Customer Reviews

Financial Reckoning Day: Surviving the Soft Depression of the 21st Century (Agora Series)

5 star:		(23)
4 star:		(17)
3 star:		(10)
2 star:		(5)
1 star:		(9)

 

 

I think Bonner and Wiggin artfully present an alarming and important idea: that American consumer capitalism may doom the stock market and the economy. However, in making their case, they favor metaphors and provocation over tightly organized logic. The authors are truly right to call their approach "literary and historical," for many of the book's facts and hard data are attached to historical stories and anecdotes. The first two-thirds of the book is an epic-and sometimes meandering-sweep of selected economic themes and characters. Against broad themes, the writing is often ponderous but sometimes it is simply brilliant and poetical. The tone was a bit overwrought and patronizing for my taste. I winced a few times when, writing from their offices in Paris, they compare America to Rome before the fall, seeming to bask in their self-described spectator role, and taking glee in the perceived plight of the average investor, "bless their greedy little hearts."

I found the first three chapters hard trudging. Chapter One rehashes the bursting of the internet bubble and blames the Internet for amplifying the hasty judgments of the mob. Chapter Two aims to show us that every binge must be followed by a hangover, economically speaking. To prove this, they indulge in many, many military metaphors, like the Japanese "expansion" into Pearl Harbor that led to the hangover at Midway. I'm not much for military history so this was of passing interest to me, but I was interested in the introduction of Hyman Minsky and his theory that "stability [itself] is destabilizing." The idea is that when everything is going well economically, the banks and other "merchants of debt" will inevitably market their liabilities and send the economy into a vicious cycle of credit. Chapter Three tells the story of John Law's early attempt to create a paper currency and the ensuing speculative bubble; but mostly it a broadside against central banks who think they can save an economy merely by printing more money.

After this, with the exception of the Chapter Six, the book really started to grab my attention. Chapter Four presents the comparison between our economy today and Japan's ten years ago. Sure, the metaphor isn't perfect (e.g., American capital markets are arguably more nimble and ruthless) but I bet it will spook you if you have money in the stock market. Chapter Five dethrones Alan Greenspan and laments his reversal from a "gold bugger" (i.e., money should be backed by gold) to a devotee of managed paper currency whose overconfidence helped fuel the bubble, and who, the authors plainly believe, cannot save us with interest rate cuts. Regarding Chapter Six, I'm with another reviewer who thought this part was tough. It's an abstract philosophical treatise on why the masses are, you know, bunk. Maybe they needed to make a place for the obligatory Nietzsche quotes? I would have much rather they elaborated on their all-to-brief discussion of fiscal policy, where they start to make a case for the dangers of a Bush-inspired expansion of fiscal spending.

Chapter Seven (The Hard Math of Demography) is a great chapter and is the heart of the matter. Whereas in the earlier Chapter they drew the cosmetic analogy to Japan ten years back, here they outline the causes that doom us to repeat Japan's performance. Drawn largely from a study by the Cowles Foundation, they show that the stock market has historically trended along with demographics. Specifically, when the proportion of people who are "peak-investors" (i.e., people in their 40s) is high relative to spenders (in their 20s) and retirees (who pull money out of the market), then demand for equities runs high and the market rises. But this ratio has recently peaked, and we are looking at two decades where the proportion of investor-aged population is going to decrease as more people move into retirement and will be selling, not buying, stocks. This is the authors' concern: that as American depends increasingly on debt-financed consumer consumption, fewer investors will demand equities, so we will have less investment capital. Compelling, but the authors did not cover all their flanks. For example, they do not seem to acknowledge that consumer spending provides companies with revenue and retained earnings that can be a source of investment capital; they seem to imply throughout that the only investment capital comes through savings which are invested in the equity markets. Also, you can argue that the historical comparison between U.S. Equity markets and domestic demographics is challenged going forward given increasing globalization. In other words, the US stock market hardly depends only on domestic investors for demand; as we mature, other economies are supplying plenty of prime-aged investors.

So this is a worthwhile debate for any long-term investor and this book is sure to make you think about the risks in holding equities into the next decade. I was not at all disappointed that the authors' go-forward advice amounted to "sell equities, buy gold, we think." It was a welcome bit of humility from them. But the book is really a case for selling equities, it is not by itself a very persuasive argument for buying gold, unless you simply believe that historical inverse relationships between the two asset classes is going to hold up.

The reviews the book got were mixed. I think one of the important gripes was that the book doesn't offer advice on what to do going forward like the title implies. It appears that gold may be a worthwhile investment, but the authors make it clear throughout the book that wealth just doesn't come out of thin air and that the US has been heading in a bad direction for a long time. Stocks, they say, are still overpriced and the market will (as always) return to the mean.

One of the things the authors illustrate is a chart showing the cycle of bear and bull markets, and how they tend to last 15-18 yrs. If that trend holds, then we've got another decade or so before we see another bull market. Another point they make that I found interesting is that a person's maximum salary occurs at an average age of 46. Up to that point, those people are buying stocks and consumer goods, pushing the stock market up. After age 46, those people begin to start selling stocks more than buying them. Plus, they begin to make fewer and fewer purchases. Where this comes into play is with the Baby Boomers. The beginning of the BB age was mid-1950's. When you add 46, you get roughly year 2000. That's when our market peaked. The implication is that our aging population will no longer be contributing to the stock market's push upward, just the opposite. And when you consider that there are 70-80 million BB, then that's an incredible force to be reckoned with.

While I was disappointed in the lack of direction the book offers, it was a worthwhile read. The authors did a good job researching the material, and the chapters were easy enough to read once each night. The book is mostly a historical account of monetary systems and it isn't until the last few chapters that the here-and-now stuff is discussed. The authors do tend to make simplistic arguments which I thought was an oversimplification of the problem. They also make a comparison with Japan, which I keep hearing the finance types talking about, so it was educational to read more about why a comparison is warranted.

Another good book is "Rational Investing in Irrational Times." It's premise is that diversification is the only way to make money in the market, especially when you can diversify using index funds. "Rational Investing" makes the important point that there are only a few days in the year that make a difference in a stock's price, so you'd better be in the market when those days occur. "Rational Investing" looks at the market from a purely statistical perspective and presents a methodical approach to investing. In contrast, "Final Reckoning Day" looks at the market from a centralized money management and demographics perspective.

Overall, the authors resign to the fact that we simply don't know what will happen next. And each time we try to do something, we change the system somehow, creating new variables. If anything, what I've gotten out of these books is that (1) the buy and hold strategy is a myth, (2) history repeats itself in almost predictable cycles, (3) our monetary systems are incredibly complex when you try to make forward projections, and (4) finanical analysts are making guesses at best. Books like these really should be made part of the high school curriculum so young people can start developing opinions on the matter and be better prepared to make the right financial decisions in their lives.

This is a worthwhile read. The authors portray the USA in a worrisome light using a lot of insight and comparisons of the present with historical economic events, some quite famous and interesting in their own right. However, they do not quite get the connection between massive trade deficits/surpluses and their multiplier effects on banking systems, leading to disastrous bubbles. They seem to feel it is substantially all monetarist activity at the FED, which certainly is a major contributing factor to our present bubble. This book should be read in conjunction with The Dollar Crisis by Richard Duncan in order to understand the cental bank role and get the true macro picture of excessive liquidity and why we are in a liquidity trap.

May be I am reading too much into this gloom and doom, being an a Finance Major from one of the top Finance Business Schools in the USA. After graduating about 10 years ago I started my research on the following premise that, "How Long Can a Nation Continue to Live on Debt", and over the years read books titled:

- "Creating an Interest and Inflation-free Economy, that is good for ordinary citizens and the environment" by Margritte Kennedy, Professor of Urban Planning at University of Hanover, Germany

- "The Problem with Interest", by Tarek El-Diwany, Kreatoc, 2003

- "Islam and The Economic Challenge", by Dr. Umer Chapra, Former Chief Economist as Saudi Arabian Monetary Agency (SAMA), The Islamic Foundation, UK 1995

- The Dollar Crisis, Richard Duncan, World Bank Consultant, John Wiley, 2003

- The Greatest Depression in the History of US & UK, Daniel Arnold

- Dangerous Market - Managing in a Financial Crisis, McKinsey Consultants, John Wiley, 2003

- Global Finance at Risk, Professors from the New School, 2001

- Capital Flows and Crises, by Dr. Barry Eichengreen, UC Berkeley, 2003

- The Coming Crash in the Housing Market, John Talbott, UCLA Research Scholar

- and lastly, the "Financial Reckoning Day" caps all the above research, and exposes this fake projection of economic growth

All these books allude to the same thing. This Dollar-driven credit/liquidity creation is losing steam as an engine of growth, and causing the de-leveraging of American. There is only so much that lowering of interest rates can do to boost the economy. Combine this with the demographic bomb, and we have a disaster at our hand which will unfold in the next couple of years. Most of us are sleeping, and thinking that our nominated and elected officials will have our interest in mind. Unfortunately, we will wake up from our hallucination one day, and see our networth evaporate just as it has happened many times in history.

Interesting book, but bear a few things in mind. I subscribe to several of his products - Oxford Club,Q Wave, and his E-newsletter. This really is more a diatribe, which is entertaining and fairly accurate, than market advice. He rips Ed Yardeni for his Y2K stance (but the ultimate Y2K loser was Gary North, whom he thanks in his preface), he rips Gilder, who was right about tech, but wrong about tech stocks, and in general points out a lot of stuff he's been right about but with a sarcastic edge.If you really want this type of information with bite, documentation, and substance, either join the Oxford Club, or read any of James Dale Davidson/Rees-Mogg's work. I should say, despite the fact that this book is 3 star, that his E newsletter has saved me tens of thousands of dollars by basically following his overall idea of market direction.

Bonner doesn't seem to be telling you what to invest in and for some reason, this seems to disappoint some readers. Look, you can get what-to-invest-in advice for any financial newspaper or magazine on any newstand... And at least half will be wrong.

What you need is to step back and learn about the overall system from a high-level, macro viewpoint and to learn how our money system interacts (or fails to) with wealth-building mechanisms today.

Bonner doesn't give you fish, he teaches you the history of fish and explains how to understand the fish of tomorrow.

If (I mean WHEN) the financial reckoning day does arrive, it will surprise almost everybody except those who have read this book.

You need to understand what's going on and how to prepare. No this isn't a preparedness "World going to hell in a handbasket" book either although some scenarios are frightful. Bonner seems to want to teach you, in his usual enjoyable prose, how to make the most from what you decide to do with your family's financial stewardship.

First point: buy and read this book. What you will find is a book that goes to the heart of the controversy between Mises and Keynes. Does imbalance lead to correction or can it be managed? Does "managing" imbalances lead to more imbalance and bigger problems, or does it make any correction easier than it would have been? Comprehending this debate is central to understanding the ebb and flow of economies and markets. Bonner and Wiggin lay out the case for the problems associated with imbalance. The book should only be considered gloom and doom if your future retirement is inextricably tied to a 10% forever compounding of the S&P 500. The correction of imbalance leads to other significant opportunities, as all great macro traders know.

Long time readers of Bonner can see the clear contributions to this work Addison Wiggin makes. That being said, I have been reading Bill for many years, and his thoughtful personal writing style is all over this book. That is a very good thing. Bonner makes me think, and he will make you think, too. Do I agree with every word? No, but if you only read people who think like you, you will soon find you do not do much thinking. It is in the arena of ideas that the blade of the mind gets sharpened. Bonner is a writer's writer, one of the best crafter of words I know, and simply a pleasure to read, even if his words are sobering. I have told Bill that there are times when I read his prose and feel like a housepainter in front of a Rembrandt. He is that good. The last chapter alone is worth the price of admission. Second point: buy and read this book and then recommend your friends do as well.

If anything, these guys are clever. They publish a book about the madness of crowds (writing glibly, in a way that makes the reader feel like an insider conspiring to cash in on the foolishness of others as America nears the brink of a long slump). And then, through their Agora Publishing service, send readers of their Daily Reckoning email newsletter endless solicitations to buy trading alerts that promise humongous gains in just days (and subscriptions can cost $2,000/year!). In other words, they are selling pickaxes to the greedy prospectors that they deride. What chutzpah. Today they sent me an email titled "special appeal to the Financial Reckoning Day brigade?which basically asked readers to tell their friends about their great contrarian book so that it can get into the top 5 of the NY Times bestseller list, which will mean prominent displays in bookstores. I guess they figure that everyone is bullish now, but if they can just get their bearish perspective out, perhaps the tipping point will arrive sooner and their prophecy will become self-fulfilling (which means winning their bets).

As for the book, it's an entertaining quick read that makes the point that fiat currency easily loses value if not backed by something of real worth. The expansion of the money supply under Greenspan's tenure fueled the tech, real estate and consumption bubbles. Meanwhile the free-spending, highly indebted baby-boom generation is approaching retirement and is about to sell their assets. In other words, we're exactly 10 years behind Japan. Here comes the bust. Buy gold! (Psst ?need any pickaxes?)

LOL at the one star reviews. Go ahead, buy the NASDAQ, someone has to.

Ain't going to be me.

Books like this do a tremendous service for people who are willing to turn off CNBC and consider for a moment that most of the stuff we are bombarded with day in and day out may not be accurate. Kudlow and Cramer are fun to watch, but come on, so are the Dallas Cowboy Cheerleaders.

Judging by what has been happening (again) in the stock market, it seems that not only have we not learned John Law's lesson, we havn't even learned the NASDAQ lesson yet. Alan Greenspan is still supposedly leading us to the promised land?

Ignore this book at your own peril.

As an avid fan of The Daily Reckoning web site, I was disappointed to find that there were no new or big secrets to be found tucked inside it's covers.

Most of the writing in the book, seems to have been taken from their web site. So if you've read most of their newsletters from the past few years, you will have already read and gotten their most important information. If you are new to the Daily Reckoning team, then the book may be a good way for you to 'catch up' & get current with their viewpoint.

Also, If you are an avid history buff, then their lessons will undoubtedly delight you. But think twice before buying this book, if you find long-winded accounts of history boring.
(If you're not sure, then I'd sdvise you to check out their web site before making your decision.)