Jim Grant on the New Federal Reserve Governor Nominees; Economic Groupthink
by ilene - July 21st, 2010 12:57 am
(Video’s back in working order.)
Jim Grant on the New Federal Reserve Governor Nominees; Economic Groupthink
Courtesy of JESSE’S CAFÉ AMÉRICAIN
Organizations, whether it be a club or a profession or a department, too often over time develop a sort of intellectual inertia, a bureaucratic mindset that tends to perpetuate and validate a certain view of the world amongst its members, particularly if they share other elements in background and world view.
This works to its advantage when they are right, and when the scope of the tasks which they must address are limited to largely operational concerns, without significant risk in the classic sense of the term.
But when the situation becomes different, the environment changes, this organizational mindset not only stifles innovation and adaptation, it can literally reach out and strangle it, well beyond its members, using the entrenched power of its tenure. We see this tendency clearly in organizations that have enjoyed long periods of organizational growth under the leadership of strong personalities, such as the FBI under Hoover, and the Federal Reserve under Greenspan.
We can see this same tendency on a micro level in our daily life on chatboards, in clubs, in our company departments, in civic organizations. It is a tribalistic instinct, that urges the adoption of a consensus view, often influenced and promoted by articulate and single minded individuals, which then musters and focuses the energy and vitality of the group in the execution of its mission.
When it is right, it brings success. But when it goes wrong, when it feeds on itself, becomes defensive and inwardly focused, when perpetuation of the group view overtakes all other considerations, when tribal loyalty and sameness is valued over results, it leads to a cult like behaviour, inbred thinking, that may be inimical to the best intentions of the group, and the sort of behavioural anomalies which we have seen in the tragedies of Watergate, the latter stage Hoover FBI, and even Jonestown.
Economics is in the grips of such a period in its development. One of the primary causes of this problem has been the rise of a few well funded think tanks, universities, and of course the Federal Reserve, that have become powerful influencers, and guardians, dogmatisers of the status quo. The petty sniping among the schools notwithstanding, the current debate of stimulus versus austerity serves to show how anemic, how self…
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JIM GRANT SAYS THE FED KNOWS NOTHING
by ilene - July 20th, 2010 3:51 am
JIM GRANT SAYS THE FED KNOWS NOTHING
Courtesy of The Pragmatic Capitalist
Oh the ironies! The man who believes the U.S. has a Greek problem also believes the Fed has no idea what it’s doing….At least he gets part of the argument right. Unfortunately, the “brightest” and most respected minds in this country have just about no clue how things work in the real world. Is it any surprise that the
Source: Bloomberg TV
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Jim Grant Takes On David Rosenberg And The Bond Bulls, Warns The Fed Chairman: “Watch Your Back Ben Bernanke, Cycles Turn”
by ilene - April 4th, 2010 1:09 am
Jim Grant Takes On David Rosenberg And The Bond Bulls, Warns The Fed Chairman: "Watch Your Back Ben Bernanke, Cycles Turn"
Courtesy of Tyler Durden
In one of the most erudite, intelligent, and insightful conversations on the Bond bull/bear debate, David Rosenberg and Jim Grant go all out at each other, trading blows in this "Great Debate" which is a must see by all. As we pointed out yesterday, Grant is very bearish on bonds, and in a self-made prospectus has decided to downgrade the US, since the rating agencies, which have long been thoroughly incompetent, corrupt and afraid to disturb the status quo, will not do so until it is too late. Jim’s point is simple: you can’t resolve massive debt with more debt, and says Treasuries, which he calls "certificates of confiscation" are a surefire way to lose one’s money. He points to the record supply of US Treasuries, makes fun of the SEC (who doesn’t), and in a stunning move, cautions the Fed Chairman, whose ongoing dollar debasement, was once considered treason by the US. His conclusion: "watch your back, Ben Bernanke. Cycles turn" could not have come at a more opportune time. As a contrarian, Rosenberg discusses the McKinsey report looking at sovereign debt, and the Reinhart and Rogoff studies on debt default and highlights that there is a major disconnect between theoretical applications of sovereign default models and practice: in essence the US is still deleveraging as private debt is decreasing and public debt is surging but to a slower degree. In essence, David claims, the second largest monthly debt issuance in March of $333 billion is merely a side effect of ongoing deleveraging, which is a leading and/or coincident indicator of deflation: an environment in which the long bond thrives (Japan is a good reference point).
Agree or disagree, the fact that two of the smartest economists in the world can present very persuasive cases for either side indicates precisely the conundrum we are in, and is precisely why the Fed will pretend it is operating in the shadow of a so-called Goldilocks economy, even as it prints record trillions of new debt until one or the other is proven wrong. If, as many expect, Grant ends up being correct, than Bernanke will have gambled and lost the future of the United States.
Some…
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Reflections on “The Last Bear Standing”
by ilene - September 27th, 2009 4:36 pm
Reflections on "The Last Bear Standing"
Courtesy of Mish
Bill Bonner is one of my favorite columnists. On Friday he was discussing The Last Bear.
As they say on Wall Street, a rally ends when the last bear gives up. An old friend had been a source of inspiration for tech bears for many years. He suddenly saw the light and gave up in 1999. Shares he had formerly scorned – often dotcoms with no revenue and no business plans – were suddenly added to his own portfolio. This also heralded a big change – the end of the tech bubble. Tech stocks collapsed. Most disappeared. Then, Stephen Roach became vaguely bullish in 2007, after a long period of doubt and misgivings.
Now it is Jim Grant who has changed his mind. A generation of investors has gotten used to Grant’s ‘doom is nigh’ warnings. Now, he says, it’s a boom that is nigh.
What is remarkable about the Grant conversion is that his vision gives off so little heat and light. His WSJ article shillyshallies around; rehearses the history of previous recessions and comes to rest in front of a flickering match: “The deeper the slump, the zippier the recovery.”
But facts are survivors. They will tell whatever tale their interrogators want to hear. As for opinions, after six months of a stock market rally, the once half empty glass has become half full. We predicted it ourselves. But we’ll let Robert Prechter say, ‘I told you so.’ Even before the rally began, Prechter foretold its story:
“Regardless of extent, it should generate feelings of optimism. At its peak, the President’s popularity will be higher, the government will be taking credit for successfully bailing out the economy, the fed will appear to have saved the banking system and investors will be convinced that the bear market is behind us.”
As to Mr. Obama’s popularity, Prechter was wrong. But 4 out of 5 ain’t bad.
What will happen next, we don’t know. But if we turn bullish on this economy and urge you to buy stocks, it will surely be time to sell them.
Enjoy your weekend,
Bill Bonner
The Daily Reckoning
From Deflation to Inflation
With the above in mind I note with interest Martin Weiss, a prominent deflationist has changed his stance. Please consider From Deflation to Inflation.
Step by step,
…
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Rosie Debunks Jim Grant Rosyness
by ilene - September 21st, 2009 11:47 pm
In case you missed it, David Rosenberg offered thoughts about James Grant’s seemingly odd switch from his generally bearish positioning to cautiously bullish over the weekend. Here’s what David has to say, courtesy of Tyler at Zero Hedge.
Rosie Debunks Jim Grant Rosyness
Much has been made of Jim Grant’s piece in the WSJ over the weekend in which he implicitly professes his conversion from a bear to a bull. Some have already voiced their argument for why Grant, usually a very in depth analyst of historical and prevailing themes, may have otherwise cut some corners in his explanation of the ongoing seemingly unstoppable 6 month long market move. In his Breakfast with Dave, Rosenberg shares his two cents on why Jim’s evaluation is not quite up to snuff. One hopes that Grant’s Interest Rate Observer subscriptions do not suffer as a result of what could become a bear war (or alternatively, that a subscription "issue" was not one that caused the rather dramatic shift in perception).
IS JIM GRANT THE LATEST TO BE DRINKING THE KOOL-AID?
The Weekend Journal ran with an article by James Grant, which admittedly took us by surprise (he is a true giant in the industry, as an aside) — From Bear to Bull and in the article, he relies mostly on the thought process from two economic think-tanks — Michael Darda from MKM Partners and the folks over at the Economic Cycle Research Institute.
We highly recommend this article for everyone to read to understand the other side of the debate. But we have some major problems with the points being made.
1. Mr. Grant starts off by saying that “as if they really knew, leading economists predict that recovery from our Great Recession will be plodding, gray and jobless.” Well, frankly, it doesn’t really matter what “leading economists” are saying because Mr. Market has already moved to the bullish side of the debate having expanded valuation metrics to a point that is consistent with 4% real GDP growth and a doubling in earnings, to $83 EPS, which even the consensus does not expect to see until we are into 2012. We are more than fully priced as it is for mid-cycle earnings.
2. Nowhere in Mr. Grant’s synopsis do the words “deleveraging” or “credit contraction” show up. Yet, this is the cornerstone of the bearish viewpoint. Attitudes
…
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You’re All Wrong, There’s No V-Shaped Recovery Coming
by ilene - September 20th, 2009 3:19 pm
Joe, like me, is having a hard time embracing the V-shaped recovery belief. He makes a good point about economics not being either physics or history, and if we’ve seen anything over the last few years, it’s perhaps how wildly the operative economic principles of the day have failed. – Ilene
You’re All Wrong, There’s No V-Shaped Recovery Coming
Courtesy of Joe Weisenthal at Clusterstock
But economics isn’t physics. And don’t worry about not knowing your history, because economics isn’t history either.
Here’s why we’re not in for a v-shaped recovery.
First, the pax economica that preceded the current slump was artificial. Large swaths of the economy had stopped doing anything productive, while the rest of the economy was buoyed by rising home values that allowed for spending on a level that was disconnected from what people were actually bringing in via income. Of course, you know this part of the story, but the key is that this is meaningfully different than the situation heading into previous economic slumps.
The other reason why we’re not in for a "V" is that the economy, even without the credit-collapse, is still in the midst of violent changes in the economy. New technology and new business models are uprooting old businesses (whether it’s media, manufacturing, or commercial real estate), throwing labor and capital into disarray. Ultimately the transition will be good, but in the meantime, displaced workers will face an unusual amount of lag in finding new work, if only because the industries that were they yesterday have gone and disappeared, requiring extensive levels of retraining.
There are other aspects too, such as the size of government and demographics that look increasingly unfavorable.
Curiously, Jim Grant’s admonition to remember history only mentions past slumps in the US. We don’t see the word "Japan" mentioned once in the whole article? But unless the laws of economics are different there than they are here, then we can certainly point to examples of bad busts that weren’t followed by a quick snap back.…
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Jim Grant: Ringing the Bell at the Top?
by ilene - September 20th, 2009 1:29 am
Jim Grant: Ringing the Bell at the Top?
Courtesy of Michael Panzner at Financial Armageddon
In the following Wall Street Journal commentary, "From Bear to Bull," a long-time critic of the excesses and wayward policies that brought this country to its knees suggests the outlook for the economy is brighter than many people, especially the pessimists, believe:
James Grant argues the latest gloomy forecasts ignore an important lesson of history: The deeper the slump, the zippier the recovery.
As if they really knew, leading economists predict that recovery from our Great Recession will be plodding, gray and jobless. But they don’t know, and can’t. The future is unfathomable.
Not famously a glass half-full kind of fellow, I am about to propose that the recovery will be a bit of a barn burner. Not that I can really know, either, the future being what it is. However, though I can’t predict, I can guess. No, not "guess." Let us say infer.
The very best investors don’t even try to forecast the future. Rather, they seize such opportunities as the present affords them. Henry Singleton, chief executive officer of Teledyne Inc. from the 1960s through the 1980s, was one of these enlightened opportunists. The best plan, he believed, was no plan. Better to approach an uncertain world with an open mind. "I know a lot of people have very strong and definite plans that they’ve worked out on all kinds of things," Singleton once remarked at a Teledyne annual meeting, "but we’re subject to a tremendous number of outside influences and the vast majority of them cannot be predicted. So my idea is to stay flexible." Then how many influences, outside and inside, must bear on the U.S. economy?
Though we can’t see into the future, we can observe how people are preparing to meet it. Depleted inventories, bloated jobless rolls and rock-bottom interest rates suggest that people are preparing for to meet it from the inside of a bomb shelter.
The Great Recession destroyed confidence as much as it did jobs and wealth. Here was a slump out of central casting. From the peak, inflation-adjusted gross domestic product has fallen by 3.9%. The meek and mild downturns of 1990-91 and 2001 (each, coincidentally, just eight months long, hardly worth the bother), brought losses to the real GDP of just 1.4% and 0.3%, respectively. The
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
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