Friday, December 3, 2010

Shaffer, Profiting in Economic Storms

So you woke up feeling pretty good this morning? Well, Daniel S. Shaffer is out to ruin your mood. In Profiting in Economic Storms: A Historic Guide to Surviving Depression, Deflation, Hyperinflation, and Market Bubbles (Wiley, 2010) he foresees a deflationary depression coming between 2012 and 2014. He bases his doomsday forecast on cycle theory, invoking both natural cycles (especially sunspot cycles) and investment cycles. But he warns that “your investment strategy should include disruptions by regulators or politicians that purposely disrupt the natural order of the markets.” (p. 156)

Shaffer pads his book with rather pedestrian discussions of trading psychology, the reliability of economic releases, accounting irregularities, modern portfolio theory, fallen civilizations, the history of the U.S. banking system, and famous market manias. Shaffer is a Fed and Bernanke basher who suggests that “the Federal Reserve should not be in existence in its current form by 2013.” (p. 121)

Unfortunately, Shaffer adds nothing substantive to cycle research. He pays homage to Welles Wilder’s Delta Society, Elliott wave theory, Fibonacci sequences, and Terry Laundry’s T Theory and includes a few charts to illustrate their applications. How he himself arrived at a projected 40-year cycle low of about 3,500 on the Dow Jones Industrial Average, probably in 2013, remains something of a mystery. Nor is it clear why “hyperinflation has a high potential of showing up around 2020.” (p. 201)

Investors should always be on their toes. Listening to one self-styled prophet will probably provide little actionable information.

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