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An eclectic blog chronicling a slow-moving turtle's attempt at gaining financial independence. I am an amateur contrarian investor with a value-investing tilt and influenced by macroeconomics. My risk tolerance is very high so treat everything I say as very risky... Also feel free to visit my non-investment blog describing my life and seemingly random thoughts...
- Sivaram Velauthapillai
Most of you may have seen The Wall Street Journal article by Jim Grant, where he morphs from a bear into a bull. Surprising to some perhaps. I thought I would post my views (made on a GuruFocus message board) on his opinion piece.
Jim Grant isn't just any other bear. The fact that he is bullish is big news, at least to me.
However, it's not clear to me if he is bullish on assets like stocks and bonds, or if he is bullish on the economy. The two, as historians would know, are not correlated (for example, the economy actually did quite well in the 70's but the stock market did not; conversely, the stock market did well from 1932 to, say, 1938, but the economy did not.)
If he is turning bullish on stocks, I think he may be a bit late to be riding the bulls and I would bet against him. But if he expecting a strong economy, he may turn out to be right (although I'm still not convinced.)
The way I look at it, the forecasts come down to whether you believe in Keynesian Economics or Austrian Economics. Jim Grant, being the Austrian persuation, is saying that interest rates are too low, and likely at negative real rates, so it makes sense to expect booms. Keynesian-types, in contrast, seem to suggest that we have hit a liquidity trap and interest rates may even be too high. I lean more towards the latter, which is more consistent with my tilt towards deflation.
It remains to be seen what actually materializes. Nearly all assets--stocks, bonds, emerging markets, real estate, commodities--have rallied but I'm not sure that it due to negative real rates. Instead, it appears to be driven by fiscal spending (especially in China and USA, but in other countries as well.) The real test is what happens when fiscal stimulus dissapears.
The amazing thing to me is that long-term bond yields remain low. I don't know if the FedRes monetization has anything to do with this, but if we just take the signal for what it is, it may be important. The ultimate issue is still the inflation vs deflation question and the bond market seems to be betting against other assets. Bonds are generally thought to be more correct than stocks but that hasn't been the case this year. The super-high default rates forecast by the bond market early in the year is nowhere to be found. Tags: Jim Grant