Jeremy Grantham: evaluation

Transcript context

…Now, just yesterday, you published a piece called “Entering the Superbubble’s Final Act,” where you described our current situation as being a 2.5- to 3-sigma event in terms of being an overextended bubble. When I think of other 2.5- to 3-sigma events, say, 9/11, I feel I’m very poorly placed to predict how they will evolve in the future. If our current situation is something like a 3-sigma event, why should we be so confident that we know how it will evolve? Why think we’re so good at spotting bubbles at those margins? I think 9/11 — you bring up an interesting point. My quarterly letter after 9/11, I made exactly that point, that dealing with sudden shocks are impossibly difficult to predict, that after the ’87 crash, a lot of us thought that it would have consequences going deep into the future. It turned out that the ’87 crash was a unique outlier event that was not to be replayed in the next 25 years. I use that as an analogy. It seemed to me that 9/11 was an outlier event unlikely to be repeated* and bearing utterly no resemblance to a nice stock market bubble like 1929 or 2000 or, indeed, 2022. But I think you also say there might be three or four previous bubbles in history as big as this one. So, if we have three or four data points, why should we be very confident that right now is such a superbubble? What’s the magic elixir that you’re drawing from? Is it just three or four data points? Or do you know something, in theory, that other people don’t?…

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