Friday, August 5, 2011

The Great Reflation by Anthony Boeckh

This book is fine for this type. However, personally, I liked the book “This Time is Different by Reinhart and Rogoff, better. However, Boeckh does make some interesting points.

He first talks about the Kondratieff wave. This is a popular thing to talk about. What I have found is that a lot of people believe in it, but few agree to just where we are on this wave. The basic problem is that we know where we have been, but we do not know where we are.

I think that the best thing that this author points out is that the current reflation going on in the US is an experiment. People thought this sort of action could have save the US from the Great Depression. However, it is all theory. No one has tried it before.

He, like a lot of US analysts, feels that we are still in a secular bear market. This author does not say so, but I know that a lot of analysts feel that there will be one more downswing in the market before we start on the next secular bull market. The author provides a lot of charts going back to 1885 in the US and these are very interesting.

He talks about how prior to 1960’s, lots of stocks were bought for dividends and dividend paying stocks were more prevalent. There were gradual changes to what people thought companies should do and one of the things is that, especially after 1980, companies cut their dividends and did stock repurchases instead. This was meant as a way to provide more value to taxpaying shareholders, who would have increased capital gain. This is because capital gain is taxed less.

Personally, I do not think that this move worked out well for shareholders. I think partly this has to do with the fact that companies got into giving out stock options. Now, it seems that most of the stock repurchasing is to cover the stock options given out. Also, companies tend to repurchases stocks, not at market lows or when their stocks are undervalued. They do not seem to do the repurchasing at at good prices.

I know a lot of people talk about the current bull market in commodities. This is because of the big demand for commodities from China and India. However, Boeckh points out that huge demand increases in commodities does not lead to rising prices in the long term. He says that the evidence is overwhelmingly clear that over long periods of time supply has risen sufficiently to sustain a powerful long term inflation adjusted decline in commodity prices as a whole.

If you think back to what happened about oil prices in the 1970’s when OPEC increased prices greatly, everyone was looking for oil and they found lots of it all over the world.

Another interesting thing he talks about is a long wave in Political Values. I had not heard of this before. He says that politics go from Progressive to Cosmopolitan to Conservative to Parochial. This matches up with an economy going from Expansion to Peak to Decline to Trough. John Sterman wrote a paper on this and it is available at MIT. Paper is called “An Integrated Theory of the Economic Long Wave”.

For a 10 minute radio interview with Boeckh, see Anthony Boeckh (pronounced Beck, by the way) has an investment newsletter at Boeckh Investment Letter.

On my website is how to find this book on Amazon if you care to purchase it. See Boeckh. Also, this book review and other books I have reviewed are on my website at Book Reviews.

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