James Grant Says Bond Market Is “Bubble of Modern Banking…”

March 17, 2012

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James Grant Says Bond Market Is "Bubble of Modern Banking, a Desert of Value; Gold a Reciprocal Faith in Bernanke"

Courtesy of Mish

James Grant, publisher of Grant's Interest Rate Observer, talks about Federal Reserve monetary policy, the bond market and investment strategy. Grant, speaking with Deirdre Bolton on Bloomberg Television's "Money Moves," also discusses the Chinese economy.

Link if video does not play: Bond Market 'Desert of Value'

Select Interview Quotes

Grant: The Fed seem bent on suppressing this most elegant thing we have called a price mechanism, the movement of price that determines all manner of things in a market economy. Yet the Fed seems bound and determined to superimpose its will in place of the price mechanism. Take the bond market for example, the Fed has hammered down yields directly and indirectly and in response people are throwing money at things like high-yield or junk bonds. These are the prices the Fed wants, but are they the right prices? No not necessarily.

Deirdre Bolton: How is a bond investor to deal with this current environment? You are calling actually for a bear market in bonds, am I correct?.

Grant: I have forever. So I am no help there. But it seems to me a bond investor is almost better off in cash. If you were to go out 10 years in a US treasury security you earn yield of approximate 2%. To remain in cash and be flexible you sacrifice those 2%. The bond market is a desert of value.

Deirdre Bolton: What does this mean for gold?

Grant:The price of gold is the reciprocal of the world's faith in the likes and deeds of Ben Bernanke.