Jeremy Grantham: the last 250 years were a bubble due to cheap energy and prior to that every civilization collapsed


Jeremy Grantham is the cofounder and Chief Investment Strategist of Grantham Mayo van Otterloo (GMO), a large asset management firm, with $106 Billion under management (wikipedia bio). In an interview with Charlie Rose he discusses resource constraints, environmental destruction, lowered economic growth trend-lines, historic bubbles, economic theory and policy, and government intervention. Watch it here, or read the transcript by Devon Shire.

Quotes from the transcript:

“Last 30 years, productivity has been 1.3 percent a year. And in the 40 years before that, after World War II it was 1.7,1.8, 1.9 — so it`s actually decelerated.”

“And in total the typical commodity dropped by 70 percent over a hundred years. And then it turned on a dime and gave the whole 100 years back between 2002 and 2008. In six years it gave back a hundred years of decline. It went up more steeply than it did in World War II.”

“China uses 53 percent of all the cement used on the planet — not traded, just used. They use 47 percent of all the coal,46 percent of all the iron ore. These are unimaginable numbers. And if they mean to even slow down to seven percent, it means 10 years from now we`ve got to find another 47 percent coal, just for China.”

“But if we mean to dig all the coal and we mean to scrabble through the tar sands, extremely costly and utterly ruinous environmentally, not just carbon dioxide but just terrible things that they are doing to our earth, then we`re toast. We have no chance.”

“We had spent let`s say 12,000 years living with our noses pushed up against the boundary of food supply. And sometimes there would be four or five bad years and they would die. And sometimes they would have a great run of 20 years and they would multiply. But that was the determining factor, like a rat population. We just move back and forth and right up until his time. And the — the terrific irony is as he is signing his book which is 1798, they`re digging the first coal.So that — the coal and then oil & gas bought us a time-out, an amazing, but short time-out which will probably be about 250 years in which you have almost infinite energy, a gallon of gasoline is — is something like 200 man hours of labor.”

“And the scary thing about phosphorous which really does give me goose bumps though, whenI think about it, it`s — it`s an element. You can`t make it. You can`t substitute for it and no living thing — humans, animals, vegetables, everything needs phosphorous to grow. You can`t grow anything without it, and we are mining it in what we call big AG, big agriculture. We`re mining it. It`s a finite resource, now that should make you pretty scared. And you can calculate how long it will take to run out. And if you were for a second to takeout one country, Morocco, and say we will ignore their wonderful, cheap, high quality reserves, a dried up ocean,incidentally, how much have we got left?And the answer is at two percent a year growth to allow the Chinese to eat a bit of meat now and then we`ve got maybe 50 years.”

“We never started to develop this kind of arrogance that we can do anything with the infinite capacity of the human brain until coal and oil gave us this Superman power.

“…we would have continued to have grown the science like it was growing in the time of, you know, Amsterdam and so on. In other words, doing nicely in these little pockets of wealth, making nice scientific advances, progressing slowly, building the odd canal and chopping all our trees down; we would have been in tree hell within 100 years.”

“Before the last 250 years, before coal –what came along was the collapse of the civilization. One after another they seem as one author has said to be hard wired to self-destruct. hey develop a kind of chutzpah, an arrogance in the belief of what they can do. The Roman empire, or Mayan empire we can do this. Our scientists, our workers, we can build viaducts we can get the job done. And they overreach, the weather turns against them, et cetera, et cetera, and they collapse. Not one or two, every civilization collapsed. And now we have a global civilization but we have this amazing gift of 250 years of accumulated sunshine.”

“OK. We have two gifts that none of those hundreds of failed civilizations had, that might –it`s quite undeserved, incidentally, it`s pure luck — might get us off the hook. And one of them is the fertility rate. Malthus never dreamt for a second that as people got richer they would volunteer to have fewer children.”

“The second good reason, I have so few good points you`ve got to let me get my two good points in. And that is alternative energy. Every wave of technology has been — has required a wave of energy. Here we have a wave of technology that does exactly the reverse. It suppresses the demand on our finite resources of coal and oil. Every time you have a brilliant new idea, an IPO, capitalism at its best, developing an energy-saving technique, solar, wind power, storage, a grid, a new state of the art grid system, all of those suppress the need to use our finite resources. And that is wonderful. And that is happening faster than people realize. Someone from Duke Power said that for them the cost of a solar panel have dropped in two years to 25 cents on the dollar. I mean these are Moore’s law type reductions. The kind of efficiency increases we only saw in semiconductors. They have been coming down from ludicrously expensive to moderately expensive.”

“No, science won`t guarantee to save us. Science will only give us a possible out if we keep the population falling, despite the fact that people who should know better complain about it as a problem, when it`s our last best hope that we have the population continue to decline.We have to come back in 200 years and have a population of four billion, not 10. And we have to have complete self-sufficiency in renewable energy.”

“It`s an ugly picture and the economists say you don`t have to worry about that. It`s just a matter of price, to which I say oh you mean when half the world starves, the other half has enough? And that`s what is going on. The rich half of the world is pricing out the other half.”

“Japan, you know the old story, the land underneath the emperor`s palace was worth more than the state of California. We spent a couple of days researching that. It really was worth more than the state of California. I mean how ridiculous can you get.”

“So 99 percent of the engine room at all the great firms knew very well that the market was vulnerable, would go down and would guarantee a major bear market. But the spokespeople who employed those guys, the spokespeople for the firms were on the podium with me saying oh, we`ll muddle through quite nicely. I won`t mention their names on the air. But they`re very famous people and they said oh don`t get hysterical, we`ll muddle through.”


“Diamonds Are Bullshit”


The notion that diamonds are not scarce, are an exceptionally poor investment, and are thus one of history’s biggest marketing coups is not new, but a recent article on priceonomics makes an interesting, thorough, and well referenced case. Read it here.

“American males enter adulthood through a peculiar rite of passage – they spend most of their savings on a shiny piece of rock. They could invest the money in assets that will compound over time and someday provide a nest egg. Instead, they trade that money for a diamond ring, which isn’t much of an asset at all. As soon as you leave the jeweler with a diamond, it loses over 50% of its value.”


Al Gore on the future and the ‘Six Drivers of Global Change’


Al Gore discusses the issues raised in his new book The Future as well as US politics, his relationship with Bill Clinton in the White House, and his life in a wide-ranging, fiery, insightful, and thought-provoking interview with Charlie Rose. Watch it here. Unfortunately I haven’t yet seen a good enough article discussing the points he raises in the book or interview to suggest as a decent replacement for the his own words in the video. From the book description:

“Ours is a time of revolutionary change that has no precedent in history. With the same passion he brought to the challenge of climate change, and with his decades of experience on the front lines of global policy, Al Gore surveys our planet’s beclouded horizon and offers a sober, learned, and ultimately hopeful forecast in the visionary tradition of Alvin Toffler’s Future Shock and John Naisbitt’s Megatrends. In The Future, Gore identifies the emerging forces that are reshaping our world:

• Ever-increasing economic globalization has led to the emergence of what he labels “Earth Inc.”—an integrated holistic entity with a new and different relationship to capital, labor, consumer markets, and national governments than in the past.
• The worldwide digital communications, Internet, and computer revolutions have led to the emergence of “the Global Mind,” which links the thoughts and feelings of billions of people and connects intelligent machines, robots, ubiquitous sensors, and databases.
• The balance of global political, economic, and military power is shifting more profoundly than at any time in the last five hundred years—from a U.S.-centered system to one with multiple emerging centers of power, from nation-states to private actors, and from political systems to markets.
• A deeply flawed economic compass is leading us to unsustainable growth in consumption, pollution flows, and depletion of the planet’s strategic resources of topsoil, freshwater, and living species.
• Genomic, biotechnology, neuroscience, and life sciences revolutions are radically transforming the fields of medicine, agriculture, and molecular science—and are putting control of evolution in human hands.
• There has been a radical disruption of the relationship between human beings and the earth’s ecosystems, along with the beginning of a revolutionary transformation of energy systems, agriculture, transportation, and construction worldwide.

How Monster helped create a music empire and lost it all


Posting about Beats’ soon to launch curated streaming music service reminded me of a fascinating article detailing how Monster, the company mostly known for its expensive (and of questionable value) audio cables, helped launch Beats, one of the biggest brands in audio electronics, and lost everything. It’s an interesting case study on business, negotiation, power dynamics, and marketing. Read it here.

“But the money arrangement was destined to be dominated by Iovine, a man who’d gone head to head with Steve Jobs, and ran a music empire—not some small deluxe cable firm. The Monsters knew that if they could harness Dre’s “entertainment and sports” contacts they could launch their company into the mainstream. They were right, but they were also woefully underprepared for the path to success; in the process, they blew almost every business decision possible.”


Curated streaming is the next big thing in the music industry and Beats might lead the way


Jimmy Iovine discusses the music industry since the 1960s and makes the case for Beats disrupting it with a streaming service that focuses on curation and the problem of “what song comes next”. He says this can’t just be solved with algorithms so they hire people to make playlists. Beats faces a tough battle competing against Apple, Amazon, and Google, but they have a well-known brand with ties to industry heavyweights. They might be able to succeed by making space for themselves as an independent and will get some acquisition offers from the big players like Samsung. Watch the interview or read about it here.


“Atoms are the new bits”: manufacturing is about to get disrupted by the internet


Chris Anderson gives a fascinating and convincing presentation that the barriers to entry in manufacturing are dropping significantly due to services like and 3D printing., a business-to-business e-commerce platform based in China, helps make sourcing components and products from factories feel more like the push of a button on a web page than a months-long negotiation. 3D printing technology is getting cheap enough that designing and prototyping new products should soon be as affordable as high-end personal computers and new applications may eventually include tissues and organs or vaccines made from living cells. Path founder Dave Morin thinks food is likely to be the killer application that popularizes 3D printing. 

Chris Anderson’s presentation at Long Now is here. Or you can read this article with a lot of the same content.

“It’s almost a cliche that anyone with a sufficiently good software idea can create a fabulously successful company on the web. That’s because there are practically no barriers preventing entry to entrepreneurship online: if you’ve got a laptop and a credit card, you’re in business. Manufacturing has traditionally been regarded as something else entirely. But over the past few years, something remarkable has begun to happen. The process of making physical stuff has started to look more like the process of making digital stuff.”


Cheap smartphones will enable the disruption of 50% of the world’s GDP


In an interview with Charlie Rose, Michael Saylor, CEO of Microstrategy discusses his book ‘The Mobile Wave: How Mobile Intelligence Will Change Everything’. He explains that 50% of the world’s GDP will become fundamentally disrupted as much of the world gains access to smartphones. The ideas are similar to Netscape Founder and venture capitalist Marc Andreessen’s points in Why Software is Eating the World (and also in The Man Who Makes the Future: Wired Icon Marc Andreessen). While this kind of thinking is essentially the same as that which fueled the dotcom boom (and the enthusiasm behind the PC revolution before it), and many of those riding that wave got crushed in the subsequent bust, these disruptions are likely inevitable and the implications are significant.