Squawk Pod: Jeremy Grantham: The most expensive market in American history - 06/26/26 | Audio Only

Key Concepts

• Market Bubble: A situation where asset prices exceed their fundamental value, often driven by speculation.
• Two Sigma: A statistical measure used by Jeremy Grantham to define a bubble; a deviation that occurs rarely (statistically every 44 years).
• Perma Bear: An investor who consistently maintains a pessimistic outlook on market performance.
• AI Infrastructure: The physical and digital components (data centers, memory chips, storage) required to support Artificial Intelligence.
• Component Price Surge: The rapid increase in costs for memory (NAND) and working memory (DRAM) due to AI demand.
• Entity List: A U.S. government trade restriction list that limits American companies from sharing technology with specific foreign entities (e.g., YMTC).

---

1. Market Outlook and Jeremy Grantham’s Analysis

Jeremy Grantham, co-founder of GMO, argues that the U.S. stock market is currently in the most expensive state in American history.

• The "Bubble" Thesis: Grantham utilizes a "two sigma" statistical framework to identify bubbles. He notes that historically, 26 identified bubbles have eventually regressed to their pre-existing trends.
• Predicted Decline: He forecasts a potential market decline of approximately 70%, drawing parallels to the 2000 dot-com bubble.
• AI Skepticism: Grantham compares the current AI boom to the railroad and internet bubbles. While he acknowledges AI is a "dazzlingly important idea," he argues that over-investment will lead to a temporary collapse before the technology eventually matures and changes the world.
• Investment Strategy: Grantham advises avoiding U.S. stocks, suggesting that non-U.S. equities (Europe, Canada, Australia, and emerging markets) offer better value.

2. Apple and the Tech Sector

The broadcast highlights significant volatility in the tech sector, driven by rising infrastructure costs.

• Price Hikes: Apple raised prices on MacBooks and iPads, citing an "extraordinary surge" in demand for memory and storage components due to AI data centers.
• Supply Chain Shifts: Apple is reportedly lobbying the U.S. government for flexibility to qualify Chinese memory suppliers, specifically YMTC (NAND flash) and CXMT (DRAM), to mitigate the current chip crunch.
• Regulatory Hurdles: YMTC has been on the U.S. Commerce Department’s entity list since 2022, complicating Apple’s efforts to diversify its supply chain away from traditional suppliers like Samsung and SK Hynix.

3. Corporate Strategy and IPOs

• OpenAI IPO: Reports suggest OpenAI is delaying its IPO until next year, with CEO Sam Altman reportedly targeting a $1 trillion valuation. The delay is influenced by the recent poor performance of SpaceX’s stock following its listing.
• Capital Raising: The discussion touched on the "game" of IPO pricing, where companies attempt to maximize capital while balancing the long-term value of their stock.

4. Geopolitical and Global News

• Strait of Hormuz: Tensions are rising as an unknown projectile struck a container ship near Oman. Reports indicate Iran is attempting to monetize the strait by charging for "safety and security," a move that faces international pushback.
• World Cup: The U.S. men's team finished the group stage with a loss to Turkey (officially spelled "Türkiye" per recent government efforts to assert sovereignty).

5. Notable Quotes

• Jeremy Grantham on AI: "We’re either going to be sitting on the beach getting served mint juleps by machines or they’re going to kill us accidentally or on purpose."
• Jeremy Grantham on Bitcoin: "It pays no dividend. It doesn’t represent an asset you can put your fingers on... It shouldn’t be worth a bucket of warm spit."
• Joe Kernan on Grantham’s track record: "Anybody that listened to you from 2010 has done a grave disservice to them."

---

Synthesis/Conclusion

The transcript captures a sharp divide between long-term bearish warnings from veteran investors like Jeremy Grantham and the current market reality of high valuations driven by AI enthusiasm. While Grantham warns of a massive correction based on historical bubble patterns, the tech industry—led by companies like Apple—is aggressively navigating supply chain constraints to capitalize on the AI infrastructure boom. The overarching theme is one of extreme uncertainty, where the promise of transformative technology (AI) clashes with traditional valuation metrics and geopolitical instability.