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🔑 Key Takeaways

  1. The cooperation of the Fed and administration creates bubbles, which can lead to a long way down from a super optimistic high. The ultimate risk lies in declining confidence and peak debt levels. Pay attention to the bigger issues.
  2. Great Bubbles are rare occurrences that lead to irrational behavior in the market, causing people to throw away sensible behavior and overlook data. Capitalism must be regulated to prevent future bubbles.
  3. Focus on the fundamentals of profits and growth, anticipate a difficult bear market rally and adjustment, and recognize that past downturns have affected all aspects of the economy, not just the stock market.
  4. The American corporate system has become too profit-driven with legal loopholes, where stockholders are putting undue pressure on management to prioritize short-term gains over long-term investments, hurting the economy in the long run.
  5. Dividends incentivize corporations to focus on long-term growth, rather than stock manipulation, leading to a healthier state of capitalism that balances supply and demand while considering societal wellbeing.
  6. Large corporations in America are benefitting from an unlevel playing field and virtual monopolies, hindering small companies and ambition. The success of fangs highlights the trend towards concentration of power.
  7. Sensible regulations are needed to prevent monopolies from becoming too powerful, as seen in the breakup of Standard Oil. However, permanent bullishness is the norm in the financial industry, making clear-cut bearishness unlikely.
  8. The fight against climate change and other environmental issues require inventive solutions, risk-taking, and engineering excellence. Recognizing long-term problems like resource scarcity, toxicity, and population decline is crucial for a sustainable future.
  9. Venture capitalists should anticipate future bottlenecks and address toxicity as a bigger problem than climate change to avoid economic and societal destabilization. Take action now.
  10. The widespread use of chemicals has led to a decline in insect life and sperm count in humans. We can still invest in impactful companies through VC, our best shot at progress, and attract the best talents to tackle these issues.
  11. Despite short-term vulnerability, investing in green venture capital and early-stage research companies is crucial for long-term well-being, productivity gains, and economic growth. Governments worldwide are backing these initiatives, providing a tailwind for success and significant opportunities for profit.

📝 Podcast Summary

Jeremy Grantham on the Long Drop from Peak Optimism to Panic

Jeremy Grantham, a legendary investor known for accurately predicting the bursting of bubbles, warns of a long drop from the peak of optimism to panic amidst the recent banking crisis. It takes the cooperation of the Fed and the administration for bubbles to form, and when pricked, it takes a long way down from the ultimate sugar high of a super, almost infinite optimism. The ultimate risk lies in declining confidence and peak debt levels, which is a very bad combination. The Fed's tightening may accelerate the breaking point of the financial and economic systems. It's impossible to predict which brick goes first, so expect the unexpected and pay attention to the bigger issues that concern Jeremy Grantham.

The Unpredictable Nature of Recessions and the Phenomenon of Great Bubbles.

The first thing that goes in a recession will generally be a surprise and how it cascades is virtually unknowable. The Great Bubbles, the two and a half sigma ultimate euphoria episodes, are like a phase change that happens on rare occasions. In the Great Bubbles, people go from fairly sensible behavior in an ordinary bull market to absolutely crazy as it could be and throw the rest of the data away and look at the bubbles. These bubbles are always easy to spot and occur every 5,200 years. The US housing bubble in 2006 was a three, which was a hundred-year event. Capitalism needs regulation and a policeman at the corner of Broad and Wall.

The Prolonged Stock Market Event: Navigating Through Difficult Times

The stock market event is likely to run deep into next year and the passage of time is pretty painful due to the trend line of the market and inflation. The longevity of the current situation is being aggravated by banks needing cash, exacerbating a recession more quickly. Concentrate on the realities of profits and growth, assume that the paper side will wash through the system and focus on what could happen to the fundamentals. The bear market rally and the adjustment phase will be difficult as the economy slows down and profit margins shrink. The real estate and bond market were not involved in the past but still experienced a significant downturn where the NASDAQ went down 82%.

The American corporate system has evolved to make it almost possible to break the law legally. The profit margins have risen steadily and in adversity, they are good. Even in COVID, they're good. The degree of concentration or monopoly, if you prefer, has risen pretty steadily for 20 years, and it's all legal. The stockholders are leaning on the corporations to take it easy on CapEx. Better to wait and see which of the hundreds of Venture Capital firms work out well and then grab one or two of the best ones rather than building new plants. The main culprit is the stockholders bullying management into doing what management always wants to do anyway, which is live in a world where you control everything, you buy your stock back.

Balancing Capitalism for Long-Term Societal Wellbeing

Retiring the least enthusiastic shareholders regularly pushes up stock prices, but insider trading and stock buybacks facilitate stock manipulation. It is healthier to give dividends, incentivizing corporations to back stock less often and focus on CapEx to spur GDP growth. Inflation in profits exists, but not so much in wages, and there is a fear of nationalizing the banking system. Capitalism does better than state-controlled authorities in balancing supply and demand, but it lacks altruism and is not designed for long-term societal wellbeing. This creates issues like toxic waste and climate change. A better balance may be necessary for a healthier state of US capitalism.

The Concentration of Power in the Hands of Corporations in American Capitalism

American capitalism is being run for the benefit of large corporations, leading to an unlevel playing field and an economy driven by virtual monopolies. The success of the fangs, which account for 80-90% of the US superiority in the developed world, underscores this trend. The VC industry, responsible for creating the fangs, is small but powerful and has spawned some of the greatest new companies in the history of capitalism. The concentration of power in the hands of big corporations is detrimental to small companies and hinders ambition and enterprise. The appeal of stocks like Apple and Microsoft lies in their virtual monopolies and marketing strategy, making them highly profitable and dominant players in their markets.

Limiting Monopolies and Permanent Bullishness in the Financial Industry

A sensible society should develop rules and regulations for limiting monopolies to prevent them from becoming too powerful. The breakup of Standard Oil into smaller companies by Teddy Roosevelt was a brilliant and necessary move that led to a healthier oil industry. The commercial imperative for investment banks, commercial banks, and investment companies is to be bullish and never bearish. There are almost no bears in the industry and permanent bullishness irritates them. The industry makes tons of money and any good propagandist knows that accusing the enemy of what you're doing is an effective way of dismissing people who are trying to make some clients nervous on the way up. Expecting clear cut bearishness from the institutional and financial world will never happen.

Inventing for a Sustainable Future: Jeremy Grantham on Climate Change, Risk-Taking, and Long-term Problems

Jeremy Grantham admires the startups that are working towards fighting climate change and other environmental issues. He believes that if we get through these unpleasant times, it will be because of our inventive nature and our ability to take risks. He emphasizes the importance of research universities and the combination of risk-taking abilities and engineering excellence. He also talks about the under-recognized long-term problems such as climate change, running out of resources, running out of people, and toxicity, and how they are now being recognized and discussed in mainstream media. Grantham talks about the population crisis and how the fertility rate in countries like China, Korea, and Japan are significantly low, which has powerful implications for the economic world.

The Interconnectedness of Fertility, Resources, and Climate Change

The declining fertility rate, resource shortages, and climate change are three interconnected issues that are biting now and will have inflationary, anti-growth effects on the economy. The world has changed, and the era of plentiful resources and declining prices has gone forever. To combat these issues, venture capitalists should focus on looking at where the bottlenecks and problems will be reaching forward and trying to do something about it. Furthermore, toxicity is argued to be a bigger problem than climate change as we have created a world that is toxic to life due to the loss of natural habitats. It is essential to take action now to avoid a destabilized society and a long-winded recessionary period.

The Effects of Chemicals on Insects and Sperm Count: A Warning for Humanity.

The use of chemicals post World War II has led to a significant decrease in the biomass of insects and sperm count in the developed world. Even if we start behaving better now, the cascade effect has already taken place, and it may be too late. The loss of insects and decrease in sperm count is a warning sign for humans, as it affects overall health and life expectancy. However, investing in companies with strong fundamentals, but lower prices due to market fears, can still lead to progress. VC is our best shot at digging out of these problems, and it attracts some of the best people.

Investing in Green Venture Capital and Early-Stage Research Companies for Long-Term Economic Growth and Productivity

Research and technological advancements are formidable in the long run and always eventually work. Fusion and battery technologies, as well as other innovations currently being researched, will eventually make a significant impact, but it may take several years of continued effort and investment. While investing in these early-stage research companies and venture capital may result in short-term vulnerability, it is the only place to be for long-term well-being, productivity gains, and economic growth. Governments worldwide are backing green venture capital, providing an unfair tailwind blowing towards long-term success. Investing in these technologies not only benefits the climate but also presents a significant opportunity for making profits in the entire capitalist system.