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The Man That Predicted The Dotcom Bubble Has Advice For Investors

Grass

When the founder of an American firm with over $70 billion in assets under management says that capitalism is killing the planet, does anyone start to panic?

Not exactly, but plenty were troubled at least when Jeremy Grantham, the co-founder of Boston-based GMO and a veteran investor, told a conference last week that we are in “the race of our lives” and capitalism is our biggest threat to survival.

Grantham has been outspoken about his concerns over climate change for years, so from that perspective, it shouldn’t cause a panic or a mad rush for a new ideology. But what plants the seeds of worrisome doubt in peoples’ minds is the fact that Grantham has sounded alarm bells before—and he’s been right.

He predicted the dotcom bubble burst in 2000, the housing bubble catastrophe of 2007 and the ensuing financial crisis of 2008.

So one can forgive those who attended the Morningstar Investment Conference in Chicago last week for leaving with a slightly uneasy feeling, possibly even that nagging sentiment that we’ve gotten everything wrong.

Climate change, Grantham told the conference, is the biggest issue that humanity will face over the long term—and big corporations are to blame for having zero desire to fight it. The single silver lining is this: Investors can do more than simply advocate for green causes.

Grantham said that corporations’ responsibility is to maximize profit, not to figure out how to save the planet and that many of the problems with how capitalists deal with climate change are born out of the nature of corporations.

“Capitalism and mainstream economics can’t deal with these problems. Given how corporations are driven to maximize profits, it’s nearly impossible for them to give up profits in order to address this and focus on sustainability,” Grantham said.

More to the point, Grantham said, "Anything that happens to a corporation over 25 years out doesn't exist for them, therefore, as I like to say, grandchildren have no value" to them.” Related: How Will Social Security Remain Solvent?

Grantham stressed that over the next several decades, human civilization will be in a race for its survival to grow new green technologies in the face of devastating climate change.

He also offered up some solutions—or at least ways to lessen the impact; most notably through the improved efficiency of green technologies such as wind and solar power.

As of May this year, the green economy now holds roughly the same market share as the fossil fuel sector.

According to market analysts FTSE Russell, 6 percent of globally listed equity was derived from renewable and alternative energy, energy efficiency, water, waste and pollution services. This makes the ‘green economy’ worth approximately $4 trillion, roughly the same as the fossil fuel industry.

Earlier this year, fossil fuel giant British Petroleum (BP) published its yearly forecast for the global energy market and wrote that by 2040, if current trends continue, renewables will grow by 400 percent of their current amount.

But there are factors working against it, including Trump’s withdrawal from of the U.S. from the Paris climate accord, a global agreement to reduce greenhouse gases.

Last year, new research estimated that US GDP between 2016 and 2099 would be 36 percent lower if climate trends continue compared to regions with more stable temperatures.

Indeed, according to the Carbon Majors Report, just 100 companies have been the source of more than 70 percent of the world’s greenhouse gas emissions since 1988. Oil majors ExxonMobil, Shell, BP and Chevron are identified as among the highest emitting investor-owned companies since the 1980s.

Other prominent environmentalists of course agree with Grantham, claiming that corporations profit from denying climate change.

But while some conference attendees in Chicago may have left with a troubled feeling, plenty of others are banking on Grantham being wrong, and they’re likely hoping that GMO’s bad bet on emerging markets since 2014, during which time it’s assets under management have plunged from $124 billion to $71 billion, mean he’s lost his predictive mojo.

By Tom Kool for Safehaven.com

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