Wow, this is awesome - a podcast with a full transcript attached! At first glance I hadn't planned on listening to this, but I am certainly willing to skim the transcript.
Updated: Some very interesting stuff in here. A few poignant quotes from Grantham:
"But in my opinion, we are clearly beginning to run out of resources, cheap, plentiful resources." - on the primary reason for inflation.
"The stimulus program was so gigantic that it flooded into the AMCs and the meme stocks and and helped push this market into the levels that we have seen. And the speculations this time are much the biggest in the history of the stock market adjusted for the size of the GDP."
"[QuantumScape] sells last December--the December before last of 2020--at $130 a share, $55 billion market cap, bigger than GM for a battery research enterprise four years away from any sales, forget profits. Now, there is nothing of that scale in 1929. There's Pet.com with scores of millions, tens of millions, in one or two cases, hundreds of millions. This is $55 billion for a company that has no earnings for four years, no sales. And AMC multiplied by 40, 50 times in a month and becomes, in the case of the other one, GameStop, becomes by far the largest company in the Russell 2000, over 10% of its total, I think, market cap. This is just exceptional craziness."
It strikes me that Grantham is a classic rationalist, a very old school guy who is used to the way the markets have functioned for the past 100 years. However, he just doesn't really seem to GET the change in investing. Meme stocks, cryptos, etc. We live in an irrational, emotion driven market more now than ever before, and I hate to say it, but these old timers don't seem to get the picture and will probably get burned.
It's an old cliché but the market can stay irrational longer than individuals can stay solvent. Insisting on investing in accordance with fundamentals instead of riding the wave of irrationality could be a losing strategy this year, next year, even for a decade. And some rational investors will get burned.
But for investors attempting to ride the wave of irrationality, betting on pictures of apes and shitcoins, some will also get burned.
I just can't see our current situation perpetuating forever - it amounts to unregulated gambling and stocks having 95% of their value associated with "some other mug will pay even more for it later" rather than "the company will distribute some profits". An economy will not prosper if capital ends up randomly allocated.
So rationality will come back, but I don't think any individual investor can bet on when.
It's an interesting time, because for the vast majority of the population, people actually WANT a situation where "capital ends up randomly allocated" - it's because most people have very few prospects in life, unfortunately. If you don't believe you have any chance of improving your status, why the hell not bet a bunch of money on bored apes and GME? As long as people continue to throw money at these things, the madness will continue. Even if the vast majority of them are scams, they are wrapped in such pervasive marketing that I'm not sure exactly how to convince people that this stuff is bullshit.
It's interesting psychologically. I could go and bet my whole life savings on red on the roulette wheel, but the odds are completely explicit and I can at least trust the casino not to bend the truth on how roulette works. But my family and friends would think I'm an idiot for making such a reckless bet.
But if I go down a rabbit hole on social media with thousands of users creating a convincing and self-reinforcing narrative that Fartcoins are going to the moon, then I can spend my life savings on Fartcoins and convince myself it's a sound investment.
Who is at fault here? Who do you regulate to stop people losing their life savings?
I think its becoming increasingly common knowledge that most of crypto is just a giant “decentralised” casino. People are getting burnt all the time, word spreads and i don't believe retail will keep pumping money into it
But from what I've seen the news regularly reports sensational individual stories of wins, I've never seen an article saying this person tried crypto and it didn't go anywhere.
There are reports of hacks, lost wallets etc but that is different.
You were so close to getting there - he is a rationalist and, purely my personal opinion, the markets have been behaving irrationally for several years (I would say even the Trump years of fiscal manipulation to pump the markets).
Where I think you're off base is that, while markets can stay irrational for extended periods of years (and have before), eventually people realize the emperor has no clothes and there's always a reckoning at some point.
I hope you're right, and I really mean that, because I have personally made a large bet that the stock market peaked in Dec / Jan. However, I am an eternal pessimist, so I kind of assume my bet won't pay off and this new meme stock bubble economy is ACTUALLY the new normal. God I hope you're right.
> It strikes me that Grantham is a classic rationalist, a very old school guy who is used to the way the markets have functioned for the past 100 years. However, he just doesn't really seem to GET the change in investing. Meme stocks, cryptos, etc. We live in an irrational, emotion driven market more now than ever before, and I hate to say it, but these old timers don't seem to get the picture and will probably get burned.
"This time it's different" is a recurring slogan that has preceded every major market crash since at least early 20th century. I tried reading Security Analysis (first published 1934) by Benjamin Graham and honestly, it just gets depressing after you realize how the irrationality cycle just keeps repeating.
It's just a horse race where noble VCs bet big money on their favorite horse and the first 3 horses split all the bets. It doesnt matter that the horses havent eaten for many weeks and dont look well at all. What matters is that there isnt much else to bet on, and because stashing money would get them eaten by moth. Where do the money come from? Caesar creates them and generously gives them to those who have the money already, in proportion to how much they have. What about people who are not noble? They do work for the noble, get a little money and rush to buy some food before moth has eaten their little savings.
This guy is the financial equivalent of the old world street preacher wearing an "end of the world is nigh" placard. Grantham has been saying the same thing every year for as long as I've had interest in markets. He's considered a joke by the vast majority of the educated financial world
The S&P 500 PE ratio is currently 25.78 while the mean is 15.96.
The Fed printed 1/3 of all dollars in circulation in the past 22 months.
The velocity of money in the U.S. is at a historical low. How are these facts irrelevant to Grantham's argument?
This just isn't true. He's got a respected name in the financial world, had made huge money over a long career, and has real skin in the game. Bloomberg doesn't give any random person an hour long special segment.
Yes he has called for a drop for a long time and been wrong. When talking about big structural macro themes, it's not that weird to be 10 years early on something and to be wrong for that period.
It really just comes down to interest rates. The fed tried raising them around 2018 but got spooked. This time around inflation might force them to stick it out. In an ideal world, we would have taken our medicine back then and try to slowly unwind things without the pressure of inflation breathing down our necks. But the combination of presidential influence and the pandemic resulted in adding more fuel to the fire.
I have been cash heavy for awhile though, so my alternate prediction is that things go haywire the day after I give up on trying to save and put it all in the market.
This comment will add zero value to this discussion, but I feel compelled to mention that I always seem to mix this guy up with Jeremy Bentham for a minute or two before realizing why I'm confused.
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[ 2.7 ms ] story [ 60.1 ms ] threadUpdated: Some very interesting stuff in here. A few poignant quotes from Grantham:
"But in my opinion, we are clearly beginning to run out of resources, cheap, plentiful resources." - on the primary reason for inflation.
"The stimulus program was so gigantic that it flooded into the AMCs and the meme stocks and and helped push this market into the levels that we have seen. And the speculations this time are much the biggest in the history of the stock market adjusted for the size of the GDP."
"[QuantumScape] sells last December--the December before last of 2020--at $130 a share, $55 billion market cap, bigger than GM for a battery research enterprise four years away from any sales, forget profits. Now, there is nothing of that scale in 1929. There's Pet.com with scores of millions, tens of millions, in one or two cases, hundreds of millions. This is $55 billion for a company that has no earnings for four years, no sales. And AMC multiplied by 40, 50 times in a month and becomes, in the case of the other one, GameStop, becomes by far the largest company in the Russell 2000, over 10% of its total, I think, market cap. This is just exceptional craziness."
It strikes me that Grantham is a classic rationalist, a very old school guy who is used to the way the markets have functioned for the past 100 years. However, he just doesn't really seem to GET the change in investing. Meme stocks, cryptos, etc. We live in an irrational, emotion driven market more now than ever before, and I hate to say it, but these old timers don't seem to get the picture and will probably get burned.
But for investors attempting to ride the wave of irrationality, betting on pictures of apes and shitcoins, some will also get burned.
I just can't see our current situation perpetuating forever - it amounts to unregulated gambling and stocks having 95% of their value associated with "some other mug will pay even more for it later" rather than "the company will distribute some profits". An economy will not prosper if capital ends up randomly allocated.
So rationality will come back, but I don't think any individual investor can bet on when.
But if I go down a rabbit hole on social media with thousands of users creating a convincing and self-reinforcing narrative that Fartcoins are going to the moon, then I can spend my life savings on Fartcoins and convince myself it's a sound investment.
Who is at fault here? Who do you regulate to stop people losing their life savings?
There are reports of hacks, lost wallets etc but that is different.
Where I think you're off base is that, while markets can stay irrational for extended periods of years (and have before), eventually people realize the emperor has no clothes and there's always a reckoning at some point.
"This time it's different" is a recurring slogan that has preceded every major market crash since at least early 20th century. I tried reading Security Analysis (first published 1934) by Benjamin Graham and honestly, it just gets depressing after you realize how the irrationality cycle just keeps repeating.
See https://www.multpl.com/s-p-500-pe-ratio
See also https://fred.stlouisfed.org/series/BOGMBASE
See also https://fred.stlouisfed.org/series/M2V
Yes he has called for a drop for a long time and been wrong. When talking about big structural macro themes, it's not that weird to be 10 years early on something and to be wrong for that period.
I have been cash heavy for awhile though, so my alternate prediction is that things go haywire the day after I give up on trying to save and put it all in the market.