1/13/06: "Market Monitor"- James Grant, editor of "Grant`s Interest Rate Observer"
PAUL KANGAS: My guest "market monitor" this week is James Grant, editor of the widely followed publication, "Grant`s Interest Rate Observer" and welcome back to NIGHTLY BUSINESS REPORT, Jim.
JAMES GRANT, EDITOR, "GRANT`S INTEREST RATE OBSERVER": Thank you, Paul, nice to be here.
KANGAS: Are you one of the ever growing crowd of analysts who believe the Federal Reserve is nearing the end of its measured interest rate increases?
GRANT: Gosh, I guess I am. I didn`t realize it was that big a crowd but, yes, I am of that multitude. I think that the next increase could well be the last.
KANGAS: That would put us under 5 percent then for the Fed funds rate.
GRANT: It would indeed; it would take us to 4.5 percent.
KANGAS: Are you saying that the Fed sees enough figures on the economy that it`s slowing enough to they don`t want to raise rates anymore. Is that the reason?
GRANT: Well, hear I borrow from the excellent Paul Casrio (ph) of Northern Trust Company. The Fed set out to raise the funds rate to a more normal level, more normal than, say, 1 percent. It has done that. It set out to forestall inflation and to dampen inflationary expectations and by some measures it has done that. It set out to dampen the speculation in the housing market and it has done that as well. It doesn`t want to precipitate a recession and so much of this economy is so dependent upon housing that if it were to tighten further it just might do that. So it seems to me that the Fed is very close to being finished.
KANGAS: Fair enough. Now, Jim, give us your assessment of incoming Fed chief Ben Bernanke and how he might compare with Alan Greenspan.
GRANT: He is a very smart fellow, Mr. Bernanke. He is however -- he is beset by the characteristic lack of imagination of the true intellectual which is that he believes that he can control events rather than being controlled by them. He is really in the price-fixing business. The Fed itself is a price-fixing agency. It set this rate called the Fed funds rate. Now, we have markets the world over that discover prices and interest rates in the case of central banks. Central banks set the rates. Mr. Bernanke is very smart, but he`s not smart enough to be a successful long-term price controller. Nobody is.
KANGAS: OK. You think the market should set the rates, as simple as that?
GRANT: I do.
KANGAS: OK. Now recently we experienced a few brief cases of an inverted yield curve. That`s when short term rates are a bit higher than long term and a lot of economists believe such an inversion is a signal of oncoming recession. Do you subscribe to that theory?
GRANT: Sometimes such an alignment of interest rates does presage a recession. However, in this case, the alignment was not really inverted, that is to say short rates were about even with long rates and it was torturing this model to say that there was a so-called inversion. So, no, I don`t think that the yield curve is saying that.
KANGAS: It`s not a signal of an oncoming recession as far as you`re concerned?
GRANT: No, it is not.
KANGAS: OK. On your list visit with us in early March of last year, you recommended two securities and Korea fund up 36.8 percent and Korea electric power up 43.3 percent, two great calls, Jim, and I compliment you. Are you still with them?
GRANT: God, did I say that?
KANGAS: Yes, you did.
GRANT: Yes.
KANGAS: OK, stay with it. You also said stay with golds from your previous visit with us like Toqueville and First Eagle and Newmont Mining and they`re way much, much much higher than they were last March so you`ve done very well. How about some new suggestions?
GRANT: Well, my first idea, Paul is a mutual fund called Third Avenue Value Fund. It`s run by the eminent Martin Whitman, a great value investor of long standing. And this fund specializes in buying cheap and safe securities. Marty wants to buy equities at a price below what he calls readily ascertainable net asset values.
KANGAS: All right, we weren`t able to get a chart on it, but it trades in the high 50s. I can tell you that much and we`ll get a correct figure on that early next week. We have time for one more. We just have a few second left.
GRANT: Japan, which I have a personal interest, as indeed I do with Marty`s fund. Japan, I think, is in the beginnings of a terrific bull market. Things are going right where they have been going very wrong.
KANGAS: And do you own these securities?
GRANT: I do.
KANGAS: OK. Great. Jim, I want to thank you very much for sharing your insights with us.
GRANT: Thank you, Paul.
KANGAS: My guest, Jim Grant of "Grant`s Interest Rate Observer." |
