RWH012: FEAR THE FED

W/ JIM GRANT

20 August 2022

William Green chats with Jim Grant, who’s been hailed by Institutional Investor magazine as a “Wall Street Cult Hero.” Jim is the editor of Grant’s Interest Rate Observer, which is required reading among the world’s most successful investors. Famously prescient, he rang the alarm before the dot-com crash, before the Global Financial Crisis, & before the recent surge of inflation. Here, he shares his fiercely skeptical views on the folly of the Federal Reserve, why he refuses to invest in China, why he likes gold, & why he’s bearish on bonds & Bitcoin.

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IN THIS EPISODE, YOU’LL LEARN:

  • How the Great Inflation of 1965-81 shaped Jim Grant’s views on our current predicament.
  • How history shows us that human behavior around money has never really changed. 
  • Why it’s futile to forecast interest rates, but wise to know what’s happened in the past.
  • How the Federal Reserve sparked rampant inflation, why it’s scary, & how to deal with it.
  • How central bankers illustrate the perils of overconfidence & the need for humility.
  • What you can learn from a classic investment book about the secret of “dying rich.”
  • How the Fed could wreck the U.S. economy while attempting to tame inflation. 
  • What investment opportunities Jim sees in this high-risk economic environment.
  • Why he’s bearish on bonds as a 40-year cycle of falling interest rates comes to an end.
  • Why Jim likes gold, not Bitcoin, as a protection against financial chaos & monetary folly.
  • Why he adamantly refuses to invest in China.
  • How to handle the emotional challenge of investing when the stock market is tumbling.
  • What we can learn from Bernard Baruch, one of the best investors of the 20th century.
  • What Jim thinks of great investors like Seth Klarman, Paul Tudor Jones, & Bill Miller.
  • What Jim regards as “the most precious commodity” in life.

TRANSCRIPT

Disclaimer: The transcript that follows has been generated using artificial intelligence. We strive to be as accurate as possible, but minor errors and slightly off timestamps may be present due to platform differences.

William Green (00:00:03):
Hi there. My guest today is Jim Grant, who founded an investment publication called Grant’s Interest Rate Observer back in 1983. Jim has been the editor for nearly 40 years. Now, a subscription costs more than $1,400 a year. So it’s not exactly cheap, but it’s widely regarded as required reading for the world’s most successful investors. In fact, when Institutional Investor Magazine wrote a long profile of Jim a couple of years ago, it described him as a Wall Street cult hero. One reason for Jim’s cult status is that he’s a superb economic historian, and he draws on this deep knowledge of the past to shed light on what’s likely to happen in the future. He’s made a lot of famously prescient calls over the years. For example, at the height of the dot-com bubble back in 1999, he declared that it was one of the most perilous junctures in investment history and warned that America was dangling by a thread financially speaking. A year later, the bubble burst, the NASDAQ index collapsed and plunged almost 77%.

William Green (00:01:07):
Then in the years before the global financial crisis struck in 2007, Jim was one of the very first people to warn about the toxic mortgage securities that ultimately led to the meltdown of the global economy. More recently, Jim’s been warning for several years that the Federal Reserve has been engaging in a reckless monetary experiment that was very likely to trigger rampant inflation. Unfortunately, it turns out that he was right once again. Inflation recently hit its highest levels in more than four decades. As you’ll hear, Jim’s disdain for the Federal Reserve runs deep. He recently described the Fed as, “The most dangerous financial institution on the face of the earth.”

William Green (00:01:49):
In this conversation, we talk about the treacherous situation that investors now face with a worrying combination of runaway inflation, slow economic growth, and historically high asset prices. Jim explains how hard it will be for the Fed to get inflation under control without wrecking the economy. He also explains why he’s bearish about bonds, why he likes gold and why he dislikes Bitcoin, and also why he adamantly refuses to invest in China. He also talks about some great investors like Seth Klarman, Paul Tudor Jones, Bill Miller, and a legend named Bernard Baruch. For me, this conversation was an absolute delight. Jim is one of those rare people who’s not only incredibly knowledgeable and articulate and thought provoking, but also extremely funny. I hope you enjoy our conversation as much as I did. Thanks so much for joining us.

William Green (00:02:45):
You’re listening to the Richer, Wiser, Happier Podcast, where your host, William Green, interviews the world’s greatest investors and explores how to win in markets and life.

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