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Russ Koesterich, CFA
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Russ Koesterich, CFA, Managing Director, is the Chief Investment Strategist for BlackRock and iShares Chief Global Investment Strategist. He is a founding member of the Blackrock Investment Institute, delivering BlackRock's insights on global investment issues. Mr. Koesterich's service with the... More
My company:
BlackRock
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The Blog
My book:
The Ten Trillion Dollar Gamble: The Coming Deficit Debacle and How to Invest Now: How Deficit Economics Will Change our Global Financial Climate
  • Russ Koesterich Reviews ‘This Time is Different: Eight Centuries of Financial Folly’ 0 comments
    Jun 14, 2011 8:45 PM

    The recent recession – caused as it was by the bursting of the credit bubble – has been, and in its aftermath will likely continue to be, very different from the typical post-World War II recessions.
    Since there are so few recent examples to guide us, it’s important not to draw conclusions about the current recovery just by examining the last 50 years or so. Instead, taking a longer-term perspective, while always important, is especially key when trying to understand today’s economic and investment landscape.
    That’s precisely what economists Carmen Reinhart and Kenneth Rogoff do in their book “This Time is Different: Eight Centuries of Financial Folly.” While the book came out in 2009, it is especially relevant to today’s investors as it helps put the effects of the recent credit crisis in the right historical context: a very long-term one.
    The authors’ research includes an unusually long data set covering sovereign debt and other financial debacles going back eight centuries and occurring across sixty-six countries on five continents. By taking such a comprehensive long-term historical look at financial crises, the authors are able to arrive at some key conclusions which would have been difficult to reach just by looking at the last 50 or so years. In fact, the findings of the book are particularly valuable because there are only so many instances in modern times that we’ve seen financial devastation similar to the recent financial crisis.
    So what conclusions about today’s recovery can investors take from the book? The authors teach us that in the aftermath of credit bubbles, both housing and labor markets take a very long-time to recover, and government debt typically sky rockets. In fact, based on the book’s conclusions, it could take five to 10 years for the housing market to recover, yet another sign of how the current economic recovery is likely to be anemic and uneven.
     
    What books have helped you draw lessons about the recent credit crisis, and current recovery, and why?
     
    Carefully consider the iShares Funds’ investment objectives, risk factors, and charges and expenses before investing. This and other information can be found in the Funds’ prospectuses, which may be obtained by calling 1-800-iShares (1-800-474-2737), or by clicking the Prospectuses link. Read the prospectus carefully before investing.
    Investing involves risk, including possible loss of principal.
    The iShares Funds (“Funds”) are distributed by SEI Investments Distribution Co. (“SEI”). BlackRock Fund Advisors (“BFA”) serves as the investment advisor to the Funds. The iShares Blog contributors are affiliated with BlackRock Fund Distribution Company (“BFDC”), which assists in the marketing of the Funds. BFA and BFDC are affiliates of BlackRock Institutional Trust Company, N.A. (“BlackRock”), none of which is affiliated with SEI.
    The strategies discussed are strictly for illustrative and educational purposes and should not be construed as a recommendation to purchase or sell, or an offer to sell or a solicitation of an offer to buy any security. There is no guarantee that any strategies discussed will be effective. The information provided is not intended to be a complete analysis of every material fact respecting any strategy. The examples presented do not take into consideration commissions, tax implications or other transactions costs, which may significantly affect the economic consequences of a given strategy.
    The information provided is not intended to be tax advice. Investors should be urged to consult their tax professionals or financial advisors for more information regarding their specific tax situations.
    Neither BlackRock Institutional Trust Company, N.A., and its affiliates nor SEI and its affiliates provide tax advice. Please note that (i) any discussion of U.S. tax matters contained in this communication cannot be used by you for the purpose of avoiding tax penalties; (ii) this communication was written to support the promotion or marketing of the matters addressed herein; and (iii) you should seek advice based on your particular circumstances from an independent tax advisor.
    This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the funds or any security in particular.
    Themes: economy, debt, recovery
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