Code red how to protect your savings from the coming crisis

CODE RED CODE RED How to Protect Your Savings from the Coming Crisis JOHN MAULDIN and JONATHAN TEPPER Cover image: © iStockphoto.com/trigga Cover design: Wiley Copyright © 2014 by John Mauldin and Jonathan Tepper All rights reserved Published by John Wiley & Sons, Inc., Hoboken, New Jersey Published simultaneously in Canada No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate percopy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600, or on the Web at www.copyright.com Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 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Care Department within the United States at (800) 762-2974, outside the United States at (317) 572-3993 or fax (317) 572-4002 Wiley publishes in a variety of print and electronic formats and by print-on-demand Some material included with standard print versions of this book may not be included in e-books or in print-ondemand If this book refers to media such as a CD or DVD that is not included in the version you purchased, you may download this material at http://booksupport.wiley.com For more information about Wiley products, visit www.wiley.com Library of Congress Cataloging-in-Publication Data: Mauldin, John Code red : how to protect your savings from the coming crisis / John Mauldin and Jonathan Tepper pages cm Includes bibliographical references and index ISBN 978-1-118-78372-6 (cloth)—ISBN 978-1-118-78363-4 (ebk)— ISBN 978-1-118-78373-3 (ebk) Money—United States Saving and investment—United States Currency crises—United States Financial crises—United States I Tepper, Jonathan, 1976- II Title HG540.M38 2014 332.024—dc23 2013035536 Printed in the United States of America 10 This book is dedicated to our mothers Mildred Duke Mauldin (1917–and still going) No matter what life throws at her, she perseveres with grace and a smile One can grow up with no greater example of the importance of showing up no matter what She makes life better for everyone who has ever known her Mary Prevatt Tepper (1945–2012) She was a wonderful mother and a saint who helped thousands of poor and needy through Betel International This debilitating spiral has spurred our government to take massive action In poker terms, the Treasury and the Fed have gone “all in.” Economic medicine that was previously meted out by the cupful has recently been dispensed by the barrel These once-unthinkable dosages will almost certainly bring on unwelcome aftereffects Their precise nature is anyone’s guess, though one likely consequence is an onslaught of inflation Moreover, major industries have become dependent on Federal assistance, and they will be followed by cities and states bearing mind-boggling requests Weaning these entities from the public teat will be a political challenge They won’t leave willingly —Warren Buffett Berkshire Hathaway 2008 Letter to Shareholders Contents Acknowledgments Introduction: Code Red ix Part I Chapter One: Chapter Two: The Great Experiment Twentieth-Century Currency Wars: The Barbarous Relic and Bretton Woods Chapter Three: The Japanese Tsunami: Starting a Currency War Chapter Four: A World of Financial Repression Chapter Five: Arsonists Running the Fire Brigade Chapter Six: Economists Are Clueless Chapter Seven: Escape Velocity Chapter Eight: What Will Happen When It All Goes Wrong Chapter Nine: Easy Money Will Lead to Bubbles and How to Profit from Them vii 11 13 33 57 91 117 133 171 201 221 viii contents Part II: Managing Your Money 251 Chapter Ten: Protection through Diversification Chapter Eleven: How to Protect Yourself against Inflation Chapter Twelve: A Look at Commodities, Gold, and Other Real Assets 301 Conclusion Afterword Notes About the Authors Index 319 325 341 343 345 253 271 Acknowledgments W e would gratefully like to acknowledge those who have helped us throughout the writing of this book David Zervos provided the title of the book through his many humorous and insightful market commentaries Our agent, Sam Hiyate at the Rights Factory, helped make this book happen Our friends and reviewers of early drafts provided invaluable criticism Charlie and Lisa Sweet of Mauldin Economics provided aggressive editing, which was needed Evan Burton at Wiley helped bring this book to publication and into your hands Jonathan Tepper would like to thank his colleagues at Variant Perception, who provided many ideas and useful advice Keir McGuinness and Jack Kirkland contributed their vast knowledge and deep insights to the chapter on commodities, gold, and real assets Ziv Gil and Zvi Limon of Rimon Funds provided comments and criticisms and many interesting conversations and great times in Tel Aviv John Mauldin would like to thank his colleagues at Mauldin Economics for their support and insight, and especially Worth Wray His business partner, Jon Sundt at Altegris Investments, has been patient There are many people whose ideas have been foundational ix x ac k nowle dg m e nt s in my thinking but I would especially like to thank my friends Rob Arnott, Martin Barnes, Kyle Bass, Jim Bianco, Ian Brenner, Art Cashin, Bill Dunkelberg, Philippa Dunne, Albert Edwards, Mohammed El-Erian Niall Ferguson, George Friedman, Lewis and Charles Gave, Dylan Grice, Newt Gingrich, Richard Howard, Ben Hunt, Lacy Hunt, John Hussman, Niels Jensen, Anatole Kaletsky,Vitaly Katsenelson David Kotok, Michael Lewitt, Paul McCulley, Joan McCullough, Christian Menegatti, David McWilliams, Gary North, Barry Ritholtz, Nouriel Roubini, Tony Sagami, Kiron Sarkar, Gary Shilling, Dan Stelter, Grant Williams, Rich Yamarone, and scores of other writers and thinkers who have all been influential in my thinking Let me finally say that finishing this book would not have been possible before the end of the decade without the work and continual prodding of Jonathan Tepper He is the best co-author any writer could have, especially one that is already overcommitted Any faults and omissions from the book, and we are sure there are many, are exclusively our own Introduction: Code Red W hen Lehman Brothers went bankrupt and AIG was taken over by the U.S government in the fall of 2008, the world almost came to an end Over the next few weeks, stock markets went into free fall as trillions of dollars of wealth were wiped out However, even more disturbing were the real-world effects on trade and businesses A strange silence descended on the hubs of global commerce As international trade froze, ships stood empty near ports around the world because banks would no longer issue letters of credit Factories shut as millions of workers were laid off as commercial paper and money market funds used to pay wages froze Major banks in the United States and the United Kingdom were literally hours away from shutting down and ATMs were on the verge of running out of cash Bank stopped issuing letters of credit to former trusted partners worldwide The interbank market simply froze, as no one knew who was bankrupt and who wasn’t Banks could look at their own balance sheets and see how bad things were and knew that their counterparties were also loaded up with too much bad debt The world was threatened with a big deflationary collapse A crisis that big only comes around twice a century Families and governments Code Red: How to Protect Your Savings from the Coming Crisis John Mauldin and Jonathan Tepper Published by John Wiley & Sons, Inc Copyright © 2014 by John Mauldin and Jonathan Tepper All rights reserved 340 a f te rword about the likelihood of a difficult environment in the near future, I am actually quite optimistic My optimism is for the overall human endeavor, based on how our individual desires for a better life for ourselves and our children translate into a better future for all of us In trading terms, you might say that I am long on humanity but short government The future potential of biotechnology, robotics and automation, artificial intelligence, communications, nanotechnology, global trade, new forms of energy, and a whole list of new services and inventions that will transform our lives and those of our children and grandchildren is simply overwhelming once you really begin to dive deep into the possibilities At the end of the day, I think all of that positive development will overwhelm the shortsightedness of governments and central banks But getting to the other side of the Code Red environment will require more than the same-old same-old approach to business and investing You’ve taken the first step toward understanding what we are facing by simply reading this book and trying to put together a plan for yourself Jonathan and I will continue to provide updates and course corrections at www.thecoderedbook.com We look forward to learning what the future holds for us and sharing the experience with you Notes Chapter www.theglobeandmail.com/report-on-business/economy/economylab/japans-demographics-of-doom-trump-market-stimulating-tricks/ article12092365/ www.r itholtz.com/blog/2013/05/it-takes-a-reg ime-shift/?utm_ source=feedburner&utm_medium=email&utm_campaign=Feed%3A+The BigPicture+%28The+Big+Picture%29 Chapter As Lacey Hunt of Hoisington Investment Management has pointed out, there are numerous studies that show that government debt slows down growth: (1) In Government Size and Growth: A Survey and Interpretation of the Evidence, Swedish economists Andreas Bergh and Magnus Henrekson find a “significant negative correlation” between size of government and economic growth Specifically, “an increase in government size by 10 percentage points 341 Code Red: How to Protect Your Savings from the Coming Crisis John Mauldin and Jonathan Tepper Published by John Wiley & Sons, Inc Copyright © 2014 by John Mauldin and Jonathan Tepper All rights reserved 342 notes is associated with a 0.5% to 1% lower annual growth rate.” (Journal of Economic Surveys, April 2011) (2) In The Impact of High and Growing Government Debt on Economic Growth, An Empirical Investigation for The Euro Area, Cristina Checherita and Philipp Rother find that a government debt-to-GDP ratio above the turning point of 90 to 100 percent has a “deleterious” impact on long-term growth Additionally, the impact of debt on growth is nonlinear This means that as the government debt rises to higher and higher levels, the adverse growth consequences accelerate (European Central Bank, Working Paper 1237, August 2010) (3) In The Real Effects of Debt, Stephen G Cecchetti, M S Mohanty, and Fabrizio Zampolli determine that “beyond a certain level, debt is bad for growth For government debt, the number is about 85% of GDP.” (Bank for International Settlements (BIS), Basel, Switzerland, September, 2011) www.popmodal.com/video/2066/Vintage-pro-inflation-propaganda Chapter www.bwater.com/Uploads/FileManager/research/deleveraging/an-indepth-look-at-deleveragings ray-dalio-bridgewater.pdf Chapter www.treasurydirect.gov/govt/rates/pd/avg/avg.htm Chapter 10 www.businessinsider.com/ray-dalio-average-investor-portfolio-2012-9# ixzz2YZ2FZHQe www.moneynews.com/InvestingAnalysis/Dalbar-Harvey-individual -investors/2013/03/11/id/494045 Cliff Asness, Where the Wild Things Aren’t About the Authors JOHN MAULDIN is the president of Mauldin Economics, a research and publishing firm; president of Millennium Wave Investments, an investment advisory firm registered with multiple states; and a registered representative of Millennium Wave Securities, a FINRA-registered broker-dealer Each week, over a million readers on multiple outlets turn to John Mauldin to better understand Wall Street, global markets, and the drivers of the world economy John is a renowned financial expert, a New York Times best-selling author, a pioneering online commentator, and the publisher of one of the first publications to provide investors with free, unbiased information and guidance, Thoughts from the Frontline—one of the most widely read investment newsletters in the world He is also a sought-after contributor to numerous financial publications, as well as a regular guest on multiple television outlets His books have appeared on the New York Times business best-seller list four times He is the father of seven children, five of whom are adopted, and he is now beginning to actively collect grandchildren He is convinced that the dividends will be extravagant He lives in a high-rise in uptown Dallas, Texas, and travels the world, speaking and seeking out opportunities 343 Code Red: How to Protect Your Savings from the Coming Crisis John Mauldin and Jonathan Tepper Published by John Wiley & Sons, Inc Copyright © 2014 by John Mauldin and Jonathan Tepper All rights reserved 344 about th e auth or s JONATHAN TEPPER is the CEO of Variant Perception, a macroeconomic research group that provides economic and investment insights to hedge funds, banks, and family offices Jonathan is the co-author, with John Mauldin, of Endgame: The End of the Debt Supercycle, a book on the sovereign debt crisis Jonathan has worked as an equity analyst at SAC Capital, as a vice president in proprietary trading at Bank of America, and as a portfolio manager at Hinde Capital Jonathan is a founder of Demotix, a citizen-journalism web site and photo agency In 2012 he sold Demotix to Corbis, a Bill Gates–owned company In 2012, Jonathan was a finalist for the Wolfson Economics Prize, an open challenge for economists to find the most efficient and least disruptive way to break up the euro The prize is the second most lucrative prize for economists after the annual Nobel Prize Jonathan is a Rhodes Scholar He earned a BA with Highest Honors in History and Honors in Economics from the University of North Carolina at Chapel Hill, and an MLitt in Modern History from Oxford University Index A Abe, Shinzo, 61 Against the Gods (Bernstein), 228 All-Weather portfolio, 257–259 long-term returns of, 257 Alternative minimum tax (AMT), 274 American Tower, 246–247 Annuities, stocks, and bonds, investing in during periods of inflation, 277–282 in the 1970s, 277–278 annuities, 282 bonds, 280–281 money market funds and savings accounts, 282 stock and bond returns, 279 stocks and mutual funds, 280 Appleby, Sir Humphrey, 85 Armstrong, Scott, 141 “Arrow’s Caveat,” 142 B Bank of England (BoE), 7, 14, 25, 84, 118, 124, 129, 136, 209, 240 Bank of Japan (BoJ), 7, 13, 25, 34, 49–54, 62, 79–80 84, 118, 189, 209, 212, 240, 241, 242 See also Japan Banking Act of 1933 (Glass-Steagall Act), 125 Bankruptcy, 18 Basel III, 100 Bass, Kyle, 77, 80 345 Code Red: How to Protect Your Savings from the Coming Crisis John Mauldin and Jonathan Tepper Published by John Wiley & Sons, Inc Copyright © 2014 by John Mauldin and Jonathan Tepper All rights reserved 346 index Bernanke, Ben, 4, 5–6, 13, 14, 16, 22, 27, 29, 40, 49, 94, 99, 115, 135–136, 140–141, 152, 168, 169, 188–189, 196, 201, 202–204, 222, 223, 239 60 Minutes interview, 135, 201, 202 “Deflation: Making Sure ‘It’ Doesn’t Happen Here” (2002 speech), 188–189 “The Gold Standard, Deflation, and Financial Crisis in the Great Depression: An International Comparison” (paper), 40 Bernholz, Peter, 217 Bernstein, Peter, 228 Bianco, Jim, 326–327 Blanchflower, David, 326–327 Blinder, Alan, 118, 167, 209 “Quantitative Easing: Entrance and Exit Strategies,” 209–210 Bond market bubble, 225 Bonner, Bill, 87–88 Brazil, 48–49 Bretton Woods system, 43–46 Browne, Harry, 256–257 Bubbles, profiting from, 221–252 anatomy of bubbles and crashes, 231–234 Stage 1: Displacement, 232 Stage 2: Boom, 232–233 Stage 3: Euphoria, 233–234 Stage 4: Crisis, 234 Stage 5: Revulsion, 234 carry trades and, 240–244 excess liquidity creating, 224–227 identifying, central bankers’ record of, 238–239 investing during, 244–248 investor irrationality, 228–231, 234–238 shapes of market bubbles, 229 Buffett, Warren, 109, 244, 246, 253, 255, 263, 267, 283–285, 295, 296, 308, 314, 320–321 Buiter, Willem, 211 Burns, Arthur, 47 Bush, George H W., 158, 159 C “Calling Recessions in Real Time” (Hamilton), 158–159 Canadian housing market, 129–130 Carney, Mark, 16, 129–130 Central bankers, 6–9, 13–16, 22–23, 29, 117–132, 201–220, 331–332 cult of, 118–123 promoting failure, 123–128 promotions, 128–131 China, 182, 306, 309–313, 336, 339 “China’s Investment Boom: The Great Leap into the Unknown” (Pivot Capital), 310 Index Cialdini, Robert, 245–246 Clinton, Bill, 168, 170, 182 Coca-Cola, 309 Commodities, gold, and other real assets, 301–318 China, 309–313 commodities supercycle, 302–309 iron ore, 306–307 long-term returns, 305 gold prices, movement of, 313–318 Commodity currencies, 338 Commodity-producing companies, 283 Confirmation bias, 104 Congressional Budget Office (CBO) projections, 145–147, 160 GDP gap assumptions, 149 Consumer Price Index (CPI), 94, 103–104 Corzine, Jon, 101 Couzin, Iain, 235 Credit Suisse Global Investment Returns Yearbook 2013, 113 Currency wars, 32, 33–55, 332–333 twentieth century, 33–55 1930s, 35–40 1970s, 43–48 euro, 40–43 Japan, 49–54 today vs 1930s and 1970s, 48–49 Cyprus, 101–102, 124 347 D Dalbar, yearly study by, 260 Dalio, Ray, 193–195, 253, 257–259 The Death of Economics (Ormerod), 136 Deleveraging, 17, 193–195, 216–219 giving way to credit expansion, 216–219 Diversification, protection through, 253–269 diversified portfolio, 255–259 All-Weather portfolio, 257–259 Permanent Portfolio, 256–257 mistakes, avoiding, 259–267 borrowing money to improve returns, 266–267 home market bias, 261–263 overexposure to stocks, 264–266 overpaying of fees, 263–264 trying to time the market, 260–261 tail risks, betting on, 267–268 Dodd-Frank Act, 125 Dollar, devaluing, 29–30 Draghi, Mario, 6, 14, 16, 332 “Dual Mandate,” 27 Dunne, Philippa, 147 E Economists, 133–170 economic models, 142–147 insanity of, 151–152 loose monetary policy, 167–168 348 index Economists (continued ) making decisions in real time, 156–167 GDP estimates before and after revisions, 158 initial estimates of 1990–1991 GDP growth, 159 revised estimates of 1990–1991 GDP growth, 160 U.S real GDP growth, 157 yield curve, 161–167 optimistic projections, 148–151 return of the 1970s, 168–170 using leading indicators, 153–156 housing starts vs recessions, 156 leading, coincident, and lagging indicators, 154 turning points, 153 Efficient Market Hypothesis, 263 Efficient scale, 292–293 companies you could buy, 293 Eggertsson, Gauti, 22 Eichengreen, Barry, 38 El-Erian, Mohamed, 223 Emergency Economic Stabilization Act of 2008, 187 Endgame (Mauldin & Tepper), 6, 33, 34, 62, 95, 178, 180, 202, 267, 309 Escape velocity, 171–199 deleveraging, 193–195 economic singularity, 176–177 event horizon, 179–180 glide path, 181–182 hyperinflation, 182–193 liquidity trap, 173–176 Minsky Moment, 177–178 Euro, 40–43 European Central Bank (ECB), 7, 13, 25, 65–66, 209, 240 F Fallacy of composition, 18 Farm bills, actual vs scored cot of, 148 Farmland bubble, 224–225, 226 Federal Reserve, 2, 7, 13, 17, 20–27, 44, 47–48, 93–94, 99, 123, 125–128, 134, 138–140, 147, 151–152, 156, 168–169, 204, 201–220, 222, 242–243 balance sheet projected growth of, 24 size and composition of, 206 and quantitative easing mechanics of exit, 208–210 problems with exiting, 210–216 timing of exit, 204–205 remittances to Treasury, historical, 215 Federal Reserve Bank of New York, 161 Ferguson, Roger, 121 Fergusson, Adam, 223 Financial Crisis Inquiry Commission, 123, 126 Financial Instability Hypothesis (Minsky), 177–178 Index Financial repression, 91–116 banks, effect on, 111 historically, 95–101 QE purchases as percentage of GDP in U.S., U.K., and Japan, 99 real interest rates, 100 since 1945, 98 inflation, 103–109 and interest rates, 93–95 overpriced goods, 111–115 real returns vs interest rates, 1900–2012, 114 retirees, effect on, 109–111 taxes by another means, 101–102 consumer inflation—official vs ShadowStats, 105 Fiscal dominance, 212 Fisher, Irving, 185 Fisher, Richard, 94, 142, 229–230 France, 101 Friedman, Milton, 52–53, 196, 273–274 Future Babble (Gardner), 136 G Geithner, Tim, 121, 127, 129 Geographic monopolies, 292–293 Gibson’s Paradox, 315 Glass-Steagall Act (Banking Act of 1933), 125 Glide path, 181–182 Global Crossing, 247 Global interest rates, 2006–2013, 20 Gold bubble (1970s), 228, 231 349 Gold prices, movement of, 313–318 Gold standard, leaving/returning to, 36–39 Gorton, Gary, 302 Graham, Benjamin, 308 Graham-Leach-Bliley Act, 125 Grant, Jim, 22 Great Depression, 35–40 Great experiment, 13–32 dollar, devaluing, 29–30 inflation, 17–23 creation of, by central bankers, 19–23 quantitative easing (QE), 23–28 Great Financial Crisis of 2008, 15, 17, 126, 131, 175 Greece, 41, 42–43, 179, 262 Greenspan, Alan, 48, 119–121, 138–139, 168, 238–239 Grice, Dylan, 127, 306–307 Grillo, Beppo, 338 Gross, Bill, 102 H Hamilton, James, 158–159 Harney, Alexandra, 74–75 Harvey, Campbell, 161 Hedonics, 106 Henwood, Doug, 147 High switching costs, 291–292 examples of companies with, 292 Hilsenrath, Jon, 152 “Home Bias in International Stock Return Expectations” (Kilka & Weber), 262 350 index Home market bias, 261–263 Hot Commodities (Rogers), 302–303 Housing bubbles, 124, 228 Hunt, Lacy, 184 Hussam, Reshmaan N., 230 Hussman, John, 205–207 Hyperinflation, 175, 182–193, 217 I “The Illusion of the Perpetual Money Machine” (Sornette & Cauwels), 327–328 “An In-Depth Look at Deleveragings” (Dalio), 193–194 Inflation, 17–23, 44–45, 47, 93–95, 103–109, 172–176, 182–193, 216–219, 271–299 creation of, by central bankers, 19–23 due to deleveraging giving way to credit expansion, 216–219 growth of government spending leading to, 218 protecting against, 271–299 annuities, stocks, and bonds, 277–282 buying companies that benefit from inflation, 282–285 buying at the right time, 295–298 false moats, retirees, 275–277 stocks, building a moat around, 285–294 taxes and, 273–275 Inflation Proofing Your Investments (Browne), 256 Influence (Cialdini), 245 Intangible assets, 287–289 brands, 287 examples of companies with, 289 patents and copyrights, 287–288 regulatory approvals, 288 Interest rates, 19–23, 47–48, 93–95, 189 and velocity, 189 Ireland, 41, 101, 124, 262 J Jacks, David, 304 Japan, 34–35, 45–46, 49–54, 57–89, 101, 175, 178, 189, 230, 334–340 Abenomics, 61–62 currency wars and, 49–54 exchange rates against yen, 53 inflation spike in 1970s, 53 percentage of debt monetized by BoJ in 1930s, 51 deflation, exporting, 67–69 earthquake (2011), 58–61 “three-arrow” approach, 62–67 balance sheet, projected size of, 63 Index competing with Korea for Chinese market, 66 export overlap with neighbors, 66 negative balance of trade, 65 yen vs dollar since 1990, 64 fiscal reform, 69–74 tax revenue and expenditures, 70 future problems, 76–83 government bond issuance and interest expense, 79 modern currency war, 83–87 quantitative easing in, 189 stock market bubble (1980s), 228, 230 structural reform, 74–76 “Japan’s Silver Democracy (Harney), 74–75 Jensen, Niels, 113 Johnson, Lyndon B., 13, 44 Juncker, Jean-Claude, 5, 85 K Kahneman, Daniel, 104, 262 Keynes, John Maynard, 17, 26, 33, 117, 133, 171, 201, 271 Kindleberger, Charles, 231, 233 Kindleberger-Minsky model, 231 King, Mervyn, 14, 16, 84, 136 Kirkegaard, Jacob F., 95 Kohn, Donald, 153 Krugman, Paul, 22 Kuroda, Haruhiko, 6, 16, 49, 61 351 L Large-scale asset purchase (LSAP) programs, 27, 32, 209 Lay, Charlie, 64 Lehman Brothers, 2, 124 Leverage, 266–267 Liquidity global excess vs emerging stock market returns, 241 preference, 207 trap, 174–176 Loungani, Prakash, 134 Low-cost producer, 290–291 examples of companies, 291 M Malkiel, Burton, 263–264 Managed futures funds, 309 Manias, Panics and Crashes (Kindleberger), 231 Mantega, Guido, 48–49 Marks, Howard, 247, 253, 256, 297 Marshallian K, 225 Martin, William McChesney, MF Global, 101 Minsky, Hyman, 177–178, 205, 231 Mishkin, Frederic, 212 Monetary Regimes and Inflation (Bernholz), 217 Monetizing debt, 217–218 Money market funds and savings accounts, 282 Money, Markets & Sovereignty (Steil & Hinds), 19 352 index Money printing See Quantitative easing (QE) Morris, Charles, 139 Munger, Charlie, 247–248, 294 N Nasdaq bubble, 228, 317 National Bureau of Economic Research (NBER), 137–138 Network effect, 289–290 examples of companies with, 290 Nixon, Richard, 35, 45–46 O Obama administration, 29, 103, 129, 145, 147 Obamacare, 148, 274 Oil bubble (2007–2008), 317 Operation Twist, 99–100 Owners’ Equivalent Rent, 106 P Paradox of thrift, 17 Partridge, Lee, 260–261 Pension Benefit Guaranty Corporation, 110 Permanent Portfolio, 256–257 long-term returns of, 257 Personal consumption expenditures (PCE) deflator, 103 Personal digital assistant (PDA), 294 Pettis, Michael, 311 Phillips curve, 45 Pioneering Portfolio Management (Swensen), 264–265 Pivot Capital, 310 Portugal, 41, 43, 101 Prince, Bob, 257–258 Protectionism, 339 Q Quantitative easing (QE), 2, 23–28, 32, 201–220, 240 exiting mechanics of, 208–210 problems with, 210–216, 218–219 timing of, 204–205 “Quantitative Easing: Entrance and Exit Strategies” (Blinder), 209–210 Queen Elizabeth II, 133 R Rational Investor Paradox, 77 Reagan, Ronald, 48 Recession, 137–138, 148–151 Reinhart, Carmen, 95–97, 111–112, 179 Rentier capitalists, 275–276 Retirees, inflation and, 275–277 “Reversing Unconventional Monetary Policy: Technical and Political Considerations” (Buiter), 211 Rogers, Jim, 302–303 Rogoff, Kenneth, 95, 179 Index Romer, Christina, 29, 39, 80–82 Ross, Wilbur L Jr., 224 Rouwenhorst, Geert, 302 Russia, 179 S Sbrancia, M Belen, 95 Sedlácˇek, Tomáš, 327 See’s Candies, 284–285 Seigniorage, 44 The Signal and the Noise (Silver), 134–135 Silver, Nate, 134–135, 141 Singh, Manmohan, 192 Smartphones, 294 Smith,Vernon, 231 Social Security, 105 Solvency II directive (EU), 101 Sornette, Didier, 236–238, 327–328, 331 Soros, George, 8, 229, 232, 245, 256 S&P 500, real vs inflationadjusted growth, 281 Spain, 41, 42–43, 101, 124, 129, 179 Stock and bond returns, 279 Stocks building a moat around, 285–294 moat 1: intangible assets, 287–289 moat 2: network effect, 289–290 moat 3: low-cost producer, 290–291 353 moat 4: high switching costs, 291–292 moat 5: efficient scale, 292–293 and mutual funds, 280 Stockton, David, 140 Subbarao, Duvvuri, 49 Summers, Larry, 195 Swensen, David, 264–265 Swiss National Bank, 25 T Takahashi, Korekiyo, 50–51 Taleb, Nassim, antifragility hypothesis, 205 Tax bracket creep, 274–275 This Time Is Different (Reinhart & Rogoff), 95 Toyota, 63 Tversky, Amos, 262 U “Ultra Easy Monetary Policy and the Law of Unintended Consequences” (White), 242 V Velocity, 185, 189–193 interest rates and, 189 Vicsek, Tamás, 235 Volcker, Paul, 15, 48, 123, 206 W Walmart, 295 stock since IPO, 295 Weinberg, Carl, 71–73 354 index When Money Dies (Fergusson), 223 White, William, 242 Why Stock Markets Crash (Sornette), 236 Williams, Grant, 79 Wolf, Martin, 24, 83 Wood, Christopher, 316 Woodford, Michael, 22, 218–219 World War II, 91–93 Y Yellen, Janet, 121, 175, 239 Yield curve, 161–167 inverted, 163–165 Z Zero interest rate policy (ZIRP), 20–21, 32, 209 Zervos, David, 84 ... we will show you how to protect your savings from the bad consequences of central bank policies Let’s dive right in! 11 Code Red: How to Protect Your Savings from the Coming Crisis John Mauldin... whether we like it or not, the decisions of the Federal Reserve, the Bank of Japan (BoJ), the European Central Bank (ECB), and the 13 Code Red: How to Protect Your Savings from the Coming Crisis. . .CODE RED How to Protect Your Savings from the Coming Crisis JOHN MAULDIN and JONATHAN TEPPER Cover image: © iStockphoto.com/trigga Cover design: Wiley Copyright