The Great Reset 2021 is an intriguing book by Jeff Brown titled “The Great Reset.” In this book, Wetcher examines the ramifications of a Great Recession on U.S. equity prices, which he characterizes as “a near-universal universal collapse of the American dream.” Specifically, he looks at four categories of risk to be taken in relation to equity markets: geographic area, time period, sector, and individual investor risk. The book examines the impact of the Great Recession on these four categories of risks, providing a very useful bit of economic history for investors interested in making long-term investments. The purpose of this review is to provide a basic understanding of this book and what it can tell you about current equity market issues.
As outlined in The Great Reset, the United States economy suffered a near-total collapse in the construction industry. This industry suffered a massive decline in profit rates because of the high level of labor force reduction and heavy equipment downtime. The most severe impact on investors was the decline in house building, leading to a rapid rise in the price of housing, which translated into a decline in overall real estate prices. The authors identify five main factors behind this trend, and provide a general description of the factors, as well as a number of case studies of real-estate investors who have profited from the Great Reset.
The first area of real estate investment risk concerns the general condition of the U.S. economy. The authors point out that most economies suffer from a slow start, but the U.S. started off poorly due to the subprime mortgage crisis and financial crisis. They correctly point out that these events resulted in an unfavorable housing market and consequently caused stock prices to crash. However, they also detail how investors reacted, driving up stock prices, and creating an environment ripe for subprime lending. While this type of lending did not cause the Great Recession, the authors explain that the subsequent collapse of house prices was made worse by the lack of quality loans available to buyers.
The second area of significant risk is what is known as “covid funds”. The term covid refers to a type of short-term investment, which concentrates on equities (a type of stock) and has very low volatility. The authors explain that while this is an attractive option for investors during the initial period of calm, it becomes less attractive as the equity market becomes more volatile.
The final area of real estate investment risk concerns the composition of stock exchanges themselves. While most stock exchanges initially became stable and welcoming to short-term investments, recent years have seen a shift towards longer-term investments and away from the short term. This change impacted the types and sizes of shares available for regular investors. For example, while it was common in the past to find common stocks in the mid-size, high-end, and energy sector, this is no longer the case. The authors explain that as this shift occurred, investors became attracted to larger cap stocks (at the top of the market) rather than the small, high-priced shares of the past.
The book concludes with a look at two other potential catalysts for the first quarter of the 21st century. The first is the coming into force of the Asian Development Bank, whose stated purpose is to finance infrastructure in Asia. The second is the emerging convergence of global currency markets, which the authors term’s a second Great Reset. The authors make a great case that the coming of the Asian Development Bank and its announcement that it will provide financing of up to $600 billion over the next five years is a significant move, one that will have a major impact on global markets.