Wall Street, China readying for lower growth rates

By Jim Cummings

This week’s Sunday Times features a profile of Jeremy Grantham, one of the country’s more successful asset managers, whose last two quarterly letters to investors (widely read in the financial world) have shed some decidedly mainstream light on ideas that will be familiar to NI clients.  In particular, he’s stressing that we’ve overshot the earth’s carrying capacity, and that we’re entering an era of limited growth potential, driven largely by the fact that natural resources of all kinds are no longer simply there for the taking – we’re not talking just peak oil, but “peak everything,” from metals to key agricultural nutrients like potassium and phosphorus.

On a practical level, Grantham sees commodity prices rising nearly across the board (so urges buying in now); on a social level, he feels the US 2010 Congress missed what may be our best opportunity to address global warming, but notes that “People are naturally much more responsive to finite resources than they are to climate change. Global warming is bad news. Finite resources is investment advice.” He believes this shift in emphasis plays to Americans’ strength. “Americans are just about the worst at dealing with long-term problems, down there with Uzbekistan,” he said, “but they respond to a market signal better than almost anyone. They roll the dice bigger and quicker than most.”

The Times article goes on to note:

…among the ways investors might respond to limited resources, beyond simply trying to grab up a lot of what Grantham calls “stuff in the ground,” are many that also address climate change: for instance, investing in farms and forests managed for the long haul, or in companies that retrofit buildings for energy efficiency, build ultralight vehicles or develop non-hydrocarbon-based power.“There’s an 80-20 overlap between sensible behavior on resource limitation and sensible behavior on climate change,” Ramsay Ravenel, the executive director of the Grantham Foundation, says. “A lot of his audience isn’t that receptive to messaging on the world’s environment going to hell, but they are receptive to resource limitation.”

Well, all we can say is that we welcome any and all mainstream investors on to the “build the new economy” bandwagon that SRI and NI have been part of for the past twenty years!

The awareness that the era of growth-driven economics may be coming to a close around the world also popped up recently in James Fallows’ most recent piece on China for The Atlantic; the article focuses mostly on unrest bubbling beneath the surface there, but notes that the need to hit the brakes on the unbridled economic growth that’s been at the heart of China’s society for the past decade or two is one of the key concerns of leaders there:

A well-known economist in China, who asked not to be named, said that the government was worried precisely because it understood the difficulties of the economic adjustments ahead. “There is increasing awareness of how out-of-control the growth model has become, and it will require a sharp adjustment involving a growth slowdown,” this person said. “The more aware the leaders are of the strains in the economy, the more worried they are about the difficulty of the adjustment”—mainly through layoffs, bankruptcies, and other economic shocks.

You’ll be hearing much more from all of us here at NI about adjusting our long-term pictures and investment planning to reflect the reality that the human economy cannot expand indefinitely on a planet with finite resources. For now, check out these two earlier posts from James Frazier in which he began the conversation.

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Jim Cummings

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