In his most recent quarterly shareholder letter, hedge fund manager Jeremy Grantham made headlines saying the era of 3% growth is “gone forever.” He cited data on population growth, employment and productivity trends that all but assure that a new world of 1% growth is inescapable, just as it has been for Japan, whose aging population also reduced economic output two decades earlier in the former colossus.
Grantham did not get into the investment implications of slower growth —he said that would come in his next letter—but I will venture to say that a rapidly decelerating economy weighed down by massive debt will be a downer for stocks.
Just look at a historical chart of Japan’s Nikkei 225 index. Any skiers out there? The last four decades look like Mount Fuji, with an almost straight downward slope following the market’s1989 peak.
We can live on 1% growth (and anyway have no choice). As Research Affiliates head of investment management Christopher Brightman noted in a recent letter to clients: “1% real growth is still growth. It’s a joy to behold, if our expectations are anchored on zero, as was the case throughout human history before the industrial revolution.”
What Your Peers Are Reading
So what did people do to pursue their financial objectives before the industrial revolution? They scrimped and saved. (And, for the sake of historical accuracy, they died rather than retired, retirement being a post-World War II innovation.)