Transcription
Great market peaks like this are traditionally followed by the worst of times. So don't kid yourself.
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. Whatever you say about chat and the rest of the boys is it's pretty obvious that it's a game-changer. It's a life-changer. It's an important idea. It may make us all ineffably rich. It may destroy us all, take our jobs, or even inadvertently stomp on us. And it's the first bubble that was interrupted by anything that powerful.
So, Jeremy, listen, I'm really grateful to you for taking the time because you're on holiday in Scotland. We're recording this in Edinburgh. And um, I'm excited to talk to you because you've got this wonderful book which tells the story of how you got started in investing. But share with the readers because half my guests want to buy their first stock with their newspaper round money and half the guests go into it by accident. But you're kind of somewhere in between.
Yeah. No, I 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. It was a a little small-cap shooting star market and uh that's a lot of fun always and uh since they were all beginning analysts they were there and they were having so much fun I couldn't wait to join them and so I did a a fairly professional campaign with lots of help. Got a list of 50 people to apply to and kind of work my way through. Had a couple of very interesting job offers. a very fancy hedge fund dude who wore pinstriped suits and mecha chiefs and he was everyone's cool hero and came and talked to the Harvard Business School students and uh another one was in London also very enterprising and uh both of them were held up by boring real-world things like registration of a new fund weren't going to have me on board and pay my rent until the fund was registered and it went on and on and finally I thought, well, a better move anyway. And I had a fairly prosaic offer from a mutual fund group in Boston called Keystone, which at the time was 1.6 billion versus Fidelity's 1.7, if you can believe that.
Wow. 1.7 billion. I'm sure they have inflows and outflows many times that every day now. But Keystone lasted a few more years and fizzled out and Fidelity inherited the world. I went to Fidelity, interviewed and uh the guy interviewing me was so hyper that he was he had one of those early machines, Bunker Rainbows they were called. And as he talked to me with one eye, he was checking all his stocks with the other eye.
Oh, how funny.
I know. I was terrible. Didn't have the nerve to walk out, but I should have done probably. And anyway, so I I I I got a job offer at Keystone and went there and uh sure enough, investing was a lot of fun.
Well, it's been the right decision, right? And I'm really curious because I like to interview older investors because you've seen more cycles, but the only other person that lived through the '73-'74 crash as an investor was Mario Gabelli. And for some reason, you wouldn't talk about, I don't know why it was.
Oh, that was brutal. It was about it. We used to semi-joke that the main problem in '73-'74 was getting your weary ass to work. Left foot forward, right foot forward. I mean, everyone was slightly depressed. The little guys went down, the big guys went down, the quality went down, the junk went down, everything went down, rotating week by week, lower and lower. Oh my god, the the big chemical companies yield 6%. Surely that will put the brake on. And it appeared to for a week or two. and they're from and now they're 7%, 8%, shortly 9%, 10% and finally things like Celanese, Monsanto and so on were yielding 10%. And finally that did put the brake on and uh at a lowly seven and a half PE and 10% yield on the on the big industrials it stopped going down but everyone was pulverized and there was quite rapid inflation. So um 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.
And the setup going into that, there's a number of parallels today, aren't there?
Well, there was an oil crisis. Every serious spike in oil has been followed by a recession and a stock market decline. And uh that one was not only a real spike in oil, the biggest of all spikes, that the two-pronged effort by the Middle Eastern powers to deliberately drive the price up and lines of cars at the gas stations. But there was out of that rapid inflation and out of that very high rates. So the rates were going up as stocks went down and eventually the the yield on stocks peaked in around '82. um 16% for the 30-year bond. And and the joke there was you can see a T-bill peaking at at 13 if inflation is is over 10 and a bit. But the 30-year bond to peak at 16.
And you can understand the three-point premium over T-bills. But what you can't understand is that for 30 years they would price in the highest level of inflation that had occurred, you know, ever. And that's quite a reveal, isn't it? Because what it says is the bond market is not predicting the future. A group of economists had just decided that long-term inflation was 4 1/2. Of course, it was less than that, but their vision was 4 1/2. So a 16% long bond appeared to represent 11-12 real for 30 years. It was obvious that what the bond market was doing by then was just extrapolating the condition of the day as if it would stay that way forever. Even though as Keynes would say, even though we know from personal experience that it's not the case, 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.
What it says is the bond market is not predicting the future. A group of economists had just decided that long-term inflation was 4 1/2. Of course, it was less than that, but their vision was 4 1/2. So a 16% long bond appeared to represent 11-12 real for 30 years. And um, it was obvious that what the bond market was doing by then was just extrapolating the condition of the day as if it would stay that way forever. Even though as Keynes would say, even though we know from personal experience that it's not the case. He argued that extrapolation is something we adopt to deal with the 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.
Yeah. Well, do you think we're doing the same extrapolation today? That hasn't changed. Absolutely. 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. And and you would think therefore that if profit margins are abnormally high, you'd be very careful about the PE you apply. And that is not how the the real world works. 1929 peak profits times peak PE, 21 times earnings. Then the PE drops for a long time and then it reappears in the Nifty 50. 1972, 21 times earnings again, times peak profit margins. and then on to 2000, world record profit margins times 35 times earnings. So they celebrated the new high in profit margins by multiplying by a new high in PE and this is double counting of the worst variety. So in 1974 you have crushed oil, crushed margins multiplied by 7 1/2 times earnings. Then in '82 you multiplied by eight times earnings, crushed margins. And then even more recently in uh 2009 you had because of the uh Great Financial Crash you had a dramatic drop in earnings times the lowest PE we'd had for 22 years. So um this is why Shiller found that if you were clairvoyant about the actual earnings into the future earnings and 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. Much too high, much too low, riding the cycle. And 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 busts 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. And therefore, 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. And uh of course it doesn't.
But it's almost worse today because you've got all these commentators telling you that you're guaranteed to make 8% per annum by investing in S&P 500 irrespective of the valuation.
Yeah. But you always had that 1929. A very famous article uh said that basically uh all you had to invest was, you know, $50,000 and you were rich for life. uh I think Ladies Home Journal and um the market is just a buy and hold and Jeremy Siegel, now dean of Wharton, um wrote an article almost identical in the in the in the tech bubble of 2000 that you should just ignore the cycles and just tuck the stocks away and get rich. And of course, if you have a 50-year horizon, tucking stocks away and getting rich will do just fine.
Sure. Because the market really does compound a little higher than you than makes sense. The market return is a bit higher than uh appears to uh be justified by any anything approaching logic. So uh 8% real is just a very handsome return. On the other hand, half of all the time is spent climbing back to the old high. So 1929 doesn't get back there until about 1955. And then the next crash of the Nifty 50 in '72 doesn't get back there until '85-'86. And it turns out it's almost exactly half the time. So people think you're going up always. It's not. So you're going up half the time to new highs basically and half the time you're waiting to recover from from some decent setback. And how long will it take us to recover from the the next bust? Because we're we're at quite high levels. Don't you think?
I I think um the most sensible measures of the market and um I always tout Hussman. I've never spoken to him or ever even met him, but his data is very much like ours used to be when I worked on it day after day and uh he's tested everything. And the most reliable forecaster is a cousin of Warren Buffett's, total price of the market compared to GDP. And on that basis, Hussman 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 contender. So we have the highest market and and the terrible thing about peak markets is they don't predict much better than average times, economic and otherwise. They um are always followed by the worst times. So 1929 priced higher than it's ever been, predicting, you know, you would think on paper wonderful times are followed by the depression. 1972, you would think is predicting something good, but you get a very nasty recession, oil crisis, and collapsing stocks and and um and so it goes on. The tech bubble is is uh followed by a really decent-sized recession uh as it breaks and just the loss, loss of market cap in 1929 or all the bubbles also compounds the the problems. So great market peaks like this are traditionally followed by the worst of times and so don't kid yourself. 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 and the bond market has the worst year in its history. So '22 is an ugly year, but then in uh November, uh, Chat GPT comes out.
And whatever you say about Chat and the rest of the boys is it's pretty obvious that it's a game-changer. It's a life-changer. It's important. It's an important idea. It may make us all ineffably rich. It may destroy us all, take our jobs, or even inadvertently stomp on us. So, but it's important. And so I kind of get it. And it's the first bubble that was interrupted by anything that powerful. You know, it would take a war, a giant virus, or AI. They're they're the kind of things that will do that. And they and they happen not to have done it until, well, you could argue that World War II interrupted the second leg of the depression.
Yeah.
There are quite a few people who think that's the case. And and and this was the same. We had a nice recession going there from my perspective and the economy was weakening and that was interrupted in turn by massive investments in AI. 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. But with uh with AI, the Mag 7 went up. They didn't just go up, they kind of doubled. Rest of the market, looking at them in shock, still drifting off a little bit for the first half year and then flat for another four or five months. And finally, almost a year later, they threw in the towel and decided that the Mag 7, after all, knew what they were doing. and and there was a a bull market and uh and back to a new high we came and here we are. And 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. You didn't know that World War I was coming. You didn't know that World War II was coming. It took odd behavior, Archdukes being shot.
And and Hitler invading Poland. If he hadn't done that, you know, we might have muddled through without a without a war. And but this time, you know, we have the Ukraine, the Middle East, really risky enterprises, Taiwan lurking over everybody's head. You know that trade wars are weighing on, tariff craziness beyond belief, etc. International trade has really carried the world since World War II, getting bigger and bigger fraction of everything. Everyone benefits and now we're bound and determined, it appears to have that go into reverse. So you have geopolitics, global trade, and then behind that you have climate change. I've been worried about climate change for 25 years, but it's only in the last 2 years it became big enough to actually impact global GDP, I think, by about half a percent a year. And the number of billion-dollar-plus uh disasters uh have gone through the roof. Uh storms, floods, droughts, fires and um continues to rise as it will and now critically insurance is becoming higher priced and in some cases impossible to get. Insurance really gets to the heart. It's very central, shall we say, to capitalism. But we'll come back to climate change because I do want to talk about the work of your foundation, but you you said that the global environment is the worst ever. I mean, we've obviously got a potential threat to energy supplies and that is.
Why why do you think the market has kind of shrugged this off? I mean the the VIX has collapsed, the volatility's collapsed and um people seem quite relaxed that we're going to sort of muddle our way through the Middle Eastern situation, but the the economy was already pretty fragile going going into this. I mean.
Yeah, we don't we don't do that kind of stuff very well. If you go back to the uh late summer of '29, you know, business was turning down very rapidly, but the data lagged a couple of months, so people didn't know. They were very relaxed and about as optimistic as they had ever been in history. And then wham, the growth rate is is in reverse. Profits are falling. What a surprise. We we we're not good at predicting turning points. Now, actually, I have a theory on that. I don't think it's a bug. I I think it's built into the system.
Yeah.
And and here's why. 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. Keynes was really clear. The main thing you have to know if you're a politician is never be wrong on your own. Be wrong in company, fine, but never risk being wrong on your own. And therefore at every any major turning point, you you must expect that they will not call it.
Of course. Doesn't matter what they believe. The engine room may be screaming at them that there's a major vulnerability, but the spokespeople will never see it. They'll always wait and see what other people are doing and then jump. Not just the stock market. Everything, real life. And so no one ever calls turning points.
You make an important point. By the way, let let me just add and therefore 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.
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. Why do you think that's not more widely understood by the regulators and why don't they try to temper enthusiasm because I mean Greenspan, everybody, you know, talks about, you know, reverent tones about Greenspan, not me. But not you. I mean, why don't people realize this? I mean, we could have a podcast on on the strange behavior of homo sapiens. I mean, we are a weird group. But Greenspan, and I wrote a paper called "Feet of Clay." I thought he was laughably wrong.
Yeah. In fact, my first confrontation with Alan Greenspan, he had his advisory investment advisory firm and he went around selling his consulting service and it was so bad that when I'm feeling mean, I used to say he was the only person who was laughed out of business. I mean, it was he was used as a joke. He was so bad. 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? Guy was proven incompetent and u and not a serious uh financial expert by any means. And he got everything wrong. And he he invented the asymmetric uh Fed behavior which is if anything goes wrong, we'll bail you out. If anything goes right, you're on your own. You know, wonderful. We'll socialize the costs, privatize the gains. And Larry Yellen were acolytes. Present guy, not so bad, I think. But in any case, we had this big block in which we tried every trick we knew to create chain-link bubbles by letting everybody know that the Fed had your back. Why wouldn't that create bubbles? And it did. So Greenspan, you know, generated the 2000 bubble into which he he poured fuel on the fire and said how wonderful the technology was of of the which it was, of course, of the internet. Uh, but u 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's 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% as I like to say, check it and then inherited the world. So, it's not that they don't work out very well in the long run. It's that the great ideas like AI are guaranteed to suck in more money because everyone can see it will change the world. And so everyone throws money at it. You know, my 100 billion capex is bigger than your 87 billion. This kind of thing. And um what does that guarantee? It it guarantees a bubble in AI capex like fiber optic cable. And and no one ever predicts it. And so if you can see it with your own eyes, why wouldn't you act on it?
Well, the trouble with this is that it's quite difficult to work out the timing as you normally.
So, but that's not a trouble for an individual. It's your money. Fine. You get out a little early, who cares? It's how you compound in the long run. It's a huge risk for an institution. No, sure. We have all the all the career risk you would want and uh the market's uncertainty is considerably longer occasionally than the client's patience. So if you play that game you will sooner or later be wrong and Keynes 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 two-thirds 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. So we wait, we lost oh at least 2/3 of our market share and quickly and and we were making money each year. We just weren't making as much money as the market.
Would you do that again if you had to relive that experience? Would you?
I I don't do investing for the last 16 years of that kind, but looking at my colleagues at GMO, I would say that's precisely what we've done. Uh, we've done our best to do it more carefully or better. But um, no, we've uh stood our ground and and uh mainly invested away from the US and and mainly invested in value. We have a a fund that goes long cheap, and short expensive, which is last I looked up nine for this year, 9%. In a world that's generally down and and value is is doing better. Yeah. In in general, the market is outrageously hard to predict unless you take a long-term view.
Yeah.
You know, it will come down, but you don't know when. And that I used to get a lot of grief, by the way. I'd say that in public and people would say, "Yeah, but the long term is just a series of short terms and if you can't do period A and you can't do period B and there's 10 of them in a row, you obviously can't do the the collection. So, it seems like bullshit." And then finally I I found the example which is in the book where you stand on the top of a high-rise 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. Um, so 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. You don't know precisely when.
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.
And um, they then take quite a bit of time to get back.
They usually do, but it's very variable. You know, the depression was whatever, 25 years and and I think the shortest one was just six or seven years. But um, but yes, it takes quite a while.
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And one of the things that I was curious about, you you talk about the thinning out before at the top. You talk about the the your bubble detector looks at the narrowness of the market. Why why is that? Is there a a reason behind that?
I think so and this is just, I hope, intelligent guesswork. But uh, the 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 low-priced index, which was a brilliant study of those things, uh, was down almost 40%. I mean, I I say that's the primal scream from the stomach of the stock market of all time. And um, nothing like that happens again. High beta stocks do not go down when the market goes up. They may go up a bit less sometimes, but they never go down except in 1929. And then you wait until 1972. 1972, the top of the Nifty 50. 50 great companies like Coca-Cola dominated the world and became 50% overpriced for the only time in history, really. And uh, what happened in 1972 is the S&P went up 17% and the average stock went down 17%. So I can remember the data forever. And um, and then nothing like it happens again until 2000. You remember in 2000 in March, the growth stocks broke and they hurtled downwards 50%. Led by Cisco and um, the S&P hit a co-equal high in September and by September, what that meant is everything that wasn't a growth stock was up 13 or 14%.
Yeah.
And the growth stocks were down, they'd rallied a bit, they were down 40%. And it balanced the books and and it rang the signal. Watch your tail. And of course, it went on not just for another leg down, but had an unusual third year down in in '02. And nothing like that happens again until 2022. In 2022, I I owned a huge unusual position in QuantumScape, a a venture capital company uh that was doing solid-state batteries. And um unexpectedly, it it came public as a SPAC, which I hate. I think they should be illegal, immoral. They certainly are immoral and they should be illegal. And uh, and here I was suddenly owning one with the biggest position I'd ever had. It was such a big position, I owned it. The only thing I owned because it was too big for the foundation. It would have it would have seemed a little wonky. And um, it came at 10, as they always do. And that was four times my money. Not too bad. Uh, and in 3 months it was 131. It was bigger than General Motors. It was still several years away from having any sales, forget profits, and was selling for more than the price of General Motors. I think that's bigger than anything that happened in 1929 and is a more spectacular example. It was in fact a meme stock, but I was so close to it that I couldn't breathe. Forget, use my brains. 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 should be selling at $5 to $10 a share, not 131. And it was uh 25 when the six months ran out and we sold it and and then it went as low as four afterwards. But it was followed by um, you know, Kathy Wood, a very a brilliant talker, by the way, um, and um, her entire portfolio of junior growth stocks without any earnings, basically, that had done so brilliantly off the low of COVID, um, started to drop and by the end of '22, with the market strongly up on the S&P, her portfolio was down 30-35%. Growth stocks were in ragged disarray. That was another signal, bang, just like the other, and only the fourth one in history. And uh, and the market, of course, dutifully collapsed in '22 and then, as we've covered, was rudely interrupted by the AI. This most recent period has been quite remarkable and I interviewed quite a lot of value managers and of course they've had a terribly, terribly painful time because value's been so difficult.
Last year was okay, finally.
Last year was the first year.
15 years, something like.
Well, I mean, what would your advice be to people in that sort of circumstance? Do just stick to what you know. I mean, this is it's unprecedented that it would be such a, I mean, five years, okay, but 10 years, 15 years, what do you do when you're in that situation? You're wedded to that philosophy and it's not working.
Yeah. I mean, the the trivial but simultaneously serious answer is you go out of business. I mean, it's just if you um, you have a sense value, if you've done it correctly, is always a sensible way to manage money. It's not just buying the the guy whose assets are the cheapest in the marketplace. Price to book, price to book is the market's way of saying these are the assets I think are the are the worst. Price to PE is just these are the earnings I think are the worst. But if you've got a nice dividend discount model adjusting for this and that or a multifactor value model, then you should always be using it in in a sensible world. And then when sensible investing hits a spectacularly long run, I think owing to Greenspan and the boys setting the fuse and then everyone else going along with it and then the COVID bailout in the US, which provided money beyond everyone's wildest dreams for a while and you were sitting in the woods by law, you know, you were you were at home, you had these big checks arriving, there was nothing to do except speculate. And so everyone learned to speculate and they had these wonderful um things on the internet where you could get together and compare nodes to the moon, to the moon, and off you go and have a wonderful time. And we had speculation like we have never seen to keep this thing going year after year after year. And you take it on the chin and you see if you can survive and we GMO has survived. Um, but certainly it it hasn't thrived in that time period being as sensible as it as it could be. 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. And if this keeps going, we'll be and these cycles do tend to be multi-year. So maybe we have seen the the turn and u up, down, and sideways, the the US will underperform. It will have, of course, uh rallies, but um, I think it might it is probably facing a a 10-year decline. And just to remind you, 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 0.7. And 10 years later, the the 11 was actually beaten. It was it was close to 13 and the minus one and a half became minus three and the gap was well over 200 percentage points in favor of emerging. So those things do happen and they can last for a long time. So that was the massive hit to the S&P by emerging and the rest of the world, followed by a massive hit the other way around from uh from the from the recovery low of 2009. You know, the S&P and the growth stocks destroyed the rest of the world and and emerging markets until January of last year. It's funny because this isn't like long and distant history and it seems perfectly natural thing to assume that the US at was 2/3 of the global capitalization would likely underperform the rest of the world. It seemed perfectly obvious and I said this at a 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.
No, they don't. It is puzzling. It's very interesting and it it's reflected in climate change and other existential risks. We don't do that. We don't do long-term very well and we are programmed a for optimism. I think pessimism was not a good survival characteristic.
Yeah, of course. Yeah.
For a few hundred thousand years. You it probably helped you survive if you were remorselessly optimistic and it's built deep into our who we are and so we're optimistic, which means that the bull markets will always be longer than bear markets and so on. But the other thing is 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 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. So, I I I always think of this as the, you know, the the top dogs at the chemical companies that that know that they're putting out poisonous pesticides. They know it. Everyone knows it. Files are full of of incriminating data, just as the tobacco files were at Philip Morris and so on and and they just go to work and they crank out their poisonous cigarettes. They crank out their poisonous pesticides as if they mean to kill their grandchildren and then at the weekend they play soccer with them and and are benevolent, help with the school feeds. No, it's weird how how do we explain this? And then all the time getting back to Keynes and so on, we're extrapolating the day's conditions not as he said, even though we know from personal experience life is not like that, it's just something we adopt because it works fine.
And we can live with it. And so you you talk to those people and they at least express shock or though a little voice at the back of their head is saying, oh my god, I hope he's not right. And um, things that people hope are not right, you know, they can be really vicious about it. In in 2000 and and in the Great Financial Crash, but mainly in 2000, people around town were saying we had lost our way. You know, we were just shockingly out of touch. And as you know, um, the engine rooms of the great firms, they all agreed with me because I got them to vote in an 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 1/2 and uh and and they all believed that that would guarantee a major bear market. There was less than 1% who who believed that it would not go back to 17 1/2 times earnings. It was 32 at the time and it went back, of course, uh, and it and it guaranteed a major bear market. But the engine room knew it and the people who employed them were on the podium with me saying, "Oh, Jeremy, everything, don't be hysterical, everything will work out fine." That is the way the industry works. The engine room knows what the score is. They can see the bubble as well as you can as an individual. The bubbles are like giant Himalayan peaks that come out of the plane. They are you have to be brain dead to miss it. But you also have to be uh rash to adopt it as a business strategy if if you're in the uh investment business because the clients will not stand for your underperformance.
This is interesting because quite a few allocators listen to this podcast. They'll be interested in your perspective. You lost half your clients in the dot boom and then you prospered and did brilliantly in the following bust and your assets grew significantly. But you wrote, "Of the clients that fired us, not one came back."
Not one.
And you went on to say, "If you avoided a bubble, you arrived back on trend eventually, but not necessarily the same clients you left with."
No.
So the problem for an allocator is, how do you tell the difference between a manager who's early and one who's wrong?
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 cliché 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. And um, and and that's the way it works.
How would you assess a manager if you were an allocator? Would you look for somebody that was intelligent or would you look for somebody that had character? I mean, what would be the things that you would look for if you were on the other side of the desk?
I'd look for u logic and great data. Do they sound sensible? Have they analyzed the data correctly? Is is the data impressive? Have they got some insight into how the market works? Um, all that good stuff.
And you you managed to recruit some amazing people. James Montier, I mean, he's a genius. Your colleague Edward who helped with the book um, I mean, brilliant writer. How did you.
I know, very, very creative thinker in terms of investing, I might add.
How did you come to recruit these people? Did you have a, did you look for Mavericks?
No, that was largely luck. 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.
No, no, I didn't offer him a job.
All right. He was uh, I was told that he had to join by David Swensen of Yale, the most famous of our clients.
And um, so of course, being a guy of great principle, I said, "Yes, sir."
And I hired him. And um, and he's been obviously uh terrific. And and um, but the others all turned me down. Rob Barnard, uh, Andrew Smithers, who who laughed all around town explaining how I propositioned him in the first meeting. He came in, he sat down. I was so impressed by his kind of ruthless logic, grinding everything to powder, uh, that I said, "By God, why don't you quit this running around, difficult to go touring with with investment advice, really tough, why don't you come and brainstorm here?" and he said no and that he was happy as a clam and went off and told the story around around town and had a good laugh, but always always was very nice to me for the rest of his career, which includes today. And um, so my my advice is, you know, you never go, if you want to build a decent relationship, just offer them a job. But let me just explain that they're responsible for what was the Credit Suisse Global Investment Yearbook and now the UBS Yearbook, which which I I um, I always write about in my newsletter and it's an amazing publication. And let me just finish because there was 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 I uh did my best to persuade him that we were thinkers.
We were ahead of the curve, and you and he joined us despite a fabulous offer elsewhere. So, he was, he was my, I suppose, one real success. Uh, and for the rest of it, I depended on, um, on my colleagues, uh, hiring good people. And, um, that's always good news, bad news, you know. Um, sometimes you get it right, sometimes you get it wrong.
>> And what was it about the firm that attracted Edward Chancellor James Monte?
>> 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. And since our first products were doing very well, that gives rise to Grantham's law number two: If you're doing well, you can sell any new product. If you're doing badly, you can't sell any new product, however promising it is. Um, and and so they moved into the next one and the next one and the next one. And, uh, we didn't need any marketing anyway. We were not commercial. We were really ideas-driven. And, uh, you know, my job description was bouncing in and out of everyone's room saying, "What is your idea this week?" And after a bit of paranoia, they all made sure they had an idea for the week. And we would discuss it to and fro for half an hour. Then I'd go on to the next one until I came to Edward, who'd say, "Get lost. I have a deadline," as he was pounding away, for cranking out some nice idea, uh, for an article.
>> I've got a few, um, questions I'd like to ask you just before we move on to the, what, what you're doing. I'm sorry to interrupt you.
>> But we, we, um, we also really looked after our clients. And everyone says that. I know that. But, you know, dear listener, too, that it's not true. They, they look after their profits. They look after their company. And if that happens to look after the client as well, whoopee. And, um, 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. If, if we wanted to, we, 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, five 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 looked cheap on our dividend discount model for the first and only time in their history up until then. And, um, so we said, "We'll start a growth fund." And very quickly, everyone was so surprised. It had novelty value. They all signed up, and it became, it had the most institutional clients of any fund that we had. And by then, we had quite a lot of funds, like 30, 40 funds, uh, of different kinds. And, uh, whenever we hired them, we said, "Look, this is not going to last. When it goes back to normal, which was about a 20% premium to the rest of the market in terms of value, uh, price to deliver less value and historically had delivered less value, by the way, uh, forever growth stocks." And, um, they all said, "Yeah, yeah, yeah, fine, fine, fine." They, they didn't even really listen. They didn't take it seriously. And luckily, the timing worked quite well that time, and the market turned, made a few points the first year, and then quite a few points the second year, and then made quite a lot of money the third year. And, and, uh, we had about a 15-point gain over 3 years. We didn't do brilliantly against the benchmark, but growth was the main driver. It was like 12 points for growth and three points for us in incremental. And then 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 trashed 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 that pushed us into asset allocation.
>> Oh, I see. Yeah.
>> So, we said, "Well, emerging looks good, and small-cap value looks good." And, and we pieced together amateur-ish asset allocation efforts. And then we began to say, "This is pathetic. Let's do better." And Chris and the boys and me, we all, and, and Ben, we all got together and said, "What can we do?" And, uh, worked out a, a more coherent battle plan for asset allocation, and that became a hugely rapidly growing business. And, just, just for the record, to give you an idea of what was going on here, we had, um, 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.
>> It's astonishing.
>> As, as new people came. Incidentally, only one of my old clients. I met him in an elevator. You know how that happens once in a while, trapped in the elevator, and he said, with grinding his teeth, "Well, I guess you were right, Jeremy. That was it." And then,
>> I leapt out of the elevator.
>> Quite gratifying.
>> Well, not really. I would have been more gratified if he just handed over half the money he'd taken away. But,
>> Yeah, it's, it's difficult. It's like buying a stock that you've sold higher up.
>> Thank you.
>> Close, close after.
>> It is. Yes.
>> I asked Bill Nyagran, you know, if he had a problem doing that. He said, if he said, "I've made so many mistakes." He said, "I wouldn't have any stocks left."
>> Oh, no. But if you've, yeah. If you've just sold a stock in the previous year at four, the number of people who can buy it back at 12, you could number on the fingers of one hand.
>> It's so difficult.
>> And people can, but they are so rare. I am not numbered in that group.
>> No. No.
>> Because you seem very rational.
>> I am very rational, but that's pushing rationality too far for me.
>> And did you enjoy the quants more than the individual stock investing?
>> Yeah. Yeah. 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, and so after 15 years, very quickly, I found that if I listened to another broker telling me about quarterly sales, I think I'm going to throw up. It had literally, it happened in less than a year. And, uh, quant investing was completely different kind of thinking. You know, what is driving the world here, and what is working there, and how do you balance momentum and value? What is the regression rate? How, what factors impact the regression rate? What accelerates the regression, slows it down? And, and, and these were, in their way, wonderful issues. So I had another,
>> really terrific five or six years, and then a pretty decent five or six years, and then that began to get,
>> repetitive. And, and then, uh, I was lucky. Asset allocation is yet again, a totally different kind of thinking, you know, equities versus cash, and, and, and so on, country versus country, and, and everything else. It was, uh,
>> so you were successful because you, you had this intellectual puzzle that you wanted to solve?
>> Yes. And, and I, I got to, every 15 years, I got to change my career and start again. And the final one, and there's a five-year overlap, five-year transitional overlap.
>> Right. Okay.
>> Um, so there's really 10-year blocks. And, and the final one was, um, propaganda. I, I got to write quarterly letters and papers on running out of resources and, and the race of our lives about climate change and, uh, and toxicity, uh, a while ago, and its effect on, uh, prospects for fertility, population, and, uh, and, and a viable environment.
>> Um, so let's talk about that, the work of your foundation. I mean, it's remarkable what you've done and how much you've spent. How do you measure success? Or let's start by talk, tell, tell the audience a bit about what, about the three areas and,
>> and why you chose them.
>> The quickest one, resource shortages, was just a purely intellectual idea to start with. We just noticed a pattern, and we created really good data that made it clear. Everyone's view of of, uh, resources was dominated by oil. So really, they were measuring oil. That's not all that useful. So we took the, the 35 most important commodities and we equal-weighted them. And so we asked the question, "What, in general, have resources done?" And, uh, and we found that even though you had worse and worse copper ore, you had greater and greater technology, and, and the equation was something like shortage quality minus two a year, and technology plus three a year. So technology had spent a hundred years winning. The price had fallen 1% a year, and over a 100 years, it was down 70% real. I mean, what a help to getting rich. And we noticed this pattern, and we saw the great surge for World War I, great surge for World War II, great surge for the oil crisis, but, but coming back to lower loads every time. And now, bang. From 2002 until 2011, we'd had World War II without World War II. And the prices were way back.
>> Yeah.
>> Where they had come from.
>> Which was China.
>> Which was China.
>> Yeah.
>> China had gone in 25 years from 5% of cement to 50%.
>> Yeah.
>> From, you know, 7% of iron ore to 50%. There were three or four commodities where they were 50%. 50% of every pig eaten, 50% of every bag of cement, etc., and 50% of every ton of coal. Just amazing. And of course, that can't last. But it was enough to break the back of commodities. And everyone brought on their last best reserve they'd had up their sleeve of copper and aluminum and tin and nickel and zinc and so on. And, um, and then, of course, China decided to slow down and attempt to redirect their economy a bit. And, but also simultaneously, agriculture was boosted by three of the most unpleasant global years for for the major areas of of grain production. So everything had gone up together. And 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 minus two, is more like minus three, 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. And it, 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.
>> And we're nowhere near the peak, but we're three times the price of the low. And we appear to be in a volatile sideways transitional phase. My guess is the next phase, uh, it'll take 10 or 20 years to recognize it because of the volatility, will be, will be upwards. We are, of course, running out. And then, as we got into that issue, we, we realized that running out was absolutely fascinating. These are all finite resources. What do you think? Kenneth Boulding said, "The only people who think you can have compound growth on a finite world are madmen 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 case of natural gas and oil. And, um, that was one. And, uh, and we realized that the, the central idea there was living beyond our means. And, and, and there are limitations. We are hurtling through space, Spaceship Earth, says Kenneth Boulding, fellow Yalie, incidentally, and, uh, long deceased. And, um, the next one was climate change.
>> Um, and we, the whole of my family got involved together as we went on a series of trips and were impressed by how rapidly the world was disintegrating. And the more you get into that, again, if you're not brain dead, you, you begin to realize how badly that will end, unless we act. And, and we don't. 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-half-baked efforts. But, but getting better. And at 550, be lucky to have 3 degrees centigrade up from today's 1 and a half. And each one seems to be more stabilizing, destabilizing than we thought.
>> Yeah. So the, the increase suddenly in damage, floods, droughts, storms, uh, much greater than we expected, uh, knocked off perhaps half a percent of global GDP the last couple of years. Be, before that, we worried about it, but it didn't really show up in the data. And now it impacts insurance. You can't get insurance. It's gone through the roof. It, be, that is, insurance is really hardwired into capitalism. And that is how climate change over the next 20 years is going to impact directly how everyone thinks about life. And we have to spend a lot of money, not just on the accidents themselves, but now we have to spend billions and billions on trying to prevent them. So it, it, someone worked out that in the last 20 years, about a third of our GDP growth was either correcting or avoiding, uh, natural disasters. And of course, that number will get bigger and bigger until it's 130%. And, and the remaining part goes backwards, I suspect.
>> Oh dear.
>> Well, you say, "Oh dear." Yeah, but that's not the end of the world. We're, we're a very rich world, and we can, we take a few decades where we back, go back a bit, if we use that time to, uh, to keep improving. And wind, solar, battery 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. And it's cheaper even if you gave them the coal plant. Um, just delivering the coal is more expensive in many places than building from scratch a solar farm and, and storing for a couple of days. Anyway, so that's, and EVs have been very encouraging. And if you look at the way they're improving, people don't realize they, they always, so easy to get two years behind. But 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, 'cause 400 miles will take you wherever you want to go.
>> Yeah.
>> And, um, these, these are all pleasant surprises. So they're going fine. Anyway, so climate change, great financial implications, going to make growth more and more difficult. And, and yet, it's full of challenges, full of opportunities. The actual greening of the economy, trillions of dollars, are an enormous number of opportunities. And we have a big chunk of our portfolio investing in green tech. And it's, you know, a very, an enormous number of really smart people, a lot of them from overseas, come to America because of our VC industry and structure and tradition of of funding it. And we really drive, we drive the process. American capitalism, I think, is a little fat and happy and monopolistic, but venture capital is an extremely bir, extremely useful and better than the rest of the world. Israel is very good, but, very small. And, uh, the, the rest, the Europeans are significantly off the pace. And nowhere else in the world does it, does it really matter. But VC and America is the, the crown jewel of their rather wobbly capitalist system, I think. And, uh, 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 business was much safer. Cost him, cost him hundreds of millions a year.
>> Did he still send you a Christmas card?
>> No, he never sent me a Christmas card, and I checked for bombs from him. But, um,
>> we were talking in the car here on about fertility and toxicity. Please, just two minutes on that because I think this will be new to many of the listeners.
>> We, we don't do very well listening to unpleasant news, and we have this enormous optimistic bias we've been talking about. And, um, that certainly applied to, uh, climate change. When I started 25 years ago, and then I started talking to investment groups 20 years ago, there was nothing but eye-rolling. And now, of course, they have woken up, despite the US being currently recalcitrant for a year or two. Well, 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. And, um, among other things, insect life is going out of business. And, and all the great insect experts like E.O. Wilson, the famous ant, spent four hours with him, bullying him when he was 90 years old, probably killed him off. But, 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. They can't prove it because they never had any money, and because the system is so infinitely complicated. Uh, and, and the other people are humans. Uh, and we're particularly vulnerable because we've designed a world in which we have our noses rubbed up against these toxins. Plastics at every corner are leeching endocrine disruptors, messing with our hormone system, messing with our fertility. And, and worse than that, anything you can measure. The sperm count, one of the few things you can measure pretty accurately in this stuff. And we deduce, um, that 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 to, to, about, in round numbers, and, 1972 was not a good place to start. Everyone smoked, pollution was much worse than today, DDT was everywhere, all messing with endocrine systems. But anyway, 100. Now it's 35. And, um, we have been dropping in the 21st century almost 2 and a half percent a year. Can you believe that? And, and back in the 20th century, we're dropping at 1 and a half percent. So it's accelerating. And it's accelerating because the quantities of plastic, uh, in particular, uh, but also pesticides, are are increasing so rapidly. And, uh, what, what is terrible about a lot of these endocrine disruptors is they have 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 fungicide. And, um, if, if that is the case across many pesticides, then you'd have to conclude we're in deep trouble, and better put all our resources to addressing this. And, and from a fertility point of view, the declining sperm count didn't seem to matter because we were over-engineered, I like to say, like a good Victorian bridge. 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, Shanna Swan, and her colleagues, who've been doing this 30, 40 years, they, um, they say that in 20, 25 years, the average young couple will need help. The median, the one in the middle, um, which is really dire beyond belief. And 20, 25 years beyond that, if unaddressed, the viability of of our species will be at risk. And, we're not doing much. 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. But there is one academic report out of Japan. 8,000 Japanese between 20 and, and, uh, 40, I think, maybe 20 to 50. 8,000 of them. And they asked them lots and lots of questions. And in answer to the question, "How many of you had absolutely no sex in the last 12 months?" It's 45% of the men and 45% of the women. But in the age group, men 20 to 28, it is 52%. I mean, read it and weep. Men 20 to 28, 52% had no sex of any kind in the previous 12 months in Japan. Not surprisingly, you might argue that their fertility rate is 1.2, I think, and South Korea is 0.7. China is 1.0. Uh, 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. 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. You know, 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. And, uh, we are going to have a steady drag. Europe is already showing the effects economically, and the Americans treat the Europeans now as if Europeans have lost the plot because their, their Euro-sclerosis, 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 percent a year for the last 15 years, comes straight out of GDP.
>> Yeah.
>> GDP is hours worked times productivity. But 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. 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. And because the productivity is higher in the big cities, that worked for a while. But, but this 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. 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'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.
>> That, I think, is a point at which we should leave this conversation. I want to leave in a slightly upbeat note. How much money have you given away through your foundation to date?
>> I'm hoping that by the end of this year, or the middle of next year, we will have written checks for a billion dollars.
>> Jeremy, that is an amazing achievement. Thank you so much for agreeing to do this conversation. I so enjoyed it.
>> It's a great pleasure. So did I. Thank you.
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