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105 of 107 people found the following review helpful
4.0 out of 5 stars Engaging Exposition of Uncharted Financial Waters
Written in a comfortable conversational style, (with many entertaining apropos quotes from mainstream pop culture as well as eminent economists and philosophers from the past) Code Red exposes what makes the current situation unique in the history of fiat currencies. The new and somewhat scary methods of central bank economic influence, Quantitative Easing (QE) and...
Published 13 months ago by Pablo Fredorico

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141 of 144 people found the following review helpful
3.0 out of 5 stars Another Book Review from the Aleph Blog
This is a tough book to review. It is correct in analysis of what went wrong, but overpromises in what its main goal is -- protecting assets before the next financial crisis.

Let me take a step back, and describe the structure of the book. A major goal of neoclassical macroeconomics is to try to eliminate the business cycle, and end up with smooth growth that...
Published 12 months ago by David Merkel


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141 of 144 people found the following review helpful
3.0 out of 5 stars Another Book Review from the Aleph Blog, December 1, 2013
By 
David Merkel "Aleph Blog" (Ellicott City, MD United States) - See all my reviews
(REAL NAME)   
This review is from: Code Red: How to Protect Your Savings From the Coming Crisis (Hardcover)
This is a tough book to review. It is correct in analysis of what went wrong, but overpromises in what its main goal is -- protecting assets before the next financial crisis.

Let me take a step back, and describe the structure of the book. A major goal of neoclassical macroeconomics is to try to eliminate the business cycle, and end up with smooth growth that minimizes unemployment.

As a result, central bankers, since they have a freer hand than politicians, as they are appointed, not elected, act to try to stimulate demand by lower interest rates. They did that from 1982 to 2008, until they came to the bottom rung of their ladder, and realized they could go no further.

Thus "Code Red" -- a situation that is an emergency. Many central banks felt they needed to act in an emergency to create liquidity to pump up economies with significant financial bankruptcies.

Would it work? When the central bankers started, all they had was theory, and Japan. Japan had tried out their theory, and it did them no good.

The academics argued that Japan did not do it right, and sadly, one was the Chairman of the Fed. Would that Bernanke had done his Ph.D. dissertation on another unrelated topic. Some historical accidents are real killers, and this was one. (As an aside: always be wary of academic researchers that have a lot invested in an idea. They cease to be neutral, and cause contrary data to be ignored, because you can always find a method to twist the data.)

Anyway, that is the first and longer part of the book explaining how bankrupt. untested theories led us to a situation where debt levels are high with governments, and central banks are ultra-loose. In such a situation, nations will try to weaken their currencies to gain a nominal advantage over other nations, so that they can export more. Eventually, it could lead to a currency war of competitive devaluations, or worse, a trade war of competing tariffs.

If central banks cooperate with their governments, they can repress people financially, making the rate that they can invest in with safety to be lower than the inflation rate. The authors believe that governments will try to do that and eventually fail, because credit creation will eventually lead to significant inflation.

One virtue of the book is that it shows that economists with influence over policy don't know what they are doing, but make a bold show of it. Particularly telling is Bernanke on page 135 saying the Fed can mop up excess liquidity at the right time, and he is 100% confident of that. The Fed has never succeeded at that before, so who is he kidding?

The second half of the book deals with how to protect your assets -- half is generous here, because it is 25% of the book. It goes over the permanent portfolio idea of Harry Browne, and then a series of non-solutions in Chapter 10, essentially arguing that diversification is called for.

Chapter 11 argues for inflation protection through buying shares of companies that have moats, such as:

* Valuable Intellectual Property
* Benefit from strong network effects
* Are low cost producers
* Have lock-in, and customers can't switch easily
* Natural monopolies and monopolies of market niches

These are good ideas, in my opinion, but difficult to continually implement. The book gives companies that presently fit the ideas of the authors, but updating it, and knowing how to trade it is tough. We've been through eras like the early '70s, where companies like this have cratered, so this strategy does not come without the possibility where it becomes too popular, and gets abandoned.

Chapter 12 goes through commodities and gold, and is bearish on them, arguing that the commodities supercycle is dead, and that gold is tied to real interest rates.

In short, the second half of the book is thin. If you are looking for protection, maybe the book should have said, there aren't a lot of great ways to seek protection against the monstrous economic policies of the developed world and China, but that wouldn't have sold many books.

Quibbles

I disagree with the first chapter that we had to have bailouts. The government could have protected regulated subsidiaries of the banks, and derivative counterparties, and let the holding companies fail. I also disagree that we had to have abnormal monetary policy to stem the crisis -- so long as there is a positive yield curve, there is stimulus, but once you get down near zero, perverse effects kick in.

The rest of my disagreements are already expressed. To summarize: the first half of the book is good, but the second half is thin gruel if you want to protect your assets.

Who would benefit from this book: If you want to understand the causes of the crisis this is a great book to buy. For protection of your assets, it will give you a few ideas, but no solution.
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105 of 107 people found the following review helpful
4.0 out of 5 stars Engaging Exposition of Uncharted Financial Waters, November 2, 2013
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Written in a comfortable conversational style, (with many entertaining apropos quotes from mainstream pop culture as well as eminent economists and philosophers from the past) Code Red exposes what makes the current situation unique in the history of fiat currencies. The new and somewhat scary methods of central bank economic influence, Quantitative Easing (QE) and long-term zero interest rate policy, (ZIRP) have never been tried before.

So far it has worked, staving off what would have certainly been a crippling deflation. But once you start QE it isn't clear how you stop. And the longer it goes on, the bigger the potential problem becomes. As long as QE continues (and it's not clear it will ever stop):

* The bigger the tinder box of low velocity reserves on bank balance sheets will become. The authors point out that just because this money hasn't been lent out to chase goods and service prices higher in an inflationary spiral for the past three years doesn't mean it can't. Just because gunpowder hasn't exploded, doesn't mean it won't, doesn't make it safe.
* The steady climb in asset prices engendered by central banks has been orderly, but is inherently destabilizing. Their analogy of a tall sand-pile, built ever higher grain by grain... The taller it becomes, the less stable it is. Sure it looks stable, standing there stationary as can be, but when perturbed by another grain of sand it is very difficult to estimate how big the avalanche might be. But one thing we can predict, the taller the sand-pile, the more the central bank policy pumps up asset prices, the better the chances are that we will see large disruptive avalanches.
* The central bankers cannot acknowledge this instability. In large measure their job is to engender confidence. So when they say with 100% certainty all is 100% under control we'd be wise to take their assurances with more than a grain of salt.

Also new is the shift of central banks moving away from their historical short-term counter cyclical role into a long-term one sided financing of government debt and deficits. In the U.S. and around the world, esp. Japan, central banks are straying from their mandates. Engaging in de facto long term fiscal policy stimulus. Dealing with unsustainable debt by printing money (or by more debt depending on how you look at it). All this against the back drop of globalization, currency wars, and deflationary population and inequality of income trends. Lots of new moving parts. No one knows how this will work out. But it obviously has the potential to be messy.

Finally the book offers a sensible approach to investing in the current environment. Which frankly is not all that different than in more typical circumstances... a diversified portfolio consciously avoiding the typical wealth destroying behaviors of trading without expertise, home bias, etc.. The main difference is an investor would be prudent to be more conscious of inflation risks and volatility than typical. Despite strongly discouraging non-professionals from trading rather than long term portfolio construction, he also talks about investing opportunistically in the aftermath of crises, keep some cash as dry powder and buy assets that are irrationally reviled when there is blood in the streets. He also likes gold but didn't harp on it in a way that was tangential or distracting to the general theme of the book. I like his approach. He discourages the masses from trading, but then gives them some good advice, if they must.

A couple of peccadillos... I felt he was a little hard on central bankers and economists whom he portrayed as generally clueless. But that sort of invective has become de rigueur in pop-economics and much of the audience expects and enjoys it. Also the implication that rising interest rates causes higher money velocity instead of having merely been historically correlated IMHO seems tenuous.

As a former hedge fund CEO and CFA charter holder, most of the material was already broadly familiar to me. But the well researched detail and readability made the book a pleasure to read and learn from.

Gave four stars instead of five because the title "Code Red: How to Protect Your Savings From the Coming Crisis" is misleading. It really isn't about that. More accurate would be the less catchy "Code Red: Why Current Central Bank Policies are Different and Dangerous".
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244 of 268 people found the following review helpful
1.0 out of 5 stars Terribly Dissapointing, November 8, 2013
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The book is well researched and written, goes into great depth regarding the problem central bankers are creating, and contains many amusing analogies. The title of the book, " Code Red:How to Protect Your Savings from the Coming Crisis", is highly misleading.The book fails miserably in that regard and provides virtually no concrete guidance on how to protect your savings from the coming crisis. The main takeaway is "find yourself a good financial adviser". Key lessons from the chapter " How to Protect Yourself against Inflation" can be written on the back of an envelope and wouldn't come as a surprise to the average investor.No mention is made of real estate as a hedge against inflation. The book is sort of a sequel to the author's last book, Endgame: The End of the Debt Supercycle and How It Changes Everything. OK, the sky has been falling since Nixon took us off of the gold standard, our national debt has increased dramatically, and the market(DJIA) has gone up more than 15x. This book is next to useless in guiding the average investor on how to deal with the unfolding scenario.Save your money for something worthwhile.
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43 of 44 people found the following review helpful
3.0 out of 5 stars Central banks are out of ammo, bad things are likely to happen, diversify and guard against inflation...., November 17, 2013
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The book essentially comes in two parts. The first is a solid analysis of the state of the global economy with regard to pervasive imbalances in the finances of governments around the world and the extreme measures currently being taken by central banks in order to keep the system from esentially imploding. This is the "bad things are going to happen" part of the book. The second part "and now we're going to tell you what to do about it" is almost laughable. The authors essentially advise the reader to maintain a balanced portfolio and guard against inflation. Excellent advice for any investor but not something you need to write a book about.
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49 of 56 people found the following review helpful
4.0 out of 5 stars Important & Balanced Read, October 29, 2013
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It you want to better understand the current world economic situation then this is a good read for you. The approach used is far more balanced and reasoned then what I expected. This book is not about doom and gloom it is based on good facts and information. We have been hearing for years how the end is near, well a good case is made for some pretty awful economic situations ahead, but the authors are positive on the long-term prospects. There s some good investment advice and not from just a gold bug perspective as one might suspect.
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15 of 15 people found the following review helpful
3.0 out of 5 stars Not enough action items, November 24, 2013
By 
Golfer Dude (Redwood City, CA USA) - See all my reviews
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Good description of the problems, but not enough action items to help me navigate the crisis. Was hoping for more step by step assistance.
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26 of 29 people found the following review helpful
2.0 out of 5 stars Not helpful for investing, November 24, 2013
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Clear explanation on where we are today, but terrible in terms of providing concrete guidance in what and how to invest in the coming terrible economic environment.
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38 of 45 people found the following review helpful
5.0 out of 5 stars Brilliant As Always, October 31, 2013
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This review is from: Code Red: How to Protect Your Savings From the Coming Crisis (Hardcover)
I'll start off by saying that I am a big fan of John Mauldin. I read his weekly letter, Thoughts from the Fontline, religiously. You should too!

John's writing is always brilliant, and Code Red is no exception. He is a master of global macroeconomics, but he can also explain the esoterica so that most can understand. That is not to say that Code Red is fluffy. It will hurt your head at times. But this is an important book that people should read. Buy a copy for your favorite Congressman. Seriously!!

One area that deserves a bit of elaboration is the apparent conflict between his guidance to buy stocks when the price is low and his guidance against trying to time the market. He identifies good characteristics of companies that can best survive the coming inflation and correctly points out that your overall return will be better if you can buy the stock when it is at a low point.

Mauldin also cites studies that show retail investors typically fail when it comes to trying to time the market and suggests Harry Browne's "Permanent Portfolio" as a potential solution: 25% each in Stocks, Bonds, Gold, and Cash. But if you are trying to pick stocks when they are undervalued, isn't that market timing?

A strategy that more dedicated individual investors might employ is to anticipate a market downturn and scale back the stock allocation, moving some of the stock money into the cash bucket. In my book, Fiscal Cliff Investing - Strategies for Investment Protection, I suggest some of the signals that show that "the big one" might be coming and other strategies to protect your investments.

Whether it comes from the next debt ceiling discussion, from a PIIGS bank crisis, or when Japan finally hits the windshield, the next crisis will come. While the Permanent Portfolio did fairly well over the last decades, the coming years will require a little more diligence (and timing) to achieve success.

Thanks for the great book, John.

Your honored to be a fellow `JM' reviewer,

John Marsland
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11 of 11 people found the following review helpful
3.0 out of 5 stars The Good and the Bad of Code Red, December 6, 2013
By 
Gary (Leelanau County, Michigan) - See all my reviews
This review is from: Code Red: How to Protect Your Savings From the Coming Crisis (Hardcover)
I have been reading John Mauldin for over 10 years now and really enjoy his style and insight about what is going on with the world economy. That said, Code Red has a great analysis of the history of the financial condition the world finds itself in and an outlook for what is likely to happen next and what that outlook is founded on.
The reason I didn't rate the book higher was I thought the investment recommendations really lacked the same depth of analysis.
Without analysis of many alternative investments, I thought this part of the book was really incomplete.
So, that said; An "A' for the start, a "D" for the end.
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8 of 8 people found the following review helpful
4.0 out of 5 stars More "Why" than "How", November 10, 2013
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As I expected, John Mauldin has come out with another great read for the thinking investor. Mauldin's great talent is to network with the widest possible range of intelligent investors, economists, commentators, and then to apply his Texas-style common sense thinking to it. The result is far better than almost any of the so-called "expert commentary" coming out of think-tanks, brokerage firms and, of course, Washington.

It is also vastly superior to his Little Book which I panned on Amazon because it regurgitated Endgame, his previous best-seller.

His primary thesis is that inflation in the US is inevitable but he is balanced in this conclusion, and is not predicting Weimar-style hyperinflation. I personally have subscribed to this thesis since the onset of the credit crisis, since "Americans are not Germans" and will not stand for endless years of austerity in order to service debt. Instead, the excessive leverage in the system will be gradually erased by the slow compounding of inflation over the years. We've seen this movie before after WW II and in other countries, as Mauldin details comprehensively.

It's hard to argue with his conclusions, notwithstanding that many mainstream economists such as Krugman, Jared Bernstein, and other Democrat apologists still are advocating "full speed ahead, damn the deficits."

However, where he falls short (and costs him a star) is in his prescriptions for investing which are incredibly thin. It almost seems as if he rushed to get the book into print (doesn't he say earlier in the book that he will describe his Japan investing strategy later, only to skip it altogether?). Another example is his discussion of TIPs: he makes a joke that he knows of no one who buys them (this reader does) then basically skips over them entirely. A book largely about inflation that does not cover TIPS and iBonds? Very strange.

He does discuss commodities and gold in more detail, but really only to leave it to the reader to decide whether we are in a commodities uptrend or not.

Overall, the book is still well worth reading but I appeal to John to post an addendum to his web site that covers the investment approach he advocates in more detail. Otherwise the book should be re-titled, "Why You should Protect Your Savings...."
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Code Red: How to Protect Your Savings From the Coming Crisis
Code Red: How to Protect Your Savings From the Coming Crisis by John Mauldin (Hardcover - October 28, 2013)
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