Jeremy Grantham on why this market will fall by 50% but nobody will warn you

Carbon dioxide has risen from 280 ppm to 430 ppm and with continued semi-committed efforts will reach 550 ppm, resulting in approximately 3°C warming from current 1.5°C baseline, with each degree of warming causing more destabilization than previous models predicted.

“We act at half the speed. So, we're going to have a carbon count which used to be 280 is now 430. It's going to go to maybe 550 with our semi- halfbaked efforts. But, but getting better and at 550 be lucky to have 3° centigrade up from today's 1 and a half. And each one seems to be more stabilizing destabilizing than we thought.”

The US is likely facing a 10-year decline in relative performance because it has 2/3 of global market cap and historically mean-reverts, making emerging and developed ex-US markets likely to outperform as multi-year rotation cycle.

“I think it might it is probably facing a a 10-year decline. And just to remind you, it seemed perfectly obvious and I said this at conference and there was a you know when you say something controversial you hear that and people looked at me and they and of course the questions were all about how can you say that because everybody extrapolates and I I I find it puzzling that people don't learn the lessons of history.”

SPACs should be illegal and immoral because they systematize the process of taking speculative pre-commercial companies public, bypassing traditional IPO scrutiny and enabling bubble dynamics with no genuine business fundamentals.

“And um unexpectedly it it came public as a spack which I hate. I think they should be illegal, immoral. They certainly are immoral and they should be illegal.”

Schiller found that if you were clairvoyant about actual future earnings and dividends and discounted them back, the real stock market was about 17 times more volatile than was justified by the fairly steady path of actual earnings and dividends, indicating markets constantly extrapolate today's conditions much too high or much too low.

“this is why Schiller found that if you were clairvoyant about the actual earnings into the future earnings in dividends and you discounted them back that the real stock market was about 17 times more volatile than was justified by the fairly steady path of actual earnings and dividends that we were on paper meant to be discounting. So it was clear we were not doing that at all. We were constantly extrapolating today's conditions.”

Wind, solar, and battery storage have all improved far more than expected over 30-40 years, and in 80% of the world these are now 'simply cheaper than coal or natural gas,' even accounting for delivery costs, making the transition to renewables economically rational rather than just morally necessary.

“wind solar and storage in particular have all been much better much better if you go back 30 40 years we have done much better on earth than we ever expected and in 80% of the world wind solar and storage is simply cheaper er than a coal or natural gas.”

Electric vehicles have improved dramatically: today's EVs have 400+ miles of range, are approaching 500 miles in 1-2 years, charge 80% in 10-12 minutes, eliminating the main barrier of range anxiety and charging time, making EVs functionally competitive with gas vehicles.

“today um you can you can get vehicles with over 400 miles of of deliverable range and they're on the cusp of 500 u in the next year or two. And um and they charge quicker and quicker and you can get one today that will do uh 80% in in in 10 minutes or 12 minutes. So you hardly time to have a cup of coffee and in any case you don't need to recharge cuz 400 miles will take you wherever you want to go.”

Human sperm counts have declined from ~200 units/ml in hunter-gatherer times to ~100 in 1972 (when tracking began) to ~35 today, with acceleration from 1.5%/year (20th century) to 2.5%/year (21st century), driven by plastics and pesticides as endocrine disruptors.

“back in hunter gatherer days there there was 200 units uh per milliliter. Um and by the time the academics got into it in 1972 that was down tound 100 about in round numbers...Now it's 35. And um we have been dropping in the 21st century almost 2 and a half% a year. Can you believe that? And and back in the 20th century, we're dropping at 1 and a half%.”

Japan's fertility rate is 1.2 and South Korea's is 0.7, while China is 1.0 and India is 1.9 (20 years ahead of projected 2050-60 schedule), meaning the two most populous nations are not replacing population and will experience guaranteed workforce shrinkage regardless of policy interventions.

“Not surprisingly, you might argue that their fertility rate is 1.2, I think, and South Korea is 0.7. China is 1.0. Um, India shockingly is 20 years ahead of schedule at 1.9. uh no one 20 years ago thought they would get there before 2050 or 60. It is the two biggest countries in the world are not replacing. It is guaranteed that the the population will crash. It is guaranteed that the workforces will continue to slow.”

Japan's 20-year-old cohort is 50% of its 1948 peak, while the US is only 12% below its peak — if the US had Japan's demography it would be 'freaking out,' showing that Japan's cultural acceptance of population decline masks an economic drag that will eventually constrain the US through similar (though slower) demographic pressure.

“The cohort of 20 year olds in Japan is 50% of what it was at its peak in 1948. 50%. If the US was 12% below its peak, it would be freaking out.”

Europe is 'already showing the economic effects' of demographic decline, with European workforce hours declining ~0.5%/year, while the US has been rising ~1%/year (mainly from immigration), a 1.5% annual differential that flows directly to GDP as 'hours worked times productivity,' creating structural economic advantage for immigration-accepting nations.

“Europe is already showing the effects economically and the Americans treat the Europeans now as if Europeans have lost a plot because their euro euros sclerosis and and they they don't know enough to actually look at the workforce differential number of hours worked in Europe has been declining half a percent a year then in the US mainly thanks to immigration now stopped has been rising at closer to one. You have a one one and a half% a year for the last 15 years comes straight out of GDP. Yeah. GDP is hours work times productivity.”

Workforce decline is 'absolutely chronic' and 'guaranteed' — there is 'nothing that will get in the way of declining workforce and therefore declining productivity,' making multi-decade economic headwinds inevitable regardless of policy responses or technological progress.

“It is absolutely chronic. It is guaranteed. There is nothing that will get in the way of a declining workforce and therefore of of declining productivity.”

The most reliable market valuation indicator is the market's total market cap compared to GDP (a cousin of Warren Buffett's measure), which currently shows the market at the highest valuation in history except for the dot-com bubble peak of 2000.

“the most reliable forecaster is a cousin of Warren Buffett's total price of the market compared to GDP. And on that basis, Husman would say the most reliable indicator that he has says that this is the highest market in history above 2000 and uh which is the the contender.”

Insect populations are 'going out of business' due to toxicity, and without insects nature cascades and without nature humans cannot survive, yet this risk cannot be proven due to system complexity and funding limitations for research, creating an unfalsifiable but existentially binding constraint.

“among other things insect life is going out of business and and all the great insect experts like Io Wilson the famous ant spent 4 hours with him bullying him when he was 90 years old probably killed him off and um but they all believe that without insects nature cascades. Yeah. and and and without nature we we don't have a world that is is suitable for humans and eventually we fail. Uh and the problem is they can't prove it.”

The feather analogy: if you throw feathers from a bag from the top of a Florida high-rise in a hurricane, you cannot predict where individual feathers land in the short term, but you can guarantee with certainty that all feathers will eventually hit the ground—bubbles are like gravity.

“you stand on the top of a highrise in Florida in a hurricane and you throw feathers in the air from a big bag of feathers and some of them land a block away in a half minute and some of them like poor canaries from Jamaica get swirled away and can't get out of it and end up in Maine several days later...you know nothing about that in the short term, but you know something about the long term. Sooner or later you can guarantee every feather will hit the ground. And that's like a bubble. It's a gravitational pull. You know with certainty that sooner or later it will come down.”

Kenneth Boulding argued only mad men and economists believe compound growth is possible on a finite planet, yet economics industry systematically ignores resource limitations and treats them as exogenous constraints outside the discipline.

“these are all finite resources. What do you think? Kenneth Bowling said the only people who think you can have compound growth on a finite world are mad men and economists and the economics industry is not interested in resource limitations. is not interested in the fact that this is a finite inheritance that we got that we are gobbling through particularly in the the case of natural gas and oil”

Alan Greenspan was 'laughably wrong' as an investment advisor and consultant before joining the Fed, but upon becoming Fed chairman, he invented 'asymmetric Fed behavior' where the Fed bails out losses but lets gains accrue privately, deliberately creating chain-link bubbles.

“he was so bad that when I'm feeling mean, I used to say he was the only person who was laughed out of business...Then he kind of disappeared bootlicking down in Washington and then reappears as president of the Fed, chairman of the Fed. What the hell is that?”

Endocrine disruptors have 'epigenetic effects' that persist across multiple generations, with some studies suggesting 20 generations of impact for specific pesticides — meaning toxicity today damages fertility for descendants 400-500 years hence, creating an irreversible intergenerational obligation.

“what is terrible about a lot of these endocrine disruptors is they have a what is called an epigenetic effect. It it's not just you but it's your children, your grandchildren, etc. And recent studies suggest that it could go on for 20 generations uh a particular uh u antifung fungus a fungicide.”

Sexual activity is declining across all countries and age groups (per magazine surveys), but a rigorous Japanese study of 8,000 people found that 45% of men and 45% of women ages 20-50 had no sex in the previous 12 months, with males 20-28 at 52% — indicating endocrine disruption is affecting sexual drive at the population level.

“The other thing is it affects our sex drive. Um, it's exactly what you would expect from endocrine disruption. When you test it on rats and mice, their sex drive goes to hell. If you measure anecdotally, even every magazine that that measures sexual activity says every country, every age group dropping like a stone.”

The problem of distinguishing between managers who are 'early' and managers who are 'wrong' is unsolvable in real time and reveals that perfect timing or no action are the only rational strategies given information constraints, but no one has perfect timing so everyone acts together.

“Later. When time has gone by, it will be revealed. Was he merely early but correct? Or was he wrong? And uh you know it's a kind of cliche to say early is wrong. Fine. Then if what's the alternative? Have perfect timing or do nothing ever. And the answer is yes. That is the alternative. They um no one has perfect timing. So everyone stays together and does the same thing and runs off the cliff together.”

Stock picking as an investment approach provided Grantham 15 years of professional satisfaction before becoming repetitive and boring, at which point he successfully transitioned to quantitative investing, then asset allocation, demonstrating pattern of repeated career reinvention.

“I think for a while stock investing was heaven for me. I've got to say that. Picking stocks one by one. There was no insider information. We were the professionals. The locals in small cap value, you know, were relatives of the founders. They were amateurs. We were professionals. Presidents, CEOs were pathetically grateful for us to call. They would spend an hour on the telephone. They would tell us everything we wanted to know. And this is not even remotely like today and it wasn't even remotely fair in a way. Um, it was taking candy and um, yeah, but it was fun as well. And and then it was more of the same and more of the same and more of the same and so after 15 years very quickly I found that if I listen to another broker telling me about quarterly sales, I think I'm going to throw up.”

In the 1973-74 crash, the market declined approximately 65% in real terms (adjusted for inflation), taking no prisoners across all quality levels, making it worse than any crash since and second only to the Great Depression.

“in real terms I think the market went down about 65% and took no prisoners. It was just bad much worse than anything since then. And really by everyone's agreement, the worst one, second only to the Great Depression.”

An individual investor with lower career risk is 'free to look at the data' and see 'giant bubbles appearing' and 'you have to be brain dead not to see it' — meaning bubbles are objectively recognizable to anyone willing to look, but institutions cannot acknowledge them due to systemic incentives.

“an individual who has in some cases much less career risk is actually free to look at the data to see the giant bubbles appearing. You have to be brain dead not to see it and act on it yourself. An institution cannot do that. Will not advise you to do that. But you as an individual can see that.”

The 2022 market break was unusual: all conditions of a major bubble were met (S&P down 25%, Mag 7 down 40%, growth stocks down 30-35%, bonds had worst year in history), but in November ChatGPT was released, which was 'the first bubble that was interrupted by anything that powerful' — a transformative technology that halted the normal crash-recovery cycle.

“Now the great exception is 2022. In 2022 all the conditions of a major bubble are met and it breaks and the S&P drops 25%. the mag 7 drops 40 growth stocks about 30 35 and the bond market has the worst year in its history. But then in uh chat GPT comes out.”

Major firms like Goldman Sachs and JP Morgan will never tell clients to exit the market during bubbles because it is a 'terrible commercial strategy,' even when valuations are extreme, so the individual is always led to believe the market is okay regardless of valuation levels.

“I like to say that's why you will never hear a major sensible firm, Goldman Sachs, JP Morgan, and so on. They will never tell you to get your tail out of the market. They never have. They never will. It's simply a terrible commercial strategy, and they will never do it. So, the individual is always led to believe, however high the market is, that it's kind of okay.”

In 2000, GMO surveyed ~400 equity experts at a major financial analyst conference (1,200 total attendees), and less than 1% believed the market wouldn't mean-revert to ~17.5x PE within 10 years despite trading at 32x, yet none of these experts' employers publicly warned clients about the danger.

“I got them to vote in a epic uh financial analyst meeting with 1,200 people and 400 experts at equities. got them to put their hands up and and uh they all believed that the market in 10 years would go back to 17 and a half and uh and and they all believed that that would guarantee a major bare market. There was less than 1% who who believed that it would not go back to 17 and a half times earnings. It was 32 at the time and it went back of course uh and it guaranteed a major bare market.”

Market timing is theoretically easy to prove based on peak profit margins and PEs, but practically impossible to execute in institutional settings because the uncertainty in bubble cycle duration is consistently longer than client patience, especially in bull markets where clients fire managers before being proven right.

“you would think once you've established that, and you can easily prove it, you would think how easy it is to beat the market. But of course, it isn't because the career risk involved of playing the logical game of going short the bubbles and long the bus is nerve-wracking from a business point of view because the uncertainty in the cycle both up and down is longer than the client's patience. Particularly in a bull market. In a bull market, the client's patience contracts and uh you get fired before you're right.”

Organizations with tens or hundreds of thousands of employees are systematically led by people with very high political skills who follow Keynes' rule 'never be wrong on your own,' ensuring they will not call major turning points regardless of what the engine room believes, because being publicly wrong on their own carries political death.

“The great enterprises, the organizations, nonprofit and corporate, tens of thousands, hundreds of thousands of employees, by definition, they are led by people with very high political skills. Kanes was really clear. The main thing you have to know if you're a politician is never be wrong on your own...And therefore at every any major turning point you you must expect that they will not call it.”

The market breach could have fallen another 20% and Grantham 'would have just about been happy' with a mild recession, but AI capital investments of about 2% of GDP were unprecedented in magnitude (second only to railroads) and reversed a weakening economy, lifting the Mag 7 and eventually the full market to new highs.

“I mean capital investments all over the place second only to the railroads a very big fraction of GDP an increment of you know 2% on GDP was just investments in into AI and if you think that we were drifting down animal spirits allocanes were weakening had that kept going we could have easily fallen into at least a mild recession and the market could have gone down another 20% or so and I would have just about been happy and given it a check.”

We don't have natural programming for long-term thinking ('we have no interest in anything over saving some food for the winter'), so despite loving our grandchildren, we're not programmed to act as if we do, explaining why chemical and pesticide companies knowingly use products they know are toxic while being benevolent parents in personal life.

“we don't do long-term. So, uh, we have no interest in anything over saving some food for the winter. No one, we're not programmed to to to to care at all about the distant future. And we love our grandchildren, but we're not we're not programmed to actually act as if we do.”

Individuals who see obvious bubbles face a dilemma: avoiding them avoids losses but leads to career destruction via underperformance and client loss, while riding them preserves career but destroys wealth.

“if you play that game you will sooner or later be wrong and Kanes would say quote you will not receive much mercy unquote and we can vouch for that since in 2000 doing the right thing for the right reasons and winning the bet uh we nevertheless lost twothirds of our market share”

Every major market peak is characterized by very high profit margins combined with very high price-to-earnings multiples, which Grantham calls 'double counting of the worst variety' since both components are extrapolated upward simultaneously despite mean reversion being historically consistent.

“Every bull market is peak profit margins. 1929, 2000, 2022 and today and uh almost in the housing bubble of '07. You have very very strong earnings and profit margins always used to be mean reverting. High returns attracts capital drives them down and vice versa.”

Keynes argued that extrapolation of current conditions is a rational survival strategy under uncertainty because 'never be wrong on your own' — if everyone extrapolates the same conditions, they are all on the same page and no one loses their job, making it the optimal career strategy even when it creates systemic bubbles.

“he argued that extrapolation is something we adopt to deal with the difficult difficult times. And his point was the cardinal rule. Never be wrong on your own. If you extrapolate today's conditions and everybody does it, you're all on the same page and and that's the thing that really matters in career risk. All all have the same thoughts, all do the same thing, and no one loses their job.”

The most successful new ideas (railroads, internet, AI) are 'guaranteed to suck in more money' because 'everyone can see it will change the world,' and because the idea is obviously wonderful, it's easier to attract excess capital, which guarantees a bubble in capex that no one ever predicts.

“the more obviously wonderful an idea is the more easy the easier it is for them to suck in too much money. Railroads lost everyone's money even though it changed the world. Internet lost everybody money. the the bust in in 2000, Amazon, the great hero of of the internet, it had gone up six or seven times in 18 months and then in the decline it lost 92%”

The foundation published 'Time to Wake Up: The Era of Plentiful Cheap Resources is Gone Forever,' and the underlying equation shifted from technology winning (shortage -2%, technology +3% = -1% prices annually) to shortage becoming competitive (shortage -3%, technology +2% = +1% prices), marking the permanent end of declining real resource prices.

“Our paper was called time to wake up the era of plentiful cheap resources is gone forever. And it has I think it's fair to say that the period we're in now there's much greater awareness of shortages. And I think the equation is shortages the shortage component instead of being minus2 is more like minus3 and the technology component is more like two. So we're we're in a world where shortage is now slightly winning instead of technology slightly winning.”

GMO experienced rapid asset growth from $20B in 2002 to $165B in 2006 by shifting into asset allocation at exactly the right cycle moment when growth investors wanted to redeploy capital, illustrating importance of timing and client demand.

“Just just for the record to give you an idea of what was going on here, we had um the 30 billion in 97 down to 20 billion in in 2002. Um actually uh in 2002 we made a couple of billion. So we were back to 22 and then 4 years later we were 165.”

Grantham started investing immediately after business school because peers reported investing was the most fun business, establishing the importance of intellectual engagement and enjoyment as primary driver of career selection.

“I got into it for the best excuse me, the best possible reason, which was I was looking to have a good time and I just graduated from business school and I bought some time going into management consulting and you don't have to be very smart to realize that's a bit of a waste of time. And um so I spent a year asking my friends from my class what business was the best where was the most fun and by a huge amount that was uh investing.”

Grantham hired one young mathematician (Chris Darnell) from Harvard Business School who was failing despite exceptional Yale credentials, by appealing to intellectual curiosity and contrarian positioning, indicating that intellectual appeal can overcome security bias in rare cases.

“And Chris Darnell who a a business school teacher called called me up and said I I vaguely remember you said to give you a call if anyone interesting came along and I have this guy who was a genius at Yale and finished top of his year by a lot and he's now in danger of flunking out of Harvard Business School. Um and I thought ah perfect because you know Harvard Business School like any business school is a trade school and it's intellectual content is not high and if you're a mathematician Jesus it must have been really boring and it was and he could barely bring himself to go to class and so we met and uh I uh did my best to persuade him that we were thinkers and we were ahead of the curve and u and he joined us despite fabulous offer was elsewhere.”

GMO deliberately advised against clients pursuing investments that looked bad on valuation models even if fashionable (e.g. Japan), and warned growth fund investors that the strategy would end when valuation returned to historical norms, requiring client selectivity.

“we genuinely did not do that. We if we thought a client wanted to do something that was not good for them, we would tell them if they wanted to buy into Japan, we would say no.”

Infertility rates have risen from effectively 0% in the past to 17-18% of young couples today requiring assistance, and dominant expert Shanna Swan projects that within 20-25 years 'the average young couple will need help' — reaching the point where fertility becomes a collective action problem requiring intervention.

“the declining sperm count didn't seem to matter because we were overengineered...So it came down all the way uh to about 45 or 50 before it had any effect. And then hitting that 17 18 years ago no one really had infertility for this reason then and now the world health people say it's uh about 17 maybe 18% today uh of all young couples need help and the dominant expert Sha Swan and and her colleagues who've been doing this 30 40 years um they Um they say that in 20 25 years the average young couple will need help.”

Toxicity (from plastics, pesticides, endocrine disruptors) is 'more dangerous, moving faster, and totally avoided' compared to climate change, with 'no one is processing the data,' making it the true existential risk that receives far less attention than climate.

“That is nothing compared to toxicity. Toxicity is is I believe more dangerous moving faster and totally avoided. You can read about it but no one is processing the data. more and more articles appear. We've created a world which is kind of a toxic stew”

Japanese culture emphasizes social responsibility and 'pulling your weight' in ways that constrain short-term economic growth but allow them to manage decline with dignity, whereas Americans lack this cultural constraint, creating a 'joking rule': never extrapolate from Japan because they are 'completely different people with a completely different culture.'

“I infamously hired make that number seven...my joking rule 21 in investing is never extrapolate from the Japanese. They are completely different people with a completely different culture. There they all live as if the biggest thing in life is is being socially responsible and pulling your weight. Uh there's no other certainly not the US anything like that.”

About one-third of global GDP growth in the last 20 years was devoted to either correcting or avoiding natural disasters, and this proportion will 'get bigger and bigger until it's 130%' — meaning growth is already being cannibalized by climate adaptation, leaving only contraction for real economic expansion.

“someone worked out that in the last 20 years about a third of our GDP growth was either correcting or avoiding natural disasters and of course that number will get bigger and bigger until it's 130%. And uh and the remaining part goes backwards I suspect.”

GMO survived extended value underperformance by staying away from the US while investing in emerging and developed ex-US markets, which in 2023 had a splendid year and better year this year, suggesting multi-year geographic rotation cycle favoring non-US.

“Of course we had a very nice year last year staying away from the US. U the US did much better than I would have thought but the rest of the world did far better than that. So emerging and developed ex US had a splendid year and they've had a very good year this year much better than the US also.”

Grantham and colleague Jamie Lee have developed 'circumstantial evidence' that declining birth rates reduce 'animal spirits' — the willingness to invest and take economic risks — making demographic collapse economically self-reinforcing as declining birth rates → declining animal spirits → declining investment → declining growth.

“the thing that my colleague Jamie Lee and I have been working on is the circumstantial evidence that if you live in a world with no children, your animal spirits start to go. if they're closing all the nurseries and then they're closing all the grammar schools uh as they are in Japan.”

The 2000-2002 period saw GMO lose two-thirds of its market share in 2.25 years despite being correct about the bubble, losing from $30 billion to $20 billion while competitors went from $30 billion to $60 billion, and crucially, not one client who left during this period came back.

“in 2000 doing the right thing for the right reasons and winning the bet uh we nevertheless lost twothirds of our market share in two and a quarter years. Not bad. And you lost half your clients. We lost Yeah. half the clients and more than half of the money adjusted for the market. Uh everyone else we went from 30 billion to um to 20 and they went from 30 billion to 60 or 45.”

The Mag 7 companies are mostly younger than GMO, with only Microsoft and Apple being older, reflecting that American venture capital and DC industry structure are the 'crown jewel' of capitalism and drive technological innovation more effectively than Europe, Israel, or anywhere else globally.

“if you look at the mag 7 you know they're most of them are not as old as GMO And the two that are Microsoft and Apple are by the skin of their nose...American capitalism I think is little fat and happy and monopolistic but venture capital is a extremely bir extremely useful and better than the rest of the world. Israel is very good but uh very small and and uh the rest the Europeans are significantly off the pace and nowhere else in the world does it does it really matter but DC and America is the the crown jewel of their rather wobbly capitalist system”

Of all the clients who fired GMO during the dot-com crash, not one came back even after being proven correct, demonstrating that clients cannot distinguish between managers who are early and managers who are wrong until long after the fact.

“Of the clients that fired us, not one came back...If you avoided a bubble, you arrived back on trend eventually, but not necessarily the same clients you left with.”

GMO was ideas-driven rather than profit-maximizing: the firm had no dedicated sales function for 22 years and developed products based on investment opportunities rather than client demand.

“If I may say so, it is obvious that we were not in the profit maximizing business. We didn't have a single person whose job description was sales for 22 years. And we did what we thought we could do, what was interesting, challenging, and then we went around to see if the clients agreed with us.”

The technical signal of an imminent crash is narrowing market breadth: in 1929 the low-priced index was down 40% while the S&P was hitting new highs the day before the crash; in 1972 the S&P rose 17% while the average stock fell 17%; in 2000 growth stocks fell 50% before the crash while the S&P hit co-equal highs in September.

“The last great signal before the bust in 29 is that very aggressive flaky little stocks mostly without much in the way of earnings that had done brilliantly in 1928 they were all up 80%. And then in 1929 they start to go down early in January and they actually go down as the S&P powers upwards. So the day before the crash, S&P's lowpriced index, which was a brilliant study of those things, uh was down almost 40%.”

The problem of hiring talent at GMO was 'largely luck' — Grantham only directly offered jobs to six people total (Edward Chancellor, James Montier, Ben Inker, and others), most of whom turned him down, but colleagues did most of the hiring and the firm attracted talent because it was 'not in the profit maximizing business' for 22 years without a single sales position.

“I was mesmerized by the game, working with a handful of people and happy to delegate, a lazy bum, that other people do the hiring and this and that and the other. And uh I think I only offered a job to six people um including Edward and uh James Montier um and Ben Inker.”

Commodity markets remain 'incredibly volatile' in the near term (few extra tons break prices down, few tons short drive them up), but the underlying trend suggests the next phase will be several decades of upward pressure, with prices already 3x the 2002 low, still volatile but 'nowhere near the peak' — indicating a 10-20 year volatile transition toward structural shortage.

“It remains an incredibly volatile business. A few extra tons of of of copper and and and the market breaks and a few tons short and the market screams upwards. That's always going to happen. But if you look at the underlying trend, you see we're in a we're in a different world now. If you go back to 2002, we're probably three times the average price on those 35 commodities.”

The global environment is currently 'the worst it's ever been' with simultaneous challenges: Ukraine, Middle East, Taiwan risk, trade wars/tariff escalation, and climate change already impacting global GDP by ~0.5% annually with skyrocketing disaster frequency, yet markets have collapsed volatility, suggesting systematic underestimation of geopolitical and environmental risk.

“the thing about this one though is that the the global environment I think is the worst it's it's ever been. Technically with clairvoyance you knew that other things had been worse. You knew if World War II arrived it would be worse. But in real life you didn't know that...we have the Ukraine, the Middle East, really risky enterprises, Taiwan lurking over everybody's head. You know that trade wars are weigh on, tariff craziness beyond belief, etc.”

AI represents a technology with 'more disagreement than any major technology' — Nobel Prize winners disagree, experts disagree, practitioners disagree — leaving society uncertain whether AI will create 'heaven or kill us all inadvertently' with 'everything in between' as possibilities.

“And into this difficult world that hasn't been addressed in any way comes AI. And the thing about AI is if there's ever been a major technology with more disagreement, please let me know because I missed it. You know, at the Nobel Prize level, they disagree completely. At the expert level, they disagree completely. At the practitioner level, they disagree completely. Well, we don't know that that that's why you disagree completely. So, we're dealing with something that either will make us end up in heaven or it will kill us all inadvertently. and everything in between.”

Bubbles have serious net adverse economic impact because they are followed by capex busts — after the bubble bursts, companies and investors severely curtail capital expenditure, creating lasting drag on productivity and growth that regulators fail to account for.

“In the book you make an important point. I think that bubbles have a serious net adverse economic impact because they're usually followed by a capex bust. So there there's an economic impact from the bursting of the bubble.”

Across all 27 major bubbles Grantham examined, each returned to the previous trend, with declines of 50% or more being typical, and recovery taking 'quite a bit of time' from 6-7 years minimum to 25 years (Great Depression), making multi-year drawdowns a structural feature of bubble cycles.

“And you wrote in the book that all 27 of the bubbles should examine it return to the previous trend. Yeah. So where do you expect the S&P to be when it does crack? Well, the trend is uh roughly I mean it's pretty painful. Trend is um at least half down by half. Okay. So 50% fall. Yeah. All the all the great bubbles are 50% plus.”

In the early 1990s, growth stocks appeared cheap for the first and only time in their history based on dividend discount models, prompting GMO to launch a growth fund despite value's dominance, which performed well enough to make most money for the firm before returning to multi-decade underperformance.

“we started a growth fund uh because growth was so unpopular. They were hiding under the table at at institutional meetings and value managers were winning over one year, three year, 5 years, 10 year inception, you know, everything. And um this was uh I think it was about 88 88 89 uh and uh growth stocks actually look cheap on our dividend discount model for the first and only time in their history up until then.”

After exiting the growth fund and suggesting clients leave the position, GMO found that this pushed the firm into asset allocation, as clients asked 'what should I do with this money?' — demonstrating how client feedback and needs (rather than strategic planning) drove the firm's evolution into multiple successive business lines.

“we went back to the clients and said that's it. growth is a very bad place to be long term for the last hundred years. It's had its little moment. We suggest you get out. And uh that was that was fascinating. Anyway, they all got out except three. So, let's say 30 of them got out and three stayed and uh and and the growth stocks, sad to say, got trash for quite a few more years. And uh and the people who got out said, 'What should I do with this money? I've kind of mentally allocated it to you and and that pushed us into asset allocation.'”

Japan's urban centers (Tokyo, Osaka) stabilized or grew due to internal migration until recently, but the underlying countryside is 'rattling empty' with closed grammar schools converted to sandwich shops staffed by elderly people — a pattern unsustainable without continued urban concentration and immigration.

“We went on a bicycle tour there and we were fed sandwiches by older ladies uh in a grammar school that had closed, you know, two or three years earlier. It was really quite weird and four or five people sitting around in this village and they were rattling empty everywhere. Um and they pulled a rabbit out of the hat by having people immigrate to Tokyo. So Tokyo did not decline in population until three years ago and Osaka the same”

In 2022, QuantumScape (a solid-state battery company) came public via SPAC at $10, rose to $131 in 3 months (making it larger than General Motors), was still years away from revenue, and Grantham owned a massive position (hundreds of millions) that he couldn't sell (6-month lock), calling this a 'more spectacular example' than any 1929 excess.

“In 2022 I I owned a huge unusual position in QuantumCape, a a venture capital company uh that was doing solid state batteries. And um unexpectedly it it came public as a spack which I hate...The position was hundreds of millions of dollars, but I wasn't allowed to sell it. had to wait six months and and I was saying to my colleagues that that was the kind of stock that would sell at 5 to $10 a share not 131”

At the turn from 2000 to 2001, GMO issued a 10-year forecast showing Emerging Markets at the top of 14 asset classes with 11-12% annual returns and the S&P at the very bottom with -1.5 to -2% annual returns, with a 7% correlation; 10 years later Emerging delivered 13% (+200 basis points) while S&P delivered -3% (-150 basis points), a 200 percentage point gap over the decade.

“if you were sitting there in 2000 uh with with our uh with GMO's then 10-year forecast, we had emerging at the top of the list with 11 or 12 a year forecast percentage points. And at the very bottom of the list of 14 asset classes, we had the S&P forecast to be minus one and a half or two. And um that's a pretty big gap for something with a correlation of 7.”

Grantham hired a young Microsoft employee who was offered shares (employee #7) but was told Microsoft was 'flaky' and the investment business was safer, costing him hundreds of millions per year in opportunity, demonstrating how difficult it is to maintain conviction in transformative technology bets.

“u if you if you look at the mag 7 you know they're most of them are not as old as GMO And the two that are Microsoft and Apple are by the skin of their nose. I infamously hired make that number seven. I forgot him. I hired a young kid who was number seven going to be number seven at Microsoft and had been offered shares. And I explained to him that was another flaky tech firm and the investment B business was much safer. Cost him cost him hundreds of millions a year.”