Our Chat With Jeremy Grantham – The Wall Street Journal 09-20-13

Salient to Investors:

Jeremy Grantham at GMO said:

Commodity prices fell for a hundred years by an average of 70 percent, and then from 2002 basically everything tripled and regained the whole decline in 6 years – tobacco was the only commodity that fell. The game changed because of the ridiculous growth rates in China whose 1.3 billion people use 45 percent of the coal used in the world, 50 percent of all the cement and 40 percent of all the copper.

The most important, valuable and critical commodity is phosphate or phosphorous, which is necessary for all living things. Yet we are mining and depleting it. 85 percent of the low-cost, high-quality phosphorous is in Morocco and belongs to the King of Morocco, and the rest of the world has 50 years of reserve if we don’t grow too fast.

I would own stock in the ground, great resources, reserves of phosphorous, potash, oil, copper, tin, zinc, but aluminum and iron ore less so because there is so much. I would not own coal or tar sands because it is hugely expensive to build coal utilities, and plants for tar sands are massive. So before they get their money back, the price of solar and wind will have come down so much.

The pressures on food are worse than anything else, so invest wisely in very good farmland, though it has had a big run and you can never afford to ignore value. Look for farmland in distinctly stable countries like Australia, New Zealand, Uruguay, Brazil, Canada, and the US. Forestry is a little overpriced but we are in a world where everything is overpriced because of incredibly low interest rates that push people into investing.

A career politician has a very short horizon and is not interested in problems that go out five or 10 years, as are corporations because a dollar in 10 years has a much lower value than a dollar today. The oil industry is making a bundle so does not want to change to a system that recognizes climate change and the need to have a tax on carbon.

With politicians so dependent on campaign contributions from the vested interests, the financial world, but more particularly the energy world, it is a miracle anything gets done.

The central idea in the stock market is patience and value and mean reversion and in society, it is resources and climate damage.

The market can go a lot higher with the Fed pushing it – to yet another real bubble, like the one in 2000 with Greenspan, the housing bubble and financial bubble with Bernanke and Greenspan.

America and Australia are the two very, very optimistic-biased societies. Mention housing bubble to Australians, they hate you for years! Optimism is very useful in enterprise, in start-ups because when the smoke clears, you end up with the Amazons and the Googles – we just throw more darts at the dartboard. But the downside is only 10 percent survive, but they all think they’re going to win.

Read the full article at http://online.wsj.com/news/articles/SB10001424127887323665504579032934293143524

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GMO’s Jeremy Grantham on Climate Change and Investable Ideas – BloombergBusinessweek 08-08-13

Salient to Investors:

Jeremy Grantham said:

  • The biggest issue we face is deterioration of the environment, particularly climate damage. In the US, the biggest problem is coal and tar sands.
  • If we burn half or more of the coal and tar sands in two areas in North America, there is no chance of avoiding very dire consequences: rising water levels displacing hundreds of millions of people globally, destabilizing global politics, acidification of the water almost certainly destroying most of the coral reefs, and possibly threatening the bottom of the food chain in the ocean.
  • In the investment business, our No. 1 job is not managing money but keeping our job, which is why short-term momentum investing dominates. Scientists do the same and make sure they’re conservative.
  • Young people are not flocking quite so enthusiastically to the financial world. They haven’t responded to climate change despite it happening so fast that this is their lives, not their children’s.
  • The only investable idea I have confidence in is farming and forestry.
  • Holistic is the world’s most pretentious word.
  • We have been manipulated to see ourselves in a world where only debt matters, only finance matters, only banking matters and therefore we have to be protective of the big banks.
  • The US will prosper by the quality and quantity of our labor and capital. How the Fed twitches around has no material effect.
  • I try not to miss the big ideas and forget the little ones.

Read the full article at  http://www.businessinsider.com/jeremy-grantham-on-the-fed-2013-8

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6 Outrageous Predictions For 2013 – Seeking Alpha 01-21-13

Salient to Investors:

Doug Short at Advisor Perspectives writes:

  • Statistics says that 99.7% of all daily movements should fall within three standard deviations of the mean, but Deutsche Bank research shows that three standard deviation movements are not as rare – some instances, like the 2008  financial collapse, happen over 25% of the time. So bet on the unexpected happening much more frequently than everyone else. John Templeton said it is impossible to produce superior performance unless you do something different from the majority.
  • We psychologically gravitate toward predictions that jive with our own personal convictions and seek out information congruent with our own beliefs.
  • The rally in Japanese stocks will continue. Byron Wien at Blackstone expects the Nikkei 225 to rise above 12,000 as exports improve and investors return.
  • Congress will pass a budget. Stocks will rise more than 15%.
  • Deutsche Bank said stronger equities may be the necessary tonic to further increase household wealth: and the Fed can take more extreme actions in ‘unusual and exigent circumstances.’
  • Morgan Stanley says inflation could be triggered by a combination of drought-limited agricultural production, stronger-than-expected recoveries from China and the US, and ballooning central bank balance sheets. Inflation hedges include gold, silver, timberland, real estate and, best of all, stocks.
  • Deutsche Bank said Greece has sizeable undersea terrain in the Mediterranean, and several Mediterranean countries have already discovered undersea natural resources. The Global X FTSE Greece 20 is up 60% over the last 6 months so is a momentum play.

Read the full article at http://seekingalpha.com/article/1122511-6-outrageous-predictions-for-2013?source=email_macro_view&ifp=0

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Lumber May Fall 25% After Leading Commodities in 2012 – Bloomberg 12-31-12

Salient to Investors:

Lumber prices through Dec. 28 have risen 47 percent in 2012, heading for the biggest annual gain since 1993.

Paul F. Jannke at Forest Economic Advisors expects lumber futures to tumble as much as 25 percent from a 7-yr high due to output increases in Canada.

Scotiabank says lumber is its top commodity pick for 2013 because rising demand in the US and China will strain tight supplies. China consumes 10 percent of the world’s softwood lumber.

Patricia Mohr at Scotiabank predicts the average cash price of lumber to be $360 per 1,000 board feet in 2013 versus $298 in 2012.

Shawn Hackett at Hackett Financial Advisors sees a tremendous crash in the lumber market as its way overdone to the upside – Chinese demand is ebbing because builders made regular purchases in half2 2012, and rising production in North America will drive prices lower in 2013.

Read the full article at http://www.bloomberg.com/news/2012-12-31/lumber-prices-may-tumble-25-after-leading-commodities-in-2012.html.

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