Jeremy Grantham: Stop Ruining My Perfectly Good Bear Market

Summary

The Compound and Friends – Episode 226

"Jeremy Grantham: Stop Ruining My Perfectly Good Bear Market"

Date: January 23, 2026
Guests: Jeremy Grantham, Josh Brown, Michael Batnick

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Episode Overview

This episode features a deep-dive conversation with Jeremy Grantham, legendary investor, co-founder and Chairman of GMO, and renowned market historian. Grantham discusses his new book, The Making of a Perma Bear: The Perils of Long Term Investing in a Short Term World, contemplates his reputation as a “perma bear,” analyzes past and present market cycles, reflects on career risk, client behavior, and the evolution of market structure, and shares his thoughts on societal and economic challenges—including inequality, monopoly, population decline, and the future of energy and technology.

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Main Discussion Themes

1. Jeremy Grantham’s Career, Reputation, and Book

• The “Perma Bear” Label

  • Grantham explains the tongue-in-cheek title of his autobiography, wishing he could have put quotation marks around "Perma Bear."
    • “It's a bit too subtle for me. I was outvoted for inverted commas around Perma Bear, which would have said that's what people call me – yes, the idiots, but what the hell.” – Grantham, [04:00]
  • He rejects the idea that he’s always bearish, stressing he’s simply long-term focused in a short-term-obsessed market.

• Market Patience vs. Investor Short-Termism

  • “The patience and the time horizon of the average investor is extremely short... whenever you have a long, drawn out bull market ... anyone who has been four or five years saying that the market prices are way over normal is a complete mad dog ... and so four or five years is so long, it seems like a perma bear.” – Grantham, [04:39]
  • Grantham describes how being right eventually is little consolation if clients lose faith and fire you in the meantime.

• Notable Career Pioneering

  • Among the first to advocate and implement index funds in the early 1970s, even before Vanguard.
  • Early adopter of small cap value investing and quant strategies, and first to combine value and momentum.

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2. Anatomy of Modern Bull Markets and Bubbles

• Unique Structure of the 2009–2026 Bull Market

  • Josh Brown calls this era "four bull markets in one": post-GFC rebound, buyback-driven phase, COVID-stimulus-fueled rally, and 2023+ AI CapEx boom.

    • “I don't think so. I'm very happy to take your summary. Saves me a lot of effort.” – Grantham, [08:39]

  • Only in the latter phases did "deep bubble territory" behaviors emerge, including speculative mania in one segment (e.g., ARKK, Quantumscape) while blue chips pressed higher, mirroring past bubbles (1929, 1972, 2000).

• Bubble Dynamics and Bubbles as “Good Ideas Overhyped”

  • “People think that bubbles are crappy ideas that are overhyped. And bubbles are absolutely the opposite. Bubbles are magnificent ideas that are overhyped.” – Grantham, [12:52]

• Bear Market Interrupted by AI

  • Grantham laments the 2022–23 bear market was “ruined” by the explosive arrival of AI, which supercharged mega-cap tech.
    • “Without that one and a half percent, without that oomph in the stock market from AI, we would have had a recession, and the market would have continued down and it might have hit trend minus 50. We'll never know.” – Grantham, [47:10]
  • Describes AI as “as obvious as anything since the railroads,” positioning it as the most important technological event in 100 years.
    • “Historians will say you had the railroads in the 19th century, nothing much in the 20th, and you had this one in the 21st.” – Grantham, [49:13]

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3. Investing Time Horizons, Career Risk, and Market Structure

• Mismatch of Long-Term Value Investing and Client Patience

  • “My own time horizon interest barely overlaps with anything in the market. Mine is several years. And the market's outlook turns out to be very short... I'd have made a lot more money for my clients and myself ... If only my time horizon hadn't been a bit shorter. That's my confession.” – Grantham (read by host), [18:47]
  • Grantham recounts losing half his AUM during dot-com for refusing to participate in the tech bubble, only to be proven correct and still not win back fired clients.

• Career Risk and Human Nature

  • “Everyone has career risk. And the uncertainty in a great bubble... is longer than the client's patience. And if you can say that, you know why the Goldman Sachs, Morgan Stanleys, JP Morgans ... cannot fight a major bubble.” – Grantham, [21:53]

• The Challenge of Documentation vs. Practicality

  • Grantham jokes about being “too damn pure,” too academic and rational, unable to let clients “sin a little” and have exposure to trending assets just to keep them happy.
  • “You can't expect your clients to be able to chew on career risk that much. They just can't do it with school fees.” – Grantham, [30:14]

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4. Reflections on Financial History and Human Nature

• Clients Never Come Back

  • Even after outperforming during crises, institutions rarely rehire managers they’ve previously fired:
    • “Not one solitary person. … It's human nature… you fired them, you bought a growth manager, … they made a few percent and now you're going to go back? No way.” – Grantham, [35:11]

• Market Cycles Repeat with New Names

  • Grantham draws parallels between current eras and the 1920s, 1960s–70s, and early 2000s, citing the repetition of speculative excess, crowd behavior, and narrative cycles.

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5. Market Structure Evolution: Indexing, Retail, and Passive/Active Flows

• Rise of the Index Fund and Market “Poker Game”

  • Grantham was an early proponent of indexing, not because he believed in efficient markets, but because removing friction made better returns for investors.

• Active vs. Passive, and Retail Trading Revival

  • Hosts highlight massive flows from active funds to passive vehicles, but simultaneously, a boom in retail speculation (Robinhood, options).
    • “It is said that in ‘29 there was an awful lot of ordinary people for the first time playing and losing their shirts. … And people in the 50s, 60s, 70s, 80s really stayed out. They played real estate with their money.” – Grantham, [39:38]
  • Grantham predicts this new cohort will eventually get “wiped out” sooner or later, echoing past cycles.

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6. Economic and Social Macro: Margins, Inequality, Monopoly, and Structural Shifts

• Profit Margins and “Paradigm Shift”

  • Margins, once highly mean-reverting, have remained at record highs for decades, defying Grantham’s and others’ expectations.
  • “Starting in the 21st century, there is apparently a paradigm shift ... which for a number of decades causes the profit margins to go up and the share of GDP to go up.” – Grantham, [51:57]

• Inequality and the 'Rich and Powerful'

  • Real wages for median Americans have stalled since 1975, while European counterparts’ wages have surged.
  • “This country needs to be saved from the rich and powerful, and every goddamn group on that table agreed. ... What has happened since then...? More of the same.” – Grantham, [54:33]

• Causes: Outsourcing, Policy, Monopoly, and Citizens United

  • Outsourcing, the decline of antitrust enforcement, rise of super PACs, and Citizens United are cited as key contributors:
    • “Citizen United is like a 2010 dagger in the back of democracy, isn't it?” – Grantham, [60:46]
  • “The Justice Department does not have to go to sleep. In the earlier period, it was out and about ... and then it went to sleep. In the last 50 years ... it does nothing and backs off.” – Grantham, [60:57]

• Scale Limits and Minsky Risk

  • Grantham references Jeffrey West’s Scale and invokes Hyman Minsky, warning the system is vulnerable to an unexpected shock—“the strut cracks on this elaborate bridge.” – Grantham, [63:49]

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7. Population Decline, Climate Change, and Long-term Risks

• Demographic Ice Age

  • Grantham warns that plummeting birth rates—especially in China, Japan, Korea, and now the US—will sap economic dynamism and demand.
  • “If you live in a country where two or three decades of decline, you lose your moxie ... Why would you reach for extra debt, open another factory, when you know that everywhere in Japan there are fewer people?” – Grantham, [67:41]

• Climate Change Damages Now

  • Extreme weather and climate disasters are now subtracting from global GDP growth, both through direct destruction and “preparing to fix or fixing climate damage.”
  • “It was worked out ... from 2000 about a quarter of the growth in GDP was preparing to fix or fixing climate damage.” – Grantham, [64:52]

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8. Paths Forward: Technology, Energy, and Human Ingenuity

• American Innovation and Geothermal/Fusion Hopes
  • Grantham is optimistic about America's capacity for innovation, especially in energy.
    • Cites the fracking revolution as evidence of what’s possible if private sector energy, brains, and risk-taking are harnessed in the public interest.
      • “If you could take the fracking genius and transfer it to geothermal...it’s infinite. You never run out.” – Grantham, [75:37]
  • Encourages listeners to keep an eye on fusion and particularly on the continually plunging cost of energy storage (“storage over 20 years is $0.05, $0.08 on the dollar”).

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Notable Quotes & Key Moments

• On Bubbles:

  • “Bubbles are magnificent ideas that are overhyped.” – Jeremy Grantham, [12:52]

• On American Worker Stagnation:

  • “The average Frenchman ... is up 140% [since 1975] and we're up 15%.” – Jeremy Grantham, [53:05]

• On Client Behavior:

  • “Not one solitary person [came back]. It's human nature. … Humans can't do it.” – Jeremy Grantham, [35:11]

• On Monopoly & Margins:

  • “Monopoly is the very essence of profit margin. ... Those Coca Colas of the world. And Nvidias are allowed to have more power.” – Jeremy Grantham, [62:38]

• On Career Risk:

  • “It's not a viable business strategy to fight the great bull markets. You can't do it and no one does it. You have to be somewhat free of career risk.” – Jeremy Grantham, [25:18]

• On Population:

  • “At 1.6 [babies per family], you're losing a quarter of your babies each 30 year generation.” – Jeremy Grantham, [67:35]

• On Optimism and Ingenuity:

  • “We are very inventive … particularly in America, we take risks, we get together, we experiment.” – Jeremy Grantham, [72:39]

• On Compound Growth:

  • “[If you compounded possessions at 4.5% for 3,000 years] ... it is billions of solar systems full with our crap at a lousy 3,000 years of four and a half percent compounded. ... You could now check it on your phone. ... It will tell you that what I say is correct.” – Jeremy Grantham, [80:53]

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Timestamps for Key Segments

• The “Perma Bear” moniker, book genesis – [04:00]
• Bull market phases since 2009 – [08:39]
• Market bubbles & AI as disruption – [11:54]/[47:10]
• Confessions: time horizons & career risk – [18:47]/[21:53]
• Client behavior & why fired managers don’t get rehired – [35:11]
• Rise of passive, retail speculation, market structure – [38:06]/[41:53]
• Profit margins, monopoly, and inequality – [51:57]/[53:05]
• Causes: policy, Citizens United, antitrust fade – [60:26]
• Minsky, scale, fragility, possible catalysts for end of current era – [63:49]
• Population bust and its effects – [67:35]
• Climate change as economic drag – [64:52]
• Optimism: geothermal, fusion, innovation – [72:39]/[75:37]

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Tone and Style

The conversation is lively, candid, and wide-ranging, filled with anecdotes, intellectual humility, and Grantham’s dry, self-deprecating British wit. Both hosts and guest offer candid confessions about mistakes and regrets, and the mood alternates between dead-serious macroeconomic warnings and playful self-reflection.

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Closing

Grantham praises the show’s audience, calling them “the best out there” for their thoughtful engagement and market interest. The episode closes by encouraging listeners to pick up Grantham’s new autobiography, The Making of a Perma Bear, and look for optimism in humanity’s ingenuity, even in the face of daunting demographic, economic, and environmental challenges.

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Transcript

[A]

Did you buy Tesla stock? Because obviously you bought the car, but did you buy the stock? I can't remember.

[B]

No, No. I regretted having written about it in my quarterly letter and saying it was so overpriced. And then from that day, from my quarterly letter, it went up 10 times. If only I put the money from my Tesla in the stock.

[A]

But it's been a tough ride. That's been a volatile stock. Got cut in half many times over.

[B]

Yeah. I still regret not having made the ride. What the hell?

[A]

How we looking, guys?

[B]

Good.

[A]

Good to go.

[C]

All right, Jon. That's right. That's right.

[A]

The Compound and friends episode 226.

[B]

Wow.

[C]

Episode 226. Jeremy, is that unbelievable? Can you imagine how many times we've done this?

[A]

226 times.

[B]

All right. Yeah, I'm good at numbers.

[C]

No, I know, I know.

[A]

Whoa, whoa, whoa. Stop the clock. Here's a word from our sponsor.

[C]

Today's episode is brought to you by Pimco. If you're a financial advisor navigating the fast moving markets and geopolitical shifts of 2026, how are you leading your client conversations? Pimco's advisor forum is built to give you an edge. It's your destination for timely insights. Practical advisor playbooks and and accrued interest with Greg Hall, a podcast dedicated to financial advisors and your clients. All of it designed to help you turn insights into action. Follow accrued interest on Apple and Spotify and learn more about advisor [e-mail]. Welcome to the Compound and friends. All opinions expressed by Josh Brown, Michael Batnick and their castmates are solely their own opinions and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast. Ladies and gentlemen, welcome to the best investing podcast in the world. I'm your host, downtown, Josh Brown. I'm here with my co host, co host as always, Michael Batnik. Michael, say hello to the folks.

[B]

Hello.

[A]

Hello.

[C]

Today you are in for a very special treat. We have living legend, one of the most thoughtful, highly regarded, respected people probably ever to have worked in this industry. His name is Jeremy Grantham. Jeremy is a co founder and long term investment strategist of Boston based asset management firm GMO where he serves as chairman of the board. He's widely known for his. Thank you folks, you're too kind. He's widely known for his valuation driven investing approach and his Environmental philanthropy through the Grantham foundation for the Protection of the Environment. Your team gave me even more stuff to read. Do you want to hear more about yourself or you want to hear me read more about yourself, or should we start talking real cool? All right, apologies, folks. I think. I think we're good on the intro. Let's start with this. You have a brand new book out and it's your. Your like, it's sort of like your life story. It is your life story. It's six decades in the. In the industry and it's. You know, I could. It could have been way bigger. I wanted to ask you about the title. This is the obvious thing. So the book is called the Making of a Perma Bear. We're guessing because you don't really explain it in the book. We're guessing it's facetious or somewhat like.

[A]

I think this is a middle finger to the industry.

[C]

Is it a wink at the media or what is the reason for the name?

[B]

It's a bit too subtle for me. I was outvoted for inverted commas around Perma bear.

[C]

Okay.

[B]

Which would have said that's what people call me. Yes, the idiots, but what the hell.

[C]

Okay. I never thought of you as a perma bear.

[B]

No, I don't think of myself as a perma bear either.

[C]

Okay. What is a perma bear?

[B]

Someone who's always bearish.

[C]

Okay. Like no matter what happens, they find the.

[B]

They find the negative worm in the okay. And the apple.

[C]

And you think a lot of people think of you that way or. Or what? I guess I've never thought of you that way. So I'm surprised to hear that you. That you feel that how it works.

[B]

Is that the patience and the time horizon of the average investor is extremely short. And that may be a very good way to make money. Maybe it is. So whenever you have a long, drawn out bull market, it spends several years above trend value. Let's say this is massive, right? Really? So almost 20 years. If the low. No, the low was 2009. So it's 17 years. That's far too long for anyone to imagine anything else other than rising stock prices. And so they think that anyone who has been four or five years saying that the market prices are way over normal is a complete mad dog lost his way, et cetera, et cetera. And so four or five years is so long, it seems like a permaville. And indeed, prices haven't been cheap for anyone with a long history and a decent experience like I have. By 2010, they weren't cheap. If you look at the previous hundred years, they were in the top 5% by 2010. So for 15 years they've been way over normal and for several years deep into bubble territory, as they typically are. By the way, the great bubbles don't get to be great. By dint of going over normal for six months, they spend like Japan, year after year after year, going from high to very high to oh my God, high. 45 times earnings and then on their way to 65.

[C]

Right.

[B]

And no one could believe 45. I couldn't anyway.

[C]

But, but to your point, if you point out, okay, the stock market is expensive at 45 and then prices do get to 65 over the next year, you spend that whole year hearing from people about how you're a perma bear.

[B]

Absolutely. It took two years. But the same. Yeah, same, but worse.

[C]

We get into some of the career highlights just at a high level and then we're going to dive into some of our favorite parts of the book. But before we even get there, I wanted to ask you. So this is kind of my. The way I explain this current bull market. Most people look at bull markets of the past and they can give you a one sentence explanation for why it was a bull market. So for example, they'll look at the 50s and the 60s and they'll say it's the reflation after World War II which then turns into the space age. And of course there's so much more nuance to it, but it's like a shorthand for people who didn't live it. And then they'll look at the 80s and they'll say the personal computer and corporate raiders and they'll, you know, and then they'll think the 90s, they'll say.com and, and mobile phones. This bull market cycle, which you point out you think started in 2009, it feels like it's four different bull markets all in one. I think it's very obvious that it starts off with the comeback from the crisis, so it's a bounce, but then it morphs into something else entirely. It becomes this stock buyback thing where almost no matter what happens, companies shrink their floats and the stocks are unsinkable. And then we run right into Covid and it sort of becomes a brand new bull market that's about trillions in stimulus money going directly into people's bank accounts. And now I think we're in the fourth explainer of the same bull market, which is the AI CapEx. Okay, yeah, maybe I'm wrong. And I wanted to hear your take. But like, are there other examples in history where you get four bull markets all in one, almost like relentlessly enabling people to forget all about valuation for extended periods of time. Has this happened before?

[B]

I don't think so.

[C]

I don't either.

[B]

So I'm very happy to take your summary. Saves me a lot of effort.

[C]

Okay.

[B]

But the first two were kind of ordinary and the second two were deep into bubble territory, which means they're much more interesting to me. And there are certain strange things that happen at the end of the great bubbles that give you some indication that they may be about to break. And that happened 1929, and not again until 1972, and not again till 2000 and then not again till 2021. 2021. This phenomenon is that the stocks that just had a hell of a rush, they went up, let's say two or three times in 28. They then go down before the market breaks and the blue chips keep going up.

[C]

Yeah.

[B]

And in my mind it's the music's playing. I've got to keep dancing. But I don't have to keep dancing with the crap. At least if I'm going to go over the cliff, I'm going to dance off the cliff with Coca Cola. And so in 1929, you dance off the cliff and it works. Coca Cola goes down 80% and the crap that I'm talking about goes down infinitely or 95.

[C]

Zero. Yeah.

[B]

And from 95 to get from 5 to 20 to catch up with Coca Cola is something you never do. It's just too much.

[C]

Right.

[B]

And we had that again perfectly in 2021. Indeed. Led by my infamous old friend Quantumscape. That peaked out.

[C]

Yes.

[B]

And the first one to peek out.

[C]

You were trapped in it.

[B]

And I was trapped in it. But it peaked out in December2020.

[A]

The irony is rich with that story.

[B]

Yeah. But the first one to peak out, and it peaked out with a market cap bigger than General Motors, just to let you know. And it was not pre earnings. It wasn't even pre sales. It didn't have a dollar of sales for several years to come. Yeah.

[C]

Pre revenue.

[B]

Pre revenue. And even in a sense, pre finished idea, it was still only a half finished idea. And they're still chugging along and they're still perhaps full of potential. Who knows? But that whole cycle, Cathie Wood's fund falling like a stone all the way through 21 and the S&P marching upwards just like 1929. It wasn't that they underperformed they went down. And that's unbelievably unusual.

[C]

We had a crash in one segment of the market, but the overall market, I think the worst, we were down in 22. Correct me if I'm wrong. Was it 22%?

[B]

No, 25s and P down 25. Growth stocks down 35.

[A]

Yeah. The Q's were down 35.

[B]

Mag 7, down 50. It was not insignificant. And the bond market, the worst year in its entire history.

[C]

Right.

[B]

So it was nice as far as it went. And then this AI crash, to your mind, that doesn't get in the way of a nice fair market, that doesn't.

[C]

Reset the bull market, the secular bull market, and put us in a new market.

[B]

What it did is it took the, let's say the rolling average pe, the Shiller pe. It took it down from literally a world record over, over 2,000, way over 29. It took it down to merely badly overpriced. It needed to go down 50% plus it went down 25 and down 25. You introduce chat and you introduced the concept of AI and magnificent moments in the future where machines will do everything for you. Yeah, it's an outrageously important idea. And we discussed last time, I think that people think that bubbles are crappy ideas that are overhyped. And bubbles are absolutely the opposite. Bubbles are magnificent ideas that are overhyped.

[A]

So, Jeremy, we're going to come back to the current markets because obviously we want your opinions. I think we know what your opinions are, but I want to unpack that before we do. For the newer listener or the younger generation that has only seen you be bearish from 2015, whenever it was now 2018, you did say a great melt up is coming. You did.

[B]

Hey, and I debated that. It was not a bubble. With Edward.

[C]

Yes.

[A]

Okay, so I want to ask about him too, but for people that aren't familiar with the incredible career that you've had, you were one of, and I think we spoke about this briefly last time, but you were one of the first ever to actually implement and suggest the idea of an index fund to the point that half of your assets with Dean LeBaron at Battery March were invested in the index fund. We're talking the early 70s. So before Vanguard, you were there. You were a pioneer in small cap value. Before that was a thing. Then you, I don't want to say you discovered, but you were very instrumental in quantitative investing well before that was the thing on Wall Street. And you were maybe the first ever to combine the ideas of value and Momentum. You called the top of Japan and the dot com bubble. You were bearish in the GFC. You made money in 16 of your first 17 years at GMO. So to say that you deserve your flowers, the last decade notwithstanding, has been tough for some of your public statements. But what an incredible, incredible career that you've had. And one of the things that I appreciate about you more so than people that are grouped with you as perma bears, is a. You're not a perma bear, although it's been a while. But you're a gentleman. And the way that I see it is you are positive on humanity. You are trying to make a difference to better, not just this generation, but future generations. And you stand out from the crowd doing that. So I applaud you.

[B]

Thank you.

[A]

You're welcome. All right, so the Devil Takes the Hindmost is one of my favorite books ever on the history of markets. I think your co author, Edward Chancellor, for this book, did an incredible job. How did you get synced up with him and what was the process like? Because this is your autobiography, what was it like for you?

[B]

I got synced up with him over Hyman Minsky. He kind of reintroduced Hyman Minsky to the financial world. He got the Polk Prize for journalism in the Institutional Investor. And I called him up and we had lunch in Manhattan and we discussed Hyman Minsky and following quarter, before anyone else of my type, the quarterly letter focused on Hyman Minsky. Stability is unstable.

[C]

The Minsky moment.

[B]

No, before the Minsky moment. Prior, just 18 months before that. Stability is unstable if it's really low. If it's really stable, you take more risk. If it's still stable, you take even more risk. Why shouldn't you? You've got to. Et cetera. And then eventually, when a bump in the road arrives, everyone is taking too much risk. And as Hyman Minsky said, periodic financial crises are well nigh inevitable, unquote. And it's pretty simple. Doesn't it agree with how we view human nature? I think so. And so I was very impressed with Hyman Minsky, and I admired the fact that Edward had written it up and promoted it before anybody else. So I was quick to jump on his bandwagon. And he'd worked on another expose of financial distress, which was kicking around for $10,000 a copy. Being a cheap Yorkshireman, I got a free copy. Okay. And I offered him a job. That's his $10,000, I guess. Hadn't thought of it that way before.

[C]

Has he written with anyone else? Besides you.

[B]

No. And he won't again.

[C]

Okay.

[B]

That's a given.

[C]

So he obviously worked with you as being like a special. A special opportunity that doesn't come along very often.

[B]

I would say he was kind of backed into a corner.

[C]

Okay.

[B]

Whatever it takes between friends and, you know, et cetera. And GMO kind of pushed him into it. I didn't push him into it. This was a GMO project.

[C]

He does write about financial history, and your life is running in tandem at a minimum. But very often you are mixed up in some of the biggest events in financial history. So you're a significant figure in his subject matter regardless.

[B]

Yes.

[C]

Okay. So this gave him a chance to revisit some of those prior instances, but through your eyes.

[B]

Yes. Okay. And as it turned out, it comes out with exactly my voice. I'm sure you picked that up. So Edward put in all these thousands of hours and then it reads like me.

[C]

Okay.

[A]

There was a few parts that made me left. You say, dude, a lot of the books.

[B]

Yeah, no, Edward has his own language. And here and there it sticks out pretty clearly, doesn't it?

[A]

So, all right. My favorite part in the book was on page 390. And I could picture you thinking this, writing this, and let me read it to the audience. I'm interested in thinking about things that have a much longer horizon than is professionally useful. My own time horizon interest barely overlaps with anything in the market. Mine is several years. And the market's outlook turns out to be very short. It's a very bad characteristic for a money manager to be so out of sync with what is moving the market. It's not good for clients, nor the manager. I'd have made a lot more money for my clients and myself and had a more carefree existence. If only my time horizon hadn't been a bit shorter. That's my confession.

[B]

Yeah, that's a good confession. It's all true, I think.

[C]

Could you explain what you mean by your time horizon? Because you're talking about over the years, you're not talking about today. You're just saying there have been times where you were thinking about the market differently than everyone else was.

[B]

Yeah. And the market can make money and you can cash in your chips, and I'm still waiting for some longer term thing. And even if it works, I like to say it will eventually return to trend. But there is no guarantee that you will return with the same book of business you left with because they'll fire you. And then the question is, how do you get them back? And that business of operating, let's say, on a long term bubble that will take five years or four years or three years, and the client's patience. I have every reason to think in a bubble is like two, two years, two and a quarter. You're dead before you're right. And even if you're right, and we were very right in Japan, made tons of money on the round trip, however you measure it, we were very right in 2000, same thing, but we lost half our business, half our market share, bang in two years. Who thought it would be.

[A]

You had a hilarious line. You said that your market share. It was as if you were doing it intentionally.

[B]

I know. I mean, everyone else was doubling their money and we were going backwards. I mean, we went from 30 billion to 20 billion. In just 98, 99, early 2000, we went from 30 billion to 20 billion.

[A]

And your competitors went from 30 to 70 or whatever.

[B]

They went from, let's say 30 to 50, probably.

[C]

But you must have had people along the way, either colleagues working with you, or maybe even rival fund managers at other firms who had a similar outlook as you did in some of those moments, but chose to placate the crowd and just, all right, they want tech stocks, Give them a few tech stocks. Give them some tech stocks, Shut them up. And it's so understand, it's actually more understandable than what you were able to do, which is stay out of some of these bubbles. It's almost like you can understand we're talking about real people who have bills to pay. They have a spouse at home who's counting on them not losing their job. They've got employees they don't want to have to fire. And at a certain point, yeah, the people who are paying you, you may think they're dead wrong and you may think that you're saving them, but they're still the people who are paying you so long as their money is in the fund and they sort of get a vote.

[B]

This is my confession. You know, we had. I was pretty friendly. We'd done so well for so long. I was pretty friendly with a lot of these pension fund officers and endowment managers. And they were calling up and saying, the pension fund guys in particular, Jeremy, give me some material. I know you're right, but they're going to shoot me or shoot you or whatever. And eventually it was, I'm sorry, dude, it was you or me. And create your file.

[A]

Everyone has career risk.

[B]

Everyone has career risk. And the uncertainty in a great bubble, Japan and so on. 2000 is longer than the client's patience. And if you can say that, you know why the Goldman Sachs, Morgan Stanleys, JP Morgans, all of the professionals cannot fight a major bubble. They will never say, get your asses out. They will always say, I'm thinking of that famous woman from Goldman Sachs.

[A]

Oh, Abby. Joseph Cohen.

[B]

Avi and Joseph Cohen. Torturing the data to convince the audience that it was reasonable.

[A]

So, Jeremy, with the benefit of hindsight, because you understood momentum, right, like just basic principles of physics, of human nature, do you wish that you had. Because you trust value, you're a dot in the wool value investor. Do you wish that you were able to have a little bit more faith in momentum than you did?

[B]

Actually, I had more and more faith. And my division was called Quant. And all of our funds had a stream of momentum. And it was 40%. It was like a separate portfolio. 40% momentum, 60% value. And value itself had a very high quality component. So it had a different flavor to. To many people. And so it was in a way, designed to hang in. That's the irony. And the funds were getting left behind because they were so monolithic. They were so focused on Cisco and pet.com that even though we had deliberately much more diversification than normal for a value fund, it wasn't enough. We were not up zero, by the way. We would go up 12, the market would go up 18, and Fred would go up 32.

[A]

All right, so it's not like you weren't participating.

[B]

No, we were participating, but in a great bubble like that these fellows are having, playing golf with their neighbor, another pension fund officer, who's up 41, and you're up 16. And this is hell.

[C]

You can never give. In a true bubble, you can never give people enough of what's working.

[B]

That's right.

[C]

And one of the most interesting aspects of what we all do for a living is I actually. The intuition tells you you're more likely to be fired when you lose clients money, but I've seen the opposite. I feel like people are most at risk of being fired. And I don't know if it's the same for a financial advisor as it is for a mutual fund manager, but I just feel like not having enough exposure in an environment where everybody has fear of missing out and everybody feels like. I feel like that's so much easier to get fired than.

[B]

I think we covered that quite a bit.

[C]

Yeah.

[B]

You don't get fired for underperforming. On the downside, no one gets fired by the way. They become paralyzed.

[A]

Right, exactly.

[B]

They retreat into a kind of state of shock. Everything seems to be hurting them. And only when they've had six months or a year to regroup did they start to fire. One or two, maybe. But in a bull market, as I say, they're active, they're full of it. They're playing golf. They're listening to the stories, their fingers.

[C]

On the trigger, they're looking for targets.

[B]

And you cannot stand your neighbor getting rich. You cannot stand your competitor doing better than you. And so they pull the trigger much more quickly. It's not a viable business strategy to fight the great bull markets. You can't do it and no one does it. You have to be somewhat free of career risk. And we could do it because perhaps we were stupid, but we were independent.

[A]

So why that part about your meeting with Corzine and the team there and then you had another opportunity later to sell any regrets or. I mean, it sounds like you did it your way, but I thought that was really fascinating.

[B]

Yeah, the Corzine thing is, is really fascinating because obviously Goldman Sachs, an exciting firm then and now.

[C]

Corzine was the CEO of Goldman Sachs at the time.

[B]

Yeah, okay. And he wanted to have a quant shop and thought it was quicker to buy one. Give it a certain amount of autonomy to start with and then build up all the quant products and downplay perhaps the asset allocation elements and the market timing. Forget it. Just develop a broad array of quant products. And we could have done that. We were called the sausage factory because a handful of us cranked out small cap value, large cap growth, duh, duh, duh, duh. And yeah, we could have done that. And the guy who ran the deal for Goldman Sachs, a junior non partner who had a nice tea at the tennis club in Nantucket with Corzine and me when the deal slipped away at the 12th hour, was pissed off. These are competitive guys. And so four years later, when they went public, he called me up to rub it in, to rub salt in.

[C]

The wound that Goldman came public. And you would have made all this money.

[B]

We would have been the largest selling stockholders in Goldman Sachs.

[C]

Oh, wow.

[B]

No one told me that. And one third of what they offered us was partnership interest, and that went up by 12 times. One third was preferred stock, which went up eight times, and one third was cash, which we might have turned into 80 cents on the dollar.

[C]

But I know some of those pre IPO Goldman partners, they're not unhappy.

[A]

But it's an interesting what if? Because then Cliff Fastis came along and Built it for them. Built their quant strategy inside.

[B]

Did he?

[A]

Yeah, that's my understanding.

[B]

I have no idea.

[C]

But I wanted to ask you.

[B]

I haven't really finished this one, have I?

[C]

Continue.

[B]

Do we have regrets? When he called up, I said, oh, well. But the good news from my point of view is I would have been fired by now. Because it was. Now it was 98. Right. And we were deep into the bubble. To which he said, oh, Jeremy, you'd have been fired long ago.

[C]

You never would have made it that long. Right. You probably would have been fired in 96. Around the Netscape IPO.

[B]

Right. And would I have been able to hold onto my partnership units? I have no idea.

[C]

Yeah.

[B]

And when I say I, I mean we. They'd have gotten rid of the old fogies and run with the idea of quantity.

[C]

Wanted to ask you a behavioral investing question that I think bumps up against this idea. So one of the things that financial advisors say, including my partner Barry and a lot of people that work directly with individuals, is that there's really no such thing as an optimal portfolio. There's only the best possible portfolio that the client can live with. So obviously that works in both directions. If you have too much risk on, you're in a bear market. It might be the right holdings, it might be the right allocation, but if the client gives up, it was the wrong portfolio.

[B]

Yeah, right.

[C]

The client goes to cash.

[A]

You.

[C]

You lose. Even if you think you were right. Same thing. On the upside, in my opinion, you have a client that you know is very market sensitive. They watch CNBC and Bloomberg, they read Barron's, they talk to all their neighbors about their holdings. If you know that as the financial.

[B]

Intermediary, do they watch this podcast?

[C]

Most likely. But if you. So if you know that's who you're dealing with, I sort of have always felt that you have a little bit of a responsibility to let them sin a little. Give them enough so that they don't go all the way whole hog with.

[B]

Someone else rewriting my book for me.

[C]

Well, don't you think this.

[B]

This is my confession, sort of, you know, that we were not. We were too damn pure. Why? I don't know why. That's just the way we were. We were a little too quant, a little too academic, a little too.

[A]

A little too rational in an irrational world, maybe.

[B]

Thank you. A little too rational in an irrational world. And you pay a high price because the client does need a little more tender loving care, a little more sympathy candy.

[C]

You can't expect they need some candy?

[B]

You can't expect your clients to be, to be able to chew on career risk that much. They just can't do it with school fees.

[A]

And so obviously you wrote a whole book about your experience. One of the things that I. I don't know what you could have said differently or more. This must have been an incredibly challenging personal time in your life. Just going home day after day, emotionally raising a family, running a business. I'm sure that was hell.

[B]

What was what period?

[A]

The late 1999.

[B]

Yes, it was. Because a lot of people who I wanted to help, friends at gmo, were feeling the stress of their clients. You know, it felt like a personal betrayal. And you let them down.

[A]

Other salespeople that you hired, and they were taking the brunt of it.

[B]

They were taking a terrible toll. And on a Friday evening, they'd kind of the ones more friendly to me, who'd been there for longest would kind of come in wanting or needing a blood transfusion. Tell me the story once again, make me believe in it. And the boss then of marketing didn't really believe that we were right. He thought we just made a mistake, which meant that the second in command and all the others, that was added stress. So no, it was terrible stress for them and feeling that I felt bad for them.

[A]

Can I ask you another emotional question about investing? So Michael Steinhardt said there's no better feeling for a money manager than to make money when everybody else is losing theirs. So you are a humanitarian. You care about people and civilization. I'm sure as a human being, you must have felt like I told you assholes in 2001 when it burned 2000 when it burst, like you must have felt like a million bucks tap dancing to work every day that you were right. Because how could you not feel that way? But. And also there were serious problems in the economy. Like people are losing their jobs. That's got to be a weird push and pull.

[B]

Yeah. And. And you have a job to do. And I have to say it was nice, but we took it for granted. One of my secret regrets is that in the era for the first 25 years, when we walked on water, I just didn't appreciate it enough. If it happens from the beginning, we won the first nine years in a row by an average of eight points a year. Old fashioned alpha.

[A]

Unreal.

[B]

I know it's unreal.

[C]

So you don't know any different.

[B]

You don't know any different. So you know it's good. You just don't know that one day when you've entered the real world, you'll look back and say, holy cow, why, why didn't I go out and party?

[C]

Do you know that's why we stopped hiring kids out of college? Because we think we're the greatest firm in the industry? But how do they know?

[A]

So.

[C]

So I want to be somebody's second job or third job. I want you to go somewhere else before. Before I bring you here because I.

[A]

Want call and sell life insurance and then come here.

[C]

Go sell life insurance for two years, then come see me. I want you to appreciate this. If you come right at school to me, how do you know this is good?

[B]

Yeah.

[C]

Yeah. So I definitely get that.

[B]

And maybe all of us don't appreciate our successes as much as we should do.

[A]

Well, I do. I failed first, so I definitely appreciate it.

[C]

I failed first because we feel the pain and I don't appreciate it.

[B]

We feel the pain. Every last delicious little drop, right?

[C]

Yeah.

[B]

And then the pleasure, if it comes, particularly if it comes bunched up and particularly if it comes early, you kind of coast over it.

[C]

So can I ask you. So the market in 99, March of 2000 comes negative catalyst. Negative Catalyst, Negative Catalyst. Finally, the NASDAQ breaks, takes the rest of the market with it. Although not to the same extent.

[B]

And not yet.

[C]

And not yet.

[B]

It happens through September, the rest of the non growth was up 12% more.

[C]

Right. So now. So now like Warren Buffett is back on the covers. They say, oh, we were wrong to ridicule him in 1999, that he doesn't get it. I guess he gets it after all.

[B]

Right.

[C]

He had spent 98 and 99 buying companies that make carpeting and you know, like aluminum siding. And they laughed at him. And then. Okay, but you're in that same camp.

[B]

Yeah, we made money in 2000, 2001 and 2002. So market is down 50% and we've made cumulatively maybe so are people who.

[C]

Abandon you coming back.

[B]

Not one.

[C]

Nobody.

[B]

Not one solitary person.

[C]

That's amazing.

[B]

It isn't amazing. It's human nature. I like to say I completely get it. It's like selling a stock at 3 and buying it back at 12.

[A]

Can't do it.

[B]

Humans can't do it. Someone. I mean, on paper, it's all sunk cost. It doesn't matter. If you're an economist, you don't even know that you sold it at 3. But humans can't do it. And it's a bit like that. You had these guys, you fired them, you bought a growth manager, you Lost half your money and they made a few percent and now you're going to go back. No way.

[A]

Can't do it.

[B]

It was such a cataclysmic shift where we went up and they halved that. There's no way we'd get, we didn't get one back. I don't know how many there were. 80.

[C]

Would you have taken many of those people back or those organizations?

[B]

You would have absolutely would love to have had them back because they were kind of seasoned people who had been through hell like we had and I was sympathetic. I got why they fired us. I would love to have made some money for them.

[C]

Would they have become more well behaved for what was to come next?

[B]

It's not them, by the way, it's their committees.

[C]

Sure.

[B]

They were pretty cool. They kind of got our storyline. They understood value, they understood the time horizon problem, they understood career risk. By 2000, they just understood paying the rent.

[C]

By 2003 though, we're blowing the next bubble in real estate and housing mortgages. Would those people have stuck with you again?

[B]

I hope so.

[C]

Rolling into the next crisis, they might.

[B]

Have done, particularly since the housing bubble was the one exception in our career where we made money on the upside because we played emerging markets and emerging markets didn't just outperform. It was 2.8 times the S and.

[C]

P. Oh, that decade was.

[B]

Yeah, it's impossible to diverge that much that quickly. But they did and we played it not up to the peak, but also down. For the only time in our history, we actually overstayed our welcome a bit. Instead of getting out here and regretting the miss, we got out just a little bit later than the peak, so almost maximized the return. So we made a little bit of money being much, much more conservative. And the housing market was a perfect bubble. Perfect. Three years up, three years down. Homeownership goes up by three or four percentage points to the highest in history and gives it all back. So that was mean reversion, triumph, and very nice too.

[A]

Jeremy, I want to ask you about market structure. So one of the reasons why you identified index funds as being a good solution is not that you thought markets were efficient. I'm guessing you still don't think markets are efficient. It wasn't that. It was the nature of active management being a zero sum game and any frictions that you take out are now in the investor's pocket.

[B]

Right.

[A]

And so you, you, you told the story basically about, think about like a poker table. Well, if you lose enough, you come to the game. You're not going to come to the game anymore. You're going to stop playing. So there's this weird dynamic in the market where on the one hand, John, if you could throw some of these charts on when you get a chance. On the one hand, you've seen that. Exactly. You've seen active outflows persist. The cumulative outflows are $3 trillion out of active mutual funds, $2.8 trillion into index funds. I'm sure you've seen this chart a million times to the point where ETFs and passive mutual funds have now passed over active. So there's more, there's less people playing the active management game. But on the other side, you have the rise of the retail trader. So you have this one dynamic with, with professional investors and retail investors. And then you have something like this. So we grab, we grab charts from Robin or data from Robinhood, and we're showing that since the third quarter of 2023, the total equity value traded on Robinhood is up 273%. $647 billion in the third quarter alone. And I'm using Robin as a proxy. But whatever, the point stands. And if you look at options contracts, it's the Same thing, up 103% since the third quarter. So you have people trading their ass off. It's estimated the retail trader is now 25% of the market. But then you also have people that are saying, I'm not playing the game anymore. So how do you think about market structure today? And is it so much harder than it used to be to win? Mag 7 Notwithstanding just the level of competition? Because there's no more suckers. I mean, there are these suckers, but it's a messy story.

[B]

It is said that in 29 there was an awful lot of ordinary people for the first time playing and losing their shirts. And I think that was a. Wasn't that a big echo for decades how easy it was to get buried in a professional market, that the professionals would kill you. And people in the 50s, 60s, 70s, 80s really stayed out. They played real estate with their money. But if you were the median rich person, you didn't bother with stocks. And then Covid and that incredible issue of money to keep the economy ticking with everyone hiding at home and the fact that they had nothing to do but get on websites and learn a bit about speculation.

[C]

Couldn't even watch a sporting event. There weren't any, right?

[B]

To the moon. To the moon. Let's play these games. And it's an Exciting game, let's face it. I told the story of getting sucked in when I should have known better and making a fortune and losing it. And that's what they were doing. And that's what's going to happen to them. They. A lot of them will have made a fortune. A lot of them will have lost everything by now, but they're all going to lose almost everything sooner or later. It's a setup. They are being set up beautifully by circumstances. That's a major theme in this market. Edward will be writing in 15 years, with any luck, about that aspect of the market, that a big chunk of ordinary people who had for the first time their hands on enough money to trade a bit, and some of them, a third of them, made a lot of money and they went on to trade a lot.

[A]

Can I offer an optimistic take on these people? I think not. I think most people know what's happening. Most people understand that they're gambling. I think that there is, of course, some level of delusion within those traders. Of course. Right. For the people that are just starting, that have seen nothing but success, of course there's a lot of delusion in there. But these people have seen a bear market because a lot of them got killed in 2022. And my optimistic take would be that these are people that are contributing to their 401s. They're buying index funds, they're eating their meat and potatoes, and this is their fun money. And they're not.

[B]

You're the one who said it's 25%. This 25% is not their 401k. Well, this isn't their mutual funds that they bought. This is their crazy money is not insignificant, is my point, and your point too. Really, it's enough to count. But it's only one chunk, one game, one sub game in what has become the world's most complicated bull market ever.

[A]

You're right. 25% of the volume. It's not an insignificant amount of money. And certainly there are people that will lose everything. But I think that there are people that are maybe learning the right lesson because they are trading. And if they lose, they stop playing. They graduate to more professionals.

[B]

I think of myself at 28. I'm a semi professional, for heaven's sake. I'm a good quant. I understand life. I'm a historian. I've always been interested in history. I knew about 1929. I knew I was speculating. But the speed with which I got wiped out, I was not ready for. And no one ever is.

[A]

When Was this.

[B]

This was.

[A]

Was this the nifty 50?

[B]

69?

[A]

Okay.

[B]

Before the nifty 50 had really settled in, before people really knew there was a bear market, by the way, there was a magnificent bull and bear market in not just small cap, but pink sheets under the counter, tiny tinies.

[A]

You remember which stocks wiped you out. I'm sure you do.

[B]

Yes, of course. But they had these wonderful names, too. Palms of Pasadena was my favorite, but the one that killed me was American Raceways. Sterling Moss, the world champion, was on the board, and they were going to introduce Formula One, which is now ticking over decently in America. Formula One to America.

[C]

You were early. You were right.

[B]

I was right.

[A]

Five decades early.

[B]

I was five decades early. But the next one, because I got out with half my fortune and I immediately went into Market Monitor Data Systems, which was going to put a little monitor, that is, et cetera, machine on every broker's desk so that he could trade futures, I'm sorry, options on individual stocks.

[C]

Oh, that's hilarious.

[B]

And it was a brilliant idea, but it was 15 to 20 years too early. The technology, which now makes it trivial and people trade them, couldn't handle it. And so they had these machines, but no orders came in. And so the company went bust and took me.

[C]

I got a package in the mail in the middle of the pandemic, and somebody said, they wrote a letter. They said, I don't have much time left and I'm giving away everything I have. And I don't know what to do with this, but I thought you would. And it was boxes. And I opened the lid and it was, I don't know, maybe a thousand, maybe two thousand issues of a little magazine the New York Stock Exchange used to put out. And it was, like, had a very beautifully illustrated cover, and it looked like it was a weekly digest of everything that happened on the New York Stock Exchange that week. So every cover would be about whatever stocks they were talking about. Now, I still have these things in boxes. I did not, it turns out, know what to do with these things. But I was looking through them, and I think I saw something like that device you described. But, like, it's amazing when you look at the history and it feels like, oh, that was the 60s, nothing like today. It's incredible the degree to which things repeat. And you could just randomly pull one of these magazines out, flip to any page, and it's an article about something where if you just change the name of the company, it's almost identical to something that's happening. We had the seat you're sitting in. We had Andrew Ross Sorkin sitting in two weeks ago and he of course wrote 1929 and he said the same thing. I'm researching this book about the 20s, but like it could be the 2000s. It's almost remarkable. Do you still find it remarkable after all these decades that you've witnessed?

[B]

In some ways I find it even more remarkable because into the things that I was kind of used to, even expert in, we've had this extra spin of a subset with real money speculating and then a much bigger subset of AI changing the economy. It wasn't just back in November they interrupted my nice bear market, right? And for 10 months, 11 months, only the Mag 7 went up, by the way, 2023. In 2023, only the Mag 7 is going up. The other stocks are drifting a tiny bit down and then they throw in the towel and they start to go up in about October, November 23rd. But it changed the economy. If you take out the 1 1/2% of extra capex, we would have been almost flat. And then my hero Cain says, what happens to animal spirits? The animal spirits were not great in 22. Without that one and a half percent, without that oomph in the stock market from AI, we would have had a recession and the market would have continued down and it might have hit trend minus 50. We'll never know.

[A]

There's no doubt that the bear market would have continued. Whether it would have gone down 50 is up for debate. But isn't this such a great lesson in capitalism?

[B]

It didn't have to go down another 50, it had gone down 25.

[A]

Right, right, right.

[B]

All it had to go down then was another 20.

[A]

But is it. But I guess to Josh's earlier point, like it's always something, especially in America, which you wrote about in the book, we are so delusionally optimistic. Our willingness to take risk to fund these early stage companies, which I know you do a great deal of, it's really hard to bet against the long term nature of the stock market.

[C]

So in other words, people look at valuations and they say the market's expensive. And I'm a little bit sardonic about it. I say, yeah, we'll find out why. And that was a really good example of we found out. We found out why we weren't in a 50% drawdown because people were willing to bet that something would happen and then nobody knows what it is and then this thing comes out of nowhere.

[B]

But the market hadn't turned in Anticipation market was nicely going down. Bang, they introduced chat Day three. I'm on there saying this is something. No, I said please summarize War and peace in 12 points. I thought that's very cool. Now try it in Germany. Yeah, I thought, holy shit, this is going to be something, isn't it? You've ruined my bear market and you've ruined my bear market. And it meets every condition of a great bubble in itself. So this is a new game, but becomes almost immediately meeting the conditions of the truly great bubbles, which is everyone on his dog is, can see that it's unbelievably significant. It is completely obvious and it's going to change the world. It's as obvious as anything since the railroads. In fact, I think historians will say you had the railroads in the 19th century, nothing much in the 20th century and you had this one. You think it's that in the 21st century.

[C]

You think it's that significant that it dwarfs everything that came before it in the last 50 years?

[B]

Yeah.

[C]

Including the original advent of the Internet.

[B]

Yeah, yeah, yeah.

[A]

But the market's rejecting the bubble in many ways. Like if you look at now, you could find speculation all over the place. But Oracle for example, and Microsoft, these are two of the stocks that are at the epicenter of the AI bubble and you would think that they would be bid up to. But Oracle's down like almost 40% and Microsoft since chat has gone, has barely outperformed the market. I'm shocked that we're not that these stocks aren't going to be.

[C]

Nvidia is selling at 24 times this year's earnings. Meta is in a 15% drawdown.

[A]

Yeah, I'm very surprised.

[C]

It doesn't look bubblish yet.

[B]

Nvidia, the bubble is not in the pe, for heaven's sake. The bubble is in the fact that they have bought millions of these ultra expensive chips on which they have not yet made a buck.

[C]

The classic bubble.

[B]

That is a classic, classic bubble. You want them to also bubble the pe? I mean, give me a break.

[C]

It would be neater.

[B]

It would be neater, but it's not necessary.

[A]

It's hard to blow the bubble on the PE for Nvidia when it's already at $4.5 trillion. In other words, how big should it be? 9 trillion? Like to have a 70p would be completely absurd, right?

[C]

Well, it doesn't, fortunately for all of us.

[A]

Jeremy, I think one of the things that you got the most wrong, no fault of your own, but with the benefit of hindsight and I don't think anybody could have seen this coming. Part of your work that made you so successful was the fact that, and this was a fact that margins would mean revert. It was one of the most mean reverting series in business and in life. And you said the fact that a company's depressed profitability reverts to its average level seem to me just the fortunes of war. And that all changed really with the Mag 7. They have broken the laws of profitability. John, throw this chart on, please. And I know you wrote about this in the book and you have a similar chart and actually it is kind of funny that this stopped going down in 2023 when chat came out here. But the level of margins and the fact that they didn't mean revert to previous norms for a million reasons that are now Obvious back in 2013, 2015 was very hard to see coming, that this would just continue to go up and to the right.

[B]

Let me just say the 5, 6, 6, 3, when you put on the series to the left of it, it's slight noise.

[A]

Right? Okay.

[B]

So what we're really talking about is Starting in the 21st century, there is apparently a paradigm shift or something very much like that, which for a number of decades causes the profit margins to go up and the share of GDP to go up. And that happens pretty seldom because in order to do that you have to squeeze individuals, you have to squeeze regular income. And what has been happening in the 21st century in particular is the share of money going to average Joe hasn't moved. So that the real wage for an hour's work has barely changed since 1975. Look it up. If it's up 15%, I'd be amazed. The average Frenchman whose bottom we have been kicking, I know from reading Businessweek over the years we have been kicking consistently and who've suffered from this sort of problem and that sort of problem, urosclerosis and so on, is up 140% and we're up 15 and the lowly Brits are up 50 or 60.

[C]

So why are they the ones protesting in the streets? Why is the Frenchman, who's up 140% in, in. What is that?

[B]

Take home pay Quite a lot of time. Yeah, yeah, take home pay. Why are we so wimpy? Why is it that the American worker has been screwed and screwed and royally screwed and has not really objected?

[A]

What do you think?

[B]

Well, they're badly organized. The opponents are more powerful, better organized, systematic, have a plan. It's not an accident. It's not just a drift. The rich and powerful actually use their resources to maintain the current system because it's working fine. So they have not moved to stop the squeezing of the bottom 50, have they? What legislation was effective in changing that?

[C]

Well, Trump has run on that, but he hasn't actually done it.

[B]

Exactly. Yeah, and other people have run on it without doing it. There is no president since 1975 where the pendulum swinging for 60, 70 years in favor of the rich away from the poor. There is no president who moves that back for four years, eight years. Clinton holds it right, it stops moving for eight years, and then it starts to move again. Every other Democrat, it keeps moving.

[A]

Was that legislation or circumstances, the economy or everything?

[B]

Everything together. Point is, Clinton stopped it. Good for him. Obama, et cetera. They didn't stop it. It continued to move. We've lived in a world that is simply favorable to the rich and powerful, okay? And I say rich and powerful because that was the exit pole language. Trump won 16, and it was longer than this table, and it was full of every question you could possibly imagine. And there was 623 Hindus on this, and Protestants and Catholics and so on, and rich and poor and Republicans. And they asked them all the questions. And you had the red blue effect on everything except this one, which nearly shook me out of my seat. This country needs to be saved from the rich and powerful, and every goddamn group on that table agreed. And I'm saying it would be 91% of the Democrats, 89% of the Republicans, and even the rich agreed. And I agreed it needed to be safe from the rich and powerful in 2016. And what has happened since then is just, you look at the data, it's more of the same.

[A]

But it's the stock market. How do you fix that? Because the rich people own the stock market, and it's going up.

[B]

You don't pick one element of it. How do you fix the stock market? It's how do you fix the whole game? And it's been, how did we get here from 1975? From 1935 to 1975, the pendulum moved slightly in favor of. Of the poor. They got richer slightly faster than the rich got richer, but everybody got rich. So you had this very high productivity, 3.5% GDP for 100 years.

[C]

What era is this?

[B]

This is 35 to 75.

[C]

And what's the top marginal tax rate during that period of time?

[B]

Who knows? Okay.

[C]

It's higher than it is today.

[B]

One thing at a time. Okay, so you have this 40 year period with the highest productivity gains In American history, 3.5% a year for 40 years, maybe closer to 4. 100 years was three and a half on average. So this was even better, let's say 4%, maybe even 4.2. Magnificent increase in wealth. And the poor were just slightly higher. So the poor were like four and a half and the rich were four. And you can keep that up for 40 years. And no one's going to take to the barricades. It's a perfect environment for the poor. It's a perfect environment for everybody. And because it just goes on so smoothly and such a long time, it creates enormous harmony in the economy. And that was the golden era. And then when you look from then on, from 1975 for 50 years until 2025, and was it the gold standard that the rich take it all in round numbers?

[C]

But there must be a catalyst or two that you could think of.

[B]

Yeah, the bottom half take nothing.

[A]

What do you think?

[B]

But first of all, we should not have the income. It's like a slope, isn't it, between the very rich and very poor. And some countries, like Japan, it's quite modest. And some countries like Brazil, and now we have moved up to be like Brazil. We're very steep. We shouldn't allow that to be decided by the random features around the world. Oh, China has a lot of people going into the cities. Should we allow that to make inequality in America? It's easily fixed. You fix equality by a tax structure, don't you? What we did is we allowed Chinese farmers to go into the city to make our goods for us. We stopped making them. We just put the brand on it. Our profit margins go through the roof, et cetera. That's a random fact, and there are several of those things. But outsourcing was a powerful factor. They're easily corrected. You correct it by the government. The government decides that they will tax capital a little higher, income a little lower. You're meant to tax. Anyway, taxing income is not the world's greatest idea because there are some things away from the tax. Don't tax things you don't like, like tobacco. You don't tax things you want to encourage, like work.

[A]

But government is run by the rich people and they will never do this.

[C]

I was going to say, like, doesn't power always.

[B]

I think that's the key difference between the 3575 era where there was a sense of noblesse oblige. The local companies ran as if it mattered. The city they were in their well, being mattered to them. It really did when I was first here. And there was a minor undertone of noblesse oblige in Congress. Eisenhower, left, he opens his famous retirement speech with, I've got to thank both parties for the serious cooperation that they gave me.

[C]

Holy cow.

[B]

Serious cooperation. And then it goes on and on like that. You know, we mustn't squander the resources of our grandchildren. No, Obamas of the world have not said anything that enlightened about long term sustainability.

[C]

For example, that profit margin chart, though, very specifically, like you say, it's a 21st century phenomenon. And I agree with you. And it is the hardest thing to have foreseen. Like, why won't this go back to the way it used to be? I think we just, we stopped doing antitrust and we never had companies this size that could acquire anybody that competes with them until the point where you can't compete.

[B]

Right.

[C]

And that keeps profit margins abnormally high relative to history.

[B]

Absolutely.

[C]

And then the second thing is writing my book again. Citizens United.

[B]

Yeah.

[C]

So all right, from 1930 to 1970 or 1975, votes actually mattered. Now we have super PACs and media time and the only thing that matters is who raises the most money. And there are no limits.

[B]

Citizen United is like a 2010 dagger in the back of democracy, isn't it?

[C]

I think it's gasoline on the preexisting fires that were already burning. But there's almost no way back now.

[B]

And the Justice Department does not have to go to sleep. In the earlier period it was out and about. From time to time it broke up. Imagine it completely broke up Standard Oil. It's massive. And then it broke up the Steel Syndicate and then et cetera. And it broke up telephone. A single company owned the whole telephone system and it broke it all up. And then it went to sleep. In the last 50 years, it occasionally shapes up so that you'll think it's not asleep, but then it does nothing and backs off. So it will threaten to break up. A Microsoft, it will threaten to break up and et cetera, et cetera, et cetera. And then it will basically do nothing material. So every industry has had an increase in concentration. Every industry, some a lot, some a little. But they've all become more concentrated. And monopoly is the very essence of profit margin. What is our definition of quality, stable, high return and no debt. And why is it that? It's because that's a workable definition of monopoly. You're a price setter. You have stable pricing because you're Setting the price. You have fat profits because you're setting the price. You have no debt because you're making so much money you don't need any. Quality has outperformed. Instead of underperforming, it's the AAA bond, for heaven's sake. It should be minus one. Everyone knows the triple A bond returns a percent less, but the AAA stock does not. For 100 years, it's returned half a percent a year more than that.

[C]

You should not be getting a premium return for buying the highest quality stock of Apple.

[B]

But you do.

[C]

It should be so obvious, but you do.

[B]

And why? Because they're the essence of the creeping increase in Monopoly. Those Coca Colas of the world. And Nvidias are allowed to have more power.

[A]

Well, Amazon's a great example. I mean, it's not enough that they were the biggest retailer in the world. Then they dominated cloud computing. They bought Whole Foods, they bought MGM Studios.

[C]

Now they're getting into pharmacy. I mean, they'll basically get into what? They'll get into whatever they want. And the case that they can make in an antitrust conversation is, well, we're not the only player in the industry this Walmart. And it's legitimate. There is Walmart. It's true. Yeah, right.

[A]

So what slows this down? Forget about reversing it. I mean, is investor preference going to change all of a sudden?

[B]

I don't want to rain on the parade. I mean, I think history would say what happens is an unexpected stumble. Hyman Minsky arrives back into action and it is revealed that the size of the bezel is a lot higher, that the level of leverage is a lot higher, that the stability of the global system and the dollar is a lot flakier than you thought it was. And you don't know where the strut cracks on this elaborate bridge.

[A]

So here's one potential. And this is not necessarily a pin prick or a catalyst. It's a gradual thing, I think. Jeffrey west is the author. Jeffrey west wrote a book called Scale. And there is a limit to how big things can get, whether it's society or animals or companies or cities before they start to buckle under their own weight. And maybe we're not too far away from that, where things just start to deteriorate. There's too much glut, there's too many people, there's too much bureaucracy. Whatever the case may be, where investors say, hey, you know what? Why am I paying a premium for this size? It can't grow anymore. It's only going to shrink.

[B]

And it may Be something as intangible as that. What I think about is Henry Ford. He was a pretty good capitalist. I have to pay them a decent wage, otherwise they won't be able to.

[C]

Who's going to buy the car?

[B]

Right. If you think of the bottom half, they need cars. If you only sell cars to the top half, GM and Ford are toast. You have to sell to more than the richer people.

[C]

Can I ask you a follow up question to that though?

[B]

No, you can't.

[C]

Eventually, eventually, eventually.

[B]

We'Re in danger. If you look at the number of poor people who can't pay their auto loans, they're defaulting at an abnormally high rate in a strong economy. Why? Because they're not the part of the strong economy, they're the excluded part of the economy. And they're beginning to hurt if they stop buying cars. That's a strut that can just crack. No one talks about it. It's just the poor are squeezed so much they stop supporting those parts of the economy that echo right through. And auto is of course a classic, but it could be what you're saying. It's such a complicated system that you build it up and you build it up and I could list, unfortunately a lot of things. Climate change used to be just a kind of bad idea for ruining your evening. The last two years it is big enough in damage, fires and floods and bad farming conditions. It's big enough to affect the GDP just the last two years that the cumulative damage is running at something sometimes in excess of half a percent of global gdp. And I'm not vouching for this data, but it was worked out by somebody that from 2000 about a quarter of the growth in GDP was preparing to fix or fixing climate damage. So doing stuff to reduce the risk, building better or fixing the village that got burned down half a percent, I'm sorry, a quarter of the GDP growth. So that is squeezing. Now you have the population thing, which is what I came back at the end of last time to harangue everybody. If you're reading the paper, you will see that there is shocking. Every week there's some shocking tidbit that, whoops. China was meant to decline in gross population in three years. It declined this last year. It's actual total population decline, that's a lagging indicator because of old people living long. Their workforce is declining all over the place. Japanese workforce, get this, 20 year olds entering the workforce, 50% of what it was at the peak in 1948, 50%. If we were down 7, we'd be in a panic mode. They're down 50 and they're leading the charge. Followed by South Korea, followed by China at an unbelievable speed, followed by India, who is 20 years ahead of the game to get down to 1.9. They weren't meant to get to below 2.1 until about 20, 40. What the hell's going on?

[A]

So which side do you want? Because on the one hand you could say that that's putting less pressure on our natural resources.

[B]

It is, but it's putting more pressure on our. On this bloody bridge that I'm talking about because the demand is going. People aren't applying to college, schools are closing down and so on and so forth. And villages are being abandoned in Japan and South Korea getting for the same thing and the same in China. And my argument is if you live in a country where two or three decades of decline, you lose your moxie if you kind of grow up and the nursery schools are closing and now the grammar schools are closing in Japan, I went on a bicycle tour and we got fed by the local old ladies very nicely. Sandwiches in a closed grammar school. When you grow up in that world, how are you expected to be as bullish as you used to be? Why would you reach for extra debt, open another factory, when you know that everywhere in Japan there are fewer people? Yes, you go for exports, but there are limits to how much you can do that. And they're terrific. In Japan they have a social contract from heaven. And yet I think they had real moxie. In 1980 we were terrified of the Japanese. We would have 5% failure rate in chips and they would have 4. Oh, that's unusual. 3 and a half, 3. What the hell is going on? 2 and a half, 2. They got it down to 1 before we really woke up to the fact they were kicking our ass. Every television set was becoming Japanese. You stuck these things on your belt. The first kind of high techy things of walking around listening to music and everything they did, they seemed to do better and now they don't. They're competent, they're professional. They've just lost it, haven't they? So one by one, China's entered this. It spreads around. They used to say France was the exception. Last year it was 1.6, America 1.6. At 1.6, you're losing a quarter of your babies each 30 year generation. For the last 14 years, global baby production has dropped by a million. This year, the year just ended. China went down by a million babies, 1.2 by itself. And we've gone down from like 150 million babies globally to 138 or 137. How many years do you want to keep doing that? So global vitality is going to start going anyway. So these are two. Climate damage already much faster than we thought. Population bust much, much, much faster than we thought. No one's prepared with such. We're so profoundly into wishful thinking. We're simply not prepared to talk about stuff like that.

[C]

Elon Musk said that by 2027, he'll be selling humanoid robots to families, households. Japan has been experiencing this demographic ice age for a few years now, and as a result, they're basically the world leader in robotics. You said China will be next. Okay. And then eventually it'll get around to us where it'll become apparent that we're just not growing the population. So do we turn to more immigration? That seems doubtful. It sounds like we're gonna turn to robots.

[B]

And the source of immigrants is pretty short term anyway because Africa has actually in the last 40 years, lost more babies than we have. It's just that they started so high. So they've gone from six to four minus two and we have gone, you know, from three to one and a half, minus one and a half.

[A]

What do those numbers represent? Are you talking about percentages?

[B]

Babies.

[C]

How many babies you replace yourself with?

[B]

You need 2.1. And they were, you know, 6. So they had a generous, sufficient babies, a lot of babies. And now they're four, which is still a lot of babies. And people tend to, oh, well, they have a lot of babies. At that rate of decline, which is every year, how long did they have? And the answer is about 25 years. But every time anyone works out the 25 years, it happens in 21 these days. So we have a couple of decades where on paper, a lot of Africans could emigrate. But someone has to pay for them. Someone has to receive them, be willing to receive them and integrate them. So I don't know whether one should hold one's breath or not.

[A]

This is all very uplifting, Jeremy. I know that you are. You are investing a lot of money into causes that will long outlive you and maybe even the next generation to make the world a better place. Can you give us, can you leave us with something optimistic? Is there technology that you're seeing? Is it too late for us? Where are you putting your money for all of our benefits?

[B]

I mean, the good news is we're crap at long term thinking. We don't do serious analysis of long term Problems. We don't address it in a very emphatic way. On paper, we could, we just don't. But we are very inventive. Okay, we can all agree on that. So the thing that we really do well, particularly in America, is we take risks, we get together, we experiment. Fracking is just a minor miracle. When you think bloody solid rock, they have to get. It's just amazing. And if you take fracking out of the us, extra performance in gdp, it becomes a very modest component. By the way, people are very bad at doing that. They don't really know how to do it, but it spread out its tentacles. It's not just every manufacturer, because natural gas is local, every manufacturer has cheap energy, one third the price that they're paying in Europe or Japan. This is not an insignificant advantage. So people are building chemical plants in America because they have cheap natural gas, cheap energy. And then natural gas is the feedstock for plastics. So we're all building plastics factory. Everyone wants to buy our natural gas. It's coming out of our ears. So we're building these very complicated transshipment systems which are unbelievably expensive. Those domed, the LNG terminals, LNG terminals, LNG tankers. Unbelievably expensive. And that technology waffles around so that the guy at the coffee shop is benefiting from the drilling activity and the cheap building that's going on. Not the cheap building, but the building based on cheap energy. I digress, of course, but I'm just making the point that fracking was amazing and accounts for a lot of the American success against the rest of the world. And we will keep doing that. But if you could take the fracking genius and transfer it to geothermal. Geothermal is just about digging holes laterally to capture more heat, send the heat up, steam, generate electricity and so on. Power. And it is unnatural. If we could do it. And now we're showing signs that we are transferring talent, trial and error, money, resources. We're also working on can you get the temperature down with which you can make useful energy? And maybe we'll do both of them. If you do that, we could wake up in 13 years to pick a random number and find that instead of 1% of the planet, you can dig in New Zealand or Iceland, where it's close to the surface. It's 13% because you can dig twice as deep and you have more skillful ways of catching it. And it's infinite. You never run out. Mankind will be long, long gone before you could show any rounding error of Loss of energy from the heat of the interior of the planet. So that's amazing. We have the skill set. We have a brilliant example. All we have to do is transfer it. Our foundation has quite a few investments in this area, not surprisingly, and people are beginning to fund it, beginning to perk up. It's interesting.

[C]

Are you impressed by any other technologies that you think our audience should read about or try to learn about?

[B]

You should keep your eye on fusion. There's plenty of jokes about fusion, but that's life. Things often happen very, very slowly and then quite rapidly.

[C]

Nuclear fusion.

[B]

Yeah, nuclear fusion.

[C]

That's a new energy source that we could harness.

[B]

Yeah. They have made progress beyond the imagining. Thousand times progress over 15 years in this particular part of the technology. 10,000 times, 400 times. It's just all over the place. They just miscalculated. When you go back and you think they thought it was around the corner, that isn't because we did badly. That was because they were idiots when they made. It was next to impossible in 1955. We shouldn't have even bothered. It looked so impossible. We have done so well. It is now more than possible. I think it's probable now. How long will it be before and will it be cheap enough? The other thing which is really bullish is solar and wind and storage, but particularly storage. Storage over 20 years is $0.05, $0.08 on the dollar. It's just come down much more. And there's a kind of a joke because one of the Energy Institute people who crank out energy numbers every year have underestimated the improvements in energy storage for something like 17 consecutive years.

[C]

Wow.

[B]

And you think, why don't they change their model? That's what we used to do in quantity. And it's going to keep going. I mean, we will have energy 10 cents on the dollar from today. I guarantee. It may take 20 years, it may take 12 years, but in the end it will be there. And it may take 35 years, but we will have incredibly cheap storage, even cheaper solar and wind. And the question will be, you might come up with fusion. And just the capital intensity will mean that other alternatives are cheaper, but there's backup, there's layers of energy. And energy is one of the. If you wanted to survive as a species in a world where we're living beyond our means, what you need is fewer people. What a coincidence. And infinite cheap green energy.

[C]

And frankly, sounds like we're getting both.

[B]

We might get both. And the real experts in the rise and fall of empires have missed those two points. They're really good. I agree with them on everything, more or less, except I think they've missed cheap green energy combined with fewer people. If you only have cheap green energy and you power ahead, growing like a weed in population, you just still run off the cliff. You run out of everything. You poison all your water, you run out of resources, you crowd the world until people don't realize compound math is not one of our skills. We drive around the Arc de Triomphe with unbelievable skill. We do compound growth like idiots. And I was giving a talk at the supercomputing center at nyu and I got to the part where I wanted the PhDs in computer studies and math to make an estimate. I said, okay, ancient Egyptians, 3,000 years, 4.5% a year is the growth rate we've had the last three years. When I gave the talk 050607 was 4.5% a year globally, the peak of Chinese explosive growth. Imagine keeping that up for 3,000 years, which is the length of the Egyptian empire. Same language, same pharaohs, same religion. And what would it be if you started with a cubic meter of physical possessions and you increased them 4 1/2% for 3,000 years? For 3,000 years. How much do you have? And I'm not going on. There was this embarrassing silence, and finally someone says, oh, it's a lot. You know, it'll be several miles deep around the Earth. Several miles deep. That's a lot. And then another voice says, oh, Fred, it's going to be much more than that, perhaps from here to the moon. And that is a lot, lot. And so I'm able to say, how many times do you get a room full of PhDs and they can't come up with one billionth of the right answer? It is more than a billion times that. It is billions of solar systems full with our crap at a lousy 3,000 years of four and a half percent compounded. And if you don't believe me, you can now check it on your phone. You could, not that year, but you can now pull out your iPhone and dial in. And it will tell you instead of error, it will tell you that what I say is correct.

[C]

Jeremy Grantham, ladies and gentlemen. Did you have as much fun this time as we did?

[B]

Is that all we got?

[A]

He's just getting warmed up.

[C]

I got all the time in the world for you. I just think that I just find you to be such a remarkable thinker and speaker and we just. We appreciate it so much. So we want. We want to be Respectful of your time. But I love that we can have a sort of uplifting answer like how we get out of this. And those are two really good answers.

[A]

He's not done yet.

[B]

I do want to say that I. I think that the first go round here was the most fun I had. Right. So that's something.

[C]

Okay.

[B]

And secondly, you are talking to the only person who reads the comments on these days.

[C]

Oh yeah, I'm a big mistake blanking.

[B]

Expert at comment reading.

[C]

Steve, you got to talk him out.

[B]

Of it because the comments reveal the flavor of your audience.

[C]

Okay.

[B]

And you have no reason to know this, but you have the best audience out there.

[C]

Oh, wow.

[B]

You're going to sucking up to them because I have no career risk. I don't give a shit. Sorry what you think about me. I'm just giving you the facts. The comments are your audience is really interested in the stock market, really interested in giving someone a decent hearing and thinking about what they say. And a lot of audiences are just kind of pro forma, simple, you know, one liners that you've heard 800 times, 8,000 times. It can be very disappointing. And you can't tell. It sounds pretty dignified. You'd imagine they'd have a good audience and they have all these morons.

[C]

Yeah.

[B]

And whereas your guys. I thought they'd all be. No, I'm just kidding.

[C]

Right. Never judge a book by. Never judge a book by its cover.

[A]

What a nice way to end.

[C]

Thank you. Our audience will absolutely love hearing that, as do we. So thank you so much for saying that, Jeremy. We appreciate it. I want to tell people where they can buy the book. So Amazon, Barnes and Noble, go to the monopoly, the usual places, airports, gift shops, et cetera. Right. This is everywhere. We're good.

[B]

All right.

[C]

For those of you listening, not watching, it's called the Making of a Perma Bear. The Perils of Long Term Investing in a Short Term world. And it is written by the legendary Jeremy Grantham with the help of Edward Chancellor. And I highly recommend it. And I hope you buy at least one copy and if there's someone in your life that you think would enjoy it, buy two. Like what's, what's. What's the big deal? Right? What's the big deal? All right, guys, thanks again for listening. We appreciate it. Thanks for watching. We'll talk to you soon.

[B]

And it is fair to say that it reads rather like our kind of rambling session.

[C]

It sure does.

[A]

I really.

[C]

It sure does. Thank you, Jeremy. Thank you.

[B]

Oh, you.

[C]

You are the best thank you so much.

[B]

Thank you.