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So Wrong He's Right

Contrarian market watcher James Grant spent the last decade sticking to the fundamentals -- and being wrong! Now the Fed's on his side, so will he become a bull?

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Nobody wants to commiserate about the perilous market and climbing interest rates. Even in the dot-com world, everyone I know is weirdly sanguine (dot-commers say how wonderful it is that the weak companies will be washed out). On the financial shows, it continues to be business as usual. While the Fed squeezes -- after years of tight-lipped disapproval, it struck me, Alan Greenspan had finally decided to have it out -- the media holds firm. You could argue, even, that the financial-news channels, with their bouncy, positive equanimity, and the vested interests of their guests in the power of positive thinking, have supplanted the Fed as the ballast of the economy ("Crash? What crash?").

But I know the sky is falling (plus I have a mortgage I'd meant to refinance two Fed rate points ago).

So I called Jim Grant, the one person in the financial media who could be depended on not to sugarcoat anything. There was no one else who had so consistently bucked the national optimism -- and who, therefore, by any conventional measurements, had been wronger than anybody else for the past decade.

Indeed, I was not sure if I was calling him because his was a cautionary tale -- if you mistrust too much the boom, you become an odd duck like him. Or because I was hoping to get some lessons in how to survive as a contrarian in the consensus-oriented, popularity-courting, conventional-wisdom-extolling American media (certainly, on every dip, I've assumed that free fall was beginning, when, in actuality, the greatest part of great fortunes was just on the verge of being made). Or because I sensed that he was quite possibly about to be vindicated.

I had not seen Grant since the turn of the last decade, which was also the last time he had been right. The collapse of the junk-bond market in the late eighties, the crisis in the New York clearinghouse banks, the fall of the Reichmanns and the real-estate market, had been his stories. (The last time we had seen each other was at a funeral of a very eighties bond guy of our mutual acquaintance.) I confess to not having gotten in touch with him in ten years in part because I did not quite know what to say to someone who was just so wrong ("How are you doing?" "I've been wronger").

Grant does not seem, in the least, proud of having bucked the trends. He is not a puffed-up, bullying, Bill Bennett kind of contrarian; rather, he exudes, mostly, helplessness, as though he has been condemned to his point of view.

In the world according to Jim Grant -- no more glum-looking now than he was ten years ago -- periods of excess, of financial illogic, of irrational exuberance, promoter-driven phases of the economy such as occurred in the eighties, will reliably and predictably end (as they briefly appeared to have ended in 1989 and 1990). This is not an unusual point of view; it might have been, up until recently, even the prevailing point of view. But in the face of continuing boom, relentless expansion, and myriad media opportunities for men of good economic cheer in the nineties, most analysts, as well as ordinary stock buyers, have allowed for a revised view -- the new economy is not only ever-growing but self-healing. (Most recently, the new analysis has held that the new economy has already thrown off so much wealth that, just by the process of reinvesting, things will keep going nicely.)

Jim Grant sits behind a desk in an old-fashioned office (dark paneling and fireplace) in an old-fashioned building (with an elevator man) next to a newly gentrified, Donald Trump-refurbished tower on Wall Street. He does seem, painfully, not at all with it -- big, dorky glasses rather than precise little things. "Marginalized," he describes himself. The fact that 3,000 people pay $725 a year for his every-other-week newsletter, Grant's Interest Rate Observer, is in itself a market anomaly. People buy it not for his prescience but for his prose style (which could possibly mean that the value of a compelling prose style has been vastly underestimated in other quarters). Although he has been systematically wrong about the outcome of the American economy, there is arguably no one else who has described it so vividly and dramatically (drama comes naturally when you assume the economy is set to collapse any day).

"I have become the leading authority," he says -- and it is not necessarily with humor -- "on where stocks are not going."

Was his decade-long goof just the result of overthinking? Had he taken the numbers too literally? (Not just him -- Templeton, Soros, Druckenmiller, Buffett had all read the numbers much too closely.)

"Against all the evidence, I never believed there was something new going on," he confesses. "Not even once in the middle of the night did I think stocks should go up."

It is not hard to imagine him rising every morning, stoically ready to face the dire effects of the world's faulty reasoning and overweening faith.

Certainly, I sympathized -- too much, probably -- with such pessimism. (Is it unreasonable to imagine the possibility that most, if not all, of the dot-com businesses might fail? On the other hand, is it wise to pursue such foreboding?)

Unlike most contrarians, however, Grant does not in the least seem proud of having bucked the trends. He is not a puffed-up, bullying, Bill Bennett kind of contrarian (it is reassuring to know that it is possible to hold contrarian views without being annoying about it); rather, he exudes, mostly, helplessness, as though he had been condemned to his point of view. This is a both disconcerting and compelling attribute -- he is a new-economy martyr.

"I chose every single day not to change my mind," he says. "There wasn't a day over the last ten years when I didn't think that logic would prevail. I couldn't buy the notion that technology was the great redeemer. I don't believe in the new age. Nevertheless," he says, pausing, "I didn't have to predict the end of the boom so frequently -- for that, only I can be blamed."


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