To be sure, investing in Russia is not for the fainthearted. Another one of Grant’s alternative investment strategies, short selling, isn’t for everybody either, he says.
“But if you can identify a moment in which the world seems to be optimistic and uncritical and can’t be bothered to analyze,” he says, “then that might just be the time to put on your bear suit and investigate the possibility of short selling.” As he sees it, it’s that time for junk bonds.
People still buying these high-yield securities (and “high yield” is a misnomer now, he says) are accepting fixed-income returns while bearing equity-like risks. “It’s a very poor deal indeed,” he says. A simple way to short junk bonds, he says, is by shorting the SPDR Barclays Capital High Yield Bond ETF (JNK).
Other stocks Grant’s thinks of as short-sale candidates are “story stocks” and “never-never stocks.” The former are seasonal plantings that flower in bull markets, the journal explained in a recent article, while never-never stocks bear fruit in all seasons but only for the insiders, never for the shareholders.
Tile Shop Holdings (Nasdaq:TTS) is an example of a story stock. It is trading at more than 55 times trailing 12-month earnings in anticipation of huge potential growth in the distant future. Meanwhile, Grant’s calls Amazon.com (Nasdaq:AMZN) a never-never stock. In January 2014, it was trading at 1,454 times trailing 12-month net income.
Investors, Grant says, should remove themselves “as far as possible from the crowd and try to think profitable and contrary and, if necessary, bloody-minded thoughts, and imagine how things are going to look rather than to observe now how things look.” As for all the political yo-yoing on mortgage lending standards and other issues, he says, “The way to invest is not with an eye to Washington; it’s with an eye to value.”
Grant, 67, admits being pretty critical of the Fed for most of his adult life, but says it’s not because of the personalities involved or anything purely political. “I believe the Fed is implementing the wrong policies based upon the wrong ideas,” he says. “My bedrock quarrel is our central bankers seem to believe they have the power to guide and steer the national economy through the manipulation of prices—interest rates being prices.” And price control never works, he says.
What would he do if he were in charge? “First, I would institute the Fed’s first Office of Unintended Consequences to study the unintended consequences of those well-intended acts,” he says. “Maybe later in the morning I would announce that the Fed under my regime is going to get out of the price-fixing department and give free rein to market forces in determining financial asset prices. It’s a busy morning and we haven’t even had lunch yet!”