Here's an interview with Jim Grant in the Graham & Doddsville newsletter, edited by the Students of Columbia Business School. The interview begins on page 1 and then continues on page 52: INTERVIEW WITH JAMES GRANT
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Excerpt:
G&D: Given the current state of the economy and the low interest rate environment, it sounds like you perceive risks that others do not. What facts, measures, or indications bother you most?
JG: Here’s a fact: China’s banking assets represent one-third of world GDP, whereas China’s economic output represents only 12% of world GDP. Never before has the world seen the likes of China’s credit bubble. It’s a clear and present danger for us all. And here’s a sign of the times: Amazon, with a trailing P/E multiple of more than 1,000, is preparing to build a new corporate headquarters in Seattle that may absorb more than 100% of cumulative net income since the company’s founding in 1994. Now, there are always things to worry about. Different today is the monetary policy backdrop. Which values are true? Which are inflated? In a time of zero percent interest rates, it’s not always easy to tell.
G&D: Where can the average investor find income?
JG: The average, risk-averse investor can’t. There’s none to be had, at least none in natural form. To generate yield, you must apply leverage. This is the stuff of businessman’s risk. A pair of examples: Annaly Capital Management (NYSE:NLY), a mortgage real estate investment trust, which changes hands at 83% of book value to yield 11.4%; and Blackstone Mortgage Trust (NYSE:BXMT), a new real estate finance company, which trades at 113% of book value to yield 6.43%. We judge both to be reasonable risks. More speculative, but—we think, also priced appropriately for the risk—are long-dated Puerto Rico general obligation bonds. The 5s of 2041 trade at 65.40 to yield a triple tax-exempt 8.18%. Widows and orphans stand clear.
G&D: What about the great debate over tapering?
JG: Grant’s is on record as saying that the Fed won’t taper. Or, that if it does taper, it will likely de- taper—i.e., reverse course to intervene once more— because the economic patient is hooked on stimulus.
The source of the Fed’s problem (which, of course, is everyone’s problem) is that there ought to be deflation. In a time of technological wonder, prices ought to fall, as they fell in the final quarter of the 19th century. As it costs less to produce things (and services), so it should cost less to buy them. In an attempt to force the price level higher by an arbitrary 2% a year, the central bank inevitably creates too much money. Those redundant dollars don’t disappear.
