Jeremy Grantham, Bubble Historian

Jeremy Grantham's favorite books:

Jeremy Grantham's partners at GMO:

Met Mayo and Van Otterly at Keystone Funds in 1968
Keystone offered him a job when Fidelity turned him down
Mayo arrived three months after Jeremy joined, while Van Otterly was already there for a year

GMO today:

Mainly an institutional money manager
Trying to expand into private wealth management
Jeremy Grantham's role is focused on long-term underrated problems and impact investing

Quality as an investment factor:

Quality has a claim on being the most mispriced characteristic in the market
High-quality companies have stable returns, low debt, and are less vulnerable to financial crises or economic problems
Quality stocks tend to outperform over time due to their stability and lower risk profile

Factors that contributed to the success of FAANG stocks:

Relatively lax antitrust policy allowed these companies to monopolize their respective markets
These companies expanded horizontally into different industries, increasing their growth potential and market dominance

Jeremy Grantham's views on current valuations and forecasted returns:

He believes we are currently in a major bubble based on historical valuation indicators
The seven-year asset class forecast predicts negative real returns for the next seven years, similar to previous bubbles' aftermaths
He acknowledges that this forecast may be challenging if the market continues to respond differently than it has historically

Market behavior during bubbles:

Typically, leadership shifts from high-beta stocks with high growth rates to blue-chip stocks as the bubble nears its peak
This pattern has occurred in previous bubbles, including 1929, 1972, and 2000
Recent market behavior with the decline of high-growth stocks and the rise of blue-chip stocks aligns with this pattern

Inflation's impact on markets:

The market dislikes inflation spikes and prefers stable inflation around 2%
High profit margins are favored by the market, while unstable growth rates are not as well-received
The current gap between actual PE ratios and predicted levels suggests a potential bubble driven by these factors

Jeremy Grantham's experience during the financial crisis:

He faced significant challenges when clients left due to his bearish views on the market before the crisis
Some clients tried to come back later, but he lost half of his business in a short period

Toxicity and Declining Population:

Insects are experiencing a significant decline in biomass, down 50% to 75%, with a decrease of about 2% per year.
Male sperm count in the developed world has dropped by 60% since World War II.
There is a declining interest in procreation due to toxicity, leading to societies like South Korea and Japan having low fertility rates (South Korea's fertility rate is 0.8).
The toxic environment is affecting hormones and reducing the desire for procreation.
Toxicity also impacts overall health, such as increasing maternal mortality rates.

Get-out-of-jail-free cards:

Choosing to have fewer children can lead to a lower population over time.
Synthetic food production using industrial plants, such as imitation meat produced from microbes, could feed populations sustainably.
Developing synthetic materials through microbial processes could reduce the need for environmentally damaging resources like concrete and steel.
Access to cheap green energy, including solar, wind, storage, fusion (possible), geothermal (possible), and naturally occurring hydrogen (long shot), would aid sustainability efforts.

Investment ramifications:

Thu Sep 21 2023