Prem Watsa And Jeremy Grantham Have Completely Opposite Views On Commodity Price

[Parsad]

 

By the way, where are the space stations to protect us against an asteroid that will hit us one day for sure? Why is progress so slow? Oh yes, and who is going to make money with that project?

 

Cardboard

 

Elon Musk!  ;D  Cheers!

[LC]

You are correct until alternatives can be developed and given the history of markets I would not bet against them.  We have already found fuel substitutes for wood and coal and as these resources increase in real terms the economics of alternatives becomes more compelling.

 

Packer

We only need alternatives if human civilization exists as it does now. If we halve our population, we don't need the immense amount of fertilizers and fuels that we currently need.

[obtuse_investor]

My response is that the market has always provided the incentive to innovate.  If the resources become too scarce then the price will go up and the incentive will be greater.  His one time industrial revolution idea dismisses the notion that a global market will provide incentives to solve problems. 

 

Yeah, let's take Easter Island as an example.

 

http://en.wikipedia.org/wiki/Easter_Island#History

 

A nice forested island.  Humans come in and destroy the trees until it's a barren wasteland.  As they're cutting down the last tree, they're probably saying, "Don't worry, our technology or god will save us." 

 

And in a way, they were right.  That said, they're in an enclosed ecosystem.  So, when they screw it up, they're stuck with what they've created.  But they do figure out a way to survive.  Cannibalism becomes an accepted practice and the population plunges by 80%.

 

So yeah, we can destroy many of the things that we rely on on our survival on the earth, and it's very unlikely to destroy all humans.  The question is, it is worth a small investment now to prevent the possibility of big problems later?  Generally, humanity seems to decide not.  I disagree, but that's largely because I think  picking up nickles in front of steamrollers is a bad idea.

 

I've always found this comic amusing:

 

http://img.izismile.com/img/img4/20110621/640/hilarious_mother_nature_illustration_640_high_02.jpg

 

The "classic" story of the demise of the easter island population is being rewritten. Check out this excellent presentation and question period that explains a whole lot.

 

http://fora.tv/2013/01/17/Terry_Hunt__Carl_Lipo_What_Happened_on_Easter_Island

 

This is anthropology heavy and low on finance talk, but it is very enriching nonetheless. And it also happens to blow a big giant hole in the classic mindset that compares the fate of planet earth with the fate of Rapa Nui (Easter Island).

 

Pour a nice tea/coffee and watch this 1h 44m long presentation.

 

PS: I am long human ingenuity over the very long term-- but long human stupidity/greed in the short term.

 

[muscleman]

If Prem is bearish on commodity prices only based on that parabolic price chart, I doubt if it is a good reason.

If we change the chart to logarithmic scale, it doesn't look that parabolic, and I think long term commodity charts should be viewed in logarithmic scale instead of numeric scale.

The reason is because, let's say inflation supports the price and the price increases 4% a year, then if we view a 100 year chart in numeric scale, it looks to be quite a parabolic move. But if we look at it in logarithmic scale, it is just a straight line.

[JEast]

I surely enjoyed my cup of tea while watching the presentation!! 

 

This is another reminder to me of one of the better mental models I have learned over the last few years which is pessimistic meta-induction of science.  Essentially whatever we know today is surely to be wrong in the future -- except value investing of course :)

 

I was surprised that the great author Jarad Diamond has been attacking the anthropologists so much, but then again not really surprised as he has a huge invested interest in the theory being wrong.  On the other hand, I think Diamond's Third Chimpanzee was his best book and Germs, Guns and Steel was great.  I guess Mr. Diamond forgot the message from Germs, Guns and Steel.

 

 

Cheers

JEast

[obtuse_investor]

Glad you enjoyed the presentation JEast. Watching presentations held by Long Now is one of my addictions.

 

I was surprised to hear about Jared Diamond's response too. I suppose he is as human as the rest of us.

[rukawa]

Anyway, the degree of adoption of Wind and Solar is so fast in the US that coal plants are being shuttered permanently, and future nuclear usage is done. 

 

What do you do when the wind doesn't blow and the sun doesn't shine. There is NO good answer that has ever been provided to this elementary question. Wind and solar are both extremely costly, overhyped and erratic sources of power.

 

Nuclear power has always been the only real solution. That was already clear 50 years ago.

[petec]

1000% in Prem's camp.  We're seeing a once in a lifetime commodity boom caused by two decades of underinvestment ending just as China went into infrastructure overdrive (and absurdly cheap money).  Supply is coming, innovation is coming, substitution is coming, and efficiency is coming.  Some commodities may be approaching serious scarcity but not the whole lot.

[Guest longinvestor]

Anyway, the degree of adoption of Wind and Solar is so fast in the US that coal plants are being shuttered permanently, and future nuclear usage is done. 

 

What do you do when the wind doesn't blow and the sun doesn't shine. There is NO good answer that has ever been provided to this elementary question. Wind and solar are both extremely costly, overhyped and erratic sources of power.

 

Nuclear power has always been the only real solution. That was already clear 50 years ago.

 

Well, Munger answered a question at Omaha last week about Solar in particular. There is growing interest in rooftop solar/wind energy and some hedge funds are investing there and the question posed to Munger was whether rooftop energy production is going to disrupt the central power generation/grid transmission including MidAmerican's business model. Munger's answer was; No, our Solar power is generated in the desert! 

Likewise, significant wind generation is installed where the wind blows a lot, like the North Sea and the Oceans.

 

Extremely costly, overhyped and erratic are all relative terms.

[Guest Dazel]

 

"it was clear 50 years ago that nuclear power was the answer"......

 

 

I believe this to be correct....so why has this not come to fruition...we would have ample power and clean energy....20 to 30% of U.S electricity comes from nuclear. Where does the uranium come from for that power? 10% of all electricity has come from Soviet nuclear weapons over the last 20 years! This low cost fuel agreement for uranium ends this year.

 

Because of the tsunami in Japan "event" nuclear has been tarnished and politically it has been unacceptable to the masses to pursue nuclear energy programs. Europe cannot survive without it...the middle east is banking it's future on it...as is china. Japan has no choice but to restart the

reactors...as politically the idea of it is becoming accepted again.  This process happens for every commodity over and over. Predicting in the short term other than immediate short falls...like where uranium is headed do not get headlines for capitalists, politicians or people in need. For example...no one cares about being hungry until we hungry

 

Prem is an insurance company hedging insurance contracts hardly a world expert in commodities, Jim Chanos cares only about his short term short positions on the other side you have Grantham and Jim Rogers. Gratham is a an academic at heart and runs so much money he has to be a macro bubble guy. Do you find it funny that the entire board here was cheering on Gratham when he and Prem were screaming housing bubble in 2006 together? So the world expert in bubbles is missing the commodity bubble and his entire reputation is on the line?

 

The fact is no one in the money business cares about any of it other than the monetary position they are taking. Grantham seems to have more conviction than anyone else. I would argue he is smarter than all the people mentioned above....will he be right?

 

Yes and no. If Prem and Chanos were shorting uranium than they would be right...but in the longer term they would be wrong and Grantham right. Uranium will go much higher because we all need it and it is the best option and right now. It will not be in short supply until LNG prices rise and Japan races to restart their reactors and everyone heard like restarts their nuclear program until we once again are under supplied in uranium. longterm uranium is the answer and the technology being talked about here will be able to manipulate more power from it with no waste.

 

Commodity prices are run by politicians and events so they cannot be predicted with accuracy. So if Cigar Lake floods again...uranium prices will sky rocket...tsunami in Japan prices will plummet...

Japan says nuclear is safe....etc.

 

They are all right...world population growth and affluence has put a supposed floor under prices...

 

Here is a far out black swan event for you all...

The yuan is quietly at record levels against the U.S dollar at an approx value .16666667 to the dollar....or 6 to 1...so in currency terms is china property in a bubble?

 

Imagine their purchasing power if the yuan floated alone and went to 50 cents to the U.S dollar...this is Jim Rogers point...he thought this would have happened by 2011...(not 50 cents on the dollar just a free floating yuan)

 

What would be the consequences on the commodities complex in terms of U.S dollars?

 

Dazel.

 

Dazel.

 

[EdWatchesBoxing]

I didn't watch the whole Easter Island presentation, but I did see the "walking" statues part. This part makes no sense to me. I would think they would have rolled it. It would have taken them friggin forever to "walk" those damn things.

 

I've read Collapse, so I recall some of Diamond's Easter Island story. Some of the Hunt/Lipo points are interesting, it is possible that Europeans killed them off with disease.