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I do think we're in a bubble but I also think it's unlike any other book The Great bubbles of History whether it's the sassy bubble or 1929 or the type bubble you take a very good economic situation and you merely extrapolate it into the future and if you do that and it actually occurred the market would be worth very high multiples of book and earnings and so on it's a very simple game but believe in today's perfect conditions and assume unrealistically as it turns out that it will go on forever if you did that today and you extrapolated today's conditions which are miserable you would of course have the very opposite of the bubble so that makes it unique we're in the highest five percent of pe's and we're in the lowest five percent of economic conditions today so there's never been anything like that in history and why has it happened we know the trouble is of course covered and we know the push on stock prices is a combination of central banks Federal Reserve and fiscal spending and it's global so we have never had such a global agreement that every government is looking to spend and every government is looking for their Central Bank to accommodate this is an enormous push and what we discovered long ago is how effective that is in moving stock prices it's as if every dollar that is not absorbed by the real world blows through line of least resistance flows through into asset pricing that is what is happening it's a very impressive struggle between the real world of productivity and employment and GDP and the paper world of PE ratios and house prices pushed by easy credit low interest rates of course the key and just plentiful supplies of money flapping around to those people who are likely to buy houses and stocks it is not necessarily the case at the small business level at all so this is not necessarily a terrific or the real broad economy but it is clearly terrific for the stock market and the question is does the real world eventually catch up and since this is novel the economy just like the novel virus you can't be quite as certain as you could in Prior bubbles I described our confidence in Prior Bubbles as near sir all of those things of course occur and you can't be that certain this time because the bosses are unique it's going to make life more intellectually interesting however my bet would be of course that reality will catch up with the high PES when you buy overpriced assets you get a guarantee of a low return what you don't get is a guarantee of being wiped out next week my belief is that if you're trying to time breaking of the bubble the value is not that important all of them are overpriced and whether they're overpriced at 25 times earnings of 35 times earnings or in Japan at 65 times earnings it's very difficult to work out in any sort of academic way since you're dealing with craziness or where it's going to Peak I much prefer to look for signs of truly crazy behavior because every bubble really crashed and broken a spectacular way which most of them did was proceeded by craziness by legendary stories this was notably lacking as I wrote and talked about over the years of the tenure airport Market it has not been lacking really I think you could agree in the in this rally off the covet low we have seen not only a terrific rate of acceleration in the price rise double the normal bull market which is characteristic that acceleration is characteristic at the late stage bubble but we've also seen wonderful craziness the Sparks which are a promise to use your money give me your money and trust me I'll do something useful with it is a real Echo of the south sea bubble where we have such a spectacular opportunity we can't reveal what the purpose of your money is yet and they got lots of money and ran off with it I'm not saying the spikes will run up with your money but I am saying it's a real testimonial to the speculative nature buying herbs a bankrupt company having it go up four or five six times in a real hurry and so on and so on you you read about your own having a Tesla quadruple this year I own a Tesla It's a Wonderful car I I think they're spectacularly interesting company but are they four times the company they were before coven I don't think so these stories are everywhere and they're what you need before a bubble breaks and we saw them in the early 2000 and late 99 and we saw them in late 1929 before the crash we saw them in Japan and here we are again 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 and I am sympathetic to the argument what am I supposed to do the yields are so low but the market doesn't care that you don't have easy safe Investments to make and your desperation is your own math what it does is focus on the difference between short-term and long-term on the short term you can say I'm offered Nothing by fixed income I get something out of stocks even though it's half what it seemed to be in the yield it's still better than nothing that before I'll do it and the price is right and that is a logic that you hear one way or the other all over the place and then there's the argument in the long term which is in the end all assets equal replacement costs house prices go up but if you can build one at Half Price you put a ceiling on if you can create a new company at half price I am a great fan of venture capital for this reason and we are in the business of creating a new values from Ground Zero that we are not in the business of trading overpriced assets that could be bid up because people are desperate and that is a huge difference another Difference by the way is that American capitalism in particular has become a little fat and happy is how I like to describe it it's too monopolistic it has too much political influence against the laws of the land changed in its favor whether they're environmental attacks and they've simply learned to be less risky why start an exciting but risky new Enterprise when you can buy your own stock back so they do buy their own stuff and that burden of starting the new Enterprises passes down the pipeline to venture capital and we have never see more interesting opportunities Venture Capital not surprisingly has a higher return than the stock market because of the riskingness of each individual unit but if you have it there's a fine portfolio you have no more risk than the stock market but you have a higher return and the green VC path which is springing out of the wood 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 carbs of course wind and solar is going to overwhelm gas electricity and storage is going to be epic Energy Efficiency we are going to take tens of trillions of dollars to Korean our economy and we must do it and those opportunities unlike building walls along the Palisades with FDR and creating Hands-On looking Parks the green Investments that we should be making have a high societal return when you insulate a Northeastern pass you get a nice cash return saving for 30 40 years when you improve the electric grid that would be a great idea and China is surging ahead as we speak you get a handsome return in savings instead of losing 15 at 500 miles you lose two percent and so on and so forth and we are letting China get a running start on transmission on wind where they dominate on electricity where they Dominate and even in electric cars they have three hundred thousand electric buses and the US has 400.
what are we thinking I've spent my entire life fighting the FED frankly and what I will say is this that typically the FED wins many more rounds then we do than we have but in the end we've had a knocker the In the End the Fed has not been able to keep the tech bubble going indefinitely it sent it over the 21 times earnings of 1929 it sent it up to 35 but it couldn't go on in depth even Japan that went to 65 the price they paid when you finally knocked it out but here we are 31 years later not even faintly close to the high of 1989.
if you go into their real estate market which was an even bigger bubble I think the biggest bubble including ever or tulips they went down for 30 years and now they're bottoming out maybe but they're bottom ring out in Central City prices at a quarter of where they came from and the price you pay for that is you could be 50 years later and still not back to that level again I would say 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 I'd like to give you an example of the difference between short-term and long-term and that is I've been a fanatic on climate change for 20 years but it was only in 07 that I first wrote a paper urging people to take it seriously and what has happened since then we could never say that the next quarter or the next year was going to be a Troublesome for oil stocks which is if you will the anti the climate portfolio but when the smoke cleared oil is a percentage of the s p had come down from 25 in 1982 and 16 in 08 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 20s it's really been remarkable and yet you never knew when it was going to happen no one ever made a case that the next year or two would be such a blood mother but you were on the wrong side of History if you were the oil stuff now you can't it's too late now that the last miserable two and a half percent you can't get rich going short that people on the way down from 25 and 15.
what a good demonstration of the long-term slow burning who knows what the time will be but you know in 10 or 15 years it will fight and that's what the rest of climate change looks like today we don't know how fast it will move you don't know when the U.S government will wake up and start being a leader once again but it will probably all happen and it will go in birth some of the time it will be much faster than you imagine
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