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Japan Is Perhaps the Most Important Risk in the World
Speculation is mounting that the Bank of Japan is losing control of the bond market. Jim Grant, editor of «Grant’s Interest Rate Observer», believes this could trigger a shock to the global financial system. He also explains why he expects further surges in inflation and why gold should be part of your portfolio.
The news caught markets off guard: On December 20th, the Bank of Japan surprisingly extended the target range for the yield on ten-year government bonds to plus/minus 0.5%. A move that not a single economist had expected.
This week, the Bank of Japan could announce a major policy shift amid rising government bond yields and a strengthening yen. Although barely a month has passed since the BoJ’s last meeting, the bond market is already testing the new upper limit of the yield curve control regime.
«To us, Japanese interest rate policy resembles the Berlin Wall of the late Cold War era, a stale anachronism that must sooner or later fall,» says Jim Grant. For the editor of the iconic investment bulletin «Grants’ Interest Rate Observer,» recent developments in Japan pose an underestimated risk to global financial markets. Not least because virtually no one is talking about it.
In an in-depth interview with The Market NZZ, which has been slightly edited for clarity, Mr. Grant explains what it means for financial markets if the Bank of Japan is forced to scrap its yield curve control policy. But first, he says why he doesn’t believe inflation will end soon, why bonds may be at the start of a long bear market, and why he believes gold is the best choice as a store of value.
«If the past is prologue and if the great bond bull market is over, then on form, we are looking at what could be a very prolonged and perhaps gradual move higher in interest rates»: Jim Grant.
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«The Fed Reminds Me of a Speculator Who Is on the Wrong Side of the Market»
Jim Grant, editor of Grant’s Interest Rate Observer, warns of the rampant speculation in the stock market. He worries that the central banks are underestimating the threat of persistently high inflation and explains why gold has a bright future.
For Jim Grant, this is an environment that calls for increased caution. According to the editor of the iconic investment bulletin «Grant’s Interest Rate Observer», investors have to beware of an explosive cocktail combining exceptionally easy monetary policy, a pronounced appetite for speculation, and the high degree of leverage. He also thinks that central banks are underestimating the risk of persistent inflation.
«We have one of the most speculative Zeitgeists on record»: Jim Grant.
«The Fed reminds me of a speculator who is on the wrong side of the market», says Mr. Grant. The fact that the Federal Reserve is now beginning to taper its bond purchases makes little difference in his view. «It’s like pouring a little less gasoline on the fire,» he thinks.
In this in-depth interview with The Market/NZZ, which has been edited and condensed for clarity, the outspoken market observer and contrarian investor compares today’s environment with the second half of the 1960s and explains why he expects persistently high inflation rates. He explains what this means for the dollar as well as for gold, and where the best investment opportunities are with respect to the challenge of global warming.
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Underneath the Surface Trouble Is Brewing Once Again
Underneath the Surface Trouble Is Brewing Once Again
Larry McDonald, publisher of the investment research service The Bear Traps Report, warns that this crisis is far from over. He spots growing tensions in the credit markets and thinks that large public borrowers like Italy and New York State are in need of massive bailouts.
Stocks have staged an impressive comeback. Since the lows of March, the S&P 500 has gained almost 30%. Despite that, Larry McDonald would not be surprised if new turmoil soon arose.
“In March 2008 for instance, after the failure of Bear Stearns, the Fed acted aggressively and we had a big relief rally. But then came Lehman,” says the renowned investment strategist.
Mr. McDonald knows what he’s talking about. As a former vice-president of distressed debt trading at Lehman Brothers he witnessed the meltdown of the global financial system first hand. Today, he runs the The Bear Traps Report, an independent investment research service for institutional investors.
In this in-depth interview with The Market/NZZ, Mr. McDonald warns of rising defaults in the credit markets and points out that large public borrowers such as Italy and New York State are going to need bailouts of historic proportions. However, he spots opportunities in the metals and mining sector.
Mr. McDonald, despite a grim economic picture, investors are getting confident that the worst of the pandemic is behind us. What’s your take on the financial markets?
Equity markets have priced in a lot of love from the Federal Reserve. The Fed has done a lot to ease financial conditions, and the amount of liquidity is amazing. Since late February, they’ve done more in terms of balance sheet expansion than nearly two years of action in 2008 to 2010. They’ve clearly pumped up asset prices.
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Central Bankers Are Starting To Lose Control
Central Bankers Are Starting To Lose Control
All is good. The trade war between China and the United States comes to an end, the global economy has weathered the worst, and central banks are making sure that markets continue to go up. This is the scenario currently shaping the consensus.
Kevin Duffy is a battle-proven veteran in the risky business of short selling. He co-founded Bearing Asset Management in 2002. He and his partner were vocal critics of the 2007 credit bubble, successfully shorting many of its most aggressive players including Countrywide Financial and Bear Stearns. Prior to Bearing, Kevin co-founded Lighthouse Capital Management and served as Director of Research from 1988 to 1999. He chronicled the excesses of the Japan and technology bubbles of the late 1980s and the late 1990s. Kevin Duffy bought his first stock at the age of 13. He has a passion for Austrian economics and is the author of the popular Notable and Quotable blog.
Kevin Duffy remains skeptical. The experienced short seller warns that the super easy monetary policy is getting less and less effective. «This year, we’ve had this big sea change in terms of the central banks going back to easing and being more accommodative. Yet, the bond market is basically saying: no more! Easy monetary policy is not having the same stimulative effect as it had in the past», says Duffy.
Although it’s been a brutal year for short sellers, Duffy is convinced his time will come soon. In this in-depth conversation with The Market, he explains why he’s betting against stocks like BlackRock and MSCI – and which names are on his buy list.
Mr. Duffy, investors are in «risk on» mood again: concerns about a global recession are waning, the S&P 500 is at record levels. What’s your take on financial markets?
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The World-Wide Suppression of Interest Rates Has Been Something Very Near to a Crime
The World-Wide Suppression of Interest Rates Has Been Something Very Near to a Crime
James Grant, editor of the renowned investment newsletter «Grant’s Interest Rate Observer», warns about the growing herd of corporate «zombies» and other fatal market distortions caused by modern monetary policy.
Once again, the expedition to go back to normal has been postponed. After the big market scare at the end of 2018, central banks have abolished their plans to tighten interest rates further. Wall Street loves it. The first quarter has been the best one for risk assets in a decade, and after Lyft’s successful going public, a record year for IPOs seems to be in sight. Jim Grant observes the madding crowd from a sober distance. «Interest rates are the traffic signals of a market economy. Turn them all green, and errors and pileups abound», says the sharp thinking editor of the iconic Wall Street newsletter «Grant’s Interest Rate Observer. He states that a decade after the financial crisis, many companies are so heavily addicted to easy monetary policies that they wouldn’t be able to survive on their own. Consequentially, the proficient value seeker has a hard time to find attractive investments in today’s markets. Where he spots rare opportunities, he tells «The Market» in this extended interview.
Mr. Grant, once again, the Federal Reserve is giving investors the green light. US equities are off to their best start since 1998. What’s your take on the current state of the global financial markets?
Stocks are up, bond yields are down and economists are speaking of full employment: Everything seems perfect and improving. But I remain a non-believer in these modern monetary methods. If it were this easy, mankind would have solved the economic problems a long time ago.
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This Is EXACTLY What The Early Phases Of A Market Meltdown Look Like
This Is EXACTLY What The Early Phases Of A Market Meltdown Look Like
There is so much confusion out there. On the days when the Dow goes down by several hundred points, lots of people pat me on the back and tell me that I “nailed” my call for the second half of this year. But on the days when the Dow goes up by several hundred points, I get lots of people contacting me and telling me that they are confused because they thought the stock market was supposed to go down. Well, the truth is that if there is going to be a full-blown market meltdown, we would expect for there to be wildly dramatic swings in the market both up and down. A perfect example of this is what we experienced during the financial crisis of 2008. 9 of the 20 largest single day declines in stock market history happened that year, but 9 of the 20 largest single day increases in stock market history also happened that year. If we are moving into another great financial crisis, there should be massive ups and massive downs, and that is precisely what we are witnessing right now.
On Tuesday, the Dow surged several hundred points. There was much celebrating in the mainstream media over this, but what they failed to realize was that this was another big red flag. And we saw this volatility carry over into Wednesday. The Dow was up 171 points early in the day before ending down 239 points.
By themselves, those two days don’t mean a whole lot. The key is to look at them in context. And in context, we have already witnessed the most dramatic stock market crash since the last financial crisis.
There will be more days when the stock market absolutely plummets and there will be more days when it absolutely soars. No stock market crash in U.S. history has ever gone in just one direction continually.
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