This is an interview of Jim Grant by Henry Bonner. If you’re interested in the prospects for the US economy and major asset classes, particularly treasuries and corporate bonds, and read nothing else this weekend, read this interview.
One major takeaway is that back in the early 80s, when bonds were out of favor, interest rates were in the teens. Bonds were considered to be a bad investment–demand was low, prices were low, yields were high. Compare that situation to now, when people are rushing into bonds with much, much lower yields. Bond prices are kept high somewhat artificially by the Federal Reserve’s buying. The low yields create a unique environment for other asset prices, such as stocks. But many factors are at play and trying to predict the future from singular correlations is a fool’s game.Â
What I don’t know about the future, we don’t have the time to go into.Â
We’re in an Era of ‘Central Bank Worship’ ~ Jim Grant
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Jim Grant: We’re In An Era Of “Central Bank Worship”
By Henry Bonner of Jim Grant: We’re In An Era Of “Central Bank Worship”
Jim Grant is the publisher and editor of Grant’s Interest Rate Observer, a bi-monthly newsletter that he founded in 1983, around the time when bonds were considered some of the worst investments – when they yielded 13 to 15 percent.
Rick Rule, Chairman of Sprott US Holdings Inc., often quotes Jim Grant’s description of government bonds as ‘return-free risk.’ (Rick sees US Treasuries as the ‘anti-gold’).
Mr. Grant took my questions on interest rates and the bond market – including Bill Gross’ recent departure from PIMCO – via phone from his Manhattan office.   Â
Mr. Grant, you argue that companies whose share prices are rising should be becoming more efficient – hence driving down the costs of consumer goods and services.
The Fed is succeeding in keeping both stock market prices and consumer goods prices moving higher – which look like contradictory goals. Do you think this situation is sustainable going forward?
