Hey 'What Goes Up' listeners, here's another Bloomberg podcast you might enjoy: Merryn Talks Money. It's hosted by senior columnist Merryn Somerset Webb and every week aims to explain how markets work – and how you can make them work for you. Every episode features a relaxed but in-depth conversation with a fund manager, a strategist, a Bloomberg expert or just someone Merryn finds particularly interesting in any given week. Listen in for the kind of insights and explanations everyone can use to help them make better saving and investing choices. This week Merryn speaks to GMO's Jeremy Grantham. Listen to part of the conversation here and the whole thing on the Merryn Talks Money feed.
Enjoy Merryn Talks Money on Apple podcasts or wherever you get your podcasts:
https://podcasts.apple.com/gb/podcast/merryn-talks-money/id1654809850
Hi.
I'm Maren Sumseetweb. I am a senior columnist at Bloomberg and also the host of the Merin Talks Money podcast. Every week we have a conversation with somebody interesting and exciting in the investment markets.
Now.
This week our guest was Jeremy Grantsam, and we have talked to him at some length about what's going on in the equity markets, the bond markets, and pretty much all asset classes around the world. We've talked about how what we are seeing bursting at the moment is one of the greatest bubbles of all time, and crucially, we've talked about what you can do to protect yourself from the chaos you see around you today. You can listen to a bit of that conversation here, but to hear more of it, or to hear the whole conversation, subscribe to Merin Talks Money wherever you listen to your podcasts.
Jeremy, thank you so much for joining us today.
That's a pleasure.
Now, last time we talked, which was just over two years ago, it was the end of twenty twenty one. Later middle of aug was twenty twenty one. I think you and I had a conversation where we talked about how we were and one of the greatest bubbles in financial history, which seemed pretty obvious to you, and actually pretty obvious to me at the time, not so obvious to everybody else.
Out with some other people.
And we talked about where investors could hide from the craziness of that bubble, although we couldn't find very many places. And the best advice you gave my listeners at the time, which was purely, absolutely brilliant, and I hope that they all took it, was to rush out and get the longest fixed rate mortgage on their house that they possibly could. So fingers crossed, lots of them did that and sitting there with a ten year mortgage of one to one and a half percent instead of six to six and a half percent.
Yeah, well, if a handful of people did it, we could feel justified.
I think so if we saved anybody. So let's talk about that great bubble. It was excellent timing, and hopefully the listeners also rushed out and solved their overpriced equities, because twenty twenty two so the beginning of the popping of that bubble, and I'm saying the beginning because I'm guessing that what you're going to tell me is that we are only part way through that bubble collapsing.
So where are we with the whole thing now?
Well, everything was proceeding perfectly well, and the great bubbles take their time quite a few years going up, quite a few years coming down, and the market suffers from attention deficit disorder, so it always stinks every rally at the beginning of the next great ball market and so on. But there were some definitely original interferences with this deflating period. The first of them was what I call the presidential cycle, which I wrote about suggesting we would have a time out because there's never been a serious market decline between October the first of the second presidential year and the end of April in the third year, because the administration would like to have a strong labor market running up to the election, and they realized, of course that economics moves rather a lot of inertia, and so they had to stimulate it a year and a quarter before, and so that's the period of stimulus, and since FDR there has never been a big decline, and the average gain in that seven month window equals the remaining forty one months. It's amazing. Of the four year presidential cycle. It seems impossible, but it's true. Check it, and the average gain is about fifteen percent in that window, and this time we had thirteen or fourteen.
It was right on the nose.
So we had a typical presidential cycle rally and we had a strong January bounds. If you've wiped out the growth stocks, the following January, you always have a great bounce, even if the bear market is not over. The perfect example would be two thousand and one. The tech bubble was huge. It got the growth stocks got hammered. In two thousand they were down fifty percent, and then rallied a bit at the end of the year, and then in January they had a huge rally eight or nine percent, And so we should have expected the same, and basically we got it a little bit less, but a strong January rallied. Why not because there were lots of tax losses that had been taken and people replacing their position, investing their Christmas bonuses and so on. So that was fairly normal, and so was the presidential cycle effect. What was abnormal is that they occurred in the middle of a great bubble that was on the way down. This had not happened in nineteen twenty nine, seventy two, or a two thousand or two thousand and seven. All of them had neatly sidestepped that seven month window. But this one it fell right in the middle of the deflating phase.
So we got a bit of a reprieve as a result of that.
Yeah, we got a bit of a temporary reprieve. And then I argued back to the meat grinder, but both the meat grinder had time to really get going. We ran into the artificial intelligence mini rally, and yes it was only a dozen or two stocks, but it included some very big ones and they had huge rallies. And even though the average stock didn't move, it sent the S and P l oh, I don't know, fifteen sixteen seventeen percent this year year today, and on the backs of these handful of huge names.
Okay, so another little reprieve for the index.
Yeah, his artificial intelligence for real. And my answer is yes, absolutely, it is for real. It will have huge effect. Is it big enough soon enough to stop the deflating No, I don't think it is.
Drop every Friday. They're really interesting do listen