Book review: The Crash of 2016

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crash2016Regular Hub readers may find this blog post familiar. That’s because it originally ran this time a year ago: in January 2015. Given that the year 2016 is now actually here, and last week’s market activity certainly had “crash-like” elements, it seemed appropriate to bring this one back  to the top of the queue. Starting with my byline below, the review is as it appeared a year ago: In a couple of spots, I’ve added editor notes to clarify dates and timing.

By Jonathan Chevreau

.As a rule, I avoid reading too many financial books based either on Greed or Fear. Still, when you have a good chunk of your net worth invested in the stock market, it’s hard not to have a twinge of doubt when you encounter books like Thom Hartmann’s The Crash of 2016.

I paid no attention to this book when it was published late in 2013 but now it’s 2015, well, 2016 isn’t so far away now, is it? (editor’s note: that was the review’s original sentence; of course, it is now 2016).

Why am I writing about it now? I wasn’t responding to a belated PR campaign by the publisher (Hachette Book Group) but stumbled on it while searching for other books on Kindle. The Kindle sample on offer didn’t enlighten me much about the author’s thesis (that should have been a clue!) so I ordered it from the local library, not feeling any urgency to get my hands on it.

Indeed, the last time I read such a book was Harry Dent Jr’s The Great Crash Ahead and of course so far that prediction has yet to manifest. Read my 2011 review of the book, at which time Dent predicted the Dow might fall as low as 3,000. So far,  no cigar: to the contrary, the market spent much of 2014 besting itself, racking up all-time-high after all-time-high. As I write the Dow is still hanging in over 17,000.

Still, as the saying goes, even a stopped clock is right twice a day. See also Barron’s piece at the time titled “Harry’s Dented Prophecies.

No doubt, Hartmann – a prolific author with New York Times bestseller status – would view the current level of the market as the proverbial selling opportunity. For those unfamiliar with the former DJ turned entrepreneur and political commentator, here is his Wikipedia entry.

Hartmann’s focus is US economy, not stocks

Actually, somewhat strangely, Hartmann’s book is not chiefly about the stock market. It’s more about a general breakdown in the American economy and social safety net, and the reader is left to infer that part of that will involve some (or a lot) of air escaping from the still-elevated stock market. His theory is that these things go in cycles and every 80 years or so, civilization is doomed to repeat the last economic debacle once the previous generation passes away. This he calls “the great forgetting.”

“We are standing today at the edge of the Fourth Great Crash and war in American history. The previous three — each about eighty years apart — were gut-wrenching in their horror and bloodshed, but they ultimately transformed America in ways that made this a greater and more egalatarian nation.”

Hartmann’s “crash” consists of a combination of economic meltdown, war, environmental crisis, radical social transformation and the “gridlock of dysfunctional government.” He adds that “for some Americans, the crash is already well under way.” (Presumably he is talking about the unemployed or failed businesses).

Since there’s very little about the stock market in the book, there is likewise little or nothing about how one would go about protecting against a crash were one convinced that such a catastrophe truly was around the corner. Nothing on put options or reverse ETFs or ETNs, nothing on asset allocation, hedge funds, real estate, commodities and gold or alternative assets.

How Tax Cuts for the rich hurt the middle class

Hartmann’s beef is chiefly with what he terms the rich “Economic Royalists,” and particularly billionaires, who he believes should have all their wealth taxed away after their first billion. In practice, he’s referring to the Republican party and its allies, such as Fox News, and their joint success in watering down Obama’s agenda. Since Ronald Reagan, the “Royalists” have succeeded in rolling back the system of graduated income tax, with the result that the middle class is being squeezed. Hartmann has mined this terrain before, with books like Rebooting the American Dream and Screwed: The Undeclared War Against the Middle Class.

When the wealthy bore fairly high taxes in the years before Reagan, Hartmann theorizes that business owners chose mostly to reinvest in their businesses, plant and workers, so as to avoid taking income out of the business and being taxed at high rates personally. But with the Reagan tax cuts and those under subsequent administrations, rich business owners have been more inclined to pull more money out of their enterprises to be enjoyed personally.

Why late 2016?

So why the timing of 2016? Again, it’s about politics. As Hartmann explains, by late 2016 Barack Obama’s second term in office will be winding down, and politicians always do what they can to keep things rosy until they step down, don’t they?

“The Obama administration will do the same thing the Bush administration did when confronted with the forces of the ongoing of the oncoming Great Crash in 2007-2008. It will tinker around the edges, inflate as many bubbles as possible, and try desperately to hold things off until the November 2016 elections are safely in the bag. If it doesn’t all come apart before then, that will be the time of maximum vulnerability.”

So what to do about all this? If you agree with most financial advisers that timing the market is futile, then you should do little or nothing. On the other hand, if you agree with Hartmann’s thesis you might want to closely monitor things a year from now, perhaps lightening up by the summer of 2016.

Of course, with the oil-related volatility we’ve been seeing of late, the wheels could come off long before 2016. Ironically, back when he was writing the book in 2013, Hartmann was describing the potential perils not of falling oil prices but rising ones.

This book and the November 2016 elections may turn out to be so much noise; then again, remember the quip about forecasting pundits and stopped clocks. Once in a blue moon — or even twice a day — they are correct.

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