Jim Grant Sees an Era of Higher Rates That Could Last For Years

Tracy Alloway (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:14)

And I'm Joe Weisenthal.

Tracy Alloway (0:15)

Joe, did you see the Joltz number that just came out?

Joe Weisenthal (0:18)

We are recording this May 31st, 2023 I did. Job openings back up, you know, that's the thing. Like, they keep thinking, oh, the labor market's gonna cool, it's gonna cool, but here we are, over 10 million job openings again.

Tracy Alloway (0:29)

Right, so job openings far exceeded, I think, any analyst estimate, 10 million openings for the last month.

And I guess the question is, the market seems to be of two minds here, right? You have a lot of people who seem to be talking about the inevitability of recession, and yet you have the data that's still coming in stronger than a lot of people are expecting. And of course, you know, those two things are related because if data keeps coming in stronger than expected, then maybe inflation doesn't start to go down and the Fed has to hike even more, and it pushes the economy into recession. But it does feel like, not only is there a lot of doubt at the moment, but we're sort of heading in two possible polar opposite directions.

Joe Weisenthal (1:12)

Well, the thing that I keep coming back to is striking is if you told someone, you know, at the beginning of January 2022, you know, when rates were at zero, that by spring 2023, we'd be at five and a quarter on the Fed funds rate. Everyone's like, oh, you know, the market would have crashed, we'd be in recession, et cetera. And yet here we are with 10 million, more than 10 million job openings.

And something that we've talked a lot about is like, you know, the entire 2010s was sluggish growth. And everyone's like, oh, this is the pickup. This is when inflation is gonna come back and it doesn't. And so far this decade, it feels like, okay, this is finally when inflation is gonna roll over. This is when the recession is gonna happen, et cetera. And these expectations get kicked forward.

Tracy Alloway (1:52)

Absolutely. And I'm glad you mentioned interest rates just then. And I mean, the implication is kind of, we've had years of people warning about what's gonna happen when interest rates rise. Is it gonna lead to an explosion in interest rate costs and things like that?

And we have seen some bankruptcies, but we're still sort of at this inflection point, it feels like. So I am very pleased to say that we have the perfect guest for this episode. We are going to be speaking with the man, the myth, the legend, Jim Grant, the founder and editor of Grant's Interest Rate Observer and a longtime commenter of Financial Markets. I've been a fan of his work for many years. So I'm so glad we can finally have him on the show. Jim, thank you for coming on.

James Grant (2:34)

It is lovely to be here. And yes, interest rates are a thing.

I began to doubt the efficacy of my business model.

Joe Weisenthal (2:41)

People are observing, people want interest rates observed.

James Grant (2:44)

It is a good time for observation.

Tracy Alloway (2:47)

Well, maybe that's a good starting place, but how would you characterize the current period in markets versus the trajectory of history? You've been through and written about many interest rate cycles at this point.

James Grant (3:02)

Well, first place, I would call it good copy.

Joe Weisenthal (3:05)

This is what we like. It doesn't matter up or down. Just give us some good copy.

James Grant (3:09)

Yeah, we don't want peace and quiet. Well, there are so many singular features and dogmatism has been, I think, I hope has been expunged from the conversation and it's hard to dogmatize after 2020, 21 and 20, et cetera. What is new and different is, for example, interest rates have gone from nothing to five plus on the short end of the yield curve. And wouldn't you suppose that the home builders would have taken a big, but instead the home builders are right behind Nvidia as the stocks and what you would think that they produce computer chips, graph and two by fours.

But the home builders made new highs recently. And that, you know why? Because rates have kind of put interest rate handcuffs on people who are in possession of one of these sweet mortgages, beginning with the numbers two or three or four. I think most of the homeowners now with, that have loans have something less than five.