Monday, April 25, 2011

Jeremy Grantham - Time To Wake Up, World

Summary of the Summary

The world is using up its natural resources at an alarming rate, and this has caused a permanent shift in their value.

We all need to adjust our behavior to this new environment. It would help if we did it quickly.


• Until about 1800, our species had no safety margin and lived, like other animals, up to the limit of the food supply, ebbing and flowing in population.

• From about 1800 on the use of hydrocarbons allowed for an explosion in energy use, in food supply, and, through the creation of surpluses, a dramatic increase in wealth and scientific progress.

• Since 1800, the population has surged from 800 million to 7 billion, on its way to an estimated 8 billion, at minimum.

• The rise in population, the ten-fold increase in wealth in developed countries, and the current explosive growth in developing countries have eaten rapidly into our finite resources of hydrocarbons and metals, fertilizer, available land, and water.

• Now, despite a massive increase in fertilizer use, the growth in crop yields per acre has declined from 3.5% in the 1960s to 1.2% today. There is little productive new land to bring on and, as people get richer, they eat more
grain-intensive meat. Because the population continues to grow at over 1%, there is little safety margin.

• The problems of compounding growth in the face of finite resources are not easily understood by optimistic, short-term-oriented, and relatively innumerate humans (especially the political variety).

• The fact is that no compound growth is sustainable. If we maintain our desperate focus on growth, we will run out of everything and crash. We must substitute qualitative growth for quantitative growth.

• But Mrs. Market is helping, and right now she is sending us the Mother of all price signals. The prices of all important commodities except oil declined for 100 years until 2002, by an average of 70%. From 2002 until now,
this entire decline was erased by a bigger price surge than occurred during World War II.

Statistically, most commodities are now so far away from their former downward trend that it makes it very probable that the old trend has changed – that there is in fact a Paradigm Shift – perhaps the most important economic event since the Industrial Revolution.

• Climate change is associated with weather instability, but the last year was exceptionally bad. Near term it will surely get less bad.

• Excellent long-term investment opportunities in resources and resource efficiency are compromised by the high chance of an improvement in weather next year and by the possibility that China may stumble.

From now on, price pressure and shortages of resources will be a permanent feature of our lives. This will increasingly slow down the growth rate of the developed and developing world and put a severe burden on poor countries.

We all need to develop serious resource plans, particularly energy policies. There is little time to waste.

[Emphasis added]

Read the full report: GMO QUARTERLY LETTER - April 2011


Chewitup said...

Pretty Malthusian. Is nuclear power safe? Can we drill up in N. Alaska? Can we drill off shore? Can we put wind power in Nantucket Sound? Can China move millions of people into cities? Can we capture energy from the ocean?
Can we grow more crops for food and less for ethanol?
I think we have the brainpower to manage the problem, but the politics seems to get in the way. Certainly leaves lots of room for discussion.

Tom Hickey said...

The politics is driven by vested interests in the unlimited growth based infinite resources model.

mike norman said...

Jeremy Grantham must be sweating bullets. Last November in several interviews (CNBC, Barrons and elsewhere) he talked about how he was beginning to short the stock market. We've done nothing but trend higher. I'm not knocking Grantham, in fact, I agree with him, but it's been tough to be short and his timing has been WAY off. I wonder what he's going through right now.

Red Rock said...

"Gold is falling because the forces at play right now are deflationary--big time deflationary.

I am certain that investors in gold will be decimated. I don't know when, but it's pretty much a sure thing. The best investment in the world right now is a Treasury, which will soar as deflationary forces broaden out even further."

Mike Norman 5/19/10. Since then Treasury unchanged, gold up about another 25%. Just saying.....