The Compound and Friends - Jeremy Grantham, Bubble Historian

Episode Date: September 22, 2023

On episode 110 of The Compound and Friends, Michael Batnick and Downtown Josh Brown are joined by Jeremy Grantham to discuss: being the "Bubble Historian", Inflation, Modern Valuations, the Four most Dangerous Words, Real Estate, Impact Investing, and much more! Including a few extra words of wisdom. Thanks to Public for sponsoring this episode! Go to https://www.public.com/compound to lock in a historic 5.5% yield on your cash. Check out the latest in financial blogger fashion at The Compound shop: https://www.idontshop.com Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Josh Brown are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. Wealthcast Media, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. For additional advertisement disclaimers see here https://ritholtzwealth.com/advertising-disclaimers. Investments in securities involve the risk of loss. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. The information provided on this website (including any information that may be accessed through this website) is not directed at any investor or category of investors and is provided solely as general information. Obviously nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. See our disclosures here: https://ritholtzwealth.com/podcast-youtube-disclosures/ Learn more about your ad choices. Visit megaphone.fm/adchoices

Jeremy, somebody published a list of your favorite books, but then when I looked at the site, it didn't appear that you actually contributed these. They pulled this list from your interviews that you've given over the years. So let's ask Jeremy, do you think you know your favorite books? So you might not even know

that these are your favorite books. I'll tell you what they are. The Wizard and the Prophet by Charles Mann. Dirt, The Erosion of Civilizations. Yes, we'll check that one. Okay. Immoderate Greatness, Why Civilizations Fail. Three checks.

Okay, any light reading or? That is my light reading. Okay. The End of Normal, The Great Crisis and the Future of Growth by Galbraith. Yeah, good. Okay, so is that a realistic list? Is there anything missing that pops to mind? Oh, yeah.

There's tons missing. I'm sure tons. Jeremy, I feel like there's an angel and devil on your shoulder. Say more. Because you're very optimistic with your long-term thinking. Yeah. Right? The way that you allocate the foundation's money.

But don't ask you about the next six months. We're going to ask you about the next six months. We're going to ask you about the next six months for sure. Next six years. We'll ask you about the next six years for sure. Although I feel like I have a little bit of Jeremy Grantham in me. I'm always scared about the short term. Optimistic, but I'm always scared.

Yeah. If we want to start with optimism. We'll have a much better start, I promise. We're going to have a better start once the crew tells us that we're ready to go. Yeah. Jeremy, how did you meet your partners? How did I meet Mayo and Van Otterly?

Yeah. I met them at a group called Keystone Funds in 1968. They were approximately as big as Fidelity. Fidelity had $1.9 billion under management. Wow. Wow, that's it? And Keystone had $1.7 or $1.8. Oh, wow.

And Fidelity turned me down, and Keystone offered me a job. Is that right? What year is that? That was 1968. And Van Otterlo wasstone offered me a job. Is that right? What year is that? That was 1968. And Van Otterlo was already there for a year and within three months, Mayo arrived. What happened to Keystone?

What happens to everybody? Die of old age. Okay. So that's where, for people that are listening that aren't familiar with GMO, that's where the GMO comes from. Yeah.

Okay. We're actually going to start off and ask you about GMO. We've got a pretty broad listenership, but not all of them are familiar with the company itself. So we definitely want to get into that. And there was a firm in between Keystone and GMO. Okay. Battery March Financial Management, which was very hot for a little window of time. What was their special?

What made them hot? Two things. AI. The boss man, Dean LeBaron, was a very good propagandist. Okay. And secondly, I had the idea of indexing. And so we were one of the two firms, along with Wells Fargo, that introduced indexing in 1971. I'm so mad at myself.

As soon as you said battery, I remember that you guys were of the index fund that I didn't put in our doc. But unbelievable. Yes. It's a rather interesting origin story because we went to a Harvard Business School course for financial officers who were running medium-sized college endowment funds. It was an Easter course when the students were away. And there must have been maybe 60 of them. We were in this big amphitheater and Dean LeBaron and I, we were two original partners, were sitting on the back row. And the case was, if you're an endowment manager, how do you pick managers? And the authority who owned the business was Morgan Guarantee Trust, J.P. Morgan. Yeah.

They and the other New York banks owned the pension fund business and the endowment business, everything. Secondly was T. Rowe Price, who was the new boy on the block, believe it or not, introducing in the blue trunks growth. My God, whoever thought of that? They were the growth manager. And then this idiot little enterprise in Boston, Battery March, that was doing small cap value.

A small cap value was doubly not in the game because small cap didn't exist and value didn't exist. Neither of them were a legitimate category. And to add them together was double jeopardy. Right. And at the end of the class, they said, let me introduce the two of the founders of the little company on the back row. Have they got any points to make? And when it was my turn, it was, I was puzzled why none of them had suggested giving their money to the gentleman from Standard and Poor's. Because if you looked at the data

of the dopey bank, T. Rowe Price, little, hardly started battery marge, and the S&P, the S&P looked like a layup. Even back then. And something's never changed. It went down like a lead balloon. No one commented on it. On the way home, when I suggested we take it seriously, Dean LeBaron wasn't impressed. But circumstances encouraged us and within a year or so, we had offered it. Very slow to get business, but a couple of years after that, 1973, I think we got a Bell system. New England, Tell or something like that. And we were off and running. And then we divvied up the business with Wells Fargo. How soon after did you become aware of what Bogle was doing down in Pennsylvania?

It took a few years before he had a product in the market. Yeah. So we beat him by a few years. Unbelievable. That's unbelievable. I had not heard that. Let's get it started. Are we ready to go?

Okay. Time is money. Jeremy's time is very valuable. So you missed all my good stories, though. Oh, no. Oh, no. We're going to get some more. The Compound and Friends, episode 110.

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. Before we begin today's incredible, incredible show, let's talk about cash. U.S. treasury yields are currently hitting some of the highest levels in over two decades. However, buying U.S. treasuries directly from the government

is kind of a pain in the butt. I don't think their website hasn't been updated since the last time yields were this high. No, it's been like literally forever. Public.com makes it very easy to buy those sweet, delicious United States-backed government bonds. To earn a high yield on your cash,

go to public.com. It like literally takes under a minute. When you, go to public.com. It literally takes under a minute. When you sign up at public.com, you can easily purchase 26-week treasury bills that automatically roll over at maturity for a compounding yield. To learn more about how to get this 5.5% yield on your cash, go to public.com slash compound. That's public.com slash compound. slash compound. That's public.com slash compound. All right. Hey, big show for us. We have a legend in the room. I am so excited. I've been excited about this for weeks. Someone who Michael and I both look up to. I think most people in the investment industry look up to. I don't mean to make you blush. This is all from the heart. But someone who everyone, regardless of their investment

discipline, has nothing but respect and admiration for, Mr. Jeremy Grantham in the house. Jeremy, welcome to the show. Thank you so much for joining us. We appreciate it. Howdy. All right. You see the crowd is going wild already. Thank you, crowd. Jeremy is a co-founder and investment strategist at GMO, a long-term valuation-based multi-strategy investment management and research firm with over $60 billion in assets. Jeremy helped found the company in 1977 after starting his career as an economist with Royal Dutch Shell. Jeremy, welcome to the show.

So, you told us about the history of GMO. What is GMO today and what is your role at the firm? GMO is a mainly institutional money manager trying hard to get into private wealth and so on, like everybody else on the planet. Sure. And my role for the last 15 years has been fairly hands-off in terms of any management. Smart. I was, yeah, I was 70 years old. I figured it was time to let them screw up. And I kind of self-appointed myself in charge of long-term underrated problems. Okay. And that was a great decision because we have been cursed with really interesting, important long-term problems.

Yes. Which I think collectively threaten the long-term well-being of society in general. So you want to start this on an up note? That is the up note. Oh, boy. That's the good news. So we're going to go there later in the interview. But I wanted to talk about quality because this is something that GMO has always emphasized, but GMO has actually filed for its first ETF,

the GMO US Quality ETF, QLTY. Why is quality important? As somebody who's been a professional investor for pretty much your entire life, what is it about that particular factor that's compelling enough for it to be a standalone factor from which to build something like an ETF?

Quality has a claim on being the most mispriced characteristic in the marketplace. In the old days, we used to be interested in price to book and small cap. Remember small cap effect, price to book effect. But the academics got something right. They are risk factors. Price to book is the market's definition of who's got the most suspicious assets in the business. And small cap are more likely to go out of business, of course, than large cap. So when you buy them, you take on some risk and you expect a higher return. Quality, on the other hand, they have less debt. They are less vulnerable to a

financial crisis. They are solid enterprises with long histories. They are less vulnerable to an economic problem. A AAA bond, everyone knows and expects it will yield one point less than, say, a B, right? That's the law of nature. Because you're taking less risk. You take less risk, they go bankrupt less, they return less than all of your money less often, and of course, you expect to get a smaller coupon. The AAA stock, however, has a long history of returning half a percent more than the market. And it shouldn't be that way.

Of course, it's ridiculous. It's the only free good. It completely clashes with the early versions of the efficient market hypothesis. It says, by taking less risk of all kinds, less volatility, less any kind of risk, less beta, less bankruptcy risk, you still get an extra half point a year, whether it's 100 years. Last 10 years has been a little bit better than that. Last year has been considerably better than that. So it is very much a candidate for the only free lunch in the investment business. It has, therefore, since we, I am proud to say we realized this 45 years ago when we started.

You should have done the ETF then. We should indeed have done the ETF when they first came out. Major league error. So this is the question now on everyone who's listening to this or watching this. This is the question on everyone's mind. Can you define quality from an equity standpoint? High stable return with low debt. If you meet that category. Stable return on equity? Well, return on sales, return on equity. Okay. Any definition and a good balance sheet. These stocks have outperformed because they're underpriced

because they're boring. They're not exciting. They're boring. They're just staples. Is it heavy staples generally? Yeah, yeah. When you're excited, you want to buy Tesla.

Right. Not Procter & Gamble. Not Procter & Gamble, precisely. And because Procter & Gamble has brand, because they can price the way they want to, the very definition of a brand, in the long run, they do better. What happens when quality gets expensive?

Because you all are very sensitive. And it did get expensive. It sure did. Once in history. At the beginning of your career, the Nifty 50 era. In the Nifty 50, they went to a 50% premium on a very good dividend discount model that we had at the time. 50% premium. Looks like that. It went up smoothly, three years up,

three years down. And the three years down buried the competition because all the big banks were in the nifty 50 and our little firm was in small cap value. So we were the yin to their yang. So in those days, Johnson & Johnson, Procter & Gamble, Coca-Cola, Eastman, Kodak, the thinking was, it almost doesn't matter what valuation you pay for those companies because they are the nifty 50. They called them one decision stock. That's right. Buy or buy more. You never have to sell them. Because in 69, a lot of the companies that got killed were the junky, exciting growth stocks. And then asset managers, correct me if I'm wrong,

you were there, I wasn't, said, we're not going to make that mistake again. Now we're just going to buy stocks, IBM, McDonald's, that we know are good and price is relevant. That was the storyline. Not our storyline, but it was their storyline. And if you look at the data, what you find is there was an abnormal lack of failures

in the 15 years running up to 1968, 72. Hence the lack of fear in paying the premium. Hence the lack of fear. If you then look at the next 15 years, you find Avon, whoops, Xerox, whoops, Eastman Kodak, whoops, IBM half whoops, and so on. And that's, when you've only got 50, that's already quite a lot to go out of business. Three of them went out of business.

And two or three took a good kick. Jeremy, you were there at the time. Do you think comparisons that people are making today versus the 1970s, because it's the only really other high inflationary period that we've had in a lot of people's lifetimes. Is that lazy or is there something to that? There's something to it in the sense that it's the only inflation period we have. But are there more similarities or more differences in your estimation? I think history will say that the 21st century is unusual, abnormal, aberrant even. The window from 2000 until now has been abnormally high profit margins, abnormally high PEs, abnormally low interest rates, etc.

et cetera. 40 years of lower and lower interest rates push asset prices up, particularly housing, through the mortgage mechanism. How can it not? If you can afford to pay more for your house because the mortgage rates are 3%, sooner or later you pay more for it. And so the competition bids the price up to fill the available affordability. Now, the mortgages are seven. The same will happen in reverse. It doesn't happen overnight. Everyone in the market wants everything to happen yesterday. But with interest rates and mortgages, it can take a long time to percolate through. But you can be absolutely certain that it will. So I want to go back to, before we get into what's going on these days, I want to go back to the quality thing. So then if this is something that now

is becoming more appreciated, owning quality companies actually doesn't mean accepting lower returns. How do you build a portfolio that doesn't end up owning a lot of glamour stocks that have become really popular? And you know the ones that I'd be referring to. How do you build a quality portfolio that doesn't end up owning the most expensive, most overbought stocks? Yeah, you're going to think this is a cop-out because I don't run the quality portfolio. I can describe the early days when we built a dividend discount model ahead of the curve 45 years ago, in which quality played a unique role because of our view. It not only changed

the discount rate, but we also changed the rate at which returns regressed. If you had a high quality, you regressed very slowly. If you had a low quality, you regressed very fast. And that is a good idea. And what it gave rise to was what we learned to call the Microsoft effect. Microsoft was the sweet spot in our dividend discount model. And from the time it came in the portfolio all the way through the mid and late 90s, it was a value stock. We had two components in our quant products, a value stream and a momentum stream. And it was the most attractive decile of value because our model, unlike Price to Book and PE

and all that junk, said Microsoft has such amazing price control, a complete monopoly by definition, that it's worth many multiples of book. We ran it through our model, very low regression rate, and the answer came back, it's worth nine times book, it's only selling at six times book, whoopee, you buy it. And so we bought it all the way through.

And price to book was doing actually very badly in 95, 6, 7, 8. And our dividend discount model continued to do very well. It sounds like this thing that you figured out a long time ago, quantitatively, is something that qualitatively eventually became like a revelation to Warren Buffett. And if you think about his portfolio. He had this revelation before we started this game. Okay. He predates us. But he was doing cigar butt stuff. He was buying the lowest quality.

Oh, he gave that up though. And then Charlie said, no, no, no, no, no. Let's buy good companies. Let's buy great companies at a good price. It sounds like he got there too. It is. Absolutely. It's a very big component of his excess return, of his free lunch, if you will.

Right. Yes. And let me just say that GMO put a lot of resources into quality always. And we've been running a quality fund for a long time. It has a terrific record. But it isn't just pro forma. It's asking hard questions. What really is quality? Define it, not just in raw terms like I've described, but turn the screws, look at each

company individually, and think about what makes it vulnerable, what makes it defensive, what makes it tick. Why do you think the free lunches you say exist? Because shouldn't quality be bid up, if anything, if these are spectacular companies that are predictable, that are consistent? Maybe they're not bid up enough. Well, you're the guy who said it. They're boring. Yeah.

And in a bear market, people do like them. Sure. And they do perform very well. They outperform. In a bull market, who needs them in a bull market? So if you could have 90, I'm making this up, 90% upside capture,

75% downside, you're going to outperform over time. Yeah. If you could stick with it. That's right. And so you're going to find in the blow-off phase, like 2021,

2021, you know, it's not the Procter & Gamble's leading the charge. It's the Teslas and so on leading the charge. Right's the Tesla's and so on leading the charge. Right. It also seems that—

2020 would be an even better year for that. I was going to say it also seems like there's some permanence to these brands persist through generations. And so I don't know if it's quantitative, but if you just think about the companies themselves, maybe that's a little bit squishy. But if you say to somebody, what's a quality company, they don't necessarily know what the book value is or what the cash flows are, but they would probably say something like Pepsi or J&J, intuitively, just thinking quality. And part of why they say that is these are brands that have existed their whole lives.

That's right. But the fangs have very high average quality because they are, let's face it, monopolies. Modern monopolies. And they have great pricing control, obviously, and they have good profit margins. They aren't necessarily higher quality than Coca-Cola. But combined with growth, they're pretty damn high quality.

We're going to get into the facts for sure in the Magnificent Seven a little bit later on. Jeremy, I want to ask you, one of the things that GMO is very well known for is the seven-year asset class forecast. Where did that come from? is the seven-year asset class forecast. Where did that come from? It came from Ben Inker and I having the idea that we could do a seven-year forecast about 30 years ago. Right. What's the origin story there?

A dividend discount model that had been cranking out rather successfully back in the 80s and 90s. And if you've got an asset, flaunt it. Isn't that what they say? Yeah, sure. So we wanted to find a way of using it. And that was a good way. Okay.

I was re-listening to... And by the way, let me just add. Please. We are going to have a terrible record in an extended bull market. We're going to look like geniuses in an extended bear market. And if you go back to the last bear market, the bottom, say, March 2009, and you run our 10-year forecast, we look like we walk on water. We've got 12 asset classes. Everyone is in the right order except two that are switched.

That isn't bad. So number one is number one over 10 years, and number 12 is number 12. Now, if you do it at the top of a bull market, we look like the worst forecasters on the planet. That is the nature of the beast. So before we get there, let's clear up this notion that you have a reputation for being, I don't know if bears are pessimistic. You're a bubble historian. This is me personally, not GMO.

This is Jeremy Grantham personally. Yes. Do you like that appellation, the bubble historian? Yeah. Yeah. Bubble historian is terrific.

Permabear wants, I want to shoot people. Those are different. Those are different things. Absolutely. Those are different things. And you wrote an article very timely in 2009. In fact, I want to shoot people. Those are different. Those are different things. Absolutely. Those are different things. And you wrote an article very timely in 2009. In fact, it came out in March saying that stocks-

Came out on the day the market hit the low. There we go. Even more precise. You might've caused the low. No, no, no. Okay. So, but one of the ideas behind this, and again, I was-

You have to tell them what it said. It was called Reinvesting When Terrified. We're actually going to read the whole thing. So you've said that mean reversion is the bedrock idea behind, or one of the ideas behind these forecasted returns. Yes. And it has been, we have lived through a period of abnormal excess returns. And Josh and I have discussed this a lot over the years that the Magnificent Seven have broken traditional fundamental analysis.

In 2016, so seven years ago. These damn things just won't revert. Seven years ago, you had real forecast returns of U.S. large. I mean, basically, everything except for emerging market stocks were negative, real. And it's been an incredible run since then. And one of the very simple reasons, and your brilliant partner, James Monti wrote about this recently, the curious incident of the elevated profit margins where he gets into a lot of it is government debt or deficits, I should say, excuse me. But it's very simple. The biggest stocks in the world, these modern monopolies, just will not mean revert.

The profit margins are incredible. John, if you throw this chart up, I'm made of the Magnificent Seven. So it's Apple, Amazon, Google, Facebook, Microsoft, Nvidia, and Tesla. Since 2000, so for a decade, they've compounded- This is Magnificent Seven revenue

and then free Cashflow, both of which are just extraordinary given the size of these companies. So there's a few extra zeros. I did the math wrong, so I apologize. I'll clear it up. So these have compounded the top line at 16% per year for a decade.

Now, these are trillion-dollar companies. They should not be able to do this on Free Cashflow at 13%. In nowhere in history has there ever been a precedent for companies of this size with this margins and this efficiency and defining categories that didn't exist five years ago, and they just won't quit. That's right. up, what it shows is that from 2010 until today, the US market in total goes up 70% better earnings than the rest of the developed world. It has never done that in history, and it probably will never do it again. But for 10 or 12 years, it had this amazing 70% excess performance. If you take out the FAANGs, the rest

of the American market did better, maybe by 10% or 15%. But that's the margin by which they've done it a few times in history. It was the magnificent seven or whatever we want to call them that turned that 15% outperformance into 70. I mean, Jesus, 70 is a big number for a 10 or 12-year outperformance of the rest of the world. I think a couple of elements are worth bringing up, and I'd love to hear, like, in the order of importance, if you think these were the things that, in hindsight, all of us collectively, we all should have thought more about. The first is relatively lax antitrust policy in the United States relative

to Europe, certainly, but just in absolute terms. We really were not trust busting in the 2000s. I would say extremely lax. Completely asleep. So you agree with that. The other one, though, is more interesting to me. These companies refuse to play in their own sandbox and be boxed in to a specific industry. They move horizontally. And a really great example of that would be Amazon. They were not content to merely be a retailer. They decided they wanted to go into internet infrastructure. They wanted to go into content and entertainment. Closeries. Cloud.

So we didn't have— Makes all that money. Right. So correct me if I'm wrong. If you think about even the Nifty Fifty names, Campbell's Soup didn't one day say, we're going to do aerospace. These guys have some of the most magnificent leadership in the history of capitalism. Yeah. Plus they had an almost infinitely favorable environment, such as no monopolies.

They're all monopolies that were allowed to monopolize. That's right. And they did it very, very well. But I have to tell you my favorite loser story, and that is I bought a Tesla in 2019. Okay. Red. Model S. And then I wrote in a quarterly letter, Red. Model S. And then I wrote in a quarterly letter,

what a terrific car. It was unlike anything my wife or I had ever come across. Okay. It was just, my wife hits 90 on the way to Boston most times. Hasn't been nicked yet. Right. It's amazing. But I said, but of course, as a stock,

different story, looks incredibly expensive. From that day, it's up 10 times. 10x from there. Right, 10x. Now, when I wrote that, it didn't have any earnings. Right. It didn't look like it might have any. In fact, it looked quite uncertain that it would exist in two years.

Yeah. Right, they had a cash crunch. They had a cash crunch. He was sleeping in the old... Yeah, he was sleeping in a tent building cars. Who knew that issuing stock would be bullish for the stock price? People couldn't get enough of it. So, if you say, how did it happen?

He was such a wonderful propagandist that he talked the stock up way ahead of any possibility. And then he sold lots of stock. Yes. Got a lot of asset. Talked the stock up again. Yes. Sold a lot of assets over and over again until he had generated out of thin air a massive amount of real buying power, which went straight into these mega factories. He manifested it. It was not only a magnificent management problem, given that you had the money, but it was almost miraculous management generating the money out of thin air, out of bullshit and charisma.

Now, if you can look at a company that's worth a dollar and somehow imagine that it can talk its way to being worth $10, good luck. Yeah, that's hard to find. And one or two people have done pretty well at that. But it was not our discipline of the time. We look back and there'd been 100 years of fairly disciplined mean reversion, and you could develop a style in which to make money. And our dividend discount model, by the way, was much, much more friendly towards these new companies like Microsoft than the old-fashioned value. And secondly, our quant products had a 40% stream of momentum, which said,

do not talk to me about value. I am only interested in how fast you're going up. The value portfolio was diehard value. The momentum portfolio was don't mention value, and they blended together extremely well. We were better hedged than we might have been. Why do you think margins have not mean reverted? Obviously, we're talking about some of the giants that contribute a large portion of earnings. They're all brand new ideas. What's that?

These guys, your magnificent seven, they're all dealing with brand new ideas that had never been tried before. Nothing like Google, right? Ever. Right. Completely transforming, revolutionizing, really, the acquisition of data in a hurry. I mean, they broke this chart.

This profit margins as a percent of GMP, just profit margins in general. That was a very mean reverting series. Yes. And they ruined a lot of these easy ratios. They also went global. They went global in a way that if you were just looking at them as US companies, Google's ability to spread across the globe, Apple's ability to sell more product in China than maybe anybody else in America.

The consumer packaged goods companies went global, but most other companies that you would have comped them to just did not have the ability to spread that way and be in 200 countries almost overnight. And I think that that's probably a component to it also. They just always found more places to grow, which I don't know if they can keep doing, but they've done it so far. Well, actually, you'll find that the Procter & Gamble's and the Colgate's of the world, they have been aggressive. And Coca-Cola's aggressively, you know, finding the smallest African country will have Coca-Cola and Colgate toothpaste if you look hard enough. Now, they've always been international. So that's not a big explainer then? I don't think it's a big explainer.

So an Apple is even pretty capital intensive. It's a kind of metal basher, isn't it? On which they had to superimpose style. Luxury. And luxury. And functionality. They just had to be one step ahead of the competition in the combination of style and functionality.

This is really desperately difficult and incredibly unusual. And the Tesla example that you, you know, the Tesla example is that everyone covering Tesla on Wall Street, they were the automotive analysts. But the stockholders are valuing it like it's a tech company. And that's a huge chasm. That's one. And then two, there was one other guy that willed a business into existence by talking.

And that was Ivar Kruger, the match king, which I'm sure you've read about. But in 2019, when you made the decision not to buy Tesla stock, he was the model of what Elon was doing. But Elon did it better and did it bigger. And made it stick. And with social media. So I'm friendly with Jim Chanos, who was one of the biggest critics of Tesla, one of the biggest people betting against it, let's say. And, you know, he would make the argument they're running out of cash, which betting against it, let's say. And he would make the argument

they're running out of cash, which of course was true. No one who was bearish on Tesla would have made the bet that the reaction in the share price when they sold 5 billion more shares was that it would double. But of course, for the bulls, they looked at, they said, oh, look, they did a secondary offering. See, he really can walk on water. And that would drive the stock price higher. And that must have been maddening for the people that, you know, were betting against it or even on the sideline. Yeah. If you go back three years.

Yeah. All you have to do, said the critics, is wait until VW and GM gear up and they're toast. Yeah. Because you're comparing people with decades and decades of grinding out vast volumes with these newbies. Yeah. Three years later, all you can hear is the sound of Tesla kicking their bottoms. Yeah. It is amazing.

So we just happen to have this collection of extraordinary companies that are so big that they drive the index. And maybe that's why a forecast was so difficult because you can't envision something like that. You cannot. And maybe the world will turn against them. And the mean reversion will be a slow burning, semi-political kind where a few countries will say,

it is not to our long-term advantage to have this degree of monopoly over this bigger chunk of our economy. That would be a danger I would worry about if I were them. Julian Klimochko tweeted, the total market capitalization of all NASDAQ-listed stocks

was $2.9 trillion in 2003. I don't know if that's adjusted for inflation, but it doesn't matter. 20 years later, that's approximately the market cap of Apple, to your point. You said the five most dangerous words are, this time is never different. Matter of fact, Franklin Templeton, I think, said, well, actually, I think maybe, I don't know, I'm paraphrasing. I think he said actually 20% of the time, it is different.

John Templeton. What did I say, Franklin? I'm sorry. Sir John Templeton. But he did say this time is different, the form is dangerous woods. He said that, and then he amended that later in life? But there was nuance there.

Okay. So here we are seven years later, and the forecasts, which I know are not explicitly coming from you, but are coming from the model that you certainly helped develop, are saying the same thing, and pretty much have been consistently for the last seven years, which is negative real returns. And of course, the last seven years have been magnificently positive.

What would have to happen in your estimation for the next seven years for it to transpire the way that the model suggests it will? If the world were to behave like it has behaved in every other major bubble, that's all it would take. Are we in a major bubble? Yeah, of course. If you look at a 10-year smoothed average P.E. and a Shiller P.E.,

you find that there's a pretty decent spike in 1929, a much higher spike than that in 2000, and a slightly lower spike than that now. This is approximately the third, approximately the second highest point, higher than 2029. And in each case, they back and fill and they go back to more average levels, even if you allow for a moderate increase in the normal shiller. Should these companies be compared with companies in the 30s? Don't they deserve a premium, given what we've just discussed?

Or even the 70s. Let me tell you. This is bait for Jeremy. This is Ben Inker and I, 30 years ago. He was my assistant at the time, a very good assistant. I've always enjoyed having smart people do the heavy lifting. And the project was, we know the market doesn't like inflation. Let's find other things that the market likes or doesn't like.

And let's explain on a coincident basis why the market sells high and low. I went on a trip, and when I came back, he tried 27 variables, etc., etc., and had a model with a very high correlation coefficient, and it's stayed that way ever since. It turns out the market is a coincident indicator of comfort. What makes the typical portfolio manager feel comfortable? Apple. And number one, it loves low inflation. It hates high inflation.

It likes 2% stable inflation. It does not like to see it bouncing around. It doesn't like to see it spike in the worst way. And it does not like to see it hanging around for multiple years. That's the most important one. Secondly, it loves high profit margins. What a surprise. Now, what's in third, way, way down in third place, is the stability of growth. The growth rate does not have a positive correlation with PE. The market is nervous about bursts of high growth.

It doesn't like plus nine, minus two. It's not sustainable. It would rather have plus three, plus three, plus three than plus nine, minus two, even though it averages higher. Stability, certainty. It likes certainty, stability. Quality. Quality economic growth.

Comfort. Comfort is the best description. Okay, so you look at this model, and it says 1929 should not have been a surprise. It had low inflation, high profit margins, wonderful profit margins, incidentally. And the growth rate was ticking along at a pretty high rate, and it was stable. So, heaven. The market called the Great Depression. Everything

was bad. It got the nifty-fifty right on the nose. It got the idea in the 70s that you'd be seven times earnings because terrible inflation, persistent terrible inflation. Low margins. Low margins. Wild economic variation. Wild economic growth. So 6.8 times earnings was the trough. And the model called for almost exactly that. You think we'll ever see that again? 6.8 times earnings?

I don't know, but let me just finish this first. So then it makes what you might call a major error for the first time in 2000. It says in 2000, wonderful profit margins, no inflation, you'll have the highest P.E. that you have ever seen. Not bad, directionally. Instead of 21 times in 1929, a new peak of 25 times would be. And it goes to 35 times. Yeah. And that was not explained by anything we could see in history or then. It just happened. You could argue that that is the only really crazy psychological event

up until then in American history. Okay. In the history of the American market. We got it 18 months later. It's back on trend. We got the setback. We got the housing bubble right. We got the wipeout right. And then it brings us to the second major deviation. Second major deviation starts in the second half of 21. Second half of 21, we have an inflation spike. Every time we've had an inflation spike in history, PEs have gone down, sometimes rapidly. This one was a strong inflation spike. Bloody PEs went up. Can I ask you a question

about that, though? Hang on for a second. He's rolling. Creating a major gap where the model goes down and the market goes up. And suddenly we've got a big gap. Then the market says, after all, I'm not sure I believe the Fed. And the beginning of 22 is the worst six months since 1939. But the model is still going down because PE is, inflation is hanging around. And the model declines. So fast forward, what does it say today? It doesn't like the pattern of stickiness in the inflation. It doesn't like the profit margins, which in real terms have been coming down quite steadily now for over a year. They're down over 15% adjusted for inflation.

And the model calls for 16.8, which in the long term is still pretty high. But the actual market is 29. 16.8 times earnings. Yes, on a shiller, on a smooth basis. And on a shiller, it's $29,000. This is a pretty handsome gap. And what this says is that is if the market responds to the same forces that it responded to over an entire 100-year period.

It's different this time. Well, wait a minute. I want to ask you about the inflation component. It wasn't different in 2007 in the housing bubble. It wasn't different in 2009. It's only been different for a couple of years since inflation spiked. Do we really feel the market is cool about inflation,

Do we really feel the market is cool about inflation, that it will not get a moment of second thoughts like it had at the beginning of 2022? Second thought meaning maybe this is not going to go away after all. Maybe this is not going to be as neat. Just back up a few weeks and we reach this kind of honeymoon period once again where everyone was confident we were going to have a soft landing. Now, 1929, 2000, 1974, the nifty 50, every one of these, we were going to have a soft landing. Trust me, check the data. Everything was going to work out fine. Always start soft.

It never does. But Jeremy, so you wrote in 2021, in January, waiting for the last dance. Yes, i.e. waiting. It hasn't started yet. But some of it has. So if we look ARK to be the poster child for some of the stocks that were wildly expensive,

since you wrote that post, ARK had a drawdown of over 80%. And so a lot of air out of the most expensive parts of the market did burst. IPOs, SPACs. If you want to look at the great bubbles and nothing but the great bubbles, what you find is the most interesting distinction is one that is unique to them and nothing else.

It never happens anywhere anywhere any other time. And that is the leadership of the market going up 70%, 80% in a year starts to go down as the blue chips continue up. Now, the ones going down have a beta of 1.5. They're meant to go up 50% more than the market. They can't even get the sign right. So in 1929, the S&P was kind enough to have a low-priced index, which was pure junk. Pure junk had been up 80% plus in 1928, and it's dropping all the way through 1929. The day before the crash, it's down almost 40%

before the crash. It is the great, I like to say, primal scream from the stock market ever up until then. Nothing like that happens again until 1972. In 1972, the S&P is up 17. The average big board stock is down 17. That's not bad. Yeah. I can't tell you the low-priced index because the rats discontinued it. Okay. Then nothing like that happens again until 2000. In 2000, we know what happened. They take out the growth stocks and they go down basically 50% before rallying.

And the rest of the S&P goes up. Yeah. So in September, on or around the 30th, the S&P is the same as it was at the peak in March of 2000. In the meantime, the growth stocks have gone down 50%. NASDAQ has gone down huge. So the rest of the S&P, X, the super growth stocks, has gone up about, we calculate, 13%, 14%, 15%.

So the same thing has happened. High beta stocks have gone down. Blue chips continue up. And that happened this time too. And it happened this time too. Only the fourth time in history where, going back to 2021, they take out my poor quantum scape,

the biggest speck of the entire cycle, which we can discuss. You had a private investment in that, and you couldn't believe the valuation. Let's come back to that. But in any case, starting with QuantumScape and quickly going through Cathie Wood's portfolio and on through the meme stocks and everything, there is an ugly year following my waiting for the last dance.

Because those peaked in January, February of 21, and the S&P made a new all-time high in January 22. And lasted right through the end of December. Right. But that is exactly what it did in the other three bubbles. In other words, if you're predicting a bubble, you should be saying,

and the characteristic of this decline will be this unique, odd event where the super leaders with the highest betas go down as the last gasp of the blue chips. Up they go. The blue chips follow, you're saying. Down they come, yeah. And then the bubble will break. And the bubble broke for a while. In fairness, though, Amazon got cut in half. Facebook went down 70%.

NVIDIA, 65%. So we did have some of the leaders. I guess what we're calling blue chips now also happen to be. Yeah, some of those. Yeah. Didn't Google get cut in half? Google got cut in half. Let me tell you, the biggest speck of the cycle is QuantumScape.

I invested in QuantumScape nine years ago. We were kind of lured into it by very good advisors who specialize in green investing. And I was so inspired by them that I wanted to make the biggest investment I'd ever made. It was so big, we decided we better not put it in the foundation because it looked imprudent. So it was the only thing that was in my name. Anyway, fast forward quite a few years, and it comes as a SPAC,

which is most unfortunate since I've then gone on record as saying they are so disgusting, they should be illegal. They are licenses to steal for the organizers who really, even to get involved in that, have to be marginally ethical, shall we say. And then a SPAC comes along and acquires your biggest private investment. Yeah. So then I find myself in the uncomfortable position that it's a SPAC comes along and acquires your biggest private investment. Yeah. So then I find myself in the uncomfortable position that it's a SPAC. Secondly, it's on the market.

Thirdly, it is having no trouble explaining that it's still four years away from having any sales. Yeah. It's experimental battery. It's a brilliant research lab that finds itself in the market as a SPAC four years before having a product. So what happens? It's 10, four times my investment. Yeah, better than a kick in the pants. Two months later, it's 131. At 131, it is bigger than the market cap of General Motors. It is bigger than Samsung, the battery manufacturer. It's like you were holding that worth at that point.

You were richer than Bill Gates. No, but that holding was worth $625 million. Oh, my God. Well, you were never getting out at that price. I wasn't allowed to get out for six months. That's right. And I was, cross my heart and hope to die, saying to my troops,

if I am right about what this market will turn out to be, VC will be a disaster. Yeah. And this is the kind of stock that will sell between $5 and $10 a share. 5.1 last December. Would it have been illegal for you to hedge that position? Down from 131. You can't sell it, but could you have bought options against it or something? No. You can't do that. And it's so unique that the usual way of trying to hedge would end in tears. It's amazing that the bubble historian ended up with a position that came to be emblematic of one of the biggest bubbles of all time. Investing is cruel. It is.

What a cruel irony. I know. Can we go back to the inflation thing, though? I got to tell you how it finishes, though. Okay. Six months later, it's 25. It's 25. Okay.

We sold practically all of it, 10 times our money, whoopee, worked out okay. Ramsey Ravenel, who runs our foundation, we had spent a few sexy hours spending the 500 million that slipped through our face. Hypothetically in your head.

Yeah. When Ben Inker went back and looked at all of the things that affect the markets positively and negatively and found that the market really hates inflation, was there any delineation between types of inflation? Because if this isn't 70s-style inflation, which I think was largely event-driven, I think you'd probably agree, events in the Middle East and so forth. You had an inflation after World War II where we had spent tons of money, and then the troops came home.

Everyone started a family at the same time. Everybody needed a house. Everybody needed a car. You had inflation in that period, but it had a happy ending for the stock market. I don't think we had a meaningful decline in the 50s. I think we just worked off that inflation. And that is like an alternate scenario, isn't it? Or is that too easy?

Put it this way. You dumb bastard. Yeah, I'm going to leave now. The model covers the 50s. Yeah. It found no exceptional behavior in the pricing of the market at all. The 50s were beautifully well-behaved. The 60s were very nicely behaved too.

I ask that question because wouldn't it be fair to say that a lot of the inflation, yes, money supply, but just the pandemic and how bizarre the economy became with shutdowns and supply chains. are the economy became with shutdowns and supply chains. And it's more reminiscent of a post-war, let's get our country back together than it is the kind of persistent inflation that we saw in the 70s. Or am I just making that up? I don't feel strongly, but I'm curious what you think. I think the temptation to manipulate these major variables is overwhelming, particularly done in the interest of saying the market can go up a lot. Yeah, I just want you to tell me to buy more stocks.

I have a long history of dealing with this tendency over a few decades. And I get it. It's nice to be optimistic. And given half a chance, the investment business, of course, has a commercial imperative. It absolutely has to be bullish. It doesn't make any sense to be anything else. It maximizes the return over the full cycle. And that's how they do it. Every time they're bullish. So you never expect a major investment house to be bearish. So we want to shatter this perma bear mythology. Let's go back to 2009.

What did you see? I mean, I know there was a huge mean reversion in valuations, but earnings collapsed too. But what did you see that caused you to make that very prescient call? And I don't think you were saying, like, throw everything you got at the stock market, but after having been bearish, the market then declines 50%, and you very presciently come out and say,

okay, you could buy some stuff now. What did you see? And tell us about that time, if you could. Basically, I say, I've been here, done that, terminal paralysis, we used to call it. Everything looks ugly. I know how you feel. You feel paralyzed.

It's not that you are deciding to do anything. You can't make decisions. And what you have to do is overcome that. You have to get a battle plan together. Even a half-baked one is a lot better than nothing. These are cheap prices. You haven't seen anything this cheap for 22 years. That's a long time.

It will more or less guarantee that you do pretty well for the next seven years on our data. We had double-digit on the S&P for seven years. This was a far cry from two years earlier. So put together a plan, take it to your committee if you're an institution, and start investing your money. And actually, however fast you invest it, you can't be too aggressive in those situations

because even if the market goes down another 25% in the next month, it doesn't matter. If you've been out of the market- You don't need the bottom. You don't need the bottom. We're already a hero. How do you maintain your hero ship is getting in with a lot.

So many people can make the sell call and not call the top, but just make the sell call. Very few can play both sides and then make the buy call. And a lot of that, my opinion, is because if you've become famous for making the sell call, it's like a famous musician. They go on stage and the crowd wants to hear the hits. Tell me something even more bearish. Yeah, no, maybe. But you made that turn in a very notable

way. You deserve a lot of credit for that. It's just the data. The data was obvious. We just did what was obvious. And just for the record, the first time we ever got any publicity was the summer of 1982, which is the only other low that matters. Yeah. That was the cycle low for 20 years. And the Wall Street letter, it was called, now defunct, but of course, I have a copy. And early July, it quotes me for the first time. And it says, we're close to an unprecedented rally in both the stock and the bond market, and we are 100% invested. And then it says 80% in equities, 20% in long-term 30-year bonds. So Jeremy, you deal with data as a professional money manager, but as somebody who ran a business, you deal with human beings.

What was it like in the late 90s when you had such conviction that it was a mania and half of your clients left? It was, I think the expression is blanking awful. You could say it, we're cool. You don't have to, but you can. Did they try and come back? No. By the way, these are not retail investors. These are quote-unquote professional institutional investors.

Institutions with solid, experienced professionals on the committee. But still human beings. And we had specialized products that lost money, didn't lose money. But the asset allocation group, which was half our business, we lost half our business, half of half, in a real hurry, two years and one quarter, much faster than I would have guessed. And we lost it in a very ugly way. The clients hated us. Some of them treated us as if we were trying to lose the money. And the reason is, there is nothing more irritating than, you know,

you're playing golf with your fellow pension fund guys and they're up 60%. And you're up 21. Who needs that? You know, that is pure pain. And people think you get sold, you get fired if you do badly in a bear market. That is nonsense. In a bear market, all the clients freeze and then eventually pick their way through the rubble.

You get fired in bull markets. If you lag a bull market, they are active. If you lag a bear market, they are paralyzed. Greed is more powerful than fear in terms of flows. Yes. Yeah, I can see that. Envy of the guys who are kicking their ass is a big, big driver. And we lost money so fast.

The appearance of you, quote, unquote, you don't get it. You don't understand AOL, Yahoo. That's right. You have lost your way. Right. That was the constant chat around town. GMO have lost their way. They're not with the new Kool-Aid order of business.

Yeah. And no one came back. As in, nobody. So we made the right bets for the right reason, and we won. And we made a ton of money on a relative basis on the round trip. But you get new investors in the wake of that. People that did get blown up. We got tons of investors.

And then they left in 2006. No, actually, that was fine because we nurtured them through that cycle. That was the one cycle we kind of got right. We started to explain it very early at the beginning of 07, like watching a slow motion train wreck. And we did pretty well because we had a huge position in emerging and we stayed right on till the last second. Yeah.

As in the last second. The only time we, in a sense, overstayed our welcome a little bit, but we got out a little past the peak, but it was a massive move and it kept us the only bull market we ever outperformed it. So that was fine, unlike 2000.

Jeremy, I remember reading this in Barron's, I don't exactly remember the year, maybe you do. And I gave you a standing applause when I read this. And I'm going to read your words soon. I'd love to get your take on this. I consider myself a bubble historian and one who is eager to see one form and break. I've often said that they are the only really important events in investing. I would agree with that. I have come to believe, however, very reluctantly, that we bubble historians have, together with much of the market, been a bit brainwashed by our exposure in the last 30 years to four of the perhaps six or eight great investment bubbles in U.S. history.

I'm sorry, in history. Japanese land and Japanese equities in 1989, U.S. tech in 2000, and more or less everything in U.S. history. I'm sorry, in history. Japanese land and Japanese equities in 1989, U.S. tech in 2000, and more or less everything in 2007. For bubble historians, and this is what I call the coup de grace. This is your quote. For bubble historians eager to see pins used on bubbles

and spoiled by the prevalence of bubbles in the last 30 years, it is tempting to see them too often. Say more. Well, I would just say, let me add one thing to that. And then, not too many years later, you did it again in Saving for the Last Dance.

Basically saying that we are, this is another one of those. This is the fourth epic bubble that you've seen. Yeah, well, in real life, what happened is that I argued for this time is different. The four, five most dangerous words, this time is never different. And I got into a lot of trouble from Jim Grant, who you know,

no doubt. He said I was, I had given up my religion, an apostate, right, to value. And so I wrote him a snotty nose letter and we compromised by he invited me to his conference at the end of 2017. And I took the side, this time is different, leading with basically, dudes, find me something that is not different. Profit margins are different. PEs are 60% higher than they used to be for 100 years. Interest rates are lower than we've ever seen. They've been going down for 35 years. When did that ever happen? Never. Basically, everything was different. What he said, I can't remember because it is different. And it was different. In late 2018, I wrote a paper saying, brace yourself for a probable near-term melt-up. I was thinking, you know, we haven't seen really

crazy behavior yet. And it was a head fake, but the really crazy behavior was only a little bit further up the road. Post-pandemic. Yeah. so I was deep into thinking, despite what I'm accused of, and you can see it in my quarterly letters, including in their titles, I was arguing it's different, it's more, it isn't a bubble yet. I debated the topic of we are in a bubble in 2016. I took the no, it's not a bubble, and the other side was, yes, it was a bubble. So I was not looking.

I was into this time is different. that took place in late 2020 finally had the characteristics that have been missing for the 10 years. The mania. This epic 10 years. Yeah, we got it. The mania came out. Yeah. As I have said many times, written many times,

bubbles, it's not just about price. If you get price and it's boring, that is not a peak. You need behavior. You need the psychology. You've got to see higher prices plus crazy behavior, which is unique that you have never seen anything quite that. And NFTs qualify? Absolutely.

Okay. Meme stocks qualify? Absolutely. Meme stocks qualify. QuantumScape is the biggest scale of any bubble in history. There was nothing that scale. Bigger than Japan? Oh, individual. Any individual stock.

Japan, real estate, is the mother and father of all bubbles. Much bigger than their stock market, which is the mother and father of all stock bubbles. bigger than their stock market, which is the mother and father of all stock bubbles. Their real estate was over 10 times downtown Manhattan. Crazy. And downtown Manhattan was very high-priced. Downtown Tokyo was over 10 times.

Now, that's the biggest bubble, I think, in history, including the South Sea bubble. The stock market in Japan went to 65 times stated earnings. There was some cross-ownership complexity, but it looked like an amazing, amazing bubble. So to put a bow on this, as a bubble historian who is eager to see them, are you guilty of being too eager to see one now?

I don't think so. I think everybody else is guilty of the usual crime of expecting a soft landing when it never comes, but it's always claimed. Believing the Fed, who has never gotten one of these bubbles right, regardless of the fact they have involved several different Feds. They helped create them. They don't see them. Underestimating the time that it takes for some of these things to work through, particularly real estate. And I'm sympathetic on that one

because real estate is a global bubble. It has driven house prices provably to multiples of family income all over the world. China, you know, Beijing, Shanghai. You tell me, 15 times, 20 times family income, Sydney, Adelaide, et cetera, Canada, the UK, London. There used to be multiples of three and a half times family income. London is now 10. Toronto is worse, et cetera, et cetera. No one can afford to buy a house now. No young kids coming out can buy a house. This is not a stable equilibrium. Furthermore, the mortgages have gone from three, which explains everything, to seven,

which explains nothing. And eventually, the seven will start to explain quite a bit but how long does it take i mean just think the first reflex is i can't move for god's sake i can't afford to go from three to seven so i am going to stay which means no houses are on the market which means for the handful of people who have to move they're actually in a bidding war. And prices stay up. Yeah. But so real estate has never been about three-month predictions. It works slowly but surely. In the end, you pay more because you could afford to. In the end, you will pay less because you can't afford to. House prices will come down in everywhere from Australia.

Mention that in Australia. It's World War III instantly. They are more optimistic than Americans. Oh, really? And everywhere from Australia, mention that in Australia, it's World War III instantly. They are more optimistic than Americans and they hate any idea that they're real estate. By how much? Because I agree, housing prices, it's an awful issue for people that are looking to get into a home.

Are they going to come down by 10%, down by 30% or? 30% would be a pretty good guess. Now, let me get onto a quick subdivision that everyone has forgotten. In the 70s, 80s, 90s, we always stated everything inflation adjusted. Nobody is stating anything inflation adjusted now. For example— What, earnings? Anything. Okay. I am short the Russell 2, right, in the foundation.

The foundation is 75% early-stage venture capital and 25% hedging it as best we can. Using the Russell as the hedge, you mean? Among other things. Yeah, okay. Credit default swaps in case this thing really becomes nasty, et cetera, et cetera, which we can discuss, but a lot of short Russell 2000.

What has Russell 2000 done? One year, it is down. Two years, it is down. Five years, it is down, adjusted for inflation. Nobody is adjusting for inflation. The S&P is 15% off its peak, at least, maybe 16% or 17%, because people are not adjusting for inflation. We've had quite reasonable inflation in the 20 months since the S&P peaked.

So they can say, oh, it's only down 5% or 6%. Yeah. BS, it is down. In real dollar terms, it's down more. And real dollars are the dollars that count. Jeremy, I know you're not running the show anymore at GMO, but I want to give credit to the people who are because I might disagree with the assumptions,

and I sure hope they're wrong. But you guys or those guys are not just talking the talk. They're walking the walk. If you look at the benchmark-free portfolio, which is billions of dollars in there, the United States is, you are very, or they are very underweight, the United States. They have twice as much exposure in emerging market stocks than they do in the United States. And it is very difficult to actually do what they say they do because they're reporting to

human beings, right? And so to be that different from the benchmark is admirable. Good. Let me point out that in the great cycle from 2002 to the housing bubble, emerging outperformed by 180 percentage points. It went up 2.8 times the S&P. The BRICS era, yeah.

These cycles can be huge. And then it's been hammered, like everybody else in the world. It's been hammered. The way to look at this event is the aberration is non-US equities. Every asset we're talking about has been driven up by 40 years of declining rates, as you should expect, led by housing. But farms and forests, which we have some interest in, they've all gone from yielding 6% to yielding 3%. They're all twice the price. Prices are all higher, right?

Fine arts, all gone through the roof. Everything has gone through the roof. The US market, through the roof. But non-US equities are curiously left behind. And I can't tell you why, because I'm not sure I have a reason for it. Every asset should be pushed up by low rates, and they all have been, except equities outside the US. Can I bounce an idea off you as to why that might be?

Sure. Just differences in laws and societal structure. We have 401ks here. We have automatic guaranteed buyers every month for US stocks. These differences have always existed. And until the other day, we used to track pretty damn well. It's only since 2010 that we've had this deviation caused by earnings. I get that. But why should they be? Forget the earnings. We'll spot the US, those extra earnings. I'm now talking about the multiplier of those extra earnings. The PEs are much higher times this wonderful earnings. It's double counting. Jack, we thought this chart.

So Jeremy, we're looking at this from Bank of America. So the Magnificent Seven are now 28% of the S&P 500. I did this silly thing in 2017 or so, where I said the FANG stocks were equal to the smallest 286 stocks in the S&P 500. Now that Magnificent Seven, granted there's another two companies in there, are equal to the bottom 386 companies. And they are a big part of the index. And so Bank of America did this thing showing that the equal weighted S&P 500 trades in line with the historical average, both on the forward PE and trailing PE.

The top seven, on the other hand, are in fact, the light blue line is what we're looking at, expensive. Which is exactly compatible with what I was trying to explain, that most of the difference is caused by that 70% earnings. Yeah, that's... Only 10% or so, 10, 12, 15 at max, is for the rest of the market in the US. They've done a little bit better.

But when you throw in these guys, they've done 70% better, which is unprecedented. And since we go in for double counting, it's those that have been multiplied by the higher P. So why wouldn't you be short those as the hedge? Why would you be short the Russell 2000, which is trailing both in valuation and in past performance, et cetera? What gives you the idea that you'd rather be short the smaller stocks? In a nutshell, if you short these kind of stocks,

you will have a short but exciting career. Right? Okay. Because sooner or later, one or two of them will go up six times and you are asked for six times the money you put up. Okay. And you are out of business.

That will not happen in the Russell 2000 as an index. That will not happen to the Russell 2000. They're also much closer in characteristics to your venture holdings than they also have the highest debt they've ever had in history. Almost no earnings. Most of the time, the Russell 2000 doesn't have earnings. When you push the PE, you'll get a not applicable. I believe you get it today. Enough of the components. Enough of them are negative. I think it's 60%. It's a lot. It's a lot.

But the point is, if you add them all up, including the negatives, collectively, they have no earnings most of the time, I think, including today. So they have lousy earnings and the highest debt they've ever had. They are zombies. If we have bad economic times, they will get croaked. If we have a financial crisis, they will get croaked. You don't know how these guys will do. They will go down a lot in the stock market, but the first excuse, some of them will bounce. You cannot go short these kind of stocks. Miracles. Shorting

miracles is dangerous. Do not go short, period, if you don't have to. Right. If you have a portfolio like I have, then you have to go short. You pick the safest thing to go short. You never go short individual names. And if you do, you never, ever go short that kind of individual name. John, the biggest companies in 1980, can you put this on screen? This is my last attempt to get you to say this time is different. And then I swear to God, I'm done.

I promise you. This time is different. Okay. It's completely different. It's always different. Okay. Thank you for that. These are the 10 biggest companies 40 years ago. This is 1980. These are the 10 largest companies publicly traded at IBM, AT&T, Exxon, Standard Oil, Shell Mobile, GM, Texaco, DuPont, Gulf Oil. And these market caps range from 128 billion. In today's dollars. In today's dollars. Down to 56 billion for Gulf.

John, the next one. These are the 10 biggest companies today. Apple, Microsoft, Saudi Aramco, Alphabet, Amazon, Nvidia, Tesla, Berkshire, Meta, Taiwan Semi. And obviously, we're talking about trillion-dollar markups. This is the question. It's Apple and Couchers. The top ones look like the price of rooms in Manhattan.

So this is the question. Just better companies because 40 years have elapsed and the managers of these businesses have learned where the managers of the 1980s giants went wrong. Let me, first of all, agree that, as I already have agreed, that the fangs are unusual, remarkable, and some of the candidates for best managed new enterprises, relatively new enterprises in history. Let me also add that every bull market, people always say, isn't it true that the composition of the S&P has changed? Yes, it always has.

And if you regrade it this way, doesn't it make it cheap? Yes. Every single bull market of my career, that argument has been offered. It is a very tempting, seductive argument. But can it also be true this time? Michael, that's enough. No. In the end, to go back to, you know, Hussman, he does very good data. Go back to Hussman's idea of a kind of Schiller PE. It's all part of one pie. And do you think it's totally unlikely that you'll

come back in 20 years and two or three of the Apple-type companies will have received, for unexpected reasons, some terrible shot in the gut. Sure. That some miserable countries, perhaps including the U.S., have moved against them in some way. Some technology shift has made one or two of them totally redundant almost overnight. Yeah. That's a high likelihood. It's not a low likelihood. A new way of getting data, a new way of shuffling this or that, a new iPhone technology at one quarter the price.

Who wouldn't like a wonderful flipping phone for $250? Right. You don't want to bet that that's improbable. To go back to the nifty 50. For 15 years, there were no casualties. The following 15 years, who would have guessed that Avon, Eastman, Kodak, Polaroid, and a couple of others were taken out and shot? The odds are a couple of these guys will be shot. The difference is these are not making, I know this sounds excuses, but these companies are not making Polaroids,

number one. Number two. They're making iPhones. Fine. What's the difference between an iPhone and a Polaroid? But they, Jeremy, they can't, these companies can't get big enough to compete because as soon as they do,

Apple buys them or one of these, or Google buys them. There is no competition because they kill them in their infancy. So maybe it's a regulatory change where they stop that activity. That's the answer to Jeremy's question. That is the answer to your question.

I think over the last couple of days. It's shameful, by the way, that they are allowed to rampage. I think they should have some leeway. But to the extent that they're buying up everything, if they are, that would be a shameful state of affairs. I haven't followed them closely enough to know that. Apple taking 30% of everything that passes through the App Store, I don't know, seems kind of egregious.

This is the thing, though. There's no consumers complaining. No one is forced to do it. That's right. So as a capitalist, on occasions, I have to agree, you get away with what you can get away with. If you want to stop it, you don't say, well, that's kind of nasty and aggressive.

You pass a law. If you want to have different behavior, you change the behavior. But that's the thing, to Josh's point, who's being hurt, the smaller companies are, what politician wants to go to Woolworth Apple? Well, no, Amazon's the better example. There is no consumer complaining to Congress, damn it, the goods are too cheap on

Amazon. It's the type of monopoly that favors consumers, and that's why it's had the runway it's had politically, my opinion. Yeah, no, that has something to do with it, which I consider that I have five issues that are my bailiwick. And one of them is inequality, which I consider the poison in the system. And low rates driving up assets only owned by rich people is in first place. place. But the bottom line is, was revealed in an exit poll when Trump was elected. And it was a huge exit poll, like 70,000 in the early stage and so on and so forth. And I got the printout, which is as long as this table. It had every conceivable category. It had American Hindus, you know, 275. And it had armies of questions. And everyone split on red-blue lines.

Okay, big deal. Surprise, surprise. Yeah, yeah. What else now? But one question, they all agreed, whether they were Hindus or Christians, Republicans or Democrats, rich or poor. And that was, this is the exact phrasing of the question, this country needs to be saved from the rich and poor. And that was, this is the exact phrasing of the question, this country needs

to be saved from the rich and powerful. Everyone. Including the rich and powerful. Including the rich and powerful. This country needs to be saved from the rich and powerful. And if you thought, oh my God, Hillary is going to be seen as the establishment, because she is, be seen as the establishment, because she is, you could imagine that she might lose. And because Trump would be seen as an outsider, someone maybe who could do battle on your behalf with the rich and powerful. That's not how it worked out. Tax reductions. No, but he campaigns brilliantly on that message.

Of course. Yes. But now we know he actually delivered tax reductions for the, but he campaigns brilliantly on that message. Of course. Yes. But now we know he actually delivered tax reductions for the rich and powerful. Yeah, amazing. Not a hint of closing down their power. They own the regulatory authorities, do they not? They own, in a way, Congress because of Citizens United. It is their absolute right of free speech to spend the stockholders' money without revealing how much they spend lobbying Congress. They can make a congressman an offer he can't refuse. We have five million here to point out that your opponent is a genius or an idiot.

Your call. How are you supposed – I mean that takes real ethics and character to go against that. You said that – I think you said this in the last week. You see a 70% recession risk in the next 18 months. I want to point out for the listeners, the conference board just put out its leading economic index, which has now fallen for a 17th straight month. Basically, we're going into a situation where we're expecting 1% GDP growth for next year, which might as well be zero. I would just say, whether or not we have a statistical recession,

things are shaping up to the point where it's going to feel like one. And just because of what the comps are to the way people have been living over the last couple of years, all that stimulus comes out, money supply shrinks. Do you feel strongly that recession is inevitable

in the next, or 70% likely in the next 18 months? I wouldn't use the word. Inevitable is a bad word. Inevitable. Okay. But there was a recent survey we listened to driving into Boston on public radio where they're asking people, how do you feel compared to last year? Every category, every category, rich, medium, poor, feel nervous and

less well off than they were last year, regardless of the data. Yeah. And some of the issues that came up were the ending of some of the one-off stimulus programs like no payment

of student debt. That's just ending. One after another. That's just ending. One after another. That's a pretty good indicator of impending trouble when people's confidence in the following year is so lousy. And it's unusual. Secondly, do you know what the record of the leading indicators is? It's dynamite.

The leading indicators is a wonderful indicator, and it has seldom been this bad. But it's taking so long. To your point, none of us have the patience. Of course. We have attention span problems. But the great bubbles, and they're the only ones I'm interested in, the four great bubbles, they can take a long time. The bear market in 2000 was a three-year bear market, and that was a gentle recession. No problems. The housing market was cheap. The bond market was cheap. It was as specific and localized as you could get. And we had a three-year bear market, And we had a three-year bear market, 72% decline in NASDAQ. Amazon went down 92% before rallying like mad.

This was pretty painful. You make a mistake, you have a Great Depression. You make a mistake, you have a recovery like the 70s. And even a recovery after the housing crash. It's not been our strongest decade. It's been a long bull market. Is the die cast? Economic recovery has been sub-average. Is there anything the central bankers,

given what they've already done, is there anything that they can do now or prospectively to really pull off this soft landing? Or is it just, it's a fait accompli and we should just get ready for it? The only thing I really know with certainty is since Greenspan, the Federal Reserve has got nothing important right. Every time it turns, it gets it wrong.

Every opinion it gives about a soft landing is wrong. And their battle plan has been wrong. Their battle plan was push up the market to help the economy. And they pushed up the market, and they pushed it, and they pushed it three different times, and it did help the economy. The trouble is, they always went down. And that comes in with a negative economic effect exactly when you don't need it. And they keep very quiet. They actually brag about the upside help to the economy. So they have it rise through the 90s and collapse in the early 2000s. Then they have it rise to the housing bubble and collapse with the housing bubble. And a financial world that is brought to the edge of destruction. It really was on its knees.

And then they push it up. And here we are once again, same high prices. Hussman would say about the same as 2000 and far higher than anything else. Better companies, just saying. Can we ask you this the last time? They're different companies. This is the last time. For sure. We want to make sure we get to because this is a big part of not just your investing activity,

but your life, is impact investing. And you're very outspoken about our poor stewardship of the environment. And you seem, Michael and I went back and listened to, you spoke with a friend of ours, Patrick O'Shaughnessy, a couple of years ago, and you were talking about the environment. So I want to draw this distinction between what you're doing, which is truly trying to impact the situation positively, versus what a lot of people started to do fashionably, which is truly trying to impact the situation positively versus what a lot of people started to do fashionably, which was ESG. So an article came out today.

All of the ESG funds that launched are now closing down. State Street, Columbia Threadneedle, Janus, Hartford, among others, have unwound 23 ESG funds so far this year, which is more closed ESG funds than the past three years combined. BlackRock just told regulators the other day they're going to close down two more of their own ESG funds. Can you draw the distinction between what you're doing versus an investing fad like ESG, or do you not see that much of a distinction? Are you positive on both, just recognizing that one of them has more power than the other maybe?

I think there are some very interesting ideas lurking in the ESG. And the main one is quality. That if you have good behavior, S and G, and good E, you're simply higher quality. Better company, probably. You're a slightly better company. Yeah.

And you're worth a little notch on the quality factor. And that is one of the things we do at GMO. And I have complete faith that that is a sensible thing to do. When I get on a platform with ESG, A, I'm very nervous, and B, I always start by saying, personally, I'm an E guy. S and G is about good behavior.

Who can say anything bad about good behavior? It's hard to make the case that that's bad. Right. I want companies to treat employers like shit. Yeah, it's hard to make the case that that would make for a better investment. So behave well, guys. That's good. E is about our survival.

If we don't get e right the society will start to crumble at the edges you could argue that it is beginning on a global basis to crumble at the edges have you seen interstellar i'm not sure it's about how this all goes very wrong yeah yeah and and it is going very wrong who would have guessed that we would have been looking at the headlines of the last two years forget the last two months which are even more amazing so the spread of the spread of disease the lack of our preparedness for something like that the extreme drought weather fires uh the forest fire i mean everyone is aware that these things are going on. And it is impacting the economy now for the first time.

It is driving insurance rates, not up, but tripling and quadrupling in certain areas. And that begins to have a real bite. It is the biggest issue that we've ever faced. It will dominate investment portfolios forever. Jeremy, you mentioned insurance costs. There was an article the other day about people backing out of Florida. What if these places become uninsurable? Well, they'll become underwater, so forget uninsurable.

Yeah, that's the least of their concerns. Are you in favor? There's a big debate right now whether or not the SEC should have the authority to demand that public companies file their environmental risk or the footprint that they have in creating climate change or whatever. This is a big debate. Where do you stand on that? Is that a burden that we should put on public companies that they should have to report these sorts of things to shareholders? put on public companies that they should have to report these sorts of things to shareholders? Yeah, in a long run battle between the well-being of ordinary people and irritating the hell out of the reporting offices of a corporation, I think that's an easy call. And a similar point would be,

And a similar point would be, do you go after the oil companies for creating this problem? My attitude is, hey, if you're a small fracker, you start a company, people want your product, eh, that's okay, that's capitalism. It's expecting a lot for you to forego an investment opportunity. What I'm interested in is what happened at ExxonMobil and the big guys, Chevron. And that is, back in the 50s and 60s, they talked about the problems that would come. In the 70s, their files are dripping with reports that this will be dangerous. They had an ocean-going research vessel in the early 70s in Exxon. And then,

under one of their CEOs, they sell the boat, they fire the scientists, and the money that they had been putting into making reports on the study of carbon dioxide go into funding climate denialist organizations with these interesting names that sound like they might be think tanks or even pro-climate change. They deliberately obfuscated the issue. They have possibly, quite possibly, cost us 10 or 15 years that quite possibly we will not be able to afford that it will come with a crippling incremental cost. They should pay. That is more treacherous and more painful than tobacco, who did the same. They misled us and tried to postpone the day when we would realize it was killing millions of people. Because this will not kill millions of people. It will perhaps jeopardize the entire economy and society as we know it.

These are not trivial issues. Are any of them better than any others? Is BP, quote unquote, better than its US counterparts because they are funding a lot of green energy projects? Or is that window dressing in your eyes? I suspect in the end, it will come down to what they actually said in their files. How aware were they? What they actually did?

Who did they fund? Yeah. I started out life working for Shell. I suspect that Shell and BP are less bad, but it may turn out otherwise. I suspect that some of the smaller enterprises are more or less without serious blame, just following their nose as ordinary capitalists. It's the denial and the funding that is a blame here, not selling a product that people want. Right.

And that's the thing that's done the damage. So I don't really know where to go from there, but I want to be respectful of your time. This has been, for me, one of the, I think, one of the most important conversations we've ever had and one of the most enjoyable. And I hope you feel the same.

I hope you had a good time with us. I did. Thank you so much for enlightening us and sharing all of this wealth of information that you have. We really appreciate it. I'm sorry I didn't have another hour to really frighten you.

Oh, man. We would have taken it if you had it. I want to leave the audience with, we do this thing at the end of every show where we share our favorite things that maybe the audience should know about do this thing at the end of every show where we share our favorite things that maybe the audience should know about. And most people talk about a book or a movie or a podcast they've listened to, or really anything that comes to mind. Is there any recommendation that you'd like to make to the investors, the financial advisors, the wealth managers,

the people who listen to this show that you think they'd be interested in learning more about? This is Climate Week in New York, and it's been madness one meeting after another, plenty of opportunity to think about important issues. And I found myself thinking, I'm 85 in a couple of weeks, thinking I'm 85 in a couple of weeks. And what a blessing to have an issue that really matters to fight on climate change. How amazing are the people who are drawn to America, a quarter of them foreigners,

to start up these green VC enterprises. The quality and their drive is impressive. These are not your ordinary capitalists. They seem at least equally driven, but they seem to really value that what they're doing is building something important. I hadn't expected that. They are just simply terrific people to be around.

And I would urge you, if you've got a decent amount of money and you're wondering what the hell to do with it, and you're wondering how to entertain yourself, get into green venture capital. Get into thinking about climate investing. Is there a website or a website for your foundation where people can learn more about what's out there? Where would you send people to? Granthamfoundation.org. Okay. And since I've said this on air,

I will race off and make sure we retool it and make it more interesting. Yes, absolutely. Jeremy, thank you so much for joining us. I have to tell you, this has been an absolute honor. We really appreciate it. And for the listeners and for the listeners and for the viewers

ladies and gentlemen Jeremy Grantham just an absolute legend thank you for everything you've done he's got the headphones off thank you for everything you've done for the profession of money management and thank you for all your inspiration

and your wisdom over the years we really appreciate it thank you for all your inspiration and your wisdom over the years. We really appreciate it. Thank you. Thank you. All right, so that was the warm-up. I just wanted you to get comfortable with the microphone. Because the real issue

is toxicity. You want to have a real issue. Worse than climate change, less appreciated, moving faster. Masculine toxicity? What are we talking about here? We're talking about the environment is so toxic that it's no longer conducive to life in almost any form in a healthy format.

This is what we heard you talking to Patrick about. Yeah. So insects, which may be very threatening to lose beyond a certain point, are down 50 to 75 percent in biomass. I mean, it's unbelievable. As far as we can tell, they're dropping about 2 percent a year, which anyone who knows anything about economics or compound math knows that 2 percent a year is simply not sustainable that is that's the end of insects what happens you're not you're not retooling the forest floor it's getting

full of crap because the dung beetles are not there etc you're not feeding the birds because that's what they eat what's killing the biomass of the insects? Is it pesticides or is it the heat? I'll tell you one thing. People who study this are not funded. They have no money. And they will tell you that these are some of the more complicated issues on the planet. The systems are so interrelated. The insects themselves are so interrelated.

And with all the other amphibians and birds, it's one hair-raisingly complex system. Are you optimistic that we can invent our way out of some of these problems? Yeah, that's a very interesting topic. We could have had a very good talk about that. We certainly could have. To get back to toxicity,

male sperm count in the developed world is down 60% since World War II. What does that mean? It means you have relatively a modest amount of reserves. Not me, but other people. Well, no, there's more fertility. There's more need for fertility clinics and such, you're saying, because we're just, Mother Nature is not. Well, the real killer here is, as I said to the New York Financial Analyst Society, who didn't bat an eyelid, and I said,

you know, you're obviously not interested. So a 50% decline then, 10 years ago, in 50 years has not got your attention. How about 100% decline in 100 years? Would that do it? Yeah. I mean, we're out of business. Our sperm count is dropping almost 2% a year also like insects.

As the guy who did the most important meta study said, it's as if we are going out of business. Yeah, as a species. As a species, for God's sake. How many more years at minus 2% does it take before we can't have any babies? Secondly, in addition to choice and postponement, there is more difficulty in having babies when you want one. So you choose to have one. It's now more difficult. The World Health guys finally come out in the last three months and they say one out of six young couples now need help what they did not say because

they're wimps is Thirty years ago. It was a rounding error There were a few technical problems But will always be there meaning one out of six is very high well one out of six is Overnight over 30 years from nothing to one out of six having a problem. They did not say that. What's the cause? Is it the shit that we eat, the stuff that's in the air? Now, we have to guess for the reasons I said.

There's no available research. Based on two very good tiny studies done by Harvard and Mass General, which is pretty cool, And mass general, which is pretty cool, it's the chemicals on fruit and vegetables that you eat whilst you're pregnant. Okay? These things are designed to kill insects, plants, and fungus. It would not seem that surprising, would it,

that they don't do you any good when you eat them. They're killers. I mean, yes, plastics are not good for you and they have nasty chemicals, but that's almost a coincidence, isn't it? You get some leeching out of a plastic bottle. Pesticide is deliberate. But pesticide is deliberate. It's a side.

It's trying to kill. And you're taking in quite a lot on the cover of your cherries and grapes. Is declining infant mortality rate, though, around the world an offset to the difficulties that we're having more and more having babies? It doesn't offset it at all? No, it's not. No. And some of the data in America is particularly shocking. The number of women who die in childbirth, the U.S. is twice, twice the next worst in the rich countries. That is not a small fraction, is it?

We lose twice as many mothers. What explains that? Poverty? Like just bad conditions? Bad conditions, bad hospital system, the worst health system in the developed world by far. Same thing that explains our COVID death rate being high. COVID death rate was, along with the Brits, the highest in the world. Yeah.

This is a bad news society, as is the UK from a health point of view. Anyway, back to business. The worst thing that no one will talk about is... Wait, that wasn't bad? There's something worse. Yeah, there's something that is worse, and that is the job on our hormones that is done by the toxicity.

Forget the sperm count. It is taking away our interest in procreation. In other words, if you look at the countries leading the charge, South Korea and Japan, it is clear that their societies are not interested. They are not like we were 40 years ago. They're not going out to bars and looking for mates. They're going home to play computer games

and the women are going out to see the movies together. 40% of their 40-year-olds have never had a child. Is that right? In South Korea? In South Korea, their fertility rate is 0.8, which means in 100 years, three generations, they are out of business. The baby cohort in 100 years is 6.5% of today's baby cohort.

There are no South Koreans. But then we went right out of oil, so that's good. Yes. Which brings me to the optimistic discussion we could have had but didn't have, and that is there are four or five what I call get-out-of-jail-free cards. Our old friend Malthus and the rest of the boys never thought for a second that we would volunteer to have fewer children yeah he said you'll have more and more until you hit the boundary of your

food and then you'll starve intermittently like every other animal what has happened is birth control is we are choosing yeah and postponing and inadvertently toxifying our way to much lower population. We got expensive. Of course, it's terribly expensive, but there are many other reasons as well. So you come back in 170 years, we may very well be down to a couple of billion people without a crisis where you overshoot and then everything blows up because you've run out of oil and lithium and so on. We may be down to two billion because we have chosen to go down to two billion and because we have chosen to have a toxic environment, which will take a long time to fix. The good news is we have 175 years to fix it because we should have two

billion people. At two billion people, we may be completely sustainable. So sometime between now and 200 years. So we've already overshot that by 2x. By 4x. What do you think we should? We're 8 billion. Okay. And we should be 2.

Okay. Secondly, we are very close to being able to produce food in industrial plants. Imitation meat. Vats of microbes producing from sunlight and oxygen, like a plant does, photosynthesizing and turning out a, as I was joking yesterday, a protein sludge raspberry flavored. Right. But cheap and in vast quantities.

In other words, it's quite likely that we can feed ourselves synthetically and that we would be able to rewild half of the farmland of the world and have the Amazons and so on, if we had the social discipline to limit meat-eating and sheep-eating, I'm sorry, cattle and sheep-eating, and so on. Next, and they can do that, by the way, already.

It's just a question of scaling. We are pretty close to being able to do the same with materials. In other words, like carbon fiber is stronger than et cetera, cement and steel. But to produce a material synthetically with well-trained microbes, which is kind of state of the art, and then you cross-laminated sludge and you build buildings with it and you eliminate the need for vast quantities of concrete and steel, which are huge CO2 producers.

And most important of all, a plentiful supply of cheap green energy, which is a done deal. Solar, wind, and storage. Storage will go down to 10 cents on the dollar in 10 or 20 years, and that will be enough. But backing it up, there's a pretty decent chance of fusion. There's a pretty decent chance of geothermal with some of the technology from fracking

and some new breakthroughs that enable you to go deeper and better and take the heat from, which is infinite in round numbers, and a naturally occurring hydrogen, which is a longer shot, but possible. Some of these will work, I suspect, and wind, solar, and storage, it's a done deal anyway, and they're much cheaper than fossil fuels which are in the early stages of running out anyway so this is all very timely so cheap green energy cheap food cheap materials and fewer people is actually a get out of jail free you you get to survive not because you deserve it because we're a bunch of nitwits, but because we lucked out.

Yeah. And we are inventors. So in spite of ourselves, we might still make it in the long run. We're totally unsuited for this. It's a big ask. We've spent hundreds of thousands of years being fine-tuned to grab what we can while we can. It's a big ask to say, hey, don't do that.

Just think about the long term. Jeremy, infertility bailing us out is like what happened with QuantumScape and the SPAC sort of inverse. Yes. Just one of those things. Unexpected win-fall game. And it would do it. Right. So the investment ramifications are different. A world where there is 4 billion people fewer to sell an iPhone to is not great for multiples. Right. Yeah. This is the point where David Rubenstein, two weeks ago.

It was pajamas. No, that was. Oh, that was Rosenberg. David Rosenberg. David Rubenstein says, what do you wake up sweating about? And I said, well, since you bring it up. David Rosenberg in his pajamas. I wake up smiling at that thought.

But I have this terrible feeling that when we sit here talking about bubbles and recessions and what do investors like and dislike. We're like Nero fiddling while Rome burns. We have issues here that are imminent, that are breaking, not for our great grandchildren, for our children, for you guys. It's already impacting the smooth working of a global system. It's fraying at the edges, in case you haven't noticed. And we're wasting our time on these trivial issues. Like who makes what money in the stock market? And I thought, well, if anything's going to get taken out of this one, that's it. But he left it. He left that one. Thank you so much, that was incredible. Really an honor. you