Customer Reviews

The Great Deleveraging: Economic Growth and Investing Strategies for the Future

5 star:		(3)
4 star:		(6)
3 star:		(0)
2 star:		(2)
1 star:		(0)

 

 

The title and byline suggest that you will learn something about the huge "Leverage" (debt) problem, how it will unwind, and how to position yourself for the impending carnage.

Sadly, the first 230 pages are just a walk through the decades pointing out all kinds of true stuff that's widely known. Lots of graphs, but very little "ah-hah!". Then comes the book's title chapter, a short medley of platitudes like:

"This deleveraging process would be helped greatly by an acceleration of economic growth. History does not provide much hope..."

"Services are expected to remain a significant part of the economy..."

"Eventually, policies will need to be put in place to allow the private sector to grow faster than the public sector..."

"While we cannot know the future, the next two chapters present some tools and rules to help you navigate [the difficult road ahead]."

The first 250 pages would be forgivable if it related to some thoughtful "Investing Strategies for the Future."

No, the book wraps up with astonishingly elementary and generic advice:

1. Know your financial self
2. Build a personal balance sheet
3. Understand your risk appetite
4. Develop a savings discipline
5. Preserve principal
6. Develop a spending discipline
7. Diversify your investments
8. Observe some basic investing discipline
9. Identify the nature of the market: structural bull or structural bear
10. Develop a sell discipline
11. Continue your education
12. Beat your financial benchmark


Other strangeness:

1. Lots of time-series graphs to give you some perspective, but many of them stop at 1990 or 1999 or 2007, for example. Why? Wouldn't be nice to see recent numbers in historical context?

2. Many chart data sources are stated, but not specific. For example, Exhibit 1-20 Source: Flow of Funds, authors. ["Because I said so" is a source?]

3. Comparative advantage is mis-defined on page 157: "Comparative advantage, a centuries old concept, states that each country has an advantage in something, be it oil, labor, favorable climate, and so forth." [This obscures a central idea of comparative advantage...that even if a country has NO such advantages, it still benefits by specializing in areas where it has the smallest disadvantage.]


Summary: The book should be titled: "The Great Deleveraging: It's Going to Be Bad, but We Have No Idea What it Will Look Like, or How to Play It."

This book has three features that set it apart for other finance / stock market books.

First, it divides the huge increase in debt in the United States over the last thirty years into categories that shed additional light on to the subject.


Debt Buildup subsections:

- The sources of this debt expansion

- Changes in tax policy
- Changes in housing policy
- Changes in regulation
- Contribution of inflation to debt levels
- Government Deficit spending
- Successful use of debt to increase profits in the previous years
- Declining interest rates
- Contribution of energy prices (oil) to debt levels

Each of the above sections explains how the debt expansion in this subsection contributed to economic growth. The only other book I have seen that illustrates how debt expansion contributes to economic growth is Being Right or Making Money


Second, this book examines the conditions for real economic growth in particular focusing on how concentration, dispersion and diversification effect economic growth. This is an important section. Over the last thirty years the United States has begun to reverse it historical course and to support concentration of power in government and industry. This section gives clear examples of the problems concentration brings.


Third, chapter three examines the last ninety years of the United States economy. I found this section very interesting. Why? because you can compare stock market returns over the decade with the factors that defined each decade.

Finally, chapters five and eleven provide a set of economic instruments that have proven to be accurate indicators of past problems. They suggest monitoring these instruments carefully in order to understand when the economy might be in for turbulence.

This book has no thesis and makes no useful predictions. The organization seems random. We get an introduction to the danger of letting the government squeeze out private sector growth, then a review of asset returns since the early 20th century, organized not by economic cycle but by decade. Then we get a review of recent economic developments in China, India, and Israel. Finally, the authors' overview of what deleveraging in the United States might look like, if it follows the paths of previous cycles, and a weird "news you can use"-like chapter on managing personal financing and investing in companies with low P/E ratios.

The early chapters of the book felt ideological -- Democrats bad, Republicans good, Reagan best. The explosion in national debt/GDP and the rapid drop in savings rates in the Reagan administration are basically ignored. But after the first couple of chapters, the book seems less ideological and just boring. It's all backwards looking; there are no models here, no explanations, just lists of things that happened. And so much padding. Take for example the list of GIC codes that starts on page 213. "6081 - Branches and Agencies of Foreign Banks. 6082 -- Foreign Trade and International Banking Institutions." etc, for three and a half pages.

The authors are fond of simple sentences with one fact or opinion in each. Some of the graphs and charts they've included seem pretty bad. Check out Exhibit 1-18, "Relative Five-Year Growth Rate of U.S. Debt" Relative to what? It's not explained.

I can't imagine anybody sophisticated about finance or economics finding value in this book.

"The Great Deleveraging" is primarily a sort of statistical almanac that delivers a large number of charts and graphs illustrating features such as asset class returns and global growth indicators over the past century or so, along with present trends and some predicted future trends. Although some of its chapters refer specifically to the problem of deleveraging and deliver some useful information on previous episodes of deleveraging, the authors do not provide much in the way of a thesis concerning why excess leverage occurs or what policymakers should do about it. While they do provide some useful information for example on the amount of time needed to purge excess leverage from the financial system, the title is a bit misleading because most of the book is not specifically about deleveraging and instead contains generic information about the world economy and investment strategies.

Overall, a lot of the information provided seemed to be either at a pretty basic level, or extremely narrow and technical. The lack of a central thesis made the book feel like a "data dump" at times. For example, at one point we are given a list of all the banks in India (page 217). Nothing is said about how sound these banks are, the amount of their assets, the state of their liabilities, etc. It is just a list. A far more interesting topic would be the damage done to microenterprise poverty lending by Indian banks in light of the current deleveraging environment.

There is also a four-page list of financial services industry classifications with SIC codes. I am not sure what use the reader can make of this information, or what it has to do with the deleveraging problem.

The final chapter contains what seemed to me like very generic investment advice such as "It seems prudent to expect and plan for volitility when structuring a financial plan" (p. 277) and "Part of building a strong balance is paying down debt and being cautious when taking on debt." (p. 281). Overall, while some of the information provided in the book seemed useful, there just wasn't enough there to justify the time I spent reading through 300 pages of generic charts and graphic material.

(3.5 stars)

This book is mainly trying to inform you on a macro level by putting the current crisis into historical context and charting the territory ahead. I feel that Chapter 3 makes a worthwhile read in that it looks at the returns of eight different asset classes by decade. Chapter 7 discusses China, India, and Israel as emerging countries. The collateral impact of China's rise and India's growing relations with other economies such as China and Israel are discussed and are definately food for thought. Many industries can benefit from China's rise and if you are researching companies to invest in then this chapter touches on a few main ideas to consider. I came away feeling that overall there was too much "filler" that could be found elsewhere and in more depth to be more helpful which is why I subtracted a star.

This is the latest in a series of books attempting to place the recent financial crises into context and to provide a glimpse of the possible future of the world economy. However, the book avoids the hyperbole that plagues some others related to this subject matter. Moreover, it provides specific investment ideas for the future. While I am generally not inclined to invest on a "macro" level, I do believe the the information provided is useful, and I'll hopefully be able to incorporate elements of it into my own strategy.

Dickson and Shenkar do a credible job of analyzing the factors affecting the global economy. Rather than falling into a sensational "sky is falling" mode, they start by reviewing the situation in 1980, when the economic outlook was bleak. In hindsight, that year was the inflection point for future growth driven by economic reform in China, free market thought in England and the US, the fall of the Berlin Wall, the creation of the world wide web, and free trade initiatives. This growth in turn led to over-exuberence, which in turn led to excessive debt, financial bubbles and lo, here we are.

The book does much more than that, however - it examines bull and bear markets from the start of the 20th century, demonstrating how they arose and what led to their demise. The book then turns to various "market signals" of a bull or bear market. Lastly, it provides 12 tangible rules to securing a stronger financial future. Some of these are common sense (such as "develop a savings discipline"), but all are well grounded and appropriate. The book does not provide specific advice such as "buy gold" or "invest in treasuries," but refreshingly, it also does not purport to know what the future holds - it simply gives investors the tools they'll need to interpret that for themselves. Moreover, it is quite well-researched, and the conclusions it draws appear amply supported by the included tables and charts. I guess this is what I'd expect from a book published by the Financial Times Press, though.

I had the misfortune of reading Panzner's "When Darkness Falls," another post-financial collapse book that, unlike this one, was ill-researched, overly-broad, and sensational. While both books discuss macroeconomic trends in global investing, "The Great Deleveraging" is far superior. As an investor, I tend to focus on individual companies rather than global trends, but the book did make some points for me to think about going forward. It's a worthy read.

It is a very informative resource on the state of economy, the various factors which are affecting it currently and also those which are likely to affect in near future. Overall, I am not sure if you learn a lot about investing strategies, but the knowledge gained can definitely be used to make sensible investing decisions.

"Capital preservation should be goal number one" is the final line in The Great Deleveraging by Chip Dickson and Oded Shenkar. That's the conclusion provided to finish off about 300 pages worth of discussion, data, and analysis related to economic and stock market patterns of the last century or so. The authors take the reader through extensive historical study of how the US and global economies have changed and evolved and how stock markets have reacted to those changes in their bull and bear market cycles. They do so in a very easy to read fashion, however, with loads of charts and graphs to make their points. It is, in many ways, a quick read for all its length and content.

My one gripe about this book is that the subject matter noted in the title doesn't really get all that much coverage in a direct fashion. The first chapter is titled "The Great Leveraging", which makes sense since you have to lever up before you can delever. The chapter with the same name as the book's title doesn't come until the tenth (of twelve), though. In between there are chapters reviewing the history of real asset returns, global growth, and stock market patterns. Chapters on emerging markets and developments in the private sector are tossed in as well, some of the content of which only seems loosely related to the main discussion.

After all that, I'd like to have seen a more of a forward projection as to what The Great Deleveraging could look like, especially since the book seems to intended to give the reader something practical to apply. That stuff comes through in the final two chapters. The penultimate provides ways to gauge the economy and markets. The final chapter could be reasonably described as laying out a high level, fairly conservative plan for your financial future.

As much as I'm a bit disappointed that there isn't as much meat to the deleveraging discussion as I'd have liked, I still give the book a solid overall score. There's loads of very interesting information and suggestions of the sorts of things you can use to develop expectations for how the financial markets will perform given likely economic developments.

I found the history of the stock market very interesting.

Topics such as the US plunge into massive debt were well researched and presented.

I feel much more confident about making long term investments given the opportunities they discuss in the emerging economies.

Well done.

The authors have written an insightful, must read, book for any executive involved in global business strategy. Understanding the projected demographics and growth drivers globally - particularly for emerging economies - is critical to developing business strategies and the authors argue convincingly that to succeed in the coming decades business leaders will need to be ahead of the curve and their competitors in understanding this rapidly changing landscape. Further, the authors compellingly describe the unfolding great deleveraging of the global public sector and how it will fundamentally challenge how Americans and Europeans are served by their respective governments. Hang on to your seat, it will be a thrilling ride.