"Market Monitor" -James Grant, Editor "Grant's Interest Rate Observer"
Thursday, July 02, 2009PAUL KANGAS: My guest "Market Monitor" this week is James Grant, the editor of the popular publication "Grant's Interest Rate Observer." Jim, welcome back to NIGHTLY BUSINESS REPORT.
JAMES GRANT, EDITOR, "GRANT'S INTEREST RATE OBSERVER": Thank you, Paul.
KANGAS: On your last visit with us just about a year ago today, you warned that the economy would get worse and stocks weren't cheap. Right on both accounts. I congratulate you there, but could today's jump in the unemployment rate be the last shoe to drop?
GRANT: Proverbially, Paul, the labor market is a lagging indicator. You know, people expect and hope that indeed many now pray for a fast and satisfying recovery in the labor market. It doesn't really happen typically until well after the end of a recession. In 1991, the recession ended in March and not until 1993 did job creation begin in earnest. Similarly in 2001, the recession ended. Not until 2003 was the job market percolating. So, you know, today's numbers disappointing to be sure, but it's not exactly outside the pale of expectation.
KANGAS: In this environment, how do you formulate your interest rate outlook?
GRANT: Guessing. (LAUGHTER)
KANGAS: Yes, but you're often very accurate and (INAUDIBLE) now?
GRANT: Well, the interest rate that people tend to watch of course is the rate that the Fed Reserve sets or fixes to use a less delicate word and that's the Federal funds rate, the overnight lending rate in the banking system and the Fed in its august, Solomonic wisdom has fixed a rate very near zero. And I keep on -- I keep on waiting for an outraged cry from the constituency of American savers. Maybe there's not enough of them to form a quorum. But the Fed has now really promised us it will keep that particular rate close to zero for a long time, which leads me to think that we're going at some point -- inconvenient (ph) point without the ringing of a bell, we're going to have an inflation problem.
KANGAS: OK. So your current investment strategy is what?
GRANT: Well, I am -- first of all, I believe the patient's going to live, I think that this recession will end and we ought to become less bearish. We ought to become less bearish as markets fall and I am endeavoring, Paul, just once to do that. And so we are -- we at Grant's, we're looking for opportunities on the long side and we think we found some.
KANGAS: So the deeper they fall the better the bargain?
GRANT: Yes, the lower the stock price, all things being the same, the more one ought to be interested. It's not unlike shopping at Macy's. We don't fly from bargains on Main Street. Why should we be repelled by them on Wall Street? So one must -- yeah, one must be brave.
KANGAS: Understood.
GRANT: And opportunistic, Paul.
KANGAS: Of course. That's part of Wall Street. Last July you gave our viewers three buy recommendations. Let's see how you fared. Fidelity National (FNF) about the same as it was, but it got as high as 22. I assume you sold it at the high?
GRANT: Always, Paul.
KANGAS: Are you still with it?
GRANT: Yes. KANGAS: OK. Tocqueville Gold Fund (TGLDX) down 17 percent. What do you make of that?
GRANT: I still like it a lot, I still like gold a lot. Gold is a speculation on what I regard as a near certainty which is that central banks will overdo it.
KANGAS: OK, so you're still with it. All right. You had a third recommendation which didn't do too well. This is an open-end fund, Wintergreen Fund (WGRNX), down 23.5 percent. Are you still with that?
GRANT: Yes, David Winters is a superb investor and I have no doubt but that when markets recover, his fund will do better.
KANGAS: Well, you did describe them as long-term investments.
GRANT: Yes, long term is the last refuge of the (INAUDIBLE). But I'm emphatically bullish on them all.
KANGAS: OK. How about some new recommendations?
GRANT: Yes. I have two and they're both plays on recovery. One of is Olin Corp (OLN), a very old (ph) and consistently dividend paying maker of basic chemicals and of ammunition and the ammo business, you may or may not be happy to hear is going gangbusters, the chemical business much so. I'm bullish on Olin and I'm bullish on the world's biggest commercial real estate broker, CR Richard Ellis (CBG), CBG on the New York Stock Exchange and that one is a play on the recovery in renting and leasing in real estate.
KANGAS: Well the stock some signs of recovery on the chart we have up here.
GRANT: Are you a chart reader, Paul?
KANGAS: Well, sometimes, anything that will help.
GRANT: I don't know about the charts, but they are both -- as they say on Wall Street leveraged plays on recovery. I should say that CB Richard Ellis is in fact leveraged on its balance sheet and it is risky so no whining. This is a high powered option on the recovery.
KANGAS: Do you own --
GRANT: Yes, I do.
KANGAS: I know you always own what you like. OK.
GRANT: Well, often.
KANGAS: All right, Jim as usual, I want to thank you for taking the time to be with us.
GRANT: Thank you for having me and happy Fourth of July.
KANGAS: And the same to you, my guest, James Grant of "Grant's Interest Rate Observer."
