WEBVTT - GMO's Jeremy Grantham Warns US Stocks Are About to Be Crushed 0:00:02.520 --> 0:00:09.600 Bloomberg Audio Studios, podcasts, radio news. Hi there, Maren Talks Money. Listeners. 0:00:09.680 --> 0:00:12.320 Just a reminder that as well as listening to this podcast, 0:00:12.360 --> 0:00:15.280 you really should also be reading the things that John 0:00:15.400 --> 0:00:18.240 and I write. John has a daily newsletter, Money Distilled. 0:00:18.280 --> 0:00:20.360 Do sign up that if you haven't already, and I 0:00:20.480 --> 0:00:23.360 have a newish newsletter on Meren Talks Money. 0:00:23.360 --> 0:00:24.720 It goes with the pod. 0:00:24.840 --> 0:00:27.640 In this week's I've written about our conversation with Jawad 0:00:27.640 --> 0:00:30.120 from last week. I've written about gold, I've written about 0:00:30.120 --> 0:00:34.160 the energy transition, and I've written about the zeitgeist investment 0:00:34.280 --> 0:00:37.159 of this decade ward is it? Is it the energy transition? 0:00:37.880 --> 0:00:41.680 Is it defense stocks? Or is it just gold? Sign 0:00:41.760 --> 0:00:50.120 up and the links below. Welcome to Meren Talks Money. 0:00:50.120 --> 0:00:52.720 The podcast so much people who know the markets explain 0:00:52.840 --> 0:00:55.360 the markets. I'm Maren zums that web. This week, we 0:00:55.360 --> 0:00:56.200 welcome back to the show. 0:00:56.280 --> 0:00:57.200 Jeremy Grantham. 0:00:57.440 --> 0:00:59.840 Jeremy is the co founder of GMO and a member 0:00:59.880 --> 0:01:03.080 of GMO's asset Allocation team, serving as the firm's long 0:01:03.160 --> 0:01:04.440 term investment strategist. 0:01:04.760 --> 0:01:05.399 He's more than. 0:01:05.240 --> 0:01:07.560 Five decades of experience in investing and has earned a 0:01:07.640 --> 0:01:11.759 reputation as a bubble hunter, quick to point out speculative excess. 0:01:11.400 --> 0:01:13.040 On Wall Street and beyond. 0:01:13.400 --> 0:01:15.360 So in our conversation we talk about where he sees 0:01:15.360 --> 0:01:17.559 bubbles in the markets now, I mean, honestly, where aren't 0:01:17.560 --> 0:01:19.640 there bubbles at the moment? Why we haven't seen that 0:01:19.720 --> 0:01:22.040 correction in the market he's been predicting for a while, 0:01:22.040 --> 0:01:24.480 as have we the green transition, and why he is 0:01:24.560 --> 0:01:33.280 so bassionate about addressing population decline. Jeremy, thank you so 0:01:33.360 --> 0:01:35.640 much for joining us again. We really appreciate it. 0:01:36.080 --> 0:01:37.440 It's so pleasure to be here. 0:01:37.720 --> 0:01:39.560 I know that there's many things that you and I 0:01:39.560 --> 0:01:41.320 would both prefer to talk about, but we're going to 0:01:41.480 --> 0:01:44.600 have to start with talking about the American dock market. 0:01:45.000 --> 0:01:47.320 Last time you came on, you said, and I absolutely 0:01:47.360 --> 0:01:50.600 agreed with you, that everything had run ahead of itself. 0:01:50.720 --> 0:01:54.880 Valuations were too high and we should definitely expect although 0:01:54.880 --> 0:01:58.320 we can't time when it might happen, a very serious 0:01:58.440 --> 0:02:02.720 correction in the US market still hasn't happened. We keep 0:02:02.760 --> 0:02:05.840 thinking it's going to happen. Various signs that they're stress 0:02:05.880 --> 0:02:08.120 in the market, and for example, when the Deep Sikh 0:02:08.200 --> 0:02:10.040 news came out, we looked that and we said that'll 0:02:10.080 --> 0:02:13.000 be the end of the AI bubble, but no, it 0:02:13.160 --> 0:02:16.560 never seems to end. It just keeps going. Has anything 0:02:16.680 --> 0:02:19.000 changed in the way you look at that market. 0:02:19.200 --> 0:02:21.600 I've always looked at it from the point of view 0:02:21.600 --> 0:02:25.320 that the longer and the bigger, and the higher it goes, 0:02:25.960 --> 0:02:31.720 the more exciting and dangerous it will be. And this 0:02:31.800 --> 0:02:36.720 has moved up the rank of superbubbles, but it's nowhere 0:02:36.760 --> 0:02:41.640 near Japan, the mother and father of all superbubbles in 0:02:41.800 --> 0:02:45.600 eighty nine, and it's nowhere near their real Estate bubble 0:02:45.639 --> 0:02:49.200 of the same era. They're the two great super bubbles 0:02:49.240 --> 0:02:53.160 of history, but a decent way behind. I think this 0:02:53.280 --> 0:02:56.880 is in third place, ahead of nineteen twenty nine, just 0:02:57.480 --> 0:03:02.600 and ahead of December twenty TI twenty one, which actually 0:03:02.639 --> 0:03:05.800 met all the characteristics of a late stage super bowbl 0:03:05.880 --> 0:03:08.760 and one really should have expected it to blow up, 0:03:09.000 --> 0:03:11.720 and it did. Twenty two was a good blow up 0:03:11.720 --> 0:03:17.120 across a lot of asset classes. But AI chat GBT 0:03:17.320 --> 0:03:21.720 came to the rescue in November of twenty two, and 0:03:22.040 --> 0:03:25.880 initially for ten months, dragged by the mag seven and 0:03:25.919 --> 0:03:27.839 the rest of the market going down a little bit. 0:03:28.560 --> 0:03:32.359 That kept going for about a year and then in 0:03:32.680 --> 0:03:37.280 October November of twenty three, the market said this looks serious, 0:03:37.320 --> 0:03:41.640 we better join in, and the breadth became positive and 0:03:41.880 --> 0:03:46.600 had a perfectly decent twenty four. And the net result 0:03:46.920 --> 0:03:51.840 is that every measure of traditional value, the best of 0:03:51.920 --> 0:03:56.160 the common ones being Schiller pe is at a record, 0:03:56.440 --> 0:03:59.400 and most of the ordinary ones are in the top 0:03:59.400 --> 0:04:02.120 one or two percent. And the best one of all, 0:04:02.840 --> 0:04:06.320 which is a variant of of total market cap to 0:04:06.320 --> 0:04:10.360 total value added in the economy, that has this one 0:04:11.040 --> 0:04:12.600 the highest of any in history. 0:04:12.880 --> 0:04:14.120 That's the buffet measure rate. 0:04:15.080 --> 0:04:19.480 It's a variant if you take out financials and you 0:04:19.560 --> 0:04:22.640 tweak this, and you tweak that. Hussman has a good 0:04:22.720 --> 0:04:25.320 variant of that, and they make it clear that this 0:04:25.400 --> 0:04:29.159 has overtaken twenty nine and twenty twenty one and moved 0:04:29.160 --> 0:04:33.479 into first place on the American record, still way behind 0:04:33.920 --> 0:04:36.560 the Japan. And then Ben Inca at GMO and I 0:04:37.000 --> 0:04:40.119 twenty five years ago did a behavioral model which says, 0:04:40.440 --> 0:04:44.080 forget all the logic about the efficient market or how 0:04:44.120 --> 0:04:47.400 it should work, and dividend discount models and all that, 0:04:47.760 --> 0:04:51.160 just let's see what actually explains, and what has that 0:04:51.240 --> 0:04:54.520 explained since nineteen twenty five and explained very well. Indeed, 0:04:55.200 --> 0:04:58.839 is low inflation, the market loves it. High inflation it 0:04:58.880 --> 0:05:03.000 hates margins. Of course, the market loves it. Growth rate 0:05:03.080 --> 0:05:06.560 has no correlation at all, But stability of GDP growth 0:05:06.800 --> 0:05:09.640 the market likes. And that's way in third place. So 0:05:09.680 --> 0:05:13.640 the things that make a portfolio manager feel comfortable, that's 0:05:13.680 --> 0:05:17.160 what decides what the PE will be. And even on 0:05:17.200 --> 0:05:20.880 that model that had a nearly perfect record, the market 0:05:20.880 --> 0:05:23.919 could drop fifty percent to get back to the normal 0:05:24.360 --> 0:05:30.479 response of flaky human beings. The normal behavioral responses would 0:05:30.480 --> 0:05:35.000 have this market at a perfectly respectable eighteen pe on Schiller. 0:05:35.640 --> 0:05:39.200 And it's actually just over twice. It's thirty seven. 0:05:39.720 --> 0:05:45.560 And the argument that the introduction of AI and the 0:05:45.839 --> 0:05:48.360 enormous progress that's been made there and the way that 0:05:48.440 --> 0:05:51.719 AI is going to permeate through our economies and change 0:05:51.760 --> 0:05:55.520 our lives as we know them, is a justification for 0:05:55.600 --> 0:06:00.000 the market staying this high. Evaluations will grow into reality. 0:06:00.080 --> 0:06:02.839 Your reality will grow into valuations. Should I say make 0:06:03.200 --> 0:06:06.520 this level okay? That that doesn't resonate with you at all. 0:06:07.320 --> 0:06:10.839 This is the argument used for every important new technology. 0:06:10.920 --> 0:06:15.400 Every really important new technology has had a bubble around it. 0:06:16.279 --> 0:06:20.280 A classic example in the old days was the railroads, 0:06:20.720 --> 0:06:23.560 where it was so obviously going to change everyone's life, 0:06:23.600 --> 0:06:27.080 and it did so that everyone could see it clearly. 0:06:27.960 --> 0:06:30.359 Everyone could put their money in it because they knew 0:06:30.400 --> 0:06:32.839 it was going to change the world, and so they 0:06:33.120 --> 0:06:39.279 started to build and design six railroad lines between Leeds 0:06:39.400 --> 0:06:44.520 and Manchester, and of course there was an almighty crash 0:06:44.960 --> 0:06:47.000 and everyone lost their shirts. It was one of the 0:06:47.000 --> 0:06:51.200 more spectacular bus that didn't say that railroads weren't important, 0:06:51.279 --> 0:06:52.960 or railways in Britain. 0:06:53.320 --> 0:06:54.760 They were incredibly important. 0:06:54.800 --> 0:06:59.920 They did change everyone's life, they did elevate GDP in productivity, 0:06:59.720 --> 0:07:03.479 but they were so obvious that in the early stages, 0:07:03.520 --> 0:07:06.720 of course they attracted everyone's capital and a bust. And 0:07:06.760 --> 0:07:10.920 then you fast forward to the more recent example, and 0:07:10.960 --> 0:07:14.400 that is the Internet. The Internet again was obviously going 0:07:14.440 --> 0:07:17.840 to change everything, and it sucked in lots of money, 0:07:17.920 --> 0:07:21.880 lots of pet dot coms and everything had a spectacular 0:07:21.920 --> 0:07:25.480 blow up. And let me just focus on Amazon. Amazon 0:07:25.800 --> 0:07:29.160 went up over a couple of years twelve fourteen times. 0:07:29.240 --> 0:07:32.840 It was wonderful, and then when the market broke, it 0:07:32.960 --> 0:07:35.960 dropped a spectacular ninety two percent. You can check this, 0:07:36.480 --> 0:07:40.880 and Amazon went down ninety two percent, and then out 0:07:40.880 --> 0:07:43.440 of the wreckage. It was one of the handful that 0:07:43.560 --> 0:07:47.280 inherited the earth and gobbled up the retail market as 0:07:47.320 --> 0:07:50.400 others gobbled up other things, and all the pet dot 0:07:50.400 --> 0:07:55.320 coms got washed away. It's precisely the importance and the 0:07:55.520 --> 0:07:59.680 obviousness of the importance. It guarantees a bubble, and very 0:07:59.680 --> 0:08:03.400 few have been as obviously important as AI. It will 0:08:03.440 --> 0:08:06.680 of course change our world. It is of course impossible 0:08:06.720 --> 0:08:09.240 to know in what ways and whether it will be 0:08:09.440 --> 0:08:14.520 entirely beneficial or not. And one day one suspects we 0:08:14.560 --> 0:08:21.200 will end up with something like a world run by automatons, cyborgs, 0:08:21.200 --> 0:08:23.880 whatever we want to call them. It may take three 0:08:23.960 --> 0:08:28.120 hundred years, it may take fifty, and I lean towards 0:08:28.280 --> 0:08:31.520 the three hundred, as long as civilization hangs together, which 0:08:31.600 --> 0:08:35.200 is another big story we could discuss. But when you 0:08:35.240 --> 0:08:40.520 get to that point, you have to always remember productivity produces. 0:08:40.840 --> 0:08:45.840 It has no offsetting consumption. So the way to think 0:08:45.880 --> 0:08:48.200 of that is just skip right to the end. One 0:08:48.240 --> 0:08:53.520 hundred percent cyborgs, no workers. What happens to demand? The 0:08:53.559 --> 0:08:56.080 answer is, of course, the whole system is totally unbalanced. 0:08:56.480 --> 0:08:58.679 There's no demand and therefore there's no need for the 0:08:58.760 --> 0:09:04.359 cyborgs production unless you take the value that the cyborgs 0:09:04.520 --> 0:09:08.880 are producing and pass it through to the average people. 0:09:09.160 --> 0:09:13.440 So you have to have a very decent guaranteed minimum wage, 0:09:14.040 --> 0:09:16.840 and as long as you do that, everything balances. And 0:09:16.880 --> 0:09:19.280 in the old days, by the way, from nineteen thirty 0:09:19.320 --> 0:09:23.320 five to seventy five, the productivity was three percent, and 0:09:23.360 --> 0:09:25.800 the rich people got richer by three percent a year, 0:09:25.880 --> 0:09:28.200 and the poor people got richer by three percent a year, 0:09:28.440 --> 0:09:31.400 and everybody was happy as a clam. And that turns 0:09:31.400 --> 0:09:34.960 out to be from economics and social point of view, 0:09:35.040 --> 0:09:38.200 the golden era, and then from nineteen seventy five, particularly 0:09:38.240 --> 0:09:42.000 in the US, all of that productivity, which dropped from 0:09:42.040 --> 0:09:43.920 three percent to say two and a half and then 0:09:43.960 --> 0:09:47.560 to two all went to the top ten percent one percent. 0:09:47.920 --> 0:09:50.840 The average worker hardly made any progress of all since 0:09:50.920 --> 0:09:53.640 nineteen seventy five for an hour worked, and that of 0:09:53.679 --> 0:09:58.200 course generates a lot of disgruntlement and complications, which we 0:09:58.320 --> 0:10:03.160 see everywhere really including the US. Despite our brilliant stock market, 0:10:03.440 --> 0:10:07.480 the underlying frustration is very high, and the same in Europe. 0:10:08.160 --> 0:10:11.280 And how that manifests itself is you vote against the 0:10:11.280 --> 0:10:14.360 party in power, doesn't matter whether it's right wing like 0:10:14.400 --> 0:10:17.360 the Conservatives in the UK, doesn't matter if it's left 0:10:17.400 --> 0:10:19.640 wing as in France and so on. You kick them 0:10:19.640 --> 0:10:22.360 all out, and you kick them out. It's a manifestation 0:10:22.480 --> 0:10:25.160 of the fact there's a very high level of disappointment 0:10:25.559 --> 0:10:28.760 amongst the broad band of workers. They're simply not doing 0:10:28.760 --> 0:10:31.160 as well as they expected, not doing as well as 0:10:31.200 --> 0:10:31.960 their parents did. 0:10:32.120 --> 0:10:33.320 Sorry, long answer, It. 0:10:33.360 --> 0:10:34.520 Was a long answer, but it was a good one, 0:10:34.559 --> 0:10:34.960 thank you. 0:10:35.000 --> 0:10:38.800 So that rather suggests that a successful adoption of AI 0:10:39.000 --> 0:10:41.960 needs a huge level of government input. 0:10:42.679 --> 0:10:46.960 If the government does not smooth out the benefits of AI, 0:10:47.559 --> 0:10:50.560 you will have either starvation or revolution. 0:10:51.040 --> 0:10:54.400 So it's interesting, isn't it, because we feel like we're 0:10:54.400 --> 0:10:58.040 moving into an era, particularly perhaps in the US, where 0:10:58.120 --> 0:11:00.800 smaller government is valued over big govern which I would 0:11:00.840 --> 0:11:03.240 generally agree with that a smaller government might be better 0:11:03.280 --> 0:11:06.520 than an overbearing government. But your suggestion is that as 0:11:06.520 --> 0:11:09.600 we move into an AI era, if the government doesn't 0:11:09.600 --> 0:11:13.520 take huge steps to well redistribute, it won't work. 0:11:13.960 --> 0:11:16.880 And by the way, that doesn't take much government. You 0:11:16.920 --> 0:11:20.000 could have a few hundred people tucked away in DC, 0:11:20.720 --> 0:11:26.280 making sure that income is redistributed. That's not the part 0:11:26.320 --> 0:11:30.239 of government that chows up all the workers. It's pretty straightforward. 0:11:31.000 --> 0:11:34.800 You have a high minimum requirement to keep people alive 0:11:35.679 --> 0:11:39.599 and to keep people reasonably content away from the barricades 0:11:40.040 --> 0:11:40.760 in the high street. 0:11:41.200 --> 0:11:43.200 Okay, so let's go back a little bit to the market. 0:11:43.280 --> 0:11:45.320 I can feel we're heading off on tangents. We both 0:11:45.320 --> 0:11:46.680 want to go down, but we've got to deal with 0:11:46.720 --> 0:11:49.040 the core first. Is there any part of the US 0:11:49.080 --> 0:11:52.320 market where you would feel safe? Obviously we would agree 0:11:52.320 --> 0:11:56.160 that the AI stocks, AI adjacent stocks, tech in general 0:11:56.640 --> 0:12:00.000 is very overvalued, but it's not necessarily the case across 0:12:00.080 --> 0:12:02.560 the board. So if you wanted to stay in the 0:12:02.679 --> 0:12:05.000 US and on this huge part of the investing community, 0:12:05.040 --> 0:12:07.600 they find it very difficult to think at all about 0:12:07.720 --> 0:12:10.720 leaving the US market or even rebalancing away from the 0:12:10.800 --> 0:12:14.040 US market if they were to stay in it. 0:12:14.080 --> 0:12:15.040 Is there any. 0:12:14.800 --> 0:12:16.760 Sector, any part of it where you would say you'll 0:12:16.800 --> 0:12:18.120 probably be okay if you stick with that. 0:12:19.200 --> 0:12:19.480 Yes. 0:12:19.880 --> 0:12:24.520 Obviously the future for greening the economy is going to 0:12:24.559 --> 0:12:28.360 be a long and bumpy one. But physics cannot be 0:12:28.440 --> 0:12:33.040 bullied away into hiding, and four years is only four years. 0:12:33.679 --> 0:12:37.920 But the remorseless damage that we have all seen in 0:12:37.960 --> 0:12:43.400 the last two years, the escalation of fires, floods, just sensational, 0:12:43.960 --> 0:12:47.160 obvious to everybody except one or two percent who are 0:12:47.200 --> 0:12:51.520 blinded by political beliefs. I would say that will just 0:12:51.679 --> 0:12:55.640 march on if we do not solve that. The civilization 0:12:55.720 --> 0:12:58.280 as we know it fails. How long it will take 0:12:58.400 --> 0:13:03.120 is almost anybody's get But it's happening pretty fast, pretty remorselessly, 0:13:03.160 --> 0:13:05.679 and we have to fix it. I think we probably 0:13:05.679 --> 0:13:10.320 will fix it. And to do that to green the 0:13:10.520 --> 0:13:15.200 entire global economy is a massive, challenging job that will 0:13:15.240 --> 0:13:18.120 take lots of investment, lots of workers. 0:13:18.280 --> 0:13:19.280 And it will be done. 0:13:19.320 --> 0:13:23.640 I think since the psychology has smashed these stocks down, 0:13:24.200 --> 0:13:28.320 and since the logic of the physics is inevitable, unlike 0:13:28.360 --> 0:13:30.680 most things in the stock market, I would say that 0:13:30.800 --> 0:13:34.080 is an area that we'll have sooner or later a 0:13:34.200 --> 0:13:39.120 massive regrouping and a huge outperformance of the rest of 0:13:39.160 --> 0:13:39.560 the market. 0:13:39.640 --> 0:13:41.520 Secondly, I believe. 0:13:41.240 --> 0:13:44.839 That the wider environment that we will get to talk 0:13:44.880 --> 0:13:49.560 about is much deteriorated, and that we will have to 0:13:49.600 --> 0:13:53.280 get used to many more short shocks to the system, 0:13:53.720 --> 0:13:56.600 and many more big shocks to the system than have 0:13:56.840 --> 0:14:01.360 characterized the last seventy five years. In that environment, you 0:14:01.480 --> 0:14:03.960 do not want to be caught with a lot of leverage. 0:14:04.360 --> 0:14:07.680 Leverage is going to be light the nineteen thirties. Leverage 0:14:07.720 --> 0:14:09.800 is just going to take you out of business. You 0:14:09.920 --> 0:14:14.959 have to be able to withstand shocks unexpectedly arriving, and 0:14:15.040 --> 0:14:18.160 to do that you need no little or no debt. 0:14:18.559 --> 0:14:21.360 And secondly, if you want to survive, you want to 0:14:21.400 --> 0:14:25.400 have decent profit margins to give you some resilience. Marginal 0:14:25.440 --> 0:14:29.760 Company's Cheap at Hell in nineteen twenty nine did not 0:14:29.960 --> 0:14:33.520 outperform the Coca Colas, who were brutally expensive. The Coca 0:14:33.560 --> 0:14:38.320 Colas went down seventy five percent, but the very cheap stocks, 0:14:38.560 --> 0:14:41.680 the number seven, eight, nine, automobile companies and so on, 0:14:41.960 --> 0:14:43.960 they all went out of business, and the ones that 0:14:44.040 --> 0:14:47.760 survived went down ninety six percent. And when you're starting 0:14:47.800 --> 0:14:50.680 from four out of one hundred, to go back and 0:14:50.760 --> 0:14:53.560 catch up the Coca Colas, who are still at thirty, 0:14:54.320 --> 0:14:56.280 you have to go up six or seven times just 0:14:56.320 --> 0:14:58.560 to get back in the game. The thirties was a 0:14:58.600 --> 0:15:03.200 pretty good ultimate room that things are cheap, usually for 0:15:03.240 --> 0:15:05.320 a pretty good reason, so you have to tread carefully. 0:15:05.600 --> 0:15:07.440 If you're going to play the cheap game, you've got 0:15:07.440 --> 0:15:10.840 to make sure it is armor plated with high with 0:15:10.960 --> 0:15:12.840 as much quality as you can get into it. 0:15:14.400 --> 0:15:16.040 Can I take you back to what you were saying 0:15:16.080 --> 0:15:19.320 about the green transition and greening the economy, etc. Even 0:15:19.360 --> 0:15:22.640 if you put aside the next four years and what 0:15:22.760 --> 0:15:25.200 might or might happen around your noble energy and climate 0:15:25.280 --> 0:15:28.640 change during that during the Trump period, it is still 0:15:28.680 --> 0:15:33.520 the case that the national grid in the UK, across Europe, 0:15:33.560 --> 0:15:36.560 the electricity grid everywhere and including in the US, still 0:15:36.760 --> 0:15:41.040 has to be massively upgraded and massively improved because of AI. 0:15:41.640 --> 0:15:44.680 So even if you were to put aside. 0:15:44.240 --> 0:15:46.720 The discussion about climate change at the moment, it still 0:15:46.760 --> 0:15:50.680 seems that there's a lot of scope for that build 0:15:50.720 --> 0:15:52.680 out to be a good area to be invested in. 0:15:52.880 --> 0:15:57.480 Yeah, I think AI will improve all the aspects of 0:15:57.560 --> 0:16:02.520 the economy that you're trying to improve. So it's very 0:16:02.560 --> 0:16:06.480 helpful for green tech in general. The problem is it 0:16:06.920 --> 0:16:10.480 helps everybody, and so you have to ask yourself a question, 0:16:11.600 --> 0:16:16.400 is this society acting quickly enough in general, or is 0:16:16.440 --> 0:16:20.560 it heading towards the cliff just simply moving too slowly, 0:16:20.960 --> 0:16:25.280 protecting its corporate profits too much, and allowing the carbon 0:16:25.360 --> 0:16:28.440 count and the methane count to just rise too high, 0:16:28.520 --> 0:16:31.640 and seeing tipping points any minute now as tundrad melts, 0:16:31.680 --> 0:16:34.280 and so on and so forth. And I think the answer 0:16:34.360 --> 0:16:37.920 is we're not looking too good. And what AI does 0:16:38.040 --> 0:16:41.600 is accelerates and makes more efficient the process that you're on. 0:16:42.760 --> 0:16:45.800 And unless we're lucky, what that will mean is that 0:16:45.880 --> 0:16:48.960 the system will run quicker and more efficiently towards the 0:16:48.960 --> 0:16:53.560 cliff edge. And for every one item that you improve, 0:16:54.440 --> 0:16:57.560 there will be the usual five in the current system 0:16:57.640 --> 0:17:03.200 that are improving to make more and better useless consumption goods. 0:17:03.360 --> 0:17:06.159 And we see this, by the way, in the inordinate 0:17:06.280 --> 0:17:10.159 increase in electric demand and the coal and gas that 0:17:10.240 --> 0:17:14.240 goes with that around the world in order to fuel AI, 0:17:14.960 --> 0:17:18.200 along with those other cryptocurrency dangers. 0:17:18.560 --> 0:17:19.720 We might come to that later. 0:17:20.040 --> 0:17:27.200 Finally, after decades of moderate, actually flat use of electricity 0:17:27.320 --> 0:17:30.600 is now not only rising rapidly, but predicted to rise 0:17:31.240 --> 0:17:36.560 steadily and rapidly into the future because of AI and cryptocurrencies. 0:17:36.560 --> 0:17:40.159 But it was rising before the whole AI boom electricity 0:17:40.160 --> 0:17:43.119 demand had started to rise the result of the electrification 0:17:43.320 --> 0:17:46.080 of various things as a result of the attempt to decarbonizers. 0:17:46.160 --> 0:17:47.800 It was already happening. 0:17:47.600 --> 0:17:52.199 Prey hardly, and if you took out cryptocurrency, it was 0:17:52.840 --> 0:17:56.080 most drifting outwards. And now no one would accuse it 0:17:56.119 --> 0:17:57.000 of drifting outwards. 0:17:57.040 --> 0:17:58.240 No, definitely not drifting. 0:17:58.720 --> 0:18:00.920 Let's look if we can about other stock markets, and 0:18:01.000 --> 0:18:03.080 now I said earlier that the lot of investors find 0:18:03.119 --> 0:18:06.080 it difficult to imagine moving any waiting out of the US, 0:18:06.160 --> 0:18:09.080 but there has actually been a shift towards Europe this year, 0:18:09.320 --> 0:18:12.199 and there's also a growing discussion about the cheapness of 0:18:12.280 --> 0:18:15.439 China and whether this might finally be the time to 0:18:15.480 --> 0:18:18.479 invest in the Chinese stock market. Do you have any 0:18:18.600 --> 0:18:21.879 positive feelings towards any other global like CAREW markets. 0:18:22.359 --> 0:18:26.840 I have had no argument with the non US markets. 0:18:27.160 --> 0:18:31.000 They've been reasonably priced, perhaps a little overpriced most of them, 0:18:31.040 --> 0:18:35.600 but nothing much for a long time, and they still are. 0:18:36.000 --> 0:18:40.280 Of course, they are much less dangerous to own, and 0:18:40.359 --> 0:18:46.320 they will very likely over five or ten years, crush 0:18:46.400 --> 0:18:48.960 the US market, as has happened several times. 0:18:48.960 --> 0:18:49.800 That's how it happens. 0:18:49.840 --> 0:18:52.440 The US market will have a great decade, and then 0:18:53.359 --> 0:18:55.760 fire markets will have a great decade and close the 0:18:55.800 --> 0:19:00.879 gap a bit. And that's what will happen this time. Sure, Now, 0:19:01.000 --> 0:19:03.720 will they be sympathetic in a major decline in the US, 0:19:04.040 --> 0:19:07.360 which I suspect is waiting for us. Yeah, they can 0:19:07.359 --> 0:19:12.280 be sympathetic. My just to remind you of how untidy 0:19:12.320 --> 0:19:16.440 the world is, the emerging markets with a volatility one 0:19:16.440 --> 0:19:20.200 point three times the market. In two the third year 0:19:20.240 --> 0:19:22.200 of the decline, the S and P went down twenty 0:19:22.200 --> 0:19:24.320 two percent. This was not pleasant for a third down 0:19:24.400 --> 0:19:27.600 year in a row, and you might have expected emerging 0:19:27.640 --> 0:19:29.200 markets to go down thirty but they. 0:19:29.119 --> 0:19:29.760 Went down two. 0:19:30.320 --> 0:19:33.240 They were just about flat, and a twenty point out 0:19:33.240 --> 0:19:37.160 performance like that on the downside is completely a reflection 0:19:37.280 --> 0:19:40.639 of different values. It does happen, and it probably will happen. 0:19:40.640 --> 0:19:43.920 They will probably be sympathetic, and there will be periods 0:19:43.920 --> 0:19:48.080 when they drop quite frighteningly to show sympathy. But in 0:19:48.160 --> 0:19:52.200 between they will regroup, and they'll regroup faster, and after 0:19:52.320 --> 0:19:56.719 the passage of a decent time, they will be way ahead. 0:19:57.240 --> 0:20:00.800 I am very confident putting time on these. As we've 0:20:00.800 --> 0:20:04.080 always discussed, it's pretty much impossible. But to go back 0:20:04.119 --> 0:20:07.119 to the main event here, the longer and the higher 0:20:07.160 --> 0:20:11.240 they climb, the worse it is. And we were hanging 0:20:11.280 --> 0:20:14.480 out with a zero weight in Japan for three years 0:20:14.600 --> 0:20:17.880 as it went from forty five times earnings to sixty five. 0:20:18.960 --> 0:20:21.399 That is a whole lot worse than the US it's today, 0:20:22.040 --> 0:20:25.840 And what was the price they paid? That was a 0:20:25.920 --> 0:20:29.840 unique event, and they uniquely suffered for it. They spent 0:20:30.160 --> 0:20:34.280 twenty years getting to a low, and they became a 0:20:34.359 --> 0:20:37.919 cheap country. From sixty five times earnings, they became a 0:20:38.000 --> 0:20:38.760 cheaper one. 0:20:38.560 --> 0:20:41.120 When twenty years is extraordinary, isn't it. If you were 0:20:41.160 --> 0:20:43.560 to sit down with any major investor at the moment 0:20:43.600 --> 0:20:46.840 and say there's a distinct possibility that the US market 0:20:47.000 --> 0:20:49.840 will fall by that amount and it'll take twenty years 0:20:49.880 --> 0:20:53.240 for you to be evans, no one will accept. 0:20:52.880 --> 0:20:56.440 That, absolutely, not than they never have and they never will. 0:20:56.800 --> 0:20:59.080 Doesn't mean it hasn't happened every time we've had a 0:20:59.119 --> 0:21:02.280 major bubble light now eighteen twenty nine, even in nineteen 0:21:02.280 --> 0:21:05.760 seventy two and two thousand and the housing bubble. The 0:21:05.800 --> 0:21:07.760 housing bubble, by the way, was a bigger bubble than 0:21:07.800 --> 0:21:13.800 the current US stock market. Statistically, it was very impressive. 0:21:13.880 --> 0:21:17.520 There'd never been a national bubble like that. Housing used 0:21:17.560 --> 0:21:21.760 to crash in California while it bubbled in Chicago, but 0:21:21.840 --> 0:21:23.640 that was the first time it did it, and that 0:21:23.680 --> 0:21:25.880 made it a real outlier statistically. 0:21:26.600 --> 0:21:28.919 I remember being told over and over again during that 0:21:28.960 --> 0:21:31.800 bubble that American house prices had never fallen and they 0:21:31.840 --> 0:21:32.359 never would. 0:21:33.320 --> 0:21:36.720 And by the way, Bananke said that, yes, the US 0:21:36.760 --> 0:21:40.520 house prices had never declined, and to which I wrote 0:21:40.520 --> 0:21:43.880 in a quarterly letter, but they had never bubbled before, 0:21:44.320 --> 0:21:48.560 and whenever anything has bubbled, it has always declined, and 0:21:48.960 --> 0:21:51.080 of course it did. It was very well behaved, the 0:21:51.119 --> 0:21:54.159 housing bubble. It declined in three years exactly what it 0:21:54.200 --> 0:21:56.520 had gone up in three years, much to the cost 0:21:56.640 --> 0:21:59.280 of some poor unfortunates who got sucked into the housing 0:21:59.320 --> 0:22:00.560 market for the time. 0:22:00.920 --> 0:22:01.120 Yeah. 0:22:01.240 --> 0:22:03.639 No, that hurt an awful lot of people, and actually 0:22:03.720 --> 0:22:06.080 this current bubble may have hurt an awful lot of people. 0:22:06.440 --> 0:22:08.359 Maybe not in the same way because most people won't 0:22:08.359 --> 0:22:11.560 be leveraged into it, but nonetheless there's an entire generation 0:22:11.640 --> 0:22:13.960 of people who now believe in this, as is the 0:22:14.000 --> 0:22:16.960 case in every bubble, that what they've done is brought 0:22:16.960 --> 0:22:17.760 into a sure thing. 0:22:17.840 --> 0:22:19.119 So there is a lot of disappointment. 0:22:19.160 --> 0:22:22.919 I heard right, Yeah, my cryptocurrency for one, which is 0:22:22.960 --> 0:22:24.760 now four trillion dollars. 0:22:25.000 --> 0:22:27.639 When you talk about cryptocurrency, are you talking about bitcoin 0:22:27.760 --> 0:22:29.960 or are you talking about currencies as a whole, And 0:22:30.040 --> 0:22:32.240 do you make a division between the two. 0:22:32.480 --> 0:22:35.320 I was talking about all of them added together. But 0:22:35.880 --> 0:22:39.280 none of them produce anything, and none of them are 0:22:39.640 --> 0:22:43.680 a medium of exchange materially, but they are a wonderful 0:22:43.720 --> 0:22:50.560 speculative medium. And with the stimulus program of Biden and COVID, 0:22:51.359 --> 0:22:54.560