Early on during CalSTRS’ Nov. 6 investment committee meeting, Harry M. Keiley, committee chair, addressed the elephant in the room, the presidential election.
“Half of the country is elated. Half of the country is really hurt,” Keiley said.
Having a difficult time sleeping, Keiley said that he had “the same feelings I had as a little boy in Queens when my team lost. ... But this isn’t a baseball game.”
However, despite the noise and distractions, "We have a mission and a purpose beyond ourselves ... and that gives me great comfort,” he said.
While Keiley said he is not a religious man, he recited his favorite prayer, the Prayer of St. Francis, a prayer for peace.
“The sun will rise tomorrow,” said Scott Chan, chief investment officer at the $351.5 billion California State Teachers' Retirement System, West Sacramento, quoting CalSTRS board member Michael Gunning at a pre-briefing.
“Indeed the sun has risen today. ... We have an amazing mission to secure the retirement future of teachers ... and $350 billion to manage. Let’s get to it,” Chan.
Chan called the Nov. 6 stock market surge a “certainty rally” as the result of the selection of the next president. He said that in the long term, investors have more questions than answers.
One area of uncertainty is who will control the House, and who will serve in the Trump administration’s cabinet, he said.
“If you think about the potential for a red sweep. It would create a lot more uncertainty as to more significant moves,” Chan said.
He said that the second question is that there are two differences today from the 2016 election when Trump was elected president the first time: inflation and deficits.
“The market might be using the playbook from 2016, but the market has a lot more to consider,” Chan said.
Chan said that he believes that the economy is entering a time of higher inflation for longer with “the potential for greater inflationary surprises” that could come from tariffs, fiscal spending and less immigration.
There could also be greater geopolitical risk if the U.S. withdraws from the global stage. Another issue is climate policy in that there might be less movement to net zero and more support for traditional energy, Chan said.
In response to a board member's question on whether Trump’s rhetoric could lead to a flight of capital, affecting the country's credit standing, Chan said he questions whether the stock market rally can continue.
“With greater and greater deficits, we could lose the dollar standing,” Chan said. “It’s a difficult call now because we’ve heard the rhetoric but not seen the policy.”
Chan said that there are large opportunities and risks that will be impacted by the new administration. CalSTRS' strategic asset allocation remains close to home, with 78.5% invested in the U.S. as of Aug. 1, according to the portfolio risk report.
“We’re not willing to go outside of that because we’re uncertain what the policies are going to be,” he said. CalSTRS also has a $8 billion net cash position and a focus on diversification across the portfolio, he noted.
