The Era of Uncertainty : Global Investment Strategies for Inflation, Deflation, and the Middle Ground

Macroeconomic Investment Strategies for an Era of Economic Uncertainty“Over the years, François’ insightful analyses of the business cycle has led to market calls that have both benefitted investors on the upside and (more important to many) protected them from losses on the downside. François’ incredible track record in successfully interpreting the trends that can be found in leading indicators and other macroeconomic data have also led to his well deserved reputation as an expert in sector rotation - providing investors on both the long and short side of the market opportunities to profit from his ideas. In my opinion, his most important and influential macro prediction to date was his call in the middle of the last decade when he predicted that the worst housing crisis in American history would soon be upon us, and that it would have far-ranging implications for both the global economy and world financial markets.”From the foreword by Robert Doll, Vice Chairman & CIO of Global Equities, Blackrock Advisors, LLC“François Trahan is an insightful observer and student of market forces. His research has identified key drivers of stock market performance over decades in various cycles of inflation, credit growth, and economic developments. In his new book, François tries to sort out and explain for market participants the dynamics that brought us to this point and what he sees as the future path of economic and market developments. It is an essential read for anyone participating in or interested in the stock market.”Robert Soros, Chairman, Soros Fund Management“The Era of Uncertainty is terrific. It challenges conventional Wall Street wisdom, gives investors the necessary tools to successfully navigate the new world order and has policy prescriptions to get the U.S. economy on the right track.”Consuelo Mack, Anchor & Managing Editor, Consuelo Mack WealthTrack“Valuation is not everything. An important lesson from the global financial crisis is that macro matters. In The Era of Uncertainty, François Trahan and Katharine Krantz show how macroeconomic analysis can be incorporated into the investment process and provide a road map for investing in the difficult times ahead.”Edward Chancellor, Author of Devil Take the Hindmost: A History of Financial Speculation and member of GMO's Asset Allocation team“François consistently sets a high bar for strategist and thought leaders in the markets, and I can safely say he’s done it yet again with this book. Always insightful, and willing to challenge the ‘stale’ thinking of the establishment on The Street, François' thoughts and analysis are appropriate for anyone who cares not only about markets, but the future of our world.”Jeff deGraaf, Chairman, Renaissance Macro Research, LLCWith macro forces governing the post-credit crisis world, and most likely to remain dominant for some time to come, the power of the business cycle is once again in the spotlight. In this type of environment, stock picking will have far less impact on portfolio returns than getting the "big picture" right. And using the last twenty years as a playbook will prove costly to investors.The Era of Uncertainty provides a new way of thinking about investing in a dynamic, macro-driven world. In it, François Trahan and Katherine Krantz discuss the importance of macroeconomic perspectives in an unstable global economy. They go on to cover three possible future scenarios: inflation, deflation, or the middle ground. With each scenario the authors discusses the likely causes and consequences as well as the best strategies for investing profitably.Draws on the experiences of prior credit-driven deleveraging cycles to develop a dynamic framework for investing in an era of economic uncertaintyContains insights on the future of the financial industryProvides fascinating anecdotes from Trahan's time at Bear Stearns prior to its collapse and saleIncludes interactive digital tool for users to determine investment strategies based on personal predictionsIf you intend on succeeding in today's economic environment you can't follow yesterday's investment strategies. The Era of Uncertainty reveals what it will take to make it in such a different market and how you can incorporate new strategies into your everyday investment endeavors.The book comes with an interactive digital tool allowing users to make their own predictions about the economic future and receive asset allocation and sector allocation advice. Macroeconomic Investment Strategies for an Era of Economic Uncertainty Over the years, Franois insightful analyses of the business cycle has led to market calls that have both benefitted investors on the upside and (more important to many) protected them from losses on the downside. Franois incredible track record in successfully interpreting the trends that can be found in leading indicators and other macroeconomic data have also led to his well deserved reputation as an expert in sector rotation - providing investors on both the long and short side of the market opportunities to profit from his ideas. In my opinion, his most important and influential macro prediction to date was his call in the middle of the last decade when he predicted that the worst housing crisis in American history would soon be upon us, and that it would have far-ranging implications for both the global economy and world financial markets. From the foreword by Robert Doll , Vice Chairman & CIO of Global Equities, Blackrock Advisors, LLC Franois Trahan is an insightful observer and student of market forces. His research has identified key drivers of stock market performance over decades in various cycles of inflation, credit growth, and economic developments.In his new book, Franois tries to sort out and explain for market participants the dynamics that brought us to this point and what he sees as the future path of economic and market developments. It is an essential read for anyone participating in or interested in the stock market. Robert Soros , Chairman, Soros Fund Management The Era of Uncertainty is terrific. It challenges conventionalWall Street wisdom, gives investors the necessary tools to successfully navigate the new world order and has policy prescriptions to get the U.S. economy on the right track. Consuelo Mack , Anchor & Managing Editor, Consuelo Mack WealthTrack Valuation is not everything. An important lesson from the global financial crisis is that macro matters. In The Era of Uncertainty , Franois Trahan and Katharine Krantz show how macroeconomic analysis can be incorporated into the investment process and provide a road map for investing in the difficult times ahead. Edward Chancellor , Author of Devil Take the Hindmost: A History of Financial Speculation and member of GMO's Asset Allocation team Franois consistently sets a high bar for strategist and thought leaders in the markets, and I can safely say hes done it yet again with this book. Always insightful, and willing to challenge the stale thinking of the establishment on The Street, Franois' thoughts and analysis are appropriate for anyone who cares not only about markets, but the future of our world. Jeff deGraaf , Chairman, Renaissance Macro Research, LLC With macro forces governing the post-credit crisis world, and most likely to remain dominant for some time to come, the power of the business cycle is once again in the spotlight. In this type of environment, stock picking will have far less impact on portfolio returns than getting the "big picture" right. And using the last twenty years as a playbook will prove costly to investors. The Era of Uncertainty provides a new way of thinking about investing in a dynamic, macro-driven world. In it, Franois Trahan and Katherine Krantzdiscuss the importance of macroeconomic perspectives in an unstable global economy. They goon to cover three possible future scenarios: inflation, deflation, orthe middle ground.With each scenario the authorsdiscusses the likelycauses and consequences as well as the best strategies for investing profitably. If you intend on succeeding in today's economic environment you can't follow yesterday's investment strategies. The Era of Unce rtainty reveals what it will take to make it in such a different market and how you can incorporate new strategies into your everyday investment endeavors. The book comes with an interactive digital tool allowing users to make their own predictions about the economic future and receive asset allocation and sector allocation advice. The Era of Uncertainty: Global Investment Strategies for Inflation, Deflation, and the Middle Ground 5 Contents 9 Foreword 15 Preface 19 Acknowledgments 23 Part I: Why "Macro Matters" 27 Chapter 1: What Is Macro, and Why Should Investors Care? 29 Macro Explains More Than 70 Percent of Equity Returns 31 Macro's Role In Bubble-Mania 33 Chapter Summary 40 Chapter 2: The Ever-Changing Macro Landscape 43 Macro in the Age of Globalization 43 The Increasing Role of Macro In the Years Ahead 48 Learning From Macro-Driven Markets of the past 54 Chapter Summary 59 Chapter 3: Harnessing the Power of the Business Cycle in Investing 61 Macro Is The Bedrock of Successful Investing 63 Chapter Summary 68 Chapter 4: The Pitfalls of Ignoring Macro Influences: Accidental Success 69 Macro Lessons Are Learned through Experience 70 Chapter Summary 74 Part II: The Roots of the New Era of Uncertainty: The Credit Crisis 75 Chapter 5: A View From the Front Lines 77 The Bubble Intensifies 81 Slaying of the Bear 83 Chapter Summary 84 Chapter 6: In the Weeds 87 The Fog of War 88 The Bubble Was Predictable! 93 And the End Was Foreseeable . . . Macro Could Have Helped 97 Chapter Summary 102 Part III: Current Policies Are Leading Us Down an Unsustainable Path 105 Chapter 7: No More Tools In the Toolbox 107 A Breakdown In the Traditional Economic Model of the United States 109 It's All About the Consumer! 111 Exports Are Not Enough 115 Chapter Summary 119 Chapter 8: The Government's Un-Safety Net 121 Inflation Enters the Picture 123 Spinning Our Wheels 124 Nowhere Fast 127 Chapter Summary 129 Chapter 9: Kicking The Can Down the Road 131 QE Was An Experiment 131 We're All Keynesians Now...Unfortunately? 134 Uncertainty Kills Growth 137 The State and Local Time Bomb 140 The Privatization Option 144 No Short-Term Fixes 146 Chapter Summary 148 Chapter 10: Threats to Righting the Path of Policy 151 Mobility Threatens Austerity 151 Inequality and Protectionism 154 Business Cycle Trends Could Exacerbate the Policy Conundrum 156 Chapter Summary 157 Part IV: Investing for An Uncertain Future 159 Chapter 11: A Closer Look at Inflation 161 Anatomy of Inflation in the United States 162 The Consumer IS Exposed to Food and Energy 166 Policies to Avoid Deflation Often Lead to Inflation 168 Pushing On A String 173 Inflation has Social and Political Consequences 176 Market Indications of Inflation 179 Chapter Summary 182 Chapter 12: Strategies for Investing in Inflationary and Deflationary Environments 185 Conventional Wisdom—Hedging for Higher Inflation 186 Making the Turn—Hedging for Slower Growth 191 Policy Responses Bring About Extremes 196 Disinflation Versus Deflation 197 Mild Deflation Versus Deflationary Spiral 199 Fixed Income Is a Deflationary Safe Haven 203 The Middle Ground 204 Goldilocks in the Emerging Markets 206 Chapter Summary 207 Part V: Unintended Consequences and Creative Solutions 209 Chapter 13: Unintended Consequences 213 QE = WMD? 213 Chapter Summary 219 Chapter 14: Creative Alternatives for the Future 221 The War on the Deficit 222 Chapter Summary 228 Epilogue: The Financial Services Industry in the Era of Uncertainty 231 Notes 233 About the Authors 241 About the Digital Companion 243 Index 245

Praise for THE ERA of UNCERTAINTY

"François Trahan is an insightful observer and student of market forces. His research has identified key drivers of stock market performance over decades in various cycles of inflation, credit growth, and economic developments. In his new book, François tries to sort out and explain for market participants the dynamics that brought us to this point and what he sees as the future path of economic and market developments. It is an essential read for anyone participating in or interested in the stock market."
—ROBERT SOROS, Deputy Chairman, Soros Fund Management

"François consistently sets a high bar for strategists and thought leaders in the markets, and I can safely say he's done it yet again with this book. Always insightful and willing to challenge the 'stale' thinking of the establishment on The Street, François's thoughts and analysis are appropriate for anyone who cares not only about markets, but the future of our world."
—JEFF deGRAFF, Chairman, Renaissance Macro Research, LLC

"The Era of Uncertainty is terrific. It challenges conventional Wall Street wisdom, gives investors the necessary tools to successfully navigate the new world order, and has policy prescriptions to get the U.S. economy on the right track."
—CONSUELO MACK, Anchor and Managing Editor, Consuelo Mack WealthTrack

"Valuation is not everything. An important lesson from the global financial crisis is that macro matters. In The Era of Uncertainty, François Trahan and Katharine Krantz show how macroeconomic analysis can be incorporated into the investment process and provide a road map for investing in the difficult times ahead."
—EDWARD CHANCELLOR, author of Devil Take the Hindmost: A History of Financial Speculation and member of the asset allocation team, GMO LLC

"Macroeconomic investment strategies for an era of economic uncertaintyWith macro forces governing the post-credit crisis world, and most likely to remain dominant for some time to come, the power of the business cycle is once again in the spotlight. In this type of environment, stock picking will have far less impact on portfolio returns than getting the "big picture" right. And using the last twenty years as a playbook will prove costly to investors. The Era of Uncertainty provides a new way of thinking about investing in a dynamic, macro-driven world. In it, François Trahan discusses the importance of macroeconomic evaluation in an unstable global economy, and goes on to cover three possible future scenarios: severe inflation, severe deflation, or a kind of muddling through. With each scenario he discusses the likely causes and consequences as well as the best strategies for profitable investment. Draws on the experiences of prior credit-driven deleveraging cycles to develop a dynamic framework for investing in an era of economic uncertainty. Contains insights on the future of the financial industry. Provides fascinating anecdotes from Trahan's time at Bear Stearns prior to its collapse and sale. If you intend on succeeding in today's economic environment you can't follow yesterday's investment strategies. The Era of Uncertainty reveals what it will take to make it in such a different market and how you can incorporate new strategies into your everyday investment endeavors"-- Provided by publisher Macroeconomic Investment Strategies For An Era Of Economic Uncertainty “over The Years, François’ Insightful Analyses Of The Business Cycle Has Led To Market Calls That Have Both Benefitted Investors On The Upside And (more Important To Many) Protected Them From Losses On The Downside. François’ Incredible Track Record In Successfully Interpreting The Trends That Can Be Found In Leading Indicators And Other Macroeconomic Data Have Also Led To His Well Deserved Reputation As An Expert In Sector Rotation - Providing Investors On Both The Long And Short Side Of The Market Opportunities To Profit From His Ideas. In My Opinion, His Most Important And Influential Macro Prediction To Date Was His Call In The Middle Of The Last Decade When He Predicted That The Worst Housing Crisis In American History Would Soon Be Upon Us, And That It Would Have Far-ranging Implications For Both The Global Economy And World Financial Markets.”