martes, 15 de julio de 2014

Book Review: Code Red

Wow, it took me long time to finish (I am reading another interesting reference simultaneously) but finally I did it.

And I have to say that this is the most interesting economic reference that I have read in the last years. I receive John Mauldin newsletter and I knew the quality and the soundness of it. Thanks to this newsletter I re-read frequently my main references in macro and micro[1][2] economics.

Therefore, Code Red is a really great reference about modern economy, full of data, references and quotes from the greatest investors ever.

The book analyses the monetary economics of the main central banks and how these are affecting global economy and specially how they should tune the investment strategies.

Red Code contains two parts. In the first part, along 9 chapters acronyms such as ZIRP, QE or LSAP (large-scale asset purchase) are introduced. They are non-conventional monetary instruments currently used by the main central banks aiming to foster exports (by currency debasement) and fostering expending economy. Eventually these politics will mean high, very high or even huge inflation, affecting seriously to the savers and starting a currency war.

The origin of this situation is the bank crises which lead to debt crises which lead to currency crises. In order to keep the interest rates and government bond yields low, central banks of the biggest economies are implementing financial repression. Unfortunately central banks lack former  records about the effectiveness of this strategies. Even worse, these actions might be hardly reversibles in a clean a fast way. In conclusion, the Japanese economy would illustrate what could be the future economy of many countries.

Having all this in mind, the second part provides very interesting insights about investment at this situation. Few and common sense rules, based on value investing are provided, excerpts from the best investors ever.

Finally, the book contains a bunch of interesting references always useful. Specially interesting the papers and books from Didier Sornette. Keep him in the radar.

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