Morgan Stanley Bets On Long Recession And I Disagree

by: Dana Blankenhorn

Morgan Stanley (MS) is laying off 1,600 people and, when you look at what it calls its “best bets” for the next four years, it's hunkering down for a long, nasty recession.

If you believe this is 1931 that makes sense. If you believe, as I do, that it's not, and that real growth is coming to the world economy, it makes no sense and I have some different recommendations for you.

But first, what does MS like?

Imperial Tobacco (ITYBF.PK)? Anheuser-Busch InBev (NYSE:BUD)? Colgate Palmolive (NYSE:CL)? Rio Tinto (NYSE:RIO)? And a whole bunch of companies you never heard of in what used to be called the “developing” world? (Some of those last I like, by the way.) These are the kinds of "essentials" one is taught to hold in dark economic times -- booze, smokes and cleaning fluid. It's not a portfolio for global growth.

Now it's true that Christine LaGarde, the head of the IMF is warning of gloomy global prospects. But did anyone at the bank stop and ask what's behind the words?

LaGarde's “solution” is to increase the IMF's power, so gloomy noises bolster her case. She also knows that Europe never moves without a crisis, as one of its founders, Jean Monnet, predicted decades ago. "People only accept change when they are faced with necessity, and only recognize necessity when a crisis is upon them."

English translation: Never let a good crisis go to waste.

Morgan Stanley's recommendations for 2015 would have you playing defense for four straight years. It's a big bet on hard times. I think many who comment on Seeking Alpha will want to peruse Morgan Stanley's list carefully, and invest with them.

Personally, I won't. Because a crisis foreseen can be a crisis averted. People aren't always stupid, and we're not doomed to repeat the 20th century with its wars and depressions. I think there are too many moving parts in the global economy for everyone to fail.

What's different between now and 1931, beyond our knowledge of what happened then and the institutions formed later to keep the peace? For starters, the deflation of that period happened because there were no buyers for the world's goods and services. Now there are, and if you're not one of them you can become one by selling to them.

It's not just Brazil, Russia, India and China (BRIC) that are growing. It's Argentina, it's Israel, it's South Africa, it's Indonesia and Vietnam. It's the Philippines. It could even be (with a little stability) the countries of North Africa. Growth in each of these places also expands the power of these nations, and brings adjacent nations into their more peaceful orbit, as opposed to that of a slower-growing economy like (for instance) ours.

My view is that there are going to be buyers, there are going to be sellers, and there's going to be money with which to trade these new things. So let the Morgan Stanleys throw up their hands on the old world. I'm going to invest in the new.

In companies like Google (GOOG) , and Intel (INTC) , in companies making markets in renewable energy like General Electric (NYSE:GE) , in regional banks that weren't involved in the mortgage mess like Prosperity Bancshares of Texas (PRSP). (Texas' homestead exemption kept its local banks out of the mire.)

I may be wrong, but I'm going to say yes to the future, and let the proven failures, such as Morgan Stanley, say no to it.

Disclosure: I am long INTC, GE, GOOG.