Ruly Bookshelf: Aftershock

When I am learning about something new, I like to read broadly from a variety of opinions before forming my own. In my investor educational activities, I came across this offer from Newsmax to get a copy of a book called Aftershock for just the cost of shipping (about $5) plus 3 free 3-month subscriptions to their newsletters. (It looks like they have now changed the offer to cost $47, but refundable.) The advertising surrounding the book is pretty slick and definitely makes you fearful. The authors of Aftershock (David and Robert Wedemer and Cindy Spitzer) apparently gained a lot of credibility because their economic model predicted the fall of the housing market.

Note: Apparently there are 2 books out there that are both called Aftershock. (This is one of those interesting examples of one of the exceptions to copyright law that there is no copyright in book titles.) One is by former Secretary of Labor Robert Reich and is subtitled: “The Next Economy and America’s Future.” The one I purchased is by economist David Wiedemer, Robert Wiedemer and Cindy Spitzer and is subtitled: “Protect Yourself and Profit in the Next Global Financial Meltdown.”

So the book arrived and I put it on my bedside table. For weeks, it just sat there and it made me nervous to even think about it. Sometimes I would lie awake at night and worry about what would happen to us if there really was another economic event of the magnitude of the Great Depression. As the book continued to sit there, my nervousness went away and I kind of forgot about it. When this month’s Ruly theme came around, though, I set a goal for myself to actually read the book and figure out what, if anything I needed to do about it.

First – a 30-second summary of the book:

Pages 1 – 150 – a review of economic theory and factors driving our current economy, such as deficit spending, quantitative easing, etc. and the authors’ predictions and interpretations about what is likely to come as a result of this
Pages 153 – 230 – generalized investing and job advice about what to do to if the authors’ predictions are correct
Pages 231- 289 – the authors’ view of what is wrong with the economics profession and why we don’t get better economic predictions, the authors’ response to criticism about their work and an epilogue about factors influencing the markets

I won’t go into the authors’ specific investing recommendations since that is the reason why they want you to buy the book. I will say that my own take on them is that if you just skipped the first part of the book discussing economic theory and went right to the investing recommendations, you are probably going to take away an over-simplified view and you could end up making some very bad decisions. The authors pitch their financial consulting services in the book and for some of these strategies you probably don’t want to make them without getting some professional advice. Also, the authors recommend some strategies that are probably too risky for most of us. After all, you have to maintain your skepticism, pause and think, “What if I do all of this and the authors are wrong?”

So while there are some things in this book that I definitely won’t be doing, I have to say that the information has given me pause. Their argument is pretty convincing. In my dream world, we would hand a copy of this book to every member of Congress and lock them in the Capitol for a giant read-athon.

For example, based on the information from this book, I created the chart below of options to finance the U.S. government.

As you can see, we have pretty much taken off the table half of our options to avoid a crisis, simply because no one wants to give up anything. So we are proceeding with two other options that aren’t as helpful and possibly harmful. Real change, however, would likely mean that we balance the budget, pay down the debt, raise taxes AND cut benefits. Nobody gets any deals or special treatment. It is all just shared pain. You either pay more or get less. Nobody wants this, of course, but when you see what these authors model as the alternative, this stinginess sounds far better.

For example, here is another simple chart I made illustrating the authors’ points just on the impact of quantitative easing:

Since, unfortunately, it is unlikely that we can get everyone to agree to compromises on taxes or spending, we start heading down this economically destructive path.

There were many wonderful quotes from this book, including several on the psychology of wealth management:

“Change is threatening, inaction equals safety, and comfort comes from avoiding any changes that might threaten the benefits of the status quo. “

“The psychological advantage of [imagined Armageddon] is the opportunity to feel like passive victims in order to avoid the discomfort of having to make real decisions that bring about real change.”

“[P]lease don’t focus so much on your wallet that you forget what really makes life so worthwhile. . . [R]emember, the potential for happiness is actually always available to us because it comes, not from money or from things, but from other people. We need to remember this when money is flowing in our lives, and even more so when it is not.”

“Today, good judgment and taking risks are critical to making money and will be even more so in the future. In fact, good judgment and taking risks will be critical to simply holding onto your money in the future.”

“The combination of the demand to get . . . and the rewards of the good life . . . has been a one-two punch to creative . . . thought.” (referring to economists but I thought it should be edited to be applicable to us all!)

“[I]f your head says, ‘This book makes sense’ but your heart says, ‘I want my bubble back!’ then take a few deep breaths or have a few stiff drinks or take a nap but, whatever it takes, get over it and get on with your new life in the new economy.”

–David Wiedemer, Robert A. Wiedemer and Cindy Spitzer, excerpts from Aftershock: Protect Yourself and Profit in the Next Global Financial Meltdown

I’ll have to add this book to the growing list of professionals (Suze Orman and Peter Walsh among them) who are telling us that things have radically changed. We may be feeling a little of this change now but these professionals seem to be telling us that more is to come!

Perhaps it is time for that nap . . . .

I would encourage anyone to read this book, particularly if you feel like you have no idea what is going on in the world economy anymore. There is a lot of complexity there but this has been the best source I have seen so far at boiling it down to relatively simple explanations. Also, the authors make a good case that we are at a point in economic history that we have never really seen before and it is helpful to understand why.

While I certainly hope for intervening events that alter these authors’ predictions, this is an important book for all of us to be aware of.

How do you react to fearful economic news? Would you rather know what could be coming or just let it hit you by surprise? Please share in the comments.

Other than being a customer, I have no affiliation with Newsmax or the authors of Aftershock.