Jim Grant, editor and founder of Grant’s Interest Rate Observer, discusses whether the Fed might slow its pace of interest rate hikes as market volatility continues to hit U.S. stocks.
Jim Grant: The Fed Will ‘Definitely Blink’ When It Comes To Rate Hikes
Q3 hedge fund letters, conference, scoops etc
Transcript
I wonder what you think of the question about whether or not how blinked in Dallas which is what some people say he did. I think he's going to be.
Sure if that was the moment the Dallas. I think the fed.
Will blink. How will that sound. What will we say. It will be silent in the blinking.
But the consequences will be important. I think we have to ask. I think what to correction's correct or what error is is a correction corrected. And I think the principal error is a sustained period of ultra low uneconomically low distorting low interest rates. You. Know credit comprehensively mispriced. And. Owing to that fundamental error.
Mispricing is whole Capital Strategies. You're saying now I think the correction of those errors in the shape of much higher yields on corporate credit much lower prices. And so.
Talk about how you think that's going to test. So start with investment grade. Yes. Well.
For example AT&T the former Triple A Ma Bell is about 250 billion dollars in comfort. It's got more debt than. Many members of the United Nations. And it is showing lower year over year revenue growth. That is showing a weakening dollar growth. And this debt was priced I think very aggressively. One hundred seventy six billion or so coupon debt. The rest of it is. The post retirement benefits of life with this is immense amounts of debt. Crisis. According to the Federal Reserve's idea of good interest rate. So I think one might ask why don't we discover interest rates in the marketplace as we do other things like soybean prices for example. Why don't we discover interest rates in the markets. And I think that Chairman Powell when he blinks as he will. Is going to be blinking.
Perhaps that realization in mind but there are so right to your point there has been a great deal of corporate debt added not financial debt so to speak. Not like the last crisis but more on just about every cycle is different although of course you did point out revenue declines potentially or at least the lack of revenue growth at AT&T but are you really concerned about names like that. Does that concern spill over into other parts of the credit market that we're concerned and also hopeful in some ways because the the sell off has revealed.
Bargains in some parts of some structures and we have been looking very favorably on a certain part of the capital structure. So this is the. Art of it. Well. I think I'm going to give the subscribers a few days. But but but this is the value restoration project. And. It's. A good thing. They feel all sorts of stuff for years and years literally for years people felt no real need to read the 10k. They got their information. They should get it. Of course from CNBC among other outlets there was a. Rumor. Way back when 2001. A hero in the aftermath of the tech. Break. Was. An accounting professor who had sold it from Morgan Stanley to 2000 people to these fee laden seminars and how to read a document how to read a financial docket. So I think I think security analysis is going to come back. Along with contrition. And I think it can be a great time for people who think for a living as opposed to those who don't buy you think power is going to take a pause that reset the cycle all over again and if people don't have to worry about rising rates anymore we'll notice every single cycle gets us lower rates and more debt. And the efficiency of debt is ever lower. So they can reset if they like. But the resetting is not going to restore the kingdom of heaven.
In other words it's not going to be easy money just if he stops hiking interest rates it's still going to be painful.
Well I think it will be feeling painful depending on how your position. What does that mean. How do you possibly your hold if you're holding cash and looking for bargains. The degree I think it's rather hopeful.
