Fiscal Hangover E-Book

Keith Fitz-Gerald

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Serie: Agora Series
• Sprache: Englisch

Seitenzahl: 472

Veröffentlichungsjahr: 2009

Beschreibung

The rules of making money have changed-forever With the collapse of investment banks, trillion-dollar-plus government bailouts, and the Dow plunging like a rock, it's never been more important to understand-and actually profit from-the "new rules." Fact is, Fiscal Hangover, will give you an investing blueprint that will allow you to profit from the changing global economy.

For the first time in 200 years, American consumers are stepping down from their position as the driving force behind the world's economy. In Fiscal Hangover, Keith Fitz-Gerald analyzes the declining power of the American consumer and introduces you to the resulting investment opportunities. Without question, the American consumer and the United States government have provided the rest of the world with liquidity in the form of cheap capital and abundant debt. But in light of recent economic events, the rules of the game have changed and that means you must change with them-if you intend on securing your financial future.

Unlike most of today's finance books that simply examine the end of the American Empire, Fiscal Hangover shows you how to prepare for the fall, effectively allocate your investments, and thrive in the new global economy. This book offers specific analysis and concrete actionable steps for individual investors interested in grabbing their fair share of what will be the greatest wealth creation in the history of mankind.

• Examines our current financial situation and offers practical investment advice to overcome the challenges you'll face
• Analyzes the declining power of the American consumer and introduces you to the resulting investment opportunities
• Details new investing benchmarks and discusses why the old ones no longer work
• Explores big picture economic issues that will affect your individual investment endeavors

The coming years may hold the greatest investment opportunities of our times, but in order to take advantage of this you'll need the insights that can only be found in Fiscal Hangover.

Leseprobe

 

CONTENTS

Praise

Title Page

Copyright

Dedication

Epigraph

Acknowledgments

INTRODUCTION: A Refresher Course in Granny’s Wisdom

A PERFECT TIME FOR MIMI’S LESSONS

KEY QUESTIONS TO ADDRESS NOW

A PREVIEW OF YOUR ROAD MAP TO SUCCESS: GO GLOBAL OR GO HOME

Part I AMERICA’S FISCAL HANGOVER AND THE BINGE THAT GOT US HERE

CHAPTER 1: History 101—From 13 Colonies to Global Economic Power

IN THE BEGINNING, THERE WAS…

BIRTH OF A CONSUMER NATION

THE INDUSTRIAL REVOLUTION—GO WEST, BY TRAIN, SAY BUY!

THE CIVIL WAR AND RECONSTRUCTION

THE GILDED AGE OF INVENTION, DEVELOPMENT, AND TYCOONS—1865 TO 1900

GROWTH, GOVERNMENT INTERVENTION, AND THE GREAT WAR: THE PROGRESSIVE ERA—1890 TO 1920

THE ROARING TWENTIES AND THE CRASH—1920 TO 1929

THE GREAT DEPRESSION AND THE NEW DEAL—1929 TO 1941

STRICT CONTROLS AND A WARTIME BOOM—1941 TO 1945

POSTWAR PROSPERITY—1945 TO 1963

REVOLUTION, ACTIVISM, AND TURMOIL—THE SIXTIES AND BEYOND

CHAPTER 2: Growth of the American Consumer—Role Model for World Spending

SECRETS OF THE STONE AGE OF U.S. CONSUMERISM

THE ADVENT OF THE AD MEN

THE ART OF CONSUMER SEDUCTION

THE BIRTH OF INSTALLMENT FINANCING

THE “AMERICANIZATION” OF THE WORLD

CONSUMERISM AS WE KNOW IT TODAY

IS A MAJOR CHANGE COMING?

CHAPTER 3: The Beginnings of America’s Undoing

FROM GOOD MONEY TO BAD—THE EROSION OF MONETARY STANDARDS

THE DOLLAR TAKES THE DOMINANT ROLE

THE SYSTEM BEGINS TO SELF-DESTRUCT

THE REBELLION AGAINST BRETTON WOODS GAINS RECRUITS

THE “NIXON SHOCK” ENDS IT ALL

ENTER THE ERA OF PETRODOLLARS

PETRODOLLAR SURPLUSES QUICKLY PILE UP

WHY THIS MATTERS IN THE CURRENT CRISIS

“PHANTOM MONEY”—HOW CREDIT REPLACED CURRENCY

ARTIFICIAL EQUITY—ANOTHER FORM OF PHANTOM MONEY

DOES ANYONE REALLY UNDERSTAND DERIVATIVES?

CHAPTER 4: “Bubble” Gum—How We All Finally Got Stuck

THE DOT-COM BUBBLE

THE HOUSING BUBBLE—BORN OF THE AMERICAN DREAM

THE CREDIT BUBBLE—WHERE SUBPRIME MORTGAGES WENT WRONG

THE BITTER END BEGINS

THE GOVERNMENT GETS ONE RIGHT—BUT EVEN DOES THAT WRONG

Part II THE GREAT DECOUPLING

WHAT DECOUPLING REALLY MEANS

WHAT THIS MEANS FOR YOU

CHAPTER 5: Wait a Minute!—We’ve Seen This Before (But We Still Haven’t Learned)

A LEISURELY TRIP DOWN RECESSIONARY LANE

A HORSE IS A HORSE, OF COURSE, OF COURSE…

A PROVEN CASE OF GREEDY CAPITALISM

CRASH!!! THE MARKET FALLS AND DEPRESSION FOLLOWS

ALONG CAME THE 1970s

ANOTHER DECADE, ANOTHER CRASH

THE SECOND BIG BAILOUT BONANZA

BUT LOOK WHAT HAPPENED ANYWAY

A QUICK LOOK AT THE ECONOMIC CYCLE

THE DANGERS OF UNLEARNED LESSONS

CHAPTER 6: America’s Economy and Its Place in the New World Order

THE PENALTIES OF DOING “THE WRONG THING”

BETRAYING THE SYSTEM THAT FEEDS US

REALITY CHECK: WHAT YOU DON’T WANT TO HEAR—BUT WILL ANYWAY

THE FREE MARKET COULD HAVE DONE MUCH BETTER

WHAT CAN WE EXPECT NEXT?

WHAT’S THE SECOND HALF OF THE TWIN BILL?

THE FLIP SIDE OF THE DEVALUED DOLLAR

WHERE DOES AMERICA GO NOW?

CHAPTER 7: Consumerism on the Move—An Engine for Recovery

THE ECONOMIC WORM IS BEGINNING TO TURN

WHO’S LEADING THE CHARGE TO RECOVERY?

CHINA—DANGEROUS MYTHS AND CRUCIAL REALITIES

A RED DRAGON ON THE ROAD TO DOMINANCE

WILL CHINA’S YUAN BE THE NEXT WORLD CURRENCY?

THE RISING TIDE IN EASTERN EUROPE

THE INFLUENCE OF MIDDLE EAST CASH BARONS

SPENDING WILL SAVE US ALL

Part III DR. FITZ-GERALD’S AMAZING HOME REMEDY FOR HANGOVER RELIEF

CHAPTER 8: The World’s Changing Investment Landscape

THE NEW LANDSCAPE IS BARREN AT HOME

A NEW DEFINITION FOR ASSET ALLOCATION

SOME OTHER CHANGES TO WATCH FOR

COMMODITY PRICES WILL REMAIN AN ISSUE

THE CREDIT MARKETS WILL REMAIN TIGHT

THERE ARE SOME POSITIVE SIGNS

CHAPTER 9: The New Money Rules, and Why You Must Follow Them

THE EFFICIENT-MARKETS HYPOTHESIS IS A FALLACY

THERE’S A NEW DEFINITION OF NORMAL

THE NEW RULES DEMAND NEW TOOLS

VIEW IT ALL AS A NEW OPPORTUNITY

RECOGNIZING THE TURNING POINT

GETTING SAFELY BACK IN THE MARKET

BEGINNING YOUR WORK UNDER THE NEW MONEY RULES

CHAPTER 10: Go Global or Go Home—Where to Make Your Future Fortune

THE U.S. MARKET IS STILL IN TROUBLE

WHAT THE FUTURE WORLD MAY LOOK LIKE

ASSESSING RISKS—KEY AREAS OF GLOBAL UNCERTAINTY

BACK TO THE REAL SITUATION IN ASIA

DOWN TO THE SPECIFICS—AT LAST

CHAPTER 11: Brass Tacks—Key Countries, Sectors, Industries, and Companies

SHOP IN THESE COUNTRIES FIRST

ECONOMIC SECTORS AND INDUSTRIES PRIMED FOR GROWTH

PICKING STOCKS THAT WILL RIDE THE TRENDS

HOW YOU CAN ACTUALLY BUY AND SELL FOREIGN STOCKS

MOVING ON TO THE STRATEGIES

CHAPTER 12: Never Get Fooled Again—The Pyramid Strategies

WHERE MOST INVESTORS GO WRONG

INTRODUCING THE 50-40-10 PYRAMID STRATEGIES

HOW DO YOU FILL THE PORTFOLIO SEGMENTS?

FINDING QUALITY DIVIDEND PAYERS

WHEN HEDGING, GO FOR THE GOLD

TWO OTHER TRICKS FOR TRADING STOCKS

TWO STRATEGIES FOR REBUILDING LOST VALUE

THAT’S ALL, FOLKS!

CONCLUSION: 10 More Rules for Successful Investing

OH, MY GOSH—STILL MORE RULES!

MIMI WAS DEFINITELY RIGHT

Appendix: The $300 Trillion Recovery Almost Nobody’s Talking About

HOW CAN A $300 TRILLION RECOVERY HIDE IN PLAIN SIGHT?

THE BIGGEST ECONOMIC SHIFT IN 200 YEARS

ELECTRICITY AS A MEASURE OF GROWTH

ARE THE CHINESE KILLING OFF THE U.S. DOLLAR?

THE SECOND COMING OF CHINA

THE BIGGEST BUYING OPPORTUNITY OF MANY LIFETIMES

Bibliography

BOOKS

ARTICLES

GOVERNMENT SOURCES

ORGANIZATIONS, FOUNDATIONS, UNIVERSITY, AND THINK TANK SOURCES

WEB SITES

About the Author

Index

 

Additional Praise for Fiscal Hangover

“As a historical account of what went so badly wrong, Fiscal Hangover is an excellent read. Keith Fitz-Gerald, however, goes a lot further and lays out a road map showing you how to profit from the greatest industrialization program the world has ever seen. China is booming and is no longer content simply being the factory to the world. Keith Fitz-Gerald makes it possible for even the smallest retail investor to take advantage of this secular, once-in-a-lifetime growth story. If you’re serious about taking charge of your own financial destiny, you need to read this book.”

—Kishore K. Sakhrani, Director, ICS Trust (Asia) Ltd.

“The wheels are in motion. There is no turning back. In his book Fiscal Hangover, Keith Fitz-Gerald not only makes the case for the coming financial catastrophe that we are all facing in the West, but also provides the solutions that we can implement today to deflect the inevitable. This is a must read if you are serious about your money…and more serious about keeping it!”

—Karim Rahemtulla, Investment Director, Mt. Vernon Research

“ Fiscal Hangover is easy to read and even easier to understand. Any investor serious about not only recovering his money but growing it in the years ahead will find Fiscal Hangover worth reading. A must read, actually.”

—John Casti, Senior Research Scholar, IIASA; Cofounder, The Kenos Circle, Vienna

“Keith Fitz-Gerald is my go-to guy when it comes to investing in Asia. Keith lays out the future in terms you can understand and, more importantly, use to profit. You would be well served to read Keith’s new book.”

—Doug Fabian, President, Fabian Wealth Strategies; Editor, Making Money Alert

“This is a terrific book. Keith combines the skills of persuasive big picture analyst, finger firmly on the pulse of today’s global mega-trends, with the technical discipline of an in-the-trenches trader with over two decades of experience making money in the financial markets. ‘Those who can, do teach,’ after all.”

—Nicholas Vardy, President, Hayek Capital; Executive Director, London Junto; Editor, Global Stock Investor

“In this insightful book, Keith shows readers why it is more important than ever for American investors to invest in high-growth economies such as China. I highly recommend it!”

—Robert Hsu, Editor, China Strategy and Asia Edge; Managing Director, Absolute Return Capital Advisors; Author, China Fireworks

“In my 30 years of monitoring the financial newsletter industry, there is no advisor I would recommend more strongly for his integrity, track record, research skills, and investment insights than Keith Fitz-Gerald. Anyone looking to create a portfolio designed to meet the challenges of the future, prepare against risk, and be positioned to benefit from the opportunities offered in emerging markets will find no better guide for success.”

—Steven Halpern, TheStockAdvisors.com

“A fascinating book that will help investors see the world through the lens of the future. A must read for those who want to profit from the next era of wealth creation.”

 

The Readers Speak

Instead of loading up with celebrity comments, we thought you’d enjoy hearing from a few of Keith’s long-time readers—people just like you. So, here you go.

 

“I’ve been reading Keith Fitz-Gerald’s sage and clever writings for years. It’s rare to find someone who presents complex, global market concepts with such approachability and wit, and his insights are always well-considered, well-informed, and a pleasure to read. I continue to follow his lead, as he’s made me a more thoughtful, profitable investor. He’s undoubtedly well on his way to becoming one of the luminaries in the industry.”

—Matthew Coble

“The combination of talent and discipline makes a hero. Keith is a hero in his profession and in life. He applies these virtues diligently and continuously. The result? An exceptional human being and brilliant work! Outstanding investment analysis; track record of profitable picks; amazingly accurate economic prediction; and sometimes jokes about the market…. Why do I continue to subscribe? I need to have the confidence of investment, knowing I pick the right ones. I love the lively inspiration that Keith brings to life: the drive to excel in everything you are into.”

—Hairong Karen Gui

“Keith is like a light in the darkness of the current investing world morass. He is the Rogue Warrior™ of investment professionals, blazing his own trail, and defying conventional wisdom. Why do I continue to subscribe? Well, what better testament to Keith than the fact that as my friends got hammered when the markets fell, my portfolio didn’t fall very far, and on top of that, it has already returned to pre-fall levels and beyond as it continues to grow! I want someone I can trust and Keith is the man. He’s honest and not afraid to tell it like it is. You can’t ask for more than that.”

—Doug O’Connor

 

Copyright © 2010 by Keith Fitz-Gerald. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, [phone], fax [phone], or on the web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, [phone], fax [phone], or online at http://www.wiley.com/go/permissions.

Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

For more information about Wiley products, visit our web site at www.wiley.com.

ISBN: 978-0-470-59108-6

 

This book is for the millions of disillusioned investors around the world who, despite being taken on a white-knuckle ride they didn’t deserve, know that the way forward is through a better understanding of how we got here and what it will take to get ahead in the new global economy—if only someone would show them the way.

 

Never fear shadows. They simply mean there is a light shining somewhere nearby.

 

ACKNOWLEDGMENTS

As a writer, this book is clearly an extension of me. But without others, it simply wouldn’t have been possible.

When I sat down with my publisher, Mike Ward, in a little Thai restaurant tucked off Monument Square in Baltimore a few years back, and we shared the vision that has become the Money Map Press of today, it sounded fantastic. Almost too good to be true. Yet, here we are now, with 500,000 readers each day in 30 countries around the world. I have Mike to thank for that—not only for his professional judgment as my executive publisher, but for his friendship, his integrity, and his wisdom. All are increasingly rare qualities in today’s world.

I also have to thank my wife, Noriko, and my boys, Kunihiko and Kazuhiko. Without their support and constant encouragement, this simply would not have been possible. Then there’s my assistant, Sid Riggs, who has gone to great lengths to understand my voice and my madness, as has Larry D. Spears, for whom the pen truly is mightier than any sword (or derivative investment) will ever be.

Thanks also go to the entire team at Agora Publishing and Money Map Press. All the long hours we’ve spent together analyzing markets, ferreting out the truth about money, crafting stories, and then getting them into the hands of investors who deserve that truth are somehow worth more than ever. I am eternally grateful for the excellence you bring to the table each day, as well as the friendships we enjoy.

And to my friends in the business; you know who you are. The years of wisdom and experience you poured into me have not gone unnoticed—or unappreciated.

Finally, to the hundreds of thousands of Money Map Press “family” members across the world who regularly read my work and who take time out of your busy schedules to see me at conferences around the globe, this book is as much yours as it is mine. I am honored and humbled by the trust you place in me.

Keith Fitz-Gerald

 

INTRODUCTION

A REFRESHER COURSE IN GRANNY’S WISDOM

Never forget, the world is bigger than your backyard.

—Virginia Gruner

It was 1980 and, though I didn’t know it at the time, the seeds of my financial career were being planted in my head during an afternoon discussion with my grandmother, Virginia Gruner. We were sitting in her den over ham sandwiches and milk—her favorite.

Because I wanted to travel the world as she had done, and because I was precociously interested in anything that had to do with money, she had seen to it that I was always fed a diet of Forbes magazine and The Wall Street Journal. I even managed, at the tender age of 15, to make quick work of Barron’s each Saturday, and to read my annual Value Line binder from cover to cover almost as soon as I received it.

Every time I wanted to make an investment using money I had saved up from summer jobs (I was quite the neighborhood lawn baron), I got the whole nine yards from Mimi, which was my pet name for her.

“Do you really understand what you’re buying? How does it fit with what you already own, and what purpose is it serving in your portfolio?” she would ask.

Of course, being young and headstrong, I really didn’t understand her overbearing concerns. But, boy, did I learn quickly.

My grandmother had been widowed early, and her husband left her with only a small sum of money to raise both my aunt and my mother. By her own admission, she knew nothing about the markets when she first began investing. But, by virtue of necessity, she set out to learn everything she could about finances and how to make her money grow. She became so skilled at investing that, in effect, she became a financial planner before there were financial planners. She also understood modern portfolio theory before it was modern.

For years, I thought she was simply better at picking stocks than everybody else. It was only much later in my life, once I formally began my career at Wilshire Associates, that I came to realize what she really understood better than anybody is something that’s only beginning to be understood now by most investors.

“Keith,” she used to say, “it’s not the way you diversify your money that matters, but the way you concentrate it that leads to bigger, more consistent returns—particularly when it comes to capturing the best the world has to offer.”

And that’s why I’ve written this book—the one I could never have imagined writing all those years ago.

A PERFECT TIME FOR MIMI’S LESSONS

The way I see it, we’ve arrived at a unique time and place in history in which the lessons I learned from Mimi—lessons that have been reinforced over my last 20-something years in the markets—couldn’t be more relevant. Yet sadly, these lessons are very poorly understood by most investors.

Thanks to a series of boom-and-bust cycles brought on by the greatest credit inflation of all time, the world has recently borne witness to the single largest spree of wealth destruction in recorded market history. Over $30 trillion in value was essentially vaporized—in less than a year! And, though a modest market rebound has taken place, many investors are understandably still frightened out of their wits and beset with feelings of helplessness. Still others feel shafted by the system and are very, very angry.

I don’t blame them one bit.

Not only did relatively few people make huge piles of money with borderline fraudulent—if not outright illegal—financial manipulation, but virtually the entire establishment, which was supposed to prevent such things from happening, was asleep at the switch. Adding insult to injury, the powers-that-be ignored a constant stream of warning signs and displayed a callous disregard for reality, as well as repeated suggestions from those few folks like me who dared to contend that these fiscal emperors had no clothes.

Thanks to the Establishment and the millions of people who blindly bought into it, Americans are likely to pull in their fiscal horns for at least a generation. I think the United States will be fortunate to see its economy grow 2 percent year over year—and that kind of slow growth could be around for decades. As profit margins crumble—and as government bailouts of the private sector go on for much longer than people expected—there is clearly a new normal in the financial markets, one most investors are ill-equipped to grapple with.

Still, as bad as it sounds, there is a flip side to the slow-growth coin. It’s the side that, thankfully, speaks to how much we have to gain as investors once we recognize what the new normal looks like. This new reality—this realization that we’re now groping with what is essentially a “fiscal hangover”—has me more excited than I’ve ever been before about the markets.

You see, history shows that periods of great turmoil are inevitably followed by a time of tremendous wealth creation. To be fair, I don’t know precisely when our economy will fully recover from this hangover. Nobody does. But a quick review of the data suggests it will happen, just as sure as the sun will come up tomorrow—and, ironically enough, the recovery will likely come when most people least expect it.

KEY QUESTIONS TO ADDRESS NOW

Therefore, the most important questions in my mind, and in the minds of savvy investors the world over, are: What do we do now to protect and grow our assets, and how do we make sure our money is prepared for maximum profitability when we do come out of this mess?

Fortunately, accomplishing this feat is not as tall an order as you might think. Contrary to what most people believe, the credit crisis we’ve experienced is not entirely different from other periods in history. It just feels different to most of us now because what has taken place recently is unique to the vast majority of today’s investors.

This time around, the market participants haven’t changed. Nor is there some new technology that’s caused market realignment. Instead, the very rules of money itself have changed, and so has everything that drives those rules. Investors who hope to preserve and even grow their wealth in the years ahead must adapt to these new rules of money.

As I tell the hundreds of thousands of readers of my weekly columns, and the thousands of investors who sit in on my presentations around the world each year, the risks of success have never been higher than they are today. Unfortunately, neither have the opportunities for failure.

You might think I mean the “opportunities for success” and the “risks of failure”—but I don’t. We have reached a point at which the upside we want to achieve must take a backseat to the risks we want to avoid.

Part of adapting to the world’s new money rules begins with the recognition that events taking place thousands of miles from America’s borders will more likely than not dictate all we know about investing for years to come. These events will affect every asset class on the planet.

This is why the investors who are most successful in the next few years will be those who come to terms soonest with the fact that the credit crisis aftermath is likely to produce positive, profitable changes away from the so-called “modern” industrialized nations and their large-scale fiscal imbalances. It will instead drive newly emerging economies to increasing roles of importance and relevance in the global marketplace.

People have paid lip service to this for years, so I’ll just be blunt. Nearly 75 percent of the world’s economic activity now takes place outside the United States. And it’s only going to get more unbalanced, for one simple reason: Worldwide investments are expected to double to more than $300 trillion in the next 5 to 10 years—and better than half of that is likely to come from outside mature markets like the United States and Japan.

A PREVIEW OF YOUR ROAD MAP TO SUCCESS: GO GLOBAL OR GO HOME

This new reality means you’ve got to make a vitally important decision right now. You must either go global, or go home.

In Part I of this book, we take a brief journey through history, examining how the United States grew to be the dominant economic force in the world and how American consumerism created a model for spenders around the globe. We then look at some of the crucial things that began to go wrong amid a drunken economic binge that ultimately set the credit, real estate, and financial markets reeling, resulting in the fiscal hangover we’re now living through.

Then we move on to Part II, where you’ll learn that the recent period of turmoil is hardly the world’s first era of catastrophic change. You’ll see why the current crisis is nothing more than a replay of similar transformational events in history, albeit with different causal factors. And, you’ll discover that virtually every other great crisis has been followed by a period of dramatic “redeployment,” in which substantial amounts of wealth were created—a fact that should help melt away much of your anxiety.

Then, we turn to Part III, where you’ll learn why global markets truly do follow the money, and why the odds are very high that global investing is the way out of the financial mess so many investors are in.

And, finally, I show you how to structure a simple, internationally concentrated portfolio with built-in safety brakes that you can maintain with very little time and just a little bit of effort. If you’re nearing retirement, or if you are already retired, I show you how to find stable, income-producing investments without taking on more risk than you can handle. I also share a few of my favorite battle-tested tactics. After reading this section, you’ll be unlikely to buy any stock the same way ever again.

By the time we’re done, you will have everything you need to know to successfully manage your own money using a simple, consistent framework that increases your returns, reduces your risk, and gives you the potential to outperform most other investors.

In my mind, it doesn’t matter whether you’re in your early 20s, late 60s, or well beyond. It also doesn’t matter whether you’re a novice investor or consider yourself an expert. The way I see it, we’re all in this together.

That’s why I’ve chosen this time to write this book. I firmly believe that, as bad as things seem, there is never a wrong time to do the right thing, both in my personal life and in my investing activity. To that end, I can assure you that the recommendations in this book are, with only a rare exception, the exact actions I am now taking or will take at the appropriate time.

But let me warn you right up front…these recommendations will require you to do something that always makes Wall Street cringe—which is to think for yourself.

I’ll consider this book a success if you do three things when you’re done reading it:

1. Understand what I am saying (because you’re sure as heck not going to get the truth about money from traditional Wall Street sources).

2. Develop new knowledge or reconsider subjects about which you thought you already knew a lot.

3. Use that information to build a more prosperous and successful future. After all, if you can’t build more wealth—and then keep it—what’s the point?

I have absolutely no doubt that the current financial crisis has rewritten the rules of money and investing. But it is also generating a whole host of new profit plays—plays that literally represent the beginnings of a new Golden Age of Wealth Creation.

Investors who ignore this new reality will get left behind—but if you have the courage and conviction to press ahead, using the strategies you’ll find in the pages ahead, you could well find this to be the greatest profit opportunity of your lifetime.

The world, as Mimi would say, truly will be “our oyster.”

 

PART ONE

AMERICA’S FISCAL HANGOVER AND THE BINGE THAT GOT US HERE

Shhhhhhhhhhh!!

Don’t turn those pages so loudly!!

Can’t you see we’ve got a splitting headache? Look at how our hands are shaking. We ache all over, our stomach’s upset, and we keep getting nauseated at the mere thought of investing again.

We’ve tried to figure out what happened, but our brain is clouded, our eyes are blurry, and the whole picture is fuzzy…kind of out of focus.

One minute, we were cruising along in our big, secure financial SUV. The economic engine was purring smoothly, the road ahead appeared clear and the GPS indicated we were on course toward future prosperity. Then, in what seemed like a matter of minutes, the road got very bumpy, peppered with potholes to dodge. We slowed down, then stopped, and when we looked around, it was like we’d plowed straight into the world’s biggest fraternity party on a Saturday night.

The house we entered was full of bankers and brokers, who had gotten drunk with greed and were now staggering around a floor littered with foreclosed mortgages and worthless stock certificates. They were being chased by whole committees of politicians and regulators, some confused after being roused from prolonged complacency, others still drunk with power, and all now frantically looking for a way out.

Cries for designated drivers to take us safely home went unanswered as a whole string of Presidents, past and present, were accused of drunken and reckless driving, while both Federal Reserve and Treasury officials were facing multiple counts of drunk and disorderly behavior.

It was utter chaos.

Overcome by fear and uncertainty, we scrambled back out to our car. (Fortunately, it was a Toyota Prius since the Chevrolets, Cadillacs, Chryslers, and Jeeps had all stopped running and the Fords were sputtering on dwindling drops of $5.00-a-gallon gas.) We threw it into reverse and hauled our shrinking assets back to where we’d come from—and far, far beyond.

Now, it’s the morning of a new day and we’re sitting here, aching heads in shaky hands, suffering from this dreadful Fiscal Hangover—a painful reminder of last night’s binge, a hangover that’s afflicting not just us, but most of the rest of the world as well. We’re searching for a cure, trying to figure out how we can regain fiscal sobriety and once again start moving back toward financial health—and future wealth.

But our prognosis remains uncertain. The only thing that’s absolutely, 100 percent clear is that we don’t need more of the hair of the dog that bit us. We need a different medicine, something new, something that’s both safe and highly effective. But where do we find one?

Perhaps if we turn the page…(quietly, please).

 

CHAPTER 1

HISTORY 101

From 13 Colonies to Global Economic Power

Histories make men wise.

—Sir Francis Bacon

To fully understand where America’s economy is going in the future—and how you can best profit from that journey—you really need to know how it got to where it is today. However, since I’m sure you didn’t intend to sign on for a history degree when you picked up this book, I’ll do my best to keep it brief.

Boil the economic development of the United States down to 25 words or less, and it comes to this: Adversity happens. People adapt. Innovation pops. Wealth results.

That’s it—with 17 words to spare.

Wise men say there’s no better teacher than experience, and U.S. history assures me, time and again, that no matter how bad things get, they will get better, leaving us with even more chances to achieve even greater wealth than we ever had before.

To prove it—and begin getting you back on the road to personal financial recovery—I want to start back at the country’s beginnings, track the emergence of U.S. economic power over the last 300 years, and review the actions earlier investors took to overcome their challenges and reach the next level of prosperity. (Unbeknownst to most modern investors—and the majority of Wall Street “pros”—U.S. hegemony actually dates back to pre-Colonial days.)

Then, we can strategize proactively on how to catch the next monster-wealth wave—moving on to Parts II and III of this book, where I detail some of my preferred investment strategies, share some of the “dirty little tricks of the trade” I regularly employ, and offer some specific recommendations to help you more wisely and successfully navigate your way in today’s perilous financial waters.

IN THE BEGINNING, THERE WAS…

The modern American economy traces its roots to the quest of European settlers for economic gain—not just religious freedom—in the sixteenth, seventeenth, and eighteenth centuries. Actually, Vikings were the first Europeans to “discover” North America, in the year A.D. 998. A Norse sailor named Bjarni stumbled on Greenland after being blown off course on his way to Iceland. But, since the Viking livelihood, like most of Europe’s, was then centered primarily on agriculture, land ownership, and the occasional pillaging and plundering, the possibility of expanding Scandinavian trade really wasn’t foremost in their minds. Land-grabbing and settlements were—but, in the end, they abandoned even that.

Fast forward about 500 years to 1492, when Christopher Columbus—an Italian sailing under a Spanish flag (investors were thinking multinational even then)—chucked the idea that the world must be flat and sailed forth to find a southwest route to the spicy-priced goods of Asia.

Surprise! Columbus bumped into a “New World” instead—igniting a 100-year “place race” of exploration by the English, Spanish, Portuguese, Dutch, and French, all trying to beat one another out in their pursuit of gold, silver, and untold other riches.

Unfortunately, early explorers found little more in North America than some crazy weather, what today is prime beachfront property, and tribes of indigenous peoples, whom they mistakenly called “Indians,” thinking they had actually reached India instead of a strange New World. These indigenous Americans enjoyed simple lives, engaging in hunting, gathering, and growing. They traded among themselves and had virtually no contact with the rest of the world before their economies were profoundly and forever altered by the arrival of their “discoverers” and the ensuing influx of European fur traders, firearms, and other wares.

Early colonists had scores of reasons for coming to the Americas—led by the Pilgrims, who famously sought to escape religious persecution. But it was the opportunity for economic advancement that brought most European colonists to the New World. In fact, colonies such as Virginia, founded primarily as business ventures, capitalized nicely on the dovetailing of piety and prosperity.

Governor William Bradford of Plymouth Rock fame, operating in survival mode in the midst of a killer first year, decided to embrace the idea of “individual initiative”—the forebear (or underlying principle, if you prefer) of true capitalism. He harnessed the power of the Puritan work ethic and granted each family its own plot to farm, a seismic shift in economic thinking for 1620. Changing the economic rules from communal to private farming allowed everyone—religious zealot to adventurer to indentured servant—equal opportunity to reap the rewards of their own hard labor (or lack thereof) instead of settling for a proportionate share of the whole. And it worked!

Later, England’s brilliant use of charter companies to settle the New World gave each group of stockholders—usually merchants and wealthy landowners—a vested interest in making its colony a thriving economic success. They also got political and judicial powers—and the undying gratitude of their King for furthering his own expansionist agenda.

The system experienced a hiccup when many of the monied investors, quickly tiring of life in a luxury-free wilderness, withdrew back to England, abandoning their charters to settlers, who basically had to figure out how to build something out of nothing—or starve. Once again, individual initiative grabbed hold and marginally successful farms became hugely profitable by raising highly addictive crops like sugar and tobacco. British demand for colonial crops skyrocketed, “American entrepreneurialism” soared and a brave, new middle-class America emerged.

BIRTH OF A CONSUMER NATION

Soon, specialized mills, shipyards, and iron forges developed to support growing trade. By the eighteenth century, standards of living in the 13 colonies (except for slaves) outstripped those in England. New World prosperity fueled a fierce desire for greater autonomy. As Bradford had recognized 150 years earlier, the people who did all the heavy lifting wanted to enjoy the fruits of their labor—and have a say in how those fruits were spent.

However, that was impossible under the Navigation Acts imposed by Britain in the mid-1600s. The laws, based on the economic system of mercantilism (colonies exist only to serve the Mother Country), decreed that only British ships could carry colonial goods and all exports and imports had to be sold or purchased through Great Britain. Adding insult to injury, colonial manufacturers were forbidden to compete directly with British manufacturers.

The colonists chafed at their wallets. Mother England was increasingly perceived as corrupt and hostile to American economic interests. By 1770, colonial “consumer politics” erupted into open protest against “taxation without representation.” Boycotts were creatively staged (think Boston Tea Party) and trade parity was demanded. a

When England refused to be moved, the Revolution was on. The “sovereign United States of America” proclaimed independence on July 4, 1776, in a Declaration that its chief composer, Thomas Jefferson, penned as a singular “expression of the American mind.”

The rest, as they say, is history.

LIKE THE ECONOMY, FEWER CELEBRATIONS SPARKLE

The roots of America’s recent financial problems may not reach all the way back to the founding of our country in 1776, but those troubles have certainly affected our commemoration of that historic event. The skies were quite a bit darker on the evening of July 4, 2009, as budget shortfalls forced nearly 50 communities around the country to cancel their public fireworks displays, and many more had to turn to private donations to fund their celebrations. Still other communities chose to show their patriotism in a way more appropriate to the hard times. Montebello, California, canceled its fireworks display and donated the $40,000 the show would have cost to groups distributing food to the needy.

THE INDUSTRIAL REVOLUTION—GO WEST, BY TRAIN, SAY BUY!

The Industrial Revolution arrived almost simultaneously with the end of the American Revolution in 1783, pulling the new nation away from its agrarian roots and pushing it toward industrial domination. But first, after eight years of tortuous warfare, the Founding Fathers needed a prosperity plan.

A national bank was established to assume the public debts incurred (mostly to France) during the war. The Constitution, adopted in 1787, empowered our government to ban taxes on interstate commerce, regulate foreign and domestic trade, create money and set its value, fix standards of weights and measures, and grant patents and copyrights. These new national powers—conceived by the Constitution’s primary author, James Madison—were designed to tell the world that America was now one big unified and rapidly growing market.

The advent of industrial machines revolutionized the U.S. economy (and the world) in the late 1700s and early 1800s. It brought major changes to agriculture, manufacturing, mining, printing, and transportation—and major wealth to industrialists and middle-class entrepreneurs who quickly adapted the new technologies. Steam-powered manufacturing made water-powered plants obsolete, freeing up industries previously fettered to the rivers of New England to relocate anywhere they pleased.

Even ordinary laborers benefited on the mass production lines of transformed urban centers. Granted, they suffered under harsh working conditions, and protections against child labor were virtually nil, but concentrating workers into sweatshops and factories soon spawned trade unions, which were organized to improve working conditions and wages through collective bargaining.

Eli Whitney’s invention in 1793 of the cotton gin turned a chump-change Southern crop into a booming international market. Wealthy planters bought up land from scratch farmers who, in turn, chose to head west. There, they joined thousands of Yankees who yearned for more fertile Midwestern farmlands rather than rocky Nor’eastern hills.

To facilitate migration and underwrite emerging new agricultural markets, the federal government paid for new national roads and waterways such as the Cumberland Pike (1818) and the Erie Canal (1825)—adding an additional stimulus to the young nation’s economy. As new territories were acquired—from Texas to California—technology developed to support expanding domestic trade.

Railroads, in particular, rocked the status quo, opening up vast new American vistas for development. Between 1850 and 1890, rail mileage increased a whopping 1,300 percent (from 9,021 miles to 129,774), transitioning the United States from an agrarian society into an urbanized industrial nation—and turning the men who owned those rails into millionaires. Consequently, railroads attracted huge domestic and European private investment, as well as large government subsidies in the form of land grants. Train barons, by necessity, had to reinvent how to run large-scale enterprises and deal with managerial complexities, labor unions, and competition—in effect creating the blueprint for modern-day corporations.

THE CIVIL WAR AND RECONSTRUCTION

Despite the changing landscape, urban industry still defined the Northeast and rural farms the South. The South depended on the North for capital and manufactured goods; the North relied on the South for cotton for textile manufacturing, but little else. So, to maintain some semblance of trade balance, Southern economic interests required cheap labor. Unfortunately, slavery was the only economic option that fit the bill. Thus, when President Abraham Lincoln called for ending the expansion of slavery and instead expanding industry, commerce, and business, the South rose up and the American Civil War ensued (1861–1865).

War is tragic, but it’s also profitable—especially for diversified, industrialized states. The North had the advantage in terms of industrial strength and resources, and could easily convert commercial manufacturing to military production. The South, more isolated and dependent on a single cash crop, had no real war-ready reserves to draw upon.

The North won, the slaves were freed, plantation-driven economics were destroyed, and Northern industry, which had expanded exponentially thanks to wartime demands, surged ahead. Reconstruction followed, with a host of new (and highly controversial) policies designed to restore the American (not just Northern) Union, rebuild the South, and “fix” the Constitution. The latter required formally abolishing slavery and electoral discrimination, and instituting provisions to educate former slaves.

FISCAL FLASHPOINT

The Civil War foreshadowed how important the “military-industrial complex” would eventually prove to be to America’s modern economy, even though that term wouldn’t actually exist for nearly a century. It was ultimately coined by President Dwight D. Eisenhower, a five-star general and Supreme Allied Commander during World War II, to describe the infrastructure needed to engage in the Cold War.

THE GILDED AGE OF INVENTION, DEVELOPMENT, AND TYCOONS—1865 TO 1900

America returned to the gold standard in 1879, creating an acceleration in money growth as a direct result of the flow of new gold. The Gilded Age sparked a period of deflation, an explosion of inventions (cars, telephones, radios, and airplanes), and the rise of the tycoon, when every man could be a potential Andrew Carnegie.

Discoveries of massive coal deposits in the Appalachian Mountains and fields of “black gold” and iron across the Midwest stoked the fires of the nation’s industrial infrastructure. Men who were quick to see the inherent potential for new services or products—men like John D. Rockefeller in oil, Jay Gould in railroads, J. Pierpont Morgan in banking and, yes, Carnegie in steel—amassed vast financial empires.

The new Americans—hardy individualists and unsophisticated risk takers who had flocked to the New World to create their own destinies—enthusiastically embraced money-making. They were also quick to flaunt their flamboyant lifestyles—much to the chagrin of the more rigidly class-conscious Europeans. “Diamonds may be a girl’s best friend,” British nobility would sniff, “but they don’t belong around the neck of Mrs. Stuyvesant Fish’s pet pooch.” But when, by the late 1880s, the United States surpassed Great Britain as the globe’s most powerful economy by more than two-to-one, the world had no choice but to take notice.

In spite of its growing economic power, the United States didn’t engage in any territorial empire building in the final days of the nineteenth century, mostly because imperial rule seemed inconsistent with America’s democratic principles. It did, however, pick up several new territories—annexing Hawaii in 1898, then getting Puerto Rico, Guam, the Philippines, and Cuba from Spain following the Spanish-American War (though Cuba was quickly granted independence in 1902).

And, as the new century dawned, it also began to show increasing foreign-policy assertiveness around the world.

GROWTH, GOVERNMENT INTERVENTION, AND THE GREAT WAR: THE PROGRESSIVE ERA—1890 TO 1920

Before 1900, most American politicians were reluctant to intervene in the private sector, except when it came to transportation. Laissez-faire—a government-hands-off-the-economy doctrine—generally guided policy making. However, as the developmental pace of industrial technology steadily increased, middle-class entrepreneurs—weary of fighting corrupt officials, cutthroat tycoons, radicalized farmers, and labor movements—pressed for government regulation to protect competition and free enterprise.

They found sympathetic ears in Presidents Theodore Roosevelt (1901–1909) and Woodrow Wilson (1913–1921). Before they came to power, Congressional laws regulating railroads (Interstate Commerce Act of 1887) and monopolies (Sherman Antitrust Act of 1890) went rigorously unenforced. Roosevelt put new teeth into those laws, and also established the Food and Drug Administration (FDA). Wilson followed with creation of the Federal Trade Commission (FTC), and also contributed to two other acts destined to foster our eternal regret:

1. The Sixteenth Amendment to the Constitution, ratified by Congress in 1913, instituted the first federal income tax.

2. The Federal Reserve Act, also passed in 1913, created the Federal Reserve System, or simply the Fed, a quasi-public, quasi-private central banking system intended to deal proactively with bank panics—though its influence since has extended far beyond those original parameters.

The practice of doing business in America was definitely maturing. However, the event having the greatest impact on the U.S. economy arrived in 1914, when imperial European politics spawned World War I. The major European nations, chafing from a prolonged loss of colonial power, had for years been embroiled in a scramble for control of 10 million square miles of Africa (roughly one-fifth the world’s land mass). When the conflict finally returned home, it ultimately pulled most of the world’s powers into one of two opposing alliances: The Triple Entente (Allies) and the Central Powers (Germany & Co.).

Some 70 million troops were activated in this “war to end all wars,” and combatant countries pumped the full scope and range of their scientific and industrial capabilities into the war effort. More than 15 million people died, making this first technology-heavy global conflict the deadliest in history.

It was also one of the most economically devastating. To pay for essential war materials, Great Britain cashed in its massive investments in U.S. railroads and began borrowing heavily on Wall Street. President Wilson—who managed to delay America’s entry into the war until 1917—had been parceling out aid to Europe in the early days, but in 1916 allowed for a huge increase in government lending to the Allies, most of which came back to the United States for war purchases. Gross Domestic Product (GDP) soared. All told, America lent the Allies $7 billion during the war—mostly for military equipment, food, and medical needs—and another $3 billion shortly after the war ended.

Once the United States declared war on Germany, a radical expansion of governmental powers ensued. New federal departments, Cabinet posts, and executive powers were created, new taxes levied, and new laws enacted—all designed to bolster the war effort. The nature of the economy also shifted dramatically. With the prime of America’s mostly male workforce drafted into military service, an unprecedented number of women took their places—setting the stage for a more modern view of women’s role in society and underscoring the postwar case for granting women the right to vote.

THE ROARING TWENTIES AND THE CRASH—1920 TO 1929

With peace restored and Armageddon put to bed, America returned to the business of doing business, this time as a world power tied to other countries by trade, politics, and joint interests. The United States also began to extend its economic reach into the rest of the world. Before the war, foreigners had invested more money in the United States than Americans had invested in other countries—about $3 billion more. World War I reversed that trend.

Increased foreign investment was not the only sign of America’s growing financial influence. By the end of World War I, the United States produced and consumed more goods and services than any other country, both in terms of total Gross National Product (GNP) and GNP per person. By 1920, the U.S. national income outstripped the combined incomes of Britain, France, Germany, Japan, Canada, and 17 others. Quite simply, in a few short years, America had become the world’s greatest economic power.

Cultural and societal upheaval and an influx of new wealth swept over the United States—and spread to the rest of the world. People swapped out “everything old” for “everything modern.” Jazz defined hot, flappers defined “the new woman,” and excess defined everything else. The Roaring Twenties were on!

Unprecedented industrial growth, inventiveness, and ample credit accelerated consumer demand and significant changes in lifestyle. The slogan “Anything goes!” fit perfectly because anything did seem possible with modern technology. When mass production made luxury affordable to most middle-class Americans, cars proliferated, movie attendance skyrocketed, and a newfangled entertainment medium called radio swept the country.

Rapid growth of the auto industry stimulated oil drilling, gas production, and road building. Tourism soared. Consumers traveled farther for shopping. Small cities, big cities—everybody prospered—creating a boom in construction. Electrification transformed business, farming, and everyday life. Telephones became commonplace rather than rarities. And, for the first time, millions of families moved into their own houses and began investing heavily in stocks, borrowing money to do both—simply because they could. (Sounds vaguely familiar, no?)

Of course, all that came to a screeching halt in October 1929 when Wall Street fell apart. In terms of duration and fallout, the 1929 Crash (which was more than a one-day affair) was the most devastating economic event in our nation’s history to that point. The catastrophic downturn triggered widespread panic and the failure of banks all across the country, followed by the onset of an unprecedented and devastatingly long Great Depression. Notably, given current events, the Crash came on the heels of a sharp decline in real estate values, which had peaked in late 1925.

THE GREAT DEPRESSION AND THE NEW DEAL—1929 TO 1941

“Experts” still disagree on the precise cause of the Crash, but not its effects. For the next decade, economic contraction gripped the world. It was “fear mixed with…disorientation…cauterized with denial, both official and mass-delusional,” wrote Steve Fraser, author of Wall Street: A Cultural History. The Roaring Twenties were roaring no more.

There was absolutely nothing selective about the Great Depression, the impact of which lingered until 1940 and affected everyone, rich and poor—and with devastating global effects. The worldwide impact was doubly painful to the United States because a revolving system of German reparations collapsed in 1931 and most of the $10 billion the United States had lent to Europe for World War I was never repaid.

International trade plunged by one-half to two-thirds, as did U.S. personal income, tax revenue, commodity prices, and corporate profits—if the companies even managed to stay in business. Cities that depended on heavy industry were hard hit. Construction came to a virtual standstill. Crop prices fell by roughly 60 percent, forcing many farmers to abandon their fields. With consumer demand plummeting, total unemployment hit 23.6 percent by 1932—with even worse numbers in heavy industry, lumber, agricultural exports, and mining.

Desperate times called for innovative thinking, and Franklin D. Roosevelt brought that to the Presidency in 1933. He balanced the regular budget, but increased the emergency budget (funded by debt) from 33.6 percent of GNP to 40.9 percent. A patchwork of new public-sector programs—known collectively as the New Deal—was instituted in an effort to alleviate the crisis. One of those was the radical—some would say socialist—Work Projects Administration (WPA), which put millions of unemployed Americans to work.

The New Deal also extended federal authority over banking, farming, and welfare; set minimum wage-and-hours standards for private employers; set up the Securities and Exchange Commission (SEC) to regulate the stock market; established the Federal Deposit Insurance Corporation (FDIC) to guarantee bank deposits, and created the Social Security Administration (SSA) to provide assistance for the elderly.

Innovation also grew in the private sector, where companies like Procter & Gamble survived by pursuing new advertising avenues, such as sponsoring radio shows. Movie theaters kept their doors open and seats filled by installing air conditioning, using giveaways, and offering cash door prizes. Breweries—still suffering the morning-after effects of Prohibition—diversified into dairy production and other agricultural enterprises.

The upshot? America began to show early signs of renewed economic health by late 1934, matched many pre-Crash numbers by 1936, and was almost fully recovered by 1940. (GNP was 34 percent higher in 1936 than in 1932, and 58 percent higher in 1940.) Then, to complete the recovery, along came World War II.

STRICT CONTROLS AND A WARTIME BOOM—1941 TO 1945

With no small amount of foresight, the New Deal also created power-sharing departments among three key economic players—the government, the military, and business—to better coordinate on matters of national security. As a result, when World War II broke out, America was prepared—just as a world power should be.

The War Production Board coordinated national productivity to meet military needs—for example, converting auto manufacturing plants to wartime production of tanks and aircraft. Similarly, the Office of Price Administration set rents and rationed scarce products like sugar and gas to prevent rampant inflation.

With massive spending, strict price controls, War Bond sales campaigns, rationing, raw materials management, prohibitions on new housing and new automobiles, guaranteed cost-plus profits, subsidized wages, and the draft of 12 million soldiers, the United States quickly turned into the “Arsenal of Democracy” that Roosevelt had envisioned—one that could stand against the Axis powers of Germany, Italy, and Japan.

Given those efforts, it’s not surprising that prices remained comparatively lower during World War II than they had during World War I, helping the economy grow another 56 percent between 1940 and 1945.

Anyone, anywhere, with a company and a plan for converting to wartime production made money during that time—though, in a preview of some of the more recent complaints about poor business ethics, there were more than a few charges of war profiteering.

POSTWAR PROSPERITY—1945 TO 1963

From the end of World War II to the early 1970s, American capitalism enjoyed a golden era. Many Americans had feared that the drop in military spending after World War II might revive the Great Depression. However, pent-up consumer demand fueled exceptionally strong economic growth in the postwar period. The auto industry successfully converted back to producing cars, and new industries such as commercial aviation and electronics grew by leaps and bounds.

A housing boom, stimulated in part by easily affordable mortgages for military veterans, added to the expansion. Gross Domestic Product (GDP) rose from about $97 billion in 1940 to $273 billion in 1950 and close to $520 billion in 1960. (And, as Figure 1.1 illustrates, that rapid growth continued to accelerate all the way to the twenty-first century.) The simultaneous jump in postwar births—the so-called “Baby Boom”—increased the number of consumers and ballooned the ranks of middle-class Americans.

FIGURE 1.1 The Growth of American GDP—1940 to 2012

Sources: White House Office of Management and Budget; Budget for Fiscal Year 2008, Historical Tables.

The need to produce war supplies had given rise to the aforementioned military-industrial complex, and the ties between business and the military did not disappear with the war’s end, due in large part to the descent of the Iron Curtain across Eastern Europe. Despite intense “guns or butter” debates, the U.S. government—embroiled in a new Cold War with the Soviet Union—chose to maintain a substantial fighting capacity (also needed to support the Korean Conflict) and invest in advanced weapons, such as the hydrogen bomb.

As President Dwight Eisenhower took office in 1953, ushering in a decade of peace, American business entered a period of consolidation, with smaller companies merging to create large, diversified conglomerates. The U.S. workforce also changed significantly. In the mid-1950s, the number of U.S. service providers surpassed the number of manufacturing workers and, by 1956, a majority of U.S. workers held white-rather than blue-collar jobs. In spite of the move by workers out of factories, though, labor unions continued to gain strength.

Farmers, by contrast, faced tough times. Gains in productivity led to agricultural overproduction and lower crop prices. Farming transformed into a big business enterprise, making it increasingly difficult for small family farms to compete. More and more farmers left the land—and, as a result, the number of people employed in the agricultural sector, which stood at 7.9 million in 1947, began a steady decline. By 1998, U.S. farms employed just 3.4 million people—a 56.9 percent decrease.

Other Americans were also on the move. Growing demand for single-family homes and ever-increasing car ownership led to a migration from central cities to suburbs. Technological innovations—effective and affordable air conditioning being a major one—also spurred surges of development in Sun Belt cities like Phoenix, Houston, Atlanta, Miami, and other Southern and Southwestern locales. As new four-lane highways and interstates created better access to the suburbs, business patterns began to change as well. Shopping centers multiplied, growing from just eight at the end of World War II to 3,840 in 1960. Many industries soon followed, leaving decaying inner cities for newer and less-crowded suburban “business parks.”

REVOLUTION, ACTIVISM, AND TURMOIL—THE SIXTIES AND BEYOND

Civil rights. Women’s rights. Anti-war. Cold War. Iron Curtain. Counterculture. Che Guevara. Hari Krishna. IRA. SLA. Space race. Human race. Black Power. Flower Power. Cultural evolution. Sexual revolution.

Welcome to the Sixties—when the only thing that changed was everything.

Globally, the tumultuous, wrenching, and yet strangely prosperous 1960s kept replaying the same three scenarios over and over: Heavy-duty militarization provoking economic change, violent street protests agitating for political change, and revolutionary thinking activating social change. President John F. Kennedy even ushered in a more activist approach to governing when he entered the Oval Office in 1961. Asking his fellow countrymen to meet the challenges of a “New Frontier…of unfulfilled hopes and dreams, a frontier of unknown opportunities and beliefs in peril,” he metaphorically launched the United States into outer space and passed the largest tax cut in history to accelerate economic growth.