Jim Grant

On occasion of the publication of his new gold report (read here), Ronald Stoeferle talked with financial journalist Lars Schall about fundamental gold topics such as: "financial repression"; market interventions; the oil-gold ratio;  the renaissance of gold in finance;  "Exeter’s Pyramid"; and what the true "value" of gold could actually look like. Via Matterhorn Asset Management.

A simple enough question it would seem. As Jim Grant so eloquently begins his oratory (describing how the Fed operates in contrast to how it was meant to operate per its founders) at Ron Paul's Fed Lecture Series from earlier in the year: "If one reads the Federal Reserve Act, you will be struck by how little the 21st Century model resembles the projected central bank - as in fact the founders advocated for a De-Centralized system." Note the specific wording at the end of the Act: "...to establish more effective supervision of banking in the United States; AND for other purposes." It is the 'other purposes' that provide the jumping off point for everything that has come since...

News and headlines from the day

In preparation for what we are about to receive from the Charmain of the Fed, may we be truly grateful, Jim Grant offered CNBC's Maria B the forthright advice last night "prepare for platitudes but watch what they are doing not what they are saying". The ever outspoken Grant notes that the Fed's balance sheet has been contracting (unlike Maria's mainstream perspective); for the past three months the Fed's balance sheet has contracted at an annualized rate of 10% - even as Fed-head after Fed-head talk up QE and so on. So unless they continue buying securities - since the short-dated positions will continue to roll off - the Fed's balance sheet will continue to contract and therefore the stimulative effect will fall. Grant does expect QE3 since it is the fun-drug that we have been using for 4 or 5 years and that Bernanke will need little pushing to continue the Grand Manipulation. He ends on a rather interesting note that the Wisconsin win and the potential for an Obama loss in November may be more of a positive driver for stocks since markets begin to revert to a free market once again - we suspect this is not the case given the donors/beneficiaries under Romney's wing. But rest assured - the bespectacled bear ends on the chilling note that 'the long-term implications are bad' for the ongoing manipulation that is now the status quo.

Highly respected economist and strategist David Rosenberg has told that Financial Times in a video interview (see below) that gold “will go to $3,000 per ounce before this cycle is over.” Markets are repeating the downturns of 2010 and 2011 and it is time to search for safety, David Rosenberg of Gluskin Sheff tells James Mackintosh, the FT Investment Editor. Rosenberg sees a “very good opportunity in gold” as it has corrected and seems to be “off the radar screen right now”. He sees gold as a currency and says the best way to value gold is in terms of money supply and “currency in circulation.” As the “volume of dollars is going up as we get more quantitative easing” he sees gold at $3,000 per ounce. Mackintosh says that Rosenberg’s view is a “pretty bearish view”. To which Rosenberg responds that it is “bullish view on gold and gold mining stocks.” Mackintosh says that it is “bearish on everything else”. Rosenberg  says that it is not about being “bullish or bearish,” it is about “stating how you view the world” and he warns that the major central banks are all going to print more money and keep real interest rates negative “as far as the eye can see.”

While we have heard a lot from Jim Grant recently - all pointedly correct and substantial - today marked the pinnacle of propaganda-brinksmanship. Explaining to Maria B just why the world in which she lives, Bernanke-lovers-all, is nothing but a hall of mirrors - a fake mirage - of the true reality thanks to central bank repression of all that we know about risk and return. "By changing interest rates, central banks change the perception of every asset class - so what seems cheap may not be cheap" as Grant notes that when you can fund investment at 0%, we are collectively being manipulated and moreover should try to realize - as an investing public - that we are Jim Carrey in The Truman Show. Of course the 75% of professional investors who believe Bernanke is doing a great job would prefer to stay inside the fake reality where their bonuses get paid and leveraged tranche losses get soaked up by some account transfer from the fed or loan loss provisioning adjustment - for the rest of us - wake up and smell the unreality. The money-honey pulls the blame and deflect card - noting the ECB are just as bad - but Grant brings her back to the reality that we are facing as he suggests being in the crowd who own Treasuries and Bunds when the next risk flare occurs will not end as well as many hope, preferring gold (and gold stocks) as a hedge as "The Gold move is not over".

From the moment we all got to peek behind the over-leveraged financial system reality thank to Lehman's collapse, the-powers-that-be have made every attempt to stop this whole thing unraveling. Eric Sprott humbly suggests, when the CNBC anchor in the following clip questions recent gold price action as evidence of something wrong in his thesis, that just as Jim Grant opines, "All markets are manipulated" and that Central Banks (who are desperately trying to revive the dying system in every extreme monetary scheme possible) simply do not want to see the price of gold rising. He then notes that Silver is likely to be the investment of the next decade (although offers no strong thesis other than levered gold). Shrugging off the obfuscation from Omaha, "People who sell paper gold and paper silver can rule the markets in the short-term but physical participants will win the day in the long-run". Detailing some fundamental drivers for gold's advance, as the investment of the last decade and so for those three gentlemen (Buffett, Gates, & Munger) who missed it, I don't know that I should respect their opinion at this point in time.

The dulcet tones of Jim Grant provided much food for thought on Tom Keene's Bloomberg Radio show this morning. While the interest rate observer did not change his tack on the extreme experimentation of world's central banks, he did have some new perspective on the incredible moral hazard (or unintended consequence) that is being created. One of his main criticisms is the incredible arrogance and conceit of a central banking system that believes it can see the future and thwart things before they come to pass, as he notes "I blame the central bankers for confusing the black art of central planning with the traditional art of central banking". He fully expects more easing by the Fed and its friends as he awaits their response to this latest stumble in the markets but what is most evident to him is that "The Fed owns the stock market" since they have financially repressed all investors into risky assets they now have been forced to have a moral responsibility to keep us safe in those assets - incredibly! The Fed is more likely than not to intervene with still more money-printing in any effort to keep this bubble afloat. What Jim focuses on is the morality in economics and the current immoral policies that have very bad consequences.

Munch's "The Scream" may be all the rage today, but to Jim Grant, in his latest interview on Bloomberg TV, the record price paid for the painting is not so much a manifestation of modern art as one of modern currency: "This is the flight into things from paper" . Thus begins the latest polemic by the Grant's Interest Rate Observer author whose topic is as so often happens, the Federal Reserve (for his latest definitive expostulatin on why the Fed should be disbanded and why a gold standard should return, delivered from the heart of Liberty 33 itself, read here). The world in which we invest is a world of immense wall to wall manipulations by our friends in Washington. And people get off on Goldman Sachs because it has done this and this, it is pulling wires... The Federal Reserve is the giant squid of squids, it is the vampire squid of vampire squids."

The Fed’s promise to use more QE should the economy falter is supporting gold.

The global economic picture remains grim, with euro zone economic sentiment falling more than

expected in April and the US job market recovery showing signs of a slowdown.

Apple earnings and the tech boom and indeed possible tech bubble remains one of the primary

drivers of continuing irrational exuberance and risk appetite.

The poor and deteriorating economic backdrop is gold supportive.

The bow-tie-and-bespectacled Jim Grant once again takes the centrally-planned 'Office of Unintended Consequence' (aka The Fed) to task in a thoughtful exchange with Capital Account's Lauren Lyster. Reflecting on his recent opportunity to speak directly to various Fed officials, he found one particular question (on the perceived 'mass starvation' that occurred in the brutal earlier Depression beginning in 1920 which ended rapidly without the need for monetary stimulation) most disturbing in its summation of the central bank's 'Atlas Complex' - or how would we get up and go to work in the morning without them. The attitude of our Monetary Priesthood, he analogizes, is that unless they are active in their prayers and devotions, who knows what might happen? Grant goes on to discuss the hypocrisy of Bernanke (noting the importance of free market prices to his students and yet controlling interest rates overtly in the market-place) and highlights interest rates role as the traffic light signal in a market economy providing a critical input to our perception of value in stocks, bonds, real estate, Silicon Valley Startups, and so on and because these rates are manipulated we live and invest in a hall-of-mirrors leaving us with a distorted vision of the real-world. He notes that Americans, as typically recklessly joyous investors in growth, "remain in a miasma of anxiety due to the extreme unpredictability of policy action and this is what creates the tail risk of doubt and apprehension." Looking to the future he sees the constitutionality of Obamacare and the elections as a critical test in the war against supply and demand that is being waged by our central bankers and government.

All you need to read.

What we need to understand is that we are in one of the most dangerous phases of this crisis at the moment. The priests of fiat are being attacked from all sides. People have awoken to the Fed and how criminal and deceitful this organization is and the existential threat it poses to economic freedom and hence human liberty. The arguments against the Fed are blistering and the only rebuttal the Fed has is to spout the same old nonsense like “we saved the world” or some trite derivative of this fallacy. The only thing they saved are untalented speculators from their bad bets. What the Fed has systematically done is literally transfer all of the bad debts and bets from the banks to the taxpayer. We are living this reality to this day. This fact is becoming increasingly understood throughout society, hence the emergence of the tea party and then last year’s Occupy Wall Street movement. So the thing I want my readers to really internalize is that the Fed and indeed TPTB generally are getting slaughtered in the intellectual arena and they know it. As a result, they feel cornered and will thus act increasingly aggressive to prove they are right and everyone else is wrong.

On Thursday morning, President Hu Jintao of China, President Dmitry Medvedev of Russia , President Dilma Rousseff of Brazil, President Jacob Zuma of South Africa and Prime Minister Manmohan Singh of India shook hands at the start of the one day meeting in New Delhi. Top of the agenda was the creation of the grouping's first institution, a so-called "BRICS Bank" that would fund development projects and infrastructure in developing nations. Less noticed and commented upon is the aspirations of the BRIC nations to become less dependent on the global reserve currency, the dollar and to position their own currencies as internationally traded currencies. The leaders of BRIC nations and other emerging market nations have adopted the idea of conducting trade between the five nations in their own currencies. Two agreements, signed among the development banks of Brazil, Russia, India, China and South Africa, say that local currency loans will be made available for trade between these countries. The five fast growing nations participating in local currency trade will allow participants to diversify their foreign exchange reserves, hedging against the growing risk of a euro or dollar crisis. The BRICS want to have easy convertibility of currency to make it easier to use the real, ruble, rupee, renminbi and rand amongst themselves without having to always use the US dollar. Higher intra-Brics trade, conducted in their own currencies would shield their economies from economic dislocations in the west. Left unsaid so far is the possibility that one of the BRICs or the BRICs in unison might peg the value of their respective currencies to the ultimate store of value and money - gold.

In the not quite 100 years since the founding of your institution, America has exchanged central banking for a kind of central planning and the gold standard for what I will call the Ph.D. standard. I regret the changes and will propose reforms, or, I suppose, re-reforms, as my program is very much in accord with that of the founders of this institution. Have you ever read the Federal Reserve Act? The authorizing legislation projected a body “to provide for the establishment of the Federal Reserve banks, to furnish an elastic currency, to afford means of rediscounting commercial paper and to establish a more effective supervision of banking in the United States, and for other purposes.” By now can we identify the operative phrase? Of course: “for other purposes.” As you prepare to mark the Fed’s centenary, may I urge you to reflect on just how far you have wandered from the intentions of the founders? The institution they envisioned would operate passively, through the discount window. It would not create credit but rather liquefy the existing stock of credit by turning good-quality commercial bills into cash— temporarily. This it would do according to the demands of the seasons and the cycle. The Fed would respond to the community, not try to anticipate or lead it. It would not override the price mechanism— as today’s Fed seems to do at every available opportunity—but yield to it.