Friday, May 20, 2011

"Once Bullish, Contrarian Jim Grant Likes Cash Now" (until the inflation hits)

From the AP via NPR:
Jim Grant quotes obscure dead economists at length. He pines for an earlier time of gas lights and top hats when the dollar was convertible to gold. He wears bowties.

Prolific author, gold bug, droll chronicler of Wall Street folly, Grant would be easy to dismiss as an entertaining but irrelevant throwback if he hadn't been proven so right so often. Now, as small investors are putting more money into markets, the publisher of the biweekly Grant's Interest Rate Observer is warning of new dangers. He says prices are too high for nearly every asset you can think of — stocks, junk bonds, Treasury bonds, British gilts, even Iowa corn fields.

With its wry observations about investor self-delusion, Grant's newsletter ($910 for an annual subscription) has become a sort of bible among the bold and bearish alike. Though detractors say he's far too negative, he's been praised for some timely calls. In the 1980s, he warned of an overheated junk bond market before it collapsed. He foretold of the bursting of the tech bubble in the late 1990s, and revealed the false alchemy of Wall Street's mortgage packaging business before housing crashed four years ago.

Occasionally, he's gotten bullish at the right time, too. Amid the panicked selling of late 2008, Grant told readers to load up on investment grade bonds, junk bonds, even a few of those much-derided mortgage securities. Some picks have more than doubled since....

...Q: What's your view of the stock market?
A: The Federal Reserve has unilaterally taken it upon itself to levitate asset prices. It is suppressing interest rates. When you're not getting anything on your savings, you are inclined to go out and buy something, anything, to generate either income or the expectation of capital gains. So the things that we take as prices freely determined are in fact manipulated.

A few months ago, (Fed Chairman) Ben S. Bernanke, Ph.D., the former chairman of the Princeton economics department, stood before the cameras of CNBC and said that the Russell 2000 is making new highs. The Russell! He sounded like another stock jockey. He was taking credit for new highs in the small cap equities index. The Fed, as never before, or rarely before, is now the steward of this bull market. One wonders what it will do if stocks pull back significantly.

Q: Are stocks overvalued?
A: Some big multinationals left behind in the past ten years (like) Wal-Mart, Cisco Systems, Johnson & Johnson appear to be attractively priced. But generally speaking, things are rich....MORE
HT: MarketBeat who begins his post:
In a new interview with the Associated Press, legendary bond maven Jim Grant says stocks are overpriced, as are gold and bonds, the Fed should be shut down, depressions should be allowed to happen, and those kids should get off of his lawn....MORE