Why we need financial doomsayers
There’s no shortage of local writers adding to Boston’s rich literary tradition, but the one whose latest opus I read most eagerly these days is Jeremy Grantham. This is a continuing surprise to me because Grantham — cofounder of GMO, a global investment management firm that handles $120 billion in client assets — writes for an audience I don’t belong to: people who think a lot about investing. I confess to having little native curiosity about even the most elementary aspects of the stock market’s functioning or Fed policy.
My interest in finance hits the wall at adequate shelter and food plus a decent school for the kids, and I don’t really know what happens to my paycheck after I turn it over to the missus.
So why do I pounce on and devour Grantham’s quarterly letter to investors the moment it shows up in my inbox?
To begin with, he’s a doomsayer, a Cassandra with a bracingly clear vision of looming difficulties that most of us would prefer to ignore. I appreciate doomsaying as an art form, especially when it’s a corrective to the widespread assumption that the last couple of hundred years of cheap-hydrocarbon-fueled economic growth can just go on forever.
Grantham’s latest quarterly letter, released this week, offers a sobering market prediction of another 10 percent or so of growth into “bubble territory (which starts . . . at 2250 on the S&P 500 on our data) before crashing as it always does.” Grantham’s a well-known connoisseur of bubbles, so that’s the takeaway the financial press will seize on, but it’s just an appetizer before the main course, a section entitled “The Beginning of the End of the Fossil Fuel Revolution (From Golden Goose to Cooked Goose).”
This is Grantham’s great world-historical theme, to which he regularly returns. We “owe almost everything we have had in the way of scientific and economic progress and the growth of the world’s food supplies and population to fossil fuels” that “could be captured extremely cheaply,” but the party’s just about over. “As a sign of the immediacy of this problem, we have never spent more money developing new oil supplies than we did last year (nearly $700 billion) nor, despite US fracking, found less — replacing in the last 12 months only 4½ months’ worth of current production! Clearly, the writing is on the wall. It is now up to our leadership and to us as individuals to read it and act accordingly.”
Factor in soil erosion and the increasing scarcity of elements like phosphorous and potassium that are “necessary to all life,” and we’ve got a lot of adjusting to do. Not only do we have to drastically conserve fossil fuels while we develop other energy sources, but we have to do something meaningful about climate change and resource limitation while getting used to the end of growth as we know it.
Academics and environmentalists have been telling us this for years, but we’re not used to hearing it from Wall Street insiders. Grantham’s ice-bath clarity, coming from a self-described fat cat, gives me some faint hope that the currently infantile conversation about economics and the planet being conducted by our money-handlers and elected leaders, many of them awash in the oil money that lubricates our political system, might someday advance beyond the notion that we can’t do anything about the long term for fear of inhibiting short-term growth.
Clear, forceful, disciplined thinking like Grantham’s seems obvious when you read it, but it makes much of what everybody else is saying on the same subject seem twisted and bizarre. Grantham’s quarterly letters, wry and measured in tone and solidly based on well-presented data, feel like an antidote to the magical thinking purveyed by Congress and hysterically optimistic stock-pickers.
Grantham’s long-view investment philosophy centers on the principle that prices eventually revert to the mean, and his bemused view of human nature centers on a similar reversion to the behavioral mean. We want to hear good news and assume that present conditions will persist, we tend to be bad with numbers and uncertainty, and we take comfort in short-term-oriented herd behavior of the sort that characterizes the financial industry. We need doomsayers like Grantham to counteract these tendencies.
Carlo Rotella is director of American studies at Boston College. His latest book is “Playing in Time: Essays, Profiles, and Other True Stories.’’