG has driven 24% of the benchmark S&P 500's gains in 2017, which is the third-highest level of concentration in the last 20 years, trailing only 1999 and 2004, according to Morgan Stanley data.

Still, the firm notes that the average over the period is a 22% contribution from the market's top five stocks, so FAANG dominance isn't as overextended as it might appear on the surface. But it remains something to watch.

2) Growth stocks are beating their value counterparts — which could be due for a reversal

Growth stocks have beaten their value-based peers for 10 years running after a six-year period where the opposite was true, according to Morgan Stanley. This trend could weaken or even see an outright reversal in 2018, the firm says. And that would impact FAANG because they're among the most notable examples of successful growth stocks.

3) Market outperformers tend to slow the following year

Morgan Stanley finds that, throughout history, the top five market cap growers in a given year have only returned 3.7% over the following 12 months. What's more, those companies actually see a -0.6% median return, relative to the S&P 500.

This fits in perfectly with Morgan Stanley's bullish-but-tempered outlook. These stocks may rise in 2018, but they'll be hard-pressed to keep pace with their outstanding 2017 gains.

SEE ALSO: Big-money investors single out the biggest risk to markets over the next year

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• Morgan Stanley analysts Adam Jonas expects Tesla to deliver 8,000 Model 3s in the first quarter of 2018 and raise that 46,000 by the end of the year.
• No other automaker has so many people scrutinizing its ability to do something as fundamental as build cars.
• Delivery-fixated observers could miss some bigger questions about whether the Model 3 can be profitable.

On balance, Tesla is closing out 2017 in defiantly counterintuitive fashion. The company is losing more money than ever and struggling to deliver its Model 3 sedan in volume, but the stock is still up a whopping 59% year to date.

Much of the upward move on Tesla's market cap in 2017 can be chalked up to elevated expectations for the Model 3. And as Tesla fails to get the cars into owner hands on schedule, everybody on Wall Street, in Silicon Valley, and in all lands in between has fixated on how many Model 3s will actually hit the streets in 2018.

In a research note published Friday, Morgan Stanley analysts Adam Jonas predicts that Tesla will delivery a pretty unimpressive 8,000 Model 3s total in the first quarter in 2018, but he raises that to 46,000 by the fourth quarter. That would translate into Tesla's best-ever year, assuming 100,000 or so Model S and Model X deliveries, but it would still fall well short of CEO Elon Musk's own goal of 500,000 for 2018.

Elsewhere, speculation is rampant about Tesla's impending surge of Model 3 deliveries, with completed cars waiting at delivery centers and Tesla's online configuration tool opening up to new owners who have placed pre-orders.

Tesla has turned the auto-industry expectations upside down, and not in a good way

I've covered the auto industry for a long time, and I've never seen anything even remotely like this. It's almost as if Tesla has been playing baseball for 14 years and suddenly figured out how to hit the ball past the infield. Countless Tesla pundits are now trying to figure out if the company can hit .400 in 2018.

Nowhere else in the industry would this happen. For example, General Motors announced its Model 3 competitor, the Chevy Bolt, in 2015 and had the car rolling off the assembly line by late 2016. GM just sold 3,000 Bolts in November. Nobody is sussing out how many Bolts GM will sell in 2018; it could be 3,000 a month, or it could be more, depending on how much demand the carmaker sees. If it thinks it can sell 10,000 a month, it will simply ... build 10,000 a month.

This is what we often worry about with the auto industry — that carmakers will overproduce. We worry because carmakers can easily overproduce. Tesla has something north of 400,000 pre-orders for the Model 3, and if Jonas' numbers are good, it will end 2018 with 300,000 of them unfulfilled (he's estimating about 50,000 Model 3 deliveries in Q2 and Q3). If another automaker found itself in that position, it would be an absolute catastrophe.

A glaring and baffling weakness at making cars

But it wouldn't happen because if a GM or Toyota had 400,000 pre-orders for anything on the books, those cars would be getting built and built fast. It's a given. Nobody thinks about a major modern automaker's ability to handle something as fundamental as building cars.

Tesla's manufacturing weakness is glaring and baffling, and that's why Tesla watchers are spending so much time drilling down on Model 3 production. What we really should be witnessing is Tesla building the Model 3 at something resembling GM's Bolt pace, then crunching the numbers on whether Tesla is actually making money on the car or just seeing the Model 3 elevate its top line and its cash flow. 

Ideally, even if Tesla sorts out something that everybody else has already sorted out, we'll continue to look at actual market dynamics of the Model 3. But I suspect that instead, Tesla will get a bump in confidence as it masters the base hit, even as the traditional auto industry continues to drive home the runs.

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• Morgan Stanley analyst Adam Jonas wrote that Tesla could have 1,230 pre-orders for the new Semi.
• Major companies have been putting down pre-orders, marking a vote of confidence in the vehicles.
• The Semi will be priced at $150,000, and Tesla says it will arrive in 2019.

In a research note published Monday, Morgan Stanley analyst Adam Jonas suggested that Tesla might have booked 1,230 pre-orders for its recently unveiled all-electric Semi truck.

Jonas cited a report by Green Car Reports to back up his information and conceded that he had no independent way of verifying the figure.

Big companies have been buying into the Semi, which will be priced to start at $150,000 when it goes on official sale in 2019. Pre-order cost $5,000 and have been placed by Pepsi, Walmart, and Sysco.

Jonas dutifully pointed out that Tesla is putting a lot on its plate, as it ramps up production of the Model 3 sedan, develops its solar roof business, and hits maximum capacity for the Model S and Model X luxury vehicles. He also doesn't think that the Semi will make all that much difference to Tesla's overall valuation.

"While we see Tesla semi as a natural market adjacency to the personal transport model, we struggle seeing it worth more than 10% of the current market cap," he wrote. 

Tesla's current market cap is over $50 billion,

"On the other hand, the game-changing capabilities and economics of the Tesla semi potentially set off separation between the technology leaders and the laggards among carriers, shippers, truck OEMs and suppliers," Jonas added.

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• MS: Over 100 crypto funds with an estimated $2 billion in assets under management, 2018 "will likely be bigger."
• New index tracking returns of cryptocurrency-focused hedge funds shows returns of 1,641% in the year through to November.

LONDON — An estimated $2 billion has been invested with specialist hedge funds focusing on cryptocurrencies in 2017, according to estimates from Morgan Stanley.

The investment bank made the estimate based on data from consultancy Autonomous NEXT and Morgan Stanley's own research. It came in a note titled "Bitcoin Decoded" sent to clients this week.

Bitcoin has rocketed over 1,500% against the dollar in 2017, spurring huge amounts of interest from both institutional and retail investors. A list sent by HedgeFundAlert.com in mid-November details over 120 cryptocurrency-specific hedge funds.

Hedge fund industry data provider HFR last week launched two new indices, the HFR Blockchain Composite Index and the HFR Cryptocurrency Index, meant to track investment in the space. The two indices track only around 20 products but have data stretching back to 2015. The Cryptocurrency Index has annualized performance of 292% since inception and has surged 1,641% in 2017 through to November.

Kenneth J. Heinz, President of HFR, said in a release announcing the new products: "Investor interest in funds offering exposure to Blockchain technologies and Cryptocurrencies has surged in recent months as these innovations continue to move towards the mainstream and generate compelling opportunities for investors, portfolio managers, traders and other market participants."

But he cautions that the area is "involves substantial volatility and risks, both real and structural."

Earlier this month, exchange operators Cboe and CME Group launched bitcoin futures contracts, which give more traditional institutional investors access to what JPMorgan has called an "emerging asset class." Trade on both exchanges has been relatively thin so far.

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• Trades paired with Chinese yuan declined from around 90% of bitcoin market in December 2016 to 0% in November 2017 amid a government crackdown.
• Meanwhile, US dollar, Japanese yen, and euro volumes have grown, Morgan Stanley chart shows.

LONDON — Trade in the bitcoin market done in Chinese yuan collapsed in 2017 following a government crackdown.

The US dollar grew to prominence to become the most popular bitcoin currency pair by the end of 2017, regaining a dominant market position it last held in early 2014.

A chart from Morgan Stanley, prepared as part of its recent "Bitcoin Decoded" note, shows the shifting composition of bitcoin-to-fiat trades across the years:

It should be noted that the above chart is not a perfect proxy for geographic spread of bitcoin trade — the US dollar is used in many countries outside of the US, for example. But as a rough guide to the global spread of bitcoin trade, it makes a useful starting point.

Yuan-to-bitcoin trades collapsed from over 90% of the market in December 2016 to under 30% in January 2017. The collapse coincided with the People's Bank of China (PBoC) opening an investigation into the country's largest bitcoin exchanges, to look into possible market manipulation, money laundering, and unauthorized financing.

The crackdown culminated in China banning cryptocurrency exchanges in September and the major platforms winding up operations. As of November, yuan-to-bitcoin volume is 0%, according to Morgan Stanley's chart.

The declining yuan volume has coincided with a growth of US dollar, Japanese yen, and euro trade in the bitcoin market. Bitcoin's 1,500% rise against the dollar in 2017 has spurred retail investors across America to look at the digital currency, with rising interest from institutional investors too.

Japanese volumes have grown after the Japanese government recognised bitcoin as an authorized method of payment in April of this year.

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• Morgan Stanley says we've reached the "euphoria" stage of the 8 1/2-year equity bull market, which is usually the final leg of a rally.
• The firm sees financial conditions tightening, and argues that GOP tax reform is already priced into the market.

For an equity bull market, overconfidence can be the kiss of death.

This can be seen in a cycle that's played out repeatedly throughout history. At a certain point during an extended stock rally, investors get cocky and continue to pile head-first into positions with little regard for risks. Then the market faces a drastic reckoning, leaving those traders wishing they'd been more careful.

Simply put, when investors start to feel invincible, bad things happen. To Morgan Stanley, this so-called "euphoria" stage marks the beginning of the end of a bull market. And guess what? That's where we are right now.

In its 2018 equity outlook, Morgan Stanley makes it clear that we've gotten ahead of ourselves. Those extended conditions, combined with earnings growth that's forecast to plateau in the first six months of 2018, has the firm feeling cautious.

"Financial conditions will tighten this year, and we can no longer say that investor sentiment and positioning is muted," Mike Wilson, Morgan Stanley's chief US equity strategist, wrote in a client note. "In fact, there are now signs we have entered into the 'euphoria' stage of this bull market."

It's a continuation of comments Wilson made in mid-December, when he asserted that "no cyclical bull market has ever ended without some excitement from investors."

Still, Wilson is not calling for the end of the bull market — at least not right this instant — since, as he notes, this euphoric stage can last for a while. He's simply warning that further upside may be limited, and that any remaining gains will be more speculative.

If there is an immediate threat to lofty stock valuations, it will likely be investors overestimating the effect of GOP tax reform going forward, says Wilson. He believes that it's been almost entirely priced into the market already — a view that conflicts with those held by many of his Wall Street counterparts.

This skeptical commentary matches Wilson's 2018 S&P 500 price target of 2,750, which is among the lowest on Wall Street. It's also just 0.5% higher than the equity benchmark's current level.

Rather than continue to chase new highs in the US, Wilson recommends looking for opportunities overseas.

"After a long period of US dominance, we believe both Europe and Japan can outperform the US in 2018 and beyond due to the meaningfully lower valuations and potentially faster earnings growth," he wrote. "These countries are much earlier in their economic recoveries from the financial crisis."

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• Morgan Stanley just announced a 153 new managing director promotions.
• The position at the investment bank is among the most coveted on Wall Street. 

Morgan Stanley announced Thursday a new class of 153 new managing directors, according to a person familiar with the matter. 

Of the new promotions, 64% came from the Institutional Securities, Investment Management, and Wealth Management divisions. Ninety-five of the new MDs work in the Americas; 38 in Europe, the Middle East, and Africa; and 20 in Asia. 

The managing director title at the investment bank is among the most coveted on Wall Street.

The 153 promotions bests the 2017 tally of 140, and is just shy of the 2016 class of 156, according to a person familiar with the matter. 

Morgan Stanley also kicked off Wall Street's bonus season announcements Thursday, telling staffers how much compensation they'll receive for their performance in 2017. 

This story is developing.

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• Britain is increasingly likely to secure a last-minute "soft" Brexit deal which keeps it in the single market and customs union.
• That's according to Morgan Stanley's UK economics team of Jacob Nell and Melanie Baker.
• They pair argue that the fact the UK and EU are now discussing a deal which involves issues including a role for the European Court of Justice, and foreign policy, indicates the UK is softening its stance.

LONDON — Britain is increasingly likely to secure a last-minute soft Brexit deal which keeps it in the single market and customs union, according to Morgan Stanley.

Economists for the US bank said in a research note on Thursday that the first-round agreement struck between the EU and UK in December set a "constructive precedent" after reaching preliminary agreement on exit issues.

It said the fact parties are now discussing a deal which involves issues including a role for the European Court of Justice, and foreign policy, indicates the UK is softening its stance and is, therefore, more likely to succeed in negotiating a deal which includes access to the single market.

The UK's move to consider a role for the ECJ after Brexit — something Theresa May previously ruled out as a "red line" in negotiations — is particularly important, because the EU considers ECJ co-operation compulsory for countries that have access to the EU single market.

It also said the UK's new commitment to regulatory alignment between the Irish Republic and Northern Ireland — which is part of the UK — decreases the chance of a hard Brexit, because leaving the EU's customs union would create a problem with the Irish border in the form of expensive tariffs and delays.

Chart: Britain edges towards a "soft Brexit"

The note, written by economists Jacob Nell and Melanie Baker, said the chance of a "soft Out" deal had increased from around 50% to around 70%, due to the "the pragmatic compromises made by the UK on the exit issues, and the problems of the Irish border in a hard Brexit."

It said:

"We now see a significantly higher chance of a "soft Out" option in which the UK accepts some EU rules and a role for the ECJ, as it has in protecting the rights of EU citizens resident in the UK in the preliminary withdrawal agreement, in UK proposals for post-Brexit opt-ins to European regulation in aviation, chemicals and medicine and in UK proposals for shared regulation of financial services. This scenario would likely involve some bespoke EU-UK institutional machinery – represented by the half UK/half EU flag – in a variant of the EEA arrangements.

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