'Bear's bear,' who never yielded his pessimism during bull market, gains fans

October 20, 1991|By Pat Widder | Pat Widder,Chicago Tribune

NEW YORK -- Even as the bull market rampaged in the 1980s, Jim Grant's eloquent voice of distant warning found its way onto the desks of discerning executives on and off Wall Street.

He has been called a "bear's bear." But Mr. Grant says his persistent funk stems simply from his belief in financial orthodoxy and such quaint notions as solvency. He is "anti-faddish," he said, adding that "much of the boom was financed in a faddish way."

As for his never being bullish, Mr. Grant demurs: "I liked the bond market in 1984, and once in 1976, I was neutral."

He's sort of kidding. But his publication, Grant's Interest Rate Observer, celebrates its eighth birthday this November, and its pessimist's credentials are still intact.

Initially, the Observer's readers were few. Mr. Grant admits that putting out the Observer, with its elegant New Yorker-ish typeface and layout, at first was like "dressing for dinner and dining alone."

Today, at least a ballroom would be required. Over the years, the publication has developed a loyal and influential following that goes way beyond the official circulation of 3,000 who pay $450 a year to be enlightened every two weeks.

"I hear about Grant's every week from a dozen people," said Howard Stein, chairman and chief executive officer of Dreyfus Corp. "He's a very early warning system. He calls attention to the negatives. You may ignore them and the market may ignore them, but at least you're made aware that some condition is developing."

"He represents the forces of darkness. I represent the forces of light," quipped Edward Yardeni, chief economist at C. J. Lawrence Inc. and one of the most bullish voices on the economic outlook. Even though optimists probably outnumber pessimists on Wall Street, Mr. Yardeni thinks the Observer is appealing because "doom and gloom has always had a pretty big market."

John Griffin, managing director of the Tiger Fund, said of Mr. Grant, "He's obviously intelligent, writes well and is witty. We believe a lot of things he says."

Mr. Grant railed early and often in the 1980s against then-soaring "junk" bonds and also predicted the current troubles in banking and real estate.

When Mr. Grant mocked the leveraged buyout craze by proposing a buyout of IBM Corp. that would use, among other outlandish financing, "junior subordinated perpetual coupon debentures" that "never pay interest and never mature," it was the talk of the town.

Mr. Grant talks like he writes. Or maybe he writes like he talks.

Lately, he has been writing and talking about the Federal Reserve Board and credit cycles. Mr. Grant believes in credit cycles: Credit expands, credit contracts. Right now, it is not expanding, and no amount of wishing will make it so.

But, wrote Mr. Grant last month, "Modern idolatry takes the form of central bank worship, not golden-calf worship."

And there he was on the "MacNeil/Lehrer Newshour" recently, saying that the Fed's most recent easing of interest rates won't be enough to bring the economy back to life.

"I don't think the Fed has all the answers or all the equipment," said Mr. Grant, sitting in the dark and opulently carved office that once was Frank Winfield Woolworth's private aerie on the 40th floor of the Woolworth Corp. spire in Manhattan.

He shares the spectacular space with three associates and two animals -- a stuffed bull moose head wearing three hats and a stuffed black bear wearing two ties. (He says he won't pose for photos with the animals because they would come out looking better than he does.)

But back to the Fed. Quoting from Mr. Grant's piece on central bank worship: "People believe in paper currencies and in the central banks that print them. Even if [Fed Chairman] Alan Greenspan's forecasts are no better than the opinions of the average American newspaper reader, Wall Street wants to trust him, and it imagines that the Federal Reserve is omnipotent."

And: "The faith of Western Bulls is almost as devout as that of the Bolsheviks. As the bulls trust in central banks, it follows that they accept the feasibility of central planning. They believe that events can be ordered by a government committee in possession of the relevant facts and figures. Call this collection of comrades the 'Federal Open Market Committee'; call the facts the 'tan book'; and call the committee's directives the 'federal funds target.'

"If the Soviets are bullish on capitalism, the capitalists are bullish on this particular manifestation of socialism. Bad news is really good news, the capitalists like to say, because it constitutes a pretext for the Fed to monetize the public debt, thereby lowering short-term interest rates. It is a specious argument, albeit in 1991 a good one not to have sold short."

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