Market Monitor-James Grant, Editor, "Grant`s Interest Rate Observer"
Friday, July 28, 2006PAUL KANGAS: Market monitor this week is James Grant, editor of the popular publication, "Grant`s Interest Rate Observer" and welcome back to NIGHTLY BUSINESS REPORT Jim.
JAMES GRANT, EDITOR, "GRANT`S INTEREST RATE OBSERVER": Thank you Paul. It`s nice to be here.
KANGAS: On your last visit with us in mid-January, you told us that the Federal Reserve was close to ending its rate hikes, but since then, it has boosted rates three more times, a quarter point each. Has the Fed overdone it on the upside?
GRANT: It wasn`t watching. The Fed Paul, as you know, never fails to do too little too late and then too much too long and I think it`s running true to form this time. We can`t know, I don`t presume to know what the future holds, but I believe the Fed has overdone it.
KANGAS: OK, so the pendulum has swung too far this time, as usual you were saying.
GRANT: As usual, yes, weakness in housing is telltale and the Fed was looking backwards rather than towards.
KANGAS: So the boost they won`t boost again in August, do you think?
GRANT: I doubt they will go in August. Indeed, by year end, I expect them to be cutting rates rather than raising them Paul.
KANGAS: How much do you think they would be cutting by the end of the year?
GRANT: I`d be so happy to get the direction right.
KANGAS: OK, You know, the housing market you just mentioned, it does look like it`s in danger perhaps of a hard landing.
GRANT: It green around the gills, no question. The Fed has its share of blame for this by pressing rates down so low and by instigating a great wave of mortgage borrowing, of borrowing and speculation. And the Fed is going to be hard-pressed to do anything except watch this landing and see whether it is soft or hard. I think is almost beyond its control now.
KANGAS: So there is not much they can do to prevent a hard landing.
GRANT: The Fed will react to difficulties in housing and the economy by, I believe, by cutting rates.
KANGAS: OK. It`s only been a few months, but how do you think Ben Bernanke is doing as a Federal reserve chief?
GRANT: I give him an F, Paul, only for taking the job. He is such a smart fellow, a tenured professor at Princeton. And yes he chose to enter this very unholy and disreputable line of work called price-fixing which is as you know what the Fed does for a living (INAUDIBLE).
KANGAS: Now don`t sugar coat it Jim. Give us a quick opinion on the stock market, bullish or bearish there.
GRANT: Well, the trouble with the stock market, I believe is that bargains are so few and far between. I believe that looking for things one by one rather than making cosmic comments on the whole and what I am so struck by, Paul is that you tell people missed by a penny and its stock price will be down by (INAUDIBLE), people seem to have no conviction and they ought to. They ought to find a good cheap stock and then not watch television, except NIGHTLY BUSINESS REPORT. KANGAS: Of course. On your last visit in January you made two buy recommendations. Let`s see how they have done since then, Third Avenue value fund up one and a half percent, not bad at all. And the I shares Japan have been much higher, 15 plus, but now they are down about 3 percent from there, but that`s not bad, preservation of capital in a very volatile market. I compliment you there, not bad.
GRANT: 2006, even is OK, I guess.
KANGAS: All right. How about some new recommendations, Jim.
GRANT: Well, I want to keep us out of trouble even more so now, Paul. I want to suggest first the I shares Lehman three to five year Treasury bond fund which as the name suggests is a way to get exposure to the very short end of the Treasury market and if the Fed is going to cut rates, that`s a good place to be.
KANGAS: Now we did notice today that the 10-year Treasury did fall below a 5 percent yield. Is that going to continue?
GRANT: I believe so.
KANGAS: How far down in the rest of the year do you think that yield will be?
GRANT: Yes.
KANGAS: Just yes.
GRANT: Again, Paul, the direction is ever so nice to get. I believe it is going to be meaningful.
KANGAS: So you like SHY is the symbol on that one. How about stocks?
GRANT: Stocks, I think there is value in chicken, certainly there`s taste in chicken. There are two stocks have been out of favor as indeed has been chicken. One is Gold Kist (GKIS), which is a leading U.S. producer of chicken.
KANGAS: The stock has taken it hard, hasn`t it?
GRANT: It has. Fears of avian flu and so has Sadia (SDA) which is perhaps (ph) the global low cost producer of chicken; it`s headquartered in Brazil. Both these stocks are down hard. I think they offer value.
KANGAS: Very good, do you personally own these securities? GRANT: I do not, Paul. This is a platonic relationship I have with these names.
KANGAS: OK, very good. Jim, we`ll have to wrap it up now, but I want to thank you again for your insights. We appreciate it.
GRANT: Thank you, Paul, nice to be here.
KANGAS: My guest James Grant of "Grant`s Interest Rate Observer."
