Facing Goliath: How to Triumph in the Dangerous Market Ahead
by Keith Springer
||June 15, 2011
This book explains—in plain English—how we as a nation got into the current financial dilemma, why it’s not going away anytime soon, and how to prepare for the exceedingly dangerous economic environment that lies ahead.
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Facing Goliath: How to Triumph in the Dangerous Market Ahead
A Convergence of Forces is Brewing up a Storm of Epic Proportions.
Few will see it coming. Those who are prepared will prosper, while the rest will likely endure serious financial and personal hardship. Facing Goliath sums up complex economic concepts and often-overlooked historical perspective in an engaging style and a sensible approach to impending investment challenges.
In their cross-sectional study, Reinhart and Rogoff dissect the anatomy of a financial crisis and find three common characteristics:
1. Asset market collapses are deep and prolonged. Declines in real housing prices average 35% stretched out over six years, whereas stock bear market declines average 56% over three and a half years.
Interestingly, the current crisis is atypical in that the housing and stock market declines came much faster and harder than the average. Of course, the bubble in housing prices preceding the crisis was more than three times larger than average, implying that this one is likely to have further to go.
2. The aftermath of a banking crisis generally will include large declines in output and employment. The unemployment rate rises an average of seven percentage points during the downward phase of the cycle, which lasts on average more than four years. Output (GDP) falls more than nine percent on average over roughly two years. This shows that, in general, employment is a lagging indicator.
The U.S. is pretty close to the mark in unemployment, up roughly 6% to just shy of 10%. GDP decline has been nowhere near the 9% average, at least not yet. Let us hope it doesn’t get there.
3. Finally, as mentioned earlier, government debts explode during a financial crisis, rising an average of 86% in real terms in the major post-World War II episodes. Currently, gross U.S. federal debt is up roughly 40%. This number implies that the U.S. government still has quite a bit of deficit spending to do.
Mandatory Reading for anyone nearing retirement
It was just three years ago that the financial world as we know it ended in the spectacular collapse of the real estate and banking sectors. Hundreds of billions of dollars in stock market values and home equity evaporated almost overnight, delaying indefinitely the retirement plans of many baby boomers. Yet now, after more than two years of almost uninterrupted bull market, investors appear to be letting their guard down again and are making many of the mistakes they made in the years leading up to the crash. To give an example, risk premia in junk bonds and emerging market bonds have all but disappeared--implying that investors believe that these volatile sectors are no longer risky. Easy money made available by the Federal Reserve has helped to unleash the market's animal spirits again, but is the optimism warranted?
In Facing Goliath, Keith Springer gives it to you straight. He is neither a bull nor a bear; he is a realist. There are plenty of attractive investment opportunities out there for investors willing to take a tactical approach. But those investors accustomed to growing wealthy by buying and holding have a long, hard slog in front of them. The tailwinds that pushed the market forward over the past 30 years have now reversed to create some very menacing headwinds. Unlike in 1982, the start of the last secular bull market, we are not starting from a position of high and falling interest rates and inflation; both are near 30-year lows.
Furthermore, the easy credit that characterized the period is now a thing of the past. Rather than make new loans, banks are struggling to repair their balance sheets. And consumers, given that their homes are likely underwater, have little interest in borrowing more, even at rock-bottom rates.
Using historical examples ranging from 18th century France to 1990s Japan to support his arguments, Springer sees a prolonged period of on again / off again deflation and advises his readers on how best to invest in this climate.
If you are concerned about your retirement savings, pick up a copy of Facing Goliath.
Powerful stuff! A book all investors should own - and use
I really liked this book because it was accessible, understandable, and actionable. What I liked most was Springer's truly holistic understanding of how the world works at the macro level (e.g., how demographics and geopolitics reshape economies and markets, how the US and the world ended up in so much debt, etc.) and his ability to articulate - in plain English rather than investment psychobabble - what that means for you and how you invest.
Springer makes a very strong argument that the "buy and hold" investment strategy doesn't work and then describes a new way to invest. For such a short book, it packs a whole lot of important information and concepts. As you read this book you will find yourself saying, "I wish I knew this when....".
It is clear that Springer is well informed and passionate about helping investors thrive regardless of the market environment. I wish I had this book when I started investing and I will absolutely be giving this book to my son as I teach him about investing.
Straight Talk for Chaotic Times
I found Facing Goliath a refreshing dose of straight talk and enormously helpful in making sense of our chaotic economy. When I was younger, the U.S. economy seemed like a dependable machine that just chugged dependably along. I didn't give it much thought. I had a job, some savings and not much else to lose. But after a decade of catastrophes, crashes, bailouts and layoffs, I find myself ten years closer to retirement (or not!) and far more attuned to the news that rolls in day after day. But what to make of it all? Who to believe? The cheerleaders with rosy prospects? The doom & gloomers forecasting the end of times? Keith Springer lays our current situation out in a way that's clear, reasoned, well-sourced, historically observant and completely engrossing.
It's often noted that Americans have short memories--though that's probably true of people in general. So beginning Facing Goliath with a bit of historical context was a great way to introduce economic concepts that are relevant today. At what point does debt become unsustainable? Can government stimulus accomplish anything lasting and constructive? What effect does a shrinking, aging population have on supply and demand? So many important questions! And yet most pundits seem to focus on a select few (namely debt) and blithely ignore the rest. By the time Springer transitions into his prescription for investing in this crazy environment, it all begins to click into place. At a time when hysteria and hype rule the airwaves, I'll receive such circumspect, insightful advice most gladly indeed.
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