Porter Sits Down With Newsletter Legend Jim Grant, Part II

Editor's note: Jim Grant is a legend in our industry... and his newsletter is a "must read" for any serious investor.

In this weekend's Masters Series, we're sharing a conversation between Porter and Jim adapted from episode 19 of the Stansberry Investor Hour podcast. Yesterday, Jim shared his unique career path that led him to starting his own newsletter, and explained how he first identified the trade that led to The Big Short.

In today's conclusion, Jim discusses the potential for a crisis in the U.S. dollar... and shares a lighthearted anecdote from his earlier days...

Porter Sits Down With Newsletter Legend Jim Grant, Part II

Porter Stansberry: This is an impossible question to answer with any definitiveness, but I just want your opinion more than anything: Do you think the Fed will ever lose the overwhelming power it has, absent a crisis that destroys the dollar and perhaps the government?

Jim Grant: That's a great question and I have many, many thoughts on that. I think about it more or less all the time. The Fed is a remarkably resilient institution. My goodness, it is populated by 700 to 800 PhD economists. It has thousands of administrative and executive personnel on its premises. As the bank of issue, it has a secondary monopoly, nothing explicit, but a virtual monopoly in the prevalent fashion of post-Keynesian economics.

Colleges and universities give tenure to people who conform to their present fashions and economic theory and thinking, and those people wind up with the Fed. The Fed must be the biggest employer of doctors of economists in America, perhaps in the world. So it's got a kind of intellectual monopoly as well, and yet it failed pretty abysmally in 2005, 2006, 2007, and 2008. You'd think that so many qualified people would have seen the biggest event of their professional lives coming before it hit them in the back of the head, but they did not. From this experience and from this failure, the Fed emerged with greater powers and with, as impossible as it seems, greater prestige.

So you wonder what can change things. Some of us thought that maybe Donald Trump, who had spoken pretty glibly on the campaign trail about the gold standard, would be the instrument of some change. But lo and behold he's talking about the former president of Goldman Sachs coming in, so that seems to foreclose anything like radical transformation. But I think that what is going to hobble the Fed, what's going to cause a reimagining of American monetary arrangements, is in fact a crisis. People I think now are more or less satisfied.

The Fed may not be happy that consumer prices are going up by less than 2% a year, but I think most Americans who spent much of their weekends looking around for bargains are not unhappy with the absence of measured price inflation. The stock market is making new highs. The economy is not so bad. You can get a job even if it doesn't pay what you want it to pay. So there's a sense of complacency about the Fed on Main Street as well as on Wall Street. Indeed, on Wall Street, what's not to like? New highs in almost every market.

So what changed this is a discontinuity of some kind, maybe a thunderclap in the financial markets, maybe a reconsideration through a crisis of the nature of money itself. I maybe have the same opinion or the same observation, Porter. You listen to people who have, through their great success in life, collected hundreds of millions of dollars, or in the case of Ray Dalio, billions of dollars. And it's clear from what they say that they have never given a thought to the nature of the money that they've worked so hard to collect.

What's a dollar? Ray Dalio, I'm talking to you. What is a dollar? Well he might say, "It's a dollar for Pete's sake." There's no definition. A dollar is what the market says it is. You can pay debts with it. It is collateralized by our collective faith in the institutions of the American government, generally, and the Federal Reserve, specifically.

I guess, more broadly, it's collateralized by the idea of America, which is a pretty good idea, but you don't have to be so old to recall the days of the Carter administration of the '70s when the dollar was kind of a pariah currency... when a Roman hotel clerk would look down his nose at your traveler's checks. So a windy answer to your very good question of many minutes ago... I would say that, yes, a crisis is probably the catalyst for anything resembling reform of American monetary arrangements.

Porter: Well, Jim, you've been very generous with your time and your thoughts with us. I want to wrap things up with something a little more lighthearted than trying to figure out the future of paper currency and the destruction of the Fed's power.

As a fellow newsletter publisher, of course I have a great interest in Grant's and a tremendous admiration for what you've achieved with your product. The rumor, and I wonder if you could verify this or perhaps build upon it, was that Jim Rogers was really truly the first subscriber to Grant's Interest Rate Observer?

Jim: Oh yes. Jim Rogers was No. 1. During the early going-broke phase of Grant's that lasted about 18 months, I went to see Jimmy. Jimmy has many sterling attributes. Of course, he's the Investment Biker. He was George Soros' partner. He rode around the world on his bike with his girlfriend (now wife) and had phenomenal adventures. I mean, he has lived the Walter Mitty dream of most people on Wall Street. But Jim is not a sentimentalist.

Porter: No, he is not.

Jim: I went to see him in his mansion on the Upper West Side. I was kind of down in the mouth. We had been in business six or eight months. I had run through my Dow Jones profit sharing trying to raise some money to perpetuate this experiment in journalistic idealism.

"So Jimmy," I said, "we're almost to the point of liquidation." He said, "What do you have to liquidate?" I probably said "dreams," pitiably. But Jimmy was subscriber No. 1, and apart from that somewhat harsh conversational exchange, he has been a wonderful friend and supporter of me all these many years. So I'm very fond of Jimmy Rogers.

Porter: I brought that up because I wondered for many years if it was true, but I also have a fun Jimmy Rogers story. In 1996, I had been in the newsletter business for perhaps four or five months. I was working as an assistant at another publication and we got invited to the big investment conference in New Orleans that the hard-money crowd was throwing at the time. I have no idea how, but I ended up at the speakers' dinner and I wasn't a speaker. I was the wide-eyed 24-year-old in the crowd.

All these speakers, all these very famous people in finance sat down, including Jim Rogers, and no one sat next to Jim. So I hustled over there and grabbed the chair and introduced myself. I of course was very wide-eyed and very naïve, and I was just trying to learn whatever I could from him while we were having dinner. His girlfriend was on his other side and I think I probably annoyed him tremendously, thinking back on it now.

But he could not have been more kind and patient with me, and he encouraged me. At the time, he was just launching his commodity fund. I don't know if you know much about that.

Jim: Yes.

Porter: Commodities of course were in a terrible bear market from '96 to about '98, and we were sort of in the middle of that downturn. I asked him what I thought was a fair question. I think he might've thought it was a little insulting.

I said, "Jim, one of the things that I've learned recently is about this idea of trailing-stop losses and managing your risk this way." I said, "If you like commodities the more they go down and you keep buying more as they go down, how will you ever know if you're wrong?"

I wanted to know how he thought about risk and everything. I thought it was a pretty good question. He looked over at me and he said, "Oh, Porter, well that's easy, son. I'm never wrong."

Jim: That's Jim.

Porter: So I just wanted you to know, ironically, Jim is also my first subscriber. We've been friends ever since that dinner. He is remarkably generous with his time, has kept up with me, and has been a great booster of me and my work, so I'm very grateful to him as well.

Anyway, I want to encourage everybody to go check out Jim Grant's newsletter. It's Grant's Interest Rate Observer. You'll find it on the web as you find everything else.

Jim: Yeah, GrantsPub.com. Please know, ladies and gentlemen, you are most welcome when you do. Porter, I want to thank you for this opportunity and for all the nice things you've said and for your friendship, which has not just begun today. It has been longstanding. It's a pleasure to talk to you, Porter. I'm most appreciative.

Porter: Jim, it's great. I look forward to doing it again with you soon, and best of luck preparing for your upcoming conference. Stansberry Research has a current special offer where you can get access to Jim's conference – which features about 12 of the most powerful and wealthy financiers you've ever heard of – and a year's worth of his newsletter at a fixed price. So check out that special offer right here.

Whether you can attend Jim's conference virtually or in person, please do not miss his newsletter. It is one of the great journalistic pleasures that has ever been published and certainly that is published today. Thanks again for joining us.

Jim: Thank you, Porter.

Editor's note: Jim's biannual conference is right around the corner. And Porter has arranged a red-carpet, VIP-level invitation for Stansberry Research readers... for about half the regular price. You'll hear presentations from some of the world's most important minds in finance, like Paul Singer, Alan Greenspan, Jim Chanos, and many others. Get the details on this exclusive offer right here.