James Grant: Keep hold of your gold

James Grant’s newsletter, Grant’s Interest Rate Observer, is required reading in the financial world, says Switzerland’s Finanz und Wirtschaft (F&W). Grant was among the very first to warn of a dangerous credit and housing bubble. The FT’s John Authers called his prescience “uncanny”.

Grant has never been a fan of central banks. Their easy-money policies helped fuel the crisis, and they are still causing trouble by blowing up bubbles in various markets.

All economists know that price controls are not a good idea, he tells F&W. Yet that’s exactly what the Fed and other central banks do – they set the price of money. It’s basically central planning.

In the run-up to the crisis they set it too low; now frenzied money-printing is creating further market distortions. We live in a “central banks’ hall of mirrors”. With interest rates nailed to the floor and all this liquidity flooding into markets, how are investors supposed to gauge the fair value of assets?

Central-bank activism is justified as a means of warding off deflation (falling prices). But Grant says the “hysteria” over deflation is overblown. In the late 19th century, innovations such as the telephone and electricity slashed costs and hence prices, he notes. With real (after inflation) wages rising, most people flourished.

Today, digital technology and cheap emerging-market labour are putting similar pressure on prices. Inflation, however, is a danger due to central-bank activism, and if it emerges, bond yields – long-term interest rates – could well rise rapidly, causing a slump in bonds and choking off growth.

Central banks say they’re in control, but it’s hard to see how they can lead us out of the mess they created without turbulence. So own some gold as portfolio insurance: it’s an investment in the all-too-likely failure of central banking and fiat money.

Merryn

Claim 12 issues of MoneyWeek (plus much more) for just £12!

Let MoneyWeek show you how to profit, whatever the outcome of the upcoming general election.

Start your no-obligation trial today and get up to speed on:

  • The latest shifts in the economy…
  • The ongoing Brexit negotiations…
  • The new tax rules…
  • Trump’s protectionist policies…

Plus lots more.

We’ll show you what it all means for your money.

Plus, the moment you begin your trial, we’ll rush you over THREE free investment reports:

‘How to escape the most hated tax in Britain’: Inheritance tax hits many unsuspecting families. Our report tells how to pass on up to £2m of your money to your family without the taxman getting a look in.

‘How to profit from a Trump presidency’: The election of Donald Trump was a watershed moment for the US economy. This report details the sectors our analysts think will boom from Trump’s premiership, and gives specific investments you can buy to profit.

‘Best shares to watch in 2017’: Includes the transcript from our roundtable panel of investment professionals – and 12 tips they’re currently tipping. The report also analyses key assets, including property, oil and the countries whose stock markets currently offer the most value.