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Presenting Jeremy Grantham's "10 Topics To Ruin Your Summer"

Tyler Durden's picture




 

When last we checked in with Jeremy Grantham, the GMO co-founder was still bubble watching, reiterating his outlook from November that although stocks can always go higher in the "strange, manipulated world" that we call the "new paranormal", "bubble territory" probably isn’t far off given that the Yellen Fed is "bound and determined" to facilitate the inexorable rise of asset prices. 

More specifically, bubble territory for Grantham is around S&P 2250, and because "the Greenspan/ Bernanke/Yellen .. Fed historically did not stop its asset price pushing until fully- fledged bubbles had occurred, as they did in U.S. growth stocks in 2000 and in U.S. housing in 2006," there’s no good reason to think we won’t reach a bubble-defining two sigma event before all is said and done, even if that means launching QE4 in the event liftoff's first 25bps baby steps result in a 1937 redux.

Grantham also bemoaned the lack of capex spending and the myopia exhibited by corporate management teams, noting the "current extreme reluctance to make new investments in plant and equipment (how old-fashioned that sounds these days) rather than [plowing money] into stock buybacks, which may be good for corporate officers and stockholders, but bad for GDP growth and employment."

In GMO’s latest quarterly missive, Grantham is back with another dose of inconvenient truthiness, this time in the form of "ten quick topics to ruin your summer."

In short, this is a list of what Grantham - who points out how fortunate he is to "have an ideal job [with] no routine day-to-day responsibilities [which leaves him] free to obsess about anything that seems both relevant and interesting" - thinks you should worry about going forward:

  1. A new era of lower trend GDP growth
  2. Resource scarcity
  3. Oil
  4. The environment
  5. Food shortages
  6. Income inequality
  7. The death of “majoritarian electoral democracy” 
  8. The Fed
  9. Asset bubbles
  10. The limits of humankind 

Here are some excerpts from Grantham’s thoughts on each topic:

*  *  * 

From GMO

1. Pressure on GDP growth in the U.S. and the balance of the developed world: count on 1.5% U.S. growth, not the old 3% 

  • Factors potentially slowing long-term growth:
  • Slowing growth rate of the working population
  • Aging of the working population
  • Resource constraints, especially the lack of cheap $20/barrel oil
  • Rising income inequality
  • Disappointing and sub-average capital spending, notably in the U.S.
  • Loss of low-hanging fruit: Facebook is not the new steam engine
  • Steadily increasing climate difficulties

Partially dysfunctional government, particularly in economic matters that fail to maximize growth opportunities, especially in the E.U. and the U.S.

Mainstream economists, with their emphasis on highly theoretical models, have been perplexed by the recent chain of disappointments in productivity and GDP growth and would disregard all or most of these factors as theoretically unsatisfactory. 

2. The age of plentiful, cheap resources is gone forever

After every historical major rally in commodity prices, there has been the predictable reaction whereby capacity is increased. Given the uncertainties of guessing other firms’ expansion plans, the usual result is a period of excess capacity and weaker prices as everyone expands simultaneously. 

In agriculture, we also had a global sell-off following three consecutive years in which extremely hostile grain-growing weather had driven prices to panic levels of triple and quadruple their previous lows. 

All in all I am still very confident, unfortunately, that the old regime of irregularly falling commodity prices is gone forever.

3. Oil

Among commodities, oil has been king and still is. For a while longer. Oil has driven our civilization to where it is today. It created the surplus in our economic system that allowed for scientific research and rapid growth. Now, as we are running out of oil that is cheap to recover, the economic system is becoming stressed and growth is slowing.

4. Climate Problems

Both the actual climate and the associated politics seem to be changing more rapidly these days, with the seriousness of the situation becoming better appreciated. Visible changes in the climate have also been accelerating, with many more records than normal of droughts, floods, and, most particularly, heat. Last year was the hottest year ever recorded, and this year, helped by an El Nin?o, has gotten off to a dreadful start. January was the second hottest January ever. February and March were outright records. April was in third place, but both May and June were back in first place. This consistency with volatile climate is unusual and ominous. If kept up, 2015 will be the hottest by a lot.

5. Global food shortages

The world’s population continues to grow, and the increasing middle class of the emerging countries, especially China, is rapidly increasing its meat consumption. Both trends put steady pressure on our grain and soy producing capabilities at a time when productivity gains have been irregularly slowing for several decades and show every sign of continuing to slow.7 Both overland and underground water supplies are stressed. Weather for farming becomes increasingly destabilized with increased droughts and radically increased flooding events. Flooding particularly increases soil erosion, which still continues at 1% a year, close to 100 times natural replacement rates. Insects and weeds are apparently becoming resistant to chemicals faster than chemists can respond. 

6. Income inequality

Over the last few years, we have been presented with data showing that the U.S. is the most unequal society (or one of the two or three worst) in both income and wealth in the developed world. It is also one of the less economically mobile ones, especially for mobility out of the poorest quintile. Neither situation applied or even nearly applied 40 years ago.

7. Trying to understand deficiencies in democracy and capitalism

Democracy

"The central point that emerges from our research is that economic elites and organized groups representing business interests have substantial independent impacts on U.S. government policy, while mass-based interest groups and average citizens have little or no independent influence." This is the killer conclusion of a paper last fall by Gilens and Page.11 Based on the study of almost 1,800 policy issues for which income breakdowns were available, and defining the “Elite” generously as those above the 90th percentile, it finds that “majoritarian electoral democracy” is largely a thing of the past. 

Capitalism: a failure to be inclusive (and feathering the corporate officers’ nests)

I have previously gone on at length about the critical, perhaps even deadly, deficiency in capitalism in dealing with long-term issues of the commons – damages to our common air, water, and soil. I would now like to take a swipe at capitalism’s increasing failure to be inclusive. Capitalism has steadily dropped its baggage of stakeholders, with the exception of senior corporate officers in first place and stockholders in second. Interest in local communities, cities, states, and countries of origin has been largely put aside as has the previous jewel in the crown of responsibilities to workers, the defined benefit pension fund. At a time of provable abnormally high corporate profits as a percent of GDP, corporations have argued that defined benefit pensions are not affordable. That they are dropping them should come as no surprise, for defined contribution plans (in general less attractive to employees than defined benefit plans) are much cheaper and easier on accounting predictability. What is surprising is why they adopted defined benefit plans in the first place, when they did not have to. And why did they have, in the 1935 to 1985 window, a sense of a social contract, suggesting that other things mattered besides maximizing short-term profits? Good ethics but bad capitalism? Actually, my colleague, James Montier, argues that a single-minded emphasis on relatively short-term share value maximization is a bad business idea; and I agree. Loyalty from workers, community, and country and an image as a company with worthwhile values is very probably a better business proposition. A longer-term focus certainly is. The best strategy, as Montier argues, is probably to concentrate on the highest possible customer satisfaction at a reasonable profit.

8. Deficiencies in the Fed

A counter-productive job description, badly executed. 

9. Investment bubbles in a world that is, this time, interestingly different

Two significant items seem to be different this time. First, profit margins in the U.S. seem to have stopped mean reverting in the old, normal way, and second, some real estate markets have bubbled up and then stayed there at high prices. Both seem surprising events, even against what I would call “the laws of nature,” or at least the usual laws of capitalism. What is going on? 

10. Limitations of homo sapiens 

After reading all of this you may think that I am particularly pessimistic. It is not true: It is all of you who are optimistic! Not only does our species have a strong predisposition to be optimistic (or bullish) – it is probably a useful survival characteristic – but we are particularly good at listening to agreeable data and avoiding unpleasant data that does not jibe with our beliefs or philosophies. Facts, whether backed by 97% of scientists as is the case with man-made climate change, or 99.9% as is the case with evolution, do not count for nearly as much as we used to believe.

For that matter, we do a terrible job of planning for the long term, particularly in postponing gratification, and we are wickedly bad at dealing with the implications of compound math. All of this makes it easy for us to forget about the previously painful market busts; facilitates our pushing stocks and markets on occasion to levels that make no mathematical sense; and allows us, regrettably, to ignore the logic of finite resources and a deteriorating climate until the consequences are pushed up our short-term noses. 

 

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Wed, 07/29/2015 - 19:50 | 6369316 The Shape
The Shape's picture

First time I've seen oil mentioned here today. Must have been an inventory draw then?

Wed, 07/29/2015 - 20:58 | 6369487 Stuck on Zero
Stuck on Zero's picture

Here's my list of ten topics to ruin your Summer:

 

1. Government

2. Government

3. Government

...

10. Government.

Thu, 07/30/2015 - 11:59 | 6371214 Helix6
Helix6's picture

Here's my list of ten topics to ruin your Summer:

1. Government controlled by wealthy persons and large corporations

2. Government controlled by wealthy persons and large corporations

3. Government controlled by wealthy persons and large corporations

...

10. Government controlled by wealthy persons and large corporations.

Wed, 07/29/2015 - 19:52 | 6369319 world_debt_slave
world_debt_slave's picture

My mind thought of the other GMO.

Wed, 07/29/2015 - 19:56 | 6369327 buzzsaw99
buzzsaw99's picture

climate problems :roll:

Wed, 07/29/2015 - 20:06 | 6369358 TBaggerVance
TBaggerVance's picture

He needs to try satellite data for temperature information.

Much better than thermometers placed next to air conditioning units and black top.

Wed, 07/29/2015 - 20:04 | 6369351 JR
JR's picture

One new item needs to be added to “Climate Problems.” Fraud.

Mind-Blowing Temperature Fraud At NOAA

 July 27, 2015 by stevengoddard 

The measured US temperature data from USHCN shows that the US is on a long-term cooling trend. But the reported temperatures from NOAA show a strong warming trend.

They accomplish this through a spectacular hockey stick of data tampering, which corrupts the US temperature trend by almost two degrees.

The biggest component of this fraud is making up data. Almost half of all reported US temperature data is now fake. They fill in missing rural data with urban data to create the appearance of non-existent US warming.

The depths of this fraud is breathtaking, but completely consistent with the fraudulent profession which has become known as “climate science.”

CHARTS:

https://stevengoddard.wordpress.com/2015/07/27/mind-blowing-temperature-fraud-at-noaa/

Wed, 07/29/2015 - 20:23 | 6369407 Money Boo Boo
Money Boo Boo's picture

don't tell that to Mountain Pine Beetle that has been devouring forest along the west coast at an alarming rate for the last five years. WOW ! wtf does that have to do with climate??? Well son, it goes like this.  The Mountain Pine Beetle has always existed but mother nature has always kept them in check by delivering -30 degree C temperatures for periods of longer than 3 weeks each winter to the zones in which the Pine Beetle exist.  Now that those cold temperatures no longer exist in large enough quantities the MPB are on a tear and are a locust plague of unstoppable proportions.

 

For all you dumb fucking Yanks!!  That's dem dere troothiness in real untrollable proportions. Eat UP! you ain't got much longer to stay PHAT!!

Wed, 07/29/2015 - 20:37 | 6369438 Ace006
Ace006's picture

>> Now that those cold temperatures no longer exist in large enough quantities <<

I have an excellent theory about where you pulled that "fact" out of.

Wed, 07/29/2015 - 21:18 | 6369543 Money Boo Boo
Money Boo Boo's picture

stoopid is, as stoopid does....and it's contagious

Wed, 07/29/2015 - 23:34 | 6369880 Prisoners_dilemna
Prisoners_dilemna's picture

Mismanagement of land by bureaucrats for "sustainable harvesting" of pine has eradicated the habitat of the pine beetles natural predator, woodpeckers.

As a corollary we have wildfires out west. Why are they so severe? Is it because the earth is half a degree hotter than it was a century ago?? Or is it because mismanagement by bureaucrats causes decades worth of dry tinder to pile up?

Please re-read section 10 above and consider the limits of bureaucratic ability to outsmart mother nature.

Thu, 07/30/2015 - 00:31 | 6369978 Central Ohio
Central Ohio's picture

Well thought and well said in reply.  My compliments.

Fri, 07/31/2015 - 01:55 | 6374295 Money Boo Boo
Money Boo Boo's picture

BullSHIT!!!!

Fucking woodpecker meme is how you want to roll, you are a complete fucking JOKE!!! You fucking tools will never cease to amaze wiht the shit you troll with. The best part is the dumb fucking americans fall for your shit everytime. Classic shit man, Wood peckers....fuck me you're a joke!!!

Wed, 07/29/2015 - 23:34 | 6369878 Trogdor
Trogdor's picture

 Now that those cold temperatures no longer exist in large enough quantities the MPB are on a tear and are a locust plague of unstoppable proportions.

And of course as any good mainstream toadie - er - "scientist" can tell you:  Correlation IS Causality.... /s

I'm sure there are absolutely no other factors involved in this supposed MPB plague ... nope ... not one ....

 

Wed, 07/29/2015 - 20:32 | 6369429 stilletto
stilletto's picture

The Climate fraud comedians reported their hottest July temp in UK - where? At heathrow! Yep its pretty hot on black tarmac standing behind several 747s taxiing past!

Wed, 07/29/2015 - 20:14 | 6369377 Proofreder
Proofreder's picture

Add a note to Item 5

Honeybees are few and far between; even less than last year.

Count on crop failure from almonds to oranges, beans, melons and squash. 

Wed, 07/29/2015 - 20:33 | 6369431 Seek_Truth
Seek_Truth's picture

While I lament the decline of the honeybee (because I eat honey daily), they are not native to the Americas.

American native pollinators invclude bumblebees, yellow faced bees, as well as birds, bats moths, butterfiles, wasps, etc:

http://plants.usda.gov/pollinators/Native_Pollinators.pdf

Wed, 07/29/2015 - 21:04 | 6369507 El Vaquero
El Vaquero's picture

Beans will be fine.  They're radical inbreeders with perfect flowers.  Squash is a new world plant and will be pollinated by new world pollinators.  

Wed, 07/29/2015 - 21:48 | 6369617 SgtShaftoe
SgtShaftoe's picture

You can thank Monsanto and conventional agriculture for the death of bees.

If there are food shortages, it will be the fault of Monsanto, the government and conventional farmers.

Oh and the climate scientists can suck a fart out of my ass. They're the most insulated idiots that are also incentivized (grant money) to demonstrate "climate change". You don't get grant money if you demonstrate nothing has really changed other than stupid agriculture practices.

Wed, 07/29/2015 - 20:16 | 6369380 squid
squid's picture

Moron!

 

Anyone who ballyhoooos about the climate is either lying or doesn't understand statistics.

And since this guys aboviously knows math, its the latter.

 

Spam.

 

 

Squid

Wed, 07/29/2015 - 22:44 | 6369782 HardAssets
HardAssets's picture

" Anyone who ballyhoooos about the climate is either lying or doesn't understand statistics.

And since this guys aboviously knows math, its the latter. "

I agree with you 100% on climate. As for this guy, - I have no idea what he's thinking in this regard. But, it's quite pitiful to see that a person can be knowledgeable in one area, and naively believe 'expert' opinion regarding other topics such as 'manmade gobal warming', 'over population', etc

This error in judgement is extremely common today.

Wed, 07/29/2015 - 20:23 | 6369392 Manipuflation
Manipuflation's picture

 Some old tourist trap rip off lion died in a shithole country in Africa that has had some currency valuation issues and is run by a fucking piece of shit dictator.   

Wed, 07/29/2015 - 20:39 | 6369444 Ace006
Ace006's picture

If you could write a coherent sentence, what would you say?

Wed, 07/29/2015 - 20:19 | 6369397 GRDguy
GRDguy's picture

Jeremy once said: "I ask myself, ‘Why is it that several dozen people saw this crisis coming for years?’ I described it as being like watching a train wreck in very slow motion. It seemed so inevitable and so merciless, and yet the bosses of Merrill Lynch and Citi and even U.S. Treasury Secretary Hank Paulson and Fed Chairman Ben Bernanke — none of them seemed to see it coming."

If he understood correctly, he would have known that those people didn't need to see it coming; they were engineering it for the folks who paid them to do it. 

Wed, 07/29/2015 - 20:42 | 6369419 highwaytoserfdom
highwaytoserfdom's picture

the GMO are the same...   Why anyone would allow this form of modified organism, a eugenicist and caught up in the climate data scandal..  the +- 38% data  fraudulently “cooking the science” to conform to their agenda.  The world is genuinely concerned in cleaning  in real and meaningful actions not propagating doctored data from academics.  No Cap x  yea right this  CFR UN Globalist  is nothing short of  Gore Enron control freak...   Good ethics but bad capitalism ROTFLMFAO

Tyler broke the first rule of the Fight club       

just gets me when these guys who support banks, drug dealing (legal illegal) and police state and killing half as many people as died in WWII have the audacity of authority because they can swindle pensions, endowments, widows savings, insurance reserves on the premise that people are ignorant and don't understand money... 


Wed, 07/29/2015 - 20:45 | 6369464 Seek_Truth
Seek_Truth's picture

+ 100 Truth.

Wed, 07/29/2015 - 20:59 | 6369489 Implied Violins
Implied Violins's picture

Great article. Thanks for posting.

Never trust a guy in a white coat without first asking who is PAYING him. Science these days is not about objective truth; it is about going into your study with an agenda and finding the right angle to make your data prove your assumption, and ignoring anything else.

Thu, 07/30/2015 - 07:37 | 6370345 no1ninja
no1ninja's picture

LOL, this article thinks evolution is wrong.   Can we have an algabra captcha at ZH, as it would keep half of thes dimwits out. 

Wed, 07/29/2015 - 20:44 | 6369449 GeezerGeek
GeezerGeek's picture

"When last we checked in with Jeremy Grantham"...

You shouldn't have bothered checking in with him. He sounds like a set of talking points for the Democratic National Committee. You know, Debbie Does-Dumbstuff.

This guy is probably advising Hillary, he's so into the progressive cant.

He did get at least one thing right when he said "Facebook is not the new steam engine". Steam is alive and well and can take care of itself. I use the Steam engine myself on occassion.

Wed, 07/29/2015 - 21:43 | 6369613 Rene-Paul
Rene-Paul's picture

Where is Yogi Berra? Remember him? "I never make pedictions, especially about the future".

Oh and one other quote, "Stick with me boys, and you will be wearing diamonds as big as horse turds and farting through silk" Do not know who said tht though.

Wed, 07/29/2015 - 22:14 | 6369702 silverer
silverer's picture

I don't buy the manmade climate change.  I do buy that climate is changing.  If you look at earth's history, before mankind was here to rub two sticks together, history and research show much more radical climate change than we see occurring now.  So I do not discount the impact of climate change.  I just don't buy the line that it's all attributable to man made activity.  Maybe 1 or 2%.  But here's something else to think about:  all the so called fixes are just revenue schemes.  Buy credits.  Pay taxes.  Nothing else changes significantly, like "we're going to outlaw cars".  Naa.  Just keep driving and pay those carbon taxes.  What a joke.

Wed, 07/29/2015 - 23:22 | 6369862 MEAN BUSINESS
MEAN BUSINESS's picture

ok, then explain how it is that the NWO/UN/Planetary Management Authority has been suggesting the 6%CarbonTax for 25 years and has failed to implement. And from what we hear about deflation and the low cost of oil, sheesh, that's pretty bad timing on getting all hot and heavy over the Carbon Tax. LORD, why didn't the cabal make Al Gore POTUS all those years ago! 6% of ALL those GTs? pity...

Wed, 07/29/2015 - 22:55 | 6369804 honestann
honestann's picture

AGW is a blatant predatory globalist lie.

PERIOD.

Wed, 07/29/2015 - 22:57 | 6369808 MEAN BUSINESS
MEAN BUSINESS's picture

The data for item 6: Income Inequality is obviously manipulated, cause scientists do data and scientists are beholden. Right? 'sides, everything is awesome.

Wed, 07/29/2015 - 23:37 | 6369885 To Infinity And...
To Infinity And Beyond's picture

"Facts, whether backed by 97% of scientists as is the case with man-made climate change"

Seriously, who is this idiot that hasn't got the memo. 
The 97% is complete bullshit. 

Thu, 07/30/2015 - 02:56 | 6369957 MEAN BUSINESS
MEAN BUSINESS's picture

so 99.98 you're sayin' To Infinity And Beyond? LOL Almost 4 9s pure!

Thu, 07/30/2015 - 09:33 | 6370688 VangelV
VangelV's picture

Sadly, many people do not really pay attention to the actual literature and only listen to the propaganda by the people who are promoting the AGW myth.  

 

There is no single paper that has bothered to ask scientists what think about the role that anthopogenic CO2 emissions play in the observed changes in the adjusted temperatures used to calculate the 'global average' or if they think that an increase would be beneficial or harmful.  

 

The Doran and Zimmerman paper did not bother to ask about CO2 and only asked if we were warmer than when the Little Ice Age ended.  It was designed with a specific conclusion in mind and even there it failed because the number was nowhere close to 97%.  It took a lot of creative selection to narrow down the number of respondents from more than 3000 to 79 to get a 95% agreement with the IPCC/Doran position.  The 97% came from a further rejection of two respondents, brining the number to 77.  

 

The Cook paper was a disaster for the alarmists becasue when the data was examined only 0.3% of papers explicitly supported the IPCC claim with empirical data.  Even worse, much of the supposed empirical data used by 'scientists' to come to conclusions about the state of the climate is adjusted to create a warming trend that was never measured by the instruments.  I think that the movement is losing steam as voters are getting tired and no longer just want to believe.  

Thu, 07/30/2015 - 03:55 | 6370156 Batman11
Batman11's picture

When Capitalism reaches its zenith, everyone will be an investor and no one will be doing anything.

Central Bank inflated asset bubbles will provide for all.

The biggest market in the world today is derivatives, money making money without a useful product or service in sight.

With the market in derivatives being ten times larger than global GDP we can see that making useful products and providing useful services is nearly irrelevant even today.

We are nearly there.

The nonsense of current thinking taken to its ultimate, inevitable conclusion.

What could go wrong?

 

Thu, 07/30/2015 - 05:23 | 6370202 Ethelred the Unready
Ethelred the Unready's picture

When I read the "97%" libtard crap, I knew that I had just wasted my time.   

Thu, 07/30/2015 - 05:44 | 6370212 uhb
uhb's picture

This article is so screaming bullshit....

Jeremy Gratham is either a pathological liar or an idiot, or most likely both.

The USSA is snap in the middle of countries inequality. Check here https://en.wikipedia.org/wiki/List_of_countries_by_income_equality

Thu, 07/30/2015 - 08:39 | 6370491 chilller
chilller's picture

That old fart Germy Grantham won't mention gold...last time he did he had his ass handed to him on a gold plated platter...

Thu, 07/30/2015 - 09:01 | 6370549 VangelV
VangelV's picture
The problem with some of the predictions is the data manipulation and hype that bries the reality.  He could aruge that the climate is likely to create more problems if we go into a cooling cycle but I doubt that is what Grantham has in mind.


Worse is Grantham's attack on capitalism when what he really means is crony capitalism in which governments protect private businesses from compettion, trample on property rights, and socialize losses.  Capitalism has no way to deal with 'long-term issues of the commons' because those issues are driven by a lack of property rights, which have nothing to do with capitalism.   Then there is Grantham's argument that capitalism fails to to be inclusive. He is again dealing with issues that have nothing to do with free markets.  It is not the business of business to elevate the interest of, "local communities, cities, states, and countries," because business is not in the business of central planning social outcomes.  Businesses should try to be as competitive as possible by lowering costs so that consumers can see their real standard of living increase.  As prices for goods and services fall due that the increase in productivity that lower costs the purchasing power of workers would go up.  


This is where the real problem shows up.  Governments use counterfeiting to rob workers of purchasing power and to transfer wealth from their savings to the financial system of which Mr. Grantham is a member.  If Grantham were concerned he would want governments not to have the power to engage in the type of regulatory and transfer scheme activities that have created the problems that Mr. Grantham seems to have misdiagnosed.  He needs to identify crony capitalism as the clear problem and start demanding a true free market that is the clear solution.
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