If you were to ask Jim Grant, the seasoned and sage founder of Grant’s Interest Rate Observer, where the markets are headed, you wouldn’t hear many minced words. During a recent Barron’s interview, the 70-year old Navy veteran said: “We’re on the road to an important perception that central bankers don’t have the answers and are in fact in the process of discrediting the very money they are meant to protect.”
Grant, founder of the Observer over 33 years ago (and the Barron’s Current Yield column in the 1970’s) is viewed by many as one of the most astute market analysts around. He shared his views on pertinent market issues:
- Low rates: “We are living in a unique time. Negative rates aren’t a naturally occurring phenomenon in finance but a creation of our ingenious central bankers.” He argues that they are not a sign of constructive policy, but rather “a sign of trouble.”
- The “PhD standard”: As opposed to the gold standard, Grant describes this as a “regime of discretionary monetary management by former tenured economics faculty.” Although well-intended, Grant argues that efforts to improvise on matters of macroeconomics through theories and mathematical formulas is no substitute for reality. “What it means for investors,” he says, “is thrills and chills.”
- What’s ahead: According to Grant, central banks’ increasing involvement in interest rate levels has led to a distortion of asset prices. The result, he believes, is that “the standard signposts of valuation have been twisted and turned.”
- Gold: Grant has been bullish on the precious metal for some time, and continues to be bullish on metals and miners in general. “Bears on credit finally get paid in gold,” he says.
- How long yields will stay low: “Since the 19th century, the cycles on interest rates are very long-lived…so you can’t dogmatize on the timing. At Grant’s, we are very bearish on bonds.”
When asked what he likes besides gold stocks, Grant wasn’t terribly optimistic: “I’m not going to try to find what can’t be found.”