Code Red is an army lingo borrowed from a popular Hollywood blockbuster A Few Good Men — it denotes extreme and unorthodox policies, though distasteful, which can be implemented by the army only as a last ditch measure in the face of a severe threat to the defense of the nation.

Interestingly, the name is also used in several other areas, including computing. It was a computer worm detected in 2001. In A Few Good Men , despite the extreme circumstances, the colonel still has to justify use of these policies during his court martial proceedings. In this book, authors John Mauldin and Jonathan Tepper use Code Red to denote a series of extreme policy measures that several governments and central banks across the globe instituted after the Great Financial Crash of 2008-09.

Crisis and after During the past few years, we have been bamboozled by terms such as QE (quantitative easing), ZIRPs (zero- interest rate policies), nominal GDP targeting, money printing and currency wars. Have you ever thought what could be the impact of these policies, mostly introduced after the 2008-09 meltdown on finance and, even more importantly, daily lives of people? Have they helped change the world for good?

If economies around the world, particularly the US, are not showing recovery signs even now, will these policies continue endlessly or is there a clear exit plan?

Tough to answer. But there is certainty on some aspects — as the authors point out, the intended beneficiaries of these unconventional policies have been big banks, governments and top borrowers; but what about the poor saver for whom these policies are clearly bad? How are investors to react in such an uncertain investing environment?

This book is a brilliant attempt to answer these highly relevant questions. That said, this is not the first book to do so. There have been several books analysing the Crash and its aftermath, including Michael Lewis Boomerang and Andrew Ross Sorkin’s Too Big To Fail . These have ranged from the ones which provided juicy stories of greed to the others aimed at answering the technical questions.

Code Red is a welcome addition to that body of work and topically evaluates whether the extreme measures instituted by central banks and governments are working. Though there is a semblance of normalcy in the markets today, deep down we all feel that some of the current macro policies are not sustainable and something has to give sooner rather than later.

As the authors state, the game plan of the central bankers in developed markets is clear: they are trying to ensure that their policies will bring in inflation, which, in turn, will devalue debt which will be great for their governments as they are all running huge deficits.

Tweaking policies While all this is happening, stock markets at home and around the world will continue to rise thanks mainly due to excess liquidity from easy money policies. This will contribute to an overall feel-good factor, which will hopefully deflect focus from the problems.

As the book points out, governments worldwide seem to be using monetary policies to get out the mess that they find themselves in. Putting their own house in order and building competitive and manufacturing skills do not seem to be the priority. A case in point is Japan’s policies and the currency war that it is about to unleash.

Scarily, the authors note Japan and other countries seem to be following a beggar-thy-neighbor policy by trying to ‘export’ their problems. Clearly, Japan has many internal challenges which need to be tackled to combat its crippling low growth. Its demographic dynamics are worrying - in 2012, sales of adult diapers surpassed sales of baby diapers for the first time!!

The authors question whether central bankers are competent enough to steer their countries out of trouble. Before the Great Financial Crisis, though data pointed to poorly regulated banks and an upcoming bubble, influential thinkers and heads of major financial institutions in the US were just fawning over Alan Greenspan and his policies without even a murmur of dissent.

With a touch of humour, the authors get across a serious point: a graph in the book captures the number of laughs recorded in the meeting of The Federal Open Market Committee (FOMC) minutes before the crisis broke out and it is clear from the all round laughter that the key decision makers were asleep at the wheel.

Similarly, the consensus on Wall Street post the crisis was that the US Congress should reinstate the Glass Steagall Act which had served the financial markets well before its repeal. Instead, the Dodd-Frank Act, a complicated piece of legislation, well over 2,300 pages was passed. Apparently, this Act was nicknamed Lawyers and Consultants Full Employment Act of 2010!

Part one of the book, which analyses the efficacy of the macroeconomic policies brilliantly whets your appetite to find out what is the prescription on managing one’s money which is covered in Part two.

Exit rules That investors need to brace themselves for volatility is a given. Remaining calm in the face of bubbles will be needed — as the authors cite, timely exit when a bubble bursts is difficult even for the accomplished; Quantum Fund of George Soros was down 22 per cent in April 2000 when the tech bubble burst despite Soros, being one of the few, who repeatedly warned his fund managers of an impending bubble.

The authors prescribe time tested investing guidelines: do not try to time the market, be cautious of home bias in investing, build a portfolio of equity stocks with strong moats and businesses that are inflation proof and be extremely wary of leveraging to improve your returns.

Ideally, one would have liked this section to be a little more detailed and provide some more insights for investors across various geographies including emerging markets.

That would be the only quibble, in what is otherwise an excellent and highly recommended read.

(The reviewer is the co-founder and CEO of Mumbai-based Consumerge Wealth Managers)

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