In the meantime here's the head of a fam that has been watching (and creating) the world economy for a while.
Rothschild starts selling gold; warns on commodities
RIT Capital Partners, the global growth trust which provides the investment vehicle for Lord Jacob Rothschild, has started taking a profit on its gold holdings.This didn't get a lot of play in late April and in fact I missed it on first reading GMO's letter. Most folks focused on the longer-term "paradigm shift" portion of what Grantham was saying and missed this because the shorter-tem negative bits were scattered throughout. Citywire wrapped it up in a neat package (note, this is not the Grantham piece linked in the article above) .
The trust has released final results showing a total return of 9.3% on its portfolio compared to the 5.2% for the MSCI World index over the period to the end of March 2011.
Rothschild told investors the trust has ridden the rally in gold prices but will now incrementally sell down. 'Real assets...were a major contributor to performance with a return of around 28% on our average exposure of 13% to these strategies. Funds invested in oil and gas shares, as well as exposure to gold and via futures, were the primary drivers of return. More recently, we have made some reductions to our exposure to these areas.'Rothschild said that investors should recognise the possibility that the leadership in global markets, that has been occupied by commodity prices over the past decade, could be coming to an end. He cited Jeremy Grantham's recent research to argue that the trust must prepare for a new era where quality growth companies experience returns eclipsing commodities.
'There is I believe a growing awareness of the dangerous position which confronts many countries, particulary those in the developed world. In spite of these concerns, we continue to take advantage of areas that we believe are attractive, but we will remain cautious in terms of the quantum of capital that we allocate,' said Rothschild....MORE
Grantham predicts commodity crash on scale of ﬁnancial collapse
GMO’s self confessed perma-bear Jeremy Grantham has rung the alarm bell on rising commodity prices predicting a crash ‘not unlike the ﬁnancial collapse’.
In his latest quarterly letter titled ‘Time to wake up: days of abundant resources and falling prices are over forever’, he argues that a combination of better than expected weather and a blip in China's 'warp speed' growth due to anything from wage increases, misappropriated capital in large, unnecessary projects, rising debt or a house price bubble, could drag commodity prices down dramatically.
He warned: ‘If the weather and China syndromes strike together, it will surely produce the second “once in a lifetime” event in three years.’
Elaborating, he said: 'Several of my smart colleagues agree with Jim Chanos that China’s structural imbalances will cause at least one wheel to come off of their economy within the next 12 months. This is painful when travelling at warp speed – 10% a year in GDP growth.'
'The signiﬁcance here is that given China’s overwhelming inﬂuence on so many commodities, especially in terms of the percentage China represents of new growth in global demand, any general economic stutter in China can mean very big declines in some of their prices.'
'You can assess on your own the probabilities of a stumble in the next year or so. At the least, I would put it at 1 in 4, while some of my colleagues think the odds are much higher.'
'If China stumbles or if the weather is better than expected, a probability I would put at, say, 80%, then commodity prices will decline a lot. But if both events occur together, it will very probably break the commodity markets en masse. Not unlike the ﬁnancial collapse.'...MORE
Finally, back to Lord R. with ZeroHedge:
When The Lord tells you to panic... You panic.
And beg for QE 3, 4, 5, etc. Just think of the poor bankers....MORE