Geopolitical Uncertainty – James Aitken, Louis-Vincent Gave, and Marko Papic (EP.440)

Last week was one of the most volatile in market history. In the last twenty-five years, it's likely matched only by the pandemic and Global Financial Crisis in the breadth of potential outcomes for the future. In a change from our typical market-insensitive conversations, I was fortunate to gather three of the most insightful thinkers on global macroeconomics and geopolitics on Friday to share their assessment of the changing landscape. My guests on today's show are James Aitken, Marko Papic, and Louis-Vincent Gave. James is the founder of Aitken Advisors, Marko is the Macro-Geopolitical Chief Strategist at BCA Research, and Louis is the Co-Founder of Gavekal Research. Each are past guests on the show, and their first appearances are replayed in the feed. Our conversation explores the shifting landscape of global markets and geopolitics, highlighting their shared belief in the end of U. S. exceptionalism. We dive into the conditions leading into Liberation Day, the motivations of the U. S. and China, and the likely outcome of the tariff wars. We then turn to the markets, covering the weakening U. S. dollar, rise of non-aligned nations, opportunities emerging in Latin America, Europe, and Asia, U. S. Treasuries and the yield curve, and private markets. We close with thoughts on potential winners and losers while unpacking how allocators can navigate this period of profound change. Learn More Follow Capital Allocators at @tseides https://twitter.com/tseides?lang=en or LinkedIn https://www.linkedin.com/in/tedseides/ Subscribe to the mailing list https://capitalallocators.com/ Access transcript with Premium Membership https://capitalallocators.com/signup Editing and post-production work for this episode was provided by The Podcast Consultant (https://thepodcastconsultant.com https://thepodcastconsultant.com/)

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:01Ted Seides?

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• 0:46Ted Seides?

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• 2:12Ted Seides?

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• 2:57Ted Seides?

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• 3:32Ted Seides?

  Hello, I'm Ted Seides, and this is Capital Allocators. This show is an open exploration of the people and process behind capital allocation. Through conversations with leaders in the money game, we learn how these holders of the keys to the kingdom allocate their time and their capital. You can join our mailing list and access premium content at capitalallocators.com.

• 3:59Speaker 01

  All opinions expressed by TED and podcast guests are solely their own opinions and do not reflect the opinion of capital allocators or their firms. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of capital allocators or podcast guests may maintain positions in securities discussed on this podcast.

• 4:18Ted Seides?

  Last week was one of the most volatile in market history. In the last 25 years, it's likely matched only by the pandemic and global financial crisis in the breadth of potential outcomes for the future. In a change from our typical market insensitive conversations, I was fortunate to gather three of the most insightful thinkers on global macroeconomics and geopolitics on Friday to share their assessment of the changing landscape. My guests on today's show are James Aitken, Marko Popovich, and Louis Vincent Goff. James is the founder of Aitken Advisors. Marko is the macro geopolitical chief strategist at BCA Research. And Louis is the co-founder of GovCall Research.

• 5:01Ted Seides?

  Each are past guests on the show and their first appearances are replayed in the feed. Our conversation explores the shifting landscape of global markets and geopolitics, highlighting their shared belief in the end of US exceptionalism. We dive into the conditions leading into Liberation Day, the motivations of the US and China, and the likely outcome of the tariff wars. We then turn to the markets, covering the weakening US dollar, rise of non-aligned nations, opportunities emerging in Latin America, Europe, and Asia, US treasuries and the yield curve, and private markets. We close with thoughts on potential winners and losers while unpacking how allocators

• 5:45Ted Seides?

  can navigate this period of profound change.

• 5:49Speaker 02

  Before we get to the interview, allocators, listen up. It's the last dance for Capital Allocators University. I don't think Netflix will make a Last Dance sequel, but you never know. The seventh cohort of CAU for allocators is coming up on July 7th in New York City and is likely to be our last in person. We'll dive into decision-making and interviewing techniques for investors, host peer discussions, and feature a can't-miss Q and A with the dynamic duo of Kim Liu and Meredith Jenkins. We're also cooking up something exciting, broadening accessibility online and bringing together our CAU alumni in person. More to come there.

• 6:29Speaker 02

  If you want in or you'd like your teams to participate, head to capitalallocators.com/university. Spots won't last, seats will fill up quick, and this might be your last shot to join in person.

• 6:42Ted Seides?

  Please enjoy my conversation with James Aitken, Louis Vincent-Gov and Marco Popovich. Marco, Louis, James, so appreciative you're able to hop on. To start, and so people listening can calibrate your voices, why don't we do a quick round, give your name, where you are in this moment geographically, and also, what's the most important takeaway that you have in this interesting time? James, why don't we start with you?

• 7:10Speaker 03

  Ted, thank you for convening this, and can I say at the top, this is the Thinking Investors equivalent of CNBC's Markets in Crisis. James Aitken, Wimbledon, United Kingdom, Australian, the executive summary is, the world by design has been overweight US assets for a generation. We now have an administration sending a very direct message over and over again to global capital, and I paraphrase, "Please go away." And that's what we're all dealing with right now.

• 7:44Ted Seides?

  Louis Vincent?

• 7:45Speaker 04

  Thanks a bunch for having me. It's great to catch up with James and Marko. My name is Louis Gov. I'm dining in from Istanbul. I'm here for a friend's wedding, just here for the weekend, heading back to Hong Kong pretty soon. My theme isn't very different from James. I think we're living through the end of the era of US exceptionalism after a 15-year standing run. The US dollar is now rolled over. I think most people's portfolios are in position for a world of weaker dollar and one where growth outside of the US is going to outperform growth in the US.

• 8:16Ted Seides?

  Marko?

• 8:17Speaker 05

  Hi, I'm Marko Papic. I am dialing in from West Coast, from Santa Monica. I am from a country that no longer exists, so nihilist, if you will. What I would say is that I think you did a poor job of assembling this panel, Ted.

• 8:34Speaker 05

  I have absolutely nothing to add to what these two legends have said. I'm just gonna say one word answer: Exodus, movement of the people.

• 8:45Ted Seides?

  Marko, why don't we turn to how you get to that conclusion?

• 8:51Speaker 05

  Let me try to say something different. I would argue that if Vice President Harris had won the election, we would be in the same boat in terms of the peak in US assets. We just wouldn't have as extraordinary of a sell-off. So what would have happened under Trump in 12 months would have probably happened in four years. I think that the US exceptionalism was truly exceptional from 2010 to 2020. We can articulate the exceptionalism of US markets during that period of time, which was low growth, low inflation. You want to be in long-duration assets, of which tech is probably the premier. But from 2020 onwards, I think we've all been fooled. Productivity data is a joke. It's just output per hour worked.

• 9:31Speaker 05

  If I dumped a wheelbarrow of cash on your heads, you would look pretty productive as well. We've been riding a fiscal orgy where the US basically outspent the rest of the world by an extraordinary amount. The underlying reasons for this have nothing to do with the pandemic or the virus. Why do we spend 4X what Europe did in fiscal policy? It's populism, it's income inequality, other things. If you look at the performance of the markets, the dollar didn't peak on Liberation Day. The dollar didn't start selling off on Liberation Day. It did in January. And really, it did when the bond market disciplined American legislators. The constraint on American legislators is the bond market,

• 10:16Speaker 05

  which rioted when the human steepener was elected as president.

• 10:21Speaker 05

  And we saw 100 basis point cut in the Fed funds rate and 100 basis point move in the yields higher, which hadn't happened since the 80s. There was a bond market riot that spooked members of the House of Representatives to start curbing. There's a revolt effectively going on in Congress. This move in US assets peaking really started when the bond market disciplined American policymakers and then we all as investors had to reprice American growth differential relative to the rest of the world. You see, when President Trump started being bid up as a candidate, there was assumption that Trump 1.0 would be replayed. You're going to have populist generating high nominal GDP growth, demand promise 10

• 11:02Speaker 05

  to 15 trillion additional deficit spending. All of that started being cut in January, February of this year. Then, of course, you have the trade and I'm going to just concede to James and Louis on that front. I just wanted to start off with something unsexy that's not really talked about. It's the fiscal gravy train that gave us exceptionalism of the US asset flows from 2020 to 2025. That's over.

• 11:24Ted Seides?

  Louis, James, any additional thoughts to the framework that Marko just proposed?

• 11:31Speaker 04

  Look, we can talk all day about what's happening in the US. There's a reason why the world, yes, the end of US exceptionalism has a lot mostly to do with the policy choices of the US, but also just natural order of things. Trees don't grow to the sky. Valuations relative to the world were very stretched, etc. At the same time, we have to acknowledge that we're seeing very important policy shifts in both Europe and China. I spend a lot of time looking at China. I live in Hong Kong. My firm will have an office in Beijing as well. The story of really the past six, seven years in China, first and foremost, where all the capital was being allocated to industry. The banks were told, don't lend to real estate

• 12:13Speaker 04

  anymore. Don't lend to the consumer. We have to build industrial resilience because the US is trying to constrain our growth. It's not giving us access to tech, not giving us access to semiconductors. So we're going to have to build everything ourselves. This has now shifted massively in the past six to nine months. First reason is industrially China is much more confident and comfortable with where it stands relative to five, six years ago. At this stage, it basically dominates pretty much every single industrial supply chain. Number two, China's big fear over time became that the US would try to build an anti-China coalition.

• 12:52Speaker 04

  Now, funnily enough, having declared trade war on everybody, the US administration is now trying to pivot to creating that anti-China coalition. The odds of that succeeding are probably very low and China is trying to be much more relaxed about it. But third, with everything happening in the world, China now realizes that it actually has to promote domestic consumption. So you're seeing a very important policy shift in China today, where the past six years, all the bank lending, everything has gone just to industry. And now all of a sudden, all you hear about is boosting consumption and boosting loans to local authorities and boosting loans to real estate. And of course, at the same time, an employment policy shift in Europe.

• 13:33Speaker 04

  Europe was always torn between the parts of Europe that were far more conservative fiscally and reluctant to step on the fiscal accelerator. And now there is no such splits. Germany was the very embodiment of the reluctance to expand fiscally. That has just been thrown out the window. I don't know if any of you guys ever played Uno with your kids, but it's like the markets have just had the Uno reverse card dropped on us. The US was doing massive fiscal spending, China and Europe were not. Now the US is doing fiscal consolidation, just as China and Europe step on the fiscal accelerator.

• 14:10Speaker 03

  Ted, I feel like I haven't done enough prep because I wish I'd coined the phrase human steepener. I wish I was clever enough to come up with a metaphor of reverse Uno card, but obviously I've got nothing.

• 14:22Speaker 03

  If I may paraphrase a little, what our two friends are both saying is that there may be a chance that for all the difficulties over the past several years, the Chinese leadership may have been preparing for exactly this moment. Whether it be delivered to them under an extension of the Biden-Harris regime or frankly accelerated under this president. Whatever one's prize about the regime in Beijing, China has options here. As Marko pointed out this morning in a social media post, let's face it. China is prepared to suffer. It's not obvious to me that the US consumer is in the same way. What we're describing is an end to US exceptionalism. And to be very clear, we're not saying the end of the dynamism and the entrepreneurship

• 15:07Speaker 03

  and everything else that has made America fantastic. We're not saying that. We're not saying it's the end of Silicon Valley and innovation. Of course it's not. It's going to remain a dynamic entrepreneurial country. What we're saying is that the marginal dollar of capital flow is going to go somewhere else because it's been told, go somewhere else. I just want to drill down on that a little bit. Some of my clients say to me, what's Trump's plan? And I say, plan is a very strong word. They say, what's Trump's strategy? I say, strategy is a very strong word. How about we go with what's the ideological agenda that's behind all of this? Let's be clear, there are some good points here. Firstly, the US fiscal situation is unsustainable. We really ought to do something about it. Yes.

• 15:52Speaker 03

  The trade situation so far hasn't bothered us, but perhaps we should attack it because we want to do more for US manufacturing and Main Street. Okay. Oh, we think many parts of the rest of the world haven't paid their fair share to shelter under the US defence umbrella. Of course that's true. The broad talking points are correct. But when you say over and over again that there will be some kind of traffic light system, a green light for people who are in our orbit who want to invest here and do business with us, then an orange light and red light system. And then simultaneously, and I'll defer to Marko and Louis on this, you take a Stephen Mirren, who has that infamous paper.

• 16:34Speaker 03

  He's speaking on Monday in the midst of a bond market rout, saying out loud at the Hutston Institute, well, maybe people can just wire us the money to Treasury if they want to transact here. To a lot of my clients, that sounds like we're going to tax your capital flows. Taxing capital flows is a very short step away from capital controls. We do not want to go there. The message is clear, the broad brushstrokes of the agenda are clear. They would probably view as of now that this week has been a success. I kid you not. So the dollar's down, the equity market has stabilised off Monday's lows. Okay, tenuously, but here we are. The bond market is still frisky and under pressure, but the sell-off has slowed a bit.

• 17:19Speaker 03

  They'd probably view what they've done this week as quite an achievement. But let's be clear, it solves nothing. All we've done is buy time. The reality is that we're going to have two quarters of global growth that are going to be absolutely horrible. And in that context, the market clearing price of earnings and therefore the market clearing price of equities in general, in the US in particular, must be lower. The market clearing price of credit in general must be wider. Anyone who's trying to say, oh, things are oversold, might need to take a cold shower. It's all very well to have some kind of tariff moratorium for 90 days.

• 18:00Speaker 03

  It's all very well to say the average tariff for people who are nice to not ask to me, the president, they'll probably get away with a 10% flat tariff. But that doesn't matter. If you're going to impose 145% tariff for any period of time on the world's factory, nothing works. You're already seeing covers at restaurants and everywhere fall, travels falling. And there are three flights a day from Heathrow to Boston with British Airways. A client sent me a photo last night, returning from London to Boston, and she was the only passenger in BA business class. That is a metaphor for a sudden stop. This is a sudden stop.

• 18:40Speaker 03

  Even if this weekend we get big, beautiful tariff trade negotiations with Japan and South Korea and maybe some others, it's too late to arrest the jolt to confidence, the jolt to capex, the jolt to business spending, the jolt that will soon start to impact consumer behaviours as well. At a time when the administration, I'll keep saying it, is telling global surplus capital that has underwritten the US outperformance to go home.

• 19:08Ted Seides?

  So I'm seeing a lot of head nodding as each of you are going through this, a lot of agreement, painting the landscape. James is nodding his head no. Go ahead. Something you heard that you don't necessarily see eye to eye with.

• 19:21Speaker 04

  I completely agree with James. Of course, you'll get a deal with Japan and Korea. But to be honest, that's like taking your sister to the prom. If you're Japan or Korea, you're dependent on the US security umbrella. You've got US troops in your territory. You're always going to do whatever deal the US puts in front of you. That's the simple truth. As James points out, what really matters is that in the past 10, 20 years, China has become the world's factory. Imagine you're a property developer in the US. The reality is your appliances, your pipes, your tiles, everything you use to build the house. Go to your Home Depot, you'll find that 70, 80% of the stuff in there is from China. Today, who in their right

• 20:03Speaker 04

  mind starts a new project when really you have no idea what the cost of anything that you're going to build your house with is going to be? Not only the cost, but whether you'll even have it. If the pipes are a week delayed, it's a bloody disaster. Then the plumber doesn't come in and then that pushes the drywall back and these are like finely tuned machines. We saw this kind of discrepancy during COVID and it took the economies a year to get back on their footing. This time, it's going to be just as bad. I don't see how the economy doesn't grind to a standstill. These strict discrepancies are going to be very unique to the US. They're not going to be elsewhere. But of course, you could say, well, when the US catches a cold, the rest of the world catches pneumonia. But this is

• 20:48Speaker 04

  where it's interesting. This is the big unknown in this cycle. The US, essentially, they're slamming on the brake and they don't have a seatbelt. So they're going to be slamming their heads against the windscreen. Europe and China are countering this with greater fiscal policy and fiscal spending. So it'll be interesting to see whether they can withstand the shock that's going to be coming out of the US.

• 21:13Speaker 03

  Can I maybe ask a question to Marko, just to differentiate a bit? There's this popular narrative for too many of us in markets, frankly, that, oh, our mutual friend, Ted's former business partner Scott, he's one of us, he's a markets guy, he's Treasury Secretary, they would never do anything to hurt us. Is it right to imagine that what we're actually talking about here is far bigger than the next GDP print? It's far bigger than core inflation. It's even far bigger than where the S and P closes on any given days. How should we think about it in a broader context? And is there any good historical analogues?

• 21:52Speaker 05

  Yes, I think so. One of my core theses, since I joined finance, which is later than both of you gentlemen, all three of you, actually.

• 22:00Ted Seides?

  Appreciate that.

• 22:01Speaker 03

  You're much younger, mate.

• 22:02Speaker 05

  I don't mean that. No, no, it's okay. Keep going, young man. One of my core tenets has been we're in a multipolar world. And I know Louis agrees, his book is very much along those lines as well. In a multipolar world, there are certain constraints. One of those constraints is what Louis said. It's going to be very, very difficult for the US to build a coalition. So the analog is the 19th century. This is the problem because we're all trying to fit a square peg into a round hole. We all keep trying to think about bipolarity, China versus US. But the reality is that I don't think it's going to be China versus US. It's going to be very difficult to build a coalition against China. That's the analog. Now, the 19th century was not a bad time.

• 22:47Speaker 05

  Globalization did not collapse. Actually, enemies traded with one another. Everyone keeps waiting for this bifurcation of US and China. And it keeps becoming very difficult to do that. One of the simple reasons is allies can't coordinate well in a multipolar world. It's not that France and the United States wouldn't go to war together against China if we had World War III. It's that until that moment comes, France has to sell Airbus to China. And if France sells Airbus to China, then Boeing has to sell them as well. Otherwise, US will lose out significant real gains. That's the first thing I would say. We as investors keep falling for this fake, false model of a Cold War and a bipolar world.

• 23:31Speaker 05

  But where I would disagree with you, James, obviously, what I love about you, Ted, is that you've created a platform for allocators. This is my bailiwick. I don't think you want to day trade Marko Popovich's views. All three of us are here in agreement that there's an end of US exceptionalism, and that's what really matters for long-term investors. If I were to offer my modest view on day trading, I would just warn one thing. James, you can be correct completely on hard data and fundamentals, but we may have seen the bottom anyways, and here's why. In policy-induced recessions, what really matters is the second derivative in policy, not data. Markets are going to look through two quarters of terrible data if the outcome starts to

• 24:14Speaker 05

  be revealed that this is all a lark, that this was all for lulls, and that President Trump is just cooking, as White House official tweet told us, "Let him cook." What? Yesterday, he says, "I want to deal with China." By the way, he said that first cabinet meeting this year. He ridded it last night. Once the market sniffs that out, they're going to be like, "Oh, okay, so the worst is over." The example of this that I would compare to is COVID. Remember, lockdowns, hospitalizations, we all became obsessed with all this stuff. But the truth is, the market's bottomed on March 23rd, 2020. I think the response is going to be President Trump saying, "I was actually going for 5%

• 24:57Speaker 05

  to 10% across-the-board tariffs, not 40%." Once the market sniffs that out, I think it's very dangerous to be overly bearish on risk assets.

• 25:06Ted Seides?

  I want to turn to taking those views, the end of US exceptionalism, what might happen, China and Europe, and how do we think about applying them to different markets? Not what's going to happen tomorrow, we have no idea. But if you look at a global asset allocation today and say it's roughly market cap-weighted, there's public market exposures, there's private market exposures, fixed income exposures, how would you suggest someone think about the implications of those shifts over different periods of time? And that could mean a year from now, it could mean three or five years or longer. Louis, do you want to tackle that one?

• 25:45Speaker 04

  The obvious arguments we've all already made, people are too overweight the US and they're too overweight the US dollar. That's your first trend. And then you get to the question indeed of, okay, that all sounds great. What do we buy? For me, there's a few things happening today that are pretty visible. The first, when I look at the US foreign policy, it seems pretty clear that the US is essentially retrenching on its own borders. It's taken the lessons from the failed Ukraine war and it's come to the conclusion, look, we actually can't protect power that far. Our weapons that we thought were terrific are not as strong as we thought they were. When we look at the actions of the Trump administration, it's pretty clear that they're essentially trying to re-tranch onto the Americas.

• 26:29Speaker 04

  J.D. Vance's speech to Munich was he was coming in to break up with Europe. Now, usually, when you break up with someone, you have the decency to say, it's not you, it's me. J.D. Vance came out and said, it's you, you suck. And so I'm walking out of this relationship. At the same time, essentially what the US is saying is not only are we tranching on the fortress America, or maybe we could call it Fort Monroe, at the same time, what we're doing is we're going to kick everybody out of the Americas. Argentina, you can't do deals with China anymore. Panama, we've got to get the ports back. Venezuela, get China out of there. This, I think, will end up being the negotiations with China. China, you get out of the Americas and we'll get out of Asia. That is a trade that Steve Dipping will be very happy to make.

• 27:13Speaker 04

  Today, in Asia, all suddenly, everybody's going to be much nicer to China because the writing is on the wall. In this world, where does that leave you? That leaves me actually super bullish Latin America. It was very interesting that in these tariffs, Latin America was completely spared. Not only did they get a blanket 10%, but pretty much everything they export, whether copper, silver, lithium, etc., was spared tariffs. From here on out, the US is going to be very, very nice to Latin America. Meanwhile, Latin America is one of the most undervalued asset classes out there. You can buy Brazilian tips for 8% real, a 15% nominal on the 10-year. Why wouldn't we do that all day, every day and twice on Sunday? You've got to absolutely back up the truck, I think, on Latin American assets.

• 27:57Speaker 04

  Looking around the world, other obvious assets to me are assets that have been absolutely decimated because they were perceived to be the big losers in the unipolar US world. Everything into China obviously stands out. The one that stands out the most to me is Chinese distressed debt. Chinese distressed debt was trading at fifty, sixty cents on the dollar. When Russia invaded Ukraine and decided China's uninvestable, everybody redeemed. There was no markets. This stuff is still trading at ten cents on the dollar at a time when again China's going to be dilating. So you can buy Chinese distressed debt at ten cents on the dollar, knowing that the banks are going to go into overdrive. To me, that seems like an amazing risk reward.

• 28:39Speaker 04

  Europe, the valuations aren't that cheap, but again, you're going to have the fiscal tailwinds. All this to say that in this world that reorders, new opportunities are emerging here and there. That to me seems pretty obvious.

• 28:51Speaker 03

  James? Two follow ups for our friends. Firstly, Louis, there's been a lot of commentary again this week, the usual analytical mistake, which is always China must. The China must XYZ viewed through the prism of Western capitalism markets is not a great way to think about it. You know where I'm going with this. The China must deval story is running hot again this week. Can you just talk to that for a second for us all?

• 29:17Speaker 04

  Sure, happy to. Look, China's running a trade surplus of one point one trillion US dollars. There is no problem of competitiveness of Chinese industry. Meanwhile, I invite all your listeners, if they don't know where they want to go on a holiday, go to China. It is now so cheap. You can stay at the Four Seasons in Beijing or the Rosewood in Shanghai, et cetera, for two hundred, two hundred and fifty US dollars a night. These are as nice a hotel as you've ever stayed in. China today is super competitive. You can buy a really nice electric car for nine thousand US dollars. If you want to self-drive on Tesla, that's eight thousand dollars and you still need to buy the car. China is so competitive today, it is crazy. China doesn't need a devaluation.

• 29:59Speaker 04

  China's problem is first and foremost that consumer and business confidence has been crushed, crushed by a number of government decisions, being crushed by the fears of the trade war. COVID has been crushed by the real estate bust, been crushed by many things. If you want to boost consumer confidence and business confidence, you actually raise the currency, you don't devalue it. James, I think here we're at a super interesting crossroad where if in the next six months China does devalue the renminbi, it would have been a big policy mistake. I'll add one last thing on this. The fact that the yen is going up very rapidly now gives them probably more comfort, more room to revalue the renminbi. If you're China today, your main competitor for your industry is now Japan, especially

• 30:44Speaker 04

  when the yen was so cheap.

• 30:46Speaker 03

  Thank you for that. Ted, if I may go back to Marko and just respond. Let's be clear for our listeners. We're not talking the end of US exceptionalism, full stop. I think to drill down a bit, we're talking about a probable end to US outperformance versus other parts of the world. I think that's the essence of it. I'm always intrigued when any market, anywhere and anything is described as exceptional. And it's not to pick a fight with it, but if you compare that with a position that's well researched in anything that's described as uninvestable, you've probably got a very interesting portfolio, particularly if it's tilted to the uninvestable that most people

• 31:30Speaker 03

  just can't be bothered to investigate. To take it one step further, we do need to keep an open mind about what Marko said. Are the clients I work with blanket selling US assets? They are not. For the past month and a half, the tactical ones have been increasing their dollar hedge ratios versus various currencies, which is the first step. And a lot of them had pretty low hedge ratios because they didn't need to hedge. Being unhedged overweight US equities has been a great winner, not least for Japanese retail investors in their nicer accounts. And that's just one example. It's been a great winner for every private bank. It's been a great winner for the world to be unhedged overweight US equities.

• 32:14Speaker 03

  And then you have this. So in some cases, you may need to trim risk and certain equity exposures, but you certainly focus on the currency first and foremost. To see the euro up 2%, two days in a row, tells you that there's some very powerful capital flows coming out of dollars into euros. The currencies of massive surplus countries are outperforming, which makes perfect sense. But amidst this turbulence, Ted, I think the key is that there are a lot of things that will get thrown out. And if you've got a fully funded balance sheet, which applies to most of your audience in the most wonderful way, now's the time to sharpen the pencil. To see some of the world's largest pools of capitals putting

• 32:57Speaker 03

  in a bid, effectively being net liquidity providers to specific assets, and let's be clear, not at a beta level, not at an index level, that's not right, on very specific assets, whether they be particular bonds, or particular currencies in some cases, or most of all, specific equities which just got smashed in considerably, is absolutely the right thing to do. And that's probably the mindset for every long-term, fully funded pool of capital and generic term for sovereign wealth, endowment, foundation, family offices, sharpen the pencil. Because Marko's right. I mean, it's difficult transition, to put

• 33:36Speaker 03

  it mildly, but you can imagine a path through this eventually. It may not mean US asset outperformance continues. It may mean that we prefer other jurisdictions. And I think that's probably true to Louis' point. But it doesn't mean people give up on the United States altogether. It doesn't mean they quit. It just means there's a difficult transition. If you believe there is a path through it on a six to nine month basis, then now's the time to sharpen your pencil and be a net liquidity provider on assets.

• 34:10Ted Seides?

  We're going to take a quick break in the action to tell you about Brookfield. Brookfield invests in the thing behind the thing behind the next big thing. Their focus across infrastructure, energy, real estate, private equity and credit is helping to build the backbone of the global economy. Brookfield combines deep operational expertise with disciplined, long-term investing, uncovering value and partnering alongside clients to shape tomorrow's economy today. Invest in the businesses that shape tomorrow. Learn how you can own what's next at Brookfield.com/own.

• 34:48Speaker 02

  This is not an offer to sell or investment advice. Investing involves risk, including the loss of capital.

• 34:53Ted Seides?

  And now, back to the show.

• 34:57Ted Seides?

  Marco, at the top, you mentioned the constraint of the tenure. I'm surprised we've gone this far without even mentioning what Scott Besant is studying all the time. How do you think about the constraints of the US bond market and the reaction function?

• 35:13Speaker 05

  I mentioned to various members of the US administration 12 months ago that Trump would be a human steepener. They were not happy with that characterization. One of them actually said, quote unquote, "Every time you say that on Bloomberg, I gotta go after you and clean up your mess." And I was like, "Sorry." But this is the beauty of working independent research. I don't really care. That's first. The second thing is, it's been proven absolutely correct. When the Fed cut rates, every traditional fixed income investor was like, "You gotta go long duration." That was the wrong call, and that really alarmed the White House. Actually, I would argue that Scott Besant is the Treasury Secretary today because of that move. What we know about this White House is that, yes, they don't really care about equities

• 35:58Speaker 05

  that much. But let's leave that aside. I do think they are watching bond yields. Day in, day out. I think that they had this scenario in their head that a shallow recession early in the term would be awesome. Private sector in the United States of America has never been less leveraged. Households basically have as clean of a balance sheet as ever. Households have made $10 trillion in real estate over the last five years. And if you could get yields down, not only would they start buying homes again, but they might dip into that home equity through key locks. So you have this bonanza. All you need to do is bring the tenure down, and that hasn't happened. They're going to struggle to bring

• 36:41Speaker 05

  the tenure substantively below 4%. I think 3.5% is the best they could hope for. And that's just not enough, really, to restart some sort of releveraging of the private sector, because American households don't want to releverage at those levels. So I think this is the biggest constraint. Now, there are many other constraints. America sells CapEx goods. America sells expensive stuff. You're going to start seeing SOE-adjacent entities start cancelling those orders. You've got the House and the Senate talking about taking away tariff rights from President Trump. It's not going to happen, but they're talking. Finally, I think I've got so many polls, Ted, before, after election, they all say the same thing. Trade and tariffs, least important issue for Americans. The

• 37:23Speaker 05

  least, by far. I don't think Trump is stupid. I think if he had a superpower, it would be that he can sniff out where the median voter is. And I think he must know he's burning a ton of political capital on an issue nobody cares about in America.

• 37:37Speaker 03

  James? There's lots of theories floating around as to why the bond market reversed the way it did. Of course, there has been some deleveraging, but more specifically, it's been people stopping out. It is not the Treasury basis trade unwinding. The Treasury basis trade this week has been fine. The Treasury basis trade does not explain what happened. Nor, as Louis would attest, does the convenient but incorrect rumour that, oh, China must be bashing treasuries and just ignore that. It is true to say that there was unwind of some massive swap spread positions which were established on the notion, which is true, that financial regulatory reform is coming. They're going to ease up the denominator of

• 38:22Speaker 03

  the leverage ratio, which gives people more capacity to intermediate treasuries, which means theoretically swap spreads should be higher, aka wider. So it was logical to put those positions on. But when one person bows them out in size and there's no one on the other side of the trade, and then everything starts to correlate with everything else, off we go, everywhere from treasuries to gilts to Japan. And the biggest blow up of all this week was actually New Zealand. How about that? Lovely country, but nobody's really watching. What we've been reminded of this week, and we all know that this is something Scott knows as well, there is not enough private sector balance sheet capacity

• 39:04Speaker 03

  to intermediate this enormous stock of treasuries. It's a capacity problem, and it's even more of a capacity problem when you look at the expected borrowing coming from Europe now, based on the pivot that Marko and Louis have described. There's going to be a lot of bonds that need to be taken down in a lot of jurisdictions that are deploying fiscal policy to offset this shock. So we have, some people would dramatise it as capital wars, I think that's a bit much. But I think we can safely say that there's this growing competition for capital. The people that look after their creditors will probably be okay. The people that work hand in hand with their financial systems to make sure they're

• 39:45Speaker 03

  able to intermediate all of this will probably be okay. But unsurprisingly, in a competition for capital and a competition for funding, the big net surplus countries win. The irony is, when Scott eventually gets to deregulation and freeing up some of the constraints in the leverage ratio, it should serve to dramatically improve the functioning of the treasury market, and that would be a good thing.

• 40:14Ted Seides?

  Everything we've talked about so far is the liquid markets. And there's a healthy amount of sophisticated portfolios that are in the private markets. Would love to hear how you think about longer term, the implications of all this for all of the assets held in the private markets.

• 40:31Speaker 05

  I find it very interesting. I sort of introduced geopolitics and politics. It's what I hang my hat on. For most of my career doing that, private investors have just not been interested in anything that I write about. Or the allocators on the other side. The head of alts is usually like, meh, whatever. I don't need this. I'm in it for seven, 10 years. I can ride these geopolitical alpha moments. But my view is that geopolitics is not a short term thing. You should almost always fade it. It's really a long term impact. What's happening right now in the US, and I don't want to be too facetious or critical, but the US is starting to trade in many ways like an emerging market.

• 41:11Speaker 05

  So if you are in it for seven to 10 years in an illiquid way, you do have to start asking yourself, where is this headed? Chat GPT is formulating critical policy. The great master race of penguins of Hurt Island is seen as a competitor. That's a bad look. And obviously, if you want to talk about where US assets are massively overbid, I think privates are even worse than public. There just really hasn't been much of a private equity play in Europe or anywhere else. There was a huge one in China. That was the alternative. If you were a private, if you were a head of alts at a sovereign welfare pension fund, that's where you let your hair down. And of course, that was cut off five years ago. I think that there's a problem here in the privates.

• 41:56Speaker 05

  Number one, the overweight US in privates is egregious. And number two, we have a human capital problem where we don't even have actual asset managers in private equity, private credit, in venture, in buyouts, in non-US markets. Now, that's starting. But if you're an allocator sitting in a long term investment shop, you are literally emailing me, James and Louis and saying like, hey, do you have anyone in Europe who does private equity? How do I do this? There's a mismatch. This is the case also with emerging markets in general. There are two macro hedge funds dedicated to emerging markets today. Two of them. There's none doing commodities. Most commodity asset managers became crypto and

• 42:38Speaker 05

  digital asset managers. What we're really offering to the asset managers is a business development idea. It's time to start taking Europe seriously. It's time to start taking Latin America seriously. Let's diversify out of US privates.

• 42:54Speaker 04

  I was smiling because one of my dad's favorite saying is that if you can sell a fund, you probably don't want to buy it. It's been very easy to sell private credit. It's been very easy to sell private equity. I think if we take a step back, if you think your typical private wealth client in the US, fifty-five-year-old, starting to think of his retirement, maybe conservative, let's say fifty percent long-dated bonds, fifty percent equities, that guy over the past three years is down eleven percent against an inflation that is up eleven percent. So in real terms, that guy is down twenty-two. Now, funnily enough, against that backdrop, the private credit manager, the private equity manager tells you, I'm up fifteen percent a year. Over that same three-year period,

• 43:37Speaker 04

  against bonds and equity markets that are flat to down, the private equity and the private credit managers are nominally up fifty percent. This either stretches the imagination, or if it's true, in the coming cycle, these guys are bound to be massive sources of capital. They've outperformed so much that the rebalancing that you're going to see in every pension fund, in every endowment, away from these strategies back towards listed equities or back towards, frankly, just bonds, it should be relentless. Yes, I think if you're running a money management firm, instead of thinking, okay, should we launch a private credit fund? The reality is the endowments, they're already over allocated. Pension funds are already

• 44:22Speaker 04

  over allocated. Today, if you're a youngest powering money manager, you should be launching an equity fund, you should be launching an EM fund, and even if you're doing it with very little money, that's the trade for the next ten years. That's where the capital is going to go because it's the part of the markets that's completely under allocated. It's the part of the market you also know does structurally well when the US dollar goes down. Private credit, private equity, we're essentially strong dollar trades. Emerging markets, commodities are weak dollar trades. We're entering into a weak dollar world. Move away from what's been over allocated towards the place that there's been absolutely no allocation.

• 45:00Speaker 03

  James? Louis, do you know any firms in Hong Kong that offer Chinese distressed fixed income and credit?

• 45:09Speaker 03

  I do.

• 45:12Speaker 03

  What a relief. We're describing a world where we may benefit for thinking about where the crowds are not. We may be a little bit early, but now is a great time to try to identify skilled managers and how we can win from partnering with the flow of money from surplus capital into different things. Finding capacity can be tricky. There's probably a fair bit of capacity when it comes to Chinese fixed income and credit and distressed in general, although perhaps not as much as the world needs. I agree on dedicated EM funds who are probably licking their chops, particularly on the back of dollar weakness. All of that is good. But there's something else that you reminded me of. Look, I think all of us are a little bit skeptical

• 45:57Speaker 03

  about how private everything might perform if we have two quarters of really poor growth in the United States. Because at a minimum, we're going to have a rising default premium, even if we don't have actual defaults. How does private XYZ perform if cash flows are effectively turned off for two quarters? That's different to COVID because inflation is above target. And by the way, we haven't even talked about the Fed yet, which is extraordinary, but such is the world we're in. Come to think of it, if we were having this exact conversation in April 2020, it would have been Fed, Fed, Fed, Fed, Fed, Fed, Fed, Fed. And here we are. So inflation's above target, so we can't rely on the Fed. But in parallel with private everything, who have been the biggest beneficiaries

• 46:40Speaker 03

  of the endless recycling of global surpluses into every type of US asset? Who have been the toll collectors? And the answer is listed asset managers in the United States and the private equity, private everything juggernauts in particular. They have crushed it. Now, people are going to say, uh-oh, this sounds pretty bad. No. These guys, as they demonstrate every time they talk.

• 47:08Speaker 03

  And not sitting there waiting to be hit by a bus. These guys are collectively the best financial engineers and the best businessmen I've ever met and worked with. They are so savvy. Now, people are cynical. Why is X, Y, Z building out the private client side of their private everything business? Because they can see the world's changing. They can see that you can't be totally reliant on global institutional capital coming into your strategy. You need to diversify and subject to regulatory approval. If you've got the track record, the expertise and the skills to offer vehicles to retail investors, you should try to do it.

• 47:48Speaker 03

  And these guys have been preparing for different regimes and different cycles and they know their share prices might come down. They know there's going to be underperforming assets. They know, they know, they know. And they run various scenarios. The reason they have all built massive wealth solutions businesses on the side to look after and invest the capital of the families they've bought businesses from is to give them the balance sheet to help them manage through more difficult times during this transition, however long it is. We'd be more surprised if we didn't start to read more stories about private something been under pressure. More stories about people who didn't read the prospectus and tried to get the money out and they couldn't and all this kind of stuff.

• 48:32Speaker 03

  A bit like B read and B create a couple of years back. All this hullabaloo. Well, that's what the product's there for. That's what it does. We're going to hear more about that. We're going to hear about difficulties. The share price of these guys are going to be under pressure. It's going to be uncomfortable for people who misjudge their liquidity or worse, did not pre-fund their liquidity commitment into a private strategy. Because that always gets drawn down at the bottom, doesn't it, Ted? Things will get thrown out. Things will get sold at silly prices. Conceptually, if we can find something that is heretofore uninvestable or not much coverage. And I like the example of Brazilian tips. I like the example of the human steepener. Long-term real and nominal discount rates are probably going to be high for a while. No kidding.

• 49:16Speaker 03

  Anything that's over-reliant on low and predictable discount rates is probably going to be shaken down. Great. Should we buy it?

• 49:24Ted Seides?

  Almost everything we've talked about, there is a view that each of the three of you have about problems in the US, and particularly, say, the US equity market. That, to me, sounds like a consensus from three people that rarely like to be in the consensus. I wanted to ask you, even if you don't believe it, if you were shorting your own view, is there a path through for the US where this shared view that there's a problem, end of US exceptionalism, that the play is to move assets out of the US, ends up being wrong?

• 50:02Speaker 03

  Of course there is. Absolutely. The number one risk to, oh my gosh, this is all going to get really rough and stay rough, is that in the middle of next week, the president says, "I just had a good phone call with my great friend Xi Jinping." You want to be short on that? That's out there somewhere. Now, that sort of stuff, for all the chaos, compels you to change your mind. Doesn't mean everyone piles back in to treasuries or US assets in general. But I'm pretty confident if we saw that, there'd be another hell of a rally. No doubt about it.

• 50:34Ted Seides?

  How about longer term, though?

• 50:35Speaker 03

  Credibility, credibility, credibility. That's what you need first and foremost, is credibility. And if you are a country with a large current account deficit and trade deficit, the facts are you need foreign money to hold it all together, or at least to balance it out. That's unavoidable. So credibility first and foremost, consistency, and then a resolution of all these discussions. You've got to drop all the talk, however robust and sincere you think it is, about taxing foreign capital. You've got to soften the talk about traffic lights, because the four of us might be in a green light country. But if we own all the same things as the red light and the orange light countries, guess what? They own a lot more of the same thing than we do.

• 51:18Speaker 03

  So just because we're on the green light, if the orange and red light people need to sell, we're going to get hit by a bus as well. So there's a whole range of things there that we're not actually seeing quite yet. We all appreciate and understand that Scott's trying to hold it together and I hope he succeeds. But boy, oh, boy, it's a hell of a job when you're not quite sure what the boss is going to say yet. You're in some kind of family dispute with the Commerce Secretary. You've got Peter Navarro, who went to jail for the president after Jan six, who's like, I'm just going to throw hand grenades everywhere. But hopefully we might be working our way through the worst of this chaos. And if we are, that is a good thing.

• 51:54Speaker 05

  I can jump in here and I think if he gets a deal with China, which I think he will, I don't think that's good for US assets relative to the rest of the world. I do agree, assets will rip. That's why I think we probably reach the bottom at forty eight hundred. I think what would require US assets to outperform the way they did last five years. I honestly think that the bar for that is geopolitical crises around the world. A restart of conflict, military conflict. At this point, given the valuation of the US relative to the rest of the world, I think that's the only way that you can have safe haven flows going back to the US in some sort of panicked way. My baseline, even before President Trump got elected, that's why I started with the unsexy story of fiscal policy.

• 52:36Speaker 05

  I truly believe that what built American quote unquote exceptionalism is Ozempic. It's steroids. It's fiscal policy and that's just not going to continue. But I think that two thousand and one recession is a good framework for long term capital allocators. What we're going through, forget President Trump for a second, forget the penguins, forget the tariffs. I just think that if you had a recession in twenty twenty five anyways, you would have had the dollar go flat, not really rally as it usually does as a countercyclical asset. And I think you would follow that with five years of underperformance of US assets. That's my mental framework. The only way to really get away from a global asset allocation over the next five years,

• 53:20Speaker 05

  I think would be some sort of a geopolitical calamity. For example, China decides it's time to go. America's mean, domestic political pressures are there and that leads to a reversal.

• 53:31Ted Seides?

  Marko, really appreciate that very rosy scenario for what could make US continue to outperform. Louis?

• 53:38Speaker 04

  Yeah, mine wasn't that far from Marko's. My starting point is US is more expensive than everywhere else. Usually, the combination of high valuation and bad momentum is a pretty poor one. You can live with high valuation for a long time, as long as you have the best momentum. You're back to the situation of thinking, okay, how can we move to a world where the US reattracts the marginal dollar of capital? So that can, I think, one of three things. The first is the US has a great technological breakthrough. I think in the past decade, 15 years, you really had two different things in the US at the same time. You had the shale revolution. Suddenly, the US had a dramatically lower cost of energy

• 54:19Speaker 04

  than anybody else, and it was a huge advantage. Of course, you had the smartphone revolution, which was very much centered in the US, which in time also led to AI. There was the perception that the US had this great advantage in AI. Right now, the feeling is, okay, the AI thing was overplayed, and China's caught up. We also know that when China enters a room, profits walk out. So there's not going to be any profits in AI forever. And that's the situation that a lot of the American big tech companies have today. Either you can change that part of the equation, there's a new technological breakthrough, a new shale revolution, and new something that delivers massive productivity gains. And right now, I don't see what it

• 54:59Speaker 04

  is, possibility. Or the other is that either China or Europe self-employed economically. Europe has this Damocles sword over its head with the euro, which pops up every three, four, five years. I don't think it pops up over the next couple of years, but that's one possible scenario, where you get another round of euro crisis, and then everybody flies back into the US again. I really don't believe that's going to happen, but you said be the devil's advocate. And the other one would be a really bad problem in China, probably a political problem, riots, and the regime legitimacy coming under question, which again is completely not my scenario, but you asked me to be devil's advocate.

• 55:40Ted Seides?

  I think, as we close, it might be fun to do a round of winners and losers over the next year. Who do you think, what markets are the winners and losers? James, go ahead.

• 55:53Speaker 03

  I'll just say simplistically, Canada's a winner. I think Europe generally is a winner. I think Japan is a winner. And that starts from currency. And then around that, there's all sorts of other assets that fall out. I think commodities generically remarkably are probably a winner too, but I'm less confident. So I'll just say simplistically to set the scene. Canada, Europe, Japan, and then other things.

• 56:18Ted Seides?

  And losers?

• 56:20Speaker 03

  Losers in terms of underperformance is exactly what we've been discussing. The US is generally okay when all is said and done. But it's not quite as exciting as some of these other parts of the world. Because there's a bit of a credibility deficit that might take some time to close.

• 56:36Ted Seides?

  Marko?

• 56:37Speaker 05

  Non-aligned countries are the winner. And this is what Louis is saying as well. The non-aligned movement was not much of a movement during the Cold War. It was kind of a joke. And maybe I'm biased because I am from Yugoslavia and we kind of started that. So there you go. Those are the winners. I also like Europe a lot. I think that one of the things we didn't have time to talk about today is that Europe is going to be absolutely drowned in its tsunami wave of LNG supply that will crash on its shores over the next two years. This whole deindustrialization debate is wrong. I also like hard tech over soft. So that's kind of the Peter Thiel bits over bytes. In terms of losers, I think that the first three months of this year, forget liberation date and post.

• 57:19Speaker 05

  But if you just look at asset performance in January, February and March, that is the truth. If you're a long-term capital allocator, go back, look at the performance, January, February, March. That's the truth. You see who the winners and losers are, and that I think is going to continue for five years.

• 57:34Ted Seides?

  Louis?

• 57:35Speaker 04

  I 100% agree with that. I think the trends that have started this year are the trends that we're going to be stuck with for the foreseeable future. Look, the big shift in the world is that for the past 10, 15 years, everything was organized to essentially deliver goods to the US consumer. The US consumer was at the center of our universe, and this is no longer the case. I'll start off with the losers. The first one is the US consumer. Whenever you have a currency devaluation, it's essentially taking money away from the consumer and giving it to the producer. Anybody geared to US consumption, I think, is going to be struggling. And I've written a number of pieces on this, but I have big concerns on US corporate debt. I look at 2020 and 2021 were massive years of issuance for US corporate debt.

• 58:19Speaker 04

  Back then, in the months that followed COVID, interest rates were essentially at zero. And so it was almost criminal for a CFO not tap the markets. And they did, everybody tapped the markets. But with all the money that was raised, they didn't turn around and build factories or add capacity. Most companies just turned around and bought back their stock. Show me the incentives, I'll tell you the outcome. You had a roaring equity bull market driven by record share buybacks. Most corporate debt is issued on a five-year basis. The second half of this year and the first half of next year, the rollovers are gargantuan. At its time, when the appetite of foreigners for US dollar assets is going to be very, very limited. Selling bonds in a weakening currency is very hard.

• 59:04Speaker 04

  Spreads are already starting to widen. This corporate debt will have to be sold to US investors. Now, we talked about US investors already. Your pension funds and your endowments are all loaded up with private equity and private credit that's not returning capital. They've taken losses on equities and they've taken losses on listed bonds. And now they're going to have to turn around and buy yet more corporate bonds with what money? To me, the losers are first and foremost on the US assets. On the winners, I completely agree with Canada, undervalued currency. You're going to see a big increase in domestic infrastructure spending. You're also going to get political pressure on all the Canadian pension funds that are massive to repatriate capital and to bring back money from the US. You're going to get the same pressure on European pension funds.

• 59:50Speaker 04

  All of a sudden, being invested in the US. For me, the big winners, I already mentioned Latin American, whether debt, whether equity, whether currencies. And I also agree with Marko, when two big dogs fight, the best thing you can do is not get in the middle. Being a non-alien country, it's great. I also think in a new Cold War era, everyone's going to be stocking up commodities. Especially, whether you believe in the Cold War or not, I think you have to believe that the US security umbrella isn't what it used to be. Whether you're in Japan, whether you're in South Korea, whether you're in Thailand, whether you're in Saudi Arabia, you just make. Commodities stocks, you buy the copper, you buy the lithium, you buy the whatever else

• 1:00:32Speaker 04

  you might need and I am bullish commodities and finally, I'm also very bullish on financials. Going back to Marko's point, you look at the first three months of this year and frankly, you look at most of last year, financials were outperforming in pretty much every major market. For me, there's two kinds of bull markets. The bull market's linked to productivity gains and that's usually tech and that's what we've had in the past 15 years. And there's bull markets linked to essentially expanding financial leverage. That's what we had in the first decade of this century. I think that's what we're starting again.

• 1:01:05Ted Seides?

  I want to take it out with one last question for each of you, which is, as you're looking at what is changing, what is the one, your piece of information that you're studying most closely or the piece of information you wish you knew?

• 1:01:24Speaker 03

  For me, it's ignoring nearly every headline and going to the primary source of everything that someone's alleged to have said, which requires effort. There's been plenty of examples over the past week in particular of things that people, oh, have you seen this? Not true. Oh, this is what's causing this. Not true, not true, not true. So as hard as it is for people who I subjectively identify as the key players, I go to the source, I go to the transcripts. In terms of the one thing I wish I knew now, it's frankly the obvious one. Who's going to call who first? Is Xi Jinping going to call Trump or is Trump going to call Xi Jinping? I've really got that on the top of my mind.

• 1:02:10Speaker 05

  One of the things that I think is very important as investors start to incorporate politics and geopolitics more and more into their toolbox is just to understand that while you as a human being really cares about absolute levels of risk, the market is not human. It's inhumane. It's a discounting mechanism. And I go back to that COVID, the market couldn't care less about hospitalizations, deaths, this, that, or the other. So when the second derivative of geopolitical risk collapses, when it becomes negative, even if the absolute level is still very high, it's game over. You need to move on. We start to desensitize. And this is very difficult for 90% of investors

• 1:02:53Speaker 05

  to do. Once the news becomes less negative, that's all the market needs, even though you yourself are still very concerned about people dying in Ukraine, people dying in hospitals from COVID, and so on and so on. What I want to know, quite frankly, Ted, I'd love to know what Trump is trading. I just want to know his PA. If I had an insight into that, I think I would add a lot of value to my clients.

• 1:03:19Ted Seides?

  Louis?

• 1:03:20Speaker 04

  For me, the main question is, what we're going through is a reallocation away from the US to other markets, which has been my scenario for a while, or whether we're in the middle of a massive global margin call where everything collapses at once, which is what it felt like earlier this week. This is the bifurcation. Now, usually, the global margin call happens when there's a lot of hidden leverage somewhere that you just didn't foresee. What I don't know, and I wonder if there is hidden leverage today, where is it? My fear is that over the past 10 years, private banks all around the world, private banks in Europe, in Asia, in America, have made a lot of money selling structured products

• 1:04:03Speaker 04

  to private clients that essentially the clients were selling volume. They sold products where it's like, okay, I'll tell you why Nvidia, but if Nvidia goes down 50%, then you lose all your money. But if Nvidia keeps going up, you make the Nvidia returns plus 5% or something. And the banks have made a lot of money because the fees on all these products were very handsome. So my fear is this, is that you have a lot of private clients around the world today that think they are very wealthy. And in a market adversarial event, it's not that they'll go down thirty percent, it's that they'll go down hundred percent. And of course, it'll be like a Madoff event. All these people going to holidays in Saint Morit, sorry, in Aspen, and going to Saint-Tropez, spending money because they've got all this

• 1:04:47Speaker 04

  money at Madoff. And from one day to the next, you realize the money's not there. You get this huge air pocket. Now, Madoff was ten billion dollars. This is on hundred, if not trillions of dollars worth of structured products that have been sold. It's extremely hard to quantify, but this overhang of structured product is what leaves me terrified and starting to sleep sometimes at night when I go to bed thinking about it.

• 1:05:10Ted Seides?

  Louis, Marko, James, thanks so much in this crazy markets for taking the time to share your thoughts.

• 1:05:16Speaker 05

  This is a real treat to be with these guys and be with you, Ted. Thank you. Oh, it's a treat for me as well. Thank you so much for all of you. This was awesome.

• 1:05:24Ted Seides?

  Thanks for listening to the show. To learn more, hop on our website at capitalallocators.com where you can join our mailing list, access past shows, learn about our gatherings, and sign up for premium content, including podcast transcripts, my investment portfolio, and a lot more. Have a good one and see you next time.