James Grant

James Grant, Grant’s Interest Rate Observer Founder, is slamming the Fed again for its low-interest rate policy and what he calls “non-stop chronic interventions.”

Transcript:
market without the yield. we shouldn’t have this. there is a great stampede in the corporate debt, in speculative grade debt by people that are not getting paid for the risk. they’re looking for yield. the credit markets when they are left unmanipulated convey manipulation. a struggling issue will pay more than a sound issue. you read the financials, and that is priced in the marketplace. when there’s a stampede for yield bond, the credit markets convey no information except for the one and only — this is what they want to have it be priced at. let me ask you about the implications or — you’re talking about long term implications. the implications for the saver — there are some very short term implications as well. yeah, i mean — if you are and you are confronting zero percent. your options are all together unpalatable. and they are the options the government presents you. i heard somebody — i heard a former fed guy the other day castigate mitt romney for daring to challenge the independents of the fed. who said the fed was the fourth branch of government? these guys are answerable to congress, right? congress, under the constitution has the power to coin money and regulate the value thereof. where do these guys get off. and yet the congress is not doing anything, in terms of their own fiscal policy. they’re on vacation. exactly. what is the best way to invest around these realities that we face? we recognize that the fed keeps bailing everybody out, we recognize this is going to be the case until 2015. how do i make money on this story. we have written favorably, recently about general motors. general motors was trading 6.5 times or so, the 2013 estimate. it’s got all manner of hair on it, beneath the hair, there’s a sound post balance sheet — post bankruptcy balance sheet, we think even adjusted for immediate pension difficulties. there is the fact that the american odometer is at near record highs. people are driving old cars. we think gm is in a pretty good place with respect to its product. and the stock is cheap on the numbers. so what we think one ought to do is to look for a margin of safety in equity like investments that will stand to benefit from these monetary exertions. we are all living in a world of speculation and manipulation. it’s not so easy. but there are things to do. your latest cartoon, darling, you’re so quantitative. yes, not everyone hates this policy. this is a policy for greenwich, connecticut. it’s great if you can fund zero%. if you are on the inside and know when they are going to do what they’re going to do, it’s great. your asset prices levitate. it’s good for commercial real estate probably. good for a lot of things,ut we don’t know all together what it’s bad for. we have a general sense, but we’ll find out more in about three years. when do you think the fed should start raising interest rates? two years ago. i think that rates are prices. and price control is a demonstrated failure as a public policy. chairman bernanke himself castigated the nixon administration for imposing price controls 1971. he was right, price control fails. what he’s doing is controlling prices. he’s suppressing interest rates, and this phrase, the investment portfolio balance channel or some such. he’s attempting to press — to lift equity markets, because that will, he says, induce economic growth. shouldn’t equity markets respond or discount wholesome growth rather than be muscled higher? the answer to that question is yes. you’re a free markets guy, i agree, you want the markets to work the way the markets ought to work. is there any reason to believe that you don’t want — you want to get in front of this train, that is the stock market? i think it’s where security analysis comes in, i think it’s where an investment in gold and silver comes in. central banks around the world are bound and determined — either through actions or words to debase their cucy. they’re telling us. how high can gold go in this scenario? the nice thing about gold, it has no pe multiple. there’s no telling. gold is a speculative — it earns in yields, gold is a speculation on an anticipated macro economic outcome. that macro economic outcome being the systematic debasement of currencies by the central banks. they’ve done qe 3, right? the economy appears not to be in the best of health. why wouldn’t they do qe 4? what intellectual argument do they have against doing it again and again and again. that’s one of the risks, right? well, it’s open ended already. maybe they’t need it, because we know it’s open ended. they can save the paper in the press release. you mentioned real estate. one of the unintended consequences in hong kong because of the dollar relationship. there is an argument to be made that you want to be buying hard assets like a gold, like real estate. i think it depends how it’s valued. in some markets in this country, you can finance them at all time — certainly generation aloe interest rates in the mortgage market. that’s not a bad way to hedge against the currency. i know bernanke knows you have been so critical. what is his answer to you, when you raise these points. we don’t talk any more. thank you so much. jim grant joining us, founder