01/09/04: Market Monitor- James Grant, Editor, "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. It`s nice to be here.
KANGAS: You know, when you were last with us in early May and the Dow was around 8,560, the NASDAQ Composite at 1,500, you considered most stocks to be too expensive, although you did like the golds, which have done extremely well. But have the fundamentals changed since May to support the huge market rally that has followed?
GRANT: Oh, I think that the funds have become less attractive because prices are much higher. So that`s my story and I`m sticking to it, Paul. It`s over valued.
KANGAS: So you`re still of the belief that we are in various short-term bull rallies in a long-term secular bear market?
GRANT: Oh, I certainly don`t know that. But looking around the run of the S&P and the NASDAQ, I see very little that is compellingly valued.
KANGAS: OK. Fair enough. You know, you`ve also said that our central bank, the great Federal Reserve, has a longstanding policy to make sure the dollar depreciates, and that certainly has been borne out in the last six months. Give us an update on what`s going on here.
GRANT: Well, the world over people are voting for inflation and central banks, with the possible exception of the European Central Bank, have opened the spigots wide. My bullish stance towards gold and silver is based upon the belief that this will continue, that the depreciation of the dollar will force even the orthodox Germans at the European Central Bank to give in and print a lot more currency. So I think that what the world wants, it will presently receive, and that is much cheaper paper money.
KANGAS: And higher interest rates eventually?
GRANT: Eventually. The thing I`m more confident of is that there will -- at the margin, there will a be an expressed preference for gold and silver, the marginal cost of production of which is substantial.
KANGAS: OK. All right, now, the last time were you with us in May, you thought the bond market was a very dangerous place to be. And how about now?
GRANT: You are not getting paid for the risk. And that holds true in treasuries and it especially holds true, in my opinion, in high yield or junk bonds. These days junk is not pejorative, it is merely descriptive. There is no yield to speak of in high yield. The average junk bond yields less than 6 1/2 percent and is spread very tight, by historical terms, to the Treasury. So people ought to be aware that they are getting some pick up from government securities yields, but they are taking a substantial risk to get it.
KANGAS: OK. Now, going back to your last visit with us in early May, you recommended Annaly Mortgage (NLY), which we have up here on the graph. It was at $19. It`s around $18.55 now, down a little bit. But it pays a huge dividend. So I guess you`re really ahead of the game since then.
GRANT: Well, Annaly is in the business of speculating intelligently in mortgage securities. It buys them with leverage, that is to say, borrowed money. It does it in a way that has produced sterling results for a long time. I have faith in the management. But it is not to be confused with a Treasury bill. It yields you a very, very competitive yield these days, much higher, for example, than an emerging market stead or junk bonds. But you are taking some risk to get it and people should know that.
KANGAS: OK. Also, you liked the golds funds like Tocqueville (TOCQX), which is way up, from $22 to $37. And, also, you liked another one, First Eagle, which has gone from $12 to $17.70. Do you own all of these still and staying with them?
GRANT: Yes. I think that the gold bull market, now in its fourth year, I think will continue because we`ve had Alan Greenspan and Ben Bernanke and other public servants on our side. What they want to do is print more of the thing in your wallet, Paul.
KANGAS: OK. Do you have any new recommendations, Jim?
GRANT: I like a silver company, a silver producer called Pan American Silver (PAAS).
KANGAS: Oh, boy it`s had a run-up. We have it up here on the chart.
GRANT: Yes, we`re not getting at the lows. But silver is a very, very volatile monetary asset. You know, gold is the statesman of the monetary metals and silver is kind of the crazy guy at the edge. And silver is, I think, is beginning its bull run.
KANGAS: OK.
GRANT: This is an opinion as opposed to a prophecy or a certainty.
KANGAS: All right, so Mr. Precious Metals right here. Thanks very much for being with us again, Jim.
GRANT: You`re welcome, Paul.
KANGAS: My guest "Market Monitor," James Grant, Editor of the widely followed "Grant`s Interest Rate Observer."
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