When Jim Grant, founder and editor of Grant’s Interest Rate Observer and opening keynote speaker for the fifth annual Innovative Alternative Investment Strategies Conference, was asked by Financial Advisor to share his thoughts on interest rates and alternative investments, he immediately quipped, “What interest rates? We don’t have them anymore.”

Grant, who recalls that interest rates could sustain retirees when he launched his newsletter in 1983, describes today’s rates as “scarcely visible,” and he expects more of the status quo.  (He will be the opening keynoter at the fifth annual Innovative Alternative Investment Strategies Conference, from July 31 through August 1.)

“The Federal Reserve has got its thumb on the scale of our finances,” says Grant, “and Miss Janet Yellen wants us to know that as long as she is occupying the chairman’s seat the federal funds rate will remain very, very low indeed.”

Beyond the U.S., central bankers in Japan and Europe seem to be thinking, saying and doing much the same thing, he says. For example, “they profess to believe that ultra-low interest rates stimulate both spending and investment,” he says. “They profess to believe that life is not worth living unless you have an inflation rate of at least 2%.”

Grant disagrees. In 1954–55, the U.S. saw strong annualized quarter-to-quarter economic growth (as high as 11.9% in the first quarter of 1955) despite the Consumer Price Index remaining below zero, he notes. From 1961 to 1966, economic growth often exceeded 5% while the CPI stayed below 2%. He also thinks the Fed is relying too much on the “Phillips curve,” known for its inverse relationship between inflation and unemployment, because the 1970s exhibited a great deal of both.

“So with regard to the theory and with respect to historical evidence, I submit that our central bankers are barking up the wrong tree,” he says.

So how can investors cope with what Grant calls “not only radical but also unprecedented” monetary policy? “It presents a pretty strong invitation for all of us to think about ways of diversifying our investments and imagining different ways of investing,” he says. And that’s where he thinks alternative investments can play a big role.

Grant defines alternatives as unpopular, off-the-beaten-path investments that people generally are not comfortable holding. At present, he is particularly interested in suburban office buildings, gold, private equity, pariah countries and short selling.

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