Newsletter publisher takes on the experts

May 26, 1994|By Ross Hetrick | Ross Hetrick,Sun Staff Writer

One of the raging bears of Wall Street came to Baltimore yesterday to tell local financiers that the reigning experts don't know what they're talking about.

Expounding on his "crankish perception," James Grant, the publisher of the biweekly Grant's Interest Rate Observer in New York, took issue with a variety of items of accepted wisdom, from the cause of the downturn in the bond market to the next growth area for investors.

The contrarian Mr. Grant's appearance before the Baltimore Security Analysts Society packed in about 90 of Baltimore's financial elite in a meeting room at the Stouffer Harborplace Hotel.

Mr. Grant, who served a three-year stint as a reporter for The Sun in the early 1970s, is a well-known commentator on the foibles of the U.S. economic system. Through his biweekly newsletter published in New York and appearances on ABC, CBS and Maryland Public TV's "Wall Street Week," Mr. Grant has mixed economic statistics with dry humor to skewer the financial establishment.

One of his first targets yesterday was a forum of financial experts held on Tuesday in New York. The experts, he said, found the recent credit tightening by the Federal Reserve Board "near perfect," then went on to berate the bond market for reacting so badly, bringing the price of 30-year Treasury bonds down 17 percent from January to May.

"It makes me nuts," he said about the consensus at the event. "I had to look for ways that the establishment can be confounded."

Instead of seeing the fear of inflation as the cause for the bond market drop, Mr. Grant said it was actually "one of the most violent margin calls in the history of American capital markets."

Mr. Grant said that from 1990 through early 1994, investors had been able to borrow money at short-term rates that were lower than those offered on long-term Treasury bonds -- giving them a profit on the difference.

This party came to an end when the Federal Reserve raised key interest rates earlier this year, diminishing the value of long-term bonds, which sparked banks and brokers to call in loans not covered by the decreasing value of the bonds. As investors sold bonds to cover margin calls, bond prices fell even further, continuing the downward spiral.

Although contending that inflation fears were not the cause of the bond markets' decline, he said consumer prices are poised to take off -- bolstered by the financial strength of banks ready to lend and commodity prices that he sees as ready to move up.

This has lead to his conclusion that commodities -- not bonds -- are the next growth area.

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