Market MovesFebruary 6, 2020

Energy Stocks Are Doomed, Warns Savant Jeremy Grantham

GMO co-founder, a climate change activist, compares their paltry returns to the S&P 500’s tripling over 10 years.

Reported by Larry Light

Jeremy Grantham, among the most revered market sages, has little use for the oil and gas industry, calling it a terrible investment.

The sector has gained 5% to 10% over the past decade, while the S&P 500 has tripled, charged the 81-year-old co-founder of Grantham Mayo Van Otterloo (GMO). In an interview with Bloomberg News, he labeled it “an industry that has been put on notice that they’re going out of business.”

Grantham has announced that he will devote his near-$1 billion wealth to combat climate change, saying that escalating global temperatures have placed humanity in the “race for our lives.”

The energy business, said Grantham, who is renowned for his ability to spot speculative bubbles like the dot-com frenzy, is “a bad economic idea.” So he termed sticking with its stocks as absurd. “If you want to lose money in a capitalist system, that is how you do it,” he maintained. “You underestimate the forces you’re dealing with.”

To Grantham, energy companies are akin to the tobacco industry. “The long-term goal is to make them a pariah industry,” he said. “It took us 20 years on tobacco.” Like tobacco executives, energy’s leadership knew for a long time their products were harmful, he declared, but covered up this unpleasant fact.

He also had a sarcastic view of universities that take fat donations from energy companies: “I’m mildly sympathetic. You can do a lot of terrific research for $200 million … You sold out for a high price, but you’re still bought.”

And he paid a backhanded compliment to Larry Fink, head of BlackRock, the world’s largest asset manager ($7.4 trillion). Fink recently announced that BlackRock would invest using green precepts. “Brilliant, well done, Larry,” Grantham said. Then he went on to say the BlackRock’s proxy votes are “right at the bottom of the list” in terms of climate-mindedness.

According to a group called the Task Force on Climate-Related Disclosures, asset managers from Europe like Britain’s Legal & General and France’s Allianz are rated highly, and US ones like BlackRock, and also JP Morgan Chase and Goldman Sachs, are not.

Grantham’s assessment of the climate change’s advance is dark, and he expressed his alarm about the recent Australian fire disaster. “Everything is accelerating,” he said. “The disasters are terrible, one ugly event after another, and they seem to be happening quicker and quicker.”