Legendary Investor Jeremy Grantham
“concludes that the world has undergone a permanent "paradigm shift" in which the number of people on planet Earth has finally and permanently outstripped the planet's ability to support us.
Specifically, Grantham says, the phenomenon of ever-more humans using a finite supply of natural resources cannot continue forever--and the prices of metals, hydrocarbons (oil), and food are now beginning to reflect that.
In other words, Grantham says, it is different this time.
Grantham believes that the trend of the last 100 years, in which the prices of almost all major commodities have steadily declined, is permanently over. And from here on in, humans will be competing more--and paying more--for ever-scarcer resources…
Until about 1800, our species had no safety margin and lived, like other animals, up to the limit of the food supply, ebbing and flowing in population.
- From about 1800 on the use of hydrocarbons allowed for an explosion in energy use, in food supply, and, through the creation of surpluses, a dramatic increase in wealth and scientific progress.
- Since 1800, the population has surged from 800 million to 7 billion, on its way to an estimated 8 billion, at minimum.
- The rise in population, the ten-fold increase in wealth in developed countries, and the current explosive growth in developing countries have eaten rapidly into our finite resources of hydrocarbons and metals, fertilizer, available land, and water.
- Now, despite a massive increase in fertilizer use, the growth in crop yields per acre has declined from 3.5% in the 1960s to 1.2% today. There is little productive new land to bring on and, as people get richer, they eat more grain-intensive meat. Because the population continues to grow at over 1%, there is little safety margin.
- The problems of compounding growth in the face of finite resources are not easily understood by optimistic, short-term-oriented, and relatively innumerate humans (especially the political variety).
- The fact is that no compound growth is sustainable. If we maintain our desperate focus on growth, we will run out of everything and crash. We must substitute qualitative growth for quantitative growth.
- But Mrs. Market is helping, and right now she is sending us the Mother of all price signals. The prices of all important commodities except oil declined for 100 years until 2002, by an average of 70%. From 2002 until now, this entire decline was erased by a bigger price surge than occurred during World War II.
- Statistically, most commodities are now so far away from their former downward trend that it makes it very probable that the old trend has changed – that there is in fact a Paradigm Shift – perhaps the most important economic event since the Industrial Revolution.
- Climate change is associated with weather instability, but the last year was exceptionally bad. Near term it will surely get less bad.
- Excellent long-term investment opportunities in resources and resource efficiency are compromised by the high chance of an improvement in weather next year and by the possibility that China may stumble.
- 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.
- We all need to develop serious resource plans, particularly energy policies. There is little time to waste.”
“JEREMY GRANTHAM: We're Headed For A Disaster Of Biblical Proportions”
Henry Blodget, businessinsider.com, 6/13/11
Legendary Investor Jeremy Grantham has never been shy about expressing shocking and/or unpopular Views.
And his views are often correct, as testified to by his extraordinary Investment Success.
And while we do not always agree – the evidence is that the recent run-up in food and energy prices is at least as much a product of Fed Money Creation via QE 1 and QE 2 and the Fed’s other “vehicles”, as it is of the population growth and consequent resources shortage syndrome, which Grantham describes.
But for the mid and long term, Grantham is likely correct that a paradigm shift has occurred – inexorably rising world Population coupled with finite and/or not easily replaceable supplies of key resources, is bound to generate a long term trend of sustained commodities price increases.
Moreover, Population Growth in Major Developed and Developing Nations which have the financial wherewithal to obtain food and other resources, is dramatically increasing. The USA’s Immigration-generated 4 Million/Yr. Population Growth puts the U.S. on Trend to reach a billion people by 2075. And China’s 20 Million/Yr. Growth on top of its 1.3 billion population will Make it a Resource Hog for Years to come.
In addition, one point Grantham mentions, but does not emphasize enough, is the Energy Intensive Character of Modern Agriculture.
Nor does he emphasize Agriculture’s Reliance on Portable (i.e. typically Petroleum based) fossil fuels.
The Bottom line is that the New Paradigm long-term Uptrend is Commodities Price Inflation.
Indeed, the Commodities and General Price Inflation (and other Key Indicators such as unemployment) we are already seeing, is not accurately reflected in the Bogus Official Numbers.
As the Chart in the Note Below** shows, Real U.S. Inflation is 11.15% (and Real Unemployment at 22.3%).
**Shadowstats.com calculates Key U.S. Statistics the way they were calculated in the 1980s and 1990s before Official Data Manipulation began in earnest. Consider
Bogus Official Numbers vs. Real Numbers (per Shadowstats.com)
Annual U.S. Consumer Price Inflation reported June 15, 2011
3.57% / 11.15 % (annualized May, 2011 Rate)
U.S. Unemployment reported June 3, 2011
9.1% / 22.3%
U.S. GDP Annual Growth/Decline reported May 26, 2011
2.31% / - 2.60%
U.S. M3 reported June 18, 2011 (Month of May, Y.O.Y.)
No Official Report / 1.85%
Unfortunately, Policies of the Private for-profit Fed, the U.S., and other Major Governments have generally exacerbated rather than helped solve the basic economic problems: too much debt, too much Fiat currency printing, and stimuli and bailouts which have focused nearly solely on helping the Mega-Banks and not on helping Main Street, Small Business, and Households.
Justice Litle summarizes this well:
“The stimulus-driven recovery was an illusion. All it did was pump up risky assets and get investors excited. The real problems of the global economy were never addressed. The market is being forced to realize that now.
In the United States, those real problems center around debt-laden consumers and a massive housing bubble. The U.S. economy is 70% driven by consumer spending. Consumers borrowed until their debt loads got way out of control, egged on by cheap mortgages and a housing bubble created by the Federal Reserve.
And that shows why all the "funny money" thrown at the market by the Federal Reserve hasn't helped at all. It hasn't done anything to help consumers reduce their huge debt loads. And it hasn't stopped the housing market from falling.
We saw a big rise in corporate profits after the 2008 financial crisis. But, ironically, that rise actually hurt consumers -- and made the pain worse for a majority of Americans -- because corporations bounced back by shedding jobs, moving operations overseas, and undergoing heavy cost-cutting programs.
All that the stimulus did was put profits back in the pockets of banking executives. The economic data is confirming it now -- we're really no better off than we were before. Worse off even, because of all the extra debt the government has taken on.
In Europe the situation is even worse. The European situation has literally become "impossible." Consider the question of whether or not Greece (or Ireland or Portugal) will default:
- If Greece and the other PIGs actually default, a "Lehman 2.0" credit event could rip through the eurozone and cause mass panic. Moody's just downgraded a number of large French banks in fear of this possibility.
- If Greece does not default, on the other hand, then Greek society threatens to explode because the "austerity" conditions forced upon the populace are too severe.
The choice of Greek politicians (and Irish and Portuguese and Spanish too) comes down to this: Take measures that risk blowing up the eurozone financial system... or do nothing and watch civil society go up in flames.”
“Macro Trader Briefing #120: "Risk Off" Could Dominate Everything Now”
Justice Litle's Macro Trader, 6/15/11
Litle’s analysis is essentially correct and, considered in conjunction with the Realities of Markets and Statistics manipulation referred above, and below, provide the basis for a Key Inference.
The New Paradigm Uptrend in Commodities and other Prices in-General will be punctuated, especially near term, by Periodic Sharp Drops in those prices caused by
- Deflation Events and
- Cartel* Markets Manipulation
- Government Markets Manipulation
Regarding #1 for example, the anticipated Greek and other PIIGS Eventual Defaults will likely Take Down some Mega-Banks. This will cause a loss of confidence in the Markets and Take Down Equities and Further slow the Economy, resulting in a temporary reduction in Commodities demand and thus Prices.
But that will not derail the Long term New Paradigm Commodities Uptrend.
Other Hits to this Uptrend will be suffered when the Cartel* intensifies it attacks on the Precious Metals and other Prices.
The recent report by Chris Woods, publisher of Fear & Greed, that a vice-Governor of the Belgian Central Bank admitted that 43% of its 216 tonne Gold reserves had been lent out (!), is yet another item of evidence (of many we have previously published) that a Fed-led Cartel of Central Bankers regularly acts to suppress Precious Metals Prices.
*We encourage those who doubt the scope and power of Overt and Covert Interventions by a Fed-led Cartel of Key Central Bankers and Favored Financial Institutions to read Deepcaster’s December, 2009, Special Alert containing a summary overview of Intervention entitled “Forecasts and December, 2009 Special Alert: Profiting From The Cartel’s Dark Interventions - III” and Deepcaster’s July, 2010 Letter entitled "Profit from a Weakening Cartel; Buy Reco; Forecasts: Gold, Silver, Equities, Crude Oil, U.S. Dollar & U.S. T-Notes & T-Bonds" in the ‘Alerts Cache’ and ‘Latest Letter’ Cache at www.deepcaster.com. Also consider the substantial evidence collected by the Gold AntiTrust Action Committee at www.gata.org, including testimony before the CFTC, for information on precious metals price manipulation. Virtually all of the evidence for Intervention has been gleaned from publicly available records. Deepcaster’s profitable recommendations displayed at www.deepcaster.com have been facilitated by attention to these “Interventionals.” Attention to The Interventionals facilitated Deepcaster’s recommending five short positions prior to the Fall, 2008 Market Crash all of which were subsequently liquidated profitably.
But these Price Suppression Attacks provide a Great Opportunity to Profit and Protect from the Coming Anarchy. An Opportunity to buy Fortress Assets such as Gold, Silver, and Key Commodities, at temporarily reduced prices. Deepcaster just this week issued another Buy Recommendation on one such Asset.
Gold and Silver Investors should also invest in selected Food Producers and those Involved in the Water Treatment/Supply Business, but at the Right Time, because the Factors which help cause Gold, Silver and Crude Oil Prices increases, will also continue to impel Food Price increases, almost regardless of Economic Conditions.
Thus, Deepcaster recently recommended two such Food Producers and one Water Producer and Management Company***, all of which we believe to be deeply undervalued (one is trading at under $6/share and the other two under $2/share), in our recent Letters and Alerts.
One is China’s largest producer and Seller of Fresh Fruits and Vegetables. It also grows Rice and breeds and sells livestock and has over 20,000 employees. It recently had a P/E Ratio under 4 and profits have grown over 20%/yr. As we write it is trading at around 60 cents per share U.S. or just below $5 HK, near its 52 week low.
Investments in Precious Metals and Key Commodities for which there is relative inelasticity of demand, such as Food and Food Producers is an important Strategy to help protect from the Coming Anarchy.
Best regards,
Deepcaster
June 23, 2011
***To Consider these three “Best of the Best” Food Sector Core Position Investments, read our March Letter – “Main Gold, Silver & ‘Sleeper’ Sector Price Movers; ‘Sleeper’ Buy Reco.; Forecasts: Gold, Silver, Equities, Crude Oil, U.S. Dollar, and U.S. T-Notes & T-Bonds; March 2011 Letter”, and our Alerts – “Golden Green Opportunity Buy Reco.; Forecasts: Commodities, Gold, Silver, Equities, Crude Oil, U.S. Dollar, and U.S. T-Notes & T-Bonds” (week ending February 4, 2011) and “Eye of the Storm; ‘Liquid Gold’ Buy Reco.; Forecasts: Gold, Silver, Equities, Crude Oil, U.S. Dollar, and U.S. T-Notes & T-Bonds” (week ending February 11, 2011) in the ‘Alerts Cache’ and ‘Latest Letter’ Cache at www.deepcaster.com.
