Hidden Forces Podcast Summary

Episode: "The Last Bubble? Finding Value in a World on Fire"

Guests: Jeremy Grantham & Edward Chancellor

Host: Demetri Kofinas

Date: February 2, 2026

Episode Overview

This episode features a deep-dive conversation with Jeremy Grantham (co-founder and chief investment strategist at GMO) and financial historian Edward Chancellor. The discussion orbits around Grantham’s newly published autobiography, "The Making of a Perma Bear," co-produced with Chancellor. Their dialogue explores lessons from Grantham’s six-decade career, the mechanics of bubbles and market valuation extremes, mean reversion, the pitfalls of ultra-low interest rates, capital allocation in overvalued environments, and broader systemic risks such as climate change and demographic shifts.

Collaboration and Writing the Autobiography

• Dynamic Between Grantham and Chancellor
  • Grantham admitted he needed Chancellor’s discipline to complete his autobiography, given his own self-professed procrastination.
    • “I'm a lazy bum and I pretty well knew I'd never get the book written... I knew Edward was a real professional.” — Jeremy Grantham [03:21]
  • Chancellor viewed his role as more of a craftsman, molding Grantham’s voice and material while minimizing his own stylistic intrusions.
    • “Jeremy provides…the material, the cloth. And my job really was to cut the cloth, to fit the model... have as little of my voice in there as possible.” — Edward Chancellor [05:17]
• Editorial Decisions
  • Chancellor set out to balance the book at roughly 80% investment/finance and 20% Grantham’s environmental/philanthropic work, arguing this reflected Grantham’s career split and market interest.
    • “I composed the book...to give really 80% weighting to the investment financial side and the 20% to Jeremy's green activities, ideas and philanthropy.” — Edward Chancellor [07:27]

Grantham’s Identity as a “Perma Bear”

• On the Book’s Title
  • Grantham clarifies he isn’t inherently bearish; the “Perma Bear” label arises mainly during valuation extremes.
    • “As it's made pretty clear Jeremy's reputation of a Perma Bear is really formed during those periods when the markets are at extremely high valuation levels compared to their history.” — Edward Chancellor [10:52]
  • Grantham argues that human nature’s relentless optimism leads to contrarians appearing perpetually bearish, especially in long bull markets.
    • “Homo sapiens is ludicrously optimistic...if you're a contrarian...you are going to look like a perma bear.” — Jeremy Grantham [12:06]

Early Lessons and Formative Investing Experiences

• The Influence of Grantham's Grandfather
  • Grantham’s value-driven mentality stems from his grandfather’s principles—Quaker integrity, thrift, and distaste for waste.
    • “He was thoroughly brainwashed by Quaker principles and never said a bad thing about anybody, never did a bad thing as far as we can construe history.” — Jeremy Grantham [13:58]
• Losing Money as a Rite of Passage
  • Early speculation in "go-go" stocks taught Grantham harsh lessons, reinforcing the value of personal loss as best teacher.
    • “You can be cynical...and you can still be surprised by the sheer speed with which they implode when they go.” — Jeremy Grantham [15:41]
    • “It's good to get those lessons out…quite quickly in your career.” — Edward Chancellor [18:56]

Investment Philosophy: Mean Reversion & Value

• Mean Reversion as the Anchor Principle
  • Grantham’s worldview is built on the intuitive, empirical reality of mean reversion, both for prices and corporate returns.
    • “It was intuitively obvious that history counted and anything...for 100 years or so was probably happening for some reason.” — Jeremy Grantham [19:10]
    • Grantham’s early hand-calculated studies demonstrated the cyclical "ebb and flow" of relative factor returns.
      • “It was very difficult and they weren't nearly as different as you thought, because the guys earning a preposterous 40% return would be so busy regressing…” — Jeremy Grantham [22:51]
• Capitalism’s Self-Correcting Force
  • Capital inflows/outflows act as a market’s predator-prey dynamic, but growing monopolies have disrupted typical mean reversion patterns since 2000.
    • “If you make abnormally high profits, you suck in competition...if regression doesn't work...how healthy [is] capitalism?” — Jeremy Grantham [25:23]
• Challenges from Governmental and Monopoly Distortions
  • In recent decades, increased policy intervention and monopolization have altered the speed and reliability of mean reversion.
    • “As you get into the 21st century...the rich and powerful have more influence...the monopoly factor, which was always around, has steadily grown.” — Jeremy Grantham [26:58]
    • Notably, high-quality stocks (monopolies) have continued outperforming—a “loophole” in the efficient market hypothesis.
      • “High quality companies have slightly outperformed the S&P...they should have underperformed...but in fact they've outperformed over the last hundred years.” — Jeremy Grantham [29:39]

Interest Rates, Financial Bubbles, and Macro Dynamics

• Interest Rates as Bubble Incubators
  • Chancellor’s research finds every historic mania is accompanied by easy money, with the post-2008 period a textbook case.
    • “In every case there's a conference between easy money and the boom...just looking at the monetary background, even of the current market is relatively loose.” — Edward Chancellor [29:55]
  • The “Greenspan/Bernanke/Yellen Put” and prolonged ultra-low rates inflated asset prices, driven by an asymmetry: bailing out in crises, not reining in during booms.
    • “If you run into trouble, I will do my best to bail you out, and if you run into good times, I'll leave you on your own.” — Jeremy Grantham [33:04]
• Debt Supercycle and Diminishing Returns
  • U.S. debt to GDP more than tripled over 40 years, but real GDP growth has trended lower—a failure of the theory that debt-fueled growth delivers results.
    • “You triple the debt...and what happens to GDP? It kinks...and starts to grow substantially less fast than it did prior...” — Jeremy Grantham [33:04]
• The 2007–08 Housing Bubble as Case Study
  • Grantham criticizes policymakers’ inability to see the housing bubble, which played out with stunning regularity.
    • “The U.S. housing market merely reflects a strong U.S. economy. I mean, where were his advisors?...How can a serious economist miss a three sigma market?” — Jeremy Grantham [35:52]
  • Chancellor observes that bubble collapses are greatly influenced by supply responses and monetary regime.
    • “You see a clear relationship between interest rates, credit growth and asset price inflation in real estate.” — Edward Chancellor [38:11]
• Present Housing Dynamics: Frozen Supply
  • The present U.S. housing market still hasn’t cracked because post-crisis building levels have been very low; locked-in low mortgage rates are freezing market turnover.
    • “If he wants to move, he has a mortgage of 6.9…it's so brutal, he can't move…turnover rate of houses has dropped way down.” — Jeremy Grantham [42:21]

Navigating Today’s Valuations: Where to Find Value

• The Problem with U.S. Equities
  • Grantham argues U.S. equities are the most expensive they’ve ever been: “By a decent margin, this is the highest price market there has ever been.” [45:07]
  • Investors aren't forced to hold U.S. stocks or cash; there are better opportunities abroad, especially in international value and emerging markets:
    • “Our quarrel is with the US market. The rest of the world is nowhere near as expensive as it's ever been.” — Jeremy Grantham [45:07]
    • GMO's International Value Fund and emerging market assets significantly outperformed the S&P 500 recently.
      • “Our International Value Fund was up 45% for the year...emerging markets was up 35%...non-US equity market doubled the US last year...” — Jeremy Grantham [45:07]
  • Chancellor suggests local currency emerging debt as a further hedge and source of value.
    • “Local currency emerging debt is a potential nice balance to the equities in your portfolio.” — Edward Chancellor [46:55]
    • Grantham: “Half the cash...is parked in emerging debt in my family accounts...over 32 years...up 12% a year.” [47:35]

Notable Quotes & Timestamps

• Grantham on Investment Reflexes:
  “It is a reflex and it has more to do with waste. I don't approve of spending large sums of money on superficial things...” [14:54]
• Chancellor on Mean Reversion:
  “It's good to get those lessons out of the way quite quickly in your career.” [18:56]
• Grantham on Capitalism’s Engines:
  “If obscenely high returns do not drown you in competition, there is something wrong.” [25:23]
• Chancellor on Market Liquidity:
  “Even this period now...the monetary background even of the current market is relatively loose.” [29:55]
• Grantham on Crisis Policymaking:
  “Bernanke thinks he's got a racehorse, but he's got a donkey. And he's going to keep whipping that donkey until it either turns into a racehorse or drops dead.” [35:52]
• Grantham on U.S. Market Valuations:
  “This is the highest price market there has ever been...You don't have to own cash or the US equity market.” [45:07]

Key Takeaways

• Valuations Matter: Both guests warn that U.S. equities are perilously expensive by all historic measures.
• Mean Reversion is Powerful but Muddied: Market forces are alive but slowed/distorted by monopolization and policy interference.
• Interest Rates and Policy Shifts Can Upend Expectations: Easy money regime has driven bubbles and will likely inflate others.
• Global Diversification is Crucial: Opportunities still exist outside the U.S., particularly in international value and emerging markets (both equities and debt).
• Personal Experience—Especially Loss—Is Invaluable for Investors: True risk awareness comes from direct exposure to loss.
• Broader Existential Risks Remain: The premium segment of the episode addresses these in greater depth—climate, demographic, and resource issues.

For listeners seeking the full conversation—covering “existential risks, demography, climate...the rest of our conversation,” as Kofinas describes—visit the Hidden Forces website to access the subscriber-only second hour.