Last week, James Grant appeared on Connie Mack's WealthTrack for an in-depth interview. Grant is bullish about the recovery, saying the recovery is going to be surprisingly strong. Grant is must-see, must read material. If you missed the video, you may watch it here.
CM:Ā ... He is James Grant, editor of the biweekly newsletter Grantās Interest Rate Observer, a self-described independent, value-oriented and contrary-minded journal of the financial markets. A financial thought leader, Jim is one of Wall Streetās most astute, erudite and articulate observers. He is also the author of six books including a wonderful biography of the nationās second president titled John Adams: Party of One and his most recent Mr. Market Miscalculates: The Bubble Years and Beyond. In an interview conducted before this weekās third quarter GDP report showing the economy expanding at a well above consensus pace of 3.5%, I asked Jim why he, a notorious glass half empty kind of guy has recently gone from economic bear to bull.
How zippy is the recovery?
JAMES GRANT: Pretty darn zippy. The finest expression was that of a long deceased economist named Pigou, a Brit actually, sounds French, who said that the error of optimism dies in the crisis; it is followed by the era of pessimism, which is born not an the infant but a giant. Which is a wonderful expression of the human tendency to overdo it. So all of the new era cats find out that they didnāt get the memo. They were all wrong. There was in fact a debt problem. It burst in their faces. What they do now? They are disconsolate, they inconsolable.
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Nothing like this has been seen in the history of the world, the patient will not live sadly. So itās like that. And especially they overdo it on the downside and I think that goes for our esteemed government, especially the Fed, which not only didnāt see it coming but also didnāt comprehend it once it splattered all over its face like a cream pie.
CM: How robust do you think the recovery will be?
JAMES GRANT: I think itās going to surprise to the upside and so old am I, Consuelo, Iām not going to give a number, nor am I going to give a date, but I think that itās going to be surprisingly strong. The consensus is for next year to generate growth in our gross domestic product of about 2.5% after adjustment for price fluctuations. I expect it will be much better than that. Certainly for a couple of quarters which I think will jar people- theyāll say, wait, that was an unauthorized, who said they could do that? And you can see some of this in the making. The earnings call recently from Caterpillar featured the information that the dealers had run down their stocks to half of the usual and if they were only to restock to the little bit of the normal, there would be a big sales boom and CAT was kind of venturing that not implausible outcome next year would be growth of more than 10%. And I could see that throughout the economy, and people are expecting much, much less.
I think that the wisest course for investors is to heed the advice from the scripture of value investing, the Graham and Dodd idea that we can not know the future, therefore seek a margin of safety in investments in the present. That is to say, we canāt know really whatās going to happen in 2010, let alone 2017, but we can observe two things. We can observe the opportunities that are in front of us, in the securities as they are now priced, and two, importantly, they didnāt say this but I will, you can observe how the world is positioning itself for an expected outcome.
Read the whole transcript here, and here.
