Jeremy Grantham Interview with Charlie Rose
Charlie Rose interviewed GMO’s Jeremy Grantham at length recently. It is a fascinating conversation with a self-professed numbers man.
Several notes from the interview include:
Grantham commented on the commodity inflation from 2002-2008 where the price of commodities rose faster than in World War II and erased 100 years of general decline in prices.
Grantham mentioned China’s insatiable demand for commodities: the Chinese consume 53% of all the cement used on the planet, along with 47% of all the coal, 46% of all of the iron ore; unimaginable numbers by Grantham’s estimation.
Grantham rode his hobby horse of the dangers posed by global warming stating there was more than enough carbon based fuel (5 times to be exact) to “cook our goose.”
Grantham’s penchant for analyzing investment bubbles revealed one which has defied the law of bursting; oil. An interesting tidbit for the prospective investor in fossil fuel producers.
Grantham commented on phosphorus where the supply is finite (about a 50 year supply left) and which is required by all life to grow.
Regarding the tendency for empires to collapse, Grantham believes people’s sense of chutzpah and arrogance, or a belief that humans can accomplish anything they put their mind to, leads to overreach, and constitutes a primary factor in the eventual fall.
There is hope in Grantham’s mind and it has to do with the declining fertility rate. In the past when families were wealthy they would have numerous offspring, but that tendency has completely reversed. Grantham also sees hope in the development of cheaper renewable energy sources.
The pricing out of poorer populations by the wealthier nation’s demands on resources, resulting in some cases, their starvation according to Grantham, was a sobering reminder of the unfairness dealt a subsection of humanity in today’s age.
Grantham proceeded to discuss his analysis of bubbles beginning with the tech bubble where he said stocks were as overpriced in 1997 as they were in 1929, prior to the insane run-up into the year 2000.
Grantham discussed the Japanese bubble, the biggest in history by his estimation, where investors were paying $65 for each $1 of earnings compared to the U. S. tech bubble where $35 was paid for each dollar of earnings at its peak.
Grantham touched on the banking crisis in 2008 and said he would have let more financial institutions fail than the government did at the time. In fact, he wouldn’t have come to Citigroup’s rescue.
As far as investment values are concerned, Grantham said the large franchise companies in the U. S. such as Coca Cola (KO) were not too overpriced, although the rest of the U. S. market is priced to deliver zero returns for the foreseeable future. Grantham said investors would do well in emerging markets equities.
Regarding the Federal Reserve Grantham stated, “Bernanke is whipping this donkey that can only grow at one percent because he thinks it’s a racehorse that should be growing at three, so he’s going to keep on whipping it until the donkey drops dead or turns into a racehorse.” Grantham is betting on dead. He added the Fed doesn’t have the tools to generate employment and it shouldn’t be in their mandate.
Grantham discussed debt, which he doesn’t believe has any effect on GDP, and the subsidization of debt by Bernanke which is takes money from retirees and other savers and indirectly transfers it to hedge fund managers, bankers and speculators.
The interview can be accessed in its entirety at the link below: