The CFA Society of Indianapolis held its annual Charterholder ceremony earlier this month. On hand to speak at the affair was always-entertaining investor Jim Grant, founder of Grant’s Interest Rate Observer.
Both Grant’s dialogue and his writings are laced with his acerbic wit, punctuated with a heavy dose of sarcasm. While I often find myself chuckling after he delivers one of his characteristic zingers, I sometimes have to go back and reread his words to digest the full effect of his comments.
An Indiana University grad and author of five books, Grant possesses deep knowledge on the role central banks have played throughout history and the cumulative results of their monetary policy decisions. He is an outspoken critic of the policies being pursued by Federal Reserve Chairman Ben Bernanke.
Grant has been a relentless believer in owning gold as a store of value versus assets heavy in paper or “fiat” currencies that are debased by central bankers who constantly print more. Grant says the reason to own gold is because of the “non-zero probability” that the collective actions of the world’s central banks could spin out of control.
In one of his recent musings, Grant suggested we should all buy black walnut trees as a store of value instead of investing in government bonds, because “the former produces nuts, while the latter is produced by nuts.”
As the name of his publication implies, Grant is a student of the price of money: interest rates. Noting that the current bond bull market is 32 years old, Grant submits that “interest rates have fallen, and they can’t get up.”
He points out that there are plenty of historical examples where market trends are sustained long enough that beliefs such as “bonds always go up” become an ingrained truth for investors. But he cautions that nothing lasts forever and that bonds, widely viewed as safe investments delivering a reasonable return, will provide today’s buyers the exact opposite result.
Wrongly labeled in some Wall Street circles as a “perma-bear,” Grant admits to being a glass-half-empty guy—a characteristic possessed by many dyed-in-the-wool market contrarians and value investors. So it may surprise his cohorts that Grant holds a positive long-term view on the U.S. equity market.
Grant believes there are plenty of cheap stocks that should outperform fixed-income alternatives such as bonds, cash or CDs.
Of interest, he equates the frenzy surrounding the fiscal cliff as similar to the Y2K scare. He believes politicians will arrive at some near-term measures to avoid the cliff and that the fears of calamity will pass without significant disruption in the markets.
That being said, Grant has little faith that leaders have come to grips with addressing the huge “present value” of the long-term liabilities promised by our government.
Intense investment minds like Jim Grant’s can provide investors with different ways of looking at things. While we may not always be in agreement with their premise, thinkers like Grant develop stimulating discussion points backed by historical experiences, all of which can help anyone become a better investor.•
Skarbeck is managing partner of Indianapolis-based Aldebaran Capital LLC, a money management firm. His column appears every other week. Views expressed are his own. He can be reached at 818-7827 or firstname.lastname@example.org.