#12 - Jeremy Grantham: Bubbles, AI, Climate Change, Population Growth

32:38And it was quick. That was a saving grace. It was only two and a quarter years, But it was slow enough to have a lot of clients shoot it because they believed that it was a golden new era that Greenspan was telling them about, that the internet would drive away the dark clouds of ignorance. He was very poetic, old Greenspan, on the topic of improvements. And he was really, by the end, preaching a golden new era. He talked about irrational exuberance in 96. some subcommittee congress had kind of slapped his head and said don't interfere with our bull market and so he did and he retreated on that topic and never mentioned it again and led everyone to believe that that all was cheap anyway that that was a severe challenge but when things turned we had all our money in the cheap stuff REITs yielding 9.1 tips yielding 4.3 4.3 real tips Wow, right at the peak.

33:41And small cap was incredibly cheap on a relative basis and absolutely a little bit cheap. And by the bottom of the market, it was up a few percent. The S &P was down 50 and it was up three or four or five percent. That's a hell of a gap. The REITs were actually up over 20 percent at the very bottom of the market. Think of that as a gap. And it meant the S &P would have to go up 140 % the next day to close that gap. And the bonds, of course, were glorious. So our portfolio made money in 2000, made money, decent money in 2001, and scraped home by arguably nothing, half a percent in 2002. But the S &P was down 50, and we'd made money in each of the three years.

34:27So we survived. We lost a lot of business. It all came back with huge interest and became much bigger firm over the following four or five years. So we thought we'd pretty well proved Keynes wrong on that issue. We had, by a narrow margin, we had survived the shock. And again, we had had a hard time fighting the magnificent, et cetera, as a lot of people have had. You either own them or you don't. And if you don't, you're in a different league. And if you're buying, quote, cheap stocks, you're not going to keep up. And so we have suffered a second time. And now the question is, will we be vindicated as we were the first time?

35:15And I suspect, yeah. And every cycle, by the way, people always think that the heroes of that cycle will keep going forever. The nifty 50, one of the reasons we had the nifty 50, which is back in the 60s, finished peaked in kind of 72, was they were called one decision stocks. They were so good, you only had to buy them and hold them forever. And they were the J &Js and the Merck's and the IBM's and so on. And I went back and looked in the record book, and none of them had failed for like 20 years, which is unusual. And then what happened in the following 10 years is you took out Avon and shot it and Xerox and shot it and Eastman Kodak, which was a giant above suspicion and shot it.

36:01IBM, you half shot it. It limped off the battlefield more dead than alive and then regrouped. But when you do that, you expect a very different outcome and you got it. and the nifty 50 were terrible performers for 10, 15, even 20 years, they looked very sad. And yet they looked untouchable. They looked magnificent. It was so obvious. Why aren't you buying these great companies, you idiot? Why are you buying Twin Disc Clutch from Eau Claire, Wisconsin, when you could be buying IBM? And so it is this time. And will it turn out the same way that it did with radio and so on in 1929. And each of these iterations, or will this time be different?

36:48And that's what we, in a sense, wait to see. And I suspect it will turn out very similarly. Each one has a separate spin. And Lord knows, these are more impressive companies, I believe, than they have been in other cycles. They owe a lot to government decisions to allow them to buy every small interesting company in the field and or important rivals, et cetera, et cetera, as do all the giant companies in America. This has been a good era for giant companies. They have really been calling a lot of the shots in government. They have been allowed to spend money like water, of course, since the famous Supreme Court decision.

37:30I wrote it up under the heading of supremely silly, the idea that companies would be able to spend unlimited money and not really be required to report it to the actual owners of that money, their stockholders. I think being disallowed to spend any money in politics would be a brilliant start to a better breed of capitalism. Let's take a moment and talk about bubbles. You've written extensively about the idea of bubbles and studied it over a long period of time. Where do you see bubbles today? and would you consider AI in a bubble similar to what we saw with the internet in the late 90s? Very quickly, let me give you the history.

38:14We studied every commodity, currency, etc., and stocks and so on, and stock markets looking for bubbles. And at the asset class level, we found a lot that met our definition. We had to define it. We defined it as two sigma. You have a series of data points. And you can have this statistical term for an outlier, two sigma, which in a random world would occur every 44 years. And actually, in real life, seems to occur about every 35, which is really remarkably close, closer than I would have guessed. So you have quite a lot of them. And in the developed world stock market, every single one of them, which is a lot, you know, there's, I forget how many, but maybe 70, 80 of them.

39:01they all went back to the pre-existing trend, the trend that existed prior to the bubble forming. There were one or two in the developing world where you were making a move, say, from agrarian economy to a more manufacturing economy, where the price would actually go up and stay up for a long time. I get it. It's a good time for a paradigm shift. And there were one or two commodities which got me interested in commodities that made paradigm shifts. Oil, The best description of oil is that it was flat until OPEC in 1972-74, and then it jumped up and stayed up. And you'd have to say the history of oil is that the price has been pretty strong.

39:41And it looked like a paradigm shift, OPEC. And I got a chart in the New York Times offering oil as the first important paradigm shift that I come across. So how are we fixed on that level? where the two sigma, the US market is past two sigma on the upside. It is, in that sense, a technical bubble. The interesting bubbles, what I call the super bubbles, though, have to have other characteristics. And we had those characteristics back in 2021. And the most interesting and unusual one is that the speculative leaders suddenly start to go down fairly big while the broad blue chips continue up. So you've got this beta of one and a half, you're meant to be rising one and a half times market and the market's up 20.

40:34And instead of being up 30, you're minus 35. That happened in 1929. So the low priced index, flaky little names, they'd been up 80 % in 1928. And they were way down the day before the crash. They'd been declining all year in 1929. Believe it or not, like a primal scream from the stock market. And then nothing like that ever happens again until you get to 1972. 1972, I can remember because the S &P is up 17, and the average big board stock is minus 17. So I get to remember it. But that's a pretty big gap. And then nothing like that happens again until 2000. Most of you were around in 2000. And you will have noticed that the leadership, the great speculative growth companies and the pet.coms, they all kind of imploded in early 2000.

41:31By June, July, August, they were down a lot of them 70, 80%, the small ones and 30 to 50%, the big ones. And the S &P, The rest of it was still climbing. And it went to a co-equal peak in September, which meant that the non-quote growth stock had risen about 15 % or 16 % while the growth stocks were getting hammered to leave the S &P flat. It's a remarkable and rare thing. And it happened again in 2021. But when the leadership of all the meme stocks, remember them, and AMC, etc, etc, and Kathy was very interesting portfolio that had been so brilliant. They all started to nosedive. And it was led by my own particular spec, which I'd invested in seven years earlier, Quantenscape.

42:27I had a huge position as a venture capitalist. And it came as a spec, which I hate, and had said very nasty things about publicly in September 2020. And by December, it had gone from the usual 10, which was four times my money, to 131, which was 50-odd times my money, biggest position I ever had. I wasn't allowed to sell it for six months. I wasn't allowed to hedge it or anything else. And it peaked in December 2020. But the other things, the new issues peaked in January, February 21, and so on. And Cathie Woods was topping out in the late spring of 2021. By the end of 21, aggressive growth stocks had been hammered, but the S &P was up over 20%.

43:19That's an amazing fourth example. And it predicts death and destruction. And I wrote that. And for the first half, I wrote it under the heading of waiting for the last dance. And then when we got there, we called it Let the Wild Rumpus Begin on January 1st, more or less, of 22. In 22, the first half was the biggest first half decline since 1939. Everything, including the bond market, dropped like a rock. And by the end of the year, there was a lot of grief around. And the end of the year also coincided with Chad GPT, which... which was like a snake in the garden party, from my point of view. It changed everything.

44:04And I tried it very quickly. And like everyone else in the world was impressed with it, began to see considerable potential. And even though there's only a few handfuls of them, they dragged the whole market up for 10 months, and the rest of the market was drifting down to flat. They were standing there with their jaws dropped, I like to say, admiring the action of those handful of AI stock, selling the shovels for the gold rush, people buying chips that they might never use, but what the hell, we'll try and use them and we'll represent ourselves as using them. Everyone wants to represent themselves as madly developing AI.

44:50I understand that. Perfectly good idea. And so that scrambled what was looking like a fairly, a relatively well-behaved bubble. They always take longer than you think to break, but it had broken decently and I thought was probably going to continue down. And then we got that strange action that carried the whole market initially watching it. And then finally losing patience in November and participating. So we've had November, December, January, February, four months of pretty broad participation, completely egged on by AI and to a level where we have totally full employment, totally wonderful profit margins, all the things you would not want to start a bull market from.

45:37This is where you start bear markets from. Great bull markets start with exactly the opposite. But it always feels wonderful. Peak profit margins getting there takes years and it feels nice. And so you've got a great track record. You can't get to peak margins without leaving a terrific track record. So great track record. You've got the peak PE, so you feel wonderful. The stock market has gone up and up and up and up. So everyone feels great. And that's how you get to a market peak. You feel great about everything, of course, almost by definition. And when do you start going down? You still feel great.

46:13You just don't feel quite as great as you felt the day before. That's why it's so damn hard at both ends. The light at the end of the tunnel is a complete joke. There is no light at the end of the tunnel. The market turns when things are totally black, but they're just a subtle shade less black than yesterday. How are you going to see that? That is pretty tricky. And by the time you see the light at the end of the tunnel, boy, you've missed the first quick, easy 30%. Yeah. I mean, the consensus sets the price. So timing when the consensus changes their perspective of the future is really tricky.

46:48Yes. And hanging over it all is that slight chance that the game has changed, which is what the bulls always say. And up until now, they've always been wrong. But they can be right. And I had a debate with Jim Grant where I took the argument, this time is different, about five or six years ago. And you know the old cliche about what's-its-face, the old fund manager who said, John Templeton, the poor most dangerous words in the English language are this time is different. And indeed, they were pretty damn dangerous for 100 years. But I wrote in a quarterly letter that I thought the five most dangerous words are actually this time is never different.

47:33Because occasionally, it is. Japan going to 65 times earning, pretty different from anything that preceded it. The oil in the OPEC going up four or five times in a hurry, pretty different. And it changed the world in many ways, and it stayed changed in many ways forever. We never went back to a pre-1972 world in energy. So it does happen. So that is, you know, every value manager should have that pinned on their doorway. along with a few other things, you have to be aware it's possible that things are different, even though history says they very seldom really change. The reason they very seldom really change, they're all based, as you were saying, on human nature.

48:21Human nature is the one more or less inflexible point in life. We're capable of being crazy dudes, just like we were a thousand years ago or the South Sea bubble in 1721, and we're still the same crazy dudes when we want to be. We're perfectly capable of being sensible and pessimistic and careful and all those good things, too. In terms of, you know, this time is different. Let me ask you quickly about this whole notion of currency. I've always felt that currency is a very tricky thing because it takes years to develop the faith and trust required for a viable currency, and it can be lost in an instant.

48:59I'd like to just hear your thoughts about how cryptocurrency fits within that framework. and if you just generally agree with that framework? I tend to view currency as over my pay grade. It's a different specialization, certainly given to odd behavioral characteristics. Psychology plays an incredible role, obviously, in short-term moves. To give you an example, we once watched back in the 80s, we watched the pound go from$2.30 to$1.04 and then back to$2. What the hell is that? All of the output of a serious, more or less serious country can move that much. And you could say the same for the dollar.

49:47It went from incredibly overpriced to reasonably priced relatively quickly. And once you've seen one of those things, you realize, wow, currency is not quite the stable benchmark you had in mind. I don't think, however, which important currency lost its plot quickly. Pound went through a couple of brutal wars and racked up huge debt. And the US was growing like a weed in that time period. And by the beginning of the First World War, had overtaken them in terms of the scale of their economy. By the end of the Second War, they were much stronger, bigger, and everything else. And still, it took a few decades for the sterling to kind of go out of use.

50:37Even in the early days when it was clear that the dollar would take over, sterling had a lot of old adherents in the Middle East and so on and around the world. It wasn't that quick to kill it off. And that's the only one. So my guess is it's not going to be easy to kill off the dollar as the central currency for the world, I don't think. As for Bitcoin, I think Bitcoin is fascinating. It will go down in the history books as something significant, unique. It's like a chain letter, which everyone on the planet has signed up for. All you have to believe is that someone else will pay more. It doesn't pay you a dividend, and it doesn't create any value unless you're a drug dealer where it's invaluable.

51:29or other bad guys who want to stay off the radar screen. And because of that, it's perplexing to me why serious countries don't ban it because it so facilitates lawbreaking. But it's worth what anyone wants to pay. Like there's strange images that exist in space. And sooner or later, most of the value will disappear. Nearly certain. But I am not nearly certain that it will happen this year, next year, or even in five years. I just think sooner or later, there will come testing time, and people will realize in the end that there's no bedrock value. When you get really nervous, the fact that the cheaper the stock goes, the higher the yield becomes, puts a real break on it.

52:17The idea that the cheaper the stock goes, the more dollars of asset value you have per dollar of stock price, puts a break on it. And there are no such breaks in Bitcoin. And people say with some justification, you can say the same about gold. I get that. And I have always felt a little nervous about gold. And for the record, from time to time, I have owned a little bit and I have just sold my gold because it had a nice run, which is a guarantee for the listener that gold will go up really quickly another 20 or 30 % or more. But again, gold has no dividend. I will say this, it has several thousand years advantage of experience over Bitcoin.

53:04It does have a lot of really handy industrial uses for some modest fraction of the total. It is a gorgeous looking metal for jewelry. And that doesn't hurt either. And that's a fairly significant list of advantages over Bitcoin. But still, I'm suspicious of it. I'm just a hell of a lot more suspicious of Bitcoin. But anything that depends on public enthusiasm can go where it wants to go in the short term. We have seen tulips once upon a time, where the highest price, I believe, sold for a decent house. And in the end, they went back to selling like tulips. I suppose when whatever you're viewing as a currency is also difficult to really understand.

53:55I imagine the vast majority of investors don't truly understand it, that when there is a crisis period, you're just going to bail. I would think so. I would. If you really need the money, the economy is looking bad, your job's looking not entirely secure, and you've made quite a lot of money in Bitcoin, whoopee. That's the asset that I'm going to sell. All right. This is the moment you've been waiting for. We're going to talk about the really big issues. I know that's your focus currently and probably for a long time. Why don't we start with one of the big ones, climate change? What can you share about climate change?

54:40I started trying to filter warnings on climate change into the investment community 15 years ago, and I must say I got world-class eye-rolling in return. And those days have changed enormously. Everybody except a few ideologues can't bring themselves to see the facts in front of their noses. But everyone can see the weather, the climate changing rapidly and dangerously. It's increasing the risk enormously for farmers. It's increasing the risk enormously for people who live in low-lying coastal areas, increasing the risk for people who live in forests, where even forests that almost never used to burn are now burning great quantities.

55:29And the damage is racking up our recent posting for this week. It has a pretty well-known exhibit that shows all the billion-dollar first derivative problem, You know, damage from forest fires, damage from floods, damage from droughts. And the number has risen very rapidly. And there's a lot more damage that is not in that list, damage to agricultural crops, particularly in the third world where droughts are pulverizing their GDPs because of crop deficiencies and health. climate change is not that healthy in many ways. But you rack up all of those costs, and it seems that at least a half a percent, and the experts seem to think closer to 1 % of global GDP.

56:23And 15 years ago, it was completely a rounding error. Seven years ago, it was hardly ever talked about. But last year was the first year where people say, ouch, global growth is two and a half points. It might have been just over three, say, or a few bibs higher than that, had it not been for climate then. We started with 280 parts per million carbon dioxide, and we've kicked it up to 423. And before we finish, if we behave quite well, it will rise to 550. Let me point out the difference between an ice age with two miles of ice on Manhattan is 120 parts per million, from 160 to 280. And we have just put on slightly more than that.

57:15So we have incremented this heat trap in gas by more than the difference between an ice age and a wonderful interglacial of the kind that we've had for the last 2 ,000 years. This is a very rash experiment and we're going to put on another 120 bits before we finish now if you back up to 1960 for the year i arrived we were adding just less than one part per million 0.8 and now we're adding more than two so we have escalated the the amount of damage we're doing every year And if you escalate the damage, you should count on that. If you escalate the cause of the damage, parts per million CO2, you should count on the damage escalating, and it is.

58:07The air temperature has gone up a lot faster since 1970 than it did before. It has arguably gone up a lot faster since 2000 than it did before that. And this last year was the hottest ever, and it was the hottest ever by the widest margin for the month of February. February was the hottest February by the biggest margin in the history of February. And the year ending February through February was substantially more than 1.5. So we hit centigrade with 2.7 Fahrenheit. So we'd gone through that infamous, theoretically dangerous barrier for the first time on a one-year basis. So it's a very bleak outlook.

59:00We have to do better. We are doing better. The question is, can we continue to improve? In the end, we have to have a penalty, a clear penalty on people who push out the CO2. And if that's an extra cost, we have to pay for it. and If we don't, the damage will escalate and the GDP growth will pay a higher and higher penalty until we look back and we will realize what the experts have been saying for 20 years, and that is the return on preventing the CO2 from getting in the air is very high indeed. Trying to recapture it or trying to correct for the damage is many times more expensive. Just think of the ocean level rising and starting to flood the low-lying cities like Cambridge, Boston, Miami, and so on.

59:55The cost of doing that rapidly becomes astronomical. So that's really the story. Happily, the world begins to get it. Most of the government begin to get it. The style of politics these days to attack China for everything, but China has tried much harder than pretty much any other country to green its economy. It installed as much solar as 1.3 times all the solar the US has ever installed in second place. So more last year than any country in the world, including the US ever. And about two thirds of the wind. So they did in a single year last year, two thirds of the US wind. We've been doing wind for 30 years.

1:00:46and these are incredible numbers the same goes for they create of course over 80 % of all the solar panels over 85 % of the silicon that goes into it they're building more than half of all the nuclear plants that are being built today they've done really well in hydro and they're way years ahead of their schedule for solar and wind and yet we managed to attack them. 35 % last month of all their vehicles were electric vehicles, fully fledged electric vehicles. And we're at eight and slowing down because, because. And we can't sell any electric vehicles in half the states in America, it seems. So we're way at the bottom of the list in our response to dealing with climate.

1:01:42that's the really tough side of the equation so corporations have to pull their weight as the government switches every four years it's simply not reliable uh if we if we mean to pull our weight we have to we have to lean on corporations being sensible and and setting a good example whether that is going to happen i don't know some companies look to be trying pretty seriously, and others do not. So that's one thing. The other thing that is much less appreciated and is moving even faster is, of course, toxicity. Human use of every kind is crushing the nature. We are crushing the available source of natural services, clean water, clean air, decent soil.

1:02:35our methods of operating short-term profit maximizing are really doing a pretty disastrous job on those areas. And one of the outcomes is an enormous decrease in wildlife. Insect population is down 50, guaranteed 50, and maybe as much as 75 % of the biomass, the sheer volume of insects. we don't know what will happen as insects go out of business. And they're falling now a couple of percent a year. So we're 20 years away, perhaps, from some catastrophe. And we're not doing anything about it. We're fiddling and really not addressing it. We've never put much money into research into insects. But every insect expert you could find will say that without insects, they aren't sure that we would survive.

1:03:29We have no pollinators. We have no bugs recycling trash, the dung and leaves and everything else. So basically, crap builds up on the floor of the forest. The soil in our ag is basically sterile. We, through the use of pesticides, basically killed up for a large fraction of the vast insect and, sorry, microorganisms that live there, that in the end create vitality that soil needs. Anyway, so that is happening very fast. But the thing that's most impressive is not the insects, but the rest of life. Mammals are also down 50 to 70 percent. Birds are down over 50 percent. And what does all that mean?

1:04:20You know, once upon a time, 100 percent of all mammal life was wild. And then humans appeared and then eventually humans and a few cows and so on. And by 3 ,000 years ago, perhaps it was 5 % humans and friends and 95 % wild. Today, in horrific contrast, 96 % of the biomass of all mammals are humans and cattle and pets. And 4 % the sum of all the elephants, kangaroos, deer, etc. It is absolutely shocking. And if we keep growing in this way, very quickly, the four will go to two, will go to one, and we will find out what that means. But it isn't clear that if we just keep doing this, that we as a species will be in good shape or even that we will thrive at all.

1:05:21But the worst thing that we haven't talked about is the effect that the toxicity in the system is having on human health. And the worst of all, it messes with our endocrine disruption. And there is a absolutely vast decrease in our eagerness to have sex, which is not a terrific way to repopulate going forward. And every study you find, whether it's peer reviewed, which is a small minority or best effort surveys, that is true. Every age group, every country, a rapid decline in sexual activity. And then you carry forward and say, and what about physical ability to produce children? The sperm count is down, guaranteed, 60 % from its peak.

1:06:15And nothing much happened for the first 50. But in the last few years, the World Health Organization says one in seven couples now needs help. up very quickly from almost nobody. And in 20 years, since sperm count alone is dropping almost 2.5 % a year, we're going to have 30%, 40 % in 10, 20 years needing help. And we're basically on a path to go out of business and nobody cares. And it's measurable. You see it in peer-reviewed studies. It's pretty clear. And the leader of the peer-reviewed studied said, it is as if we mean to go out of business. And getting this through into a world absolutely interested in Bitcoin and absolutely uninterested in sperm count, it's not easy.

1:07:07And they write books and they write wonderful articles and it just dissipates, just like climate change. The only difference may be climate change, we had vested interest. We had Exxon Chevron dedicated to confusing the deal, dedicated to postponing the idea that people would realize the risk and do something about it in the interest of short-term profit maximizing. The same will happen on Toxin. We have 350 ,000 different chemicals and nearly half a billion tons of plastic every year. And it's all doing a job on our endocrine disruption. It's all making it more difficult to have children and damaging the children that we have.

1:07:57The children that we have are, quote, less masculine in every way than they used to be, on average. And people are very careful about these topics and they step around. So there are, in addition to problems with fecundity, the ability to have children, in addition to the fact that we're losing our interest, apparently, in sex, there are these very well-known, increasingly well-reported reasons why women are choosing, in the old regime, not to have any children. If you just wish away toxicity and problems in conceiving, they have a long list of reasons. They don't feel they've had a thoroughly satisfactory deal.

1:08:49They don't feel that countries are really worrying about childcare, giving them enough help about time off from work for them and their husband. And they don't feel that their jobs are being protected enough. And they are buying into, in my opinion, into the image that capitalism sells, that success is overwhelmingly desirable and consumption is overwhelmingly desirable. So if you insist on getting educated, which is what you need to be successful, and women are now taking more PhDs than men in many countries, including the US, South Korea, China, and so on. And by the time you've been fully educated and then you take out time to get your job going, why wouldn't you?

1:09:40And then you take out time to pick out a husband who's at least as well educated as you are, which is getting harder as women's education standards go up. You find that in many cases it slipped through your fingers. You're now too old. And it's not easy to conceive, you know, starting at 37. Not as easy as you thought. and the population is crashing of babies. The baby cohort is crashing in every developed country except Israel. And in China, one of the worst, and Russia, one of the worst. So everyone is going to be struggling with declining baby cohorts. And what that means in 20 years is declining workforce.

1:10:31And the sneak preview, of course, is Japan, who started more than 20 years ahead of us, which means, get this, what fraction, their 18-year-olds, what fraction of their peak is the cohort of 18-year-olds in Japan? I mean, it is down 50%. I am not kidding you. Check it. 50%. If our cohort of 18-year-olds was down 50%, which means the workforce is growing at a dismally decreased rate, it would be a major league crisis. Japan is such an interestingly different country who is almost uniquely capable of ameliorating these problems, of making them acceptable to society. They have a social contract where people routine are willing to give up a little bit of personal et cetera, in the interest of the society.

1:11:26That is not necessarily the case here. So they've been able to handle this dramatic decline, which is now biting deep into the workforce. We would not have the same ease. And yet we're 20 years or so behind them. We're on the same flight path. Baby cohorts have not been growing for quite a few years. In fact, the baby cohort for the entire world, despite Africa doing pretty well in this regard, is no higher than it was in 98. And that's the first thing. People say, oh, the population's growing. Yeah, population, non-productive, old fogies. It's going through the roof. But the population of babies has not been for a long time.

1:12:11So the population of 20-year-olds has not been for a long time. and it's just beginning to bite now at the 20-year-old workforce level. We're beginning to see it in university, the loss of potential students in many countries. So that's pretty tricky. And the third issue, which I'll only give you two minutes on, really, is we're beginning to run out of resources. We've always felt, and economics ignores this problem, but we've always felt that we'd always get by. price would fix everything. Labor and capital was all you need. You don't need any energy. You don't need any nickel. But in fact, there's two or three very common metals.

1:12:56Aluminum and iron or steel are pretty plentiful. Don't have to worry about that for quite a few decades. And then there's sodium and phosphorus, not too bad. But all the nickels and cadmium and chromium and cobalts and lithium. These are all 0.002 to 0.006 on the Earth's crust. And aluminum is like 7%, thousands of times more common. Nobody quite understands that copper as well, and these are pretty scarce materials. And when we used to have 150 years ago, 4 % copper ore, And then 50 years ago, 1%, we now open mines with 0.2 and 0.3. And you have to dig it deeper and you have to use a lot more energy.

1:13:49And that's the way life works. You start with the cheap stuff first, the easy stuff, the shallow oil, the rich iron ore, copper ore, and you peck away at it. And so the days of really plentiful and cheaper and cheaper resources gone. Good. And from now on, we're going to have bottlenecks, particularly in the greening area. Green area uses so many resources. And we're going to have shortages one after another. And yes, it's a very volatile business. So do not think just because you glut the price and it comes crashing down. It'll do that from time to time over and over again into setting sun. It's the nature of commodity.

1:14:32But the trend used to be down. In the 20th century, the average important commodity came down about 70 bps a year and totaled a 70 % decline for the center. That's a hell of a hell in real term, 70 % cheaper, the average commodity with oil as an exception. and since then having gone from 100 to 30 on the index base now about 65 having three times in recent years hit 100 again so it went back to 1900 level as recently as 22 2022 and I much prefer getting more plentiful and cheaper technology winning out over scarcity by the way And what's happened now is scarcity is winning out over technology.

1:15:25The balance has shifted. And all of these things are binding together with the food problems and agriculture, where we're beginning to pay a price for having denuded the soils. We have eroded them away steadily. We lose more soil than a bushel's worth for every bushel of corn we've made for the last 100 years, or since World War II anyway. So we are running through our wonderful reserves of soil. We're doing that everywhere in the world, give or take. And we've got to change the system. And climate change is absolutely not helping. Floods and droughts when you least need it and so on and so forth.

1:16:11What has happened really is the risk level of farming has gone up. that we run the risk of having major failures now of a scale that we didn't have 30, 40, 50 years ago. And now it's much riskier. And we can get lucky and have wonderful years still. But each year, the soil's a bit thinner and a little less nutritious under big ag. And some of these things are easily fixed if we got our minds to it. If you do no-till, which they do now overwhelmingly in Brazil and Argentina, so they get some things right down there, they have very little erosion and a problem. And we do 25 % of that, but 75 % we're still tilling away.

1:16:55And these old habits die pretty darn hard. Oftentimes, these longer-term problems are too far in the distance to promote immediate action until they become short-term problems. And then all of a sudden, it becomes a high priority. Is that what you're seeing? Yeah. I mean, like every species, we spend a couple of million years developing a style. And the style for all creatures is grab what you can when you can, dude, and breed and grow and expand and prosper. And yeah, you learn the hard way. You better save something for winter. and it no doubt took a few thousand years of suffering to get that point but eventually you get the point and that's what we do but beyond that as i like to say forget about it we're not in the business of planning far ahead for the interests of our grandchildren we're very good with our grandchildren at the weekend but basically we behave as if we hate them you ask every official at the chemical company or Exxon and the oil boy they're all engaged in activities to try and confuse us to try and keep pumping more oil as long as they can you know whatever terrible chemical they put out there they deny it's toxic when we were killing the ozone hole and without fixing that we would all be getting burned to death by the sun's rays, including insects and creatures in the ocean everywhere.

1:18:37And we did brilliantly to fix it. And DuPont, who made the main ozone depleter, had these usual wonderful things like, it's a complete hoax, it's a complete joke, I don't know where they get data, right up to the point where finally, in desperation, that everyone signed on the dotted line, and that's our one great success. But we had Bloomberg the other day featured DuPont and Triple M on these forever chemicals, PFAS. They never go away. In nature, there's nothing that will break them down, and so they get in your body, and they also happen to be endocrine disruptors if we needed that. And there's like 10 ,000 of these damn things, and they arrived with a note in the file to Triple M, be advised that this is associated with cancer.

1:19:29Yeah, so what happened? So Triple M produced endless products using this product, these PFAS, and that's how it worked. The same with tobacco. Has there ever been a situation where they said, oh dear, yes, we're killing people, we better improve? if there is let me know someone because i have never heard of it i know that they were ingenious at confusing the tobacco situation the so-called merchants of doubt i know that the exxon and the boys caught with their files open i like to say because it's clear in the 70s that they knew exactly how dangerous co2 was and that it came from burning oil and and they had a research vessel and they wrote some decent papers and then a new president comes in sells the boat fires the scientists and and puts money into obfuscation let's make this as difficult and as complicated to see what the truth is as we can and buy ourselves another 10 or 15 years and they did and in the process they have cost us and without american leadership it's cost the world 10 years, maybe 15 years, we may not in the end be able to afford that.

1:20:50This is, I call it the race of our lives. This is not clear to me that we're going to win this because we're fine-tuned to grow at any price and to be short-term. And this is everything that that is not. and it's a big ask to get us to reduce our consumption in the interest of our grandchildren to etc etc this is not our style and we're not doing it very well and i like to use kenneth bowling's one of the two or three economists i approve of he's now deceased but he helped introduce the idea of spaceship Earth. Spaceship Earth hurtling through space. It has what it has. It has the fuel that it has.

1:21:40It has the nickel that it has. And there is no space base that it can go and repair and refuel and load up on photon torpedoes. If we use up, we've used it up. and one of the things that everybody knows who reads any science fiction is if you're going on a multi-generational trip to some distant star system rule number one is your regenerative gardens first of all they have to be regenerative to keep people alive you can't pack all that food secondly you calculate it to the second decimal point you can support 8 ,000 people So the last thing you can do is have half of them decide it's their divine right to breed like flies.

1:22:30And I'm sorry if this offends anyone. I'm just telling you what a spaceship obvious reality is. Think about it. Of course you have to have the same 8 ,000 people carefully budgeted for on the whole journey. Or you will end up eating each other and fighting for the last scrap of food. And I like to say, well, dudes, we do live on just such a spaceship, and we are breaking the rules. And we're going to stop breaking the rules, or we'll pay a very high price. And the spaceship is so large that most can't see it. Although it's a fairly obvious thought when you put your brain to it. This is not the most convoluted analogy one has ever heard.

1:23:16and we are moving at very considerable speed, flashing to space. And has our delay in forcefully responding have us doomed or does hope remain? Is there some way out of this pickle that we find ourselves in? We call it the race of our lives for the last dozen years and occasionally make a big effort to produce a paper on that topic because the science is moving wonderfully fast. The Grantham Foundation, which has over 90 % of my money, we put our money, up to 50 % of it goes into green tech. So we're bumping into these guys. And they are really, unlike most capitalists, they really care that they are part of the solution.

1:24:06And they are wonderfully creative. And we try not to invest in anything that won't have a decent chance, if it works, of changing the world. And there are plenty. And a lot of them will fail. But in general, that theme tends to grind forward. So I'm pretty optimistic there's at least a 50-50 shot one day that fusion will work. There's probably a 50-50 shot that geothermal will become much more accessible and widespread. And there's a pretty decent chance that other forms of green energy will emerge that we haven't even gotten our brain around. And there's a really guarantee that the cost of storage for wind and solar will continue to decline, which it has done brilliantly.

1:24:52And now we're far more effort is going into large scale storage as opposed to driving an EV. And I'm pretty confident that will continue to decline, as will the cost of solar. the average solar panel will be down 50 % by the middle of this year over two years once again. So the cost of the panel itself now is becoming almost the rounding error. It's all about licensing and installation. But the electricity generated is on the margin, of course, virtually free. and even if you throw in the cost of the solar panels and the construction, it's cheaper than the cost of shipping the coal and burning it.

1:25:40If I give you a coal plant today, it's more expensive than building a solar panel array from ground zero. And the gap is widening as we sit, and it will continue to widen, particularly for the next year as the new big drop in Chinese pricing of solar panels comes through. But the technology of wind, they get bigger and better and intrinsically cheaper. And that will continue. So some of these things and ways of capturing CO2, ways of improving farming, there is just a myriad form of brilliant developments, really exciting. On the other hand, Every time there's a new, almost every time, 80 % of the time there's a new paper in a peer-reviewed journal, the argument is, whoops, we have just discovered this.

1:26:36Things are a little bit worse than we thought. This is tough. So the science is moving faster. The damage is moving faster. And we still can't even decline the increase in the CO2. It's the second derivative, for heaven's sake. We have to get to zero CO2, and we can't even get the increment each year, which is over two parts per million now. That's a peak. The last three years are the highest three years in the history of math. Increase in parts per million. So we haven't even turned that first derivative corner. Wow. So it's going to be a hell of a horse race. I'll tell you a way I like to put this, how close it is.

1:27:20If you give me people of 100 years ago and the technology of today, one and a half billion people and today's technology, hey, we're going to cruise through this problem. Don't waste my time. It's not a problem. But reverse that. Give me today's population and the technology of 100 years ago, and we are toast. We have no chance. Everything has come down to that little window of 100-year gap between technology and population. And to get to the most controversial point of all, I guarantee the population will crash. In my personal guarantee, you can come and collect in 50 years. There is no chance, even without and messing with endocrine disruption and hormones in general, even without that it's been proving very very difficult to turn anything around there's been you know a hundred different ways to try and get women to have more babies and they are not doing it they are having steadily less and now they move into even greater problems no the population is going to crash and how long is it going to take us to detoxify the entire environment and wash it through the system.

1:28:41How long is it going to take us to change the imperatives for your typical young woman so that there is more value on having children? There's more value on family and husbands helping and all of these things and more value from society. So we're willing to pay more to help in terms of childcare. We're willing to pay more for general health of pregnant women and so on. And how long does that take to change the system? Well, according to us, we think it's quite likely that in 150 to 200 years, six to seven, eight generations, the population will be down below 4 billion, maybe as low as two. That gives us a chance of winning.

1:29:30It takes a lot of load off, doesn't it? A lot of load off climate, fewer people, fewer gallons of oil being burnt, less food is needed, less water is pumped. Everything becomes easier. The problem is if it goes into free port and it drops so quickly that it cracks the economic system and you lose the plot, you drift or you surge to the right and you have dictators doing strange things and you start fighting your neighbors. We have got to have kind of Goldilocks come to our rescue. We have got to decline the population fairly steadily without it going into free fall. And to keep the system together, we need to be healthy.

1:30:22We need to do science. we need to have the money to to convert to a green system completely this is not a trivial cost and then when we've converted to the system we need to suck out every one of our 550 parts per million which is a dead weight to do that there's no natural payoff someone the government etc we're going to have to pay for that that will be more expensive in total according to us than greening the entire global system. Because when you do the global system, you're replacing stuff. Your refrigerator needed to be replaced. Your heating system needed to have a space heater of a more modern kind, et cetera.

1:31:05Your car was antique. You get an electric car. Everything needs to be replaced. That's a huge saving. But when you get to the end, 70 years from now, 1890, you get to zero parts per million increments each year. Then you're looking at 550 parts per million, and you've got to get, not all of that, I'm sorry, you've got to get it back to 300. So 250 parts per million, I think it's about$3 trillion. I mean, it's a lot of money. And it can be on paper afforded. It's going to be pretty difficult if the GDP and the population are declining. Depends when you get started on this, but we have to do it.

1:31:48If we don't do it, water levels rise and so on, and it keeps going. And that's a huge, heavy lift. But I think the saving grace, we have two saving graces over the old civilizations that fail like clockwork. They all fail, by the way. Every one of them felt, no doubt, that they lasted so long, 800 years, et cetera, that they would last forever. But of course, eventually, the soil was too salty or too little, et cetera. They were all gone completely. And the water supply was inadequate, the droughts lasted too long, and the civilizations failed. And they all failed. And we have, I think, two reasons to be the exception, great exception.

1:32:34And one of them is the technology has reached such a level that for the first time we have green energy every wave of technology has taken more energy more energy more damage to the planet and this time green energy particularly if we get fusion to help even if we got real religion and did a brilliant job on vision that would help even more. But it's a huge advantage that we reach these inflection points in technology. And the other inflection point is population. It will go down. So if we can take advantage of that, we don't deserve it. It's in fact quite the reverse. It's the result of our bad behavior.

1:33:17It's one of the great ironies that I've discovered in my life that we may make it because we behave so badly. You mean reversion in a sense. Or you could argue the Gaia or whatever you call the planet strikes back. We screw up the environment, and in turn, it screws us up, and so we become fewer. And with much fewer, we really can make it. But we have to become sustainable. We have to learn to live in a slightly different way. We can have quality improvement. We can emphasize the quality of life. But we have to be able to recycle everything, build things to last for a long time, emphasize high quality like they do in Japan in almost everything, and make having children at the 2.1 level, replacement level, make that a kind of virtue.

1:34:12And so we've got to change the spin of capitalism, and we've got to detoxify. If we do that, we can come through. But I would say it is a big ask. This is not easy. And it is far riskier than the average investor thinks. And I used to think 10 years ago that we had a long time. And even five years ago, it seemed like we might have a long time. But you can see now climate biting hard now. Population of birth. It's only in the last two or three years that people are starting to write about it. You can see the data every time. And the resource problems. People trying to get their brain around how much lithium, cobalt, nickel we need for all these EVs.

1:35:08And it's always shocking. And how are we going to do it? And the answer is, with considerable difficulty, we're going to have to take money and ingenuity. We can do it, but we need to try harder. In terms of innovation, that one potential saving grace, how does AI fit into that? Does it help inform us to change direction, or does it just drive us off the cliff more efficiently? Yes. So what do you want? The good news first or the bad news? It will facilitate almost every one of the bits of good news. Every technology will get a little quicker, a little better, faster. So AI represents speed. That's the way to think of it.

1:35:54It makes everything that's going on quicker. So you're going to improve IVF to help you have a baby. You're going to help farming. You're going to help batteries. You're going to help fusion, maybe. You're going to do all these wonderful things. You're also going to do all the bad things faster. If your system is thriving as off the cliff because it's ignoring second, third order problems, like all this lovely growth comes with all that horrible waste, all that horrible poison of pesticides and plastics and so on, all these unintended consequences, that it more or less guarantees failure if you just keep going blindly without attempting to change it.

1:36:45So you have a system that is more or less guaranteed to self-destruct. It's simply using up resources in a finite spaceship faster than technology can do anything about it. So what will AI do? AI will speed it up. So as you suggested, the end of your question, it's going to drive us to the cliff faster. and yes there'll be little eddies and currents that are also improving which will slow it down but as long as the system was in total going off the cliff this will get you to the cliff faster and more efficiently it will profit maximize if it's told to it will do everything faster and it will not so you have to wait for round two a round two request and the unexpected answer comes back, guys, you're missing the point here.

1:37:43This is all short-term self-destructive. You're missing the second and third order things. I can see the second and third order things. You're going to bury all the insects and the sperm count will go to zero and you're going to fail. So we suggest you do not ask for these things. How long do you have to wait until AI is so smart that it's no longer facilitating what you want, but it's saying, guys, get a grip. What you want is self-destructive. I'm afraid that is going to be quite a few decades, if ever. Now, ever is a long time. If we were to keep the system going long enough, you'd have to believe that AI becomes autonomous unless you do incredible new and unlikely things to stop it.

1:38:33Now, does it become one level of autonomous or many separate levels? Is there one AI opinion telling you how to behave sensibly? Or are there competing models that are autonomous and they have different ideas and they compete in some way, dangerous or otherwise? So life gets to be very complicated. But for the first several decades, until certainly you're a dead of old age, I would say it's guaranteed to merely accelerate a badly designed plant. Even though there will be dozens, hundreds of little improvements to make you feel good along the way. But in the end, it is just increasing consumption, increasing energy use.

1:39:27And let's riff a second on energy use. are you aware of how unbelievably energy intensive this thing looks like it's going to be it looks like come back in a few years and it may have kicked up energy demand by 20 percent it is a prodigious energy user and if anything is likely to push us quicker over the edge it's that now if you could come up with such unexpectedly dramatic fast progress in something like fusion or maybe geothermal, such splendid progress that you could drill a well anywhere and turn it into electricity from the heat of the core. Or you could take the heat of the sun, the power of the sun really, in fusion.

1:40:18Then everything changes. You have an infinite supply of cheap green energy. And maybe you could change things fast enough to stay in the game. So it's not without its chances. But I think the main action is faster execution of the current, rather self-destructive battle plan that we have. Well, Jeremy, it's been an enlightening conversation. I appreciate you taking the time. And I look forward to many more in the future. Thank you. Thank you. Thanks for listening. We hope you enjoyed this episode. Please visit our website at insightfulinvestor.org to access past shows and learn more about our podcast.

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