Interview - James Grant on Debt Crisis, Gold Standard and Other Matters

Recent interview (here) with Jim Grant, an excellent historian and thinker of financial markets and macro economics, talks about his view of the world.

Here is my takeaway from a portfolio positioning standpoint:

• Buy gold - the current fiat currency system (currency backed solely by faith in government) is structurally flawed.  The ability to print money offers central banks a too tempting short term remedy of 'kicking the can down the road' without solving the problem (until it is probably too late), and leads to many unintended side effects (e.g., inflation).  A currency needs to backed by something that cannot be conjured out of thin air, and gold seems to be as good as any (it has been tried and tested throughout history).  To be clear, gold standard isn't perfect, but it is clearly a far lesser evil.  In today's environment, not owning gold is to put complete faith in central banks and their decisions, and that is not smart.
• Be wary of assets propped up (artificially) by today's low interest rate environment (treasuries, corporate bonds, etc.).  Low interest rate coupled with money printing artificially props up asset prices.  It punishes the saver and tempts (or forces) people to move into riskier assets (for all the wrong reasons).  These assets are very prone to price reversal as central banks gradually look to exit/withdraw its current program of quantitative easing (which it must, at some point).
• Buy U.S. large cap, blue chip equities - Grant mentions Walmart and Hewlett Packard, but Apple, Microsoft, Johnson & Johnson, etc. are all very dominant franchises trading at very reasonable valuations (10x-13x P/E) with growth, healthy dividend and strong balance sheet.  I'm not sure why this is the case, but in the current environment, small/mid cap equities are expensive relative to blue chip large caps particularly given the generally less dominant position.  
• Hold healthy amount of cash and stay patient.  Markets are volatile, government policies are superficial and economies are fragile (with many undercurrents).  As financial crisis are now more closely packed to each other (because central bank policies only offer a short term remedy and not a permanent solution), it seems to be wise to hold cash and wait patiently for a better time (i.e., 'cheaper' time) to invest.

As a side note, sitting in Asia, another crisis is looming in China.  One that carries an uncanny parallel to the U.S. and European credit crisis.  I'll save the story and my observations for another time.  But alas, history and human stupidity repeats.