GMO's Jeremy Grantham's Q3 2012 Letter: On the Road to Zero Growth « Market Montage

For the Jeremy Grantham fans out there, this quarter's letter is an especially dour look on the long term prospects of the country.  He argues the 3%+ type of GDP growth of a relatively young America in a less globalized world is forever gone, and we should expect a new normal – like 1.4% normal (or as he calls it 'adjusted 0.9%), in the decades ahead….which will then drop even further (to adjusted 0.4%).  Positively Japan-like.  I think it's a *bit* dour even though I've said globalization is going to be a net negative for the middle class of developed worlds far before it was popular.  I do expect technology to take care of a lot of the "resource" issues in the decades ahead – compared to Japan the U.S. has a wealth of resources which has created a lack of urgency on this front, for better or worse.   However in other areas technology is a double edged sword – so many jobs are being extinguished by it, heck I was reading the other day about a company developing a 'hamburger flipper' robot, so imagine the day many of those jobs go away.  Extrapolate from there!

Grantham's main reasons as follows:

  • Population growth that peaked at 1.5% in the 1970s will fall to less than half a percent.  Man-hours worked will grow at around 0.2% per year.
  • Productivity in manufacturing has been high and is expected to stay high, but manufacturing is now only 9% of the U.S. economy, down from 24% in 1900 and 15% in 1990. It is on its way to only 5% by 2040 or so. There is a limit as to how much this small segment can add to total productivity.
  • Growth in service productivity in contrast is low and declining. Total productivity is calculated to be just 1.3% through 2030, if we use current accounting methods.
  • Resource costs have been rising, conservatively, at 7% a year since 2000. If this is maintained in a world growing at under 4% and a developed world at under 1.5% it is easy to see how the squeeze will intensify.
  • Increasing climate damage, reflected mainly in food prices and flood damage, is going to increase. With any luck this will not be severe before 2030 (we allow for a 0.1% setback) but it is very likely to accelerate between 2030 and 2050. A great deal will depend on our responses.
Full read below:

Grantham road to zero growth

Disclosure Notice

Any securities mentioned on this page are not held by the author in his personal portfolio. Securities mentioned may or may not be held by the author in the mutual fund he manages, the Paladin Long Short Fund (PALFX). For a list of the aforementioned fund's holdings at the end of the prior quarter, visit the Paladin Funds website at