Interview
James Grant, Founder of "Grant’s Interest Rate Observer"
- Subject of Biography: Jim Grant's ninth book, Bagehot: The Life and Times of the Greatest Victorian, chronicles Walter Bagehot (1826–1877), a financial journalist and editor who was the son-in-law of The Economist's founder, James Wilson.
- Bagehot's Core Contribution: While Bagehot did not invent the concept, he made the doctrine of the "lender of last resort" proverbial and integrated it into everyday financial discourse, primarily through his book Lombard Street.
- Central Banking Tension: Grant identifies an inherent conflict where financial institutions prioritize high Return on Equity (ROE) while needing to conserve their franchise and maintain liquidity guardrails in a gold-based system where money yields no interest.
- Historical vs. Modern Monetary Policy: Grant critiques the Federal Reserve's post-2008 strategy as operating under a "dual remit of arsonist and fireman," noting he questioned a New York Fed president about this dynamic; the Fed president declined to engage with the analogy.
- Interest Rate Epigram: Bagehot famously observed that "John Bull can stand a lot of things, but he can't stand 2%," arguing that artificially low positive interest rates (specifically 2%) provoke excessive risk-taking that precedes crises.
- Recurring Market Patterns: Despite technological shifts (e.g., railroads in the 1850s as the "unicorn" and telegraphs as the "internet"), market behaviors remain consistent; Grant cites Karl Marx's 1850s optimism regarding the "unbounded commercial optimism" of the era, including the Crystal Palace exhibit.
- Writing Philosophy: Grant describes his writing process as "reluctant, dutiful, and perpetual," noting he prefers the category of writers who "like what they have written" over those who "like to write," and advises staff to imagine a cost of 50 cents per word to curb verbosity.
- Global Debt Yield Anomalies: Approximately $14.5 trillion in global bonds were quoted at less than zero (negative nominal yields) as of 2019, a historical anomaly where no prior instance in recorded history saw such a substantial volume of notes yielding below zero.
- Drivers of Negative Yields: Grant attributes negative yields to "38 years of muscle memory" (a bond bull market since 1981), relentless central bank intervention (over $13 trillion in asset purchases since 2008), and the belief in a permanent end to inflation driven by demographics and technology.
- 100-Year Bond Case Study: A 2017 Austrian 100-year bond was issued at a 2.1% yield; Grant calculates that at a 72 basis point yield, it would take 100 years for the principal to double, concluding that holders are betting on favorable conditions for a creditor class that has historically faced devaluations and defaults.
- Bretton Woods Critique: Grant posits that the post-1971 era of fiat money and monetary stimulus will be viewed historically as an "unsuccessful experiment" characterized by socialized risk, moral hazard, and the destruction of value.
- Investment Factor of "Accident": Grant introduces the "factor of accident" or surprise as the most critical, yet overlooked, element in investing, warning that confusing historical trends with future certainty is a primary source of loss ("what we know for sure kills us").
- Rick Reeder's Stance: BlackRock's Rick Reeder, who manages $2.2 trillion in bonds, discussed the "Monetary Policy Endgame" involving helicopter money and currency debasement; however, BlackRock's PR apparatus clarified that Reeder does not characterize his position as strictly "bearish" on bonds, despite the underlying risks.
- Event Logistics: Jim Grant will be conducting a book signing for Bagehot, with books sold at full retail price.