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2011-05-25

Jim Grant - “Yeah, it means QE 3 through QE N.”


The Federal Reserve will engage in countless more rounds of quantitative easing, according to Jim Grant of Grant’s Interest Rate Observer.

When asked if he sees the Fed announcing QE3 in order to lower interest rates and boost stock markets, the market pundit and long-time gold bull told the Associated Press that “Yeah, it means QE 3 through QE N.”

In the interview, Grant discussed a wide range of topics, but focused primarily on Fed monetary policy, Chairman Ben Bernanke, the U.S. dollar, and gold. Highlights of Mr. Grant’s interview include:

Q: What’s your view of the stock market?

A: The Federal Reserve has unilaterally taken it upon itself to levitate asset prices. It is suppressing interest rates. When you’re not getting anything on your savings, you are inclined to go out and buy something, anything, to generate either income or the expectation of capital gains. So the things that we take as prices freely determined are in fact manipulated.

A few months ago, (Fed Chairman) Ben S. Bernanke, Ph.D., the former chairman of the Princeton economics department, stood before the cameras of CNBC and said that the Russell 2000 is making new highs. The Russell! He sounded like another stock jockey. He was taking credit for new highs in the small cap equities index. The Fed, as never before, or rarely before, is now the steward of this bull market. One wonders what it will do if stocks pull back significantly.

Q: So with inflation ahead, are you buying gold at $1,480 an ounce?

A: I am not buying it now. I have bought it in the past. Gold is a very difficult investment because its value is indeterminate. It is the reciprocal of the world’s confidence in the likes of Ben Bernanke. I think the price will go higher.

Q: Let’s talk about the dollar. Washington says it wants a strong dollar.

A: It’s disingenuous when (Treasury Secretary) Tim Geithner says he’s for a strong dollar. What he means to say is the economy stinks and we need even greater oomph from our exports and for that we would like a much lower dollar in a measured, managed kind of decline. That’s what he wants, and he wants it by November 2012.

Q: If investors lose their faith in the dollar, what would replace it?

A: I think there will be a gold standard again in your lifetime, if not mine. It’s the only answer to the question, if not the dollar, then what?

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My investment with RM5,000 initial capital have been growing since 2005.I found the stock market appears confusing and complicated, but it is most definitely based on logic "supply and demand". However, the laws of supply and demand as observed in the markets do not behave as one would expect. To be an effective trader, there is a great need to understand how supply and demand can be interpreted under different market conditions and how to take advantage of this Off Market Transactions in KLSE.

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