In his recent interview on Straight Talk with Hank Paulson, Jeremy Grantham explained why this market feels like the 1970’s. Here’s an excerpt from the interview:
Grantham: Phase Two, which I really worry about is this whole thing morphing into what I call the 1970s. Underlying inflation as an everyday topic once again. It may not be spiking, in the 70s it came and went, came and went, came, it was always part of the background discussion.
And that’s what I think it will be now for quite a long time, several years, and similarly interest rates were always a worry in the 1970s and they will be a worry for quite a few years to come.
Beyond that, longer term, I worry that we are fairly deep into running out of the cheapest most available resources. I think that turning point was 2002. Between 1900 and 2002 the average important commodity came down 70% in real price adjusted for inflation. And we keep our own index at GMO, 36 most important equal weighted commodities.
This is not dominated by oil. This is looking at the breadth of what is happening to commodities, and then if you look at that again today it is not down 70%, it’s down 10% since 1900, a rounding error.
So it’s gone from down 70, or 30 on an index basis, to 90. It has tripled since 2002. the average important commodity has tripled in real terms since 2002. And I think this is an important problem going forward.
You can watch the entire discussion here:
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One Comment on “Jeremy Grantham: This Market Feels Like The 1970’s”
In the 1970’s it was all about oil. Other commodities, like iron ore, declined because of oil. To reduce oil consumption car companies reduced the weight of cars. As 50% of steel production went to making cars, steel declined so much that it bankrupted most steel companies.
The change since 2002 is an aberration. The late Julian Simon made convincing arguments that over the longer run all commodity prices decline. This because the price follows the cost of production and human ingenuity is always finding cheaper ways to produce commodities.
Of course political decisions can temporarily change the path.