Jul 8, 2021 · 1h 0m · capital-allocators
Jeremy Grantham – GMO (Manager Meetings, EP.01)
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
In this inaugural episode of Manager Meetings, institutional allocator Alex Shahidi interviews veteran investor Jeremy Grantham of GMO to examine historic market bubbles, valuation distortions, and urgent climate change realities. Grantham outlines actionable portfolio strategies, advocating for emerging market equities, green venture capital, and targeted fiscal stimulus amid speculative market euphoria.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Ted holds 11.9% of the talking time here. How this is scored →
Ted as informed peer 3.7 Guest teaching 5.5 Guest disagreement 2.1 Ted pushing back 0.7
speaking balance: gold is Ted, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 28:36 Rejecting 'Don't Fight the Fed'
Grantham directly refutes the common market aphorism, declaring that he has spent his entire career successfully fighting the Fed over the long term.
Hardest push from Ted ▶ 24:30 Defending investor rationality at zero ratesShahidi pushes back against Grantham's bubble characterization by arguing that buying yielding assets is rational when cash yields are negative.
Biggest teaching moment ▶ 44:20 Dissecting COVID-19 denial with comparative statisticsGrantham walks through detailed per-capita mortality metrics to illustrate how societies rationalize disastrous outcomes through extreme optimism bias.
Ted holds their own ▶ 39:26 Explaining market discount mechanisms and manager driftShahidi showcases deep allocator expertise by explaining market discounting mechanisms and how value managers cheat by drifting into growth at cycle tops.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Ted as informed peer | Guest teaching | Guest disagreement | Ted pushing back | Why |
|---|---|---|---|---|---|---|
| Episode Preview: Alex Shahidi and Jeremy Grantham | 5 | 0 | 0 | 1 | Ted Seides and guest host Alex Shahidi discuss GMO's positioning and value bias in client portfolios. The tone is entirely collaborative and set up as an introductory overview. | |
| Climate Crisis Projections and the Imperative for Green Action | 3 | 7 | 1 | 0 | Grantham provides an unvarnished assessment of climate warming reaching 3-3.5C and destabilizing major global populations. Shahidi acts purely as an inquisitive prompter. | |
| The Unique COVID Bubble: Peak Multiples Amid Economic Turmoil | 4 | 6 | 1 | 0 | Shahidi prompts Grantham on his history of bubble calls, leading Grantham to dissect the novel nature of the COVID bubble where top 5% multiples coincide with bottom 5% economic conditions. | |
| Monetary Distortions, Rising Debt, and Fragile Market Confidence | 4 | 6 | 2 | 1 | Grantham challenges the assumption that debt drives growth by citing post-Greenspan data and explains how historical bubble tops occur when market confidence quietly breaks rather than through Fed policy shifts. | |
| Compressed Yields, Speculative Euphoria, and Timing Bubble Breaks | 4 | 6 | 3 | 2 | Shahidi suggests buying assets at zero yields may be rational, but Grantham counters with his forestry yield analogy and points to late-stage speculative behavior like SPACs and bankrupt Hertz rallying. | |
| Venture Capital and Early-Stage Innovation in the Green Economy | 3 | 6 | 2 | 0 | Grantham makes the case for green venture capital as real value creation compared to corporatism focused on stock buybacks, contrasting US lag with China's rapid cleantech rollout. | |
| Long-Term Market Forces: Climate Reality and the Collapse of Oil | 4 | 7 | 4 | 1 | Grantham firmly rejects the 'don't fight the Fed' adage for long-term investors, detailing historical bubble collapses in Japan and the collapse of oil from 25% of the S&P to under 3%. | |
| Sponsor Message: Ridgeline Investment Management Platform | 1 | 3 | 0 | 0 | Following a sponsor message from Ridgeline, Grantham answers Shahidi's prompt by advocating for large-scale sustained government deficit spending targeted at green infrastructure. | |
| Value Versus Growth: Emerging Market Opportunities and Shorting Risks | 5 | 6 | 3 | 2 | Shahidi probes the historic spread between value and growth. Grantham reframes the debate around FAANG valuation limits and strongly advocates emerging markets over US equities while cautioning against shorting. | |
| Optimism Bias, Denial, and Comparative COVID-19 Management | 3 | 7 | 4 | 0 | Grantham demonstrates human optimism bias through detailed COVID mortality data, contrasting Asian containment discipline with denial in Massachusetts and New York. | |
| Strategic Portfolio Construction: Emerging Equities and Green VC | 4 | 6 | 4 | 1 | When Shahidi notes that GMO's seven-year forecast is depressing, Grantham playfully admonishes against moaning, asserting that cheap emerging markets and US VC are all an investor needs. | |
| Evaluating Debt Burdens, Cheap Leverage, and Corporate Health | 4 | 6 | 3 | 1 | Grantham dismisses orthodox conservative fears of sovereign debt, explaining that interest rate coverage and internal double-entry bookkeeping matter far more than headline debt-to-GDP ratios. | |
| Inflation Dynamics, Profit Margins, and Valuation Multiples | 4 | 6 | 1 | 0 | Grantham reviews structural deflation and details the valuation model he built with Ben Inker, explaining that inflation and profit margin compression pose the primary threat to high market PEs. |
Statements from this episode (39)
Shahidi: A truly diversified portfolio must hold underperforming assets
“By definition, You should own things that are not doing well, because if they're all doing well at the same time, you're probably going to go through a period where they're all doing poorly at the same time.”
Shahidi: Climate change will directly impact corporate bottom lines
“Climate change could easily be one of those things and the risks associated with that. So I think we're starting to see asset allocators factor that in to their strategies. It's not just something to do because you feel good about it, but it's something that m…”
Grantham: Global warming will reach 3.0 to 3.5 degrees Celsius
“The truth is we are not going to contain the climate warming of one and a half degrees or two degrees, that we are struggling to determine where in the zone over three degrees centigrade we'll end up. My guess is between three and three and a half degrees cent…”
Grantham: African migration to Europe will be society's primary political risk
“So I think it will be stress on those areas, and immigration, and the pressure on Europe of millions of Africans attempting to migrate will be the main political risk that we face, and a real threat to the well-being of society.”
Grantham: Financial markets are in a unique bubble unlike any other
“I do think we're in a bubble, but I also think it's unlike any other bubble.”
Grantham: PEs are in the top 5% while economy is bottom 5%
“We're in the highest five percent of PEs. And we're in the lowest five percent of economic conditions today. So there's never been anything like that in history.”
Grantham: U.S. debt multiplied since Greenspan while economic growth slowed
“We entered an era with Greenspan of a fairly decent kink in the cumulative debt curve. It had been drifting up very slowly, and then it started to rise very rapidly since his era. What you notice is that despite the fact that the debt ratio Per unit of GDP has…”
Grantham: High-PE markets face substantial declines once confidence breaks
“High PEs are an intrinsically nervous and risky situation where everything is confidence. If you break confidence for any reason, it could be uniquely different this time, It has been quite different in each of the bubbles, but if you break confidence and you'…”
Grantham: Timing bubble peaks requires tracking speculative behavior, not valuation
“If you're trying to time the breaking of a bubble, the value is not that important. All of them are overpriced, and whether they're overpriced at 25 times earnings or 35 times earnings or in Japan at 65 times earnings, it's very difficult to work out in any so…”
Grantham: Tesla is not worth four times its pre-COVID value
“I own a Tesla. It's a wonderful car. I think they're a spectacularly interesting company, but are they four times the company they were before COVID? I don't think so.”
Grantham: The market bubble will likely break in weeks or months
“So I think this is an indicator, not a certainty, but a strong possibility that we are quite close to the bubble breaking in terms of psychology. Perhaps a matter of weeks or months, not years.”
Grantham: Diversified venture capital has stock-market-level risk with higher returns
“Venture capital, not surprisingly, has a higher return than the stock market because of the riskiness of each individual unit. But if you have a diversified portfolio, you have no more risk than the stock market, but you have a higher return.”
Grantham: Electric vehicles, wind, and solar will overwhelm fossil fuels
“And the green VC part of it, which is springing out of the woodwork, is going to have a very high top line growth rate. Of course, electric cars are going to pound to death The growth rate of gasoline cars. Of course, wind and solar is going to overwhelm gas e…”
Grantham: China has 300,000 electric buses while the U.S. has 400
“They have 300,000 electric buses, and the U.S. Has 400.”
Grantham: Long-term investors must be prepared to fight the Fed
“Don't fight the Fed if you're a short-term player, but if you're a long-term player, you have to be prepared to fight the Fed on occasions.”
Grantham: Oil dropping to 2.5% of S&P is largest historic sector loss
“Oil as a percentage of the S&P had come down from 25% in 1982 and 16% in oh eight to two and a half percent yesterday. This is the biggest loss of value in the history of the major groups of the S&P that goes all the way back into the 20.”
Grantham: Society will achieve an enormous green transition within 15 years
“You will come back in 10 or 15 years, and you will see that we have made an enormous transition to a green economy. We will win technologically.”
Grantham: Future deficit spending will largely fund high-return green initiatives
“We will have deficit spending, which will be great, and a lot of it will be green, which will be even better, and very high return.”
Grantham: Post-2008 reluctance toward deficit spending was a major mistake
“After the financial crash, we became too jittery about deficit spending, which is I think a big mistake, quite unnecessary.”
Grantham: Coal and diesel particulate matter kills millions annually in China
“No particulate matter, Which takes years off everybody's life and kills several million people a year in China from coal and so on and diesel.”
Grantham: Markets will see a major reversal favoring value over growth
“We may not snap back the 120% I would have calculated 20 years ago, but we are going to have a very big reversal in favor of value stocks sooner or later. I think we can be pretty safe about that.”
Grantham: Investors should own as few U.S. equities as possible
“I do recommend owning as few US equities as you can face.”
Grantham: Emerging market equities are at an unprecedented low relative valuation
“Emerging equities, emerging markets, are not only at an unprecedented low relative, but they are actually quite cheap, absolutely, compared to the US, and on their own.”
Grantham: China will drive over 30% of global growth over 20 years
“China, who is going to represent, according to the World Bank, over 30% of the entire world's growth over the next 20 years”
Grantham: GMO held Microsoft in value fund until exiting by June 2000
“Our claim to fame in our first quant funds is that we owned Microsoft in our value stream in the top decile of value from the day it appeared as a stock that met our size limit until late 99, when it finally got overpriced enough that it drifted into decile tw…”
Grantham: Ten-year theses are not sufficient to justify short sales
“Ten-year arguments are not enough to justify short sales.”
Grantham: Human optimism bias drives financial bubbles and climate denial
“It's our ability to focus on optimistic thoughts and avoid unpleasant ones. It really is. It's what enables us to have South Sea bubbles, tech bubbles. It's what enables us to ignore the downside of climate change until it bites us”
Grantham: Developed markets face 1% to 1.25% GDP growth without green spending
“Without that, we continue on the flight path we've been on, I think one percent, maybe one and a quarter, is the kind of growth rate In GDP per capita that we're looking at for the next 20 years.”
Grantham: Real U.S. hourly wages have stagnated since the mid-1970s
“Workers, Which in the U.S. Have not had a real increase per hour work since the mid-nineteen seventies, can you believe, where even dopey Europe has more than doubled, and China and Vietnam has more than ten-tupled, and so on.”
Grantham: Foundation targets 70% allocation to early-stage venture capital
“And in our case, we can own early stage, and we are over 60%. We target 70%, early stage VC. And of that, we target up to a half in the green variety”
Grantham: Green VC will significantly outperform broader venture capital
“Because I think the top line opportunities It will be way over average even in the BC universe for a long time.”
Grantham: Emerging markets GDP growth will beat developed markets in 2021
“Emerging markets, as I said, it's way over half of the global GDP. It is growing far faster, and because of the size of China, it's guaranteed to do that. It's going to have a much better growth rate this year under stress, much better than the GDP growth of t…”
Grantham: Top graduates choose startups and VC over Goldman Sachs
“The really best and brightest don't go to Goldman Sachs, sorry, Goldman Sachs, anymore, like they did in the financial bubble. They want to get into the VC business, to be mixing with things that really matter, and many of them to be actually starting their ow…”
Grantham: Venture capital uses very little leverage compared to other classes
“Ironically, leverage plays the least role in venture capital. Most of them have relatively little leverage. It's equity money.”
Grantham: Corporate interest coverage is well above historical averages
“When you look at interest rate coverage, you find that the entire corporate system is in pretty darn good shape, well above average.”
Grantham: Moderate inflation supports faster growth and better worker treatment
“A moderate amount of inflation is completely compatible with a healthy economy, faster growth rates, and better treatment of the workers who have been sadly neglected in the US in particular.”
Grantham: GMO never featured inflation as a major risk in 20 years
“So I am actually very proud to say that I wrote quarterly letters for 20 years, and I never featured inflation as a major risk.”
Grantham: Wage inflation is not in immediate danger of spiraling
“To work through to wages, where inflation really starts to escalate, it's going to take a long time, because we've had such miserable deflation in the typical average wage for so long that we are not in immediate danger of having them spiral out of control.”