Prolific author and chronicler sixty four years old Jim Grant is the publisher of bi-weekly Grant’s Interest Rate Observer. He is criticized and yet respected for his predictions about the market that has often turned out to be correct.
The Associated Press had a discussion with Grant to know his views and opinion on various issues related to the financial market. As regards the stock market he said that the unilateral activities of the Federal Reserve have been depressing rates of interest. He explained that this has led to manipulation of prices as these are no longer freely determined.
Regarding overvaluing of stocks, Grant opined that some mega multinationals from the past decade like Cisco Systems, Wal-Mart, Johnson & Johnson seem to be well priced.
If Grant had been in the shoes of Bernanke he said most probably he would have resigned since he trusted in price mechanism and the market mechanism. He would not have opted for intervention and allowed some of the chips to fall.
He cited the depression of 1920-21. Within a year and a half the GDP was double figures down and prices of commodities had fallen but it came to an end. The Federal Reserve had during that particular depression increased its discount rate causing the Treasury to see a surplus. Why did it end so quickly? The people saw that prices were cheap and so they started investing. This approach although ugly was fast.
Grant expressed his pain that the college children today have nothing before them with employment figures not improving enough to have an impact.
He referred to the years from 2002 to 2003. For about fifteen minutes the costliest company in the world was Cisco Systems; there was surging hope that the digital revolution would totally eradicate poverty. But the cycle ended with a bang.
There was all round confusion in stock market. In response interest rates were pushed down and the real estate was given a helping support. This has led to ownership numbers of homes increasing together with stocks and risky firms started issuing debt at unimaginable levels.
That such a situation would arise after the bursting of the tech bubble none could have dreamt. But that too ended with a lot of noise and the money lords have crafted new and more daring stimulus methods. Grant thinks that after few years, people would say “Can you believe we fell for this again?”
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