Wednesday, May 11, 2016

GMO's Jeremy Grantham On Commodities

We were wondering where in the world Izabella Kaminska was. She'd been spotted at the Australian Financial Review a few days ago but that was probably just a syndication deal not a relocation to the antipodes.
Today though she has a couple pieces at FT Alphaville, "Camp Alphaville 2016: The rundown" and our headline story:

Grantham on the paradigm shift that never was

GMO’s Jeremy Grantham famously speculated in 2011 that when it came to commodities and resources we were very possibly witnessing the most important economic event since the industrial revolution:
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.
X marks the spot where Malthus wrote his defining work. Y marks my entry into the world. What a surge in population has occurred since then! Such compound growth cannot continue with finite resources. Along the way, you are certain to have a paradigm shift. And, increasingly, it looks like this is it!
In his latest note, entitled Part I: Always Cry Over Spilt Milk he states:
Every major bull event is called a paradigm shift but they almost never exist. Almost never. But not never, ever.
In 1999 we presented 28 major bubbles of the past and were able to call the score: Mean Reversion, 28; Paradigm Shift, Nil!
To rub it in, near the 2000 peak I challenged audiences – perhaps 2000 professionals in total – to find a bubble that had not fully broken. There was not a single offer.
I appreciated the irony, therefore, when in 2005 I offered oil as the first important paradigm shift.
But what was once considered a paradigm shift is starting to to look — in the face of a major commodity glut — an awful lot like a bubble. A bubble Grantham says probably wasn’t fuelled as much by speculators and skullduggery as that of China, but which was nevertheless a bubble....

Mr. Grantham is somewhat doomy and gloomy on humanity's prospects and although he's probably right on the big picture, the dour outlook can sometimes lead you astray in commodities. See also 2012's:
Vaclav Smil Takes on Jeremy Grantham Over Peak Fertilizer