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December 14, 2012, Vol. 30, No. 24

Market of the absurd

Central bankers are harmless, said the bond bears in 1981; in a social democracy, inflation is ineradicable. Central bankers are harmless, charge the bond bulls of 2012; in an overleveraged economy, inflation—and growth, too—are unachievable. Time to be contrary?

Well-marked book

That a certain real estate finance business still lives and breathes after borrowing to buy at the top of the market in 2007 is no minor claim to fame. Better is today’s value proposition, though instant gratification plays no part in it.

Control freaks

In shocking the world by reversing its longstanding opposition to capital controls, the International Monetary Fund has actually done a good turn for the owners of mobile capital. Beware, warns the Fund in so many words: freedom of financial movement is under the gun.

Lesson learned

The Bank of Japan “can do a lot of learning from other countries and other central banks,” Adam Posen, former Bank of England policy maker, told Bloomberg TV on Tuesday, referring to cooking up a proper inflation. But Governor Masaaki Shirakawa already had the message.

November 30, 2012, Vol. 30, No. 23

Rule, Canadia!

"Wanted," a proper help-wanted notice for the governor of the Bank of England would have said, "Someone to preside over the exchange rates of pound notes for gold, and vice versa, at the fixed and statutory rate. Bachelor's degree desirable." More than a few Englishmen could discharge such a simple set of duties. Simplicity, however, is not the defining feature of the Ph.D. standard of monetary organization.

Land rush

So far has home building recovered from the stygian depths of 2009 that prices are rising even for unimproved dirt without gold underneath. Never mind the absence of acquisition, development and construction loans or the money woes of the smaller home builders, the prices of finished lots are on the rise. A kind word on the long fallow equity of a couple of listed land businesses.

Above their weight

It isn't a stock market, but a market of stocks, as someone or another said. Some stocks are big, and they are in the S&P 500. Others are medium size, and they are in the S&P 400. Still others are so tiny, so infinitely insignificant in the eyes of Wall Street that they are beyond the pale of any familiar index. A survey of the stock market's bantamweight division.

Ben on a broomstick

Progress in science is cumulative; we stand on the on the shoulders of giants. But progress in finance is cyclical; in money and banking, especially, we seem to keep making the same mistakes. An exploration of the connection between witchcraft and superstition, on the one hand, and modern central banking on the other.

Inside track for the Communist Party

From time to time, the names at each central bank change, but the Ph.D. standard remains constant. "At times of extreme economic and policy uncertainty, it pays to be quick and bold," Bank of Canada governor and soon-to-be Bank of England governor Mark Carney recently told an audience. What other central bank is on the lookout for a new leader?

November 16, 2012, Vol. 30, No. 22

Not so fast, John F. Prusiecki

Recapitalize the Federal Reserve by marking its $11 billion of gold to market? A winning idea—it was just floated in the letters column of The Wall Street Journal—except for one small detail.

The votes are in

Along with Mitt Romney and Paul Ryan, the invisible hand had an election to forget. Even so, the market is pricing in an assortment of mortgage REITs as if the Republicans won—with the price mechanism riding victorious on their coattails—and as if the Democrats lost. Herewith, a look at some potentially mispriced securities.

Soil for sale

Many are the farmers’ blessings this Thanksgiving eve. Stunted interest rates, hungry foreigners and the congressional ethanol mandate have contributed their mite to the making of $7 corn, $14 soybeans and $2.40 pecans. Down on the farm, these are the good old days. A new chapter in the bull-market saga of American agricultural property.

Yellen on deck

Come the next collapsed asset bubble or the next roaring inflation, many will recall that they never did understand what the various distinguished former Ivy League economics department heads were talking about. Then again, as will come to light, neither did the supposed experts. Either the lessons of monetary history are moot or our mandarins are wrong.

Money for nothing

The Swiss National Bank has managed to amass the world’s fifth largest portfolio of foreign exchange reserves—along with a chunky position in the common shares of Nokia and a synergistic investment in a currency printer. Blaming the gnomes for distorted yields in the euro zone.

November 2, 2012, Vol. 30, No. 21

Goldbugs for Obama

On Election Day, the people will choose a president and a monetary policy. On the financial consequences of John B. Taylor.

Reluctant optimist

The Bernanke Income Wilderness is not entirely barren even at zero percent interest rates. Here and there sprouts a desert flower.

Thanks, Mr. Market

“If you find yourself in a room with 500 shareholders at an annual meeting,” Michael Price advised the Grant’s assemblage last week, “maybe it’s not an undiscovered stock. But if you’re the only guy who shows up, maybe it is.”

Money and oil

Oil equities dance to the tune of the oil price, Lewis E. Lehrman posited, while the oil price takes its cue from monetary policy. QE3’s a gusher.

Up with biotech

Big things are brewing in pharmaceutical research, said Bruce Kovner, founder and chairman of the great Caxton hedge fund.

Mr. Bond Bull

Regarding the future direction of interest rates, “I’ve been doing this for 40 years, and I don’t know,” Van Hoisington informed the conference attendees. What he did know was that “this is not a normal cycle.”

$5,000 an ounce

Gold is scarcer, more precious and harder to find with every passing year, the mining executive Pierre Lassonde said. A ‘perfect storm” for the gold price?

Fear and loathing 101

There’s a bull market in fear and a bubble in safety, Christopher Cole declared. You can infer as much by the elevated cost of hedging against a replay of the mishaps of 2008.

Out of the woods

“We haven’t quite left the bubble behind us yet,” Bob Saul, the black-walnut farmer featured in the July 13 issue of Grant’s, told the conference-comers. He was referring to the bubble in residential real estate.

Isaac Newton Bernanke

“The greatest scientist in history reasoned his way to an impressive approximation of some very modern ideas about money,” according to author, academic and filmmaker Thomas Levenson.

October 19, 2012, Vol. 30, No. 20

Ben Bernanke kicks Snoopy

Managers of life-insurance general accounts are well aware of the cost that the collapse of interest rates has exacted. In 2007, let us say, management asked the investment officers if 3% was not a viable yield to offer on a long-term annuity. How could it not have been? Actually it wasn’t. Nowadays, companies are having to resort to speculative grade debt to fund five year annuities promising just 2.5%.

Bye-bye, Beijing

A record $225 billion left the People’s Republic, much of it, apparently, without permission, in the 12 months ended September, The Wall Street Journal reported on Tuesday. That’s $115 billion more than tiptoed, fled or exited in the 12 months ended March 2009, the previous such peak of Renminbi outflow. For the sake of the people’s credit system, the mandarins ask—nay, insist—that the money stays put.

Last chance saloon

Banks once dominated the business-lending field, and they may still hold the greater part of business loans. But the near death of leveraged finance in 2008-09, the subsequent demoralization of wide swaths of American business and the passage and implementation of Dodd-Frank have made the bankers keen to do less. Who has filled the empty market spaces?

Greek bearing news

A shrinking top line, a shrinking bottom line, a 25% unemployment rate in one’s home country—pretty clearly, not everything is going swimmingly for a certain Athens-based engineering company. “It’s hard to expand without a banking system and a government,” a company officer remarks. Perhaps not impossible, though.

More juice, please

Since July, President Obama’s odds of being re-elected have closely tracked the stock market. As the president’s chances seem to improve—as reflected by transactions registered on Intrade—so does the S&P 500. Yet, we wonder: Is it the incumbent that investors prefer, or the incumbent’s FOMC? More government or more money?

October 5, 2012, Vol. 30, No. 19

Calm before the storm

We doubt that the Federal Reserve will recognize the moment at which to backpedal, and we speculate that the future will bear no obvious resemblance to that version of the future that the Fed today makes bold to forecast. Hold on to your hats is the executive summary of the Grant’s credit and interest rate forecast; details to follow.

Hall of mirrors

Many applaud the Fed’s ZIRP and QE and Twist for bringing about what one practitioner has poetically called a “beautiful deleveraging.” Beautiful—to some—it might be, but the name of the game in the autumn of 2012 is increasingly “re-leveraging.” Look outside: It’s raining bonds. To the income-seeking investor, the news could hardly be worse, though there is one redeeming grace—the prevalence of quirky pricing.

Chicken in China

This publication is bearish on China: persistently, emphatically, and perhaps by now, just a bit tediously. And we are bearish on the commodities, countries and industries that derive their principal incremental lift from the People’s Republic—iron ore, Australia, and luxury goods, to name three. Herewith a bearish analysis on a certain restaurant company that owes its 21st century growth spurt to the world’s most overrated economy.

Monetary corporate welfare

After the Lehman Brothers bankruptcy in 2008, the Bush administration, on behalf of the mute American taxpayer, opened the federal vaults to Wall Street. When General Electric received $139 billion in FDIC debt guarantees and placed $16 billion in commercial paper with the Federal Reserve, this bluest blood of American blue chips was rated triple-A. This was four years ago—four long years ago, to be sure.

No world to hide in

The contrast between the New World and the Old has never been starker. Car sales in France and Spain fell 18% and 37%, respectively, year-over-year in September. For the first time since World War II, more bikes were sold in Italy than cars last year. While American data look good compare to Europe’s, that is owing more to the bleak fortunes of the monetary union than hale growth at home.

September 21, 2012, Vol. 30, No. 18

Wisdom of crowds

The Federal Reserve Bank of San Francisco, forgetting never to ask a question without knowing the answer, sought the opinions of the viewers of Facebook on the latest iteration of “nontraditional” monetary policy: “What effect do you think QE3 will have on the U.S. economy?” it inquired. Market intervention usually has consequences, but not necessarily the consequences that the authorities expect.

Uncommonly preferred

There's no guarantee, of course, that cheap securities can't become even cheaper (it happens all the time in Value Land). But, as discounts widen, other things being the same, yields increase. In this supposed age of financial globalization, herewith a bullish expose on a distant market inefficiency.

The real fiscal cliff

It's a mark of just how far Americans have wandered from the ideals of the financial founders that a deficit of 7.3% of GDP seems an almost reasonable blot of red ink. But it's reasonable only in comparison with the recession-and-stimulus-swollen deficits of recent years. In the Age of Keynes, there are plenty of zeroes.

The thing itself

Rare is the goldbug who owns the object of his or her desire. GLD, the gold exchange-traded fund, is gold at one remove. The shares of Newmont Mining or any precious-metals mutual fund are gold at an even greater remove. Dealing in the barbarous relic itself has never been easy. But it is getting easier.

QE4 preview

Radical money-printing is the norm in monetary policy the world over--except in China. For all the talk of fiscal stimulus to jolt the world's No. 2 economy back to life, growth in the footings of the People's Bank of China is at a virtual standstill. Next up, orders to compel lending?

September 7, 2012, Vol. 30, No. 17

What the chairman didn't mention

The aging chairman of the Federal Reserve Board says one thing, your aging editor another. We persist because he persists, and because monetary ideas have consequences. If we're right about the chairman's message, danger and opportunity are staring the holders of dollar-denominated assets right in the face. We write to try to sort out risk and reward.

Mining for anomalies

"We are facing a structural crisis of capitalism," Luis Arce Catacora, the Bolivian finance minister, was quoted as saying last month on "Capitalism is the old man around, an old man that is no longer responding to the advances of mankind demands. It is time for a change." However well such talk might play in La Paz, it lays an egg at the headquarters of a certain unloved precious-metals producer.

Down and out

Six months ago, the World's Second-Largest Economy was held to be invincible. Today, it would seem to be going out of business. Longtime bears on China--and therefore on Australia, which has prospered so mightily by supplying China's demand for natural resources--we write not to pound the table, but to update the facts and reframe the analysis.

European paper chase

Buying sovereign debt with newly conjured euros does not--repeat, not--constitute the act of monetarily financing a government, ECB President Mario Draghi assured euro zone officials on Monday. Not if, that is, the debt matures within three years. On the Continent, "nontraditional" monetary policy is fast going mainstream.

August 10, 2012, Vol. 30, No. 16

Bullish on the one with the hair

Mr. Market is as fed up as anyone with this once-mighty corporate edifice, whose stock is seemingly valued for every contingency except good news. The question, therefore, is not whether a certain disfavored automaker is driving on economic black ice, but whether the market has adequately, or more than adequately, discounted that known risk.

American dream redux

Save money. Buy a home. Build equity. Own a nest egg. Thanks to the bear market in houses and the bull market in bonds, the Ozzie and Harriet formula for getting ahead is working again. For the eligible borrower who can find a property offered for sale at less than its replacement cost, these are the good old days.

Cape fear

"Disaster economics," Louis Bacon, progenitor of Moore Capital, said in explaining his decision to return money to investors who don't really want it, "where assets are valued based on their ability to withstand a lurking disaster as opposed to what they may yield or earn, is now the prism through which investors are pricing markets." Out of the frying pan, into negative-yielding government securities.

Francs for free

On Tuesday, the Swiss National Bank unveiled its latest astonishing feat of money printing. In just three months, April through June, the central bank of the gnomes created new francs at the annual rate of 756.9%, bringing foreign currency reserves to the grand total of Chf 406.5 billion ($420.2 billion), the equivalent of 71% of Swiss GDP. Sin isn't sinful because it isn't fun, or because it doesn't seem defensible.

July 27, 2012, Vol. 30, No. 15

Human progress at a market multiple

We live in a technological golden age but in a monetary and fiscal dark age. While physicists discover the so-called God particle, governments print and borrow by the trillions. Science and technology may hurtle forward, but money and banking race backward. Now underway is an attempt to resolve the investment tension between technological progress and financial retrogression.

Line in the Alps

Let it be said that the Swiss don't usually go around tempting hyperinflation. It isn't like them. Manageable debts, low inflation and--over the sweep of decades--a strong exchange rate are the hallmarks of Swiss public finance. But facts are facts: In May and again in June, the Swiss central bank materialized new Swiss francs equivalent to 11.2% of the $573 billion Swiss GDP.

Opportunism still knocks

A subscriber laments, "the markets are so screwed up, with systematic interference with price discovery going on. How do you run a bank in this environment? Bank equities offer levered exposure to mispriced, distorted credit markets. It's difficult to have confidence in longs." Amen to that, but a cheap stock is a cheap stock.

Charles Schwab, thought leader

With Spanish and Italian bond yields soaring; with panicked Spanish and Italian authorities banning the short sale of bank stocks; with Madrid, just having received approval for €100 billion with which to bail out Spanish banks, now finding itself on the other end of the cup; the proof is incontestable. It is, indeed, a world of sin and sorrow. The world is deflating--or is it inflating? Whatever it's doing, what can an investor do about it?

July 13, 2012, Vol. 30, No. 14

Barclays the usurper

“Don’t give me a low rate,” Hjalmar Schacht, president of the German Reichsbank, said in 1927 in protest against a proposed coordinated global monetary easing. “Give me a true rate.” Nowadays, there’s hardly a true rate in the house.

Just in case

The speaker was Rex Tillerson, chief executive officer of Exxon Mobil, the date was June 27 and the price of natural gas on the day he spoke was around $2.50 per thousand cubic feet. “What I can tell you,” Tillerson informed his audience, “is the cost to supply is not $2.50.”

Zero-coupon trees

While Wall Street has disavowed extreme leverage since the crisis of 2008, foresters practice it as a matter of course. Dig a hole, plant a seedling and wait 25 or 30 years. Minimum effort yields maximum results—leverage of a different kind.

The People's Outback

Chinese banks are ramping up their lending in Australia, while Wayne Swan, the Australian treasurer, petitions Beijing to make the Australian Dollar directly convertible into the Renminbi. Homing in on an Australian company that seems especially exposed to Chinese disappointment.

Bean counters

“The market to me feels, and I say ‘feels’ from having traded foreign exchange since the 1970s. It feels like it is being intervened in and being manipulated.” So commodity trader and paid-up subscriber Keith Bronstein advises Grant’s about the euro. Manipulation is in the air and in the markets.

June 29, 2012, Vol. 30, No. 13

Central bankers to central bonkers

Every April the Bank of Bernanke squares up accounts among the dozen Federal Reserve districts that constitute the Federal Reserve System. Compare and contrast the 17-nation euro zone, in which interbank accounts never do get settled. The decline and fall of central banking told through American settlements and European unsettlements.

$2 and a dream

Income is the scarce thing—that and actionable ideas on how to procure it. The shares of a certain North American midstream energy company may sport a fetching yield, but is not the subject before the house. Front and center, rather, is that yield at one remove.

Their own backyard

The young, youngish and seasoned principals of Bienville Capital Management, New York and Mobile Ala., hold informed opinions on China, Europe, gold and the world’s monetary affairs. They travel, think, read and consult. And then, all at once, it came to them: The opportunity they were searching for is the one they are virtually sitting on.

Lull at the presses

The Bank for International Settlements, the central bankers’ own Swiss bank, comes down hard on runaway money printing in its brand-new annual report. Central bank assets today foot to $18 trillion or almost 30% of global output, double the ratio of 10 years ago. Maybe the monetary mandarins got early copies.

June 15, 2012, Vol. 30, No. 12

Panic of the headline writers

When two-year German government securities are priced to yield less than nothing and Martin Wolf, the cerebral Financial Times columnist, counsels panic (as he did only last Wednesday), an enlightened opportunist may begin to allow himself to think of the upside. What kind of opportunities is the old continent serving up?

Citi's bright ideas

Time was when the National City Bank was as dull as dishwasher and as rich as Rockefeller. Then came the Era of Bright Ideas, starting with Walter Wriston and continuing right on down to the present day of Citigroup chief economist Willem Buiter.

Redback vs. greenback

Notables gathered at the University of California, San Diego, last week for a two-day meditation on China's brand of paper money. Will the renminbi grow up to rival the U.S. dollar? This publication is of one mind. Herewith a status report on some of our China-themed short-sale candidates.

Time piece

"Folks," the CEO of a certain major luxury-goods maker told the dialers-in to a recent earnings call, "I'm not--they begged me, my colleagues, 'Please don't say it'--but I feel like I'm having a black-tie dinner on top of a volcano." The figurative volcano isn't Greece.

Thanks for nothing

The €100 billion lifeboat that the euro zone finance ministers hammered together for the Spanish banks on Saturday may or may not redound to the long-term benefit of Spain. But it has already lined the pockets of the short-sellers of peripheral sovereign debt.

June 1, 2012, Vol. 30, No. 11

Houses for the long run

Buy a house for half of replacement cost. Fix it up. Rent it at a gross yield in the low to mid teens. Talent and capital are rushing to implement this very strategy. "All the people you mention," says one such practitioner, "plus us, plus 50 of our favorite investment firms, could each go raise a couple of billion dollars and it would still not begin to put a dent into the market." Bye-bye to the McMansion phase of the American home investment cycle. Hello to the era of the McBargain.

Bubble in safety

Just seven basis points more than zero was the yield on Germany's zero-coupon notes of June 2014. The times may be troubled (they often are) and people may be desperate (someone usually is), but that doesn't mean that low-yielding sovereign debt is the last word in safety and soundness. Herewith an exploration of the alternatives.

Nobody knows anything

In 1899, the president of the Equitable Life Assurance Society asked scores of respected American financiers about the future course of interest rates. Failing to anticipate the secular bond bear market that would begin in 1900, the eminent authorities unanimously erred. "Groupthink" may be a new coinage, but the phenomenon is as old as the financial markets.

Shortage of dollars

To judge by deeds, not words, the Bank of Bernanke is as tight as a tick. Over the past three months, Federal Reserve Bank credit has shrunk at an annual rate of 9.3%. At the peak of QE2 one year ago, Fed credit was billowing at short-term annualized rates of as much as 47%. Waiting for QE3.

May 18, 2012, Vol. 30, No. 10

Mistakes will be made

"The ocean was too big for the old man," was The Wall Street Journal's epitaph in 1906 for J.P. Morgan's flop of a shipping trust, International Mercantile Marine. Just as the elder Morgan's financial crown slipped in the wake of his failed merchant-banking gambit, so has Jamie Dimon's reputation suffered with revelations of JPM's imperfect hedge. But there is a difference.

Made in China

According to China's National Bureau of Statistics, nominal Chinese GDP, sparked by a 20.9% surge in urban fixed-asset investment, grew at a year over year rate of 12.1% in the first quarter. Yet, according to China's heavy construction machinery trade group, sales of heavy equipment plunged in the same quarter--and in the same China.

Bid wanted—please!

Once upon a time, the phrase "gold mine" had a happy connotation, as in, "Apple Inc.--now there's a gold mine!" Lately though, you hear the once magical words and what you're likely to think is, "margin call." Many ask: is the gold bull market over?

Calling Mitt Romney

The market isn't expecting much from a certain mining company when it reports first quarter results on Wednesday, the shares being as cheap as they are unloved. On channeling a certain nationally prominent LBO veteran.

The wrong tail?

An outbreak of 2008-on-the-brain--a disturbance characterized by obsessive fear of collapsing debts--has pushed bond yields back to record lows. Yes, Mr. Market seems to reason, the Federal Reserve has vowed to whip deflation. But what if deflation whips the fed?

Look who’s stopped printing

The Bank of Japan has found the yen to print again. Governor Masaaki Shirakawa rejoins the ranks of the ECB and the Bank of England in quantitative easing. But not everyone is participating in the current round of central bank largesse.

May 4, 2012, Vol. 30, No. 09

A victim’s guide to financial repression

Government-issued interest rates are the way forward, the Federal Open Market Committee commands. Inflation-adjusted yields are now, and may long remain, negative, it indicates. Income-famished savers can like it or lump it. We write not for the repressors, who never seem to listen anyway, but for the repressed.

Gas-fired income

A certain master limited partnership, in the business of transporting and storing natural gas, perhaps comes as close as any public security to delivering Fed-resistant income. The shares—not to be confused with Treasury bills, by any means—are priced to yield more than you might expect.

120 Broadway reprise

Almost exactly 20 years ago in these pages, the first modern Wall Street skyscraper featured as a case study in deflationary investing. Low commercial rents and strangling costs were the story line in 1992, as they had been in 1932. So how fares the Equitable building in 2012?

Not so repressed

Last week brought a surprise cyclical sighting; a commercial mortgage-backed securities financing that dared show its face in the market with a combined—albeit rating agency adjusted—loan to value ratio greater than 100%. It was the first such occurrence since credit went to the hospital in 2008. Time for a new cycle?

April 20, 2012, Vol. 30, No. 08

For the price mechanism

This publication endorses no candidate for president except Grover Cleveland, the old gold-standard Democrat who, in any case, is dead. But we do support the price mechanism in all its commercial and monetary applications. And we reciprocally oppose policies that override or thwart the price mechanism, the Fed's interest rate policies most of all.

Dollars to donuts

David Einhorn, himself a card-carrying member of the 1%, on the interest-rate origins of income inequality. Also, a kind word for common stocks.

First comes deflation

Hugh Hendry, hedge fund investor and devotee of good novels, on the importance of irony and paradox in markets as in fiction. Deflation first, then inflation.

Crisis of the future

Paul Singer, president of Elliott Management, on the perverse, crisis-deepening incentives of Dodd-Frank. No more leaning on the "guarantors of last resort."

Trapped by 'value'

James S. Chanos, professional short-seller, on short-sale candidates that may fool a careless acolyte of Benjamin Graham.

No pain, no gain

"Probably in the next two to four years," Stanley Druckenmiller prophesized, "we're going to have another crisis and another test…the secular bear market that began in 2000 is not over."

27 years later

Joe Rosenberg, a featured speaker at the first annual Grant's spring conference in April 1985, makes his triumphant return engagement.

Geography lesson

Meredith Whitney, news-making bank analyst, on the broadly deteriorating condition of state and municipal credit. Concerning the card that (really) pays you back.

Questions and answers

The day's speakers hold forth on their favorite investable names, on precious metals and on the potential hazard of excessive pessimism.

'Collateral is money'

James Aitken, student of the financial "plumbing," on the worrying shortage of good collateral. "The United States looks relatively fabulous."

'Safe haven' gold

Simon Mikhailovich, one-time mortgage investor, on the kind of risk you shouldn't take. Nationalization of one's bottom dollar? "You can't hedge against that. You need to protect against it."

Memo to Dr. Bernanke

Your editor, in the spirit of unconditional devotion to the readers of Grant's, has read every word of the transcripts of Ben Bernanke's four March lectures to the students of George Washington University. They are a revelation, though what they reveal may or may not be what the chairman intended.

Almighty dollar

Ben Bernanke's overseas confreres seem to be warming to the greenback. The higher the Europeans try to build their firewalls, the taller the dollar seems to stand among paper reserve assets.

April 6, 2012, Vol. 30, No. 07

New cult of bonds

For the first time in at least a dozen years, corporate pension managers have earmarked more funds for fixed income than equities. Just five years ago, stocks got twice the allocation of bonds. We blame ourselves.

Like typos

It’s Ben Bernanke’s world and interest rates are his to command. But among the chairman’s pygmy rates are a rare few giants. On mid-teen dividend yields and the risks associated with plucking them.

Value alfresco

A certain far western city is marking its houses to market. From the courthouse steps, value-seekers are landing foreclosed property at half the cost of 2012 construction. Mortgages? Available at 18%.

Out of Iowa

City people, we keep learning new things about the ways in which zero-percent interest rates and quantitative easing are playing out in farm country. On the Illinois-Iowa corn ground arbitrage.

Buy the yen

Alone among the world’s major central banks, the Bank of Japan sits on its hands. On the complex interplay between the Japanese current account deficit and the yen-dollar exchange rate.

March 23, 2012, Vol. 30, No. 06

The trouble with prosperity

A zero-percent funds rate is tailor-made for an honest-to-goodness depression. Yet of course, there is no depression, only an unscintillating recovery from steep recession and wall-to-wall credit distress. Still, the Fed hews to zero percent as if it sees what others don't, or can't. What might these perils be?

Not preferred

Should management of this dwindling, idiosyncratically-governed media company succeed in journaling millions from the preferred holders to the common holders, the resulting ripples could be worth billions. A story about the sanctity of contract--or, as it appears to be in this case, the evanescence of contract.

Short a short line

The consequences of Beijing's variant on the so-called Asian development model come in two phases. The short run yields breakneck growth and worldwide acclaim for genius of the Chinese technocrats. The long run features a towering stock of unproductive assets matched by a teetering pile of debt. For a certain railroad holding company, the long run is here.

Piece of my mind

The Federal Reserve Bank of New York has invited some of its public critics to visit the bank to unburden themselves of their criticisms. On March 12, it was your editor's turn. Channeling Carter Glass, H. Parker Willis, Arthur I. Bloomfield---and the Skibbereen Eagle.

Tip of the iceberg?

"The [Chinese] economy is shifting, it's changing," Ian Ashby, president of the iron ore division of mining giant BHP Billiton, warned in Perth on Tuesday. "Steel growth rates will flatten, and they have flattened." Actually, Chinese steel production was down by 13% year-over-year in January. "Flat" would be an uptick.

March 9, 2012, Vol. 30, No. 05

Not so fast, Warren Buffett

“Productive” assets are the ones to buy, counsels the chairman of Berkshire Hathaway, low- or non-yielding assets the kind to shun. Who could quibble? Why, this publication.

Different this time

Assume that the great post-1981 bond bull market is kaput. What could one expect from a new bond bear market? New this time around: interest-rate derivatives and a federal budget with no room to spare for higher interest expense.

Low, lower, lowest

Another month, another set of unprecedentedly tiny interest rates. As the Fed represses yields, so it tamps down risk, or, rather--an important distinction--the perception of risk.

Behind the eight ball

Chinese authorities who forecast faltering growth in 2012 did not so much predict as concede. According to advices received in this lower Manhattan office, growth in the People’s Republic is braking hard.

None dare call it quantitative easing

The European Central Bank, not quite 14 years old, is having a kind of adolescent growth spurt. Though America’s GDP is 13% larger than the euro zone’s, the ECB’s balance sheet is 35% larger than the Fed’s.

February 24, 2012, Vol. 30, No. 04

Greek monetary back story

While 21st century Greek fiscal and financial management may leave a little something to be desired, the record of German monetary stewardship in the Hellenic Republic is supremely worse. During Nazi occupation in World War II, Greece suffered famine, pestilence, wholesale killings and hyperinflation. The last-named plague is the topic at hand.

Block trade

Since the boom went boom, these pages have featured bullish accounts of houses for sale in a variety of exotic settings. We have sung the praises of the bargains on offer in Detroit, Marco Island, Fla., Fishers Island, N.Y., and the rocky Maine coast, to name a few places in which most people do not, in fact, live. We now turn to ordinary single-family houses in prosperous southeastern cities.

When in Athens

Implied in the valuation of a certain internationally competitive Greek engineering company is that there will be no company after 2013. Never mind the bailout, the euro or—just possibly—the drachma, we say. There’s nothing like a cheap stock.

Cheap bet on change

The interest-rate futures markets take the Bank of Bernanke at its word. They register just about zero likelihood of an upward move in money-market interest rates in the next two years. Is the world so predictable?

Walter Schloss, R.I.P.

A tribute to the late, great value investor.

Water, water everywhere

Dollars cost nothing to produce. Yet they are increasingly hard to come by in Asia and Europe. Central banks may have them. Commercial banks urgently need them.

February 10, 2012, Vol. 30, No. 03

America's people power

Love and marriage--and interest rates, too--are among the foremost drivers of nonagricultural land prices. You, Mr. or Ms. Grant's Subscriber, may or may not be a landowner, but you assuredly have an interest in the forces that push land values up or down. A primer on uninhabited acres.

House of the 16 liens

Not even the worst hurricane lingers over one place for more than a day or so, yet the post-Greenspan property liquidation is entering its sixth year. Longtime residents of a certain Florida island attest that, for the most part, the bear markets are worse than the hurricanes.

Safety last

Certified safe nowadays are bonds and buildings that yield next to nothing. Proof of just how safe they are, in fact, is how little they promise to return. Give us, instead, certifiably risky assets priced for a bad outcome, e.g., cast-off suburban office buildings valued at a steep discount to replacement cost.

Wild and crazy

When Agnico-Eagle suffered a production shortfall at its Nunavut, (Canada)-based Meadowbank mine last year on account of a string of accidents beginning with a wolverine and ending with a kitchen fire, it once and for all established that mining is a rugged and unpredictable business. Mindful of that truth, we undertake a review of one of the few pure-silver plays.

American exceptionalism?

On Jan. 24, the IMF downgraded its forecast of 2012 global growth by 0.75% and its forecasts for China and India by 0.8% and 0.5%, respectively. The vehicles that were expected to drive 28% of global growth from 2012 through 2016 may be flashing "check engine" lights.

January 27, 2012, Vol. 30, No. 02

They ask for nothing

Last week, the U.S. Treasury auctioned 10-year inflation-protected notes at a 0.046% negative real yield, while Her Majesty’s Treasury issued four-year conventional notes at a 0.893% nominal yield. Seekers after no return don’t have very far to look. Making the controversial case for some return.

The right price

No claim as to cause and effect, but Newt Gingrich won South Carolina the day after he promised to name Lewis E. Lehrman and James Grant to co-chair a commission to study the feasibility of America’s return to the gold standard. The fundamental conclusions of such a commission may be foregone: We’re for it. As for the technique of getting from fiat currency to the real McCoy, that’s a harder nut.

Not fast money

If beautiful vistas were monetizable, a certain real-estate development company might be in the S&P 500 already. If well-conceived plans and managerial persistence were monetizable, ditto. But the corporate owner of these wide-open spaces is a case study on delayed gratification

Above its weight

In the absence of money printing, capital tends to be scarce, the portfolio manager of a London-listed fund observes; so much the better for people with capital. An admiring review of a tiny enterprise trading at a 19% discount to year-end net asset value.

Money soothes the nerves

Since the prior issue of Grant’s, Japan has tapped an additional $6.5 billion from the Federal Reserve’s central bank liquidity swap facility for a grand total of $20.5 billion. Central bank money printing may calm the waters of volatility, but it has other consequences besides.

January 13, 2012, Vol. 30, No. 01

A vote for Warren G. Harding

Perversely, America's sovereign claims have appreciated as the American fiscal position has deteriorated. The more the government borrows, the lower the interest rate it seems to pay. The more evidently hopeless the long-range "entitlements" picture becomes, the higher bond prices seem to climb. A belated salute to the 29th president of the United States.

The Big 'However'

"To be properly bearish on China," said Grant's on June 3, "one must be similarly bearish on the things connected with the vast Chinese enterprise." Of course, China will eventually go the way of all state-directed abusers of bank credit and over-builders of real estate (risk off!). However, in counterpoint, there's nothing like a cheap stock (risk on!). The bearish case on a corporate jewel and the bullish case on an obscure non-jewel.

The Reik Stuff

In 2011, the gold price was up by 10.5%, but the XAU gold and silver index was down by 19%. The record shows that patient holders of gold and gold-mining shares have fabulously prospered over the past 10 years--those few, that is, who can remain patient. Concerning "the colossal mismatch between the relevant duration of the asset class and the time horizon of a good chunk of its investing participants," it seems to spell opportunity.

Et tu, Japan?

Lost--or nearly so--in the year-end shuffle is the provocative fact that a certain Asian central bank joined the European Central Bank and a few needy others in the queue for dollars from the Federal Reserve's international swap facility. What a 14 billion drawdown may suggest about the health of some of the world's biggest banks. Meantime, a kind word for oversold U.S. regionals.

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