WEBVTT - Jeremy Grantham's Market Meat-Grinder 0:00:14.040 --> 0:00:17.520 Hello, and welcome to What Goes Up, a weekly markets podcast. 0:00:17.600 --> 0:00:20.080 My name is Mike Reagan. I'm a senior editor at Bloomberg, 0:00:20.239 --> 0:00:23.720 now Maldonna Higher across asset reporter with Bloomberg, and this 0:00:23.800 --> 0:00:27.360 week on the show. Well, as you probably know by now, 0:00:27.400 --> 0:00:30.720 the stock market fell into a nasty bear market last year, 0:00:30.800 --> 0:00:34.000 with the SMP five hundred dropping about twenty five percent 0:00:34.120 --> 0:00:37.000 from its high in January to it's low in October. 0:00:37.560 --> 0:00:40.280 But since then that October low has actually held and 0:00:40.320 --> 0:00:43.440 the index has gained more than ten percent. That's led 0:00:43.479 --> 0:00:46.440 some to speculate that maybe the worst is over and 0:00:46.520 --> 0:00:48.879 we're actually at the beginning of a new bowl market. 0:00:49.320 --> 0:00:52.640 Well not so fast, says this week's guests. There's likely 0:00:52.680 --> 0:00:55.440 more pain ahead and you'll probably want to listen to 0:00:55.520 --> 0:00:57.480 him because he happens to be one of the most 0:00:57.480 --> 0:01:01.120 well known and experienced investors around and he knows a 0:01:01.200 --> 0:01:05.560 thing or two about spotting bubbles. But first, let's stock socks. Yes, first, 0:01:05.640 --> 0:01:09.720 let's suck sucks with our guests, who I know, especially 0:01:09.880 --> 0:01:12.080 terminal readers, they love to hear from him. They want 0:01:12.080 --> 0:01:14.959 to know what he's thinking. It's Jeremy Grantham, He's the 0:01:15.000 --> 0:01:19.640 co founder and long term investment strategist of GMO. Thank 0:01:19.680 --> 0:01:23.040 you so much for joining us. You're welcome, pleasure. We're 0:01:23.080 --> 0:01:26.320 really happy to have you. So you and I actually 0:01:26.520 --> 0:01:28.600 just so readers are aware. You and I spoke a 0:01:28.640 --> 0:01:30.680 couple of weeks ago. We talked about some of these things, 0:01:30.959 --> 0:01:34.480 and I was hoping you could maybe just start with 0:01:35.400 --> 0:01:39.800 you warning about a plunge in the stock market for 0:01:40.040 --> 0:01:43.160 twenty twenty three. How do your views align with what 0:01:43.200 --> 0:01:46.319 we've seen so far this year, and maybe layout for 0:01:46.400 --> 0:01:51.240 our listeners what you're predicting for the remainder of the year. Yeah. No, 0:01:51.360 --> 0:01:57.280 it's doing fine. It behaving traditionally. My last paper was 0:01:57.320 --> 0:02:01.520 called after a time out, back to the meat Grinder, 0:02:02.480 --> 0:02:05.640 and well, l is a vegetarian German. You gotta watch. 0:02:05.680 --> 0:02:08.920 Do you want to hear that? No, it's meant to 0:02:08.960 --> 0:02:14.800 sound painful and brutal. And the idea was that I, personally, 0:02:15.760 --> 0:02:20.600 I'm a great respect of January as an unusual month. 0:02:20.680 --> 0:02:24.440 And what January does is it tends to be pretty 0:02:24.520 --> 0:02:28.680 kind to small small cap and value. Indeed, more than 0:02:28.680 --> 0:02:31.359 one hundred percent of all the small cap effect so 0:02:31.400 --> 0:02:35.799 called has occurred in January for the last one hundred years. 0:02:36.480 --> 0:02:40.040 So it's huge for small and value. But it's also 0:02:40.760 --> 0:02:44.440 has this rather more complicated thing, and that is it 0:02:44.480 --> 0:02:47.880 does very well for stocks that got utterly hammered the 0:02:47.960 --> 0:02:54.080 year before. That's pretty obvious. What happens. You lose forty fifty, sixty, 0:02:54.120 --> 0:02:58.480 seventy or so, you take your losses to reap the 0:02:58.800 --> 0:03:02.000 tax loss effect, and then you have the money in 0:03:02.000 --> 0:03:05.480 your hand, and you have a year end bonus, Christmas 0:03:05.520 --> 0:03:09.919 bonus and so on, and you look out into the 0:03:09.960 --> 0:03:15.120 new year. You can you can see them as bargains 0:03:15.120 --> 0:03:18.720 sat down a lot, in this case the growth stocks, 0:03:18.760 --> 0:03:20.600 and so you buy it. So I was kind of 0:03:20.840 --> 0:03:25.679 fearful of that were the Grantham Foundation cut back its 0:03:25.840 --> 0:03:29.120 short position in NASDEK. Didn't eliminate it, by the way, 0:03:30.360 --> 0:03:34.480 but it cut it back in honor of the January rally. 0:03:34.880 --> 0:03:38.600 And we look back at what happened in two thousands. 0:03:38.640 --> 0:03:42.400 There are only a handful of great bubbles that look 0:03:42.480 --> 0:03:45.440 like this one, and the one that looks most like 0:03:45.560 --> 0:03:49.360 it is the great tech bubble of two thousand and 0:03:49.600 --> 0:03:53.800 During two thousand, the blue chips continued to go up, 0:03:55.120 --> 0:03:58.360 and they shot the dot coms, and then they shot 0:03:58.400 --> 0:04:00.760 the junior growth stocks, and then the meat im growth stocks, 0:04:00.760 --> 0:04:04.720 and finally the great ciscos of that era. And by 0:04:04.760 --> 0:04:08.400 the end of the year, the NAS deck was down, 0:04:10.080 --> 0:04:13.200 and a lot of the growth stocks, because the NAZ 0:04:13.240 --> 0:04:15.120 deck is a little more diverse by a lot of 0:04:15.160 --> 0:04:18.200 the growth stocks were probably down about an average of 0:04:18.480 --> 0:04:23.479 fifty or sixty. It was a blood and that pretty 0:04:23.560 --> 0:04:28.480 much sums up what happened to highly speculative speculative stops 0:04:28.560 --> 0:04:32.560 last year. Don't you think I mean they were They 0:04:32.560 --> 0:04:39.600 were taking all manner of grief. Kathy woods portfolio was 0:04:39.680 --> 0:04:45.200 down I don't know sixty so and so what happened 0:04:45.279 --> 0:04:49.080 in two thousand and one. January two thousand and one 0:04:49.240 --> 0:04:53.000 was up twelve percent, led by the specs that had 0:04:53.000 --> 0:04:56.400 been wiped out the previous year. This seems, you know, 0:04:56.760 --> 0:04:59.320 so boring as to hardly be worth commenting on, but 0:04:59.520 --> 0:05:05.320 that is a exactly what happened this year. And one 0:05:05.320 --> 0:05:08.560 of the proofs is if you take the Order of 0:05:08.680 --> 0:05:12.280 Horror last year and flipped it, that is precisely the 0:05:12.400 --> 0:05:16.800 Order of Heroics this year. And I own one of 0:05:16.800 --> 0:05:21.240 these by accident. Eight years ago. The biggest investment I 0:05:21.360 --> 0:05:26.320 ever made was in quantum escape, brilliant research enterprise doing 0:05:26.360 --> 0:05:29.360 solid state battery work, but it doesn't have a product 0:05:29.440 --> 0:05:31.520 yet and won't for a couple of years and so on. 0:05:31.839 --> 0:05:34.440 So it was right at the top of the list. 0:05:34.480 --> 0:05:40.479 And it did utterly, brilliant, brilliantly in twenty twenty, and 0:05:41.040 --> 0:05:44.400 it came out at ten as a spack four times 0:05:44.440 --> 0:05:48.080 my money. Yeah, not bad over eight years, not great, 0:05:48.160 --> 0:05:50.679 but pretty good. And then it went to one hundred 0:05:50.720 --> 0:05:55.000 and thirty one fifty two billion dollars for a second 0:05:55.040 --> 0:05:58.440 bigger than General Motors or Samsung as a battery company, 0:05:59.080 --> 0:06:01.560 no sales over venues for a few years to come. 0:06:02.040 --> 0:06:04.880 It had become a meme stock, but I was too 0:06:04.880 --> 0:06:07.440 close to it and too heavily involved to really see that. 0:06:07.640 --> 0:06:12.479 I understood the meme stocks, and I thought this was 0:06:12.480 --> 0:06:16.839 pretty impressive at one hundred and thirty fifty two times 0:06:16.920 --> 0:06:20.400 my money. And suddenly I had a holding that was 0:06:20.440 --> 0:06:22.960 worth six hundred and twenty five million, far and away 0:06:23.000 --> 0:06:26.520 the biggest, I mean by more than ten times the 0:06:26.520 --> 0:06:30.800 biggest holding I ever had, probably twenty five times the biggest. 0:06:31.320 --> 0:06:33.279 And then it started to decline, and it was the 0:06:33.320 --> 0:06:35.680 first one to decline. Why not that's how the great 0:06:35.680 --> 0:06:39.359 bubbles start. By the way, they don't start with Coca Cola. 0:06:39.400 --> 0:06:43.160 They start with the craziest, most advanced stock, and that 0:06:43.279 --> 0:06:49.120 was Quantum Scale. It started down in December twenty twenty. 0:06:50.080 --> 0:06:52.680 Early in twenty twenty one, the meme stocks joined it, 0:06:52.880 --> 0:06:58.800 and Cathy Woods's portfolio got into step, and they all 0:06:58.839 --> 0:07:02.839 started to go down. Everyone said, well, it's a great ballmarkt. 0:07:02.839 --> 0:07:05.440 The SMP was going up, but anyone who won't stops 0:07:06.160 --> 0:07:10.920 news differently, and they went down handsomely. And then into 0:07:11.240 --> 0:07:15.240 twenty twenty two they continued to go down, and by 0:07:16.120 --> 0:07:20.120 December twenty twenty two, Quantum Escape was five point one. 0:07:20.120 --> 0:07:22.760 Now this is pretty a pretty good trip. Comes at ten, 0:07:23.480 --> 0:07:26.160 goes to one hundred and thirty one, and it's now 0:07:26.240 --> 0:07:29.840 five point one in December of last year. So what 0:07:29.880 --> 0:07:32.680 did it do in January? Yeah, that led the way, 0:07:32.800 --> 0:07:36.200 went up one hundred and twenty percent, not bad for 0:07:36.520 --> 0:07:39.640 four or five six weeks, and then right behind it 0:07:39.880 --> 0:07:43.200 at Kathy Woods's portfolio, I don't know, up forty percent, 0:07:44.000 --> 0:07:47.600 and then the meme stops thirty forty fifty sixty percent 0:07:47.720 --> 0:07:50.320 rallies all the way down the line. It was it 0:07:50.360 --> 0:07:52.960 was perfect. It was almost too good to be true. 0:07:53.080 --> 0:07:58.480 It was eerie in its orderliness. Anyway, that's what happens, 0:07:58.920 --> 0:08:04.240 and it didn't stop the decline. In two thousand and one, 0:08:05.160 --> 0:08:07.720 they had a brilliant twelve percent January. The year was 0:08:07.760 --> 0:08:14.520 down twenty The nasdack, which had been down in two thousand, 0:08:15.440 --> 0:08:20.080 went down twenty percent the following year and thirty percent 0:08:21.480 --> 0:08:24.640 in two thousand and two. That is what happens in 0:08:24.680 --> 0:08:28.680 the great bubbles. They have wonderful rallies. They can have 0:08:28.800 --> 0:08:32.680 spectacular January rallies because they have more tax lost selling 0:08:32.679 --> 0:08:37.680 than any other situation. And this has been following the 0:08:37.800 --> 0:08:42.560 lead of two thousand perfectly. Cheremy, I wonder um. First off, 0:08:42.559 --> 0:08:44.640 I heard those sirens coming. I thought the bulls had 0:08:44.679 --> 0:08:47.000 sent some some police to pick Cheremie up there for 0:08:47.040 --> 0:08:50.640 a minute. I don't know where. But you're still I 0:08:50.679 --> 0:08:55.679 didn't even I didn't even hear I think, but well, 0:08:55.720 --> 0:09:00.160 that parallel to the dot com bubble, do you think, well, 0:09:00.160 --> 0:09:02.760 that go from peak all the way to trough? Because 0:09:03.600 --> 0:09:06.200 you know, I don't have a chart in front of me, 0:09:06.240 --> 0:09:09.240 but I believe the bottom wasn't until two thousand and three, right, 0:09:09.240 --> 0:09:12.800 So you know, the bottom was in late two thousand 0:09:12.880 --> 0:09:14.920 and two, two thousand and two, Okay, but that would 0:09:14.920 --> 0:09:18.000 still mean we've got, you know, quite a long you know, 0:09:18.040 --> 0:09:22.080 the forget about the Y access, that X access has 0:09:22.120 --> 0:09:24.199 got quite a bit of runway left till the bottom. 0:09:24.280 --> 0:09:27.240 Is that? Is that how you're thinking about it? Yeah? 0:09:27.520 --> 0:09:30.760 Mostly the great bubbles when they break, they take a 0:09:30.760 --> 0:09:36.200 long time. There there's an exception, but they typically take 0:09:36.600 --> 0:09:39.720 a couple of years, three years, and every now and 0:09:39.760 --> 0:09:42.400 then they get rid of it in a real hurry. 0:09:42.480 --> 0:09:46.000 But my guess was this was going to be a long, 0:09:46.440 --> 0:09:49.760 a long one. The buy into the idea that stocks 0:09:49.840 --> 0:09:54.520 only go up, and the amount of speculative craziness that 0:09:54.640 --> 0:09:59.880 was set in train by the by the COVID supplement 0:10:00.200 --> 0:10:05.679 payments meant the individual participation was actually off the scale, 0:10:06.280 --> 0:10:09.640 bigger than two thousand, bigger than the dot com And 0:10:09.720 --> 0:10:12.440 so this looked like it would have a whole lot 0:10:12.440 --> 0:10:15.920 of by the dip from day one, and it's had 0:10:15.960 --> 0:10:18.680 a lot of by the dip. But but two thousand 0:10:18.920 --> 0:10:23.720 had some wonderful rallies and even in nineteen twenty nine 0:10:24.520 --> 0:10:28.880 it rallied almost forty five percent off the lows of 0:10:28.960 --> 0:10:36.000 twenty nine until April of nineteen thirty. Hell of a 0:10:36.080 --> 0:10:39.360 rally must have made people feel that the worst was over. 0:10:39.600 --> 0:10:42.040 And then it rolled over and went down, as you know, 0:10:43.240 --> 0:10:47.640 infinitely almost down well over eighty percent on the SMP, 0:10:47.880 --> 0:10:51.800 and most of the speculative index went down ninety five 0:10:51.840 --> 0:10:55.360 give or take anyway. Let's hope we don't go there, 0:10:55.960 --> 0:10:59.600 but it just gives you an idea. Great bear markets 0:10:59.640 --> 0:11:04.120 can have wonderful rallies. Great bear markets can take their time. 0:11:04.920 --> 0:11:08.120 And we have a very very recent one where quite 0:11:08.120 --> 0:11:12.400 a few players in today's market experience two thousands and 0:11:12.480 --> 0:11:16.240 it went on for three painful years, and and and 0:11:16.400 --> 0:11:19.840 the housing bust, you know, was a quick one, but 0:11:20.400 --> 0:11:24.040 not that quick, you know, it took over a year 0:11:24.559 --> 0:11:28.800 of pretty steady declines. So my guess is this one 0:11:28.960 --> 0:11:32.640 will not bottom until deep into next year. Well so, 0:11:32.920 --> 0:11:35.840 h three straight years of losses, do you think? I 0:11:35.880 --> 0:11:38.920 do think? I think there is a biting chance that 0:11:39.000 --> 0:11:41.440 this year will not be down that much, and a 0:11:41.600 --> 0:11:43.640 very good chance, as I said in my letter, that 0:11:45.440 --> 0:11:52.320 that through April it might easily be up. And that's 0:11:52.720 --> 0:11:56.080 the presidential cycle, right, yeah, yeah, talk talk to us 0:11:56.080 --> 0:12:01.480 about that. I don't think many people quite appreciate that signal. No, 0:12:02.240 --> 0:12:05.760 you don't have many professionals talking about presidential cycles. It 0:12:05.840 --> 0:12:08.640 sounds too simple. It doesn't sound like something you could 0:12:08.720 --> 0:12:13.240 charge a good feed for. The January effects and the 0:12:13.360 --> 0:12:18.240 January rally jitter. These are considered far too simple to 0:12:18.280 --> 0:12:21.800 talk about, and it's probably why they work so well. 0:12:22.440 --> 0:12:26.440 Our first account at DMO forty five years ago involved 0:12:26.520 --> 0:12:29.920 both the January effect and the presidential cycle. It would 0:12:29.920 --> 0:12:32.480 worked for forty five years before that, and it's worked 0:12:32.520 --> 0:12:36.439 for the forty five years of dmo's career. And we 0:12:36.520 --> 0:12:40.520 typically have not used it, however, for the same reason 0:12:40.559 --> 0:12:43.319 that no one else does. But it's been a pet 0:12:43.320 --> 0:12:47.440 of mind forever. The presidential cycle is about as simple 0:12:47.480 --> 0:12:50.920 and straightforward and as understandable as anything in the stock market. 0:12:51.360 --> 0:12:56.160 What it says is that administrations like to be reelected 0:12:56.720 --> 0:13:01.319 and they like to help their party. So you worked out, eventually, 0:13:02.600 --> 0:13:06.240 what is it that appeals to the elector. It's the 0:13:06.480 --> 0:13:10.120 state of the labor market in the sixth month run 0:13:10.200 --> 0:13:14.520 up to the election. Anything that happens before that is forgotten. 0:13:14.640 --> 0:13:17.640 You can be brilliant for the first two years, terrible 0:13:17.679 --> 0:13:21.640 for year three, and your toast. It really doesn't matter. 0:13:21.760 --> 0:13:24.800 It's the run up to the election for six months now. 0:13:24.960 --> 0:13:27.600 The economy, as we've all discovered over and over again, 0:13:28.600 --> 0:13:31.480 it's a kind of lagging instrument. You kick it and 0:13:31.559 --> 0:13:34.320 it takes a year or so before it says out. 0:13:34.640 --> 0:13:40.400 So you better start stimulating quite a bit before the 0:13:40.440 --> 0:13:42.600 six months running up to the election. You want to 0:13:42.640 --> 0:13:46.920 get the labor market improving. You want to start when 0:13:48.240 --> 0:13:53.360 the presidential cycle effect starts, which is October, approximately October 0:13:54.440 --> 0:13:59.520 of the second year, last October through April of this year. 0:14:00.440 --> 0:14:10.480 That window of eight months, seven months is what it takes, 0:14:10.559 --> 0:14:13.680 because that gives you a little over a year to 0:14:13.800 --> 0:14:16.640 have it grind through and then start pushing up on 0:14:16.679 --> 0:14:20.680 the labor market. And would you believe that that's exactly 0:14:20.760 --> 0:14:24.080 what happens since nineteen thirty two, This is not yesterday. 0:14:24.160 --> 0:14:29.840 Since nineteen thirty two, those seven months have equalled the 0:14:29.960 --> 0:14:33.280 remaining forty one months of the presidential cycle. Don't believe me. 0:14:33.440 --> 0:14:36.000 Check it take you a while, but it's worth it. 0:14:36.680 --> 0:14:42.160 Those seven months therefore have seven times the monthly power 0:14:42.840 --> 0:14:47.240 of the rest of the cycle. Seven times. Wow. So 0:14:47.400 --> 0:14:51.400 what is happening this time? Would you believe since October 0:14:51.400 --> 0:14:55.920 the first markets up decently. My guests, through April it 0:14:55.960 --> 0:15:01.640 will stay up. I know that unexpected bears that Morgan 0:15:01.720 --> 0:15:05.280 Stanley and so on are talking about Apelli immediate decline 0:15:05.520 --> 0:15:10.920 that may occur, but my guest, it's hard to get 0:15:10.920 --> 0:15:16.600 this market really down until we get rid of April. 0:15:17.520 --> 0:15:22.760 And as the old saying goes selling may and go 0:15:22.840 --> 0:15:26.480 away and don't come back to a labor day, the 0:15:26.560 --> 0:15:30.840 old kind of nineteen twenties saying goes back. It's the 0:15:30.880 --> 0:15:33.560 midst of time about the stock market. And this is 0:15:33.640 --> 0:15:35.920 part of the reason it works, because in year three 0:15:36.160 --> 0:15:41.800 it really really works. And after April you're on your own. 0:15:42.000 --> 0:15:45.960 It's a kind of normal market through the election, and 0:15:46.000 --> 0:15:49.680 then year one and two typically our tough years where 0:15:49.800 --> 0:15:54.120 a sensible administration recycles to keep the whole thing going 0:15:54.280 --> 0:15:59.000 again the next time. You take some pain when it 0:15:59.040 --> 0:16:02.080 doesn't matter political in order to be able to stimulate 0:16:02.120 --> 0:16:05.440 when it does matter in year three. So that's what 0:16:05.520 --> 0:16:09.640 I think is going to happen. That's the timeout. Those 0:16:09.640 --> 0:16:15.200 two influences together created my point about the time up. 0:16:15.360 --> 0:16:18.600 After a timeout, back to the meat grind. It now 0:16:19.560 --> 0:16:26.640 all of the original problems rising rates, relatively slow burning inflation, 0:16:26.800 --> 0:16:31.680 intractable inflation. It's always intractable, bearing down on the market. 0:16:31.720 --> 0:16:35.920 The war, of course, like many wars, doesn't easily go 0:16:36.000 --> 0:16:40.480 away either. So we and COVID has a long reach. 0:16:41.280 --> 0:16:43.760 We have a lot of little bottle on e effects 0:16:43.800 --> 0:16:48.400 that are still echoing through the system, and it brings 0:16:48.400 --> 0:16:55.120 it up, brings up another important theory of mind, and 0:16:56.560 --> 0:16:58.600 that is our next paper, which will be called the 0:16:58.680 --> 0:17:02.680 Long Term is Now. Because we have been harping on 0:17:02.840 --> 0:17:07.639 long term problems sometimes for fifteen twenty years, like climate change, 0:17:07.680 --> 0:17:10.520 one day will bite you. It'll be a huge influence 0:17:10.560 --> 0:17:14.560 on your portfolio. The growth rate of the economy is 0:17:14.600 --> 0:17:19.080 slowing down steadily. It will eventually start to impact profit margins. 0:17:19.119 --> 0:17:21.960 One day. We're running out of resources. Whether you like 0:17:22.040 --> 0:17:27.960 it or not, We're going to have rolling series of 0:17:28.000 --> 0:17:31.760 shortages and bottlenecks in resources. And finally we're running out 0:17:31.760 --> 0:17:35.360 of people. And we're running out of people even faster 0:17:35.480 --> 0:17:39.439 than I picked up ten years ago. It seems to 0:17:39.480 --> 0:17:43.480 be accelerating now. If you run out of people, that 0:17:43.680 --> 0:17:46.560 means you run out of labor. It feels inflationary, doesn't it. 0:17:46.960 --> 0:17:49.680 Do you run out of resources. You run out of 0:17:49.760 --> 0:17:53.080 cheap copper and you run out of cheap lithium, it 0:17:53.080 --> 0:17:59.280 feels inflationary, and if COVID is hanging around, it feels inflationary. 0:17:59.320 --> 0:18:03.800 If you're deglobalizing global trade. Some of the reasons for 0:18:03.920 --> 0:18:08.840 doing that security are really very good reasons. But deglobalizing 0:18:09.000 --> 0:18:13.840 is an inefficient, inflationary process. Anything that's inefficient tends to 0:18:13.920 --> 0:18:17.800 push out the prices. Compared to a world where if 0:18:17.800 --> 0:18:21.400 you are globalizing, you're outsourcing your jobs to the cheapest 0:18:21.400 --> 0:18:23.960 pool of money and the cheapest pool of workers in 0:18:24.000 --> 0:18:28.000 the world. When you're onsourcing, you're doing the reverse. Great 0:18:28.000 --> 0:18:30.920 for the workers as long over the due, but it's 0:18:30.960 --> 0:18:35.480 not great for profit margins, and it's not great or inflation. 0:18:36.080 --> 0:18:38.280 So I think all of these long term factors are 0:18:38.320 --> 0:18:42.000 beginning to buy this will make this particular down leg 0:18:42.520 --> 0:18:47.280 more dangerous and perhaps worse than we anticipated, and perhaps 0:18:47.359 --> 0:18:56.400 make it go on the long So before we get 0:18:56.480 --> 0:18:59.679 to more of those long term factors that you were 0:18:59.680 --> 0:19:01.800 just about when you and I spoke a couple of 0:19:01.800 --> 0:19:04.760 weeks ago, you said, the range of problems we have 0:19:05.040 --> 0:19:08.119 right now is greater than it usually is. And obviously 0:19:08.160 --> 0:19:11.160 you have decades of experience. So it is it those 0:19:11.200 --> 0:19:13.560 things that you you were just talking about, the war 0:19:13.720 --> 0:19:18.000 in Ukraine and some of the supply chain issues that 0:19:18.040 --> 0:19:21.200 we're still that are still lingering. Is that what you're 0:19:21.520 --> 0:19:24.760 you're referencing or what is it about the current times 0:19:24.800 --> 0:19:29.920 that's so different or difficult? It's those two things coupled 0:19:30.000 --> 0:19:36.359 with global politics, the Cold War coming back and the 0:19:36.440 --> 0:19:44.600 deglobalizing that we will we are embarking on. And compounding 0:19:44.640 --> 0:19:48.439 that is, the running out of resources, running out of people, 0:19:48.840 --> 0:19:55.480 and climate change are all biting into that equation, interacting 0:19:55.520 --> 0:19:59.399 with it, making it worse. And in that sense, you 0:19:59.440 --> 0:20:03.080 could not have at a worse time. And all of 0:20:03.080 --> 0:20:06.399 this is occurring on the down leg of one of 0:20:06.440 --> 0:20:10.400 the great bubbles breaking. They have never been very good 0:20:11.080 --> 0:20:13.679 two thousand. By the way, it was a very benevolent 0:20:13.720 --> 0:20:16.480 bubble in that sense. It didn't have a savage recession. 0:20:16.880 --> 0:20:19.840 It didn't have any wars, it didn't have any deglobalizing, 0:20:19.960 --> 0:20:23.800 It wasn't running out of anything. The nazteck went down 0:20:23.840 --> 0:20:26.680 eighty two percent, the SMP went down fifty percent. There 0:20:26.840 --> 0:20:30.080 was a recession. There was a huge recession after nineteen 0:20:30.080 --> 0:20:33.399 twenty nine, there was a huge recession after the nifty 0:20:33.480 --> 0:20:36.760 fifty run up of nineteen seventy two, and there was 0:20:36.960 --> 0:20:39.159 the biggest bubble of all time. By the way, is 0:20:39.280 --> 0:20:45.359 Japan who did a duel bubble in land real estate 0:20:45.440 --> 0:20:51.160 and the stomacht in picking in nineteen eighty nine. And 0:20:51.280 --> 0:20:53.560 what was that followed by? It was followed by twenty 0:20:53.640 --> 0:20:55.919 last years. If you look at the fifty years in 0:20:56.000 --> 0:21:00.280 Japan before nineteen eighty nine, it was like Para guys, 0:21:00.320 --> 0:21:02.560 one of the fastest growing countries on the planet, if 0:21:02.600 --> 0:21:04.800 not the fastest. And then you look at the thirty 0:21:04.880 --> 0:21:10.600 years since then, they have barely grown that That double 0:21:10.720 --> 0:21:17.399 barreled bubble and the land was the biggest bubble in history. 0:21:17.400 --> 0:21:19.560 It was worse than the Tulip bubble. It was worse 0:21:19.600 --> 0:21:22.960 than the Sausa bubble. It was the biggest, most spectacular 0:21:23.000 --> 0:21:25.400 bubble of all time. And the land under the Empress 0:21:25.440 --> 0:21:29.720 Palace really did sell for more than California. I mean, 0:21:29.720 --> 0:21:32.960 it was valued at more than the entire state of California. 0:21:33.040 --> 0:21:37.960 It was crazy. It was more than ten times downtown Manhattan, 0:21:38.119 --> 0:21:43.440 in downtown Tokyo, and you pay a high price, and 0:21:43.560 --> 0:21:46.320 happily this bubble is not as bad as that, but 0:21:46.440 --> 0:21:51.959 it has more ancillary and negatives coming in. And the 0:21:52.000 --> 0:21:55.520 first phase of a bubble is pretty simple. You take 0:21:55.560 --> 0:21:58.040 out the pin for whatever reason. All you have to 0:21:58.080 --> 0:22:00.600 do is convince people that it's not pared ice forever, 0:22:00.960 --> 0:22:03.119 which is what they believe at the top of the bubble, 0:22:03.400 --> 0:22:06.200 and so it goes down pretty fast. Leg one always 0:22:06.240 --> 0:22:09.399 has a terrific rally, and then it gets into the 0:22:09.480 --> 0:22:13.960 much more complicated phase three, which is the fundamentals. The 0:22:13.960 --> 0:22:18.800 fundamentals have been artificially inflated by crazy optimism and by 0:22:19.200 --> 0:22:22.880 a long drawn out perfect economy, and all of that 0:22:23.359 --> 0:22:26.760 is turning against you. And the question is how bad. 0:22:27.000 --> 0:22:31.000 Is it going to be mild like two thousand, Is 0:22:31.000 --> 0:22:34.760 it going to be tragic like nineteen twenty nine. Is 0:22:34.800 --> 0:22:37.000 it going to be long and drawn out like Japan? 0:22:38.440 --> 0:22:41.800 Is it going to be very painful? Indeed, like the 0:22:41.880 --> 0:22:47.320 housing bubble that will need unprecedented daylight. It's bad news. 0:22:47.359 --> 0:22:49.199 You don't want to mess with bubbles. I hold it 0:22:49.240 --> 0:22:52.800 against the Federal Reserve. Of course, they created an environment, 0:22:52.960 --> 0:22:55.959 pushed up the price of all assets, all every asset 0:22:56.000 --> 0:23:00.199 on the planet, and then they step back as just 0:23:00.280 --> 0:23:03.920 something to do with them when these bubbles eventually break, 0:23:05.080 --> 0:23:08.159 as they have done in two thousand and the housing 0:23:08.160 --> 0:23:10.760 bubble of two thousand and six, two thousand and seven, 0:23:11.560 --> 0:23:14.480 and oh my god, no one could have seen this coming. 0:23:15.160 --> 0:23:19.160 These events they stick out of the database like him 0:23:19.160 --> 0:23:24.080 Alayan peaks out of a playing Guys, do not kid yourself. 0:23:24.119 --> 0:23:27.040 You couldn't miss nineteen twenty nine, You couldn't miss nineteen 0:23:27.080 --> 0:23:30.879 seventy two. You could not possibly miss two thousand, thirty 0:23:30.880 --> 0:23:34.399 five times earnings. Anyone knows that thirty five times earnings 0:23:34.480 --> 0:23:36.960 is pretty high. The previous high in nineteen twenty nine 0:23:37.000 --> 0:23:40.760 it was twenty one times. Thirty five is significantly higher 0:23:40.800 --> 0:23:43.520 than twenty one. In Japan, it actually got to sixty 0:23:43.520 --> 0:23:47.439 five times earnings, of course, the biggest one in history. Well, Jeremy, 0:23:47.560 --> 0:23:50.280 let me let me interrupt real quickly, because you did 0:23:50.280 --> 0:23:53.159 mention the FED policy and the role it played in 0:23:53.280 --> 0:23:56.159 creating this bubble. So just to bring that into the 0:23:56.160 --> 0:23:59.719 present tense, you know, this week Jerome Palets testified before Congress. 0:23:59.760 --> 0:24:02.960 He was a little bit more hawkish than you know, 0:24:03.000 --> 0:24:06.360 the markets had expected, or at least the market response 0:24:06.400 --> 0:24:11.280 to it suggests that he surprised markets with his hawkishness. 0:24:11.800 --> 0:24:14.440 You know, the thinking is now the FED funds rate 0:24:14.440 --> 0:24:16.879 could get as high as five and a half six percent. 0:24:18.080 --> 0:24:21.880 Talk to us about what pal is doing. Is he 0:24:22.000 --> 0:24:26.240 being aggressive enough? Not aggressive enough? Um? And will it work? 0:24:26.440 --> 0:24:28.840 You know, will we he? You know this, the Fed 0:24:28.880 --> 0:24:32.800 alone be able to normalize inflation or or all those 0:24:32.840 --> 0:24:37.800 other things that you're talking about, deglobalization, a lack of 0:24:37.840 --> 0:24:41.520 resources of course not No, they don't have that kind 0:24:41.560 --> 0:24:46.199 of pilot. They yeah, well they can mess around with interest, right. 0:24:46.359 --> 0:24:50.560 They have hardly gotten anything right since Alan Green's been 0:24:50.840 --> 0:24:54.639 first arrived. Paula Boca knew what he was doing, but 0:24:54.720 --> 0:24:59.600 since then it's been a long continuous horror ship. They've 0:24:59.640 --> 0:25:02.840 engaged in policies to drive up the prices of assets, 0:25:03.040 --> 0:25:08.680 other things being even, and create spectacular overpriced bubbles. They 0:25:08.720 --> 0:25:11.960 then break, because that's what bubbles have to do. They 0:25:12.080 --> 0:25:17.200 simply break of their own extreme overpricing, and we pay 0:25:17.240 --> 0:25:21.119 a very tough price. And then the Fed racist to 0:25:21.160 --> 0:25:25.960 the rescue. Oh dear, the wreckage of two thousand. They 0:25:26.040 --> 0:25:28.840 came in and they prevented it, the SMP from going 0:25:28.880 --> 0:25:31.000 down more than fifty percent, which it would have done. 0:25:31.600 --> 0:25:37.879 They with moral hazard, lots of aggressive language, and reduction 0:25:38.040 --> 0:25:43.160 in rates. They managed to curtail that at fifty. They 0:25:43.200 --> 0:25:47.440 couldn't stop a recession. They didn't stop the nazdec going 0:25:47.440 --> 0:25:50.040 down eighty two. They threw the kitchen sink at it. 0:25:50.880 --> 0:25:55.600 And then what happened to Bananche? He's facing a housing bubble, 0:25:55.800 --> 0:25:59.040 he says, Oh, the US housing has never declined. It 0:25:59.080 --> 0:26:01.840 never had it isn't ever had a bubble before. It 0:26:01.960 --> 0:26:05.879 didn't have to decline. It was famously diversified between California 0:26:05.960 --> 0:26:09.240 going up and Florida going down, etc. Or vice versa. 0:26:10.400 --> 0:26:13.040 And then he said, the US housing market merely reflects 0:26:13.080 --> 0:26:16.479 the strong US economy. The US housing market has a 0:26:16.480 --> 0:26:19.320 long historical record. You could measure it. It was a 0:26:19.320 --> 0:26:22.919 three segment event, which is the kind of event in 0:26:22.960 --> 0:26:26.520 a normal series that would occur every hundred years. And 0:26:26.680 --> 0:26:29.639 all his staff could see that. No one apparently plucked 0:26:29.720 --> 0:26:32.720 up the courage to tell him, so he could apparently 0:26:32.800 --> 0:26:36.639 believe that the housing market was unremarkable. The housing market 0:26:36.680 --> 0:26:40.120 back then was beautifully well behaved as a bubble. It 0:26:40.200 --> 0:26:43.879 went up and then it came down in a beautiful 0:26:44.240 --> 0:26:49.120