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Jeremy Grantham started off his presentation by claiming that the current atmosphere of the market is seemingly comparable to the one that existed in the year 2000. it is going to begin much like the year 2000 but then sadly it is going to transition into the 1970s as he predicts it will this will bring to a world that is quite similar to how the world was in the 1970s in which the value of all assets is just a lot lower than it is right now because of the deflationary effect that this effect on the economy and stock market will have the globe will end up like this a word on inflation as well which is that he completely agrees with Ray dalio on short-term difficulties which he would Define as monetary and general feather Reserve over stimulation for the past 35 to 40 years in addition he says that he would define inflation as monetary and general Federal Reserve over stimulation for the past 35 to 40 years because of the war and covid in addition to all of those other elements we can be certain that we will be dealing with a problem that is going to be relatively difficult to solve in the short and in their media terms the long-term case for inflation which is that we are running out of people is the issue that causes Jeremy Grantham the most cost for concern this is because it is one of the factors that could lead to inflation in China the population of persons age 20 and younger has been falling over the previous two decades China is a country that was spurred by globalization by the addition of 500 million farmers globalization added Farmers to China you can rely on them as a reliable source even while they are still alive we are aware that the number of infants in age cohort is decreasing at a starting least rapid rate to put it in another way they are going to run against the same problem that the developed world as a whole has which is not an insignificant roadblock for the developed World Plus China after the Bubonic plague there was a 100 Year honeymoon period in which wages increased to levels not again attained until the Industrial Revolution when everyone will be pushed for labor in addition we are entering a period of resource scarcity at the same time as labor is limited in which in his opinion will lead to prize inflation at GMO we also maintain a truly unique index in this case the 36 most significant goods are all given the same weight so it is not predominated by oil and it has been on the decline for the past 100 to years specifically from the year 1900 to 2002.
why not expect dispersions during World Wars 1 and 2 and from OPEC despite these setbacks the Dow Jones Industrial Average eventually dropped 70 points bringing the overall index down to 30. as of today 122 years later the index is 10 lower than it was then the temperature has reached 90 degrees and over the past two decades the prize of a typical significant commodity has increased from 30 dollars to ninety dollars there are three times as many of them the reason for this is of course the rapid economic development in China yet after looking at the relevant data I am reasonably convinced that it also reflects inherent scarcity the conflict is constant between technology which has for the past 100 years gotten ahead of scarcity this war is between deeper wells that have worse iron ore and who gets the best or first two steps back were taken for death while three and a half steps forward were taken for technological advancement and now that we've passed all of that we've arrived at a point where the pace of technological advancement is two steps ahead but the base of resource depletion is three steps back since 1998 the numbers have been yelling at us to pay attention to the fact that we are getting low of course war and contamination were so delicate if you cough right now it will bounce throughout the world in the form of price spikes shortages and bottlenecks all you have to do is do it because this is the world we now inhabit we had all well used to it it is inevitable that we will live in a world with an increasing number of bottlenecks and shortages and this will also be the case with regard to food the United Nations food and agriculture organizations food index is currently at its highest level ever recorded in its history which spans back over half a century as a result there is upward pricing pressure in Foods raw resources and metals you will have pricing pressure and labor over the long term there is no doubt that we are entering a new period in which inflation will be a constant presence similar to how it was during the 20th century and possibly even more so since Paul Walker took over at the Federal Reserve the risks of a dead bubble bursting and the remainder of an equity bubble bursting have simply not been comprehended by this institution they have no notion that they are not even really interested in the concept they have no clue the idea that Bernanke is claiming that none of the housing markets in the United States have ever seen a drop is just reflective of that fact they have no idea how dangerously close they are getting to the Flames the second point that Jeremy Grantham wants to make this is that significant amounts of that are just too much often really dangerous and as a general rule this practice ought to be vigorously discouraged doing so ought to be one of the tasks of top management which includes the Fed this is the question that he poses why do you prefer to deal with low rates because it increases debt why do you like more debt because it Fosters development and expansion that should make it clearer he offers an answer which is the ultimate statistical test and says that they began it in 1985 and ever since then they have been gradually raising the debt to GDP ratio because of advances in technology and subsequent advances in technology he is referring to the introduction of increasingly complex financial instruments nonetheless overall debt levels have not much increased this is attributable to both factors then in the year 1985 it kills to a 45 degree angle and shoots over any page increasing from approximately 1.1 times GDP to well over three times that amount therefore in that relatively short period of time of 35 years they managed to quadruple the debt to GDP ratio it is a significant portion of time and the economy in question is the most significant one on the atar planet an exam that is fairly good therefore what occurs is that it inflates downward growth and beginning in 1985 they grow at a slower rate even if you take into account the fact that there are a great number of other elements that come together to form a complicated whole there is still very little room in that equation for the hypothesis that higher levels of public debt result in higher rates of economic expansion while this hypothesis is widely accepted despite the lack of empirical evidence to support it it is nonetheless an assumption much like the majority of contemporary economic theory he would argue that there is absolutely no evidence to imply that Rising levels of macro debt in relation to GDP have anything to do with economic expansion however from time to time when Ray dalio made him think that when we're selling our resource portfolio we have a wonderful exhibit that looks at the correlation between all of the major sectors utility consumption and so consumer goods this is despite the fact that they have everything to do with higher risk there is only one instance in which the association weakens as the time period gets longer and that instance is with a resource and resources diminished to such a significant degree that according to the statistics from the last eight decades every rolling 10 rear period shows this trend that there is a negative association over a 10-year period therefore if you have faith in inflation you are aware that the value of resources continues to rise you are also aware that it has a substantial negative correlation with the rest of the portfolio over the long term as we can see now and that this correlation is only small when they are successful it places a strain on the rest of the economy which in turn hurts them as a result there is a very compelling argument in favor of having a resource portfolio on the subject of resources I would like to make the point that the last time we experience a huge bubble in Commodities they were extremely large new mines ready to be brought online what changes have taken place in China since the crisis that began in 2011 when the country's rate of heavy industrialization slowed down and the growth rate for iron ore and cold wind from double digits to zero flat for three years running which brought the resource industry to its knees they have not made any capex Investments despite the fact that it can't take anything from 5 to 15 years to bring a mine online there are no significant reserves of iron copper nickel Cobalt or lithium everyone is aware that everything will be brought online at this time it doesn't make any sense when you consider how much demand there is for these particular environmentally friendly Metals there is no secondary storage for the resources and this lack of availability extends to the entire collection of resources even in the oil and gas industry they have not been capex to a significant degree over the course of the past 10 years we really hope that this knowledge is of some use to you we appreciate you listening in kindly add your comment in the comment box down below so we can know your thoughts about this informative video see you again on our next episode
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