Jim Grant on Trump 2.0: "He’s a man on many missions"

The flamboyant developer [who in 1986 took it upon himself to rebuild the dilapidated Wollman Rink in New York’s Central Park] is today the flamboyant president, still almost childlike in the purity of his vanity and in his devouring need for approval.  It’s the scale of his operations that has changed.  The skating rink has become the Washington ‘swamp,’ the sclerotic New York City Parks Department is today the elephantine United States government. 

He’s a man on many missions: U.S. territorial expansion, hunting down federal fraud and abuse, personal enrichment (and making no secret of it), ending lawfare, suspending the minting of pennies, threatening tariffs and lifting those threats, abolishing federal agencies, closing the southern border, sweeping away woke ideology, settling political scores, trolling Taylor Swift, appointing himself chairman of the board of the Kennedy Center, pardoning Jan. 6 prisoners and plastic straws and gunning for New York City bike lanes, all the while conducting a lucrative side business in Trump-branded merchandise and speculative tokens and – coming soon – a family of Trump-themed exchange-traded funds.

~ Jim Grant, Grant’s Interest Rate Observer, February 14, 2025

Jim Grant on value investing

It's an arithmetic truism that bearishness prepares the ground for bullishness; nothing succeeds in the long run like a low entry point.

~ Jim Grant, "Tale of two decades," October 11, 2024

Jim Grant on inflation and war

If there's one sure, history-validated cause of inflation, it's war.  It's the activity, which, if carried on at scale, activates the money-printing presses, propels government spending and up-ends public expectations, all to the end of destroying life, property and, not infrequently, currencies.  Abstracting from a particular casus belli, war is malinvestment on a GDP-level scale, an economic calamity for the loser and no certain boon for the winner.  Yet war is what humanity wages.  We the people (through the agency of our tribes and governments) have fought since time immemorial, and the United Nations won't stop us now.

~ Jim Grant, "Where inflation comes from," Grant's Interest Rate Observer, September 27, 2024

Jim Grant on Asian central bank buying of gold

Not everyone cheered when Western authorities immobilized some $350 billion of Russian foreign-currency reserves following the Putin-ordered invasion of Ukraine.  Nor does everyone agree with recent Western proposals to commandeer that cash to shore up Ukraine's defenses.  China, in particular, has withheld its applause, and it may not be coincidental that March marked the 17th consecutive month of Chinese gold purchases.  [The People's Bank of China bought a record 735 tonnes of gold in 2023 according to The Gold Observer.]  Even such central banks as Singapore and Poland, the governments of which harbor no known extraterritorial ambitions, have been stocking up on the legacy monetary asset, the World Gold Council reports.

"The U.S. is essentially throwing its weight around, maybe a little too much," Pierre Lassonde, a cofounder of Franco-Nevada Corp. and a dean of the Canadian mining community, opines to deputy editor Evan Lorenz.  "Looking at the finances of the United States and the enormous budget deficits, just interest on the debt is more than the defense budget.  The dollar used to be called TINA, i.e., There is No Alternative.  Gold is the new alternative.  I call here GINA."

~ Jim Grant, "Gold rush," Grant's Interest Rate Observer, April 11, 2024

Jim Grant on how interest expense was removed from CPI in 1983

"The Cost of Money Is Part of the Cost of Living: New Evidence on the Consumer Sentiment Anomaly," a scholarly paper published in February by the National Bureau of Economic Research, examines the source of the paradoxical detachment of consumer sentiment, which registered 79.4 on the University of Michigan survey (down from 101 on the eve of the pandemic), from GDP growth, which, in the fourth quarter, printed at an annual rate of 3.4%.

The authors' search leads them to a 1983 overhaul of the Consumer Price Index that eliminated interest expense from the cost of living.  Add it back, and today's inflation data look more like the double-digit shockers that may have cost President Jimmy Carter the White House in 1980.

[...]

"When interest paid is considered as a cost borne by consumers and included in the CPI," write the authors, who include former Treasury Secretary Lawrence H. Summers, "the year-on-year inflation rate increases by one percentage point throughout [2023].  When both personal interest payments and the cost of homeownership are accounted for in the CPI, the [year-over-year] inflation rate increases from 3% to 9% in November..."

~ Jim Grant, "Consumers on the couch," Grant's Interest Rate Observer, April 11, 2024

Jim Grant on making interest rate forecasts

Q: A friend once said, “It’s okay to forecast the end of the world, just don't ever give a date.”  When people ask you about timing, what do you tell them? 

A: Oh, I’ve become very wily.  Years ago, someone asked me to forecast the 10-year yield one year hence, and I had the presence of mind to say no, thank you.  I count that as my journalistic coming of age.  Only rookies pick levels and dates.

~ Jim Grant, The Austrian, January-February 2021

Jim Grant on SVB's $73 billion loan portfolio

What zero percent interest rates do is bring on the phenomenon of zero gravity finance.  Imagination displaces analysis.  And if you are in the business of projecting technology out into the wonderful 10 or 20 year realm, there's nothing like zero percent rates to facilitate that exercise of imagination.  And that's what Silicon Valley Bank had going for it.  So this portfolio - $73 billion loan portfolio - I think might also have been problematic.

~ Jim Grant, CNBC interview, 1:25 mark, March 16, 2023

Jim Grant on when gold shines

Gold, say we, is not so much an inflation hedge as an investment in monetary disorder.

~ Jim Grant, "Apathy in a panic," Grant's Interest Rate Observer, March 24, 2023

Jim Grant on BTFP: "the Fed is bailing out its previous bailout"

[W]ith the unveiling of the Bank Term Funding Program, the Fed is bailing out its previous bailout.  It's lending against the par value of bonds and mortgages that don't trade near par.  They don't trade near par because their too-high prices were eviscerated in 2022.  Their too-high prices were eviscerated because of the inflation that the central bankers helped to foment and, indeed, fan.  Thus, one intervention begets another.

~ Jim Grant, "Into the federal vortex," Grant's Interest Rate Observer, March 24, 2023

Jim Grant on the risk of monetary deflation

Von Mises said that deflation can never undo the harm that inflation causes, and he warned central bankers against imitating the motorist who, after running over a pedestrian, stops his car, throws it into reverse and backs it up over the same hapless victim.  Whether Jay Powell has the stomach for that second sickening bump remains to be seen.

~ Jim Grant, "The CDC at Jackson Hole," Grant's Interest Rate Observer, September 2, 2022

Jim Grant on time

I think Samuel Johnson said, "Reputation is the one thing that no man can give to himself."  I would say that time is something else that is not for sale.  You can't buy reputation, nor can you buy the heartbeats.  So as life goes on, you become to covet those heartbeats and husband them, and expend them in ways... rather more carefully than when you were known for throwing them around like confetti.  They are not.  

~ Jim Grant, interview with William Green, 1:48:10 mark, August 20, 2022

Jim Grant on writing

If it appears effortless, that's good.  That means the sweat was worth it.  But I assure you, there ain't no effortless in it.

~ Jim Grant, interview with William Green, mark, August 20, 2022

Jim Grant on Bitcoin: "It's simply crazy"

So if you're really a zealot on Bitcoin what you are saying is the world of technological innovation will never create something better.  It's simply crazy.  Bitcoin trades like a tech stock.  It is as vulnerable to disruption as any other tech stock.  Who's to say it's not the PalmPilot of cryptocurrencies?

~ Jim Grant, interview with William Green, 1:20:50 mark, August 20, 2022

Jim Grant on bond risks and the 60/40 portfolio

As the upside is limited, so are the risks great.  So bond selection is one of exclusion rather than of selection.  You approach it with the idea of avoiding risk.

So, what about Treasury securities?  They're characterized as super safe in The Wall Street Journal.  They have anchored most retirement portfolios for most of the past four decades.  How do you analyze that?  One way of looking at it is to observe that over the course of 150 years of the national history, bonds have tended - tended - to move over the course of decade-long cycles.  Interest rates will rise for 30, 40 years, and fall for 20, 30, 40 years, and so on, starting from the late 19th century to the present.  They have fallen for 40 years since 1981.  Now, it might be that that cycle has broken...  If indeed the cycle has ended and rates are going to go up, we are in a different investment world because bonds will not provide the hedge that they have against falling stock prices.

Just recollect that for everyone's investment memory really, when stocks got into a rough patch, you had some protection from falling interest rates and rising bond prices.  But if bond prices are falling and interest rates are rising, you are forever not getting a hedge, but rather a drag.  So the 60/40 portfolio or the 70/30 portfolio is not the thing for you.  Now this is still speculative, but I think that is likely to be the case and people ought to be alert to the idea that something new is in the offing.  And what the something might be is kind of in the womb of time, but we can guess a little bit about it.  It might be that... stocks are going to become more important after they reach a point at which they become truly cheap.  It might be that cash, for all the damage that inflation does to cash, that cash is going to be the thing, rather than long-dated bonds.  So one would have a 60/40 or a 70/30 portfolio, but the 30% or 40% portion would be in a near-cash thing.

~ Jim Grant, interview with William Green, 1:05:55 mark, August 20, 2022

Jim Grant on the everything bubble's malinvestments

I think the way to imagine this is to put ourselves in mind of the old college freshman fraternity initiation trick, and that is yanking a tablecloth out from under a set table of china, glassware and porcelain.  Now, if you go on WikiHow to investigate how to do this, WikiHow will advise, "Always try it with plastic cutlery and cups."  But notice the Fed has not got that option because the table is set proverbially and metaphorically... with the most brittle glassware and the most precious porcelain and bull market champagne flutes because of 12 years of suppressed interest rates which have fostered risk taking, which have brought forth into the world all these companies called unicorns because they come to market with a billion dollars and generate not much earnings.  So the world is full of uneconomic economic projects, fostered through financial stimulus, principally low interest rates, right?

So, what happens when you raise the rate of interest on companies that need to borrow just to stay alive?  Well, they can't stay alive, so they're cascading failures.  And companies supply those uneconomic things.  Think of craft beer makers that sold beer to WeWork in the day, right?  So there's a whole chain of economic activity that goes to support uneconomic activity.

So that's the metaphor for the yanking the tablecloth.

~ Jim Grant, interview with William Green, 58:15 mark, August 20, 2022

Jim Grant on the everything bubble

What people came to believe is that the Fed would be there for them.  The Fed wanted things to go up, that the Fed would make us rich.  And the if perchance, if by accident, if by some cyclical hiccup, the market pulled back, the Fed would make it go back up again...  

So fast forward to 2020, and comes the pandemic, comes the falling off the cliff in March.  And what does the Fed do?  The Fed - never mind the kitchen sink - the furnace, the plumbing, the furniture, everything in that house got tossed at the problem...  The Fed took charge of that this pandemic did not lead to a depression.  And what follows is one of the most astonishing light shows in the history of central banking.  By the time 2021 came to a close, the broadly defined money supply was showing growth year-over-year in excess of 20%, never before seen in such a short period.  Interest rates collapsed.  The speculative fervor that this created was lifting stocks, bonds, real estate... cryptos, NFTs, everything that wasn't nailed down.  Nothing was nailed down.  Massive levitation of the everything bubble, some of us called it.

What also occurred was an undesired inflation on Main Street itself, at the cash register, at the checkout counter.  So the Fed never minded the inflation at the corner of Broad and Wall Streets, New York Stock Exchange.  That was desirable because that made people spend and encouraged investment outlays and the like, but the Fed is in business to prevent and ameliorate, if it does occur, inflation at Main Street.  It wrecks wages, it wrecks budgets that distorts the values that gets elected officials defeated at the polls.  That's the kind of inflation they don't like.  But we got that, too.  

So now here we are with inflation rampant. It's not an exaggeration.  Stock prices still elevated by historical lights, bond yields still very low by historical reckoning.  So what does the Fed do?  Well, it's rather in a quandary.

~ Jim Grant, interview with William Green, 39:20 mark, August 20, 2022

Jim Grant on about imagining the future and thinking apart from the crowd

Just as markets are about the future, if you can't know the future you must contribute something to the difficult but necessary job of imagining it.  You can dogmatize about it.  You can conceive a view of it based upon the alignment of forces in the present, about the way people themselves are expecting the future to unfold.  If everyone thinks one thought, you have an edge, because you can investigate the alternative, because often as not the idea that's most popular is the least remunerative - not always, but often.

~ Jim Grant, interview with William Green, 29:20 mark, August 20, 2022

Jim Grant on how history doesn't repeat literally

Now nothing says that today is going to repeat the experience of yesteryear.  In fact, rather the odds are against that just simply because history is never so helpful as to repeat itself literally; otherwise imagine how rich the historians would be.

They say, and what they say it true, that one's first experience in markets and with money is deeply formative, imprints itself on you.  And the best investors, the nimblest and most successful, are the ones who can put that formative experience aside, or at least put it into perspective and not imagine that they must repeat the experiences of their youth in their middle years.

~ Jim Grant, interview with William Green, 19:00 mark, August 20, 2022

Jim Grant on margin of safety and possible repeat of 1973-74

The point to mark about 1973 [oil shock followed by recession and severe bear market] is not the risk that it literally repeats, but only to give unscripted events their due.  The central bankers haven’t feared them, much less prepared for them. Listening to the mandarins talk these past 10 years, one would suppose that they were in charge of the future. 

The idea of a margin of safety itself went out the window. It was no longer necessary, many came to reason, not in logistics, inventory management, geopolitics, pandemic medicine or investment-portfolio construction.

~ Jim Grant, "Break ball in a pool game," Grant's Interest Rate Observer, March 4, 2022

Jim Grant on 2021: a record year of issuance

So far in 2021, a record $156 billion's worth of IPOs have come to market in the United States alone, not counting SPACs, which easily tops the prior, $97 billion record set in the bubbly year 2000.  Year-to-date issuance of leveraged loans and junk bonds ($613 billion and $461 billion, respectively) have similarly roared to records.

~ Jim Grant, "All except for the human beings," Grant's Interest Rate Observer, December 24, 2021