Last week, I attended the 10th annual edition of the Knowledge Bureau’s Distinguished Advisor conference, held this time in beautiful Ojai, California. I came away with two must-read book recommendations. One was a one-year old book called Transform Tomorrow: Awakening the Super Saver in Pursuit of Retirement Readiness. It was written by Stig Nybo, president of Pension Sales at Transamerica Retirement Solutions. I’ve not yet had a chance to read the whole book, but in his presentation he sounded the familiar refrain that Americans are saving nowhere near enough to fund a comfortable retirement. Half of Americans have saved less than $10,000. The average 401(k) plan holds a mere $58,991 although the figure is closer to $275,000 if you include IRAs. Nybo sees the need for a massive public awareness campaign that would encourage those still working to emulate the minority of “super savers” who consistently sock away 10 or 20% of their paycheques from the moment they land their first-time job. My own preferred term for “Super Saving” is “Guerrilla Frugality,” but it amounts to the same thing.
John Mauldin is back and taking on central bankers
The other book has probably not yet landed in book stores yet but I downloaded the Kindle edition and read it on the plane back to Toronto. It’s the latest from an author I’ve long read and respected: John Mauldin, co-authored with Jonathan Tepper. The book’s title: Code Red: How to Protect Your Savings from the Coming Crisis.
Code Red is Mauldin’s shorthand for what the world’s central banks are doing with ZIRP, QE and LSAP.
Say what? Most investors know that QE stands for Quantitative Easing, a form of money printing. Investors are also well familiar with the phenomenon of ZIRP, although perhaps not with this particular acronym. ZIRP stands for Zero Interest Rate Policy. And LSAP stands for large-scale asset purchases: programs where central banks print money to buy bonds, mortgage securities or stocks. Together, Mauldin refers to central bankers as “arsonists running the fire brigade,” (also the title of chapter five). He’s no kinder to economists, who in chapter six are dismissed in the collective as being “clueless.”
Mauldin describes all of these practices as “Code Red” policies, along with currency debasement in general. And he concludes that the inevitable result will eventually be inflation. In short, the book is about so-called Financial Repression, which just happens to be the topic of Pat Bolland’s fixed income column in the just-published Dec/Jan issue of MoneySense.
Two takes on the “Great Experiment”
I found the book to be the most useful on this topic since Anthony Boeckh’s The Great Reflation, published in 2010. Both authors refer to the modern era of QE, ZIRP et al to be an “experiment” without historical precedent, which makes the nature of the endgame hard to fathom (and its precising timing impossible to predict.) It’s clear what the central bankers are hoping for: they want us all to keep borrowing and spending and by providing negative real interest rates on cash force us into riskier asset classes: notably stocks.
So far, of course, it’s working: as I write this, the Dow has just penetrated (albeit fleetingly) its all-time high of 16,000. But of course, investors both retail and institutional are holding their collective breath, with the spectre of 2008 never far from their thoughts.
Layered on top of financial repression is a global currency war as politicians and central bankers all seek to encourage exports by making their goods and services cheaper for foreigners. The bellwether here is Japan, which in his earlier book, Endgame, Mauldin colorfully described as a “bug in search of a windshield.”
The first nine chapters set the stage, with the final three containing guidance as to how investors can manage their money through the endgame. Because the ultimate denouement is unpredictable, Mauldin and Tepper preach the traditional “protection through diversification,” even reprising the late Harry Browne’s famous “permanent portfolio” that was divided equally between stocks, bonds, cash and gold. A chapter on hedging against inflation focuses on finding stocks with “moats” that can raise prices as inflation starts to roar, and the final chapter looks at commodities, gold and other real assets. (While hardly gold bulls, they do conclude that “as long as central bankers are pursuing Code Red policies, gold will do well.”).
Mauldin provides online updates and “course corrections” here.