For his ability to move markets and shape ideas and policies,
added GMO's Jeremy Grantham to its 50 Most Influential list.
Grantham predicted bubbles in Japanese stocks in 1989 and U.S.
stocks in 2000, and risk assets in 2007.
Now he has a new prediction.
recently caught up with the famed investor. Apparently, the first
words out of his mouth were, "I think next year will be a
Grantham listed a few of the worries he has heading into 2013.
One concern on his list is China. He believes the country will
continue to slow next year.
The U.S. fiscal cliff also worries him. But he doesn't believe
that's the only problem with America. Grantham expects U.S. GDP
will slow more than expected as Europe and China begin to
Additionally, Grantham notes that returns during the first year
of the presidential term are often low. The Fed and government
often try to get things in order during the first year, resulting
in low returns. There will be no shortage of work to accomplish
Grantham elaborates, "History is quite clear. There has been, on
average, no money made in year one and two after a Presidential
election going back to 1932, after you adjust for inflation. All
the money is made in year three with an adequate return in year
four." His explanation for the gains in the last two years is
that year three will typically offer stimulus and year four is
the beneficiary of loose policy during year three.
In addition to the budget crisis, he thinks that the Fed may
surprise investors. Everyone is under the impression that
interest rates will be low for many years. Grantham notes that
when everyone passionately believes in a single outcome, an
tends to unfold.
A global slowdown, fiscal cliff, Fed surprise and generally low
returns during year one of a president's term may make it a rough
year for investors. However, he fears one thing more than the
Grantham fears many things heading into next year, but
commodity scarcity tops his list.
The prices of raw materials are accelerating higher. Nearly
every commodity has tripled in value since 2002. Though the
ascent has been parabolic, Grantham doesn't believe it's a bubble
… and that's what worries him. He believes that commodity prices
are going higher because we're running out.
He claims the biggest danger to our society will be food prices
and food costs. He also noted that growth in the productivity of
grains has fallen to 1.2% per year. This rate exactly matches
population growth, leaving society with no safety margin.
However, the rise in food costs and decline in crop growth
isn't Grantham's biggest long-term worry.
Grantham is distressed most about a coming shortage of two
fertilizers: phosphorus and potassium. Fertilizer supplies are
dwindling rapidly. And farmers are more reliant than ever on
fertilizer to replenish crop soil.
Potassium and phosphorus are necessary to grow crops and
livestock. Moreover, phosphorus and potassium occur exclusively
in nature. We cannot manufacture them. Once the supply is gone,
it's gone forever.
It's clear we need these commodities in order to survive. And we
appear to have no replacements. Despite Grantham's more than $99
billion in assets, he can't get an answer from anyone about what
happens when we run out. He claims to have received only one
conclusion - if we don't reduce our usage over the next 20 to 40
years, we'll starve.
This is nothing new, though. Grantham has been concerned about
food scarcity for years, so it's logical that he's bullish on
investments in natural resources. He advises targeting a 30%
allocation to resources, with 15% in forestry, 5% in efficiency
investments and 10% in "stuff in the ground."
Some of his prominent stakes at GMO include
Exxon Mobile (
Vale S.A. (
Canadian Natural Resource (
. Additionally, my premiere stock service,
Top Stock Insights
, recently added a natural three natural resource companies … one
of which is a nat gas stock that may be more than 40% undervalued
if Grantham's scenario plays out.
Author owns no holdings in companies mentioned above.