Grant, Having Battled Bulls, Wins War Between the Rates

There is a place where smart bears gather. There is a place

where conservative investors with literature degrees, CNBC-hating index wonks,

articulate doomsday types and students of financial arcana get together to

commiserate and, these days, to lick their chops. It is called the Grant’s Interest Rate Observer Spring

Investment Conference-“Grant’s Conference” for short-and it happens just twice

a year (there is also a fall version). Not because James Grant, the editor of

his eponymously titled newsletter and the dean of market contrarians-and,

arguably, the most readable business journalist around-wouldn’t hold one every

week if he could; but because, as one participant in this year’s conference put

it, “It is something I only want to do once a year.”

Or, as another participant put it: “He’s got a group around

him, and they’re very bright. But they’re so

pessimistic.”

This year’s conference occupied most of Wednesday, May 2,

and all of the penthouse and ballroom at the St. Regis. It attracted about 150

financial professionals-most of them, it seemed, managers of funds or research

firms who came from across the country (as well as one soft-spoken risk expert

from London who warned of the impending collapse of the international credit

market).

It started at 9 a.m. with a dizzyingly number-laden lecture

entitled “Opportunities in Distress,” and ended, a little after 4 p.m., with

Mr. Grant himself proclaiming to his flock that even with $5 trillion in market

cap vanished, the big Nasdaq bubble had only just begun to burst.

“We will miss this

money, and it will make a dent in consumption patterns,” he said.

He followed the theme of the day, invoking the name of Fed

chairman Alan Greenspan in vain.

“The Fed is doing what it said it would not-easing policy in

the teeth of rising inflation rates,” he said.

And he dissected the American mindset-“We Americans are,

more than anyone else in the world, currency-centric. We have come to believe

that the dollar is the first and last answer to everything”-before advising his

audience to invest in some mining company which even they seemed never to have heard of.

The whole thing was cerebral and scary. But it was also

oddly invigorating, in the way that a cold bucket of water in the face is

invigorating.

“Jim has tried to warn the populace of what ultimately

happens in every major market-valuation discrepancy, which is that it turns into

a Ponzi scheme,” said John Succo, managing director of Alpha Investment

Management, a fund of funds.

“He’s a very deep thinker …. He’s always right, and he’s

always early,” Mr. Succo said. He went on: “There’s a joke that goes around

that everybody loves to read Grant, but nobody has ever made money off him ….

Actually, it’s wrong. There have been many times when, if you followed his

thinking, you could have made a lot of money.”

One participant said Mr. Grant provides an untainted view.

“The conflicts of interest here on Wall Street are myriad and extensive,” the

participant said, “in terms of firms packing research to get people to buy

securities that they’re selling …. And for independent people to write about it

fulfills an important function. That’s what Jim does, and he does it well.”

The rest of the experts at the conference did it well, too,

especially when they put the PowerPoint presentations away.

The funniest and most flamboyant speaker was not Mr. Grant

himself but rather William Fleckenstein, a columnist for Grant’s online edition, who leaped onto the stage after lunch.

Where the lanky, blue-suited Mr. Grant would speak soberly of errors in

“seminal monetary policy” and “shifting consumption patterns,” Mr.

Fleckenstein-who also enjoys the sound of his own name (he runs Fleckenstein

Capital, a hedge fund, in Seattle), sports a mane of graying black hair and

tends in his attire toward grays and blacks-started right in with the Greenspan

jokes.

In the course of about

two minutes, he referred to “Al-symmetrical Greenspan,” “Al Dot-Com” and “that

quintessential collector of useless data” in charge of the Fed, who “knows the

price of everything and the value of nothing.”

Mr. Fleckenstein, who bears a passing resemblance to Dennis

Miller, took the crowd by storm. To James Grant’s Dr. Jekyll he played Mr.

Hyde, delivering a kind of enraged-socialist rant about a “generation of

stockholders who thinks there’s no connection between a business’ stock price

and its value,” about “wildly overvalued” companies “swimming in excess

inventory” and “over-leveraged consumers” with three S.U.V.’s in the driveway

who “want everything and can really afford nothing.”

Reaching a wild-eyed froth, he promised that the current

market rally is “destined for failure” and proclaimed that, when the dollar

begins to devalue, as it surely will, “the emperor [Greenspan] will be revealed

to be wearing no clothes.” A

horrifying image, indeed.

It was not all true believers. There was, in the back of the

room, one fund manager who was not terribly impressed. “If we were back in

1982,” he mused, “before the bull market started, I think Jim Grant would have

the exact opposite type of conference.”