Fri, July 08, 2011
Book Review: The $10 Trillion Gamble
iShares chief investment strategist Russ Koesterich has written an engaging, insightful book explaining the magnitude of the problem that the United States national debt presents for investors. The full title of the book is The $10 Trillion Gamble: The Coming Deficit Debacle and How To Invest Now.
One consequence of the current loud debates in Washington over raising the debt ceililng limit is that anyone with a pulse has become aware that the US has a debt problem. Koesterich begins by telling us what everybody already knows – that the federal government is drowning in debt. He explains why American politicians are unlikely to provide a real solution to the problem in the near term and then addresses an important question: if the problem isn’t going to go away, how should people begin preparing for the long-term consequences of a (current) gross federal debt of $14 trillion?
Koesterich’s argument is that we should expect higher taxes, slower economic growth, higher interest rates, and higher inflation than we have had in the last couple of decades. Not all of these things will happen at once, but he provides guidance on where and how to look for indications that these changes are actually taking place.
The book provides advice on how money should be managed in the coming environment (abbreviated version: borrow long-term at fixed rates and lend only to short-term borrowers) and how to invest in anticipation of the expected changes. Investors who are persuaded by his arguments will reduce their bond holdings somewhat, favor corporate bonds over Treasuries, allocate some of their portfolios to commodities and gold, and give greater emphasis to non-US stocks.
One real strength of the book is that it can be understood by an inexperienced investor. Koesterich provides some nice, simple explanations of a number of different types of investments, including stocks and bonds, and explains how to invest in them.
Although no one has a crystal ball, Koesterich’s observations seem sound, and anyone thinking about how to invest in light of the US debt problem should at least examine his arguments.
Disclosures: I was given a free review copy of this book. None of the investment strategies described above are intended to be used as personalized investment advice. You should be sure that any investments you make are appropriate to your own personal situation.