In This Episode
Jim Grant, newsletter legend and new friend of Porter’s – joins the show to discuss his most famous profit forecast – a massively profitable bet against the housing market that would later be depicted in the movie The Big Short. Porter asks Jim if the Fed will ever lose the overwhelming power it holds, and you’ll be surprised to hear how Jim calculates how they already lost control a long time ago. Jim also weighs in on Bitcoin and how it could be Silicon Valley’s “cry for help.”
Buck: Welcome back to another episode of the Stansberry Investor Hour. I'm
Prior to leaving for Vegas, Porter recorded an exclusive interview with none other than Jim Grant, the famed publisher and editor of Grant's Interest Rate Observer, which is read by every mega-hedge-fund manager, high-profile institutional investor, and any Wall Street analyst worth their salt. In fact, famous commodities expert, Jim Rogers, was even the first subscriber to Grant's many years ago. But before we get to Porter's exclusive interview with Jim Grant,
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You'll see all these speakers and over 30 inspirational presentations when you go to http://www.stansberryvegasvideo.com. That's stansberryvegasvideo.com and secure your online access pass. It's easy and even if you can't tune in live, you'll have instant access to the video archive, so you can rewatch all the speakers as many times as you want for up to 90 days after the conference. Just go to stansberryvegasvideo.com for the full speaker lineup and all the details. And now, here's the man himself, Porter Stansberry, and his in-depth interview with Jim Grant.
Porter: Welcome, everybody, to a special edition of the Stansberry Investor Hour. I'm your host, Porter Stansberry. Joining us this week is a legend of the newsletter industry and a new friend of mine. His name is Jim Grant and he is the founder and writer of Grant's Interest Rate Observer, one of the most expensive and elite investment research products available on the market anywhere. Jim, thank you very much for joining us today.
Jim: Well, Porter, it is my pleasure indeed, thanks for having me.
Porter: So Jim, the first question I've got to ask you, and by the way folks, you have no idea what a pleasure this is for me. For more than 20 years, I have been following Jim's work and I've been familiar with his reputation, which is stellar in our world. I've always wanted a chance to interview him and ask him a whole bunch of questions and now I finally got him. So, I hope that you will all listen
Jim: First and foremost, Porter, thank you for the premise and the question. You know, when you stand at the pinnacle of financial journalism, if you stand
I got a job at a firm called McDonnell & Company, not to be confused with another McDonald & Company in Cleveland. McDonnell & Company in New York was a member firm of the New York Stock Exchange. I was there before returning to college. I got a taste of the financial markets, which taste I savored and have continued to savor. Went back to school and I studied economics. Graduated, went to Columbia for a couple years, and now, if you're still listening, Porter and audience, I am at the Baltimore Sun. And because of – as much as six or seven months experience at McDonnell & Company, I am considered the economic guru of the news room. That's what it took.
And when there was an opening on the financial desk, I took it, and a couple years later, I achieved an ambition of mine, which is to go to New York and to work for Robert
I figured if only half of those subscribed at the rate of $200.00 a year – my wife and I had one of these very early automated spreadsheets, Lotus 1-2-3. We did the calculation about the first year's revenue. We decided that we needed tax counsel owing to the imminent influx of subscriber funds. That was the plan. The reality was – I don't think you can identify with this,
Porter: Oh, quite
Jim: I think I had 18 subscribers to week one and I got into a cab and took the 18, I guess it was, envelopes to the post office to mail them. It was volume one, number one. I paid the cab driver, closed the cab door, and looked at the steps, magnificent steps of the main post office on 8th Avenue and 34th Street Manhattan. It is a towering and monumental building.
Porter: That's just across from the train station, isn't it, Jim?
Jim: Yeah, and ascend to the steps before I realize that the cab that had sped down 8th Avenue had the envelopes that contained the first issue of Grant's. Yeah, so anyway, I'm still proud of that first issue, as few of them that exist. The headline on the front page was "Interest Rates Rise," because Porter, even then, we would not stoop to sensationalism. And the other headline was "Another Voice in the Choir," which we introduced ourselves to the world and said you've got to read this thing. That was middle of November 1983.
And Porter, that was about 34 years ago. In the interval, looking back, eight books and about, I guess, three and a half or four million words
Porter: Jim, I want to jump ahead. The story of your origins, I think, it's really important for everybody to know. When you read a newsletter and you take your advice and you treat them sincerely and you pay attention to what they're saying to
The other thing that I think is really important to understand about a potential newsletter subscription or relationship with a newsletter writer is the scope and the magnitude of what you offer the reader and at Grant's, the scope and the magnitude of what you offer the reader, in my opinion, is bigger, broader, and more professional than any other product that's on the market. You have
And by that, I mean your newsletter was featured in a Hollywood movie that dramatized the characters and the actions surrounding the collapse
Jim: I'd be happy to. Let me begin in about the year 2000, 2001. It was then that NASDAQ – the dot-com bubble had collapsed and the Federal Reserve, looking for ways to rejuvenate and rejigger the American economy, fixed on the opportunities in residential real estate. If you recall, Paul Krugman – among others of that political persuasion – were urging the Fed to slash interest rates, hence mortgage rates, so as to set off a rally, which presently became a bubble itself in house prices.
Lo and behold, that's more or less what came to pass. The feds slashed and slashed rates and up and up went house prices. Something was out of kilter as early as 2000 and 2001, that early, and we began writing about house prices in 2000. We noted that you could get a mortgage with very little collateral. We noted that you could get a mortgage in which you were not required to service the principal for many years. We noticed your word was your bond in some mortgages and your word in some cases was not very good. All these anomalies and these oddities and excesses began to pile up.
Year-by-year, we wrote about the levitation in house prices and we kind of threw rocks at that particular rising bubble. Rocks never brought the bubble down, but I think our readers began to understand and certainly we believed was true that house prices were simply out of their customary orbit through well-intended, but ultimately disastrous federal stimulus through agency of mortgage market. House prices flew way out of range of incomes with which to service the debts and maintain the structures. Now, the year is 2006, and we get a call from one of our readers who said have you seen the prospectus for – I've forgotten the name. Very convoluted-sounding mortgage structure. I said no and he said take a look, because it bears investigation.
Porter: By the way, Jim, you'll recall that no one ever read the prospectuses of any of those asset-backed securities.
Jim: You're looking at the organization that did. This was about 800 pages or so and at the time, had an associate, at Grant's analyst named Dan Gertner. Dan was a Purdue guy. He majored in – he was trained in chemical engineering and he got an MBA. I think the MBA was from Purdue. He was an Indiana guy, Hoosier. Dumped this stack of papers on his desk, "Dan," I said, "figure this out." About a day and a half later, he said, "I can't". I said, "Dan, we got ourselves a story." And we dug deeper and we produced the first piece on this recondite, complex, but ultimately, analyzable structure. And we began to look at others and we began to see the contradictions and the main investment appeal.
And here was the investment appeal, Porter. These mortgage-backed securities, collateralized debt obligations, what have you, were priced, most of them, at about 100 cents on the dollar, 101 cents on the dollar, 102 cents on the dollar. If you sold them short, it fell to you to service the interest and also to stand ready to buy them back in case they rallied in price. They were not liable to rally
The upside was vast and the downside risk, that is downside risk of mortgages appreciating in price, was minimal. So it was that very rare opportunity in which we were towered over prospective risk and importantly, the world had not caught on, nor did the world catch on for a long time. We were summoned, Dan and I, into the offices of Standard & Poor's for a dressing down and to tell us we really didn't understand things. I forgot what year it was, early 2008.
Porter: Oh, if only you had a recording of that meeting.
Jim: It was a great experience and all honor to Dan Gertner for his stellar work in figuring this thing out. We persisted and built on the story. A number of readers, a lot of readers began to get very tired of it. We were becoming slightly predictable in the topics, we have other topics. But in the end, it was worth it and I'm glad for our persistence and I'm glad for
Porter: A couple things about your product I'd like to ask. There's a fantastic lost interview of Steve Jobs that's available on the Netflix, one of the many vastly overpriced media entities around today. If you Google it, it's worth 45 minutes of your time for listeners and also for you, Jim. It's a fantastic interview done by a well-known West Coast author, who wrote a book about Steve Jobs and Bill Gates and the other leaders of Silicon Valley of 20 years ago called Revenge of the Nerds.
This is a lost interview. It wasn't published until very recently. You can Google Steve Jobs or you can search for Steve Jobs on Netflix and it'll come up as the lost interview. The best part of the interview, I think, is when Steve Jobs identifies his passion for building a product. He says really
You have to build something that they've never dreamed of being able to get. To do that, you have to completely avoid listening to any of the sales people or any of the accountants or any of the engineers and your company, because all they can tell you about is what someone's already created and to really be successful, you have to create that something that's new. Of course, everyone recognizes now, that's exactly how Steve Jobs saved Apple. This interview was back in 1995 before he'd returned to the company and when Apple was really struggling and almost went bankrupt.
The question I have for you is your product, your newsletter, is so idiosyncratic. It's unlike anything I've ever seen before. It's certainly unlike anything else that's published in the space and you seem, as I told you once, to have a zen-like disregard for whether or not your subscribers like it. So what I wanted to ask you is what is the vision you have for the product and where did that vision come from, because it is so unique?
Jim: I've set out to – speaking of long lost,
We take the greatest pains on facts, we take the greatest pains on accuracy of speech and the humble art of spelling, and the rest of it. Needless to say, we take enormous pains and selection of topics. I pour everything I have into every issue of Grant's. I think the staff does as well. I'm not quite indifferent to, in fact, I'm not at all indifferent to what our reader is like. I don't go to them asking them what they'd like to read. I keep on hearing that one ought to do that. I'm not going to compare myself to Steve Jobs or Henry Ford, but I will compare Jobs to Ford. What Ford wanted to do was to give the American horseman something that he and she had never seen or imagined. I think the same thing as you described Jobs held true with him.
The world certainly has had its exposure to first-rate pros. It's had some exposure at intervals to first-rate financial thinking. We didn't invent anything at Grant's, but we aspire to be the best at producing well-expressed,
Porter: I would tell people who have never read your newsletter before that they should definitely start not only with
Porter: I hope I got it exactly right. There's a copy on my bookshelf. I thought that was one of the greatest financial books that
Jim: Yes, I am – it's hard to go and face what you wrote years ago. I do that from time to time, I look at a book I wrote and look at it almost
Porter: And the followup question to that is – this is an impossible question to answer with any definitiveness, but I want your opinion more than anything. That is do you think the Fed will ever lose the overwhelming power it has, absent a crisis that destroys the dollar and perhaps the government?
Jim: That's a great question and I've got a couple thoughts on that. Indeed, I have many thoughts on that. I think about it more or less all the time. The Fed is a remarkably resilient institution. My goodness, it is populated by 700, 800
It failed pretty abysmally in 2005 and 6 and 7 and 8. You'd think so many qualified people would have seen the biggest event of their professional lives coming before it hit them in the back of the head, but they did not. From this experience and from this failure, the Fed emerged with greater powers and with, if possible, greater prestige. You wonder what can change things. Some of us thought maybe Donald Trump, who had spoken pretty glibly on the campaign trail about the gold standard, perhaps he would be the instrument of some change. But lo and behold, he's talking about the former president of Goldman Sachs coming in. That seems to foreclose anything like radical transformation.
I think, Porter, I think what is going to hobble the fed, what's going to cause a reimagining of American monetary arrangements
New highs in almost every market, so what changed this? What changed it is a discontinuity of some kind. Maybe a thunder clap in the financial markets, maybe a reconsideration through
He might say it's a dollar, for Pete's sake. There's no definition. The dollar is what the market says it is. You can pay debts with it. But it is collateralized by our collective faith in institutions of the American government general and the Federal Reserve specifically and I guess more broadly, it's collateralized by the idea of America, which is a pretty good idea. You don't have to be so old to recall the days of the Carter administration in the '70s when the dollar was kind of a pariah currency when a Roman hotel clerk would look down his nose at your traveler's checks. Windy answer to your very good question of many minutes ago, Porter, I would say yes, a crisis is probably the catalyst for anything resembling a reform of American monetary arrangements.
Porter: Jim, as a student of financial history, I'm sure you're very familiar with the early 1700s and the prevalence of various paper currencies, and the colonies, and of course the corresponding financial bubbles in France, and the South Sea bubble, and what was it? The Mississippi bubble. All erupting at the same times. Do you see
Jim: Yes, I think that the – I think there is a strain, only a strain, but perhaps an important strain of monetary criticism in the rise of these crypto currencies, by which I mean I think – look on bitcoin in a way as Silicon Valley's cry for help. The legendary... I guess literally legendary founder, inventor of bitcoin, the man's name is
Jim: Supposedly, got this bright idea around the time of the financial – not sure if it was 2007, 2008, but certainly his fans and acolytes contend that the bitcoin – the founding of bitcoin was a reaction to QE and the depredations of the world's central bank, which, you know, depredations were, I think,
People buy these things, because they're going up. I think there's not really the – I think the fabulous rise, not only bitcoin, but 800 to 900 others, which maybe ended around Labor Day, maybe didn't, this rise is the only monetary element and really is the liquidity that's available to finance it and things. Again, two very low interest rates and to all this credit creation by the world's major and central banks.
Porter: I'm of two minds about it. I certainly share your skepticism about the number of virtual currencies that have proliferated. I imagine much like the web businesses of the late 1990s, very few of them will survive. But I suspect the ones that do will be incredibly powerful forces indeed. I think it's very interesting. There are folks in a political and philosophical strain that we share. Largely, you would call the hard money crowd. We think obsessively about what the meaning of money is and the role money plays in our economy and we worry very much about the elastic currency that we have. We're afraid of the ultimate outcome of such
Along comes a terrific and elegant and beautiful solution to that problem and virtually all of us – by us, I'm talking about the hard money group at its most expansive. Virtually all of us have done nothing but either criticize it or decidedly ignore it. I think – I don't know why that interests me so much, but it does. The programming and the idea behind bitcoin and the software itself
And yet, we're all giant critics of it and myself included. Do you see the irony in any of that?
Jim: I do, I do. And I, myself, have – you're of two minds and I might be of three. You know, _____ _____ came out famously many years ago for kind of a free market in money. _____ _____ nationalized and bitcoin seems to be kind of _____ in that respect.
Porter: Very much so. In fact, it's creation being so confused. You know, no one knows who Satoshi is or if he's anyone at all. That's like a form of spontaneous order. It's really interesting.
Jim: Yes, it is. When you own bitcoin, what do you own? You own a price in a screen to be sure and very pleasurably, that price has exploded, so that's one thing you own. It's no small thing. What else do you own? You own a claim on a finite thing that people are prepared to call money. In a way, but what's the appeal of the money? The appeal of the money, if you listen to the adherence of this, the appeal of money – what is it, $21 million ultimately in the year 2140, I think, something. They say that this the first currency that the supply is limited. It's the first decentralized ledger-based system.
That's true, yeah, but it's hackable, it's forkable, it is taxable. It is ultimately under the thumb of states who are threatened by competition for the holiest and most sacred of all rights of encroaching sovereign state, which is the power to create money, to control it, and to inflate it. The block chain is, as you say, is an elegant, indeed magnificent piece of software, but is it the last and best item in service of the transmission of funds? I don't know, what about superseding improvement in technology? That's the trouble with text docs. There's usually something better such as ingenuity of people who are inventing these things.
The question becomes not is bitcoin a constructive contribution to the world's evolution and money. Yes, it is. The question isn't whether block chain is not something wonderful. Well, it is. The question is what do you pay for and what do you own after you pay for it? We wrote about bitcoin a couple of weeks ago in Grant's and the headline was "Crypto 36,000," which is an allusion, of course, to the Dow 36,000 book of some time ago.
I guess we're going to get the Dow 36,000 faster than some of the bears expected, but not in the life span of that particular book. What we see in bitcoin is not so much a monetary phenomenon or not so much a monetary phenomenon that will complement or supersede the dollar, but an expression of excess in the monetary – other monetary phenomena.
Porter, I'm getting tangled in my own words. Bitcoin to us is
Porter: I certainly agree and I cannot even begin to try to defend a price of bitcoin, even though even though we've done a lot of work on it, understanding the computer power involved to mine the next coin, et cetera. I won't bore everybody with those details. Just say I have no ability to predict the price of bitcoin, but I do think that the entire idea of virtual currencies is the greatest single threat to central banking power that has ever existed. I think it'd be very interesting to see what would happen if the US government tried to outlaw trading like they did at one time with gold.
Because, you know, we – Jim, I think you and I both prefer gold as the ultimate alternative currency, the ultimate alternative to central banks paper money. But I think crypto currencies or the idea of it, not saying necessarily bitcoin, I think that could be the thing that is most difficult for central banks to deal with. Because the millennials don't want to deal with gold, but they are all desperate to be involved in crypto.
Jim: I think there'd be a marriage of crypto and gold indeed. There has been and there will be. One reads _____ _____ called Glint coming out of the UK, which is meant to be a crypto currency convertible into gold. Certainly, there have been experiments and more than experiments in digital currencies in North America having to do with gold. I don't think the two are separate and distinct at all. One of my monetary complaints about the crypto is the kind of reinventing the wheel. Gold's been around for millennia. It has all the properties of a true _____ value. I think maybe it's a generational thing. Millennials don't want gold. That seems obvious. I think if they gave it a think, they would reconsider.
Porter: Jim, you've been very generous with your time and your thoughts with us. I want to wrap things up with something a little more light-hearted than trying to figure out the future of paper currency and the role of bitcoin and the destruction of the Fed's power. As a fellow newsletter publisher, of course, I have a great interest in Grant's and a tremendous admiration for what you've achieved with your product. The rumor – I wonder if you could verify this or build upon it. Was Jim Rogers really truly the first subscriber of Grant's Interest Rate Observer?
Jim: Oh yes. Jim Rogers was number one and during the early going broke phase of grants, that lasted about 18 months. I went to see Jimmy, and Jimmy has many sterling attributes. Of course, he's the investment biker. He's George Soros' partner. He rode around the world on his bike and his girlfriend now wife and had phenomenal adventures. He's lived the _____ _____ dream of most people on Wall Street. Jim is not a sentimentalist and -
Porter: No, he's not.
Jim: I went to see him at his then upper west side – his then current mansion on the upper west side of Manhattan. I was kind of down in the mouth. We'd been in business six or eight months. I'd run through my Dow Jones profit share. I was trying to raise money to perpetuate this experiment and journalistic idealism. And so "Jimmy," I said, "we're almost to the point of liquidation." He said, "What do you
Porter: I brought that
I wasn't a speaker, I was the wide-eyed 24-year-old in the crowd. The speakers are all these very famous people in finance, sat down, including Jim Rogers. No one sat next to Jim, so I hustled over there and grabbed the chair and introduced myself. And I, of course, was very wide-eyed and very naïve. And I was just trying to learn whatever I could from him while we were having dinner. His girlfriend was on his other side. I think I really probably annoyed him tremendously thinking back on it now.
Jim: That's easy to do, don't feel bad, Porter.
Porter: But he could not have been more kind and patient with me and he encouraged me. And at the time, he was just launching his commodity fund. I don't know if you know much about that. Commodities, of
Jim: That's Jim. You got the – that was the guy.
Porter: So I just wanted you to know, ironically, Jim was also my first subscriber. We've been friends ever since that dinner and he is remarkably generous with his time and has kept up with me and he's been a great –
Jim: Isn't that great.
Porter: Just a booster of me and my work. I'm very grateful to him as well. One last thing, I wanted to share with you and I wonder if you have something similarly ironic in your file. My friend, Doug Casey, who was a globetrotting speculator who likes to do crazy things like buy businesses in Central Africa and hope they don't get stolen from him. Anyway, he – a couple years ago, two or three years ago, he arranged to have a meeting with Gideon Gono in Zimbabwe. Do you know the name?
Jim: He's the premier central banker of the world, certainly in wisdom.
Porter: That's right. So Gideon is a guy who proved all –
Jim: He's a chicken farmer.
Porter: He proved all of the theories that we have about paper money in spades.
Jim: I think Gideon Gono is by trade a chicken farmer who got – am I not correct in this?
Porter: I don't know that much about him. I haven't met him. I don't know if he's a chicken farmer or not, but I do know he was head of the central bank in Zimbabwe and he had – he orchestrated one of the truly great inflations of all time. So Doug was over meeting with Gideon trying to explain – Doug has a wonderful theory about how you could take an entire country private and he was trying to explain this to Gideon. Gideon was very worried about what was going on in the U.S. central bank because he could see they were following his playbook and he didn't think that was a good outcome for the world.
And Doug was nodding in appreciation that they were on the same page about that. And Gideon said, in fact, he said I want to show you something – I wonder if you have ever met this great American economist? He brought – he had his kid bring out his laptop computer and he went to YouTube and he found my famous End of America video, which I put out in 2011.
You know, it warned about the inevitable inflation, which hasn't occurred yet. So here – just imagine the scene. You've got Gideon Gono showing Doug Casey your hyperinflationary warning video. The world is a very small place. Have you ever been traveling or had a similar circumstance with a subscriber? Someone you didn't know you'd influenced with your newsletter, but then had the shocking realization that there was some circular logic going on?
Jim: You know, I'm not going to live long enough to have a story like that. Every once in a while, I'll come across somebody who is carrying a book of mine as if to read and it's ever so gratifying. If I might just have a moment on Gideon, the governor of the central bank of Zimbabwe put out the most effecting comment. What was the year that Zimbabwe reached hyperinflation? Maybe I guess it reached hyperinflation on many occasions. One of the
Porter: Yeah, I've seen him be very critical of the U.S. and European central banks as well, recently saying I don't know why they're expecting it's going to turn out differently for them. There may be more to Gideon than meets the eye.
Jim: I think there's a lot more. In fact, Porter, you've given me a great idea for the next Grants Conference, fly in Gideon Gono.
Porter: That would make the show even better. I don't think he's allowed in the U.S., though. We tried to get him. I don't think we could because he couldn't get a visa. How ironic is that?
Jim: Maybe the fed can pull some strings.
Porter: All right, well listen, for the listeners out there, I want to encourage everybody to go check out Jim Grant's newsletter. It's Grant's Interest Rate Observer. You'll find it on the web, as you find everything else. I believe your web address it Grant Pub online? Is that correct?
Jim: Yeah, http://www.grantspub.com. If you just type in "Grant's Interest Rate Observer," you will get there. And please know ladies and gentlemen, you're most welcome when you do. Porter, I want to thank you for this opportunity and for all the nice things you said and for your friendship, which has not just begun today, but it's been longstanding. It's a pleasure to talk to you, Porter. I'm most appreciative.
Porter: Jim, it's great. I look forward to doing it again with you soon and best of luck in preparing for your upcoming conference. The date of your conference, Jim, again is October 10, and if there's anyone out there listening, Stansberry Research has a current special offer where you can get access to Jim's conference, which features about 12 of the most powerful wealthiest financiers you've ever heard of.
And a year's worth of his newsletter at a fixed price, so check that special offer out at http://www.stansberryresearch.com and whether you can attend Jim's conference virtually or in person, please do not miss his newsletter. It is one of the great journalistic pleasures that has ever been published and certainly that is published today. Thanks again to Jim for joining us and we will see everyone here again next week.
Jim: Thank you, Porter.
Buck: Okay folks, there you have it. It's not often we're able to run long interviews like this, so
Also, next week, once we all recover from a week in Vegas, we'll get back to business as usual when Porter and I sit down for an interview with Ares
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