March 11, 2022

Legendary investor Jeremy Grantham says Russia’s attack could be the start of a multiyear ‘Super Cold War’ — and explains how that isn’t doom for stock markets

[Business Insider, Morningstar]

  • Jeremy Grantham suggested Russia’s attack on Ukraine could lead to a multiyear “Super Cold War.”
  • Wars aren’t bad for stock markets, and they have led to technological improvements, the GMO co-founder said.
  • There are trillion-dollar innovative opportunities in nations overcoming their reliance on Russia, he suggested.

Jeremy Grantham believes there’s a chance Russia’s invasion of Ukraine could lead to a long-drawn-out “Super Cold War,” but that isn’t necessarily bad for stock markets.

“As a historian, I can say with confidence that these geopolitical events are murderously difficult to predict,” the veteran investor and GMO cofounder said in a Wednesday episode of the Meb Faber Podcast.

“In a month, they could have a regime change in Russia, and we could be in a honeymoon period again.”

“Or this could drag on, to be absolutely the start of a multiyear Super Cold War, and it would have repercussions everywhere.” 

Grantham noted that wars can set in process a lot of capital expenditure and drive the development of new products — “a lot of war profiteering, if you will.”

“So it isn’t necessarily doom for the stock market. It’s a miserable time for everybody else, but then in wartime, people do work harder and produce more.”

That can have a follow-on boost for the economies of the countries involved in combat, the veteran investor suggested.

World War II really pumped up the US, in particular for the next 20 years,” he said.

Trillion-dollar opportunities in overcoming reliance on Russia

Given Western sanctions and the situation in Ukraine and Russia — two major exporters of commodities — people aren’t quite sure how any gap in their oil, wheat, or nickel exports could be filled.

But that could drive innovation to deal with the shortages of metals, food, resources, or even people, according to Grantham.

“We’re going to have to keep redesigning, rejigging, replacing, and inventing new materials. And this is pretty darn exciting,” he said. 

“We’re going to have to find ways of retrofitting buildings cheaply — not the miserable, labor-intensive, high-cost ways that we do it now. We’re going to have to build higher quality buildings that are, on day one, hugely more energy-efficient.”

“This is going to take trillions of inventive dollars, not regular business-as-usual dollars. So this will be one of the great challenges, and it will be an absolute godsend for the VC industry.”

Grantham also noted that inflation hasn’t been an issue in the past 20 years, and now sky-high prices are causing anxiety across the globe.

The market historian said the world is going back to a 20th century-like environment, as in the decades after the 1970s, which marked a period of “Great Inflation.”

The Fed can’t entirely be faulted for sky-high inflation, Grantham suggested

Inflation will be a focal point for investment managers for a long time to come, according to Grantham.

The investor believes the Federal Reserve is given unrealistic goals, and the central bank is being charged with controlling factors outside its reach.

“They have all of these delusional instructions — control the growth rate, control inflation, control this, control that — that’s all outside their capabilities,” he said.

“They can cause the economy to do well, but just reliably for a quarter or two, and then anything can happen. I do sympathize with them.”

By Shalini Nagarajan

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