Episode 118
What’s the Price of Mispricing Risk? Interest Rates, Repo Markets, and an Activist Fed | Jim Grant
Episode 118
Jim Grant
What’s the Price of Mispricing Risk? Interest Rates, Repo Markets, and an Activist Fed | Jim Grant
summary
In this week’s episode of Hidden Forces, Demetri Kofinas speaks with Jim Grant, founder of Grant’s Interest Rate Observer, a twice-monthly journal of the financial markets.
Born in New York City and raised on Long Island, Jim had thoughts, first, of a career in music, not interest rates—french horn was his love. But he threw it over to enter the Navy. Following his stint in the Navy, Jim enrolled Indiana University where he studied economics under Scott Gordon and Elmus Wicker and diplomatic history under Robert H. Ferrell, and later, obtained a master’s degree in international affairs under the guiding tutelage of cultural historian, critic and public intellectual Jacques Barzun.
In 1972, at the age of 26, Grant began working as a cub reporter at the Baltimore Sun, moving to Barron’s in 1975. The late 1970s were years of inflation, monetary disorder and upheaval in the interest-rate markets—as Jim Grant says, “of journalistic opportunity.” Barron’s editor Robert M. Bleiberg, tapped Grant to originate a column devoted to interest rates. This weekly department, called “Current Yield,” he wrote until the time he left to found the eponymous “Interest Rate Observer” in the summer of 1983.
During his long career, Jim Grant has written a series of books including three financial histories, a pair of collections of Grant’s articles and four biographies, the most recent of which is about the life and times of Walter Bagehot, whose ideas about central banking informed the U.S. Federal Reserve’s response to the Global Financial Crisis of 2007-09.
This conversation is unusually convivial, even by the normal standards. Demetri and Jim discuss actions by the Federal Reserve in the repo market (including official and unofficial explanations for the turmoil seen in mid-September 2019), the recent WeWork and SoftBank debacle, a possible bubble in the leveraged loan market, and much more.
During the overtime to this week’s episode, Jim shares information about how he invests his own money (and who he invests it with), delves into some of Grant’s value analysis research and provides insights into his own work process as an editor and interviewer.
If you want access to the overtime or to the transcript and rundown for this conversation, you can do so through the Hidden Forces Supercast Page. Subscribers also gain access to our overtime feed, which can be easily be added to your favorite podcast application.
Producer & Host: Demetri Kofinas
Editor & Engineer: Stylianos Nicolaou
Subscribe & Support the Podcast at http://patreon.com/hiddenforces
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bio
James Grant was born in 1946, the year interest rates put in their mid-20th century lows. He founded Grant’s Interest Rate Observer, a twice-monthly journal of the financial markets, in 1983, two years after interest rates recorded their modern-day highs.
Born in New York City and raised on Long Island, he had thoughts, first, of a career in music, not interest rates—french horn was his love. But he threw it over to enter the Navy. Following enlisted service aboard the U.S.S. Hornet, and, as a newly minted, 20-year-old civilian, on the bond desk of McDonnell & Co., he enrolled at Indiana University. There he studied economics under Scott Gordon and Elmus Wicker and diplomatic history under Robert H. Ferrell. He graduated, Phi Beta Kappa, with a Bachelor of Arts degree in economics in 1970. Next came two happily unstructured years at Columbia University that produced a master’s degree in something called international affairs but, more importantly, the privilege of studying under the cultural historian, critic and public intellectual Jacques Barzun.
In 1972, at the age of 26, Grant landed his first real job, as a cub reporter at the Baltimore Sun. There he met his future wife, Patricia Kavanagh, and discovered a calling in financial journalism. It seemed that nobody else wanted to work in business news. Grant served an apprenticeship under the longsuffering financial editor, Jesse Glasgow. He moved to Barron’s in 1975.
The late 1970s were years of inflation, monetary disorder and upheaval in the interest-rate markets—in short, of journalistic opportunity. It happened that the job of covering bonds, the Federal Reserve and related topics was vacant. In the mainly placid years of the 1950s and 1960s, those subjects had seemed too dull to care about. But now they were supremely important—even interesting—and the editor of Barron’s, Robert M. Bleiberg, tapped Grant to originate a column devoted to interest rates. This weekly department, called “Current Yield,” he wrote until the time he left to found the eponymous Interest Rate Observer in the summer of 1983.
Grant’s books include three financial histories, a pair of collections of Grant’s articles and three biographies. The titles are these: “Money of the Mind” (Farrar, Straus & Giroux, 1992), “The Trouble with Prosperity” (Times Books, 1996) “Minding Mr. Market” (Farrar, Straus & Giroux, 1993), “Mr. Market Miscalculates” (Axios Press, 2008) and “The Forgotten Depression, 1921: the Crash that Cured Itself” (Simon & Schuster, 2014), which won the 2015 Hayek Prize of the Manhattan Institute for Policy Research.
Also, “Bernard M. Baruch: The Adventures of a Wall Street Legend” (Simon & Schuster, 1983), “John Adams: Party of One” (Farrar, Straus & Giroux, 2005) and Mr. Speaker! The Life and Times of Thomas B. Reed, the Man Who Broke the Filibuster” (Simon & Schuster, 2011).
Grant’s television appearances include “60 Minutes,” “The Charlie Rose Show,” Deirdre Bolton’s “Money Moves” program on Bloomberg TV and a 10-year stint on “Wall Street Week”. His journalism has appeared in a variety of periodicals, including the Financial Times, The Wall Street Journal and Foreign Affairs, and he contributed an essay to the Sixth Edition of Graham and Dodd’s “Security Analysis” (McGraw-Hill, 2009).
Grant is a 2013 inductee into the Fixed Income Analysts Society Hall of Fame. He is a member of the Council on Foreign Relations and a trustee of the New-York Historical Society.
He and his wife live in Brooklyn. They are the parents of four grown children.
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Sed tamen est aliquid, quod nobis non liceat, liceat illis. Illa videamus, quae a te de amicitia dicta sunt. Tuo vero id quidem, inquam, arbitratu. Est enim tanti philosophi tamque nobilis audacter sua decreta defendere. Etenim semper illud extra est, quod arte comprehenditur. Quae sunt igitur communia vobis cum antiquis, iis sic utamur quasi concessis;
Quam ob rem tandem, inquit, non satisfacit? Tu enim ista lenius, hic Stoicorum more nos vexat. Stoici autem, quod finem bonorum in una virtute ponunt, similes sunt illorum; Praeteritis, inquit, gaudeo. Iubet igitur nos Pythius Apollo noscere nosmet ipsos. Sin kakan malitiam dixisses, ad aliud nos unum certum vitium consuetudo Latina traduceret. Qui autem esse poteris, nisi te amor ipse ceperit? Ita enim vivunt quidam, ut eorum vita refellatur oratio.
Ex quo illud efficitur, qui bene cenent omnis libenter cenare, qui libenter, non continuo bene. Atqui haec patefactio quasi rerum opertarum, cum quid quidque sit aperitur, definitio est. Conferam tecum, quam cuique verso rem subicias; Luxuriam non reprehendit, modo sit vacua infinita cupiditate et timore. Haec para/doca illi, nos admirabilia dicamus.
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Lorem ipsum dolor sit amet, consectetur adipiscing elit. Minime vero istorum quidem, inquit. At modo dixeras nihil in istis rebus esse, quod interesset. Duo Reges: constructio interrete. Itaque mihi non satis videmini considerare quod iter sit naturae quaeque progressio. Sic igitur in homine perfectio ista in eo potissimum, quod est optimum, id est in virtute, laudatur. Non enim, si omnia non sequebatur, idcirco non erat ortus illinc. Quid, si non sensus modo ei sit datus, verum etiam animus hominis? Atque his de rebus et splendida est eorum et illustris oratio.
Tum Torquatus: Prorsus, inquit, assentior; Quamquam tu hanc copiosiorem etiam soles dicere. At iam decimum annum in spelunca iacet. Cur tantas regiones barbarorum pedibus obiit, tot maria transmisit? Et quod est munus, quod opus sapientiae? Laelius clamores sofòw ille so lebat Edere compellans gumias ex ordine nostros.
Oculorum, inquit Plato, est in nobis sensus acerrimus, quibus sapientiam non cernimus. Sed quid attinet de rebus tam apertis plura requirere? Egone non intellego, quid sit don Graece, Latine voluptas?
Cur haec eadem Democritus? Prodest, inquit, mihi eo esse animo. Hic ego: Pomponius quidem, inquam, noster iocari videtur, et fortasse suo iure. Incommoda autem et commoda-ita enim estmata et dustmata appello-communia esse voluerunt, paria noluerunt. Aeque enim contingit omnibus fidibus, ut incontentae sint. Sed ea mala virtuti magnitudine obruebantur. Aliter enim nosmet ipsos nosse non possumus. Itaque mihi non satis videmini considerare quod iter sit naturae quaeque progressio. Huius ego nunc auctoritatem sequens idem faciam. Et quidem, Cato, hanc totam copiam iam Lucullo nostro notam esse oportebit;
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Lorem ipsum dolor sit amet, consectetur adipiscing elit. Hoc ne statuam quidem dicturam pater aiebat, si loqui posset. Qui est in parvis malis. Certe nihil nisi quod possit ipsum propter se iure laudari. Videamus igitur sententias eorum, tum ad verba redeamus. Prioris generis est docilitas, memoria; Piso igitur hoc modo, vir optimus tuique, ut scis, amantissimus.
De vacuitate doloris eadem sententia erit. Iubet igitur nos Pythius Apollo noscere nosmet ipsos. Quo plebiscito decreta a senatu est consuli quaestio Cn. Quid enim tanto opus est instrumento in optimis artibus comparandis? Hanc quoque iucunditatem, si vis, transfer in animum; Aliena dixit in physicis nec ea ipsa, quae tibi probarentur; Oculorum, inquit Plato, est in nobis sensus acerrimus, quibus sapientiam non cernimus.
Sed virtutem ipsam inchoavit, nihil amplius. Quis animo aequo videt eum, quem inpure ac flagitiose putet vivere? Disserendi artem nullam habuit. Et si in ipsa gubernatione neglegentia est navis eversa, maius est peccatum in auro quam in palea. Tenent mordicus. Quamquam te quidem video minime esse deterritum. Nec vero hoc oratione solum, sed multo magis vita et factis et moribus comprobavit. Vitae autem degendae ratio maxime quidem illis placuit quieta. Ne tum quidem te respicies et cogitabis sibi quemque natum esse et suis voluptatibus? Negat enim summo bono afferre incrementum diem.
Nam si propter voluptatem, quae est ista laus, quae possit e macello peti? Duo Reges: constructio interrete. Quarum ambarum rerum cum medicinam pollicetur, luxuriae licentiam pollicetur. Ut in geometria, prima si dederis, danda sunt omnia. Atqui perspicuum est hominem e corpore animoque constare, cum primae sint animi partes, secundae corporis. Quid est, quod ab ea absolvi et perfici debeat?
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Lorem ipsum dolor sit amet, consectetur adipiscing elit. Sin autem est in ea, quod quidam volunt, nihil impedit hanc nostram comprehensionem summi boni. De ingenio eius in his disputationibus, non de moribus quaeritur. At miser, si in flagitiosa et vitiosa vita afflueret voluptatibus. Quae in controversiam veniunt, de iis, si placet, disseramus. Tum mihi Piso: Quid ergo? Equidem etiam Epicurum, in physicis quidem, Democriteum puto. Ita graviter et severe voluptatem secrevit a bono. Itaque rursus eadem ratione, qua sum paulo ante usus, haerebitis.
Apparet statim, quae sint officia, quae actiones. Sed quid attinet de rebus tam apertis plura requirere? Quod equidem non reprehendo; Nam Metrodorum non puto ipsum professum, sed, cum appellaretur ab Epicuro, repudiare tantum beneficium noluisse; Eadem nunc mea adversum te oratio est. Nam si beatus umquam fuisset, beatam vitam usque ad illum a Cyro extructum rogum pertulisset. Mihi vero, inquit, placet agi subtilius et, ut ipse dixisti, pressius. Itaque mihi non satis videmini considerare quod iter sit naturae quaeque progressio. Sed ad bona praeterita redeamus. Facit enim ille duo seiuncta ultima bonorum, quae ut essent vera, coniungi debuerunt;
Nemo igitur esse beatus potest. Beatus autem esse in maximarum rerum timore nemo potest. Cum ageremus, inquit, vitae beatum et eundem supremum diem, scribebamus haec. Hoc enim identidem dicitis, non intellegere nos quam dicatis voluptatem. Graecum enim hunc versum nostis omnes-: Suavis laborum est praeteritorum memoria. Quae animi affectio suum cuique tribuens atque hanc, quam dico. Ratio enim nostra consentit, pugnat oratio. Sed in rebus apertissimis nimium longi sumus. Quid enim ab antiquis ex eo genere, quod ad disserendum valet, praetermissum est?
Duo Reges: constructio interrete. Satis est ad hoc responsum. Si enim ad populum me vocas, eum. Facit igitur Lucius noster prudenter, qui audire de summo bono potissimum velit; Ad eas enim res ab Epicuro praecepta dantur. Et certamen honestum et disputatio splendida! omnis est enim de virtutis dignitate contentio. Nihil minus, contraque illa hereditate dives ob eamque rem laetus. Eiuro, inquit adridens, iniquum, hac quidem de re;