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Hello and welcome to What Goes Up, a weekly markets podcast.
My name is Mike Regan.
I'm a senior editor at Bloomberg.
And I'm Woldana Heierk, a cross-asset reporter with Bloomberg.
And this week on the show, well, as you probably know by now, the stock market fell into a nasty bear market last year,
with the S&P 500 dropping about 25% from its high in January to its low in October.
But since then, that October low has actually held and the indexes gained more than 10%.
That's led some to speculate that maybe the worst is over and we're actually at the beginning of a new bull market.
Well, not so fast says this week's guests. There's likely more pain ahead.
And you'll probably want to listen to him because he happens to be one of the most well-known and experienced investors around.
And he knows a thing or two about spotting bubbles.
But first, let's talk stocks.
Yes, first, let's talk stocks with our guest who I know, especially terminal readers, they love to hear from him.
They want to know what he's thinking.
It's Jeremy Grantham, he's the co-founder and long-term investment strategist of GMO.
Thank you so much for joining us.
You're welcome.
Pleasure.
We're really happy to have you.
So you and I actually just so readers are aware, you and I spoke a couple weeks ago, we talked about some of these things.
And I was hoping you could maybe just start with you warning about a plunge in the stock market for 2023.
How do your views align with what we've seen so far this year?
And maybe lay out for our listeners what you're predicting for the remainder of the year.
You know, it's doing fine. It's behaving traditionally.
My last paper was called After a Time Out Back to the Meat Grindr.
And...
Well, Viltown is a vegetarian, Jeremy. You got to watch it with the meat grindr.
No, it's meant to sound painful and brutal.
The idea was that I personally am a great respecter of January as an unusual month.
And what January does is it tends to be pretty kind to small cap and value.
Indeed, more than 100% of all the small cap, at fact, so-called, has occurred in January for the last 100 years.
So it's huge for small and value, but it also has this rather more complicated thing.
And that is it does very well for stocks that got utterly hammered the year before.
That's pretty obvious what happens.
You lose 40, 50, 60, 70% or so.
You take your losses to reap the tax loss effect.
And then you have the money in your hand.
And you have a year-end bonus, Christmas bonus and so on.
And you look out into the new year.
You can see them as bargains. They're down a lot.
In this case, the growth stocks. And so you buy it.
So I was kind of fearful of that.
The Grantham Foundation cut back its short position in NASDAQ.
It didn't eliminate it, by the way.
But it cut it back in honor of the January rally.
And we look back at what happened in 2000.
There are only a handful of great bubbles that look like this one.
And the one that looks most like it is the great tech bubble of 2000.
And during 2000, the blue chips continued to go up.
And they shot the dot-coms and then they shot the junior growth stocks.
And then the medium growth stocks.
And finally, the great Cisco's of that era.
And by the end of the year, the NASDAQ was down 40%.
And a lot of the growth stocks, because the NASDAQ is a little more diversified.
A lot of the growth stocks were probably down about an average of 50 or 60.
It was a bloodbath.
And that pretty much sums up what happened to highly speculative stocks last year.
Don't you think?
I mean, they were taking all manner of grief.
Kathy Woods portfolio was down, I don't know, 60% or so.
And so what happened in 2001?
January 2001 was up 12%, led by the space that had been wiped out the previous year.
This seems so boring as to hardly be worth commenting on.
But that is exactly what happened this year.
And one of the proofs is if you take the order of horror last year and flip it,
that is precisely the order of heroic this year.
And I own one of these by accident, eight years ago.
The biggest investment I ever made was in QuantumScape.
The brilliant research enterprise doing solid estate battery work.
But it doesn't have a product yet and won't for a couple of years and so on.
So it was right at the top of the list.
And it did utterly brilliant, brilliantly in 2020.
And it came out at 10 as a SPAC, four times my money.
Yeah, not bad.
Over eight years, not great, but pretty good.
And then it went to 131.
$52 billion for a second bigger than General Motors or Samsung,
it's a battery company.
No sales or revenues for a few years to come.
It had become a meme stock.
But I was too close to it and too heavily involved to really see that.
I understood the meme stock.
And I thought this was pretty impressive at 130, 52 times my money.
And suddenly I had a holding that was worth $625 million, far and away the biggest.
I mean, by more than 10 times the biggest holding I ever had, probably 25 times the biggest.
And then it started to decline.
And it was the first one to decline.
Why not?
That's how the great bubbles start, by the way.
They don't start with Coca-Cola.
They start with the craziest, most advanced stock.
And that was QuantumScape.
It started down in December 2020.
Early in 2021, the meme stocks joined it and Kathy Woods' portfolio got into step.
And they all started to go down.
Everyone said, well, it's a great bull market.
The S&P was going up.
But anyone who owned restarts knew differently.
And they went down handsomely.
And then into 2022, they continued to go down.
And by December of 2022, QuantumScape was 5.1.
Now this is a pretty good trip.
Comes at 10, goes to 131.
And it's now 5.1 in December of last year.
So what did it do in January?
Yeah, that led the way it went up 120%.
Not bad for four or five, six weeks.
And then right behind it, Kathy Woods' portfolio, I don't know, up 40%.
And then the meme stocks, 30, 40, 50%, 60% rallies, all the way down the line.
It was perfect.
It was almost too good to be true.
It was eerie in its orderliness.
Anyway, that's what happens.
And it didn't start the decline in 2001.
They had a brilliant 12% January.
The year was down 20.
The Nasdaq, which had been down 40% in 2000, went down 20% the following year and 30% in 2002.
That is what happens in the great bubbles.
They have wonderful rallies.
They can have spectacular January rallies because they have more tax loss selling than any other situation.
And this has been following the lead of 2000 perfectly.
Jeremy, I wonder, first of all, if I heard those sirens coming, I thought the bulls had sent
some police to pick Jeremy up there for a minute.
I don't know where they're going.
But you're still here.
I didn't even hear.
I think they're on our side.
But will that parallel to the .com bubble, do you think?
Will that go from peak all the way to trough?
I don't have it chart in front of me, but I believe the bottom wasn't until 2003.
The bottom was in 2002.
That would still mean we've got quite a long, forget about the Y-axis.
Yeah, mostly the great bubbles, when they break, they take a long time.
There's an exception.
But they typically take a couple of years, three years.
And every now and then, they get rid of it in a real hurry.
But my guess was this was going to be a long, long one.
The buy-in to the idea that stocks only go up and the amount of speculative craziness that was set in
the situation trained by the COVID-19 supplemental payments meant that individual participation was
actually up the scale bigger than 2000, bigger than the .com.
And so this looked like it would have a whole lot of buy-the-dip from day one.
And it's had a lot of buy-the-dip.
But 2000 had some wonderful rallies.
Even in 1929, it rallied almost 45% off the lows of 29 until April of 1930.
A hell of a rally.
It must have made people feel that the worst was over.
And then it rolled over and went down, as you know, infinitely almost down well over 80% on the S&P
and most of the speculative index went down, 1995 give or take.
Anyway, let's hope we don't go there.
But it just gives you an idea.
Great bear markets can have wonderful rallies.
Great bear markets can take their time.
And we have a very, very recent one where quite a few players in today's market experience
2000 and it went on for three painful years and that the housing bust was a quick one,
but not that quick.
It took over a year of pretty steady declines.
So my guess is this one will not bottom until deep into next year.
Wow.
So three straight years of losses, do you think?
I do think.
I think there is a biting chance that this year will not be down that much and a very good
chance, as I said in my letter, that through April, it might easily be up.
And that's the presidential cycle, right?
Yeah.
Yeah.
Talk goes about that.
I don't think many people quite appreciate that signal.
No, you don't have many professionals talking about presidential cycles.
It's not too simple.
It doesn't sound like something you could charge a good people.
The January effects and the January rally, these are considered far too simple to talk
about.
And that's probably why they work so well.
Our first account at GMO 45 years ago involved both the January effect and the presidential
cycle.
It had worked for 45 years before that and it's worked for the 45 years of GMO's career.
And we typically have not used it, however, for the same reason that no one else does.
But it's been a pet of mine forever.
The presidential cycle is about as simple and straightforward and understandable as anything
in the stock market.
What it says is that administrations like to be reelected and they like to help their
party.
So they worked out eventually.
What is it that appeals to the electorate?
It's the state of the labor market in the six month run up to the election.
Anything that happens before that is forgotten.
You can be brilliant for the first two years, terrible for year three and your toast.
It really doesn't matter.
It's the run up to the election for six months.
Now the economy as we've all discovered over and over again is a kind of lagging instrument.
You kick it and it takes a year or so before it says out.
So you better start stimulating quite a bit before the six months running up to the election.
You want to get the labor market improving.
You want to start when the presidential cycle effect starts, which is October, approximately
October the 1st of the second year, last October, through April of this year.
That window of eight months, seven months is what it takes because that gives you a little
over a year to have it grind through and then start pushing up on the labor market.
And would you believe that that's exactly what happens?
Since 1932, this is not yesterday, since 1932, those seven months have equaled the remaining
41 months of the presidential cycle.
Don't believe me?
Check it.
Thank you a while, but it's worth it.
Those seven months, therefore, have seven times the monthly power of the rest of the cycle.
Seven times.
Wow.
So what is happening this time?
Would you believe since October the 1st markets up recently?
I guess through April, it will stay up.
I know the unexpected bears that Morgan Stanley and so on are talking about a fairly immediate
decline.
That may occur, but my guess is it's hard to get this market really down until we get
rid of April.
And as the old saying goes, selling May and go away and don't come back to the labor
day, because the old kind of 1920s saying goes back in the midst of time about the start
market.
And this is part of the reason it works because in year three, it really, really works.
And after April, you're on your own.
You're going to kind of normal market through the election, and then year one and two typically
are tough years where a sensible administration recycles to keep the whole thing going again.
The next time you take some pain when it doesn't matter politically in order to be able to
stimulate when it does matter in year three.
So that's what I think is going to happen.
And that's the time out, those two influences together created my point about the time after
a time out back to the meat branded.
Now, all of the original problems, rising rates, relatively slow burning inflation,
intractable inflation, it's always intractable.
Wearing down on the market, the war, of course, like many was, it doesn't easily go away either.
And COVID has a long reach.
We have a lot of little bottle on Equifax that are still echoing through the system.
And it brings up another important theory of mine.
And that is our next paper, which will be called the long term is now.
Because we have been harping on long term problems sometimes for 15, 20 years, like climate
change one day will bite you.
It'll be a huge influence on your portfolio.
The growth rate of the economy is slowing down steadily.
It will eventually start to impact profit margins one day.
We're running out of resources, whether you like it or not.
We're going to have rolling series of shortages and bottlenecks in resources.
And finally, we're running out of people.
And we're running out of people even faster than I picked up 10 years ago.
It seems to be accelerating.
Now if you run out of people, that means you run out of labor.
It feels inflationary, doesn't it?
You run out of resources.
You run out of cheap copper and you run out of cheap lithium.
It feels inflationary.
And if COVID is hanging around, it feels inflationary.
If you're de-globalizing global trade, some of the reasons for doing that security are
really very good reasons.
But de-globalizing is an inefficient inflationary process.
Anything that's inefficient tends to push out the prices compared to a world where if
you were globalizing, you're outsourcing your jobs to the cheapest pool of money and the
cheapest pool of workers in the world.
When you're outsourcing, you're doing the reverse.
Great for the workers.
It's long overdue, but it's not great for profit margins and it's not great for inflation.
So I think all of these long-term factors are beginning to bite.
This will make this particular down leg more dangerous and perhaps worse than we anticipated
and perhaps make it go on for long.
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So before we get to more of those long-term factors that you were just talking about,
when you and I spoke a couple of weeks ago, you said the range of problems we have right
now is greater than it usually is.
And obviously you have decades of experience.
So is it those things that you were just talking about?
The war in Ukraine and some of the supply chain issues that we are still lingering, is that
what you're referencing or what is it about the current times that's so different or difficult?
It's those two things coupled with global politics, the Cold War coming back and the
de-globalizing that we are embarking on.
Compounding that is that running out of resources, running out of people and climate
change are all biting into that equation, interacting with it, making it worse.
And in that sense could not happen at a worse time.
All of this is occurring on the down leg of one of the great bubbles breaking.
They have never been very good.
2000, by the way, was a very benevolent bubble in that sense.
It didn't have a savage recession.
It didn't have any wars.
It didn't have any de-globalizing.
It wasn't running out of anything.
The Nasdaq went down 82%.
The S&P went down 50%.
There was a recession.
There was a huge recession after 1929.
There was a huge recession after the 1950 run-up of 1972.
There was the biggest bubble of all time, by the way, is Japan, who did a dual bubble
in land, real estate and the stomach in peaking in 1989.
What was that followed by?
It was followed by 20 last years.
If you look at the 50 years in Japan before 1989, it was like paradise, one of the fastest
growing countries on the planet, if not the fastest.
Then you look at the 30-year since then, they have barely grown.
That double-barreled bubble.
The biggest bubble in history was worse than the tulip bubble.
It was worse than the South Sea bubble.
It was the biggest, most spectacular bubble of all time, and the land under the Empress
Palace really did sell for more than California.
It was valued at the past eight of California.
It was crazy.
That's amazing.
It was more than 10 times downtown Manhattan in downtown Tokyo.
You pay a high price.
Happily, this bubble is not as bad as that.
It has more ancillary negatives coming in.
The first phase of a bubble is pretty simple.
You take out the pin for whatever reason.
All you have to do is convince people that it's not paradise forever, which is what they
believe at the top of the bubble.
It goes down pretty fast, leg one, always has a terrific rally.
Then it gets into the much more complicated phase three, which is the fundamentals.
The fundamentals have been artificially inflated by crazy optimism and by a long, drawn-out,
perfect economy.
All of that is turning against you.
The question is, how bad?
Is it going to be mild like 2000?
Is it going to be tragic like 1929?
Is it going to be long and drawn out like Japan?
Is it going to be very painful indeed like the housing bubble that will need unprecedented
failure?
It's bad news.
You don't want to mess with bubbles.
I hold it against the Federal Reserve, of course.
They created an environment, pushed up the price of all assets, all every asset on the
planet.
Then they set back as if it's something to do with them when these bubbles eventually
break as they have done in 2000 and the housing bubble of 2006, 2007.
My God, no one could have seen this coming.
These events, they stick out of the database like Himalayan peeps out of a playing dice.
Do not kid yourself.
You couldn't miss 1929.
You couldn't miss 1972.
You could not possibly miss 2000, 35 times earnings.
Anyone knows that 35 times earnings is pretty high.
The previous high in 1929 was 21 times.
35 is significantly higher than 21.
In Japan, it actually got to 65 times earnings, of course.
The biggest one in history.
Well, Jeremy, let me interrupt real quickly because you did mention the Fed policy and
the role it played in creating this bubble.
Just to bring that into the present tense, this week, Jerome Powell testified before Congress.
He was a little bit more hawkish than the markets had expected, or at least the market
response to it suggests that he surprised markets with his hawkishness.
The thinking is now the Fed funds rate could get as high as 5.5%, 6%.
Talk to us about what Powell is doing.
Is he being aggressive enough, not aggressive enough?
And will it work?
Will the Fed alone be able to normalize inflation or all those other things that you're talking
about, de-globalization, the lack of resources?
Of course not, no, they don't have that kind of power.
They can mess around with interest rates.
They have hardly gotten anything right since Alan Greenspan first arrived.
Paul Evoker knew what he was doing, but since then, it's been a long, continuous, horror
show.
They've engaged in policies that drive up the prices of assets, other things being even,
and create spectacular overpriced bubbles.
They then break because that's what bubbles have to do.
They simply break up their own extreme overpriced.
And we pay a very tough price, and then the Fed races to the rescue.
Oh, dear, the wreckage of 2000.
They came in and they prevented it, the S&P, from going down more than 50%, which it would
have done.
They, with moral hazard, lots of aggressive language and reduction in rates, they managed
to curtail that at 50%.
They couldn't stop a recession.
They didn't stop the NASDAQ going down 82%.
They threw the kitchen sink at it.
And then what happened to Benankee?
He's facing a housing bubble.
He says, oh, US housing has never declined.
He never had it.
It didn't have to decline.
It was famously diversified between California going up and Florida going down, etc., or vice
versa.
And then he said the US housing market really reflects the strong US economy.
The US housing market has a long historical record.
You could measure it.
It was a three-sigma event, which is the kind of event in a normal series that would occur
every 100 years.
And all his staff could see that.
No one apparently plucked up the courage to tell him.
So he could apparently believe that the housing market was unremarkable.
The housing market back then was beautifully well behaved as a bubble.
It went up.
And then it came down in a beautiful round trip, symmetrical, perfect.
The best one I ever saw.
So three years up, three years down, they sucked in an extra three or four people to
owning houses three or four percent of the public.
It went from a normal 62 percent to 65 or six, the first time in history, and then painfully
for the marginal buyers that went all the way back to 61, 62, the housing market went
all the way back to trend and actually overcorrected, which is typical for two or three years.
That's a lot of pain.
It was all their fault.
And why would we believe that they know what they're doing?
And then they stoked the fire again.
And this time it's real estate, it went to a higher multiple family income per house than
the housing bubble in late last year.
After the biggest year in history, 20 percent for last year, biggest move, including the
housing bubble.
Forestry, farming, fine art, you name it.
Bonds, of course, legendary, the lowest rates in the history of economics and the stock
market way back up.
Why would they do this?
It's always the same.
They always break.
And everyone says, oh, it's fine this time.
It never has been.
Everyone says there won't be a hard landing.
It'll be a soft landing.
None of the great psychological bubbles have ever had anything other than an ordinary recession
or a savage recession.
There are normal ones and there are terrible ones.
There are no soft landings in my little universe of super bubbles that you can see statistically
as easy as pie.
So why don't more people see them?
Because it's not good for business.
The commercial understanding is you're always bullish and that maximizes your money.
Why Morgan Stanley is so bearish this time and a little bit of Goldman Sachs is on.
This is actually perplexing me.
Just as if someone hasn't read them, Chapter 2, of the banking investing commercial maximizing
your profits manual.
It has gone missing.
It's bothering you that the contrarian view seems to be the consensus these days, right?
Yeah, it bothers me.
I do know as a historian that once in a while almost everybody gets things right.
It doesn't last long, but it does happen from time to time, just enough to bamboozle contrarians.
And I am certainly expecting that this is one of the relatively rare occasions where
an almost anyone with the brain is being pretty bearish because as they say almost to a man,
they say the current stock prices do not reflect the high probability of profits coming down.
And that is part of the story.
And they're not even looking at the long term as now.
They are not looking at all those longer term factors that we were talking about before.
They're not looking really at the long term problems with climate change and resource shortages
and above all people shortage.
This people thing, it's massive.
It's happening so fast.
Jeremy, can I ask you then when you foresee a US recession?
Because obviously a lot of the data that we've seen coming in has been very, very strong.
And we're taping this podcast before the jobs number comes out for February, but a lot of
people are expecting a really hot number once again.
Economics complicated lots of cross currents, lots of leads and lots of wags.
And I have tried to avoid spending too much time over analyzing the short term data.
First of all, they change it two or three times.
Secondly, it's never as important as you think.
The things that really matter are the broad sweeps of events.
The forming of the great bubbles, the breaking of the great bubbles, et cetera.
The rising of inflation, the falling of the inflation.
Really, this ridiculous concentration on the nuances of the federal reserve who never
get anything right, why would we believe and exaggerate every little nuance?
The market draws up, the market draws down.
It is all ridiculous, folks.
It is really ridiculous.
Try and concentrate on that.
You saying that makes me feel better about my everyday angst.
You've got confirmation wrong.
Yeah, I can feel a little.
Quite a big action.
Your journalists have a terrible job.
You tell me.
You have to come up with a reason why the market goes up or down on a daily basis.
If you got it right, we'd have to burn you as a witch.
It's utterly impossible.
Creative writing, you think?
Yeah, it's filling up space, actually.
It doesn't lack creative.
Every argument for why the market goes up has been used 400 times.
And the same for going down.
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Jeremy, I wanted to get back to that notion of climate change.
I know you've been spending a lot of your time studying the issue, but I want to talk
to you about it from the role of the investment industry.
Obviously, there's been a big backlash against the notion of ESG investing through the lens
of environmental, social, and governance issues.
Someone the right wing really wanted to do away with that whole strategy of investing.
How do you think about it?
Is there a role for investing to actually mitigate climate change if it's done properly?
Or is it a marketing gimmick for Wall Street to extract higher fees to make people feel
good about the way they're spending their investment money?
All of our ideas, from my point of view, is humans are not great at these things.
We've been bred over millions of years, like every other organism, to be incredibly short-term
and incredibly aggressive, to grow and multiply.
Period.
Anything that gets in my way gets trampled on.
Capitalism is very much an extension of survival of the fittest.
It's very much an extension of the natural process, and that's probably why it's worked
pretty well.
Capitalism does millions of things brilliantly well.
Balancing the complexities of supply and demand is beyond.
Maybe in a few years, artificial intelligence will be up to it, but that is why the central
governments had such a hard time.
It's infinitely complicated.
The problem is capitalism does not do those things that aren't in its immediate self-interest.
If it's long-term, get round to it in a couple of years.
If it's the commons, if it's something that I'm not getting charged for and I'm inflicting
my pollution on someone else, why would I stop doing that out of the goodness of my heart?
Try and maximize your short-term gains is what runs capitalism, and it's what makes it
efficient most of the time.
It only does these few things badly.
It cannot deal with climate change.
It cannot act out of the goodness of its heart to forgo profits in the interest of the collective
grandchildren.
It's pretty bizarre actually that everything is career-risk in life.
You're protecting your job, you're protecting your firm, you're protecting its image.
Very few people can actually say what they really want to say, what is really simple and
straightforward.
We're all caught up in basically protecting something or other.
When it comes to climate change, we're really not interested in anything other than looking
good.
For the lowest possible price, we seem to be the most civic-minded.
We are not going to give up anything out of altruism.
We can't capitalize.
In general, we can't spell the word altruism or patience, by the way.
They want quick response, they want profits, and climate change is not their cup of tea.
However, dang heavens, along with being a short-term aggressive.
Grow while you can species, we are very creative, very inventive.
We have a terrific record in dealing with new inventions coming up with new solutions.
If we make it through climate change, and I use the word if deliberately, there's a
decent chance that this will be existential, that it will remove a reasonably stable global
civilization before it's finished.
But if we make it, it will not be because we're altruists, they can see our civic duty.
It's because it will be good for business.
It's because the inventions of wind, solar, and storage are simply going to be much cheaper
than burning fossil fuels.
We will gradually replace everything, and it will pay.
We will have silent electric helicopters that are getting you there at one-third the running
cost, and half the maintenance cost, and so on and so forth.
The technology improvements are merciless, they grind ahead.
Today's battery constraint will not last, and they will have twice the power to weight
ratio, and with a little bit of work based on the latest and greatest ideas, perhaps even
four times the power to weight ratio.
We'll be able to fly, perhaps even to Chicago before this is finished, and all transportation
will be electrified.
We will have plenty of cheap green energy before this is over if we can just hold the
global society together, and withstand the shock to food and immigration of climate change
and terrible weather, and so on.
That's a big if, Jeremy.
That's a big if, it sounds like.
Unfortunately, it is a big if, and there's nothing we can do about it, and we frame this
issue as the race of our lives, that the bad news is getting worse at an accelerating
rate.
We're actually still putting up carbon dioxide particles at an accelerating rate, although
it's just beginning to flatten out now.
The good news is that I think the technology is moving at an accelerating rate.
No one 15 years ago thought the cost of wind, solar, and storage would be slower than building
a coal plant today, almost everywhere in the world.
In most places with decent wind or sun, you can build and operate wind and solar cheaper
than you could operate a coal plant if you were given it, built and ready to go.
In other words, the full total cost of building and running a solar plant is less than the
day to day operating cost of digging the coal, shipping it, and burning it.
It's remarkable.
That is amazing.
Well, that sounds like a nice little teaser of your next note.
So we look forward to that, and we'll have to have you back to discuss that when it comes
out.
Well, Donna, Jeremy, there reminded me of a good Homer Simpson quote.
What is that?
It's that beer is the cause of and solution to all of life's problems.
And it sounds like capitalism is very similar to Jeremy, the cause of and solution to all
of our problems perhaps.
But Jeremy, really, really great to hear your thoughts.
I feel like we could go on for two or three hours.
So I hope you do come back someday and unpack some of these issues further.
But before we let you go, we've got to do our tradition, Vildana.
I'm going to go first with the craziest thing I saw this week.
It's from Stephen Balaban.
And it's about a perpetual bearer bond.
Now, I'll tell you what that is because your eyes are starting to fog up there that.
So a perpetual bond is a bond that pays interest every year, but never actually repays the
principle.
A bond is an old fashioned bond where whoever owns the paper and presents it to the bond
issue where it gets that payment.
So Yale University has a perpetual bearer bond issued by a Dutch agency that basically
dug the canals in 1648.
1648, Jeremy, a perpetual bearer bond from the Dutch government.
So Yale owns this bond.
They are still collecting payments on this bond from 1648.
That's cool.
The bond was actually written on goat skin, but they filled up, you know, every time they
pay the payment, they mark it on the bond.
So they ran out of space.
So there's a piece of paper now that the folks at Yale every few years take to the Dutch
water agency and get their payment, clip their coupon basically.
So Jeremy, I hate to tell you, but you're now a contestant on a game show we call the
prices precise.
And the question is, what do you think the interest rate on that 1648 Dutch bond pays
to Yale?
And if it helps, I'll tell you the current Dutch tenure yield is about 3%.
That doesn't help at all.
I didn't think it would.
But this was issued in 1648.
It's a compliment, complicate things.
They actually rescheduled it.
They redid the yield on it shortly after it was issued.
So it's not the original yield.
It was changed, but you have to guess what.
What kind of quarter?
Four and a quarter.
Oh, OK.
I'm glad you went first.
I was going to say something higher, but I'll go with 3%.
3%.
Yeah.
You think I was tipping my hand there with the correct answers two and a half percent,
but they did.
The original rate was 5%.
So maybe Jeremy's looking at that chart.
So how much have they baked in over the years?
So 5%.
So the story says a few years ago, one guy from Yale went and collected 12 years of
interest on the bond.
You know what his payment was?
$153.
Oh, no.
I don't know why it's worth the flight to go over there, but Jeremy, if I'm just showing
a perpetual bond at two and a half for you, a buyer?
I can't think so.
I'm a lecturer.
You're a lecturer.
Yeah, that's smart.
All right.
All right.
That's a good one.
Do you like that one?
I think that's the craziest thing I've seen all year, actually.
Yeah, you're set.
You never have to come up with another one.
I'll go next.
This is Bloomberg story.
New York, New Jersey signed a sister city that doesn't exist.
What?
It's a sister city.
I know, but it's not market-related, so I didn't go with it.
Then what I'm going with, and Jeremy actually brought up the, you know, in the future maybe
having silent helicopters driving you around for cheap, but we have a Bloomberg story that
says Elon Musk is so busy, his private jet is taking 13-minute flights and we lay out
all of these different flights he's taken.
I think it's over the last year and just it's so counter-
13-minute flights.
Yes.
It's like the Kardashians do that.
They'll pay from one side of LA to the other.
Yeah, they do a couple minutes, yeah.
But it's so counter to his ethos or to his, you know, climate.
Yeah, clean energy.
Clean energy.
Clean energy.
13-minute flights.
And he has taken out of all the billionaires.
He takes the most number of flights.
Wow.
Now, if that was electric, if everything under 200 miles was electric, we probably wouldn't
even bother to say that.
Yeah, exactly.
Right.
It doesn't use, it only uses about twice the gasoline equivalent of the taxi ride.
Right.
And quite remarkable.
Anyway, the thing is if you value your time at 100 times average, then of course these
things make a lot of sense.
Right.
Yeah, he's running five companies.
Right, he's going from Yahoo.
I'm not going to a senior moment from Twitter headquarters to Tesla's plant in California.
That's a thousand one.
Anyway, it is a quarter of Germany.
It's pretty close though.
So maybe that's what I'm thinking.
Well, I get to give you my weirdest little picture.
Of course you do.
Yeah, you're next.
Okay.
Well, we've spent a lot of time working this out and we think that the parts per million
in the atmosphere that have risen from 280 to a current 420 will peak at about 525, 550
and we have to get it back to 280.
And that will mean the removal of three trillion tons of CO2 has to be removed one day, let's
say over the next hundred years.
And if we get it down to $50, which we will, $50 a ton, that is $150 trillion to remove
the CO2 after we have gotten to carbon neutral to zero carbon.
What are our chances?
That is equal to 1% of GDP globally smoothed out over the next hundred years.
Wow.
Well, if we get some goatskin and issue a perpetual bond at two and a half, that would paper
it.
Maybe that's what we do.
Then we take a lot of goats, though, we have to go into a boat breeding business.
And that would not be environmentally.
That would not be right.
Jeremy Grantham of GMO.
What a absolute treat to hear your thoughts.
And like I said, we could go on for hours.
So I hope you do come back.
It was really an honor and a privilege.
That was fun.
Thank you for having me.
Thank you so much for joining us.
What goes up?
We'll be back next week.
And so then you can find us on the Bloomberg terminal website and app or wherever you get
your podcast.
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And you can find us on Twitter.
Follow me at Greek Anonymous.
Well, Donna Hyrick is at Phil Donna Hyrick.
You can also follow Bloomberg podcasts at podcasts.
What goes up is produced by Stacey Wong.
Thanks for listening.
See you next time.
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