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FNArena Book Review: Debt, Defaults, Disinflation & Demographics

Book Reviews | Jun 16 2016

By Rudi Filapek-Vandyck

As the old Danish proverb goes, making predictions is really difficult, in particular about the future. Not only does one need to get all major factors and impacts properly lined up, and accurately assessed, next comes that prickly and fluid matter called timing. It's no good to be too far ahead of actual events as anyone inside the financial industry will confirm.

Hedge fund manager Craig Ferguson has made a brazen attempt with "Debt, Defaults, Disinflation & Demographics". The book's subtitle "How to survive and prosper during the market meltdown of 2016-2017" leaves no mystery about content and goal. This is a dissertation about all the world's evils; all the things that are wrong, that can go wrong and that surely will go wrong in the author's view. When the day of reckoning comes, there will be carnage first, followed up by a golden opportunity for those investors who are savvy and prepared.

Ferguson promises: "Rather than simply being doomsayers, we intend to pen another book in 2017– 2018, to take advantage of the expected undervaluation of global assets and economies that will occur as a result of the next recessionary phase. As such, we like to be contrarians, in both boom and bear cycles."

As far as the evils are concerned, every investor worth his salt should be intimately familiar with them by now: debt addiction, mal-investment and diminishing returns, extreme central bank stimulus, changing demographics, disappointing global growth. At some point, so goes the prediction, today's house of cards, otherwise known as the global economy, will succumb to the piling pressure and asset prices will respond as they always do, to the downside.

Now for the timing. This book was written in 2015. Arguably, from mid-2015 onwards until mid-February this year, it appeared Ferguson's prediction was 100% spot on, but since the Federal Reserve allowed financial markets to loosen up, things are looking a lot less tight. A whole lot less tight.

The big question then becomes: Is this it? Has the Federal Reserve all but rendered Ferguson's prediction of a major bear market this year, or next, as inaccurate? Time will tell, of course. Maybe investors shouldn't solely focus on whether there will be a bear market, and when, but equally so on the many flaws and weaknesses that are intertwined with today's economic and financial reality. These may not culminate into the predicted Grand Bear Market sell-off, but they are likely to impact on asset valuations, prices and investment returns nevertheless.

As Ferguson writes: "Our strong sense is that the bull cycle that started in 2009, now nearly 7 years old, is slowly maturing. The time to make major asset allocation changes, whether you are a small investor or a major pension fund investor, is now, during 2015, in advance of the turmoil. We are clear that we expect shares, property and other growth assets to fall by 30– 50% in the coming 2 years. Commodities will fall by more than that, and currencies will fall by a fraction less. Either way, some major opportunities are there for the picking. We strongly advise our readers to think outside of the square, challenge consensus, be contrarian, and think for themselves, logically and sensibly. If they do, that is the path not just to profit but importantly to capital preservation in the turbulent years that lie ahead of us."

Ferguson, Craig. "Debt, Defaults, Disinflation & Demographics: How to survive and prosper during the market meltdown of 2016-2017". Available in print as well as in eBook.

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