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February 07, 2014 at 09:28 AM
Market pessimists can usually find what they’re looking for in hedge fund manager Jeremy Grantham’s quarterly investment letters, but for the gloom-and-doom junkies who need “more” to get their fix, Grantham delivers in his just-published installment:
The “seven lean years,” which he famously cited in a 2009 forecast echoing the Biblical account of ancient Egypt’s economic downturn, have been downgraded to the “permanent lean years” in language Grantham admits is “not as memorable but probably more accurate.”
The Grantham, Mayo, Van Otterloo & Co. hedge fund manager, known for correctly forecasting several market bubbles, reaffirmed a recent forecast — treated, he says, as “unreasonably bearish,” that U.S. GDP will average about 1.5% annual growth over the next 30 years.
The dour Grantham considers this growth rate “not that bad,” to hourly wage earners whose wages have been “dead flat” since 1970, but he calculates the broader economic loss: The remarkably steady 3.3% rate of U.S. growth from 1880 to 1980 multiplied income 26 times over that century; the 2.8% average growth from 1980 to 2000 would have compounded income 16 times (over a period of a century); but the 1.4% rate experienced over the past 13 years could multiply income by just 4 over a century.
The hedge-fund herald of doom says that we must “readjust our mental targets unless we want to enter an era of perpetual disappointments,” noting that “false optimism leads to very poor investment decisions.” Colorfully, he adds: “We can imagine, for example, in 30 years some ‘son of Yellen’ as it were, introducing QE 27 in a vain attempt to squeeze blood out of stones.”
While investors often mine Grantham’s usually lengthy investment letters for actionable insights, his February letter offers mainly this reaffirmation of his slow-growth macro view, together with a large dose of apocalyptic environmentalism.
His main actionable insight, also a reiteration of previous stands, stems from what is the lion’s share of his letter concerning a grab-bag of eco-angst about fossil fuels, fracking and resource scarcity (though he waxes lyrical about Tesla Motors).
Grantham’s tip, as it were, is that “metals, phosphate and grains will move much higher over future decades.”
