Interest Rates

Jim Grant, of Grant’s Interest Rate Observer, has been a strong critic of rampant quantitative easing instituted by the world central banks. In this Bloomberg video, he puts forward some interesting arguments on why this policy is a bad idea, and why you should own gold.

Here are some of his key quotes:

On his degree of bullishness on gold:

“This is not going to be any news, Jim Grant is bullish on gold. The degree I would characterize as ‘very.’ I would characterize gold not so much as a hedge against monetary disorder, but as an investment in it. People will say well that’s a hedge against armageddon, no, armageddon doesn’t happen mostly, but what we are in the midst of is monetary shenanigans, and I see no real chance of being fewer of them, and a great chance there will be more of them.”

On why some Western central banks, like Canada’s, are selling gold today:

“Western central banks to the extent that they are run by people who follow the educational path of Janet Yellen, and Ben Bernanke, and Mervyn King and MIT people I think they have one view which is that gold is a curiosity, it’s like a monetary tonsil. It’s this thing of ancient standing of no immediate relevance so they can’t explain it they don’t know what to do with it.”

“Gold however has its fans in the East and gold is moving from West to the East. When Western central banks do sell as the Bank of England did in the late 90′s, as little Venezuela did in the first quarter and is probably doing now, typically those are moments to pay attention because they’re moments of distress in the world“

“People who hold the view that the stewards of our paper and digital currencies have the answers, that this monetary improv conducted for the past seven or eight years by the world’s Western central banks and certainly Japan, that this is the way forward. I try to understand what they’re saying but I can’t make head nor tail out of it. It seems to me the opposite is so obvious that sometimes I wonder if I’m seeing things.”

And on the benefits of holding cash:

“Cash is invariably a nice thing to have, even though it yields nothing it’s an option, it gives you the flexibility to move and to buy things.”

“Years ago a friend of mine had this conversation with a very wealthy client, and the client said ‘there’s one thing I never want to have to say, that I used to be rich.’ So what cash does for an investor who has some of it, cash allows you to retain wealth with an eye to being opportunistic at that moment that no one wants the things that are now so popular.”

He makes some excellent points regarding why it makes sense why portfolio should own some gold.