The World is Awash with Capital, Ailman Says

model London can't do it. So the Royal Navy's coming in. They're gonna try her to put her through Gibraltar and around, take a long way around and on that Royal Navy boat will be a fair lead. Right. What's a fair lead? It keeps the lines on the boat from getting tangled. And it seems, you know, Mark get timing is so important, right and we want to keep a clearer perspective and obviously have a fair lead as we approached the market. Are the moving averages of the equity markets giving you

a fair lead right now? I think so, but probably less so than last year. The moving averages are really relevant in a trending tape, and I would argue that this year is more likely less of a trending tape, something that is characterized by more swings to the upside and downside, and for that reason we'll be forced to be a bit more short term in our focus. How do you gauge what's been happening with the SMP five, say, when we've had that sharp draw down, then this aggressive

snap back as well. Does that provide you with some nerves? It does. In the corrective phase, which was very short lived, of course, we saw a sentiment which was the biggest risk to the market from a technical perspective, in my opinion, go from extremely bullish, which is a contrarian negative, to extremely bearished in the matter of days. Really, so that swift decline in sentiment was indicative of a treatable low. The SMP five hundred tests that it's two hundred day

moving average. Now, the snap back that we've seen is not uncommon, obviously fast and furious in and of itself, but now seems to be losing short term momentum, which puts the market in store for possible retest, and by retest I mean a return to support. Well casey, where is that support? The two day moving average still for the SMP five hundred can be considered initial support. It may be a bit aggressive as a downside target for this retest, and nevertheless, the long term up trend is

still very much intact. You've mentioned sentiment. How important is sentiments still? And more importantly perhaps for our listeners, Katie, how do you gauge west sentiment actually is? Well? I think it's really paramount because it is a driving force behind the markets, especially in markets that are so momentum driven and really top down oriented, right, really paying attention to the macro data. So I think it's very important. The way I'd like to gauge it is using transactual measures.

So instead of adhering to the investor polls where they're asking how do you feel about the marketplace, but rather looking at how investors are positioning. You can do that via the vix via to put call ratios. There's a fear and greed index out there that we use quite a bit. I don't follow volume, and I know you pay attention to it. When Luisiamnta talks about distribution, that's the back and fourth of what's going on right now? What's the back and forth show? You? You know, the volumes.

I don't give it a whole lot of weight either. Um when I do pay attention is when volume spikes, because that's indicative, isn't It really didn't write well. It did spike into the tradea below, so that was important. It was somewhat climactic, but it has certainly spiked higher than that. It can be indicative of inflection points, but volume as a whole has really lost its value in my opinion as a an indicator trend, so distribution would be a little bit less relevant as it pertains to volume.

Katie Stockton, thank you so much with Fairley, and she will return for a longer bit. But news news overcomes all those morning Katie stocked and thank you so much. Constructive view on the markets wrapped around the standard reports. Much to talk about today, but we're gonna digress here right now, and really important issues for all Americans. Out of the various California pension plans right now. Chris Allman joins us, and he is not with Kelpers p. He

is with Kelsters. S Good morning, sir. What is the difference between Kelsters and Kelpers In a nutshell, we cover the teachers, they cover state employees and municipal employees city towns in that I've read in the last couple of days of real chick oallenges within not your shop, but their shops over different accounting and their relationship with their clients,

who are towns and villages to begin with. Does Kelsters have the same challenges that Kelpers has not to the extent that they do, because it's all about liability management? You know, I think when everybody talks about pension and unfunded liabilities, they always focus on the investment side. But the realities, you've got to pay attention to the liability side and the contributions. They've got more municipalities that set different benefit levels. In our case, it's one statewide benefit

to all the simpler shop. Your mathematics is simpler. That is correct. There. There's a lot of people are saying what's going on in California is a crucible for Illinois, for Dallas and Frankly coast to coast the rest of America. Are you guys simply ahead of a debate? It's gonna be five or ten years down the road for the rest of unfunded America. UM, I don't think I think we're ahead of the debate. But I don't think that

were the crucible or the center. I think that you're going to see other states and as you said, municipalities where they didn't do a good job of managing the liabilities. They didn't pay attention to the benefits, and most importantly, they didn't consistently pay the mortgage. They skipped payments, they had payment holiday the mortgage. For your readers or your listeners, they understand they're not paying the actually real assumed interest

rate every year. There's a required rate that you've got to pay in. You've got to contribute. The town has to pay to kelpers, of the teachers have to pay to kelsters. That is correct. Best example picture of four oh one k If you don't invest in your four oh one k oh for a couple of years when you're twenty, a couple of years when you're thirty, of a sudden, you get to fifty and you're not gonna have enough money because you didn't invest and contribute regularly

to the contributions. That are the focus and John that defines about three quarters of America. It's a very very important issue. But on the other side, something that you you have to try and manage Chris, is the return assumptions? What are the basic assumptions for returns now and how they shifted over the last ten years. Yeah, they've come down over the last ten years. There have been lots

of critics that they haven't come down enough. But remember, we're trying to make a forecast for the next thirty years. What's the reasonable rate of return that a diversified portfolio could earn over the next thirty years. And don't just look at today's environment where interest rates are. I think about the innovation that's coming. Think about the growth of the rest of the world, the emerging markets. So for us, yeah,

answer and simple number is seven percent. Warren Buffett would say that's too high, but I would say if you look at over thirty years, with a little bit of inflation, I think we can achieve seven percent. We have in the past thirty years. We have turned eight percent in the last thirty years. How difficult would it be to actually capture those growth assumptions in public markets when so many of these growth opportunities aren't going public, they're staying private.

And I'm talking obviously specifically about equities, and very much more so about one specific text sector in technology. Do you see that shift that more growth opportunities will remain in private hands and they won't be available as a public opportunity. I'd answer your question in two ways. If you're a four oh one K four oh three B investor, it's gonna be hard for you to match our return at seven percent because we can gain access to that

private capital market. We had met with the Jay Clayton from SEC yesterday and one of his observations was that there's only about forty one hundred publicly traded companies in America today. When I started this business thirty years ago, there were over seven thousand, So over half of the company's basically have gone and stayed private or not going public because there's a cost to it. That's a huge

investment opportunity we can take advantage of. And there's growth in that private and it's growth in the private sector, and it's actually a huge amount of investment opportunity there. They can access all the capital they want. The stories changed so much because they used to have to go public to access the capital, and now PE is just

opening up funds of people throwing money at them. Do we need to improve the opportunity set for retail to get access to private markets, the opportunities that used to be public and now remain private. Do we need to open that up a little bit more? Chris Um. I think that the private equity firms are always trying to figure out how to do that. That's been on people's mind of how do you daily value or how do you take private equity and fitted into a four O

wind k option. I'm not really sure that they should because that's a very sophisticated market, a lot of volatility. You just use the expression that pe is throwing money at companies. That's not a good environment. You don't want to throw money at p A to do something that all sitting on record cash piles. There's no question the world is a wash with capital. Never in Tom Keene's life have you seen this much money around the world that's able for long term investment. Just think of the

sovereign wealth funds that are out there. There there ten times are I go with that? But after the Napoleonic Wars it was a little richest. Well, that's true. Equity markets have a multiple on them, that is, are you able to go down assets size and go from comfortable big caps down to mid cap and small cap or do you have such a massive money just as it worth buying mid caps and small caps. No, we are diverside portfolio, Tom. We're into mid caps and indexes, yes, indexes,

and then direct active management. That's the one place we think the markets a little bit less efficient, so we'll use active managers despite the cost. But I think an opportunities, particularly in emerging markets around the world, not even just large cap and mid cap and emerging markets, we can take advantage of that. So you were the French teacher in San Jose, and she says, what did you do last year? What? What's your What was your total return

last year to your your shareholders last year? Are total return um was? I'm gonna say fourteen percent. Actually, I'm still past two thousand seventeen, and i operate on a fiscal year basis, so I'm really focused at June thirties and and where do we perform. We're doing well. We're like a lot of hedge funds. You captured a lot of the up SPX. Absolutely, because over half of my portfolio has a beta exposure to the global equity markets. So I'm in US and in non U S stocks,

and I'm going to move with those markets. But over the long term, we think we're going to do quite well. What's your R squared to SP something? How tight do you manage the benchmark indexes within the equity portfolio? Very tight? Our tracking error is actually pretty darn tight because we don't use a lot of active management. We're seventy passive in the USA, fifty percent passive in the non US market,

so very tight passive. That's fascinating. We have that big conversation without Warren Buffett, and they beat against protege pond as you saying that's the best way to position over a period of time that could be multiple decades. We think that if you're going to invest billions of dollars, the most efficient and cost effective way to do it is is to own the US market as one whole group, as one basket of stock. Yeah, there aren't a lot

of Warren Buffets out there. It would be great if we had quite a few options, but there's only one oracle of Omaha. Chris. Final question, we have a limited time. I just want to ask you how much is that equity position increased as a percentage of the overall investment portfolio. Over the last couple of years, it's actually decreased interesting profits well, as this equity market was hitting all time new eyes US and non US, we were taking profits

away and diversifying into other areas. We want to take it down below of the portfolio. Okay, well, thank you so much, Craig, Chris Elman, excuse me, Chris Ellman, thank you so much. With Kelster's this morning and now joining us for all of us, the most important interview of the day, without question, on your real estate, on John Farrell's real estate. Jonathan Miller joins us with Miller, Samuel John, nobody keep statistics like you, Miami, New York and really nationwide.

What's the trend right now into John Pharaoh's spring season. Well, we have two things happening. One, if you look at the residential side, so far, very little change in attitude from what was expected to be a pretty serious drag on housing, uh regarding the tax reform. On the retail side, we're delving further into the retail apocalypse, where we're having a significant number of retail outlets running into trouble and

trying to renegotiate with landlords. UM, it's sort of a an after effect of the financial crisis combined with massively over building retail across the US. It's price adjusting for the retail apocalypse. Is that happening quick enough? Oh no, Uh, just like we we have talked about before in Bloomberg with UH the development boom. UH, it takes UH landlords or property owners two to three years to really adjust to current market conditions. And we're just really something that

began two or three years ago. We're just starting to see retailers or landlords begin to adjust and they need to. Okay, the big complaint I get John Miller is Michael Dell takes a place in a big, shining tower and everybody goes mental. That's not the real world. And we say good morning to Mr Dell, who's been very supportive of our work, UM, John Miller. If you go down the income food chain, the number one complaint I hear from everybody are the income qualifications Given a high rents in

many cities around the nation, is that pressure still there? Oh? Yes, Credit conditions UH in multi family housing, UH, specifically residential rental remained very high. That there's a strong risk aversion UH, despite growing um uh need for the use of concession. So for example, in New York, UH the at least fifty of all rental activity has some form of landlord concession. And when you talk about new development, all the product that I'm built over the five or six years, it's

anywhere from have some form of concession. So what we're seeing is an oversupply, whether we're talking about luxury residential or we're talking about retail. And but the the issue, John and Blueberg has an agreement, folks. I can't live too close to John Ferrell because in case there was an accident, we need to be apart. But but if I was to move up by John Farrow, the fact is where he lives is so fancy. There's nothing for rent. Explain what you just said, John Miller for ten minutes,

and the fact is there's nothing for rent. How can you have both worlds? Well, So what you have is you have a massively polarized market. So most of the supply that has come in on the residential side has been skewed the luxury and so that essentially the remainder of it. I want to say, if Tom King wants to trade views out of the front window. We're not going to talk about where we live. Um. Jonathan made a question and serious question hap me out here and

in my app some of our listeners as well. The landlord wants to put up my rent in the new renewal. I'm a captive audience. I'm a sitting tenant. Now, if I go to another building, they're offering two months free rent on fourteen month deals. It keeps happening again and again. But when I'm a sitting tenant, they're just throwing a rent increase at me. What's my best response? So the best response is to act as if the market is softening,

um and if you you see a rent increase. Actually, landlords are are really being much more uh flexible than they have been because otherwise your option with all the um all your other options are to to move. And so we're seeing massive use of concessions uh to keep you in there because it's it's less expensive to bringing in and then bringing a new tenant. Does San Francisco break like New York? Oh yeah, uh yeah, that market,

you know that market. It's it's odd because we always think of New York is the most expensive in the country, but that market is feeling much more pain and stress on affordability, and they're having the same problem that there just isn't supply, uh for as we would say, Mere mortals, mortals to rent. Well, thank you, Jim Miller greatly appreciate he's with the real estate agency Mere Mortals. We greatly appreciate his attendance today. John Miller Folcus is with Miller,

Samuel and Douglas Eleman and does the best. He passes John Burrow to Bureau and Borrow to Borrow and down in Miami as well in Boston. It's amazing the narrowness he gets. This is a joy. George Friedman is one of our most astute analysts of the military dimension of our international politics. Chapter five of the Next hundred Years is China two thousand and twenty Paper Tiger. George Freedman

joins us now author and with of course, with geopolitical futures. George, do you have to rip up the next hundred years? And you have to rip up chapter five Paper Tiger? After this momentous announcement of President g I don't think I have to rip up anything. Uh. Look, the Chinese have a fundamental interest in controlling the South China. See in ten years of pursuing this that got nowhere. No one is impressed. Not even the Filipinos h New York

Times is impressed. So you know, they can be as loud and as aggressive as they want, but the fact of the matter is they don't have force. How do you respond to the comparisons of this historic announcement from President g and I guess the Communist Party with what we observe from Mr Putin today in Russia is lengthy speech to uh an acclaimed room. Well, these are two basically constrained military pours trying to posture on the world

strage as if they were much more powerful. Look, the Russians claimed that they're spending only four of their GDP on defense. If you take a look at all the projects they've laid out, some of them extraordinarily advanced, they're spent it way way more at a time when oil prices are down. So if he is serious that he's actually done this, he's repeating what so the Union got crushed by star Wars competition. On the one side, low

oil prices. It is one thing to make a political speech, it's another thing to believe it, and we have to be very careful, Mr Friedman. During this speech, a President Putin talked about two specific nuclear weapon delivery systems. I'm wondering if you could offer your thoughts about whether they

are credible and what do you believe that indicates. Well, the most important one he spoke about is that he had a cruise missile back in travel at mock times his speed of sound and deliver in nuclear weapon anywhere in the world. The only question is, why do you want a weapon like that to deliver nuclear weapons? You've got I C B M. S um. They're not easy to defend against. Noblan claims they can defend against it.

Why develop a weapon of this sort at this incredible expense Because you've got to develop materials, fuels, other things like that in order to do a nuclear attack, a lot of other ways to do it. I think they're working on it. I think a lot of countries, including

the United States, are working on this. But his claim that they've got it, as like much of the speech he made, it was great campaign rhetoric, it was a good State of the Union message, but when you drill down into it, he's claiming to be developing weapons he doesn't even need in that context. The elections, as you indicate, they are coming up, what in about seventeen days, will there be any change after the election in the way

Russia is governed? Well, the Russians are really trapped, as most nations are there, trapped by an economy that never evolved that depends on the price of oil, and they can't They can't control the price of oil, and it's not going back to eight or hundred, at least not in the near future. So they have got this problem that limits what they can do. They also want to appear for their own public and for the world as

if they were major global powers. They're not, but they can make a speech that makes them sound really frightening, and that's what we did. George, you're asconsed in the People's Republic of Austin. The territory around you maybe ought to be the most likable territory for President Trump. How do you gauge the American public support of the president's foreign policy and the budget announcements of a build up

of the military. How do you engage that? Well, I haven't live outside of Austin, in the Red Country, and the general view out here is they're not really interested in foreign policy nearly as much. There's trade issues and things like that, and they don't quite understand it. But they want to military build up, right, they do. But it's not a it's not a burning issue. I mean, this is not something that they're really they're really caught up on social issues. As to the people inside of Austin.

They hate anything he does if he does it. So what you really have the social reality is you've got two groups, none of them are particularly coherent in terms of policy, but each have one basic belief that the other group really is vile. And you try to figure out what it is that each wants, it gets really murky really fast. Okay, Well, let's sake something like the F thirty five, of which I have almost zero knowledge. The if we throw more money at the Pentagon, which

I believe is what we're gonna do. Does George Friedman have a confidence we're gonna build the better F. Well, you've caught me on a bad subject because I think that thirty five are really bad idea. Well, that's how we're talking to It's a wildly expensive plane, is extremely complicated, and we can only afford to build a few. We're building an air force where we can't afford to take losses. So I mean you shoot them that thirty five you're

taken out the g d P of El Salvador. Uh, this is there about a million a copy and that's with the price cut, and that's not including the long term maintenance and everything else that you have to build into It is very hard to maintain. So the answer is we need a national strategy that defines who were likely to fight and then devised weapons that are likely to do something about it. Where we really do need the money is in developing the manpower that we need

in the army. This army has been fighting for sixteen years. They are tired. Lot of the key people have retired. I'll be personal. My daughter, who was a major, went on three tours to Iraq. They totally you're going back in nine months, and she threw in the towel that army that we have, the personnel have been used up and ground down. So where you need the money is to build up the force. It's morale, it's training and

things like that. The hardware we're pretty good at, and the hardware we need to develop can be developed out of that money. But what we really need is an army UH to fight with those forces with those weapons. Mr Freedman. The book that I believe you're working on is titled The New American Century. Can you offer people maybe in about the thirty seconds the overall gist of what you're trying to convey, Well, the gist of it is every fifty years the United States goes into an

economic crisis. The last one was Ronald Reagan crisis, the one he saws. The one before that was FDRs, And going back into history to Andrew Jackson, this is the way we work. We are now entering the closing phase of the Reagan cycle, and we are seeing the beginnings of the crazy politics like we had in in when the assassinations are taking place, riots in Chicago and one. So this is a normal process. This is how we

do things. And what appears to be the end of the United States, well, it's simply the way we go through it. And it's a huge sense of despair at the end of an age. But the Reagan period is drawing to in a hole and a new one is emerging. George Freeman, thank you so much. Never done time use with geopolitical futures. Terse perspective on our military doesn't link ag into our political economics. M Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on

Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm on Twitter at Tom Keene before the podcast. You can always catch us worldwide. I'm Bloomberg Radio