Speaker 1: Welcome to Maren Talks Money the After Show.
Speaker 2: This is where we comment on the guest interviews in
Speaker 2: our regular podcast, and when we say comment, we do
Speaker 2: mean comment, sometimes positively, sometimes negatively.
Speaker 1: Let's see where this one goes. I'm Maren Sunsetweb.
Speaker 2: This week, John Steppeck, Senior report at Bloomberg and author
Speaker 2: of the Daily Money Distilled newsletter, which if you haven't
Speaker 2: signed up to do so immediately, joins me to discuss
Speaker 2: my conversation with GMO co founder Jeremy Grandsam.
Speaker 1: Now, John, we have.
Speaker 2: Had a lot of feedback from this. Everyone loved it.
Speaker 2: Everyone loves it from Jeremy. He's very well known for
Speaker 2: his big market calls. And we talked about a lot
Speaker 2: of things in this pot of been through the whole market.
Speaker 2: We've been through you know, climate change, We've been through
Speaker 2: artificial intelligence.
Speaker 1: We've been through evaluations.
Speaker 2: We've been through lots on the US market, a little
Speaker 2: bit on other markets, etc.
Speaker 1: What did you think I mean?
Speaker 3: I need to start by saying I am actually a
Speaker 3: massive faning Jimmy Grant.
Speaker 2: She that's entirely true. There are some people on a
Speaker 2: massive fan of Germany. Granted, I don't know why these
Speaker 2: people would feel like that.
Speaker 3: Well, I mean, I've spent years reading these stuff and probably,
Speaker 3: I would say I probably he's the person that sticks
Speaker 3: more in my mind than pretty much any other.
Speaker 1: I just need to say something to listener. Is just
Speaker 1: about you and Jeremy. I'm okay.
Speaker 2: Confirmation bias, confirmation bias.
Speaker 3: I mean, I've never met him. It's not like more
Speaker 3: pals or anything like that.
Speaker 1: But what do you think he thinks what you think?
Speaker 2: Yeah?
Speaker 3: Absolutely, absolutely, well, yeah, mostly, which is also interesting. But no,
Speaker 3: I mean I thought it was interesting. It's mostly not
Speaker 3: anything particularly new, because obviously you know Ready's stuff, and
Speaker 3: we've spoken to him a lot, and I do have
Speaker 3: time for the people who think that he's overly berish,
Speaker 3: because he's often he was absolutely right whenever he called
Speaker 3: the turn in two thousand and nine, which he talked
Speaker 3: about in the podcast. But equally, you know, I think
Speaker 3: it's fair to say that gmo is as an asset
Speaker 3: manager has been negative to an extent that would have
Speaker 3: lost your money over the relative to what you could
Speaker 3: have done. Basically, if the default position is stick all
Speaker 3: your money in an S and P five hundred tracker,
Speaker 3: then following kind of their advice about what long term
Speaker 3: US returns were going to be, Like, you know, seven
Speaker 3: years ago, when it was basically saying they were very
Speaker 3: small and that the US was very expensive compared to
Speaker 3: other markets, you wouldn't have done as well as you
Speaker 3: could have if you'd just kept things very simple. And
Speaker 3: I think that's a reasonable criticism. So at the same time,
Speaker 3: I just think that he's an interesting guy to listen to.
Speaker 3: And if you want to hear the bear case articulated,
Speaker 3: then someone like Jeremy for example, articulates it far better
Speaker 3: die and see the eld Erubini. It's not access Rubini,
Speaker 3: but it's just that you know it's not. It's like
Speaker 3: Jeremies get very specific and clear either kind of mathematical
Speaker 3: almost kind of reasons and kind of logical reasons. And also,
Speaker 3: I mean, I tend to think there's probably just largely
Speaker 3: just early rather than wrong. Otherwise we know and market
Speaker 3: has been too early is not the.
Speaker 1: Same as being wrong, really, and I suppose.
Speaker 3: So you're very unbiased, you're biased.
Speaker 2: And of course he uses things like this shill appee,
Speaker 2: which we talked about in the podcast as evaluation method
Speaker 2: and we know that that works over the very very
Speaker 2: long term. But as a short term signal, it's pretty useless.
Speaker 2: Doesn't really tell us much about where markets are going
Speaker 2: to go, and ass we're looking at it over the
Speaker 2: really the super long term.
Speaker 4: The model that Ben Ncurr and I did twenty years ago,
Speaker 4: it's got a very high correlation explaining pe. It doesn't
Speaker 4: predict it. It just says, how do we get here?
Speaker 4: It turns out the market is really a coincident indicator
Speaker 4: of comfort. What does it take to make a portfolio
Speaker 4: manager comfortable in an institution? And the answer is, as
Speaker 4: you suggest, steady inflation around two percent. It hates inflationary
Speaker 4: spikes and very high profit margins. And the profit margins
Speaker 4: have been drifting down and more than people realize, and
Speaker 4: inflation has been bouncing around, but it's part of the
Speaker 4: scenery now. And the model says a shillopee should be
Speaker 4: about sixteen point eight, which is decently above average and
Speaker 4: doesn't sound ridiculously low. And that's because the profit margins.
Speaker 1: Are still decent.
Speaker 4: But what is it Well, a few weeks ago it
Speaker 4: was twenty nine thirty, so it was not responding in
Speaker 4: the normal way.
Speaker 1: I mean, I like it. By the way, I love
Speaker 1: the Shillopee.
Speaker 2: I always look at the Shillopee for all markets, but
Speaker 2: it doesn't do us much good.
Speaker 3: Okay, I'm I think, and you should because it's it's
Speaker 3: better than most, but that doesn't necessarily mean it's perfect.
Speaker 3: But yeah, But one thing I was going to say
Speaker 3: is that it's interesting if you look at what he
Speaker 3: says about VC Adventured Capital, he's effectively saying that he
Speaker 3: still believes in US exceptionalism. So it's really interesting that
Speaker 3: on the one hand, he's actually basically saying the US
Speaker 3: is a better economy and a better entrepreneurial environment than
Speaker 3: anywhere else in the world, which is hard to disagree with.
Speaker 3: But also he's simultaneously sort of saying that that's not
Speaker 3: enough to justify the massive premium that the US trades at.
Speaker 3: And while I think I kind of agree with that,
Speaker 3: on the other hand, there is a part of me
Speaker 3: that's sort of starting to think, actually, maybe the US
Speaker 3: is just better and it is just the place that's
Speaker 3: the most friendly home to money, and money does go
Speaker 3: where it's best treated, and perhaps the real story of
Speaker 3: the last fifteen years I'm not sure I agree with
Speaker 3: it is that actually America is the only place where
Speaker 3: I kind of risk capital is treated. The treatment of
Speaker 3: risk capital has been either the same or only a
Speaker 3: bit worse than it has been deteriorating in the rest
Speaker 3: of the world. I mean they have been you look
Speaker 3: at the UK investment environment, you know, in the last
Speaker 3: fifteen years, and I think it's fair to say that
Speaker 3: in terms of regulation and in terms of political approval
Speaker 3: has deteriorated. You know, people are anti capitalism in a
Speaker 3: way that they went kind of fifteen twenty years ago.
Speaker 3: So you know, I think that's an interesting almost contradiction there,
Speaker 3: and it certainly got me thinking.
Speaker 2: It is interesting because if you believe in American exceptionalism,
Speaker 2: and we did talk about bench capitalism quite a lot
Speaker 2: of we talked about the last time I entreated him
Speaker 2: as well, and he said that an awful lot of
Speaker 2: his foundations money in particular, is in venture capital one
Speaker 2: way or another for these very reasons, because of the
Speaker 2: US treats entrepreneurs in a completely different way to the
Speaker 2: rest of US.
Speaker 4: But in the long run, it is amazing the quality
Speaker 4: of the people the American VC industry attracts. It's getting
Speaker 4: the best and the brightest who used to go into
Speaker 4: consulting or Goldman SAG and now they go into VC
Speaker 4: and startups and they come from all over the world.
Speaker 4: At least a quarter of the bosses of all the
Speaker 4: VC companies we talked to were not born in America.
Speaker 4: And what an achievement for the US. We have the
Speaker 4: great research universities fifteen of the twenty and most of
Speaker 4: the rest are in the UK, but the fifteen great
Speaker 4: research universities are the bedrock for so many of these
Speaker 4: VC And you add that to a societal attitude to
Speaker 4: taking risk in the US is simply much better than Europe.
Speaker 2: But you know, a lot of money must have been
Speaker 2: lost there. But he still was extremely keen in this
Speaker 2: podcast to discuss that. And you might think, as you
Speaker 2: say that, if you believed that, then you'd also believe that,
Speaker 2: you know, the small number of stocks, the seven right
Speaker 2: stocks that have been leading with the US market higher
Speaker 2: and higher, deserve the valuation.
Speaker 3: Yeah, And I mean, to be fair, he did basically
Speaker 3: say that if you although you shouldn't invest in the
Speaker 3: US because it's too expensive, if you do have to
Speaker 3: invest in the US. As far as I could see,
Speaker 3: he was saying the magnificent seven are the ones to
Speaker 3: invest in, because he was.
Speaker 1: He was saying he was in quality.
Speaker 2: And if you look at the GMA work, it normally says,
Speaker 2: you know that in an environment like this, you should
Speaker 2: buy stuff that is high quality and cheap, although god
Speaker 2: knows what that is these days.
Speaker 3: Yeah, a cheap relative to war. I mean, I think
Speaker 3: the other interesting thing was, and this is anodd thing
Speaker 3: I've always found interesting about Grant them because one of
Speaker 3: the big things that all they talk about the kind
Speaker 3: of green energy stuff and one thing, and obviously he's
Speaker 3: very committed to climate change and you know, funds a
Speaker 3: lot of research into and things like that. And one
Speaker 3: thing I remember is that one of the very few
Speaker 3: big calls that he made that was wrong and where
Speaker 3: he very clearly went against his own understanding the bubbles
Speaker 3: was in twenty eleven, the peak of the commodities bubble,
Speaker 3: he wrote a big report that basically said, you know,
Speaker 3: commodities are massively overpriced compared to their history, and went
Speaker 3: through all of these reasons as to why they were expensive,
Speaker 3: but then sort of shot circuited the logical conclusion, which
Speaker 3: was to say it was in a bubble. And he said,
Speaker 3: but this is going to carry on because basically we're
Speaker 3: running out and China's going to kind of chew up
Speaker 3: all of the you know, the resources. And of course
Speaker 3: that turned out to be incorrect. And that's one thing
Speaker 3: I found interest because I felt that his own cognitive
Speaker 3: biases kind of misled him to short circuit his process.
Speaker 3: And that's why I guess I take some of the
Speaker 3: stuff he says on that front way a big pinch
Speaker 3: of salt, because I think that he is kind of
Speaker 3: clearly has that that's his thing, that's that's where it's
Speaker 3: cognitive biased kicks in.
Speaker 2: A lot of it.
Speaker 3: Said, that was interesting to hear him acknowledge that if
Speaker 3: we want to get to that zero, then we're going
Speaker 3: to have to use a lot more fossil fuels.
Speaker 2: In the meantime, it's interesting, as mat you talk about this,
Speaker 2: that she's demand for resources up front.
Speaker 1: I think it's something that that people.
Speaker 2: Are only just beginning to grasp that in order to
Speaker 2: get to the clean side, we have to do a
Speaker 2: lot of really really grubby stuff first.
Speaker 4: Really really grubby stuff, and even in the long run,
Speaker 4: you need a lot of metals which are grubby in
Speaker 4: order to get to a green world. Sorry, guys, sorry,
Speaker 4: you purist, There is no way around that one.
Speaker 1: Yeah, there's no clean root to clean no.
Speaker 3: And that's something you don't often hear the more shall
Speaker 3: we see ideological can only you know green people saying
Speaker 3: it's like.
Speaker 2: Yeah, most of them think lysium just come down of it,
Speaker 2: right or they certainly exactly, they do exactly. And so
Speaker 2: a lot of the things that we talked about around
Speaker 2: climate change, around energy transition, et cetera, had them being
Speaker 2: extremely straightforward and pragmatic, just like what the interview we
Speaker 2: did with a Conway while back saying you know, we
Speaker 2: have to get really really grubby before we can get
Speaker 2: anywhere near clean and accepting the amount of digging and
Speaker 2: mining that needs to be done as a result.
Speaker 1: And you're right, we don't.
Speaker 2: We don't hear that often. So that was that was interesting,
Speaker 2: although we didn't think, I want to talk about how
Speaker 2: one might investor as a result of that. And I
Speaker 2: know that GMO is still extremely keen on investing, in
Speaker 2: particular in clean energy stocks, even though they've had a
Speaker 2: pretty horrible time, a really really horrible time, but I
Speaker 2: suspect that they think that's probably a sector that people
Speaker 2: should still be invested in.
Speaker 3: Yeah, I mean, I suppose one of those things, isn't
Speaker 3: it we are. It's like any new technology, you can't
Speaker 3: dedict which one's going to be the market we at
Speaker 3: the end of the tam it's ruled out. It is
Speaker 3: the reason everyone bought in Vedia for the AI scene,
Speaker 3: which that also came up then too.
Speaker 1: Did we covered everything everything?
Speaker 3: Did you say that it was a really good interview.
Speaker 3: One thing that kind of was somewhat glaring by its
Speaker 3: near absence was talk about the bond market.
Speaker 1: I think we took it as given.
Speaker 2: I think it was an assumption for in Jermy and
Speaker 2: I that both of the sovereign bond market bubble around
Speaker 2: the world as over, that it's burst, and that bonds
Speaker 2: are still high, and that that is that is why
Speaker 2: it's entirely possibly did so at one point during the podcast,
Speaker 2: not a forecast, but a comment entirely possible mathematically that
Speaker 2: the US market could go down another fifty percent. That
Speaker 2: was that was a reference to bond Authentic Talks. As
Speaker 2: you remember, we talked about the Russell two thousand.
Speaker 4: The most vulnerable area, in my opinion, is the Russell
Speaker 4: two thousand is a good measure of where the vulnerabilities
Speaker 4: will be. The Russell two thousand often has no collective
Speaker 4: earnings at all. It has a very high density of zombies,
Speaker 4: companies that really can only pay their interest payments by
Speaker 4: issuing more debt. It has never been higher than it
Speaker 4: is today, and they have a very high ratio something
Speaker 4: like forty percent, don't have positive earnings, and they have
Speaker 4: record debt. They have never had this kind of debt.
Speaker 4: So they're vulnerable on the debt front, vulnerable on the
Speaker 4: financial front, and vulnerable on a broad economic front. And
Speaker 4: this is the interesting thing. The Russell two thousand is
Speaker 4: not up in real terms for the last year. It's
Speaker 4: not up over two years, and really surprising, it's not
Speaker 4: up over five years. It's actually down quite a bit
Speaker 4: over five years.
Speaker 5: So it is showing its vulnerability that is, et cetera,
Speaker 5: because two thousands already down an awful lot, and so
Speaker 5: some of the other things that we talked about, But
Speaker 5: so I think that was that was really where an
Speaker 5: acceptance from both of us that we agreed on the
Speaker 5: bond market bubble being over was there.
Speaker 2: And then we talked we talked about other markets. So
Speaker 2: we talked about Japan a little bit. Well, the other
Speaker 2: cheap markets. We talked about Japan a little, and we
Speaker 2: talked about the UK a little, and these were both
Speaker 2: markets that he was interested in. Although of course there's
Speaker 2: the point that you know, the US market would go
Speaker 2: down fifty percent. I repeat, that was not a forecast.
Speaker 2: If it's just a mathematical comment. If we did, then
Speaker 2: everything else would go down a lot as well.
Speaker 3: Yeah, that is the tricky thing at presumably they just
Speaker 3: wouldn't go down as much.
Speaker 6: Well, you know what happens in Japan, right, you know,
Speaker 6: you always saying things are fine and it's cheap, and
Speaker 6: it's quality, and it reached to escape, escape the lots
Speaker 6: to do.
Speaker 2: There's a virtual was so there, et cetera, et cetera,
Speaker 2: and then you know something happened in the Japanese market
Speaker 2: goes down more than other markets. So you can never
Speaker 2: take the stuff as a given.
Speaker 3: If hearts again this team, I'm just I'm swelling north
Speaker 3: jump of these stocks.
Speaker 2: Listen. We did get I got some pushback from a
Speaker 2: because we asked Jem at the end about gold and bitcoin,
Speaker 2: and I think we would all have predicted that he
Speaker 2: would say gold localse.
Speaker 1: She did say gold was the least bad of the three,
Speaker 1: and I see.
Speaker 2: I think John, at some point quite soon we should
Speaker 2: do a whole podcast on gold and why to invest
Speaker 2: in gold and when gold was good and money. It
Speaker 2: isn't bad because we mentioned it at the end, but
Speaker 2: we've never done a full one on it.
Speaker 1: Anyway.
Speaker 2: I got an email from one of our listeners saying that,
Speaker 2: of course you and I and Jeremy don't understand gold
Speaker 2: because we live in a stable country and we're not criminals.
Speaker 2: But if we lived in an unstable country and we
Speaker 2: were a drug dealer or a money launderer or something
Speaker 2: like that, then we would absolutely understand why bitcoin is
Speaker 2: the current, say of the future.
Speaker 3: Okay, so he says, bitcoins. So because you said, you
Speaker 3: said that we don't understand gold. No, no, no, we
Speaker 3: do understand.
Speaker 1: God, you don't understand I've said before.
Speaker 2: Right.
Speaker 3: Look, bitcoin is a good way to move money across
Speaker 3: borders where you can't sell gold coins into your you know,
Speaker 3: coat pockets or whatever. I actually agree with that. I
Speaker 3: think that that is the use case that is very
Speaker 3: different to becoming you know, like this global currency system.
Speaker 3: This is what I don't. They remind me a lot
Speaker 3: the crypto guys of the hardcore kind of gold bugs
Speaker 3: ahead of two thousand and eight, where the idea wasn't
Speaker 3: just that gold was useful for X or y or
Speaker 3: is the portfolio insurance. It was the idea that gold
Speaker 3: was going to regain its one true place as the
Speaker 3: kind of natural money of the world. It was going
Speaker 3: to take over the financial sense.
Speaker 1: Still haven't could still happen.
Speaker 3: Believe I add an awful lot of sympathy with that
Speaker 3: of you, And it's one reason why I sort of
Speaker 3: sympathized with the bitcoiners, because I recognize the idealism, but
Speaker 3: it's it is idealism and it is deluded. It's not
Speaker 3: Cody Harton, So yeah, I agree with him. He's right,
Speaker 3: Beckcoin is a good way. It moves money across borders
Speaker 3: when you don't when you unequet the money out of
Speaker 3: the country because you're you know, haven't you flee the
Speaker 3: country or because you're drug I.
Speaker 2: Do on the matter of that, on the matter of
Speaker 2: crime and go global collapse and that sort of thing.
Speaker 2: I do want to mention that Jeremy and I did
Speaker 2: talk quite a bit off the end of the podcast
Speaker 2: after we turned the recording off rather irritatingly. We talked
Speaker 2: rather a lot about the things that really concerned him.
Speaker 2: He's very worried about general toxic soxicity across the world.
Speaker 2: He's much more worried about climate change, and I think
Speaker 2: if it came across in that conversation, and he's very,
Speaker 2: very worried about inequality. So when when he looks at
Speaker 2: money and markets these days, he tends to see things
Speaker 2: through a different lens than perhaps he did during the
Speaker 2: main part of his career. So that was quite an
Speaker 2: interesting conversation as well.
Speaker 3: That's I mean, that's interesting my own view and inequality.
Speaker 3: I'm sure kind of match is used, which is that
Speaker 3: you know, the capitalist, free market system of allocating resources
Speaker 3: gives you the best outcome. That doesn't mean that it's perfect,
Speaker 3: but it's a bit like democracy from that point of view.
Speaker 3: You know, it's the worst system except all of the
Speaker 3: rest of them. So anyone who kind of comes at this,
Speaker 3: particularly when they've got the soft cushion of you know.
Speaker 1: Massive wealth.
Speaker 3: There are many hundreds of millions, yeah, massive, Well, then
Speaker 3: I think the f to kind of just maybe count
Speaker 3: their blessings rather than deciding that what for them. But
Speaker 3: it's not going to work for everyone else.
Speaker 2: Quite now, there is one piece by GMO that people
Speaker 2: should go away and reread. They have access to it,
Speaker 2: if not all time, put it up, so I might
Speaker 2: ask GM if I can pop it up somewhere. It
Speaker 2: is something that generally wrote back in March two thousand
Speaker 2: and nine. And I know there's a lot of people
Speaker 2: out there who say, Jeremy, you know, always wrong, But
Speaker 2: in March two thousand and nine Jeremy Grant them wrote
Speaker 2: a piece encouraging everybody to have a battle plan for
Speaker 2: reinvestment and to get on with it. And now we're
Speaker 2: not anywhere near that point in markets at the moment,
Speaker 2: but it's quite a good little piece explaining how brave
Speaker 2: you have to be and they have to overcome your
Speaker 2: terror when markets are genuinely cheap, and you need to
Speaker 2: be ready to turn when all looks black, but just
Speaker 2: to subtle shade less black than the day before. Now,
Speaker 2: I don't know when that day will come in markets,
Speaker 2: but you know there's bound to be a day like
Speaker 2: it ahead, So we might try to get that piece
Speaker 2: up somewhere for listeners to have a look at.
Speaker 3: Oh, definitely, that's a great piece. I'm pretty sure it
Speaker 3: was will very short.
Speaker 2: And that when it comes to when it comes to
Speaker 2: research like this very short, it's very good. Thanks for
Speaker 2: listening to this week's Marin Talks Money the after Show.
Speaker 2: This episode was hosted by me Maren Somerset Web alongside
Speaker 2: John Staffek. It was produced by Someersiety additional editing by
Speaker 2: Blake Naples