[...]... Federal Reserve Policy Fuels the Bubble Environment Source: Wolfe Trahan & Co The rock-bottom interest rates that helped pull the economy out of the doldrums after the crises of the early 2000s laid the ground work for a massive expansion of credit Easy access to credit helped fuel the housing boom of the 2000s, and the subsequent bubble that rocked the latter years of the decade Although the federal... address the unsustainable path of policy in the United States, as well as implications for the future of the financial services industry The dynamic nature of the investment process presented in Era of Uncertainty lends itself well to an interactive feature A companion web site to the book offers readers the ability to input their own current assumptions for inflation and growth and receive a set of macro-driven... shortcomings The changing face of “greed” on Wall Street The investment implications of several of these market-moving trends are addressed directly in the book, but these forces do not exist in a vacuum Each of them impacts the analysis in some way In many cases, the implications of one theme lead directly into another, especially with respect to policy action taken Take for example the sustained cycle of easy... helped the firm successfully navigate the top of the housing bubble In the third part of the book, the analysis moves into the present There is a review of some of the difficult choices that governments and policy makers must make, and where current policies are taking the markets and the economy Next the book delves into how to invest for an uncertain future An exploration of inflation and how it impacts the. .. the same as a euphoric run up and crash of technology stocks; it was an assault on two of the four pillars holding up middle-class America: homes and credit The other two pillars—employment income and investments—were collateral damage Even for people who have regained their investment losses and hung onto their jobs, the experience of the last several years has created a generational mistrust of the. .. Easing Figure 1.3 Boom-Bust Timeline of the Previous Decade Source: Wolfe Trahan & Co c01.indd 9 6/30/11 2:52:23 PM 10 The Era of Uncertainty of the technology bubble through the bursting of the credit bubble less than a decade later Given the increasing frequency of bubbles in the past several decades, it is more important than ever for investors to understand the macro forces at work Ideally, an... played out Most of the Asian countries that stumbled from excessive debt during that period weathered the latest credit crisis better than most countries because they were less leveraged The mistakes of the past can have a big impact on market trends going forward Yet, history also shows that there have been dozens of bubbles going back at least to the Dutch Tulip Mania in the 1600s The study of human nature... from these macro patterns Bubbles are the natural outgrowth of extremely stimulative policies enacted in the wake of an economic slowdown, and these conditions usually hold regardless of whether the bubble forms in commodities, real estate, or equities; or during the 1600s or the 1900s The rapid succession of recent bubbles—Asian currencies, technology, and credit and housing—is the byproduct of a... indirectly, in the years to come These themes are: 1 2 3 4 5 6 7 8 9 10 Globalization The internet and the technology revolution The implications of the credit bubble The rise of China and its emerging consumer class A change in worldwide demographic trends Americans’ evolving relationships with credit and debt Fiscal crises in the developed world Troubles for the euro and/or the dollar The Federal Reserve’s... balance sheet and quality of its management team are informative for the relative performance of a stock, but they tell little about the overall backdrop for equities This is equivalent to knowing that today is going to be warmer than yesterday; unless you also know the season, the relative change in the temperature is not terribly helpful Accurate information about the health of the overall market environment . successfully navigate the top of the housing bubble. In the third part of the book, the analysis moves into the present. There is a review of some of the diffi cult. 48 Part II The Roots of the New Era of Uncertainty: The Credit Crisis 49 Chapter 5 A View from the Front Lines 51 The Bubble Intensifi es 55 Slaying of the