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Markets know how to handle peaks

May 16, 2016

Here’s the opening of an interesting article by Ronald Bailey at Reason.

Sliding Down the Super-Cycle: Resource Doom Postponed Indefinitely

Legendary investor Jeremy Grantham admits he was wrong about “peak everything.”

“Time to Wake Up: Days of Abundant Resources and Falling Prices Are Over Forever” was the title of an urgent report written by the legendary asset manager Jeremy Grantham in 2011. Grantham proclaimed the advent of a resource scarcity “paradigm shift” that was “perhaps the most important economic event since the Industrial Revolution.” […]

Grantham also pointed to a slowdown in crop productivity, suggesting that it would be impossible to feed the world’s burgeoning population. “How we deal with this unsustainable surge in demand and not just ‘peak oil,’ but ‘peak everything,’ is going to be the greatest challenge facing our species,” he wrote.

This week, Grantham took almost all of that back. Grantham, like a whole raft of professional doomsters, was declaring Peak Everything just as the latest economic super-cycle was cresting; many commodities’ prices peaked the very year of his report and have been drifting downward ever since. […]

In their 2012 study “Super-Cycles of Commodity Prices Since the Mid-Nineteenth Century,” economists Bilge Erten and José Antonio Ocampo — from Northeastern University and Columbia University, respectively – confirm that the commodity price increases in the first decade of this century were the result of a super-cycle upswing. Parsing real price data for nonfuel commodities such as food and metals from 1865 to 2009, they find evidence of four past super-cycles ranging in length from 30 to 40 years. […]

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