GMO's Jeremy Grantham Newsletter: Serious Resource Shortages Coming

In his latest GMO Quarterly Newsletter, Jeremy Grantham (eloquently, as always) continued to channel his "inner Malthus" to deliver grave warnings on resource limitations that he anticipates humanity will face with increasing severity and urgency as the 21st century rolls on.  You may remember that Grantham's Q1 newsletter focused on what he called a "paradigm shift" in commodity prices, due to a 200-year hydrocarbon boom winding down.  (See: Jeremy Grantham gets bullish on commodities).

His Q2 letter is a quite a bit darker and more philosophical, too - he's genuinely worried that the planet may not be able to feed everyone soon.

This quarter, I would like to focus on the most dangerous parts of the coming shortages.  I will try to separate those that, for us rich countries, are merely going to slow down the growth rate of our wealth through rising prices, and those that will do not only that, but will actually be a threat to the long-term viability of our species when we reach a population level of 10 billion.  In all cases, poorer countries will be the most threatened.  Situations that will irritate some of us with higher prices will cause others to starve.  Situations that will cause some of us to go hungry will be for others a real disaster, and I believe this, unfortunately, will not be in the dim and distant future.

Investment implications?

The moral however, is clear.  As Jim Rogers likes to say: be a farmer not a banker – the world needs good farmers!  I might add: or become a resource ef?ciency expert and help the world save some of them for our grandchildren.  Farming will be a satisfying and enriching experience if, on a global basis, we rise to the longterm agricultural challenges.

In terms of efficiency, Grantham is especially concerned about the depletion of fertilizers (potash and phosphates) - which will, of course, provide money making opportunities for those with who produce and/or are sitting on reserves of these resources.

You can read Grantham's full Q2 2011 newsletter here.

Eponymous fertilizer play Potash Corp (POT) and its 3-year uptrend. (Source: StockCharts.com)

Jeremy Grantham: S&P is Worth 900 at Fair Value

Jeremy Grantham, one of my favorite investors, often puts out fantastic (and free) articles and editorials about the markets.  Grantham has been extremely bearish since 2000, and has been particularly bearish in 2000 and 2007, which were not bad times to be cautious at all.

I enjoy his analysis because it is extremely pragmatic - he keeps a cool head about him, and is bearish on assets when they are expensive and in a bubble type of mode, and bullish on things that are cheap.

He's got a new article out, where he mentions that he believes the S&P is worth 900 at fair value.

Remember that you will never catch the low. Sensible value-based investors will always sell too early in bubbles and buy too early in busts. But in return, you may make some important extra money on the roundtrip as well as lowering the average risk exposure.

And this analogy is my favorite:

Every decline will enhance the beauty of cash until, as some of us experienced in 1974, ‘terminal paralysis’ sets in. Those who were over invested will be catatonic and just sit and pray. Those few who look brilliant, oozing cash, will not want to easily give up their brilliance. So almost everyone is watching and waiting with their inertia beginning to set like concrete. Typically, those with a lot of cash will miss a very large chunk of the market recovery.

What do you think - is it time to start deploying some cash into stocks now, under the belief that it's always darkest before dawn?

Or - would you wait until you see a clear sign that a new bull market has begun - such as a major publication throwing in the towel on stocks (a la this famous BusinessWeek headline)?

Jeremy Grantham Interview in Barron's

An interesting interview with superinvestor Jeremy Grantham.

Perhaps of interest to readers of this blog: he mentions he is long the Japanese yen, the Swiss franc, and the Singapore dollar.