Given his timing, you might be inclined to say that GMO co-founder and portfolio specialist Jeremy Grantham seems to be channeling Ebenezer Scrooge in his latest quarterly letter to investors.
Actually, the investment guru is following up on his comments of earlier this year, outlined in “10 Quick Topics to Ruin Your Summer.” And what he really wants is for investors to grasp real economic trends affecting the U.S. economy.
Grantham admits that nobody wants to hear bad news. However, we need to “be a little more aware of how dangerous our wishful thinking can be in investing,” he explains.
“Wishful thinking and denial of unpleasant facts are simply not survival characteristics,” the portfolio manager wrote in the his letter to GMO investors, posted Wednesday.
So, would-be survivalists, take a deep breath and read on for Grantham’s take on today’s economic reality.
(For those at or near to a holiday party, a glass of spiked egg nog or other libation might make his medicine go down a bit easier.)
1. U.S. Wages Are Lousy
Grantham starts his discussion of facts and figures with “one of [his] favorites.”
“For the 50 years I have been in America, Businessweek and The Wall Street Journal have been telling us how incompetent at business the French are and how persistently we have been kicking their bottoms… and as far as I can tell, we have generally accepted this thesis.”
His first slide, though, shows that France’s median hourly wage has risen 180% in 45 years. Meanwhile, Japan is up 140%, and “even the often sluggish Brits are up 60%,” he notes.
The “killer” is the U.S. median wage. “Dead flat for 45 years!” explained Grantham.
2. Job Creation in the U.S. Ain’t Great
If U.S. wages are weak, we are still the place to be when it comes to job creation, right?
One chart Grantham shares shows that the U.S. unemployment rate for 25- to 54-year-olds is below 5% vs. 9% in the E.U.
However, he cautions, when adjusted for the nonparticipation rate, the percentage of all 25- to 54-year-olds in the U.S. who are not actually working (i.e., those discouraged, uninterested and in jail) is 21%, above 20.5% in the E.U., and our “long-suggested job-creating skills are looking a little thin,” Grantham explains.
3. Participation Has Dropped Off
The problem, according to the GMO portfolio specialist, can be better understood in his third slide.
This shows that the U.S. was a leader in the percentage of women working, for instance.
From 1972 to 1997, the U.S. work force participation rate rose from 70% to 80%.
But while from 1984 on, the U.S. spent 20 years ahead of most other countries in participation rates, something “appears to have gone wrong” after 1997, he says.
Other developed countries kept increasing their participation rates, but that of the U.S. declined “from first to last in fairly rapid order,” Grantham said. “What a far cry this reality is from the view generally accepted by our business world.”
4. Health Care in the U.S. Is …?
Many in the U.S. believe we have the best health care system in the world, Grantham points out. “And why shouldn’t we, given the money we put in … over twice the average cost paid by the E.U.”
Looking at what we get back, however, reveals that we get two years less life than the median, he points out.
“And watch out for when the Turks, Poles and Czechs cut back on smoking,” Grantham adds, noting that this could mean we will “find our way to the bottom of the list.”
5. Some Groups Are Suffering More Than Others
If you really want to worry about the collective state of our health, look at Grantham’s next slide.
It highlights data compiled by Angus Deaton, who won the 2015 Nobel Memorial Prize in Economic Science, and shows the death rate for U.S. whites between the ages of 45 and 54.
Since 1990, this rate has shown “a quite remarkable decline for other developed countries, about a one-third reduction, as you can see, including for U.S. Hispanics. But for U.S. whites there is a slight increase!” Grantham stated.
The general increase is related to increases in deaths tied to alcoholism, drug use and suicide.
“Had the rate for U.S. whites declined in line with the others,” he explained, “there would have been about 50,000 fewer deaths a year!”
Grantham suggests a connection between slide 1, which shows no increase in the U.S. median wage for over 40 years, and slide 5, which shows the uptick in unnecessary deaths among U.S. non-Hispanic whites aged 45 to 54.
“This is precisely the age group that was led to expect better for themselves and much better for their children. But those aspirations have not been generously fulfilled,” he said.