"The Mother Of All Paradigm Shifts"

In his presentation on the end of cheap energy, Jeremy Grantham takes a look at which natural resources have violently deviated from their long-term downdraft.

As the following chart shows, we were on a major 1.2% annualized downturn up until the early 200s, that’s been violently broken.

resource scarcity

Photo: GMO LLC

But in his view that’s been broken.

The below table shows the odds that of a given commodity still being on this downtrend.

He writes:

It has a 1 in 2.2 million chance that it is still on its original declining price trend. Now, with odds of over a million to one, I don’t believe the data. Except if it’s our own triple-checked data. Then I don’t believe the trend! The list continues: coal, copper, corn, and silver … a real cross section and all in hyper bubble territory if the old trends were still in force. And look at the whole list: twelve over 3-sigma, eleven others in 2-sigma territory (which we have always used as the definition of a bubble), four more on the cusp at 1.9, two more over 1.0, and three more up. Only four are down, three of which are insignificantly below long-term trend, and the single outlier is not even an economic good – it’s what could be called an economic “bad” – tobacco. This is an amazing picture and it is absolutely not a reflection of general investment euphoria.

Click to enlarge:


Photo: GMO

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