The Man Who Cried BEAR Laugh now, says stock market doomsayer James Grant, who for years has predicted a drop. One day, the former Baltimorean will be right on the money.

THE BALTIMORE SUN

NEW YORK -- Six floors above the cramped, narrow street where the financial world converges, where the ever-rising Dow Jones is creating unprecedented jubilation, James Grant looks grimly out onto Wall Street.

"The current levels of [stock] valuation are poison. They're too high. They're dangerous," the market historian and pundit warns. He points down from his sparsely decorated office of his newsletter, Grant's Interest Rate Observer, to the line forming outside the stock exchange. "See all those people waiting to go in and see their stocks go up? They weren't there in 1981. A bull market then was just as inconceivable as a bear market is now. They don't believe that the cycle will play out."

They, clearly, are not like James Grant. But then, not many people on Wall Street are these days. Even after its recent downturn, the 15-year-old bull market continues to astound even the most optimistic forecasters. Grant, however, stubbornly clings to a pessimism that has made him famous. The rise of a new economic era? Humbug! For James Grant, right now the most wrong man on Wall Street, economic history will soon repeat itself, and he will be vindicated.

For now, though, he must find solace in the role of unapologetic iconoclast. Shaped by a career that began in Baltimore, it's a role that seems to suit him, and has endeared him to the media. A regular commentator on CNN and "Wall $treet Week," he is quoted frequently, always ready to offer a counterpoint to the growing bull ranks.

"He's playing a very appropriate role. He's screaming, 'The wolf is coming, the wolf is coming!' which is useful, otherwise everybody would forget a wolf exists," says Bob Killebrew, managing director of Alex. Brown & Sons Inc.

Even today, as Alan Greenspan's Federal Open Market Committee meets to decide if interest rates should be raised, Grant insists on being contrary. The Federal Reserve could decide to tighten credit, and potentially rein in the bull. So all the financial world breathlessly awaits the words of Fed Chairman Greenspan -- all except Grant, that is.

"No, I don't think he's going to raise interest rates," Grant says. "And what do I think he's going to say? I know it will have the consistency of Cream of Wheat."

The tall, angular Grant speaks and writes with the conviction of a zealot. When asked, "What if you continue to be wrong?" he answers as if he'd been asked, "What if the sky's falling?"

"It would go against every known precept of economics, especially supply and demand," he laughs, at once amused and dismissive.

Grant, 51, respects the past not only because he studies economic cycles in history, but because he has observed stock market whims firsthand for two decades.

After high school in New York and a stint in the Navy, he clerked at a Wall Street firm in 1969. That was a bad year for the market. Soon after Grant began learning the trade, a slew of firms, including his own, folded. Could this be the source of his %J skepticism today?

"There is an oft-repeated line on Wall Street that one's perceptions of markets are colored by one's formative experiences. ... For me that wasn't the case ... I think frame of mind is set early in life. Doubters are born, not made," he says, contradicting yet another Wall Street maxim.

Grant left his native New York to study economics at Indiana University, where he received a bachelor's degree, and went on for a master's in international affairs at Columbia University. It was at Columbia, where he edited the Journal of International Affairs, that he discovered a talent for writing.

His first post-collegiate job was "writing obituaries and finding salacious news" at The Sun. His 2 1/2 years in Baltimore were less significant for his writing than for his personal life, he says. He met and married the then-Sun fashion editor, Patricia Kavanagh. The couple moved to New York in 1975 when he was hired by write for Barron's, the weekly financial newspaper devoted to covering the ever-capricious bond and stock markets.

A downturn

It was during his eight-year tenure at Barron's that he witnessed a huge market downturn, with pundits predicting the death of stocks. "It was an era of great inflation. All things that are now revered, considered omnipotent, things that are taken as gospel today, were then doubted," he says.

In 1983, an internal political scuffle at Barron's left him looking for a job. He considered writing for a financial magazine, "but I didn't want my copy homogenized. If you work for Business Week, you have to write in the Business Week voice. If you work for Time, you have to write like Time."

Instead Grant, who by then had two small children and a third on the way (he now has four), struck out on his own.

From the start, Grant's Interest Rate Observer offered his sharp skepticism in unadulterated form. "Everything I wrote went in the way I wrote it," he says. That freedom kept him going through the early rough years, when he had to forgo a salary and finance several issues on his credit card.

Today, the fortnightly newsletter, which advertises with the line "Subscribe to Grant's because to be forewarned is better," has pTC 3,500 subscribers who pay $600 annually. He sends two other publications, Grant's Asia Observer and Grant's Municipal Bond Observer, to several hundred more subscribers.

The publications are now at their highest subscription levels, which may speak better for Grant's writing style than it does for his economic arguments.

Killebrew is a typical Grant fan. He reads the newsletter on occasion, and attends Grant's lectures because Grant "writes wonderfully, he's very amusing."

But the money manager doesn't look to Grant for advice.

"I think you can get mesmerized by the big picture," Killebrew says. "The big picture is his job. We don't buy the stock market, we buy stocks."

Grant is an author as well, with three books and a collection of essays. His latest "The Trouble with Prosperity: The Loss of Fear, The Rise of Speculation and the Risk to American Savings." was published by Times Books earlier this year. Not surprisingly, the book predicts an imminent stock market plummet and the crash of plenty of nest eggs.

Bull theories

Grant gives not a speck of credence to any of the current bullish theories. None to the idea that today's economy is wholly different from previous ones because of increased productivity due to ever-advancing technology. None to the suggestion that baby boomers are flooding the market with cash. And especially none to the idea that Greenspan's restraint on raising interest rates is helpful.

"People contend he [Greenspan] is the architect of the current prosperity," Grant says. "I would say he's the heir to it."

The statement, voiced matter-of-factly, would be considered blasphemy in some circles. In his usual manner of voicing several blasphemous ideas in one breath, he adds that it is previous Fed chairman Paul Volcker who deserves credit for the current economy. In the face of harsh criticism, Volcker raised interest rates hugely to balance inflation, he says.

While many of his colleagues are crossing their fingers that Greenspan will leave interest rates be today, Grant nonchalantly criticizes the Fed chairman for not raising them higher faster, to slowly let the air out of today's stock market bubble.

"Financial managers and investors are forced to buy stock because their customers demand a big return. Greenspan doesn't have to go along. ... He took a stab last year, but felt the sting of public reaction. I think his reputation is being sold for popularity," Grant says.

Grant hardly blames Greenspan for what he perceives as a woeful economic predicament, however. He thinks forces far stronger than a central banker -- namely the cyclical nature of the economy -- control the future. He is bemused by the attention lavished on Greenspan and his FOMC meetings.

"The press will be expectantly crouched by the keyhole ... the veneration of the Central Bank has become the idolatry of the 1990s," Grant wrote in the New York Times on the eve of May's Fed meeting.

Little coverage

The media in general, in fact, do a pretty inadequate job of covering the markets, according to the former reporter.

"There's some very good financial journalism out there, but most of it is indifferent or poor," he says. "It's still one of the lowest castes in journalism because it seems the people who are talented, know a lot about the markets, don't write about it, they go into other fields and make a lot of money."

Then, in his usual manner of softening criticism with humor, he adds, "I'm all in favor of slipshod. I'm certainly not rooting for my competition to get any better."

For all his bravado, Grant does hedge a bit when faced with reality that his predictions have been off mark for so long.

"The inconvenient thing about historical analysis," he offers, "is that no period is exactly like another. Otherwise all the historians would be rich."

They would also be right, which Grant, so far, has not been. He built a strong following after predicting the junk bond scandal and overspeculation of the 1980s, but is now establishing another reputation, as one of the most far-off forecasters on Wall Street.

While his uncompromising contrarianism has brought him notoriety, it has also brought more unflattering attention, like the July Wall Street Journal article that quoted a Interest Rate Observer reader describing the publication: "It's like reading the Marquis de Sade: It's interesting as long as you don't try to do it."

Grant admits his self-assurance has been tested of late, but says he remains confident as ever.

"There has been more than a certain amount of ridicule," he says. "There are two interpretations to that. One is that I'm full of beans and now everybody knows it. Another is that ridicule precedes vindication.

"We," he says, "favor the latter."

Pub Date: 8/19/97

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