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let's talk a little more about the fed and interest rates with an expert on the subject jim grant he's the founder and editor of grants and zerber interest rate observer and jim kyle was talking about it kyle bass because of what joe had heard from david tepper yesterday tepper who's made some big bold market calls in the past thinks that he would be a buyer of stocks here because he believes the japanese are about to start buying bonds again after selling treasury for year treasuries for years he thinks they're going to start buying again i'll ask where you think treasury rates are headed he thinks that will put a treasury yields i should say he thinks that will cap the yields that we've seen rise so rapidly where do you come in on this well david is a formidable character and there's something to be said for what he said my view to take the very wide angle lens is that we have been in a 40-year bull market in bonds no one almost no living on wall street today is any recollection of interest rates rising we are predisposed to assume that rates go down that seems natural and these are the lowest nominal rates in 4 000 years and uh to take a lot slightly narrower lens uh they are remarkably low when adjusted for inflation as measured uh since 1962 you would get as a saver you'd get oh what a two and a half almost percentage points of real as inflation-adjusted yield by owning the 10-year treasury uh today you get exactly no real interest inflation rates about 150 160 as measured so the value proposition for the 10-year treasury to me is absolutely barren there's nothing to be said as an investment for them and you know how often do we hear becky that the 10-year treasury is the most important rate in capitalism well i think it's important to bear in mind either front of one's mind or the back that it is an artificial rate it's a manipulated rate so the most important price in capitalism is corrupted i think that's a fact of the first moment which means one what you think at some point there will be no way to continue to manipulate it and that's when things will spiral out of control i think that uh the treasury the treasury rate is going to go up i think it ought to go up to generate a proper return for savers but i think more importantly perhaps and what ought to happen is what will happen owing to the imbalance of supply and demand you know the so-called primary dealers the warehouses of treasuries are chock-a-block full much more so than on average for the past 10 or so years the treasury's balance sheet is bulging almost no one buys this because he or she thinks it's a great deal this is a security that's held by people who are price insensitive and it certainly shows and because it is a suppressed interest rate it ripples throughout our capital markets i mean this whole idea of kind of techno-utopianism that you don't have to have any earnings for a business all you have to do is have a vision this is facilitated sustained by these artificially low rates so i think that the 40-year bond market will boom bond market is arguably over or ending and the what lies ahead of us is an important inflation with rising interest rates jim we're almost out of time and this is really important it sounds arcane but if you're right people should sell stocks because they're going to get much better deals relatively speaking in bonds than they have to this point because it wouldn't just be the 10-year you would imagine other bonds all across the the curve would go and not just treasuries too you're talking other bonds all related to this if i wouldn't be right you should buy stocks well yeah i wouldn't be quite so broad brush there are stocks and there are stocks i think that interest rates have facilitated the overvaluation of the kind of stock of the kind of business that earns no money that exists on a wing and a prayer in a vision those stocks certainly are vulnerable to rising rates other stocks are going to do very well in an environment of rising interest rates and rising inflation so one must distinguish but i think that bonds as a class of asset are under the greatest ought to be on the greatest suspicion i mean would you rather own a 10-year treasury yielding like 160 or take out a 30-year mortgage at three in a corner it seems to me that borrowing at green rates is a much more compelling proposition than investing at them and that's certainly what we've seen jim it's a longer conversation we'll have you back because uh it's not going away anytime soon we appreciate your time today
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