Salient to Investors:

Jeremy Grantham writes:

  • The world, in its reckless use of resources and natural systems, shows many of the indicators of potential failure that brought down many prior civilizations. However, we have two saving graces that may save us – declining fertility rates and progress in alternative energy.
  • People, especially investors, prefer good news and wishful thinking to bad news. Good news is an easier sell, especially in investing.
  • There is near complete control of government by the powerful beneficiaries of the current system.
  • Malthus observed that population had always kept up with food supply, meaning even successful societies were only a few bad growing seasons away from starvation.  Malthus predicted this would always be the case but was wrong on two counts since. Coal and oil, and declining fertility.
  • Our hydrocarbon interlude will end either when economic resources are exhausted or when we have ruined our climate and environment.
  • Nobody before 1960 ever dreamed we would voluntarily decide to have fewer children even as we became richer.  The  remarkable decline in fertility is our last best hope for our civilization and the well-being of all life and I believe we succeed on this front.
  • Our second great hope is renewable energy – solar, wind, etc, plus electric grid efficiencies and improved energy storage.
  • By 2025 to 2030, both solar and wind power will be cheaper than coal, a hopeless choice for electricity generation in 20 years, especially when fully costed for externalities like pollution and climate damage.
  • Personal average wealth and income has been rising only 1% to 3% a year for the last 30 years. Solving our long-term energy problems may not only be the most critical economic problem, but one of two most critical inputs into our future viability as a civilization.
  • Once the capital is found and the project is built, a wind or solar farm delivers far cheaper energy than a coal-fired utility plant, at around one-third of the marginal cost of coal.
  • California gets almost twice the amount of sunshine as London.
  • Energy storage is now being worked on by scores, if not hundreds, of research teams. Caution, a lack of expected progress in energy storage could materially slow down the rate at which alternative energy is adopted.
  • Expect China to set a brilliant example on alternative energy. They could smooth out their potentially dangerous transition from 50% capital spending to a more reasonable 35% over the next 20 years or so by managing a giant program of alternative energy. This would potentially give them global dominance in the most important industries of the future, relieve them of their greatest single worry, energy security, and lower the chronic air pollution of their major cities. Such a program would leave them as the low-cost energy player in global trade, which when added to their lower labor costs, rising educational standards, rapidly improving infrastructure, and capital deepening, should put the fear of God into US capitalists.
  • Our population is likely to start declining in a few decades, slowly but surely, and the fertility rate of 1.8% or less would allow global population to fall back more or less gracefully by 2200 to a probably sustainable level of 4 billion.
  • Natural gas in 5 years will rise to  $6 to $7 mcf.

Read the full article at  http://www.gmo.com/websitecontent/GMO_QtlyLetter_1Q2013.pdf

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