Jeremy Grantham's latest: "On the Road to Zero Growth"

[Evolveus]

The latest from Jeremy Grantham of GMO, with additional commentary from Ben Inker.  This is the first time I have read anything from Inker.

 

"On the Road to Zero Growth" - Grantham pgs. 1-17

"Help, Help, I'm Being Repressed" - Inker pgs. 18-20

 

 

http://moneyinstereo.blogspot.com/2012/11/gmos-jeremy-grantham-on-road-to-zero.html

[bmichaud]

I personally found Grantham's recent letter relatively absurd - I don't believe commodities are permanently elevated, as they are likely moving through a very standard secular bull market running alongside the equity secular bear, and I don't see why once the developed world is appropriately deleveraged we cannot continue our historical rates of growth. Laurence Siegel outlines the anti-Grantham case pretty well here: http://www.advisorperspectives.com/newsletters12/48-critique4.php (h/t pragcap)....

 

Even more interesting, however, is that the oober-bearish John Hussman disagrees with Grantham's long-run growth projection ASSUMING we can appropriately get through the mess we are currently in....see here:

 

http://hussmanfunds.com/wmc/wmc121126.htm

 

[Packer16]

I feel Grantham is a modern day Malthus trying to predict something that has so many variables that it cannot be predicted.  What is predictable is folks will adapt and historically have overcome the Mathusian limited resources arguments.  It is similar to Howard Marks response to what he says to folks who ask him about how Europe will turn out, namely - I don't know, no one knows and if you invest based upon a prediction you will probably lose money.

 

Packer

[vinod1]

I personally found Grantham's recent letter relatively absurd - I don't believe commodities are permanently elevated, as they are likely moving through a very standard secular bull market running alongside the equity secular bear, and I don't see why once the developed world is appropriately deleveraged we cannot continue our historical rates of growth. Laurence Siegel outlines the anti-Grantham case pretty well here: http://www.advisorperspectives.com/newsletters12/48-critique4.php (h/t pragcap)....

 

Even more interesting, however, is that the oober-bearish John Hussman disagrees with Grantham's long-run growth projection ASSUMING we can appropriately get through the mess we are currently in....see here:

 

http://hussmanfunds.com/wmc/wmc121126.htm

 

As an avid Grantham reader I too am very disappointed with this article. Grantham has made his name from correctly forecasting asset class returns primarily based on mean reversion. Here we have a lot of good quality data of over 100 years and for which the forecasting time period (7-10 years) means we had 15-20 signals. When Grantham makes predictions on commodities, he does not have really good quality data on how much the price increases is suppressed due to productivity, etc. More problematically he is basing his prediction on the rise in price for the last 10 years out of 200 years. It is nothing more than guess work on his part. 

 

His argument makes sense in the long term, the problem is we do not know if that occurs in 20 years or 200 years or even more. We know commodities would very likely rise in prices at some indeterminate point in the future due to depletion but I do not think we can pinpoint it with any precision.

 

Vinod

[ubuy2wron]

I feel Grantham is a modern day Malthus trying to predict something that has so many variables that it cannot be predicted.  What is predictable is folks will adapt and historically have overcome the Mathusian limited resources arguments.  It is similar to Howard Marks response to what he says to folks who ask him about how Europe will turn out, namely - I don't know, no one knows and if you invest based upon a prediction you will probably lose money.

 

Packer

I came to exactly the same conclusion. The other GMO piece by Montier is brilliant however when authors start talking about eleveated uncertainty my BS detector starts to make noises. (Uncertainty is always present and is always unknowable) humans perception of uncertainty and its probability of kicking us in the ass is the only thing that changes and can be quantified and I want to put my dough to work when humans perceive uncertainty to be high

[Packer16]

I agree the Montier piece on financial repression provided an interesting way to look at valuation in the context of repression.  His inclusion of the Ben Graham quotes are great as he experienced the last great repression we had.

 

Packer