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No Fed Taper This Year: Jim Grant

Daily Ticker

As the government prepares for worker furloughs starting Tuesday if Congress doesn’t avert a shutdown and as Washington gets ready for a debt ceiling fight that could follow -- markets are a snooze.

Related: 5 Ways a Government Shutdown Would Affect You

The Dow (^DJI) has gained more than 3% this month, 10-year Treasury yields have fallen since the Fed’s “no taper” news after briefly hitting (gasp) 3% and gold hasn’t been doing much of late.

But Jim Grant, founder and editor of Grant’s Interest Rate Observer, reminds The Daily Ticker that unlike 2010, when the memory of 2008 was fresh in investors’ minds and we had a “bull market in fear,” we are now in a “bear market in fear.”

He says experts can read this in the depths of the options markets, where people are no longer buying derivatives to protect themselves agains 'tail risks, but are "getting in the swim of things going up."

So this moment may be a fairly good one in which to begin fretting (though he advises against being a permanent worry wart), according to Mr. Grant.

In the above video he discusses potential risks for investors to be wary of, from the threat of a Washington debt default to Federal Reserve policy.

“These debt talks have a record of being air balls,” Grant tells The Daily Ticker. “However, Treasuries are the collateral par excellence in the world of finance. What would happen if so-called technical default? I don’t know. There would be some real drama because someone would not get paid.”

Related: Debt Ceiling Drama: House Republicans Are Ready For a Fight

Invoking recent history, he says that “in 2008, even those who did anticipate widespread credit troubles did not anticipate the speed with which Lehman Brothers metastasized.”

And regarding Fed policy, Jim Grant was on CNBC earlier this month saying there would not be a taper in September. He was dead right, when consensus seemed to be calling for a “tiny taper” of $10 or $15 billion in the central bank's $85 billion bond buying program.

Related: Fed Taper Could Wait Until December or Later: Neil Irwin

So will the Fed taper this year? Jim Grant says he doesn’t think so.

Check out the video to see why, and to see why Mr. Grant posits the Fed is a source of risk investors should be thinking about.

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