In a conversation, the host interviews Jeremy Grantham, co-founder of GMO and renowned investment strategist known for accurately predicting market bubbles.
Grantham, based on over fifty years of investment experience, analyzes current market issues such as the 'super bubble', the difficulties of green transition, and the population crisis, and issues a stern warning about the U.S. stock market. Below are selected excerpts from the conversation.
U.S. Stocks: An Unprecedented Super Bubble
Question: You predicted a major correction in the U.S. stock market, but the market remains strong to this day. The AI boom has even exacerbated the bubble. Has your viewpoint changed?
Grantham: The larger the bubble, the higher the risk. Currently, U.S. stocks are in the third largest super bubble in history, only surpassed by the 1989 Japanese stock market and real estate bubble, but far exceeding the 1929 Great Depression and the last peak in 2021. Measured by the Shiller PE ratio, U.S. stock valuations have reached historic highs, and the total market value to economic value added ratio has set a record. If behavior models revert to normal, U.S. stocks need to crash by 50%—this is merely a return to the 'normal psychological tolerance range' of humans.
Question: Supporters argue that AI will reshape the economy and that high valuations will be absorbed by future growth. How do you refute this?
Grantham: Major technological revolutions inevitably come with bubbles! The railroads of the 19th century and the internet at the turn of the 20th century were both examples. People invested wildly in visions of 'changing the world', and in the end, most lost everything, while the survivors (like Amazon) reaped the market's rewards. AI cannot escape this rule either: it will indeed disrupt society, but when the bubble bursts, 99% of concept stocks will disappear, leaving only a few winners to harvest the dividends.
The Paradox of AI: Productivity Gains and Social Fragmentation
Question: If AI fully replaces human labor, how will the economic system sustain itself?
Grantham: If the future is entirely run by robots, who will consume? The answer can only be a strong redistribution by the government. History proves that when productivity growth benefits the masses (as in the 'Golden Age' of America from 1935 to 1975), social stability is at its strongest; but if wealth concentrates at the top (as in the U.S. post-1975), dissatisfaction will lead to political turmoil. The current widespread discontent among the public in Europe and America towards the establishment is a manifestation of this imbalance.
Question: Does the AI era require a 'big government'?
Grantham: Absolutely necessary! The government does not need a large bureaucratic system, but it must ensure that wealth flows to the lower levels through taxes and welfare. Otherwise, we will face famine or revolution.
Investment Safe Haven: Green Transition and Shock-Resistant Assets
Question: Are there still safe corners in the U.S. stock market?
Grantham: Stocks related to the green economy are severely undervalued. The urgency of the climate crisis cannot be ignored—fires and floods have become the norm, and the global decarbonization process will inevitably accelerate, leading to long-term investment opportunities in related fields. Additionally, high-quality companies with high profits and low debt (like Coca-Cola during the 1929 crisis) are more resilient than cheap stocks.
Question: Are the European and Chinese markets worth paying attention to?
Grantham: Non-U.S. market valuations are relatively reasonable and may outperform U.S. stocks in the long run. For example, in 2022, the S&P 500 fell by 22%, but emerging markets remained nearly flat. This divergence will continue to play out in the future.
Population Crisis: The Overlooked Time Bomb
Question: Why is a declining population so dangerous?
Grantham: The shrinking workforce directly drags down GDP, and what’s more frightening is the blow to 'animal spirits'. When businesses no longer expand and promotion opportunities decrease, society will fall into conservatism and pessimism. Japan's 'lost two decades' serve as a cautionary tale. Immigration can only provide short-term relief, but the global decline in fertility rates is irreversible—Africa's fertility rate has plummeted from 6.5 to 4.2, and many European countries rely on immigration to maintain their populations, but this is not a long-term solution.
Question: What are the solutions?
Grantham: We must reconstruct social incentives! The government needs to reshape childbirth as a 'public good' through policies like housing subsidies, high child-rearing allowances, and free education. Culturally, families must be re-elevated to a position of high value rather than being seen as a personal burden.
Gold and Cryptocurrency: Safe Haven or Trap?
Question: What is your view on gold and Bitcoin?
Grantham: Gold, though it has no actual output, has stood the test of thousands of years and is far more reliable than cryptocurrencies. Bitcoin is purely a speculative tool, and the surge in electricity demand caused by AI has turned cryptocurrency mining into an environmental disaster.
Ultimate Warning: The Physical Boundaries of Economics
Grantham: Traditional economics neglects a fact: pursuing infinite growth on a finite planet will inevitably hit the south wall of physical laws. When resources run out and the environment collapses, any model will fail—this is humanity's greatest bubble.
