Grantham's words of wisdom: Part I - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Grantham's words of wisdom: Part I

Mar 20, 2013

A little boy walking around the historical Roman fort in the English town of Doncaster, perhaps would have never thought that he would become a commanding authority in investments. It wouldn't be unreasonable to assume that he had not heard about the word, Economics. The little boy grew up. He became a student of Economics with The University of Sheffield, UK. Post completion of the degree, he started working with Royal Dutch Shell. It was here that his fascination with 'oil' began. Later on, an MBA from Harvard sharpened his finance and investment skills. Finally, in 1977 he became the co-founder of the Boston, US head-quartered firm, Grantham Mayo Van-Otterloo, popularly known as GMO. Yes, we are talking about none other than the legendary British investor, Jeremy Grantham.

Equitymaster presents the legend's views on three aspects. Those were revealed on the Charlie Rose show held in this month. The first part of the three series article would present Grantham's views on US economic growth, China's rise and its impact on resources. The second part on Grantham's experience in spotting 'market bubbles' and navigating safely through them. The third and final part would focus on his views on the elevated debt levels prevailing in America.

Views on US Economic Growth, China's rise and its impact on resources

Jeremy Grantham was categorical in pointing out that the premise of US reverting back to 3% growth level is a myth. He believes that the current US population growth in the range of 0.2-0.3% is here to stay. Further, productivity of the average US worker has dwindled over the years. In the last thirty years, productivity has been 1.3% a year. The figure had ranged between 1.7% and 1.9% in the forty years post World War II. Thus, even if one holds the productivity figure constant at 1.3%, the GDP growth works out as 1.5%. That is a far cry from 2.5% to 3% growth, projected by the IMF and World Bank.

Commenting on natural resources and their price levels, Grantham added that when the price of natural resources was declining as it did for a 100 years up until about 2000, people were effectively more well-off. The GDP growth was reflected by more of 'value addition' than 'cost of natural resources'. However, between 2002 and 2008 commodity prices shot up steeply. The rise was enough to compensate the fall that had happened in the 100 years till 2000. That was because of an enormous surge in China. China today consumes 53%, 47% and 46% of the world's cement, coal and iron-ore production respectively. So, even if China's growth rate stalls at 7% per annum, it will still continue to gobble up resources in huge quantities. That is the reason why 'oil' which averaged at around US$25 a barrel in 2000 is currently above the US$100 mark. Grantham believes that the long term range of oil in the 'new world' would be around US$ 80-85.

We agree with Jeremy Grantham on both counts. Much of the growth in the US in the past couple of decades had been debt and credit fuelled rather than being productivity driven. And with saturation having reached as far as credit is concerned, the US will have to settle for the new normal of lower growth rates.

Further, investors should also accept the fact that commodity prices have reached a higher plateau on a permanent basis. Thus, they will have to try harder than ever to reduce its impact on margins and improve quality of earnings.

Grantham's words of wisdom - Next article | All Articles

Equitymaster requests your view! Post a comment on "Grantham's words of wisdom: Part I". Click here!

  

More Views on News

These Stocks Have Rallied Over 300% In the Last 12 Months. Is the Rally Justified? (Views On News)

Nov 12, 2021

As many as 150 stocks from the BSE 500 index deliver multibagger returns in the past one year.

Ultimate Guide to Hedging Your Portfolio (Fast Profits Daily)

Sep 21, 2021

How can you protect your portfolio in a market crash? Find out in this video.

Ride the Indian Real Estate Revival with this 'Different' Smallcap Stock (Profit Hunter)

Mar 23, 2021

Affordability in the housing segment has never been so good in last one and a half decade. Here's how you could make the most of it...

My Latest Stock Recommendation (Fast Profits Daily)

Oct 9, 2020

How I picked an exciting stock using trends from both the commodity and equity markets.

Data is the New Oil but It's Also the New Sugar. Here's How to Fight it (Profit Hunter)

Jun 1, 2020

Is too much data hurting your quest for market beating returns?

More Views on News

Most Popular

Commodities Trading: From Pits to Screen

Trading in commodities is perhaps as old as the human civilization. Find out how it will unfold in the future

Infosys vs TCS: Which is Better? (Views On News)

Nov 26, 2021

In the post pandemic era, the top two IT companies in India are fighting to capture the growing demand for IT.

This Multibagger Stock Zooms 20% After Dolly Khanna Buys Stake (Views On News)

Nov 24, 2021

Shares of this edible oil company zoomed over 50% in three days after ace investor bought around 1% stake.

6 Popular Stocks that Turned into Penny Stocks (Views On News)

Nov 27, 2021

A look at popular stocks that crashed big time and never recovered, i.e. which went from 'Multibaggers to Multibeggers'.

India's Top 5 Monopoly Stocks to Watch Out for (Views On News)

Nov 30, 2021

These 5 companies dominate their sectors with a huge piece of the pie.

More

Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

MARKET STATS