I’ve been doing some thinking about the regular warnings that we have been receiving over the past couple of years suggesting that currency-based investments are not the place to be storing our money.
Last week Jim Grant was on CNBC warning that while he can’t provide the “when,” he knows that the end result of the unprecedented “easy money” policy taking place around the world will be immense inflation.
I went back and looked at Jim Grant’s track record as a prognosticator.
Grant of course is the author of Grant’s Interest Rate Observer and a man with thirty years experience. That brings with it a 30-year track record from which we can assess his ability. So what do we know about Grant?
First off, that he makes a lot of sense. His opinions are well researched and his conclusions sensible.
Second, we know that his track record suggests he is worth paying attention to. He has made the following calls:
- When Treasury bonds were yielding 13% in the early 1980s, Grant called them a screaming buy. Everyone else was screaming too back then, but they were screaming that “cash is trash” and wanted no part in currency-based investments.
Grant figured that if inflation, then coming down, suddenly ran amok again, an investor could in the worst case give up 13% a year in principle and still break even on the coupon. If he was right then the best case was much more rewarding.
History tells us that Grant was dead on the mark.
- In 1999 when growth and technology stocks were reaching absurd valuations, Grant wrote “Great booms… produce large abuses, which usually do not seem abusive until after the up cycle ends.” He had been warning his readers to steer clear of this sector as early as 1997.
History tells us that Grant was dead on the mark.
- As early as 2005 Grant was telling his readers that shorting the securitized lending market was going to be a great bet and at the very least that they should avoid exposure to it. His thinking was that if he was wrong on his short thesis the worst result was that a bond priced at $100 would go to $101, and if he was right he would make a bundle.
History tells us again that Grant was dead on the mark.
So if Grant is right, what should we do?
First off, stay away from any sort of long-term bonds. Secondly, position yourself to profit from inflation.
One place to look (according to Grant in the video above) are small-cap gold miners. I don’t believe his reference here was because of the fact that gold is an inflation hedge, but more because of their valuations now relative to cash flow and asset value at the current price of gold.
Personally, I’m not terribly interested in anything related to gold, but I can verify that these stocks have been absolutely beaten down over the past year.
Below is the S&P/TSX Venture exchange which has had a 2008/2009-style drop over the past year for reasons that I can’t quite understand. This exchange is loaded with resource companies, many of which are pure-play gold miners.
Grant has proven over a 30-year career to be a reliable voice. His inflation warning is one that should be taken seriously. So too likely is his recommendation to look at small-cap gold miners today.
Last week Jim Grant was on CNBC warning that while he can’t provide the “when,” he knows that the end result of the unprecedented “easy money” policy taking place around the world will be immense inflation.
I went back and looked at Jim Grant’s track record as a prognosticator.
Grant of course is the author of Grant’s Interest Rate Observer and a man with thirty years experience. That brings with it a 30-year track record from which we can assess his ability. So what do we know about Grant?
First off, that he makes a lot of sense. His opinions are well researched and his conclusions sensible.
Second, we know that his track record suggests he is worth paying attention to. He has made the following calls:
- When Treasury bonds were yielding 13% in the early 1980s, Grant called them a screaming buy. Everyone else was screaming too back then, but they were screaming that “cash is trash” and wanted no part in currency-based investments.
Grant figured that if inflation, then coming down, suddenly ran amok again, an investor could in the worst case give up 13% a year in principle and still break even on the coupon. If he was right then the best case was much more rewarding.
History tells us that Grant was dead on the mark.
- In 1999 when growth and technology stocks were reaching absurd valuations, Grant wrote “Great booms… produce large abuses, which usually do not seem abusive until after the up cycle ends.” He had been warning his readers to steer clear of this sector as early as 1997.
History tells us that Grant was dead on the mark.
- As early as 2005 Grant was telling his readers that shorting the securitized lending market was going to be a great bet and at the very least that they should avoid exposure to it. His thinking was that if he was wrong on his short thesis the worst result was that a bond priced at $100 would go to $101, and if he was right he would make a bundle.
History tells us again that Grant was dead on the mark.
So if Grant is right, what should we do?
First off, stay away from any sort of long-term bonds. Secondly, position yourself to profit from inflation.
One place to look (according to Grant in the video above) are small-cap gold miners. I don’t believe his reference here was because of the fact that gold is an inflation hedge, but more because of their valuations now relative to cash flow and asset value at the current price of gold.
Personally, I’m not terribly interested in anything related to gold, but I can verify that these stocks have been absolutely beaten down over the past year.
Below is the S&P/TSX Venture exchange which has had a 2008/2009-style drop over the past year for reasons that I can’t quite understand. This exchange is loaded with resource companies, many of which are pure-play gold miners.
Grant has proven over a 30-year career to be a reliable voice. His inflation warning is one that should be taken seriously. So too likely is his recommendation to look at small-cap gold miners today.
