Odd Lots - Jeremy Grantham on How to Tell If a Bubble Is About to Burst

Episode Date: June 18, 2026

Jeremy Grantham, co-founder and long-term strategist of GMO, has a long history of calling bubbles. As he recounts in his new memoir, The Making of a Permabear: The Perils of Long-Term Investing in a Short-Term World, that includes spotting the dot-com bubble of the early 2000s, which some people see as analogous to the current excitement over AI. And when it comes to today's market, there are a lot of signs of frothiness you could point to. In this episode, we speak to Grantham about how he sees markets right now, including a watershed change for Big Tech stocks, the signs he watches out for to spot when a bubble might burst, and what really keeps him up at night. Only Bloomberg.com subscribers can get the Odd Lots newsletter in their inbox — plus unlimited access to the site and app. Sign up at bloomberg.com/subscriptions/oddlotsSee omnystudio.com/listener for privacy information.

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Bloomberg Audio Studios. Podcasts Radio News. Hello and welcome to another episode of the All Thoughts podcast. I'm Tracy Alloway. And I'm Joe Wisenthall. Joe, I have a headline for you. Go on. There's a good day for headlines.

You probably... We're recording this June 16th. You have a lot of headlines you could choose from. But one in particular, I'm sure you saw this already. Space X extends gain to 17% set to overtake Microsoft in Val. I had a feeling, I think at some point, did they also overtake Amazon? Yeah, I think 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 any number of superlatives. You know, at Bloomberg, we really like superlatives. It's like the largest gain since X or the biggest. Those are more stats than superlatives, right? 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.

It's the single biggest. The numbers get bigger over time. There are some big times for the market. A nice day for them. But the crazy thing about SpaceX 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 a hundred, something like that. You know, look, like, I don't even know where to begin. I mean, you've seen the argument that's being made is that there's a lot of arguments being made. But people are 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. But also, I think it's fair to say things feel a little bit speculative at the moment, right? You see 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? Yeah. I mean, look, the other thing is, look, these companies, and we're going to get these other big IPOs later in the year with Open AI 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. Right. So obviously one of the big talking points in market. Do you know they like I'm looking at the DES page for SpaceX. Do you know where it's headquartered? No, actually. Starbase Texas. Oh. So they appear so they have their own town in Texas that they got to name. But that is their corporate info on

the DES page, Starbase Texas. Well, that's definitely worth 2.7 trillion. Yeah. So all right, the big talking point in markets is obviously valuations. All of this AI frenzy is it a bubble. Is it a is it not? But even if you think that a lot of this is speculative, 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, the benchmark indices of big tech. But also, as we discussed recently with Torsten Slocke in his great presentation at our live show, the AI factor is basically embedded in pretty much every stock at this point in time. Look, I'm 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. He's like, look, I may be missing out, but these are great returns, et cetera. I'm not managing other people's money. You know, other people like, that's a thing. 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&P or whatever roughly. And that's fine. It's a great year. And if like, you know, I'm not all 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. Yeah, that's right. So this poses a bunch of interesting questions, obviously, 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? Yeah. How do you stay sane? That's right. How do you stay sane in a giant market bubble? And we do, in fact, have the perfect guess. Someone who has managed to do that over the years, more or less, 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 dot com, which is the parallel that everyone keeps using. So Jeremy, thank you so much for coming on odd lots. It's a pleasure. Thank you for having me.

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. Well, my simple advice is usually try and avoid the hype, check the numbers. And 100-time 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 slash joke its prospectus and compare it with the stories they tell about the South Sea bubble, you know, 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. The naming of your book, the making of a permabere, what is, like 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? I voted for quotes and the publisher doesn't like it.

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, et cetera. 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, permabero, unquote. 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 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. 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 having a customer, a client, who is under pressure to, at a minimum, meet their benchmark? With great difficulty. 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 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 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 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 price. 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 they're 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. 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 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? Wow. 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 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 were 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&P low-priced index, which regrettably was discontinued years ago, was down almost 40%.

The 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 done. And that, of course, is the name of that game. But he doesn't have to dance with Pumatech.

Pumatech was the most advanced spec 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 Puma Tech. 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-Cola's 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 bare market. 73, 74, whether you had small cap, large cap, quality, junk, everything went down 50%, and then when 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&P did not. The rest of the S&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&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 mean stocks peeled off. By the middle of the year,

Kathy Wood in her portfolio were going down. By the end of the year, they were off 35, 40 percent from their peak. And yet, during that same six months, the S&P powered ahead. It's really quite remarkable when they get the sign wrong. And unfortunately, that I had an adventure with quantum scape. 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 start

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 peek out. At over 130, it 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. Pride Months, Toronto.

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The Big Take podcast from Bloomberg News keeps you on top of the biggest stories of the day. My fellow Americans, this is Liberation Day. Stories that move markets. Chair Powell opened the door to this first interest rate cut. Impact politics, change businesses. This is a really stunning development for the AI world and how you think about your bottom line.

Listen to the big take from Bloomberg News every weekday afternoon on the IHeart radio app, Apple Podcasts, or wherever you get your podcasts. I'm glad you brought back 2021 because that was a weird year. Wild times. In a way that really was, see, I would argue that 2021 was actually much more wild than right now because of the proliferation of quantum escapes, 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 invidia 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 six years. We talk about, and everyone said, oh, Mark, 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. Well, obviously, if you're clairvoyant, it 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, 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 on 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.

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 20%. 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. 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 set it. And consequently, our model said it was worth nine times book, not seven times book, but it was selling it. 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,

and V-D-Intyre 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 jumpstart,

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 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 chess and saying, my 200 billion in investment in a single year is bigger than your 127, yeah, boo. 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's 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 and sell big. 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 dogfight 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 mark.

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, their idea-heavy capitalization. light, you look forward, let's hope their 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. 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. Yeah, totally. 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? 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 best. 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 percent. Check it. 92 percent. 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 superchamps. 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 bitter disappointment. In your book, you talk about how competitive you are 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 competitor? Or is like, how do you make the competitiveness instinct be a good thing? 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 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 a 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. 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. is a bubble. So how do you actually stand out from, I guess, the bubble calling crowd? 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 price. They're just kind of mathematical realities. And because you say that, 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 the 15th, 2008,

I wrote a quarterly letter, which actually said abandon ship, Sovkeeper, 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 was 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. What year was, sorry, which year was that? 2008, right? The emerging call? Oh, okay, got it. 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 the 15th to November the 15th, 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. Right? That meant now get your tail out, avoid the market. I'm happy to say S&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 bare market was rudely interrupted by chat GPT. And 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

CAP-X 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&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 that anymore 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 bare 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. Yeah, this is really striking. You know,

we recently, we had Torsten Slocke at one of our events talking about the 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 that was. we see this investment, this capital expenditure, this 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 a 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. Yeah. And I must say that 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 U.S. 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, 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 July 82. And the PE of the S&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 newsletter. 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 2009. 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&P, equivalent to 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 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 it slow. 666 on the S&P 500, less than one-tenth of where it is today. My God, this has been a bull market. Thank you for reminding two podcasters that it only counts if you wrote it. No, it's good. But to be fair, we do write some stuff. So there is that.

Can I just go talking. I sympathize with you. 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 focused on short-term gains rather than longer returns.

And at the same time, you've had a lot of retail money flow into the market, courtesy of new platforms, Robin Hood. And whenever I think about Robin Hood, I think about clicking buttons. And remember, they used to have the animation that would like celebrate if you place to trade. 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. 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.

Right, that's what I mean, yes. The price rises rapidly and they like it. and the value is irrelevant. You know, this is what happened in the South Sea bubble, and it's what happened in tulips, and it's 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 very much, 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 a 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 U.S. was. Scotland and so on had been doing this foreign investing for a long, long time, but not, it was not fashionable in the U.S. 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&P because all their competitors were still in the S&P. And the novelty there was betting international against the S&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 coincident, 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 getting it. What is the price you paid? I 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 won. Pride is like love. You feel it in your heart. I-R. Radio. Canada's number one streaming app for radio and podcasts, including IHart Pride Canada, your favorite hits and must-have party bangers,

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You know, 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, dangerous 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? 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 hot shots 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 even 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 this 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 of 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. They will run through energy. Like we have no idea. 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 Jeffrey 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. You know, humans have been the survival of the fittest. Grab what you can, why 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, i.e. they're out of it. a business in a single lifetime unless it changes. And it has been changing, but it's been changing steadily for the worst. Sixty-five percent 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. Exciting slash terrifying. Also, if we need five planets, I think he just made the ballcase for SpaceX. I was just going to make the same joke. Oh, my God. I shouldn't have let you go first. There's another way to resolve that, though, and that is to have a billion people and not eight or ten or twelve.

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, a hundred good reasons, we've 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 seven babies per mother to four. 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. All right, we're going to have to leave it there. But Jeremy Grantham, thank you so much for coming on all thoughts. Well, thank you for allowing me at least two minutes to talk about serious stuff. Of course, something other than PE ratios. Yeah, anytime, and you're always welcome back.

Thank you so much for coming on the podcast. Thank you. Joe, I love talking about historical bubbles. Yeah, me too. And I guess I should like shout out some of our really old episodes at this point on very esoteric bubbles. Yeah. The Florida land bubble. They're always fun.

The catfish bubble. I did think the point about the change in the mag seven stocks. Yeah. This sort of watershed moment, this idea of a cage fight 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. 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, both spending enormous amounts of money on capital expenditures and so where, 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 stopping 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? How do I prep my portfolio for robot? extinction. Very important questions. Like is Kevin Warsh going to cut at his first interest rate? Like that will not very likely be a particularly important question or moment 10 years from now. Like that's probably not what's anything will hinge on that in the grand scheme of things. 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 realized I just naturally went from talking about the extinction of humanity back to big tech valuation. So, yeah, I apologize for that. 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 chat GPT and GLP1s and UVs, et cetera. And Germany was making that point. Like history was a little bit boring. You know, the 1950s like, oh, Coke opened the 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.

I'm tired, Joe. I'm tired. I'm tired. But it's good for the news business. It's not so good for our producers. All right. On that note, shall we leave it there? Let's leave it there.

All right. This has been another episode of the All Thoughts podcast. I'm Tracy Allaway. You can follow me at Tracy Allaway. And I'm Joe Wisenthall. You can follow me at the stalwart. You can follow our producers, our tireless producers, Carmen Rodriguez, at Carmen Armand Dash.

You'll be at Dashbot, Kail Brooks and Kail Brooks, and Kevin Lazzano at Kevin Lloyd-Lazano. And for more oddlaws content, go to Bloomberg.com slash oddlaws for the daily newsletter in all of our episodes. And you can chat about all of these topics 24-7 in our Discord. discord.g.g. slash oddlots. And if you enjoy oddlots, if you like it when we talk about P.E. 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,

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This is a really stunning development for the AI world and how you think about your bottom line. Listen to the big take from Bloomberg News every weekday afternoon on the IHeart Radio app, Apple Podcasts, or wherever you get your podcasts. Thank you.