James Grant, Wall Street expert and editor of the investment newsletter «Grant’s Interest Rate Observer», warns of a crash in sovereign debt, is puzzled over the actions of the Swiss National Bank and bets on gold.
From multi-billion bond buying programs to negative interest rates and probably soon helicopter money: Around the globe, central bankers are experimenting with ever more extreme measures to stimulate the sluggish economy. This will end in tears, believes James Grant. The sharp thinking editor of the iconic Wall Street newsletter «Grant’s Interest Rate Observer» is one of the most ardent critics when it comes to super easy monetary policy. Highly proficient in financial history, Mr. Grant warns of today’s reckless hunt for yield and spots one of the biggest risks in government debt. He’s also scratching his head over the massive investments which the Swiss National Bank undertakes in the US stock market.
Jim, for more than three decades Grant’s has been observing interest rates. Is there anything left to be observed with rates this low?
Interest rates may be almost invisible but there is still plenty to observe. I observe that they are shrinking and that the shrinkage is causing a lot of turmoil because people in need of income are in full hot pursuit of what little of yields remains.
What are the consequences of that?
It reminds me of the great Victorian English journalist Walter Bagehot. He once said that John Law can stand anything but he can’t stand 2%, meaning that very low interest rates induced speculation and reckless investing and misallocation of capital. So I think Bagehot’s epigraph is very timely today.
John Law was mainly responsible for the great Mississippi bubble which caused a chaotic economic collapse in France in the early 18th century. How is the story going to end this time?
It will turn out to be very bad for many people. If Swiss insurance and reinsurance executives are reading this right now they might be rolling their eyes and they might be frustrated to hear an American scolding from a distance of 3000 miles about the risk of chasing yield. After all, if you’re in the business of matching long term liabilities with long term assets you have little choice but to wish for a better, more sensible world. But you have to take the world as it is and today’s world is barren of interest income. The fact is, that these are very risk fraught times.
Where do you see the biggest risks?
Sovereign debt is my nomination for the number one overvalued market around the world.You are earning nothing or less than nothing for the privilege of lending your money to a government that has pledged to depreciate the currency that you’re investing in. The central banks of the world are striving to achieve a rate of inflation of 2% or more and you are lending certainly at much less than 2% and in many cases at less than nominal 0%. The experience of losing money is common in investing. But where is the certitude of loss even before your check clears? That’s the situation with sovereign debt right now.
On a worldwide basis, more than a third of sovereign debt is already yielding less than zero percent.
There is not quite a bestseller, but a very substantial book called «The History of Interest Rates». It was written by Sidney Homer and Richard Sylla. Sidney Homer is no longer with us, but Richard Sylla is alive and well at New York University. So I called him and said: « Richard, I’ve read many pages but not every single page in your book which traces the history of interest rates from 3000 BC to the present. Have you ever come across negative bond yields?» He said no and I thought that would be kind of a major news scoop: For the first time in at least 5000 years we have driven interest rates below the zero marker. I thought that was an exceptional piece of intelligence. But I notice however that nobody seems to have picked up on it.
It’s now already two years ago since the ECB was the first major central bank to introduce negative rates.
There are some other historical settings: In Europe, ??Monte dei Paschi di Siena, this 500 and plus year old bank in Italy, is struggling and as broke as you can be without being legally broke. Monte dei Paschi has survived for half a millennium and now it is on the ropes. Meanwhile,the Bank of England is doing things today that it has never done in its history which is 300 plus years. So I suggest that these are at least interesting times and in many respects unprecedented ones.
So what’s the true meaning of all this?
In finance, mostly nothing is ever new. Human behavior doesn’t change and money is a very old institution and so are our markets. Of course, techniques evolve, but mostly nothing is really new. However, with respect to interest rates and monetary policy we are truly breaking new ground.
Now central bankers are even talking openly about helicopter money. Will they really go for it?
I already hear the telltale of beating rotor blades in the sky. I also hear the tom-toms of fiscal policy being pounded. There seems to be some kind of a growing consensus that monetary policy has done what it can do and that what me must do now – so say the «wise ones» – is to tax and spend and spend and spend. That seems to be the new big idea in policy. In any case, it is not good for bondholders.
Interestingly, nobody seems to be talking about the growing government debt anymore. Also, budget politics are just a side note in the ongoing presidential elections.
The trouble with this election is that somebody has to win it. I have no use for Donald Trump but I have equally no use for Hillary Clinton. The point is that one of those two is going to win. That is the tragedy! So we at Grant’s regret that one of them is going to win.
The financial crisis and the weak economic recovery likely have spurred the rise of Donald Trump. Why isn’t the US economy in better shape after all those monetary programs?
I wonder how it would have been if markets had been allowed to clear and if prices had been allowed to find their own level in real estate in 2008. Central banks have intervened to quell financial panics for at least 200 years. For instance, in 1825 the bank of England lent without stint and was not – as they said – overnice about the kind of collateral. That was a very dramatic intervention. So it’s not as if we have never before seen the lender of last resort at work. But what is new is the medication of markets through this opiate of quantitative easing year after year after year following the financial crisis. I think that this kind of intervention has not only not worked but it has been very harmful. Around the world, the economies are not responding despite radical monetary measures. To some degree, I believe, they are not recovering because of radical monetary measures.
What’s exactly the problem with the US economy?
There is another side of what we are seeing now: In America certainly the Federal Reserve and bank regulators generally arevery heavy handed in their interventions. I’m sure they have every good intention. But with their regulatory charges they are suppressing the recovery in credit that takes place in a normal economic recovery and in this particular case after a depression or after a liquidation.
Then again, a revisit of the financial crisis would be catastrophic.
The new rules with respect to financial reform have absorbed not only forests worth of paper but also the time and attention of legions of lawyers. If you talk to a banking executive what you hear is that the banks have been overwhelmed by the need to hire compliance and regulatory people. This is especially bearing on the smaller banks. I think that’s part of the story of the lackluster recovery: Monetary policy has been radically open in the creation of new credit. But it has been radically restrictive with regard to risk taking in the private world.
So what should be done to get the economy back on track?
There are guides in history on how to do this. For more than a hundred years in Britain, in the United States and probably as well in Switzerland, the owners of the equity of a bank themselves were responsible for the solvency of the bank. If the bank became impaired or insolvent they had to stump up more capital to pay off the liability holders, including the depositors. But over the past hundred years collective responsibility in banking has gradually replaced individual responsibility. The government, with the introduction of deposit insurance, new regulations and interventions has superseded the old doctrine of the responsibility of the owners of a property. That’s why I think we need to go away from government intervention and go more towards market oriented solutions such as the old doctrine of responsibility of the bank owners.
At least in the US, the Fed is trying to go back to a more normal monetary policy. Do you think Fed chief Janet Yellen will make the case for another rate hike at the Jackson Hole meeting next week?
Janet Yellen is by no means an impulsive person. According to the « Wall Street Journal», she arrives for a flight at the airport hours early – and that’s plural! So this is a most deliberative and risk averse person. Also, as a labor economist, she’s a most empathetic person. She believes what most interventionist minded economists believe: They have very little faith in the institution of markets and they don’t believe that the price mechanism is anything special. They want to normalize rates and yet they can always find an excuse for not doing so. We have been hearing for years now that the next time, the next quarter, the next fiscal year they will act. So I believe what I’m seeing: None of these days the Federal Funds Rate will go higher than 0.5%. I can’t see that happening.
Wall Street seems to think along the same lines. So far, many investors don’t take the renewed chatter of a rate hike too seriously.
The Fed is now hostage to Wall Street. If the stock market pulls back a few percent the Fed becomes frightened. In a way I suppose, the Fed is justified in that belief because it is responsible to a great degree for the elevation of financial asset values. Real estate cap rates are very low, price-earnings-ratios of stocks are very high and interest rates are extremely low. One can’t be certain about cause and effect. But it seems to me that the central banks of the world are responsible for a great deal of this levitation in values. So perhaps they feel some responsibility for letting the world down easy in a bear market. It has come to a point where the Fed is virtually a hostage of the financial markets. When they sputter, let alone fall, the Fed frets and steps in.
Obviously, the financial markets like this cautious mindset of the Fed. Earlier this week, US stocks climbed to another record high.
Isn’t that a funny thing? The stock market is at record highs and the bond market is acting as if this were the Great Depression. Meanwhile, the Swiss National Bank is buying a great deal of American equity.
Indeed, according to the latest SEC filings the SNB’s portfolio of US stocks has grown to more than $60 billion.
Yes, they own a lot of everything. Let us consider how they get the money for that: They create Swiss francs from the thin alpine air where the Swiss money grows. Then they buy Euros and translate them into Dollars. So far nobody’s raised a sweat. All this is done with a tab of a computer key. And then the SNB calls its friendly broker – I guess UBS – and buys the ears off of the US stock exchange. All of it with money that didn’t exist. That too, is something a little bit new.
Other central banks, too, have become big buyers in the global securities markets. Basically, it all started with the QE-programs of the Federal Reserve.
It is a truism that central banks do this. They’ve done this of course for generations. But there is something especially vivid about the Swiss National Bank’s purchases of billions of Dollars of American equity. These are actual profit making, substantial corporations in the S&P 500. So the SNB is piling up big positions in them with money that really comes from nothing. That’s a little bit of an existential head scratcher, isn’t?
So what are investors supposed to do in these bizarre financial markets?
I’m very bullish on gold and I’m very bullish on gold mining shares. That’s because I think that the world will lose faith in the PhD standard in monetary management. Gold is by no means the best investment. Gold is money and money is sterile, as Aristotle would remind us. It does not pay dividends or earn income. So keep in mind that gold is not a conventional investment. That’s why I don’t want to suggest that it is the one and only thing that people should have their money in. But to me, gold is a very timely way to invest in monetary disorder.
Even if I were to overlook the obvious hypocrisy of the Pope in his repeated messages which were very thinly veiled propaganda for globalist initiatives, there are some very disturbing things about this particular Pope that I cannot come to grips with as a Christian.
It was difficult for me to stomach his duplicity with regard to his comments. For example, he told the people and the government of the United States that we should take in even more immigrants, I was left wondering how many immigrants is the Vatican taking in? When the Pope announced support for the radical agenda to punish First World countries by forcing them to send billions of dollars to the Third World to punish nations like America for committing crimes against the climate. Additionally, I have had scores of Catholics write to me and express extreme disappointment that the message of Jesus was not championed by the Pope in his recently concluded message, I had to agree with them. However, when this Pope began to elevate the religion of Islam on an equal par with Christianity, I began to legitimately question his motives.
Do Christians and Muslims worship the same God? Before you stop laughing at the ridiculousness of the question, please know that the Pope believes that there is one universal God for all religions. The Pope is leading the Christian world head first into the creation of a new religion, Chrislam, which is the blending of Islam and Christianity. Are you rubbing your eyes in disbelief? Please consider that while the Pope was at New York’s St Patrick Cathedral, he began his address with the declaration that there is one universal God for Islam and Christianity. You may listen to his remarks here. You may read key excerpts below:
“…the tragedy that they suffered in Mecca. In this moment, I give assurances of my prayers. I unite myself with you all. A prayer to almighty god, all merciful…”
In the Islamic religion, Allah is known as the “all-merciful one”. Then the Pope proceeded to make the following controversial statement:
“I then greet and cordially thank you all, dear friends belonging to other religious traditions; first of all the Muslims, who worship the one God, living and merciful, and call upon Him in prayer…”
It is clear that the Pope believes that Islam and Christianity worships the same exact God, hence the term, Chrislam.
The Pope Brings Islamic Practices to the Vatican
Imam recite Islamic prayer at the Vatican. It is clear that this Pope is trying to create a one-world religion.
On June 6, 2015, were you aware that the Pope allowed members of the Islamic faith to pray at the Vatican and he further broadcasted the event? More Chrislam.
Does it bother anyone else that this Pope is so inline with the United Nations on such issues as climate change and immigration. He further supports the United Nations agenda (21) for education as well which is is dedicated to the destruction of Christianity.
Chrislam is merely a transition piece to ready the world for its one and final religion, GAIA and education is the tool for the implementation of this agenda (21).
The United Nations and Common Core
In the United States, Obama’s Education Secretary Arne Duncan even boasts openly that the U.S. Department of Education he leads is “cooperating” with groups such as the United Nations designed to “improve” education in America. In a 2010 speech to UNESCO,Duncan even referred to the UN “education” agency as one of the administration’s “global partners” in the effort to globalize schooling as part of the “cradle-to-career education agenda.”
The major funding source of the Common Core Movement is the Bill and Melinda Gates Foundation which has pledged $2.5 billion dollars and climbing to this effort. Bill and Melinda Gates are tied to the United Nations and have spent money in America and overseas for UN programs in Africa and all over the world for decades. Common Core is part of the UN’s plan for complete federal control over our education systems and the documentation leaves no doubt as to the veracity of this statement.
Many are concerned that the Common Core Standards, once successfully implemented, will provide unfettered access of our educational system by the United Nations.
Some textbooks and curricula for our public schools have already been written by the [United Nations Educational, Scientific, and Cultural Organization] UNESCO and the International Baccalaureate program, that is currently in many school districts, across the United States.
Grabbing additional access is a natural next step. Once they write the curricula, they must have authority to develop all testing tools.
They will decide who becomes a teacher and what preparation will be provided for that teacher.
“The UN involvement in the American educational system has already been facilitated by treaties signed by American presidents from both parties. Those documents include but are not limited to: Universal Declaration of Human Rights, Treaty on the Rights of the Child, Civic Education: Classroom Connections, and Agenda 21.”
As concerning as the international flavor that is usurping control of our schools away from locally elected school boards, the world view, or the “one-world view” is most concerning because it places the Christian faith in grave danger.
If the Average American Parent Only Knew What Was In Chapter 36 of Agenda 21
Chapter 36 of Agenda 21 Public Awareness and Training focuses on impressing upon every citizen on the planet, the indispensable needfor achieving sustainable development. In plain language, Common Core is going into every country. The implementation names of this global education may vary, but the underlying Agenda 21 philosophies do not. Chapter 36 also states that the globalists plan to “reorient” worldwide education toward sustainable development. Reform of the nation’s standardized objectives is merely a smoke screen for the true intent of the program which is to promote acceptance for Agenda 21 policies. Subsequently, the Agenda 21/UNESCO documents clearly state their intention to turn each student into a globalist who will accept smaller living space, residing in the stack and pack cities of the future, acceptance of drastic energy reduction and the loss of Constitutional liberties. The document goes on to say that “While basic education provides the underpinning for any environmental and development education, the latter needs to be incorporated as an essential part of learning. Both formal and non-formal education are indispensable to changing people’s attitudes so that they have the capacity to assess and address their sustainable development concerns. It is also critical for achieving environmental and ethical awareness, values and attitudes, skills and behavior consistent with sustainable development and for effective public participation in decision-making. To be effective, environment and development education should deal with the dynamics of both the physical/biological and socio-economic environment and human (which may include spiritual) development, should be integrated in all disciplines, and should employ formal and non-formal methods.”
Please take note of reference to spiritual education. The implication is subtle, but undeniable. This phrase opens the door to the evisceration of the Christian religion. This phrase allows Common Core to propagandize school children into belittling the importance of Jesus Christ. And what will Christianity be replaced with? Anyone who has read the Agenda 21 documents in earnest, understands that the replacement for Christianity has been groomed for decades, and the ultimate replacement is the pagan religion called GAIA. GAIA will replace Chrislam and will be the final step in the spiritual enslavement of the planet.
GAIA changes the Christian world view significantly. Christians fundamentally believe that God gave dominion over the earth to man with the remainder of the hierarchy consisting of animal, fish, plants and finally, the earth. GAIA teaches that the earth reigns supreme followed by animal, fish, plants, and man in last place. This is a decidedly anti-human agenda. The undeniable conclusion, that in the future, it is clear that your children will receive cleverly crafted lessons designed to lessen the appreciation for their own worth as a human being. This is the beginning of a spiritual enslavement paradigm which will accompany the already implemented policies of economic enslavement presently being thrust upon the American people through the acquisition of massive debt created by the globalists. When Common Core is fully implemented in 2016 and your child begins being assessed on the PARCC and Smarter Balancedassessments, your child will be an Agenda 21 globalist minion in training. This is not a warning about what will be, the enemy is inside the gates propagandizing your child at the exact time that you are reading these words.
First, please allow me to dispel the myth that I am in any way, anti-Catholic. I am not! I am opposed to the evisceration of Christian principles that the present Pope appears to be dedicated to.
Christianity will be destroyed through assimilation into Islam (i.e. Chrislam). Following the assimilation, Chrislam will be replaced by GAIA and Satan’s Kingdom will have gained a great foothold on the planet and there will be nowhere that is safe for Christians to hide and many will acquiesce and take the mark of the beast. It is hard to believe that we have arrived at this point in history but arrived we are. Can the foretold persecution of the Christian be far away?
For the first time since the end of the Cold War, the German government plans to tell citizens to stockpile food and water in case of an attack or catastrophe, the Frankfurter Allgemeine Sonntagszeitung newspaper reported on Sunday.
Following Angela Merkel's proclamation that Islamic terrorism is not a function of the massive influx of muslim immigrants into Germany thanks to he immigration policy, we could not help but be a little surprised that, as TagesSchau reports, the federal government, according to a newspaper report wants to encourage the population to begin stockpiling food and water again, so that they temporarily can take care of themself in the case of a disaster or an armed attack. As Reuters details,
Germany is currently on high alert after two Islamist attacks and a shooting rampage by a mentally unstable teenager last month. Berlin announced measures earlier this month to spend considerably more on its police and security forces and to create a special unit to counter cyber crime and terrorism.
"The population will be obliged to hold an individual supply of food for ten days," the newspaper quoted the government's "Concept for Civil Defence" - which has been prepared by the Interior Ministry - as saying.
The paper said a parliamentary committee had originally commissioned the civil defense strategy in 2012.
A spokesman for the Interior Ministry said the plan would be discussed by the cabinet on Wednesday and presented by the minister that afternoon. He declined to give any details on the content.
People will be required to stockpile enough drinking water to last for five days, according to the plan, the paper said.
...the precautionary measures demand that people "prepare appropriately for a development that could threaten our existence and cannot be categorically ruled out in the future," the paper cited the report as saying.
A further priority should be more support of the armed forces by civilians, it added.
Germany's Defence Minister said earlier this month the country lay in the "crosshairs of terrorism" and pressed for plans for the military to train more closely with police in preparing for potential large-scale militant attacks.
So apart from stockpiling enough food and water for 10 days; supporting the military; protecting yourself from "a threat to our existence," everything is awesome and Merkel's immigration policy has helped?
We ask - what do they know? Or is this simply more scare-mongering since "A nation in fear is even better influenced and controlled."