This book is now out of print, anyone who interested can download the electronic version for free on www.gavekal.com.
For over ten years now, a wide majority of economists have drawn on historical parallels to warn us that the expansion of the past decade in US consumption was unsustainable and likely to end in tears. So far, and despite the strength of the above thought process and the numerous historical parallels, the dreaded meltdown has completely failed to materialize. So what is the next step?
When a thought process fails, i.e.: when History fails to rhyme, analysts can typically respond in one of four ways:
1- Shut up and crawl under the carpet. This is usually an expensive proposition.
2- Pretend that the numbers are wrong and that, despite all the signs, they are right.
3- Hope that one is simply "early" and that one's scenario is about to unfold.
4- Admit that one has been wrong, and try to find out where the mistakes lie. This is the most intellectually honest stance to take and the one that we wish to adopt.
The reason so many analysts drag their feat in admitting that History has failed to rhyme this time around is that it would lead one to the dreaded conclusion that "things are different this time". And yet, this is exactly what we do in our latest effort entitled Our Brave New World. Over twenty chapters, we describe how companies today are more efficient with their use of capital and labor then they have ever been in the past. Today, companies no longer operate on the business models used one generation ago. Relationships between countries have evolved. Social structures are transforming themselves at a rapid pace.
And all this is having an impact on financial markets... The world has changed. So shouldn't our way of analyzing it evolve as well?
Book Description
Product Details
Would you like to update product info or give feedback on images?
|
Customer Reviews
|
Share your thoughts with other customers:
|
||||||||||||||||||||||
|
Most Helpful Customer Reviews
50 of 51 people found the following review helpful:
5.0 out of 5 stars
The most original financial thinking in a long time.,
By
This review is from: Our Brave New World (Paperback)
This book shows once again that GaveKal is a fountain of original thinking. Unlike many financial advisory firms, they are not content to repackage popular thinking.
The most important attribute to note regarding this book is that it is for relatively sophisticated financial readers. This book is a counter-argument to a counter-argument. That is, if the main argument is that US equities are still on track for satisfactory performance (the view from mainstream retail investors), the counter-argument is that the history of bubbles (of which the NASDAQ in March 2000 is the most recent example) is very clear and that all end in the same way. "Our Brave New World" is a counter-argument to the counter-argument that asserts that this time truly is different and that we are not destined for a post-bubble bust. If you are not familiar with the thesis regarding the history of speculative bubbles or the thesis from the dollar-bear crowd, this book is of significantly less intellectual interest. On the other hand, if you have already read Marc Faber's "Tomorrow's Gold" or Richard Duncan's "Dollar Crisis", then this book is a perfect foil. As I have the greatest respect for the intellectual creativity behind GaveKal, I would consider the following points not a critique, but rather an open letter to GaveKal regarding points that I feel are not resolved in this book and deserve clarification. 1) The continuing expansion of free trade is a critical element in the thesis. While you acknowledge recent protectionist measures, you see these as temporary blips on the radar rather than the emergence of a trend. Perhaps some research evidence is required here. Marc Faber, whom you quote more than once, offers sophisticated arguments why protectionism can rise. 2) Many of the financial data graphs date back only to 1960 or 1980. To some thinkers, this may represent as little as one "long wave" economic cycle. What does the inclusion of data back to 1900 do to muddle the main thesis if at all? 3) The assertion is made that housing is not currently in a bubble as evidenced by its lack of acceleration compared to zero-coupon bonds. This would seem to imply, without data or argument, that zero coupons are not in a bubble. Furthermore, you compare housing against GDP. What happens when it is compared against a proxy for Net Domestic Product? 4) A distinction is made between bubbles of productive and non-productive assets. However, only a few examples from history are placed into these categories. What about the examples of US equities in 1929 and 1971? 5) Regarding US asset prices, it is argued that US dollars should naturally flow towards US assets as they begin to appear incredibly cheap and that this will be supportive of US asset prices. However, as the recent failed acquisitions of Unocal and Noranda show, politics can trump economics, which returns to the assumption (hope?) of continued expansion of free trade. 6) The VIX is presented as evidence of reduced volatility of earnings. However, my understanding is that your thesis is a decade or multiple-decade trend while the collapse of the VIX is a recent two year trend. Has the trend really asserted itself so rapidly? 7) The reduction of tax revenue is cited as a reason for the eventual reduction of government. Since this is the same reason used to argue for the eventual rise of inflation, some elaboration may be required here. 8) Regarding the criteria for a deflationary bust, an argument can be made that the US is already satisfying at least three out of the five criteria listed. Perhaps elaboration is required here as well to explain why these are not so or are expected to be fleeting.
43 of 44 people found the following review helpful:
5.0 out of 5 stars
The author answers the questions below,
By
This review is from: Our Brave New World (Paperback)
Please discount the five star rating-since i wrote the book, I am obviously biased!
I first want to thank Dave and Orson for their kind and generous reviews, and their complimentary words about our research. And now, to answer Orson's points: 1) On protectionism: it is very true that the entire "platform company" concept relies on free trade. Should protectionism carry the day, then obviously we would live in a very different world in which nearly everyone would be a loser. But who would be the bigger losers? The Asian or Eastern European manufacturers? Or the platform companies able to expand, or shrink, their balance sheets as business requires? Even in a protectionist world, it is likely that the platform company model will manage to thrive; granted, not as much as in a free trade world. But platform companies will still do OK. meanwhile, emerging market manufacturers, and western consumers/voters, will be the biggest losers. 2) Why does the data we use only go back to 1980 or 1960? For most data series, we do not have reliable History going back to the 1900s... so we need to use what we have. But even beyond that, we are not fussed about using data starting in 1980 for the whole premise to book is to show that, starting around the mid 1990s, something changed in the structure of our economies. Our starting point is, very immodestly, the end of Alfin Toffler's book called The Third Wave. Alvin Toffler described three types of societies, based on the concept of 'waves' - where each wave pushes the older societies and cultures aside. The `First Wave' was the society that followed the agrarian revolution and replaced the first hunter-gatherer cultures. The `Second Wave' was based on industrial mass production, mass distribution, mass consumption, mass education, mass media, mass recreation, mass entertainment, and weapons of mass destruction. The `Third Wave' is the post-industrial society. Today, all the above seems pretty evident. But what is quite impressive is that Toffler wrote Future Shock in 1970 and The Third Wave in 1980. What is depressing, however, is that economics has yet to adjust to the world of the third wave. Indeed, wherever you care to look, economists are talking about industrial production numbers, inventory levels, trade balances ... When all these measures, for third wave economies, are increasingly becoming irrelevant. In a sense, economists today are the mirror image of the very first economists: the physiocrats. Back in the late XVIIIth century, the physiocrats (Quesnay, Dupont de Nemours ...) explained how value-added could only come from agriculture (you planted a seed, and got a plant). They were `first-wave' economists completely blind to the entire economic re-organisation of the industrial revolution taking off in front of their eyes. They could easily see that agriculture created value, but could not see that the value created by industry would dwarf that of agriculture. Today, as the physiocrats before them, too many market participants are stuck in previous-wave thinking mode and miss the current social and economic revolution. As Toffler had predicted, successful companies no longer operate on the business models used a generation ago. Relationships between countries have evolved. Social structures are transforming themselves at a rapid pace. In short, the world has changed. So shouldn't our way of analysing it evolve as well? Why should we shy away from exclaiming that `things are different this time'? And if so, is data from the early XXth century, second wave economies that relevant? 3) On Housing: Our assertion is more that housing is a very long dated asset and that, in places like the US or the UK, housing has behaved exactly like other very long dated assets, i.e.: a twenty year zero coupon. What we show in the book is that over the past twenty years, the returns on housing and the returns on a twenty year zero have been exactly the same! So, in essence, to be bearish on housing, one needs to be massively bearish on bonds. Which we are not... 4) When we focused on bubbles, we focused on assets that reached prices that they will likely NEVER see again (i.e.: tulips in holland, railways in Britain, land in tokyo...). Equities are a more specific case since, after a while (which can be a very long while: i.e.: 1929-1954 in the US), new highs are usually reached... 5) What if the US government prevents take-overs: granted. that would be very bad news. And note that the US$ weakend during the whole month of the Unocal fiasco. 6) I think we use the Vix as one of many examples of the slowdown in volatility. But yes: we believe that in recent years, this platform company phenomenon has really picked up its pace. After all, was it not surprising to see the Vix barely move higher when Refco went bust? 7) I am not sure I get this one- I don't think we argue for the eventual rise of inflation? Our argument there is that, as more companies adopt the platform model, they will base themselves in tax havens (i.e.: hedge funds, Electronic Arts, Tyco...). This means that income tax based systems will no longer be able to take their pound of flesh from either companies or high net worth individuals. Instead, tax revenue will have to be based on a) property, and b) sales taxes. Countries such as Hk are already thinking about making this switch... 8) Very true-cyclically, a period of deflationary bust might be in the cards. But the very long term trend of capitalism remains the deflationary boom! Thanks for your input and taking the time to write a review-glad to hear you liked the book.
14 of 15 people found the following review helpful:
5.0 out of 5 stars
Highly recommended!,
By
This review is from: Our Brave New World (Paperback)
As a long-time reader of the work of GaveKal, I have found that their work has always stood out for its originality of thought and acuity of observation. This book is no exception and summarizes the thoughtful reflections of some of the brightest macroeconomists that I have encountered. I could not recommend their work more to anyone who has an interest in understanding the "tidal waves" in history and the financial markets as opposed to the day-to-day ripples.
Share your thoughts with other customers: Create your own review
|
|
Tags Customers Associate with This Product(What's this?)Click on a tag to find related items, discussions, and people.
|
Sell a Digital Version of This Book in the Kindle Store
If you are a publisher or author and hold the digital rights to a book, you can sell a digital version of it in our Kindle Store.
Learn more
