WHEN: TODAY, FRIDAY, OCTOBER 13
WHERE: CNBC'S "CLOSING BELL"
Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Grant Interest Rate Observer's Jim Grant on CNBC's "Closing Bell" today. Following is a link to video of the interview on CNBC.com: https://www.cnbc.com/video/2017/10/13/jim-grant-on-bridgewater-part-of-my-critique-was-wrong.html.
All references must be sourced to CNBC.
KELLY EVANS: WELCOME BACK LAST WEEK, GRANTS INTEREST RATE OBSERVER PUBLISHED A SCATHING CRITICISM OF BRIDGEWATER ADVISERS, THE WORLDS LARGEST HEDGE FUND RUN BY BILLIONAIRE RAY DALIO. THE NOTE CLAIMS RATHER THAN FOCUSING ON INVESTING DALIO IS BUSY PROMOTING HIS OWN BOOK, GIVING TED TALKS AND SPENDING TIME ON TWITTER THE REPORT ALSO SAYS THE FUND HAS AN UNTRADITIONAL FEE AND OWNERSHIP STRUCTURE RELIES HEAVILY ON ETFs AND CALLS OUT DEALINGS WITH ITS AUDITOR KPMG. BRIDGEWATER RESPONDED TO THE NOTE TELLING CNBC IN A STATEMENT, "THIS REPORT IS DEVOID OF PROPER FACT CHECKING, LACKS A BASIC UNDERSTANDING OF THE RULES, REGULATIONS AND PROCESSES OF THE SECURITIES INDUSTRY AND IS DEMONSTRABLY FALSE." JOINING US NOW ON THE PHONE TO RESPOND TO ALL THAT IS THE MAN BEHIND THE NOTE, GRANTS INTEREST RATE OBSERVER FOUNDER AND EDITOR, JIM GRANT. WELCOME, JIM
JIM GRANT: THANK YOU, KELLY.
EVANS: WHAT WOULD YOU LIKE TO CLARIFY TO BEGIN WITH ABOUT THE NOTE GIVEN WHAT BRIDGEWATER JUST HAD TO SAY.
GRANT: IT WAS A 5,000 WORD ANALYSIS OF BRIDGEWATER AND CAME ESSENTIALLY IN TWO PARTS THE FIRST WAS A CRITIQUE OF BRIDGEWATERS ORGANIZATIONAL M.O. AND DESCRIPTION OF SOME OF ITS INVESTMENT TECHNIQUES. AND THE SECOND, THE MUCH MORE TITILLATING AND MUCH MORE FAMILIAR, NOTORIOUS NOW, PORTION CONCERNED AN ATTACK ON THE FIRMS COMPLIANCE AND REGULATORY PRACTICES. AND ON THAT, ON THE SECOND POINT, WE WERE WRONG IN PARTICULAR, WE WERE WRONG TO QUESTION THE RELATIONSHIP BETWEEN THE AUDITOR, KPMG, AND BRIDGEWATER. WE MADE IT OUT TO BE KIND OF A NEFARIOUS THING BECAUSE OF DISCLOSURE HAVING TO DO WITH A LENDING RELATIONSHIP WHICH TURNS OUT TO BE RATHER VANILLA LIKE AND WRONG TO SUGGEST THAT BRIDGEWATERS FORMER EMPLOYEES WHO WERE -- HAD GONE TO WORK AT BANK OF NEW YORK MELON, KIND OF AN OUTSOURCING THING, WERE SERVING TWO MASTERS AND TWO OTHER THINGS HAVING TO DO WITH PRIME BROKERAGE RELATIONSHIPS AND FUTURE COMMISSION MERCHANT RELATIONSHIPS WE CAST IN THE LIGHT OF SUSPICION, WE CERTAINLY SHOULD NOT HAVE. BRIDGEWATER IS A SECRETIVE AND ECCENTRIC FIRM I LET MY SUSPICIONS OF THAT GET IN THE WAY OF OUR ORDINARILY COMPREHENSIVE DUE DILIGENCE AT GRANT. I REGRET THAT. I OWE CERTAINLY THE COMPLIANCE DEPARTMENT OF BRIDGEWATER, BEEN ON THE PHONE FOR THE PAST WEEK, I OWE THOSE PEOPLE AN APOLOGY WHICH I UNRESERVEDLY EXTEND. YOU KNOW, WE -- I DO NOT RETRACT THE STORY IN TOTAL AT BRIDGEWATER. I THINK WE WILL CONTINUE TO AGREE TO DISAGREE ON SUCH THINGS AS THE RISK PARITY APPROACH TO BIG MACRO INVESTING, PERHAPS THE TURMOIL IN THE "C" SUITE AND SHEER SIZE OF ITS 160-ODD-BILLION BEHEMOTH, HOW SUCH A THING CAN GENERATE CONTINUOUSLY EXCELLENT RETURNS GIVEN THE DIFFICULTY OF BRINGING SOME OUT-PERFORMANCE OUT OF THESE BIG MARKETS
EVANS: JIM, IN WRITING ABOUT BRIDGEWATER, WHICH IS NOT A PUBLICLY TRADED COMPANY, SO YOU WERE SAYING, LOOK, IN A WAY WERE NOT SHORT THE COMPANY, WE CANT BE, BUT WE ARE WORRIED THAT THEY COULD BE THE FACE OF THE NEXT CRISIS. YOU COMPARED THEM TO LEHMAN, TO LTC BACK IN THE 90s DO YOU FEEL THAT WAY I KNOW WHAT YOURE SAYING ABOUT THOSE ISSUES YOU JUST MENTIONED ABOUT COMPLIANCE, SO FORTH, BUT YOU STILL THINK THAT THIS FIRM, ITSELF, POSES A THREAT TO THE FINANCIAL SYSTEM
GRANT: I THINK IT -- I THINK ITS SYSTEMICALLY IMPORTANT BRIDGEWATER DENIES THAT, BUT I THINK ITS SYSTEMICALLY IMPORTANT. AND I THINK THAT ITS – IM GOING TO SAY IN A CONSIDERED WAY, ITS OBSESSIVE SECRETIVENESS IS NOT TO ITS BENEFIT AND EXCITES THE SUSPICION OF THOSE WHO WATCH IT WHICH IS NOT TO DIRECTLY TO ANSWER YOUR QUESTION, BUT DIRECT ANSWER, YES, I THINK IT WILL PLAY IN SOME WAY IN THE PEAK OF THE NEXT CYCLE, IT WILL BE SEEN AS, YOU KNOW, AS A FIGUREHEAD OF THIS PARTICULAR UPSWING IN CENTRAL BANK LEVITATED MARKETS AND IN, YOU KNOW, ABNORMALLY, IN FACT, UNIQUELY LOW INTEREST RATES. SO, YES, I DO THINK THAT BRIDGEWATER WILL BE THE FIGUREHEAD OF THE NEXT CRISIS.
SANTOLI: IS THAT, JIM, BECAUSE THE STRATEGIES THAT IT PRINCIPALLY EMPLOYS TO THE EXTENT THAT WE CAN INFER – WHAT THOSE STRATEGIES ARE, ARE SO LARGE AND CONCENTRATED AND HAVE SO MANY, PERHAPS, OTHER FOLLOWERS, THAT IT WOULD SIMPLY BE TAKEN TOO FAR? OR JUST BECAUSE, YOU KNOW, THEY'RE KIND OF THE BIGGEST AND BASICALLY THE MOST VENERATED FIRM? AND THOSE FIRMS ALWAYS END UP GETTING TARNISHED IN THE NEXT DOWNTURN. I MEAN, HOW ARE WE SUPPOSED TO KIND OF -- ALONG WHAT STRAND OF THAT ARE WE SUPPOSED TO WORRY MUCH?
GRANT: I THINK BOTH. AS FOR THE STRATEGIES, WE CAN'T KNOW A GREAT DEAL, CERTAINLY IF BRIDGEWATER IS RIGHT, IT'S BEING A FREE COUNTRY TO SAY AS LITTLE AS IT CHOOSES TO SAY, WHICH IS VERY LITTLE, INDEED, ABOUT HOW IT ACTUALLY DOES BUSINESS. YOU KNOW, RAY DALIO IS ON RECORD SAYING – I GUESS ITS IN HIS BOOK – THAT HE KNOWS 1,000 UNCORRELATED TRADES. NOBODY ELSE ON WALL STREET KNOWS IT DOESN'T. BRIDGEWATER IS ON RECORD AS SAYING THAT IT EXTRACTS WHAT THEY CALL IN THE TRADE ALPHA BY SEPARATING THE GOOD PERFORMERS FROM THE AVERAGE ONES. AND IT DOES THIS APPARENTLY IN WAYS THAT HAVE NOTHING TO DO WITH SECURITIES SELECTION BECAUSE IT OWNS VERY LITTLE EQUITY AND IT OWNS MOST OF THAT, IT SEEMS, IN ETFs. SO, I'M SPEAKING AS AN OUTSIDER, I'M AFRAID, WITH OUR GAFFE – NOT GAFFE, OUR FAILURE – TO GET TO THE FACTS WITH RESPECT TO COMPLIANCE, AND I'M NOT SPEAKING EXACTLY WITH EXAULTED AUTHORITY ON THIS, BUT IT SEEMS TO ME THEIR APPROACH TO INVESTING IS MEGASIZED, THIS CONCENTRATION IN MARKETS THAT ARE NOTORIOUSLY DIFFICULT TO SUCCEED – AT LEAST TO SAY THE BIG LIQUID CURRENCY IN DEBT MARKETS. THEY'RE NOT UNCORRELATED IN MARKET, THEY'RE CORRELATED INTEREST RATES. SO I THINK ITS SIZE OF LOAN WOULD PRESENT THE SUSPICION THAT IT WILL FIGURE PROMINENTLY IN THE NEXT DOWNTURN. ITS SIZE, OF COURSE, HAS BEEN METEORICALLY GROWING SINCE 2008. AND I THINK THE NATURE OF ITS TRADING WILL PRESENT A DIFFICULTY IN THE NEXT DOWNTURN, IF THAT DOWNTURN, ESPECIALLY, IS CHARACTERIZED BY UNSCRIPTED RISE IN INTEREST RATES.
EVANS: JIM, HAS THE COMPANY THREATENED YOU WITH ANY LAWSUITS SINCE THIS PUBLICATION?
GRANT: NO.
EVANS: SO THEYVE REACHED OUT TO YOU SIMPLY TO CLARIFY HOW THE COMPANY WORKS?
GRANT: WELL, THEY WERE FURIOUS. AND I MUST SAY THEY HAVE A CASE. I THINK – IT PAINS ME DEEPLY. YOU KNOW, WE'VE BEEN AT THIS AT GRANT'S FOR 34 YEARS AND I'VE BEEN AT THIS FOR MORE THAN 40 THAT IS TO SAY, WRITING ABOUT MARKETS. AND I OUGHT TO KNOW BETTER. AND WHEN WE AT GRANT'S, WE ARE CRITICS OF MANY THINGS, AND WHEN WE MOUNT ANALYSIS, WE OUGHT TO DO SO WITH EVERY SINGLE L FACT THAT CAN BE FACTUALLY DETERMINED YOU KNOW, ON, CHECKED AND SCRUBBED. AND WE DIDNT DO IT. SO, IS BRIDGEWATER ANNOYED? YES. AND SHOULD IT BE? YES. I'M AFRAID THE'YRE COMPREHENSIVELY ANNOYED RATHER THAN SELECTIVELY, BUT THAT'S THEIR PREROGATIVE, TOO.
EVANS: COMPREHENSIVELY ANNOYED. JIM, WE APPRECIATE YOUR CANDOR AND FOR CALLING IN ON THIS MATTER.
GRANT: OH, YOU'RE ENTIRELY WELCOME.
EVANS: THANK YOU VERY MUCH .THAT'S JIM GRANT OF GRANT'S INTEREST RATE OBSERVER.
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