GMO Quarterly Letter

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machinehead's picture
machinehead
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GMO Quarterly Letter

Jeremy Grantham's quarterly letter can be found at the link below. He projects returns on various asset classes. None are very high, but he expects quality large-cap stocks to outperform bonds.

He proceeds to savage the financial industry, pointing out that it constituted 3.0% of GDP in 1965, and that was sufficient. Now it's 7.5% of GDP. Grantham sees this as a useless tax, which slowed growth from 3.5% to only 2.4% after 1980.

Grantham foresees the hapless Boomers having to work till they drop, yet still facing either rationing of health care or higher taxes -- maybe both. Payback time has arrived, he says, and the grey-hairs are gonna get fried. [Maybe they'll dole out medical cannabis so that we'll be too stoned to notice.]

Ending on a dismal note, Grantham says, 'Just over a year ago, I speculated that where we formally had aspired as developed countries to a growth rate of 3.5%, we would now be doing well to reach 2.25% for the next seven years. Fifteen months later, I think we will be lucky to reach 2%.'

http://www.gmo.com/websitecontent/JGLetter_SummerEssays_2Q10.pdf

Doom-doom, doom-doom! By all means, forward this report to some Boomers you know, along with a link to a euthanasia site. Undecided

 

 

yobob1's picture
yobob1
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Re: GMO Quarterly Letter

I am sick of "growth".  The planet with 6+billion people needs "shrinkage" to get to any sort of sustainable model.  I suspect it will happen whether we choose that path or not.  Outside of a giant comet striking DC (sorry about the collateral damage) my only other hope is that the Mayans were onto something with their Dec. 21, 2012 end of period.  It is remarkable that so many celestial events that are once in  hundreds of thousands of years happen to fall on that date.  Our collective body of memory/knowledge is pitifully short in relation to our little solar system's past. 

Anyway good luck with that 2%.  I would suggest that the potential for severe contraction might make that a totally unachievable average.

I'm not waiting for the doling of medical cannabis. I am open to any alternate suggestions from Huey Lewis.

V's picture
V
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Re: GMO Quarterly Letter

MH

Yep no doom and gloom here. This is an optimistic site as I have been told numerous times.

V

PS I always knew I was going to work till I dropped. I just thought there were going to be jobs. Silly me

machinehead's picture
machinehead
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Re: GMO Quarterly Letter
yobob1 wrote:

I am sick of "growth".  The planet with 6+billion people needs "shrinkage" to get to any sort of sustainable model.  I suspect it will happen whether we choose that path or not. 

Projections of global population peaking at 9 billion people in 2050 are disturbing to me too. No one seems to know whether this will exceed the planet's carrying capacity. A lot more research should be devoted to the issue.

In a stable, sustainable population, one would still expect economic growth of about 2% due to human ingenuity, invention, and improving living standards. This would be 'good growth.' 

Unfortunately Jeremy Grantham's 2% growth figure is a mixture of both kinds -- about 1% population growth (in the case of the U.S.) and 1% economic growth. This implies that unemployment remains high for years. That's why it's such a dismal projection.

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yobob1
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Re: GMO Quarterly Letter

I would argue that "growth of about 2% due to human ingenuity, invention, and improving living standards" has already surpassed its usefulness.  We have become perhaps too efficient.  In little more than 100 years we have gone from 50% of the population (in the US) growing all the food down to 3%.  It is the same no matter what production of "goods" you look at.  Tiny percentages of the population produce all the rest need.  In developed economies that leaves very high percentages of people with effectively nothing to do so you end up with a whole lot of pencil pushers, mortgage brokers, ambulance chasers, economists and so on.  Industrialization gave us the machines and electronics gave us the brains to make them "smart".  We are outsourcing ourselves. Already the machines are self replicating - machines building machines with a small amount of human oversight.  In another 50 years they may not need us at all, other than to consume.

However it is a very fragile infrastructure that supports it all - and this is where our little solar system's travel around the Milky Way may come into play.  We are extremely vulnerable to charged particle bombardment.  A single powerful "blast" could effectively act as an EMP destroying not only our satellites and sensitive electronics but also wiping out the transmission grid.  Take out the electricity and the oil stops flowing - can't run pumps pr refineries without juice..  It could take years to replace the parts destroyed and one might ponder what would power the production of those parts?

Simply removing oil from the equation knocks us back to sustainability to a much lower level - that of course isn't a light switch event but more of a slow strangulation projected to occur by peak oilers. Take the electricity out and the problem is much worse and likely more of a light switch event. 

Had this occurred a few hundred years ago, assuming a non lethal particle dose, we might never have noticed.  Today, well you may as well launch every nuke on the planet.

I'm not sure there is such a thing as "good growth" anymore.  I'd sure like to see an alternate economic model that embraces shrinkage and makes our little blue planet a bit more secure.

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Davos
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Re: GMO Quarterly Letter

A few hundred years from now, somewhere, some race will look back at us and call this the moron period.

machinehead's picture
machinehead
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Re: GMO Quarterly Letter
yobob1 wrote:

We are extremely vulnerable to charged particle bombardment.  

DUDE -- that's what tinfoil hats are for! Laughing

Sorry, I'm joking, but I couldn't resist taking a swing at that fat pitch.

Maybe 'growth' is an awkward semantic choice. But the world will enter a post-petroleum era. Human ingenuity is needed to find other sources of power.

'Tiny percentages of the population produce all the rest need.  In developed economies that leaves very high percentages of people with effectively nothing to do.'

When Adam Smith published The Wealth of Nations in 1776, the specialization you're describing looked like the recipe for most people to live lives of permanent leisure. Now you're deploring it as a dystopia. I understand what you're getting at -- it can be spiritually disillusioning when everyone feels like a tiny cog in a huge impersonal machine. But reverting to a feudal existence where we spend 14 hours a day growing our food and making our own soap, while the womenfolk pedal the spinning wheel and labor at the loom, is likely to leave us equally dissatisfied, not to mention poorer.

Yet the word 'growth' also is used in connection with spiritual development, which seems to be the atrophied aspect of our progress.

To my understanding, the current interglacial period which started about 12,000 years ago has already lasted 2,000 years longer than normal. A colder, reglaciated earth definitely is going to have a smaller population. Preparing for and surviving that transition is going to require an awful lot of ingenuity and economic surplus, whether we call it 'growth' or not.

Forget economics -- thermodynamics rules!

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yobob1
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Re: GMO Quarterly Letter

Are there no choices but "progress" or return to feudalism?  Me thinks there's a happy medium somewhere - but that could be the tinfoil screwing with my brainwaves.   The question remains, can we find a profitable economic model for shrinkage where less is really more?  Is it possible that may create more "leisure time" than the current two incomes /daycare / live on credit to get by model?  If everyone wasn't spending 20% of their labor to generate the interest and another 30%+ to pay taxes they owed, we would be making a small step in the right direction. For me the solution lies in smaller govt and a society that saves instead of operating on future income.

As to the overdue glaciation - our records are sketchy and obviously built on circumstantial evidence.  Again we know virtually nothing about how solar system's position relative to our galaxy has affected the past or how it might affect us in the future.  How important that the previous solar cycle rather lengthy extension and extremely weak start to the current cycle is, remains to be seen - it is stating to look a bit like the Maunder Minimum and beyond that we really have no knowledge of the Sun's cycles.  What can a few hundred years our of 4.5 billion tell us?

I laud your hope that we will prepare for and survive the next "big one", but so far mankind hasn't really shown the ability to do that effectively.  Were we that "smart", we probably wouldn't be in the pickle we're in now.  I suspect that adaptation and survival will be more of an individual thing as opposed to any group effort.

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