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- [00:00]
Jeremy Grantham
So there's a lot of noise about AI, but time's too tight for more promises. So let's talk about results. At IBM, we work with our employees to integrate technology right into the systems they need. Now a Global workforce of 300,000 can use AI to fill their HR questions. Resolving 94% of common questions, not noise. Proof of how we can help companies get smarter by putting AI where it actually pays off, deep in the work that moves the business. Let's create smarter business IBM. When you're running a business, the best
- [00:32]
Tracy Alloway
days are the ones where priorities stay on track. For midsize and large companies, risk can affect multiple parts of the organization at once, from property and liability to cyber and regulatory challenges. At that level, managing risk becomes an ongoing discipline. At the Hartford, the focus is on helping businesses manage risk before it turns into something more disruptive. And when losses do happen, that work is paired with insurance coverage shaped by years of underwriting, risk engineering and claims experience. Learn more@the Hartford.com riskmitigation policies provided by Hartford Fire Insurance Company and its property and casualty affiliates. Hartford, Connecticut this dog salon operational excellence thanks to Genius from Global Payments Scheduling Personalized Checkouts Instant absolutely genius Big league reliability for any business. That's genius.
- [01:28]
Joe Weisenthal
Bloomberg Audio Studios Podcasts Radio News.
- [01:43]
Tracy Alloway
Hello and welcome to another episode of the Odd Thoughts podcast. I'm Tracy Alloway.
- [01:48]
Joe Weisenthal
And I'm Joe Weisenthal.
- [01:49]
Tracy Alloway
Joe, I have a headline for you.
- [01:51]
Joe Weisenthal
Go on. This is a good day for headlines. We're recording this June 16th. You have a lot of headlines.
- [01:56]
Tracy Alloway
That's right.
- [01:56]
Joe Weisenthal
You could choose from, but one in particular.
- [01:59]
Tracy Alloway
I'm sure you saw this already. SpaceX extends gain to 17% set to overtake Microsoft in value.
- [02:07]
Joe Weisenthal
I had a feeling, I think at some point. Did they also overtake Amazon, like all of those? Yes, I think in the last week, I mean we were traveling the week of the SpaceX IPO, but just captivated everyone. And day after day. And there are, I am sure there are any number of superlative. You know, at Bloomberg we really like superlatives. It's like the largest gain since X. Or the biggest.
- [02:29]
Tracy Alloway
And more stats than superlatives, right?
- [02:32]
Joe Weisenthal
Well, I suppose. But there was also one I saw, I guess yesterday. So June 15 was the world's 500 richest people collectively added $366 billion to their wealth is the single biggest. The numbers get bigger over time. There are some. It's some big times for the market,
- [02:49]
Tracy Alloway
a nice day for them. But the crazy thing about Space X is okay, you have this company that's now worth $2.7 trillion or something on $20 billion of revenue from 2025. And I can't even. Do, you know, if we're talking about valuations, you can't even do a traditional price earnings ratio because there's no earnings, there's just sales. And the price to sales ratio is more than 100, something like that.
- [03:14]
Joe Weisenthal
You know, look like, I don't even know where to begin. I mean you, you've seen.
- [03:19]
Tracy Alloway
Choose a superlative.
- [03:20]
Joe Weisenthal
Yeah. I mean the, the argument that's being made is that there's a lot of arguments being made, but people, it's like, oh, it's actually an AI company because of all the GPUs and data centers that they've built. They really do have. And we've done an episode on this, an extraordinarily commanding lead in space and satellites and Starlink, et cetera. The revenue is what it is. I don't know.
- [03:43]
Tracy Alloway
But also I think it's fair to say things feel a little bit speculative.
- [03:47]
Joe Weisenthal
Yeah.
- [03:48]
Tracy Alloway
At the moment. Right.
- [03:49]
Joe Weisenthal
Yes.
- [03:50]
Tracy Alloway
A headline like that, 17% that's overtaking a stalwart of the tech industry in the space of. It's been less than a week. Right.
- [04:00]
Joe Weisenthal
Yeah. I mean look, I mean the other thing is, look, these companies and we're going to get these other big IPOs later in the year with OpenAI and Anthropic, presumably. I mean SpaceX has been around for a long time. Historically companies came public much earlier, et cetera. So obviously it does have 22,000 employees. It's a big company, but the revenue is what it is and if you're looking at it from a sort of like valuation based metric, you would have to say at a very minimum, investors are. You have to be banking on very rapid growth in the very short term in the coming years to expect good returns here.
- [04:36]
Tracy Alloway
Right. So obviously one of the big talking points in.
- [04:39]
Joe Weisenthal
Do you know that like I'm looking at the des page for SpaceX. Do you know where it's headquartered? No, actually Starbase Texas.
- [04:47]
Tracy Alloway
Oh.
- [04:47]
Joe Weisenthal
So they apparently sort. They have their own town in Texas that they got to name, but that is their corporate info on, on the DES page. Starbase Texas.
- [04:55]
Tracy Alloway
Well, that's definitely worth 2.7 trillion. So. All right, the big talking point in markets is obviously valuations. All of this AI frenzy. Is it a bubble? Is it not? But even if you think that a lot of this is speculative.
- [05:09]
Joe Weisenthal
Yeah.
- [05:09]
Tracy Alloway
My big question is what do you actually do at this point? Right. Because so Much of the market has been momentum driven recently. AI enthusiasm is pretty much everywhere. So we talk a lot about weightings in the indices, benchmark indices of big tech. But also as we discussed recently with Torsten Slok in his great presentation at our live show, the AI factor is basically embedded in pretty much every stock at this point in time.
- [05:36]
Joe Weisenthal
Look I the way I look at it for my own investing in my retirement and I very have like sort of very boring normie index based investing is like look, I may be missing out but these are great returns, etc. I'm not managing other people's money, you know, other like luxury, you know what I'm saying? It's like I have the luxury of being able to say these are fine returns I'm just getting from the S and P or whatever and roughly. And that's fine. It's a great year. And if like, you know, I'm not all in on 2x levered Korean memory stocks, but I'm still like these are great returns. Had I been, had someone been paying me to manage their money, I don't know if they'd be happy to get market returns right now.
- [06:13]
Tracy Alloway
Yeah, that's right. So this poses a bunch of interesting questions obviously. Yeah, the big one being are we in a bubble or not? And then I guess the next biggest one being, well, what do you actually do?
- [06:22]
Joe Weisenthal
Yeah, how do you stay sane?
- [06:23]
Tracy Alloway
That's right. How do you stay sane in a giant market bubble? And we do in fact have the perfect guest, someone who has managed to do that over the years, more or less. I think we're going to be speaking with Jeremy Grantham. He is the co founder and long term strategist at GMO as well as the author of the new memoir the Making of a Perma Bear the Perils of Long Term Investing in a Short term world and famously the caller, the accurate caller of many previous market bubbles including.com, which is the parallel that everyone keeps using. So Jeremy, thank you so much for coming on odd lots.
- [07:01]
Jeremy Grantham
It's a pleasure. Thank you for having me.
- [07:03]
Tracy Alloway
So what do you recommend investors to at this point in time? Because it seems like there's no escape from AI enthusiasm, to put it mildly.
- [07:15]
Jeremy Grantham
Well, my simple advice is usually try and avoid the hype. Check the numbers and 100 times sales pretty well does the job for you. It's easy for kind of market historians to be having a good time. These are extraordinary times. It's seldom been more interesting. I'm thrilled to be alive when all the major Issues that I have spent my life studying and particularly the last 15 years, are coming to a head basically at the same time. And to find that being met by the highest priced market in history, give or take, is extraordinary. And I think in 50 years market historians will look back and talk in awe of SpaceX and read as a kind of novel, joke its prospectus and compare it with the stories they tell about the South Sea bubble, an undertaking of such enormous value that it cannot be at this time revealed. They scooped up a lot of money and ran off with it and they deserved it.
- [08:33]
Joe Weisenthal
The naming of your book, the Making of a Perma Bear. When I read that title, should I have perma bear in air quotes, as in like people perceive you to be a perma bear or do you?
- [08:46]
Jeremy Grantham
I voted for quotes and the publisher didn't like it.
- [08:50]
Joe Weisenthal
Interesting. Yeah, because like, because a. I don't, you know, I associate you with like, warning about the markets, can get over their skis and understanding market history, etc. On the other hand, I look at GMO's holdings and positioning and I see, you know, I do not see funds that are just overwhelmingly in Treasuries and gold and Safe haven assets. I see ownership of Meta and Microsoft. This does not look like the portfolio of someone who I would think of as a quote perma bear, unquote.
- [09:26]
Jeremy Grantham
When I was 70, I figured it was time to leave my colleagues in charge of all the day to day decisions. I have nothing to do with with the portfolio. Today my only job is to study long term existential threats to the market and society. And that includes the making and breaking of the great bubbles. Which is fine because I have always, for 50 years at least considered the making and breaking of the great bubbles to be the only thing that really matters. The rest of the time, show up for work, keep your nose clean, you're doing fine. But the forming of these spectacular bubbles and their breaking really separates the men from the boys.
- [10:08]
Tracy Alloway
So you touch on this in the book. But when we're in the midst of a major bubble and people are seeing crazy returns like 17% on SpaceX, what do you tell clients they're missing out on these huge gains? I assume you're encouraging them to be patient, to wait for that mean reversion. But how do you actually handle the pressure of heavy having a customer, a client who is under pressure to at a minimum, meet their benchmark with great difficulty?
- [10:39]
Jeremy Grantham
It's always been difficult dealing with clients in a major bull market. Luckily we've had quite a bit of Experience, because since Greenspan, we've gone from one overpriced market to the next, starting with the tech bubble and then the housing bubble, and then in a sense, the end of 21 was a spectacular overpriced market and now this. So you've had a lot of experience and we're more careful at handling the clients now than I think we were in the tech bubble, where we famously lost half our book of business in two and a quarter years, actually.
- [11:17]
Joe Weisenthal
What does that look like in practice? And I understand that you're not active day to day in the security selection, but obviously people who work for you are, and they're very active and obviously in the client handling. What does that actually look like in practice? Good client management at any firm, in
- [11:34]
Jeremy Grantham
our case, being as honest as you can be, lay the facts on the table, make them as clear as you possibly can, try and take out 100% of the hype and kind of engage with your client so that they understand exactly how you see the market working, why it does this, why it does that, how it's in general priced. And that's a long continuous job. And it keeps going. In the bull markets and the bear markets, what changes really is the client's level of excitement. They become careful and miserable for a while and then excited and jumping up and down for a while. But our process of trying to deliver the facts as we see them doesn't really change much.
- [12:30]
Tracy Alloway
So I think a lot of people would probably agree that markets feel a little frothy at the moment. But I think there's also a mentality. Again, it goes back to this momentum factor that's dominated in recent years. But I think there's a mentality that everyone just assumes they're going to be able to get out before everyone else. Everyone's going to head for the exits at the same time. So you enjoy the gains and then hopefully you're slightly smarter than everyone else and you manage to save yourself before the bubble actually bursts. How do you go about thinking about timing of the bursting of bubbles? What are the signs that you actually watch out for in terms of when everyone is heading for the exits all at once?
- [13:12]
Joe Weisenthal
Wow.
- [13:13]
Jeremy Grantham
I have a few rules that have worked more often than not. The one that's most interesting to me has only flashed four times since 1925, and that is that in the early phases of the bubble, that is, we define a bubble as a rare two sigma event and based on the price only, and when it breaks through that, let's assume 1928 you have a huge move and the stocks that lead it are going up 60, 80% for the year. And then in 1929, the junkie flyers start to go down. It's not that they underperform a rising market. The market goes up 35% to the peak in October. They can't even get the sign right. The previous year's leaders, the spectacular movers, start to decline. And they spent the whole of 29 going down. And by the time the market broke, the S and P low priced index, which regrettably was discontinued years ago, was down almost 40%. Low priced index were a bunch of fallen angels with enormous volatility, very high betas. And they had had a spectacular 1928 and they started to decline. Why is that? I have a theory that this relates to Mr. Prince's unusually honest answer. Why is he still in the bull market? As long as the music's playing, I have to keep dancing. And that of course is the name of that game. But he doesn't have to dance with Pumatek. Pumatek was the most advanced specific in 99, which was a hell of a good year to be the most advanced stock. And you don't have to go off the cliff in Pumatec, you go off the cliff in Coca Cola. That's the ideal. And that's exactly what happened in 1929. People in that case, actually Coca Cola, they gravitated to the Coca Colas and the radios and away from the junk. And the junk started to decline. That's an incredible signal, the greatest primal scream from the stock market ever. And nothing like that happens again. You have underperformance of high flyers, but you never have them go down in a decently rising market until. Drumroll 1972. The top of the Nifty 50. The S&P goes up 17. The average S&P stock goes down 17. So I can remember the numbers forever. And then we have the biggest bear market since the Great Depression. That was a truly miserable bear market. 73, 74. Whether you had small cap, large cap, quality junk, everything went down 50% and then went, adjusted for inflation, closer to 65. An absolute monster. And nothing like it happens again until 2000. In the year 2000, you may remember, the growth stocks peaked horrifically in February. The rest of the S and P did not. The rest of the S and p rose about 15%. So you had a co equal high in October. But the growth stocks were down 40%, having been as low as 50% by then. They rallied a little and Back in September, you had the S and P as high as it was in March of 2000. Just amazing deviation between the growth stocks who'd been making Spectacular running in 98, 99 and early 2000, and the rest of the market that continued up. And then you had a very sharp break the end of 2000, a steady break in 2001, and then to rub it in, a miserable minus 22% in 2002. And nothing like that happens again until 2021. In 2021, you may remember, the meme stocks peeled off by the middle of the year. Cathie Wood and her portfolio were going down. By the end of the year, they were off 35, 40% from their peak. And yet during that same six months, the S and P powered ahead. It's really quite remarkable when they get the sign wrong. And unfortunately, I had an adventure with QuantumScape. QuantumScape turned out to be a meme stock without my knowing it, because I had a huge position personally. And the reason I had a huge position is that I was offered an opportunity to invest several years earlier on an all or nothing basis. I took this big position or I had nothing. So I took a deep breath and it was much too big for our foundation, which we have for the protection of the environment, the Grantham family. And so I had to own it personally. So it was the only stock that I owned. It was a very big chunk and it came as a SPAC at four times my investment. Better than a kick in the pants. $10 a share, up from two and a half. And within three months it was 131. And let me just talk about 131. At the end of 2020, that was the very first stock to peak out at over 130, was bigger than General Motors and it was a battery research lab. They were going to design, with any luck, a solid state battery, and they still may, but they still have not got a battery on the market. So this wasn't like SpaceX. This had no sales, forget no profits, and was selling for more than General Motors. Actually, I think that is more speculative than SpaceX, which I think is a very, very high home. The thing about AI for business, it may not automatically fit the way your business works. At IBM we've seen this firsthand. But by embedding AI across hr, IT and procurement processes, we've reduced cost by millions, slash repetitive tasks and freed thousands of hours for strategic work. Now we're helping companies get smarter by putting AI where it actually pays off, deep in the Work that moves the business. Let's create smarter business. IBM, get the news you need in just 15 minutes.
- [20:11]
Joe Weisenthal
Start your day with Bloomberg Daybreak, the podcast with a global view on the stories that matter. I'm Nathan Hager.
- [20:17]
Tracy Alloway
And I'm Karen Moscow. Join us each morning for curated stories on current events, politics, business and foreign
- [20:23]
Joe Weisenthal
relations, plus one conversation on the day's biggest developments, all in just 15 minutes. Subscribe to Bloomberg Daybreak for a precise,
- [20:30]
Tracy Alloway
thoughtful take on the stories that matter.
- [20:32]
Joe Weisenthal
Listen to Bloomberg Daybreak each morning on Apple, Spotify, or anywhere you listen. I'm glad you brought back 2021, because that was a weird year.
- [20:42]
Tracy Alloway
Wild times.
- [20:43]
Joe Weisenthal
In a way, that really was. See, I would argue the 2021 was actually much more wild than right now because of the proliferation of quantumscapes, which was one of many stories that you could tell. You could go back to the Rivian valuation at its peak, or numerous others. Okay, okay, all right, all right, fine. But let's talk about AI for a second because obviously we reach back towards memories of the dot com bubble or 2021, but I'm looking at a chart on my terminal right now of Nvidia revenue. So in 2019 Nvidia had revenue of 11.7 billion and in 2025 it had revenue of 130 billion. So the revenue has gone up, therefore, I think by over 10x in 6 years. We talk about, and everyone said, oh, market the very high valuations. Can't we say that the investor in Nvidia in 2019 was getting the mother of all deep value investing, given what we now know in retrospect, about what its earnings were about to do?
- [21:54]
Jeremy Grantham
Well, obviously, if you're clairvoyant, that was a deep value opportunity. Nvidia, obviously a brilliant company and AI, by the way, is a spectacular important development. But Nvidia, the biggest piece of luck I think I can think of in the last 30 years. You have all your money in chips made for playing games and suddenly it turns out that that is absolutely the right design for AI and you have such a running start that it may take, you tell me, five years, 10 years. It doesn't seem like the ultimate moat. It seems like the ultimate head start. In a game where a head start is worth a ton of dough, it is worth a tentuple in your sales, but it's only a head start. Other people Google gearing up to be competitors in the next decade, of course, there will be plenty of competition, maybe even technologies that end run the current type of chip. These things Happen. History is full of them, Ken.
- [23:04]
Joe Weisenthal
Let me just push on that again. So I take your point about Nvidia having this incredible mode from maybe arguably stumbled into the technology backwards because they were obviously in video games before. But like I'm looking at say Even a Microsoft 2020 annual revenue of 143 billion. 2025 annual revenue of 280 billion. So we see the biggest companies in the world doubling real business in the span of five years, which does not feel to me anything like what we were seeing. And I have fond memories of 1999 myself. That's when I got personally interested in markets. These are gigantic businesses still putting up huge growth numbers that lap Wall street forecast year after year.
- [23:51]
Jeremy Grantham
Yeah, and for the record, when Microsoft first appeared in a tradable portfolio for gmo, it was in our value stream. We had a value stream and a momentum stream and we only bought the most attractive 10%. And we did that each month for 12 months. So we had 12 little portfolios, each one the best 10% for each month of the year. And Microsoft entered the cheapest value decile and stayed there until July of 99. And that's because our value model looked at long term future earnings and dividends projected as best we could. And we did that through projecting return on equity. And we did that by looking at how return on equity regressed to the mean and which factors affected the rate. Certain factors slowed it down, market domination, price setting that you could prove slowed it down way, way down. And Microsoft was the perfect example of this. It had very, very low volatility. It was clearly overwhelmingly the price setter. And consequently our model said it was worth nine times book, not seven times book which it was selling at. So if you have a good value model, you can buy these things, you can see them on occasions coming along. And yes, it's done spectacularly well and has had then particularly a much better moat to me than Nvidia has today. But if you will allow me a minute here, if you look at the Mag 7, you look backwards in history and you can say with a pretty clear conscience each one dominates their seven different niches. They have near monopolies on a global basis. Even Tesla has a jump start, the biggest and the best for a long time in EVs and you have Amazon beginning to dominate retail, Google research, et cetera, et cetera. Seven decent monopolies dominating the world, Justice Department, et cetera, Perfectly sound asleep. No one is interested in pulling a Teddy Roosevelt. They're not going to jump in and slash and burn and divide Exxon into seven different pieces. They're letting these things grow and fix and set their pricing and make tons and tons of money. And then you look forward starting from today. Does it look anything like that? Doesn't it look like seven companies deciding they're all in the same market? AI that moving the most powerfully with the greatest investment is dominant? Are they not seen here beating their chest and saying my 200 billion in investment in a single year is bigger than your 127. Yaboo. They know how much gets paid off to the first mover who grabs the market. They all want to be the first. There can only be one, as they say in the movie, and there are seven of them fighting it out. It could be a very messy blood curdling game. I suggested that they have it outside the White House. What a comparison. Just imagine 10 years from now looking back and saying you couldn't see the difference between seven easy monopolies and a dog fight of seven dishes. Rich companies, huge cash flow, huge understanding of the virtues of being dominant, all deciding at the same time to fight out in one market. And you could say yes, there was the cloud. What about that? And the cloud was a nice, well behaved oligopoly. Three of them genteelly deciding to compete in genteel ways. Exactly the right thing to do if you find yourself in that position and clearly not the approach that is being adopted this time. We have seen huge investment. You look back, they're idea heavy, capital light, you look forward, let's hope they're idea heavy. But they are capital heavy this time. It's like a watershed in almost everything that matters between the past and the future. And nobody seems to be talking about it in that way. And I don't get it.
- [28:51]
Tracy Alloway
Well, can I just ask, related to this point, the dot com bubble has come up a number of times in this conversation. Do you actually have a preferred historical analogy for the situation that we're facing now? Because we've been through technological revolutions associated with speculative manias before, ranging from I guess what I would say are pretty real ones like the railroad bubble and the Internet to kind of crazier ones like we're all going to go deep sea diving.
- [29:22]
Joe Weisenthal
Yeah, totally.
- [29:23]
Tracy Alloway
And get rich that way. You are a connoisseur of historical financial market bubbles. Which one is most similar to the current period that we're in?
- [29:35]
Jeremy Grantham
Ah. So people tend to think a bubble, oh, it has to be somehow a con job. And it's exactly the opposite. The great bubbles are the biggest ideas for decades. So the only one as big as AI is possibly the railroads. Of course, everybody could see that the railroads were going to change the world. You arrived at the railway station in a horse and buggy, for heaven's sake, and you went seven miles an hour. And then you got on a train traveling at 60 miles an hour and went a couple of thousand miles. I mean, it was utterly revolutionary. So what happened? Everybody could see that the railroads were going to change the world, which they did. Everybody wanted to have a piece of it and they could. Everybody put their money in it. And you had the biggest bust on both sides of the Atlantic that you could imagine. And everybody lost their money in railroads. And out of the ashes, the tracks were still there, the locomotives were still there, the demand was still there, and it changed the world. And then you fast forward to the Internet. Powerful idea, clearly, by the way, accompanied by a lot of silly stuff as well, but underneath it, a very powerful idea. So you had Amazon go up six or seven times in 99, and when the market broke, it went down, famously, infamously, 92%. Check it, 92%. And then it rose from the ashes, just like the railroads, and inherited the retail market, more or less. To have a great bubble, you have to have decent economic times. The better off, the better the bubble. You have to have easy money, the better and easier, et cetera, the better the bubble. And you have to have a fabulous idea, and you have to have it so obviously be important that everybody can see it now. They're very, very rare events, aren't they? This one is as big as anything. But the railroads, I am not even prepared to say it isn't bigger than the railroads. It may be, but they're the two super champs. Besides them, I think the Internet is a bit of a piker, but they're the two colossal ones. If ever there was a massive idea that will change is already changing the world. It's AI. Does anyone not know that? I think everybody knows it. Does anyone want to put their money in it? I think SpaceX et cetera, gives us a pretty good idea, 90% of the value, if you read the Perspective prospectus, is based on AI Even though their particular AI seems to be having its bottom kicked by two or three others as we sit, but wouldn't let facts get in the way of a really good story. And this is an absolute classic. It checks everything off one after another, which haven't been checked off many times in history. So this is it. If you think this is not a bubble, you are going to be in for a bit of disappointment.
- [32:57]
Joe Weisenthal
In your book, you talk about how competitive you were and growing up and wanting to play all different types of games. How do you channel competitiveness in a productive manner, career wise, so that it doesn't hinder you or it doesn't make you chase performance or doesn't make you worry about one year's performance versus another competitors? How do you make the competitiveness instinct be a good thing?
- [33:25]
Jeremy Grantham
I think try and bring it to bear on a few areas that matter to you, starting with obviously the most important, playing a decent game of doubles in tennis. And every point has to be played as if your life depends on it. And you pick partners and opposition who do the same and you have a wonderfully good time and then you look around for other things. And for me it was ideas and I could have made a lot more money if I'd focused on profit maximizing. But for me the idea was the dominant principle. And the idea of being competitive was everything hinges on trying to outthink the enemy. The easiest way for me, it always seemed, was to be longer and wider and more comprehensive and stand further back than the other guy. And what you quickly realize when you do that is that no one else is even trying. So this is not a fair fight. Everybody is focused on the near term. And if you want to profit maximize, that's not a bad idea. And very few people are attempting to be in the market and simultaneously asking questions that are several years out and even to some extent a decade or two out. So it's been very easy for me to be both competitive and cheerful and often wrong.
- [34:56]
Tracy Alloway
Since we're talking about career development now, I suppose, is it important when you're a perma bear, or more accurately when you're perceived to be a perma bear, to distinguish yourself in some way from other bears who are out there. Because again, at this particular moment in time, there are a number of high profile commentators who would say that AI is a bubble. So how do you actually stand out from, I guess, the bubble calling crowd?
- [35:27]
Jeremy Grantham
Yeah, I've no idea. I have only made two unmitigated bullish calls. The market has a really hard time telling the difference between, hey, this is overpriced, this is going to make you less money over the next 20 years than it would do if it was half priced. They're just kind of mathematical realities. And because you say that they, oh, you said the market was going to collapse. You have been bearish forever. Now when I want to be really bearish and recommend you get out of the market. I say so. And I've only done that twice. On July 15, 2008, I wrote a quarterly letter which actually said abandon ship, Sauve qui peur, the French equivalent. And actually quoted the nursery rhyme, don't be brave, run away, live to fight another day. Do not take any risk you don't have to take. We all have restrictions on how much we can get out of the risk taking business, but do not take anything you don't have to. Okay, that's pretty clear. And the last thing that we had been bullish about was emerging markets. And I said, I've changed our mind, we think this is the end of the line. Sell any emerging that you can. And we did the biggest trade that we had ever done, getting rid of the last of our emerging. I must say, shortly before we published a letter.
- [36:56]
Joe Weisenthal
What year? Wait, sorry, which year was that? 2008, the emergency. Oh, okay, got it.
- [37:00]
Jeremy Grantham
Yes. And may I say that following that, in four months the emerging market halved. I think it was the biggest, sharpest decline in the history of any major index. From July 15 to November 15 and actually slightly before that, the whole index halved. And the other bearish one was at the end of 2021, where the quarterly letter was called Let the wild rumpus Begin. That meant now get your tail out, avoid the market. I'm happy to say S and P went down like a rocket ship. Minus 25 growth stocks down 35, mag 7, down 40. And the bond market had the worst year in the history of the bond market. And then, as I also like to say, my nice bear market was rudely interrupted by chatgpt. The economy that was doing its usual thing of gracefully moving into a mild recession because animal spirits were going down was also changed by massive and increasing capex spending on AI, which dragged kicking and screaming the animal spirits of the rest of the economy. They didn't change easily, by the way, the S and P, the rest of it went down for another 10 months, but they kept going so powerfully in the market and so powerfully in the capex business that they changed the game. That's only happened once in history and I don't know how to predict things like that any more than Covid and new things are a pain. There aren't happily many of them, but they're the two most interesting ones in my career. Covid was novel. How do you treat novelty if you're a historian, you don't. You have to work it out on other Principles and this AI interruption of what was a perfectly ordinary and I thought predictable bear market because it flagged my great discrepancy between the market leaders going down as the blue chips continued up. How do you do that? I don't know.
- [39:13]
Joe Weisenthal
Yeah, this is really striking. You know, we, we recently we had Torsten Slok at one of our events talking about this sort of imperviousness of the AI trade to what traditionally we'd call macro. So what you describe, you're like, okay, here comes the expected, as you said, probably would have been a shallow recession. And now we see this investment, this capital expenditure that's completely. They could. It does not seem like the companies care at all about the fact that the Fed hasn't cut rates as expected, et cetera. These classically macro indicators that we did, recession, business cycle, et cetera, had just seemed to be blown out of the water. Yeah, blown out of the water by the AI trade.
- [39:52]
Jeremy Grantham
Yeah. And I must say the overwhelming interest in interest rate and interest rate predictions has left me totally cold for the last 50 years. I leave that to other people. I think it's in general wildly exaggerated. I've lived in a world where for 50 years the increasing debt to GDP ratio of the US economy, the Japanese economy and every other economy has been predicting imminent collapse. And the ratio has gotten higher and higher. And then it's predicted double collapse and it still keeps rising. The only function of interest rates is that it makes debt easier to acquire. And the function of easy acquired debt is that it helps the economy. One little problem, if you go back to Alan Greenspan, you find that before he gets there, there is a very, very slow increase in debt to GDP ratio just because the financial business is becoming more complicated. And then after him, it rises at 45 degrees and it goes from a small fraction of GDP. If you throw in all debt, it triples and quadruples and it does it over 30 years you have biggest economy in the world. 30 years to test what happened. Quadrupling of the debt to GDP and the growth rate goes down. So how can debt be a real mover of growth rate when you've had that wonderful macro test seen from looking back over 40 years, huge increase in debt, decrease in GDP growth rate. Very strange. So I leave all that stuff way alone. If you will let me back up. I was saying, too clear, get out of the market calls. Plenty of the market's overpriced. The market has been overpriced since 2000. I admit it. It's been overpriced and we have said so the whole time. Because looking back at the 20th century, the 21st century has been overpriced. They used to sell at 15 times earnings. We have been selling at 23 times earnings. That is not a small fraction of an increase. It has been a different world, the 21st century, but based on history, it's been overpriced and of course it still is. But I have made two bull calls in my life. The only time for the first 10 years we got quoted was in something called the Wall Street Letter, long deceased. I think it was attached to the Wall Street Journal and it was a weekly kind of gossip thing about the industry. And there, hidden in the tail end actually of that letter is my first opportunity to quote. And it's 7-82-2 and the P E of the S and P is seven times. And I say, I think we're close to an unprecedented rally in both the stock and the bond market. And I've always been thrilled to give people copies of this letter, I'm sure. And then the market shoots up and we become more careful for a long, long time. And then finally the market comes down in 09. And by a miracle that only occurs once every two lifetimes. We published a letter, one pager. Only two of those were done in my career of 30 years. Letter writing. It's called reinvesting when terrified. And I think is the best thing I wrote mainly because it was short and it just said you won't call the bottom of the market. Don't bother with that, don't even try it. Just concentrate on the fact that the market is cheaper than it's been for 22 years. Even on our seven year forecast, you're dealing with 12% a year compounded returns in the S and P equivalent to a higher numbers in emerging and foreign equity. Get together a plan, take it to your committee. Any plan is better than no plan. You have got to start recycling your money back into the market. And the good news is, as far as I'm concerned, it only counts if you wrote it. Yeah, saying it is too peripheral. It gets washed away into the ether. But I wrote it and we sent it to the Wall Street Journal, who didn't get back. And day by day, four days passed until my advisor on propaganda and I decided to hell with this, let's post it ourselves. And because of that delay, we posted it the day the market hit its low.666 on the S&P.500, less than 1/10 of where it is today. My God, this has been a bull market.
- [45:04]
Tracy Alloway
Thank you for reminding two podcasters that it only counts.
- [45:07]
Joe Weisenthal
It only counts. No, it's good.
- [45:09]
Tracy Alloway
We got to be fair. We do write some stuff, so there is that.
- [45:12]
Jeremy Grantham
Can I just spend some talking? I sympathize with you.
- [45:17]
Tracy Alloway
Can I just go back to. You were talking about how investors seem to have to some extent become more comfortable with higher price to earnings ratios now versus, say for much of the last century. When it comes to value investing, we all know that value has been losing recently to momentum. Does it feel at all to you that something has structurally broken in the sense that investors are much more focused on price nowadays. They're much more focus focused on short term gains rather than longer returns. And at the same time, you had a lot of retail money flow into the market courtesy of new platforms Robinhood. And whenever I think about Robinhood, I think about clicking buttons and remember they used to have the animation celebrate if you chose to trade. Like that's a lot of new money coming into the market that potentially thinks differently to the way investors for much of the 1900s actually thought.
- [46:22]
Jeremy Grantham
I think in every bubble it gets very much like this. And you said much more focused on price, not in the sense that they're looking for bargains, much more focused on momentum.
- [46:35]
Tracy Alloway
Right, that's what I mean.
- [46:36]
Jeremy Grantham
Yes, price rises rapidly and they like it. And the value is irrelevant. This is what happened in the South Sea bubble and this is what happened in tulips and what happened in the railroads, and it's what happens in the Nifty 50 and the tech bubble. It's what always happens. This is not remarkable, by the way. This isn't even spectacularly overpriced compared to Japan. Japan is the mother and father of all bubbles. In 1989 it sold for 65 times earnings. And if that doesn't make a value manager wake up in the middle of the night screaming once in a while, nothing will because we went up finally to 35 times earnings in the tech bubble, never having been over 21. That's pretty spectacular jump. But Japan had Never sold over 25 times earnings and went up to 65. And I'm happy to say we survived that quite well through good luck. And the good luck was that international investing had only just come in and we were selling people their first international portfolios that they had ever had, including Harvard and Yale. And that is quite remarkable, by the way, how slow the US was. Scotland and so on had been doing this foreign investing for a long, long time. But it was not fashionable in the US because of that. No one was comparing international with an international index. It was only two or three years or two or three months that they had had an international portfolio. They were comparing it with the S and P because all their competitors were still in the S and P. And the novelty there was betting international against the S and P. It was winning. The international was so far ahead that we could underperform because of Japan. And we underperformed by 10 points a year for three years and we lost no business at all. And we had a decent market share. And then of course Japan broke. The lesson from Japan is pretty clear. The biggest bubble in the history of the stock market, of an important stock market, second only to the land bubble in Japan, of more or less coincident timing. And what was the price you paid for having it go from 25 to 30 to 40 to 50 to 60, 65. And the Solomon Brothers team went around at 60 to 65 explaining that the bond rate in Japan was so low it should be 100 times. I am not kidding you. I'm not kidding you. What is the price you paid? Lost 20 years. Really? Not 10 years. 35 years have to go by before you get back to a high. And I don't think even that is adjusted for the modest inflation that they had. I mean, you want to have a bigger bubble and a better bubble, go ahead. Just be advised that the correlation with a longer and worse decline is pretty well one.
- [49:49]
Tracy Alloway
The Bloomberg Sustainable Business Summit returns to Singapore on July 22. Our 5th annual Asia Pacific Summit will explore how business and finance leaders are shaping the next phase of globalization by strengthening resilience and driving a multi speed energy transition across Asia's diverse markets. Join us for solutions driven discussions and networking opportunities. Thank you to our summit advisor, Bangkok Bank. Learn more at BloombergLive.com SBS-Singapore you know
- [50:20]
Joe Weisenthal
we could talk for another hour just on international all these things, but I have one last question. You're known for having a lot of personal sort of like other interests besides investing, particularly related to the environment, climate change you talk about. You wrote a letter, I believe last year about plastics and other forms of like dangers to the environment. Do you have any optimism at all that AI in particular will be of service to humanity in tackling some of these concerns that you have about sort of ecology and so forth?
- [50:53]
Jeremy Grantham
God, I wish I knew. The spectacular thing about AI is the degree of difference of opinion. You know, often you find that the rank and file have one view and the hotshots who know the Most have a different view. But this is not like that. This is. You have Nobel Prize winners who disagree violently. You have real experts who've studied it for 30 years who disagree violently. You have the rank and file with as much experience as they could have who disagree violently. There is simply no agreement on the future of AI. It will either make us all incredibly rich, will sit on the beach and be served by robots, or the robots will go one step further and get rid of us inadvertently or deliberately. This is not bad. This is the ultimate complexity that one has ever heard. And you cannot possibly know what is going to happen. You can only plan for a wide range outcomes. But we know for a fact that it chews up enormous amounts of electricity. We know for a fact that that is associated with an awful lot of carbon dioxide production and real pressure on the environment. So we start knowing that it will be tough. And by the way, you make robots. Every 20 minutes these humanoid robots have to go off, take a coffee break and plug themselves in. Yeah, they will run through energy like we have no idea. Hey, we can hardly support the energy demands of current AI confined to your laptops. The energy demand of having machines running around will dwarf that beyond recognition. We will have to have multiples of the global energy production that we have now. We are simply living beyond our means. The real experts who studied for 30 years say we need 1.7 planets to maintain the current level of income in a sustainable way. And if we want to live like Americans, we need five planets. And AI in the best of all possible worlds might help address this. But it's hard to imagine AI becoming self aware and being better at everything than we are. It's hard to think of an example, as Geoffrey Hinton would say, where a smarter civilization, a smarter species, has been dominated by a comparatively stupid species. We somehow implicitly rely on their benevolence. We are not spending that much time and money trying to design a benevolent AI. We are spending money trying to design a more powerful, competitive devil take the hindmost type of AI. It's inherited our style. Humans have been the survival of the fittest. Grab what you can, while you can. Don't worry too much about three or four years from now. I find that exactly the same in corporate America and capitalism, by the way, we don't act as if we value our grandchildren. We play soccer with them at the weekend, as I like to say, and we help pay the school fees. But then we go back to work for a chemical company or fossil fuel company and act as if we Mean to kill them all. It's a strange nature, except it's the same as every other species on the planet. Grab what you can live for today and here we are doing the same. It's something we all recognize is a bigger danger than anything we've ever met before. Living with another intelligence that is going to be inevitably much more than we are. And we are left worrying about pes when the survival of our species is at stake, when our strangely our climate is going to hell. Not as we used to think in 20, 30, 40 years, but now our baby production is going to hell. Not as we used to think in 50 years or 100 years, but now China is producing fertility rate of one a baby production that every 30 years has that in 90 years is an eighth. And Korea is a third of its baby production each 30 years a ninth, in 60 years a 27th, that is. They're out of business in a single lifetime unless it changes. And it has been changing, but it's been changing steadily. For the worst. 65% of all countries are below replacement and quite a few like China are way, way down towards one and nobody cares. We are not programmed to worry about long term, slow burning problems and they're all coming to bear together and they're compounded by our ignorance or lack of concern about the risks of AI. This was going to be a very exciting time.
- [56:24]
Tracy Alloway
Excitingterrifying also if we need five planets.
- [56:28]
Joe Weisenthal
I think he just made the bull case for SpaceX.
- [56:30]
Tracy Alloway
I was just gonna make the same joke. Oh my God. I shouldn't have let you. I shouldn't have let you go first.
- [56:36]
Jeremy Grantham
There's another way to resolve that though, and that is to have a billion people and not 8 or 10 or 12. And the interesting thing is if you asked a society to please have fewer children when they wanted more, you wouldn't have a prayer unless you used force. But we are going to have a dramatic sustained drop in our population by sheer luck. We are the first generation in history who are deciding to have, for perfectly good reasons, 100 good reasons, we have decided to have fewer children. And if we keep doing this, we go out of business. It's quite simple. If you don't have 2.1 healthy, well educated children, you're on your way out. And almost nobody does. In the developed world and even in sub Saharan Africa, baby production is falling like a stone. It's just falling from a very high level. Falling from 7 babies per mother to 4. They have lost more babies over the last 50 years than Europe has It's just that they've lost them from a much higher level.
- [57:46]
Tracy Alloway
All right, we're going to have to leave it there, but Jeremy Grantham, thank you so much for coming on all thoughts.
- [57:52]
Jeremy Grantham
Well, thank you for allowing me at least two minutes to talk about serious stuff. Thank you.
- [57:56]
Tracy Alloway
Of course. Something other than PE ratios.
- [57:59]
Joe Weisenthal
Yeah, anytime. And you're always welcome back. Thank you so much for coming on the podcast.
- [58:03]
Jeremy Grantham
Thank you,
- [58:18]
Tracy Alloway
Joe. I love talking.
- [58:19]
Joe Weisenthal
Yeah.
- [58:19]
Tracy Alloway
About historical bubbles.
- [58:20]
Joe Weisenthal
Yeah, me too.
- [58:21]
Tracy Alloway
And I guess I should, like, shout out some of our really old episodes at this point on very esoteric bubbles like the Florida land bubble.
- [58:31]
Joe Weisenthal
They're always fun.
- [58:31]
Tracy Alloway
The catfish bubble. I did think the point about the change in the Mag 7 stocks.
- [58:36]
Joe Weisenthal
Yeah.
- [58:37]
Tracy Alloway
This sort of watershed moment. This idea of a cage fight.
- [58:40]
Joe Weisenthal
Yeah.
- [58:40]
Tracy Alloway
On the White House lawn. And I guess a change in corporate strategy where everyone is really tackling the same area of business. Yeah. That was interesting.
- [58:49]
Joe Weisenthal
No, it's super interesting. Like, 10 years ago, you could draw a very clear line between what Google's business was and, say, meta's business. Right. You can't do that the same degree. When both of them meta, they're not right at the edge, but they're trying to. They want to be in the game as, like, a model maker. They're also spending and both spending enormous amounts of money on capital expenditures and so forth. Like, they really are, like, no longer the sort of dominance of their verticals. But I have to say, like, his conversation there at the end, and he's like, well, will the robots be our butlers on the beach? Or will they accidentally kill us? Or will they purposely kill us? Or will humanity extinct ourselves because we're stopped having babies? Like, yes, it sort of does make you, like, why are we wasting time talking about PE ratios? Like, when these are like, the big questions that we're, like, right up against. Yeah. Like, why are we talking about PE ratios ever?
- [59:42]
Tracy Alloway
How do I prep my portfolio for robot distinction? Very important.
- [59:47]
Joe Weisenthal
I was like, the. Is Kevin Warsh going to cut at his first interest rate? Like, that will not very likely be a particularly important question or moment ten years from now. Like, that's probably not what's. Anything will hinge on that in the grand scheme of things.
- [60:02]
Tracy Alloway
That's true. But again, this sort of goes back to the big tech argument. But if you couch everything in existential terms, then you can justify anything. Right. Which is what we're seeing right now in big tech. I realize I just naturally went from talking about the extinction of humanity back to big tech valuation. So, yeah, I apologize for that.
- [60:23]
Joe Weisenthal
You know, it's interesting. You know, we did that episode about the history of rope recently and, you know, in that book, and he made the point on the podcast that, you know, we went for about a million years. Maybe not. I don't know if it's humans, but maybe right before humans. Well, there was literally one invention, and that was the hand axe. And then you think about, like, in the last few years alone between ChatGPT and GLP1s and EVs, et cetera. And Jeremy was making that point like history was a little bit boring, you know, the 1950s, like, oh, Coke opened a new factory. And that was news. And what that means is literally. And other people have said this, like, time is speeding up. Like there are just more events per day happening.
- [61:03]
Tracy Alloway
Tired, Joe?
- [61:04]
Joe Weisenthal
I'm tired. I'm tired. But that it's good for the news business. It's not so good for our producers.
- [61:09]
Tracy Alloway
All right, on that note, shall we leave it there?
- [61:12]
Joe Weisenthal
Let's leave it there.
- [61:12]
Tracy Alloway
All right. This has been another episode of the Odd Thoughts podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.
- [61:18]
Joe Weisenthal
And I'm Joe Weisenthal. You can follow me @thestalwart. You can follow our producers, our tireless producers. Carmen Rodriguez at carmenarmandashelbennett at dashbot, Kale Brooks at Kale Brooks, and Kevin Lozano at Kevin Lloyd Lozano. And for more Oddlaws content, go to bloomberg.comoddlaws we have a daily newsletter and all of our episodes and you can chat about all these topics 24. 7 in our Discord, Discord, GG Oddlots.
- [61:43]
Tracy Alloway
And if you enjoy Odd Lots, if you like it when we talk about PE ratios alongside the extinction of humanity, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad free. All you need to do is find the Bloomberg channel or Apple podcasts and follow the instructions there. Thanks for listening. Listening.
- [62:37]
Joe Weisenthal
I'm June Grosso inviting you to join
- [62:39]
Tracy Alloway
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Joe Weisenthal
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Tracy Alloway
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Jeremy Grantham
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Joe Weisenthal
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Tracy Alloway
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Joe Weisenthal
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Tracy Alloway
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Joe Weisenthal
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Jeremy Grantham
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Joe Weisenthal
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Tracy Alloway
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