Book Review: The Great Reflation

One quick note for readers before I begin: I passed my Series 86 exam with an 88% score.  I did better than I expected.  Now I am studying for the 87 — my how interesting it is to study law… BTW, the next book I am reviewing is Confidence Game.

The Great Reflation

I wish I had written this book.  Of course, Tony Boeckh has resources that I don’t, given his prior connections to the Bank Credit Analyst.  When I subscribed to the Bank Credit Analyst, I always prized their insights.

The Great Reflation follows many themes that I discuss regularly:

  • Are we facing inflation or deflation?  Inflation of the currency or goods prices, and deflation of assets?
  • In the bull phase, liquidity is a synonym for willingness to borrow.  In the bust phase, illiquidity is a synonym for inability to sell assets to pay off debts.
  • Public borrowing has been substituted for private borrowing, with an attendant increase in sovereign risk.
  • Whether there are central banks or not, economies go through credit cycles.  Because the Fed facilitated this cycle, the debt bubble is bigger, and the cleanup will be huge.
  • Deleveraging is needed to restore prosperity, but there will be years of pain before that starts, assuming that the politicians are willing to see it through.
  • In the short run, the US has avoided a deeper crisis because of their ability to borrow.  This sets the stage for a larger crisis later.
  • Acting to reflate assets after a bust sets the stage for a new bubble.
  • Asset allocation is tough when interest rates are low, and there is no obvious desirable safe asset class.  Be nimble, and react to changes in valuations driven by emotions.
  • Even in crisis times, stocks can be valuable investments; one merely has to get the fundamentals and timing right.
  • Bonds are easy — think about interest rate risk, credit risk, and inflation risk.
  • He is bearish on the Dollar over the long term, but it could be the best of a bunch of bad developed market currencies for a long time.
  • Gold might be a bubble, or it might go considerably higher.  He favors the bubble argument.  Same for commodities.
  • Real estate prices won’t do anything amazing, good or bad.
  • America is in decline.  Can it recover?  (It has a lot of advantages, but unless the average American citizen is willing to sacrifice and clean up his own life, the answer is no.)
  • This will lead to a decrease in American influence abroad.  That will lead to a less stable world.

In his chapter on stocks, and his chapter on bonds, and chapters on other asset classes, the author hands out a wealth of knowledge on how to analyze fundamentals, sentiment, and technicals of asset classes.

He also comes to the conclusion that I do, that there are no easy asset allocation decisions here, and that one should diversify widely in order to preserve assets.  Also, he concludes that there is no easy endgame for heavily indebted nations, and that there will be a reckoning, though whether that means inflation or deflation is impossible to tell in advance.

I enjoyed the book and would recommend it highly.  My only misgiving is that there wasn’t much new for me in the book, but it was very well presented.

If you want to buy the book, you can buy it here:  The Great Reflation: How Investors Can Profit From the New World of Money

Who would benefit from this book

Most average investors could benefit from the book.  It would give them a deep feel for the difficulties that we are now in.  It would tell them that there are no easy solutions, and that broad diversification is warranted, together with nimbleness to profit from volatility.

Full disclosure: The publisher e-mailed me, and I requested a copy.

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