When your newsletters sort of become a bible amongst a certain section of investors, you jolly well know that you are onto something. One such person is the contrarian investor Jim Grant.
He is not only a prolific author but has also developed an uncanny knack of being proven so right, so often. Amongst the long list of his successful predictions is the warning of the overheated junk bond market way back in 1980s. His most recent claim to fame includes correctly identifying the false alchemy of Wall Street's mortgage packaging business before housing crashed in the US four years ago.
So, what's top on the mind of Jim Grant currently? Normally, one would have had to subscribe to his quite pricey newsletters to get an answer to the question. However, luckily for us, he does come out in the open once in a while to take his heart out on a wide variety of topics. The Associated Press in New York was the lucky recipient this time around as Grant chose to spend some time with them.
When asked what his view on the stock market was, Grant argued that stock prices, which we have to come to assume as determined by market are now being manipulated by the US Fed. Therefore, he wonders what the Fed will do if stocks pull back significantly. He of course argued that stocks are indeed trading at rich levels
He was also questioned on his recent warnings about high inflation. He opined that while he has been wrong about inflation so far, all things are cyclical as per him and the seemingly impossible is just around the corner. Therefore, he believes he will stick to his guns of a 10% inflation forecast in the US! He also added that when inflation would raise its ugly head, there is very little the US Fed will be able to do about it.
On the question of what will replace the dollar as the world's reserve currency, he was of the view that there will be a gold standard again in our lifetime if not his.
As far as investing in current times goes, Grant argued that the trouble with the present is that nothing is actually cheap. Perhaps one way to proceed as per him is to hold cash. He believes that this time of full overvaluation shall pass and because business cycles have become so compressed, it could pass in a jiffy and then there will be a panic and it will seem as if the world's ending. And that's when somebody who is nimble can get fully invested in a comfortable way as per him.
Hmm, some very wise words indeed we should say.