Jim Grant and the Chicken Littles Exercise Their Right to Be Wrong

One of these days, they’ll be able to say, “I told you so,” but until then the contrarians who read-and write- Grant’s Interest Rate Observer will have to endure the taunts of the bull-market babies.

Generally speaking, Jim Grant, the biweekly newsletter’s editor, has been wrong for years, but he wears wrongness better than anybody. He is the most eloquent of the eloquent bears. Surveying the nation’s roaring financial markets, he has predicted trouble for years-then made light fun of himself when the trouble hasn’t come. “I suppose it’s better to deprecate oneself than to wait for others to do it,” he said. “If one has been bearish in this environment, one has had plenty of cause for self-deprecation.”

But the self-effacement is not entirely sincere, because Mr. Grant and the investment professionals who are skeptical or curmudgeonly enough to shake their heads over the various excesses in the world’s capital markets believe fiercely that this supposed New Age, in which the S.&P. index only goes up and rates stay low, is not a new age at all. The sky will fall. The bubble will pop. It has to.

As Mr. Grant said on a recent morning, quoting the economist Herbert Stein: “If something can’t last forever, it won’t.”

He was speaking at a fall investment conference hosted by Grant’s . About 150 investment professionals had gathered at the St. Regis hotel in midtown on Nov. 10 to talk gloom and doom with their favorite purveyor of it. They sat behind long tables in rows of cane chairs, dipping into tins of Pastilline hard candies as they listened to each speaker at the podium try to reconcile troubling signals in the economy with the seemingly unstoppable boom.

It was an older crowd-people who have been through more than one business cycle, who know this one will end. They almost want it to, for vindication’s sake. “I joke in a hyperbolic way about doomsday and calamity,” Mr. Grant said a few days later, “but what most people in that room are disappointed in not seeing is a reversion to the mean. A return to something like normal valuations, for example.”

One hedge fund manager at the conference said, “It’s a different generation. Everybody here, including myself, feels somewhat insignificant. I consider myself a good fundamental analyst. Yet no matter how detailed and capable my work is, I feel like it doesn’t matter. This market is so psychology-driven right now. It’s in the throes of manic gold fever. The mood overwhelms the subtleties and the need to pay attention to them. It’s discouraging.”

The conference room was full of the kinds of guys you see all the time walking down Madison Avenue: slightly tan, hair a little wild, great shoes, strong eyes, a bad knee, a European newspaper. You see them and you know: These men manage a shitload of money.

There were a few legends there, too: Michael Steinhardt, the hedge fund wizard who got out of the game in 1995. Leon Cooperman, the chairman of Omega Advisors, one of the world’s largest hedge funds. And Jim Chanos, the renowned short-seller.

Mr. Cooperman, a short fat man with an ear-to-ear combover and white shirt cuffs, sat in the back row, jacket off, sprawled in his chair looking a little bored but a little amused, too. (He was one of the very few who conspicuously called in trades to their offices during breakfast, before the speeches began.)

There were eight speakers. Jim Grant kicked it off with a speech entitled, “What have they done with our interest rates?” Then came a presentation called “Dow 3600.”

Mr. Steinhardt was the last one to take the podium. His job was to ask questions of Barrie Wigmore, a retired partner of Goldman, Sachs & Company and author of The Crash and Its Aftermath , who had just delivered a speech about the circumstances surrounding the 1929 crash. “If we are at the precipice, at that moment we have sought and not found,” Mr. Steinhardt asked him, growling into the microphone, “what is the bullet that will push us over?”

Mr. Wigmore stepped up to the mike. “I’m a historian!” he said, by way of poor-mouthing his prediction. But then he said that in his opinion, we were not at the precipice. He turned the question back on Mr. Steinhardt.

“I don’t do it anymore,” Mr. Steinhardt said. “I don’t really follow things closely enough.” Then he made a few general observations: stocks are overvalued, the trade deficit is a serious issue, and wage growth is coming in the next few months.

Mr. Cooperman spoke up from the back row. He wanted specifics. “Michael, you say you don’t do it anymore, but surely you’ve been dabbling here and there.”

Mr. Steinhardt confessed. He was a dilettante now. “If you insist, Lee, I continue to have a predilection toward the short side. I was born with it. I think that there were four days during my career that I was long.”

He was in good company.