This Media Life

So Wrong He's Right

I put a question to him that was troubling me: "If you don't mind my asking, out of personal interest, how have your kids taken the fact that you've been wrong so often?"

He sighs. "They understand it would be better to have been bullish. Other kids in the schools they go to -- well, you know. When the markets go up, other kids know something really good is happening. Of course," he reflects, "some are so rich they've stopped caring, which is another stage of the economy."

With a little critical interpretation, you can see Jim Grant as a kind of I. F. Stone of the financial media. What has played against him is not the logic of his various arguments (that the value of technology, for instance, should accrue to the users rather than to the makers) or the facts he has unearthed (most recently, that productivity has not really increased) or the fundamental truth of his position (it's a speculative bubble -- duh!) but the social mood. Like I. F. Stone, whose newsletter through the fifties and sixties continued to hold the interest of an ever-more-upwardly-mobile, consumer-oriented, in-name-only left-wing audience, Jim Grant holds the interest of professional investors who enjoy his rigorously old-fashioned follow-the-numbers, value-conscious approach while happily betting against him. Like Stone, Grant has had to face the burden of an unreasonably satisfied and optimistic America.

Such self-satisfaction and optimism have nowhere been more on display than in the financial media.

It's the Motley Fooling, he says, and CNBC-ing of America.

Even when big jolts and certifiable corrections hit the markets, a few days later the talking heads are back saying keep the faith, buy on the dips, trust the Federal Reserve.

Indeed, a media analysis may explain more about the long boom than a financial analysis. The financial-news outlets have became so competitive that they have all courted the ever-growing stock-buying audience with programming that's a lot closer to entertainment than to one's father's sober financial advice.

"The return on reading financial documents has been low for many years," he says, shrugging. "No one wants to read the deconstruction of a 10K report when it's all about the momentum of the S&P 500, when you can watch CNBC and end the day $10,000 richer."

He is really pained. "People have been able to make just horrific mistakes in analysis and be right anyway.

"It is," he says, "the emotional underpinning that I have not understood, the collective optimism, the public heart."

The madness of the crowd was his undoing.

"And yet," I say, "Now we are obviously at a different moment. It's no longer the nineties. Talk to me," I say, "about interest rates."

He smiles. "During the course of the bull market, the rate has been no lower than 3, no higher than 6 -- now it is 6 and 1/2. Greenspan is no longer an incrementalist. He's mopping perspiration off his brow. And we can expect another rate hike in June."

"And? Is it remotely possible we can keep absorbing this? That things just go on?"

He doesn't have to answer. This is what the contrarian knows (it's what I know): Change -- massive, unexpected, mostly unwanted change -- is out there, coming our way.

Those of us who are less logical, less rigorous in our thinking, than Jim Grant look for other sorts of signs of such imminent change. (Town & Country's current issue is devoted to the Internet -- what does that mean?)

We contrarians know that eventually, inevitably, we will be right. All we have to do is wait. ("Even a broken clock is right twice a day," my friend Kara Swisher, who covers Silicon Valley for the Wall Street Journal, snapped at me recently when I suggested we had arrived at the end of something.)

We can hardly stand the anticipation.

Then, sheepishly, Jim Grant admits that he himself has recently raised some venture money (it is one of his favorite rants: the market distortions of "essentially free equity capital") to take Grant's online. His theory is that when the crash comes, when the bubble truly bursts (or when people understand the bubble has in fact burst), then the casual, amateur, day-trading sites will be washed out and the value of the professional analyst, the detail guy, the value hunter, will become clear. The manager of the new Grant's online business comes in for a moment to discuss the business model of the site, which is as vague as any Internet enterprise's.

Surely, this could be the most telling indication of a bleaker future, of the game's being over -- that Jim Grant thinks it won't be. When the last bear goes bull, that's when the market truly turns.

But it could also mean that Jim Grant has finally come over to the other side -- "If I had a vested interest in calamity, I no longer do" -- and is at last willing to be happy.

And it could be that the economy will sustain the Fed rate raises, that the dot-coms will shake out and then grow even stronger, that cockeyed optimism and ever-more-easy-listening financial-news shows will save the day (that George Bush won't be so bad, even), and that I'll be the only one shouting into the wind (what will my children say?).

But I don't believe it. Do you?

E-mail: michael@burnrate.com