The book description of Aftershock: Protect Yourself and Profit in the Next Global Financial Meltdown notes: “From the authors who accurately predicted the bursting of the global bubble economy comes the definitive look at what lies ahead in 2013 and beyond.”
My reading of this book is summarized thusly: there are still more economic bubbles yet to burst and the global economy is “evolving” and not just “cycling” up and down. The authors acknowledge that it is very hard to accurately predict when this big “afterschock” will hit us. They recommend some employment and investing strategies that they say will help one better ride out the “aftershock,” although they note that one could lose some big returns if one shifts assets too early. The principal author is an economist, but he sounds very critical of economists in general.
The book was an easy read (maybe because there was so much repetition) and it appeals to the part of me that is always concerned that in my lifetime our society will become increasingly dystopian. (Could it be that I’ve read too much Margaret Atwood and Octavia Butler?) I’m wondering if true academics such as yourselves have a different opinion or general guidance on what to read to balance out the hype of this Aftershock idea.
Somewhat related: if one had a chunk of cash (such as from the sale of a home), what are the better options for saving or investing it for a short term (2 to 5 years)? I’m starting to think about what to do with the equity I’ll get when I sell my house later this year for my big move to the Bay Area, hence my unusual interest in investing and PF books. I will also be meeting with my (fee-based) financial adviser, but I like to have some ideas to discuss with him first.
Lots of economists were talking about the market crashing before it crashed. I don’t think anybody really understood the *extent* of the housing crisis, but we all knew it was unsustainable and going to crash. Ditto the earlier tech crash. We’re actually pretty good at seeing bubbles but nobody knows when exactly they’re going to pop, probably because there’s an element of chaos theory there. The bubbles in my lifetime have seemed to grow bigger than possible before inevitably popping.
With the current lack of regulation, of course there are going to be more bubbles. The system is still set up for bubbles. Government has to interfere for there to be no bubbles (as it did after the depression and again after the S&L crisis in the 1980s), but there’s a lot of money to be made in bubbles and the people with money are the people in power these days.
And yes, the US is growing increasingly dystopian. This depresses me because I grew up thinking it would get better. Two steps forward and half a step back. But income inequality has been broadening and things have been getting worse for the poor. There’s a lot of bad stuff that happens when income inequality gets bigger. Very depressing. (I voted for Al Gore, and I like to think in some parallel universe things are better. More likely though there’s a backlash in that universe and the inevitable was just delayed a couple of decades. *sigh*) One of my (libertarian) colleagues is always saying, “Bread and circuses” and forecasting the downfall of civilization. I hope he’s not right. I still have the little fairy of Hope in my heart.
So, what to do? Well, the standard advice *still applies*. Bubbles mean you need money in stocks. Bubbles popping mean you need money in bonds. We can’t predict when a bubble is going to pop or how big it’s going to get. So we diversify.
Investing for the short term is the same standard boring advice as well– if you’re going to need the money, put it someplace safe (with lower returns). Bonds, laddered CDs, etc. If you feel like gambling, put it in the stock market. (Because houses in SF are so very expensive, and it’s generally a seller’s market, plenty of folks keep that “short term” money in the stock market rather than pulling it out. When tech bubbles burst, so do housing prices in the SF bay area, so it isn’t quite as big a risk for them, but that’s a very unique market.)
Even if we go into hyperinflation, you’ll need money in stocks for the long-term. If society collapses, then probably you’ll need bullets and bottled water more than anything else. But it’s hard to say. We’re not prepared for a zombie apocalypse.