Jeremy Grantham: Time to wake up – days of abundant resources and falling prices are over forever

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Jeremy Grantham has become a familiar and very popular face on this site. For those treasuring his insight, wisdom and prescient calls, the co-founder and chairman of Boston-based GMO has just published the 1Q 2011 edition of his newsletter. As the title above implies, his report discusses the effects of our dwindling natural resources on the prices of commodities in the context of a rising world population.

Here is the summary of Grantham’s thoughtful newsletter:

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

Click here for the full report (free registration is required).

Source: Jeremy Grantham, GMO, April 2011.

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2 comments to Jeremy Grantham: Time to wake up – days of abundant resources and falling prices are over forever

  • Frank W

    I wish he’d tell us what his current view on the US stockmarket is.

  • carlo

    Everyone wants hard assets that will have a purpose and gain value?

    Investment Grade Molybdenum

    Commodities are physical substances like grains, food and metals. An investment is the purchase of a financial product or other item of value with the expectation of favorable returns in the future.

    Well, I prefer metals for preservation of my wealth. The question is what metal would you pick to preserve your wealth? Now the next thing to keep in mind is not to be biased in any way. That is, to buy a certain metal because someone tells you to, or to buy a certain metal because it is on an upward price trend or buy a metal because you read an interesting article on it.

    #1 on my shopping list. I look at is a the ability of a metal to actually promote or enable life of plants and animals on this planet. This means that you can actually grow food with it or grow trees. You can actually use the metal by sprinkling the powderized form on your soil and let the microbes in the soil slowly break down the metal and make it available for the plants to consume. Hydroponic or Aeroponic growing of food uses about 17 life giving elements that are added to the water to give complete nutritional support for plants.

    Unfortunately, there are only 7 elements of the 17 needed for plants that are an actual “metal”. These are called transition metals. Transition metals are known for their ability to conduct electricity, their hardness, high density, malleability (a material that can be worked with or hammered into flat sheets), ductility (able to be produced into a thin wire).

    These 7 investment grade metals are Molybdenum, Cobalt, Copper, Zinc, Manganese, Iron, Nickel. Nickel is documented as a essential nutrient in some plants. Nickel is not used in some high-end hydroponic formulas.

    #2 on my shopping list. I now have 7 transition metals that are used in growing food and are capable of being in my metal portfolio. But, I only want one metal. I will now consider the amount of this metal available on Earth. The next step would be the abundance of the metal or scarcity of it. Here is a list of these 7 metals and the amount in parts per million in the Earth’s crust.

    Molybdenum 1 ppm Molybdenum is most valuable here because of scarcity

    Cobalt 25 ppm

    Copper 60 ppm

    Zinc 70 ppm

    Nickel 84 ppm

    Manganese 950 ppm
    Iron 56300 ppm

    #3 on my shopping list is the melting point. I want a metal that can withstand high working temperatures. There is something called metal “creep” and that is the expansion or deformation of metals when they start reaching temperatures near the melting point. I like metals that don’t creep or change shape in high temperature conditions eg: Jet engines, Furnaces or anywhere where safety is priority.

    Molybdenum has the highest melting point of any life giving metals. Molybdenum has the sixth highest melting point of any element on Earth, which is incredible!

    Molybdenum 4753 Degrees Fahrenheit Melting Point

    Iron 2800 Degrees Fahrenheit M.P.

    Cobalt 2723 Degrees Fahrenheit M.P.

    Nickel 2651 Degrees Fahrenheit M.P.

    Manganese 2275 Degrees Fahrenheit M.P.

    Copper 1984 Degrees Fahrenheit M.P.
    Zinc 787 Degrees Fahrenheit M.P.

    #4 on my shopping list. The metal is an investment so I Do Not want it to rust, oxidize or corrode. If this happens you can surely say goodbye to your investment. Molybdenum does not react with water or air at room temperature and will not corrode. Molybdenum will keep a beautiful lustre (silvery blue). Copper and iron are definitely OFF my shopping list in this category.

    Research this incredible metal for yourself, it has many uses.
    Carlo Biancardi (London, Ontario) April 2011

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