Saturday, July 16, 2011

In Profile: Jim "The Dollar is Doomed" Grant

By Holman W. Jenkins Jr.

Jim Grant's father pursued a varied career, including studying the timpani. He even played for a while with the Pittsburgh Symphony. But the day came when he rethought his career choice. "For the Flying Dutchman overture," says his son, "they had him cranking a wind machine."

The younger Mr. Grant, who can be sardonic about his own chosen profession, might say he's spent the past 28 years cranking a wind machine, though it would be a grossly unjust characterization. Mr. Grant is founder and writer of Grant's Interest Rate Observer, perhaps the most iconic of the Wall Street newsletters. He is also one of Wall Street's strongest advocates of the gold standard, knowing full well it would take away much of Wall Street's fun.

You might say that, as a journalist and historian of finance, he has been in training his whole life for times like ours—in which the monetary disorders he has so astutely chronicled are reaching a crescendo. The abiding interest of Grant's, both man and newsletter, has been the question of value, and how to know it. "Kids today talk about beer goggles—an especially sympathetic state of perception with regard to a member of the opposite sex," he says of our current market environment. "We collectively wear interest-rate goggles because we see market values through the prism of zero-percent funding costs. Everything is distorted."

He adds: "I can't explain the world's infatuation with government securities and negligible yields. These bonds and notes and bills are denominated in currencies that central bankers are doing their best to depreciate."

By "can't explain," he perhaps means he recognizes too well a phenomenon he can't justify. The famously lanky Mr. Grant, whom I meet in his office over Wall Street, is a dyed-in-the-wool skeptic of the efficient markets hypothesis. Markets are "unpredictably inefficient," he says. Right now, he sees Ben Bernanke's Federal Reserve as a prime malefactor behind the characteristic economic folly of our age (though China is a big offender too): suppressing the proper functioning of the price system. "By flooding the system with dollar bills, I submit to you that he has accomplished little of what he meant to accomplish and he has unintentionally done a great many things he didn't want to do."

Mr. Grant is also a critic—albeit with caveats—of today's great bankers, whom he says in one respect don't hold a candle to their gilded forebears. "When you take away the downside, you take away the virtue. You take away the moral foundation of markets. You always have envy but now the envy is a little better grounded in objective facts. Taxpayers get the downside. Modern-day Wall Street gets the upside."

The upside did not come swiftly for Mr. Grant, a veteran of our sister publication Barron's, where he was the founding author of its "Current Yield" column. He left the comfy arms of Dow Jones in response to an "intramural political squabble" and, in 1983, hung out his own shingle.

Upon plowing his $75,000 in accumulated Dow Jones profit-sharing into a newsletter, he expected his former Barron's readers to race to sign up. They didn't. His nest egg quickly evaporated. Paying himself a salary was not even on the agenda for several years. Eventually he took on a silent partner in Wall Street investor John Holman Jr., whose children now luxuriate in dividends from Grant's Interest Rate Observer.

"The tax problems were long in coming," Mr. Grant notes wryly. Come they did. Today, he will only say that his subscribers number between 5,000 and 10,000. At $910 a pop, you do the math.

Read the rest, here.

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