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In the last 15 years i have just Focused on a handful of very big picture items and stock market bubbles which I have followed really for 50 years Initially kind of as a hobby as a specialty and later as an important Kind of part of the business I think The forming and breaking up the great bubbles are really The only thing that really matters in Equity management rest of the time show up keep your nose clean Make a point or two, lose a point or two it doesn't really matter but once in a blue moon typically every 20 years But more recently a little more frequently than that you have these bubbles they form over a number of years they dominate everything and then they break and once again they dominate everything is it really does matter and if you can Bring yourself to sidestep some of the pain It can make a lot of difference I don't think the bubbles are hard to spot but that is my specialty, I look at the handful Of real McCoy bubbles, The type that have really crazy investor behavior, That have masses of enthusiasm, And they stand out like a sore thumb 1929 the 2000 tech bubble the 2007 housing bubble in the US Japan and 1989 both land and housing and the stock market, probably the biggest bubbles Above the equity market and the real estate market in the history Of man So they are the real McCoy and then that's an interesting Almost case of 1972 the nifty 50 It didn't go quite as high It wasn't quite a silly but it was on the cost Of Oil crises and so on so that it went down a whole lot it went down Every bit as much as some of the others A 62 percent decline to adjusted for inflation and 1973 74 still the biggest decline Since the 1930s so that's my Universe.
And here we are We have checked off all of the indicators That are unique to those Handful of events Crazy behavior check check The bitcoins of the world and the cryptocurrencies The meme stocks of the AMC Gamestop variety I could even add my quantumscape And Very rapid acceleration The prior year in 2020 Where the Nasdaq more than doubled in the year and even from the beginning pre-covid Was up almost 60 percent Up almost 60 percent despite a huge wipe out from covid Rapid acceleration is a characteristic you have to see Crazy behavior you have to say and then there is a unique and special case and that is on the upside and that is important on the upside the blue chips Start to win and the stocks with very high volatility that normally go up one and a half or two times blue chips They don't even get the sign right and they start to go down 1929 The specs are really crazy stocks went down all year little known fact that they did The day before the crash they were down 30 percent as an index Nothing like that happened again until 1970 1972 in the nifty 50 The S&P went up 17 and the average big board stock went down 17 So that I could remember it forever symmetry Nothing like that happened again until 2000 and then in 2000 the tech bubble the Dot-coms peeled off in march and collapsed and then through the summer The junior growth the medium growth and then finally the senior growth all peeled off And by the early fall Most of them were down 50 percent and some of the Dot-coms were down a lot more but the S&P was unchanged Which meant that the 70 percent that was not growth had gone up 18 percent to the S&P blue chips had gone up 18 and the growth and the Nasdaq And the Dot-coms Had taken a very big hit that is is absolutely classic Now starting early last year one by one The various most speculative groups That had done brilliantly and 2020 started to do badly and the first was my quantumscape, quantumscape is a Brilliant research out there they came public in a spark in Into to december 2020 and very quickly it ran up to From 10 to 133 At 133 it was worth 55 billion more than general motors making a solid state battery It was worth more than panasonic, if you want to talk batteries And then it started to decline And by the summer of 21 when I was allowed to sell it off to six months it was 25 so he was already down your work it out a whole lot 75 percent and today it's 11 These great bubbles had nothing to do very very little to deal with the underlying reality So As these Last two years have gone by it has reported faithfully all the good progress it's been making and yet to stop comes down from 133 90 80 70 60 50 Down to 11 it's still hitting its targets in terms of research It still has three years to wait however but before it has any sales And that is just the kind of stock that will continue to be weak if I'm right Anyway that led the parade That started In 2020 December and then the meme stock started march April And bitcoin April may June and so on And then one by one Most of the advanced techie stocks started to come down and ARC I picked out a couple of months later And has of course declined 75 percent, ARC is a whole portfolio of 25 growth stocks That often have no earnings but you have at least in the portfolio managers that believe huge prospects But that kind of stock is very vulnerable to a loss of confidence and therefore it started The decline a pretty early and continues today right into the teeth of the sell-off.
So this market has been proceeding Eerily like 2000 and I think phase one superficially You have a 2000 tech bubble Horribly overpriced much too much enthusiasm huge buy-in by individuals Fueled by A massive program Of cash distribution Associated with covid bailout A lot of that found its way into the stock market, so this was sensational so that phase one, phase two which I really worry about is this whole thing morphing into what I call 1970s Underlying inflation as an everyday topic once again that may not be spiking in 70's.
it came and went came and way came it was always part of the background discussion And That's what I think it will be now for quite a long time several years and similarly interest rates will always a worry in the 1970 and they will be a worry For quite a few years to come, beyond that Longer term I worried that we are fairly deep into running out of the cheapest Most of the available resources I think that Turning point was 2002 Between 1900 and 2000 the average important commodity came down 70 percent in real price adjusted for inflation and we keep our own index at GMO 36 Most important equal weighted commodities this is not dominated by oil this is looking at The breadth of what is happening to commodities and then if you look at that again today it is not down 70.
its down 10 since 1900 A rounding error So its gone from down 70 or 30 on an index basis to 90 it has tripled Since 2002. the average important commodity has tripled in real terms since 2002 And I think this is an important problem Going forward, we haven't done any Capex There are no great reserves of copper, lithium, cobalt, nickel etc Waiting to crush onto the market and yet we need them to green economy we have simply going to run light Of these metals we need technology to design a way around them New batteries that don't use so much, recycling techniques, to save what we have Etc etc
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