With so much instant information available at the click of a mouse these days, the boring old book seems to have lost a lot of its grandeur.
But one of the biggest problems in the world today, perhaps, and in the markets – certainly – is too much emphasis on little chunklets of information that are easy to get for free and fast on the internet, and not enough emphasis on wading through the heavy, many-paged, dated tomes that used to be the main repository of knowledge.
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The internet lets us know exactly what Paris Hilton was wearing an hour ago, the latest micromove in gold prices and whether or not anyone has sent us email in the last two minutes, but it doesn’t provide much in the way of disciplined, linear thinking for someone who wants to get beyond the flotsam and jetsam of the news. For that, you still gotta go to books.
So, being New Year’s Eve, I thought I’d join all the other chattering voices in the media in talking about books to read in 2009, all with a market focus. In this most incredible time in the markets since the 1930s, gaining a bit of deeper knowledge will probably be a good thing.
Here are two I haven’t read yet but intend to:
1) The Ascent of Money by Niall Ferguson. Ferguson is the rarest thing in the world – a superstar historian. He’s been a big deal all decade so far with books on the First World War and on the legacy of the British Empire. He’s gotten noticed because he radically reexamines old, trodden-over subject matter and finds wild new spins to them, such as that Naziism and Communism were partially the fault of the British who should have let the Germans crush the French and the Russians in the First World War because that would have eliminated the causes of Nasiism and Communism, and that the British Empire was a Generally Good Thing for the World because it extended free markets, democracy, protestantism, the English language and pragmatism across the planet.
In this book he examines the history of that oddest thing in the world, something that we take almost completely for granted: money.
Not only has money gone along with the development of civilization from its beginnings, but the modern world is to a great degree a product of the development of more and more complex forms of indirect repositories of value, including the fabulous array of “debt instruments” that now exist. I haven’t read the book yet, but I know from watching about a dozen interviews of him about his book that he delves deeply into the recent explosion of ways of creating debt and selling them as assets, one of the key components of the recent financial apocalypse that we’re all living through. He claims in interviews that part of his drive to get the book published was that he saw something like this coming and wanted to have something out there for people who wanted to develop a wide understanding of finance, money, debt and bubbles. Who knows if that’s true? But it’s certainly a timely topic and anyone interested in the markets and the role of debt in making and breaking them could probably benefit from the book.
2) Payback: Debt and the Shadow Side of Wealth, by Margaret Atwood. No, Margaret Atwood isn’t a financial expert and no, she has no experience whatsoever with the markets. But that’s what I hope makes her book worthwhile reading. Whatever her perspective is on the present imploding debt bubble, it’s likely to be a way-outside-the-beltway point of view that will be a useful counterpoint, I hope, to the views of those deeply immersed in studying market history, such as Ferguson. Debt, finance and the markets are such complex topics that generally no one other than lifelong experts dare wade into them. I’m looking forward to hearing big-haired, monotone-voiced Maggie A give us her two cents.
Here are a couple of books I read and reread last year, that I still think are valuable to anyone wanting to understand the deeper forces that propel all markets:
a) The New Paradigm for Financial Markets – the Credit Crisis of 2008 and What it Means, by George Soros. Soros is one of the world’s truly great investors, one of the originators of modern hedge funds, and the bane of any nation that has an overvalued currency. (He gets blamed by many for breaking the British pound at one time and causing the Asian currency crisis of the late 1990s). He has been stunningly successful over the decades, so his views on the markets in general, and this present mess in particular, are well worth absorbing. Like a lot of books flipped out by Great Men Who Are Very Busy, this one seems rather rushed-together, a bit messy and poorly edited. But I suppose he was scrambling to get his thoughts out through the tortuous publishing pipeline while there was still a financial crisis to be relevant about. I don’t think he has much to worry about there. Soros is particularly interesting, I think, on the dangers of what he calls Market Fundamentalism, which is the worship of the market as not just a good and efficient way of ordering economic activities in a liberal society, but also as almost a God in itself, with omnipotent powers to do good and to always correct itself without outside interference. Soros’ argument is that markets may at times tend towards equilibrium and problems be resolved by the inner functionings of market dynamics, but that there are also times when the market goes so far out of whack that instead of exhibiting self-correcting tendencies, it develops self-reinforcing self destructive ones. He says the latter happened with the explosion of debt financing this decade, hence the world economic plight.
b) The Black Swan, by Nassim Nicolas Taleb: This book is a development of ideas Taleb first explained in Fooled By Randomness. He is a New York options investor who has made a rewarding living and a few piles of cash, by betting on Big, Unexpected Things Happening. He thinks the markets think the world is far too rational and predictable a place, and that expectation is baked into market prices. So he buys way-out-of-the-money call options on all sorts of things in the expectation that somewhere, somehow, something big is going to go bad. When it does, those wacky options all of a sudden become gold and he makes a bunch of money. He did this as a result of September 11 and the recent financial meltdown. (He didn’t anticipate either, and his point is that no one does, so far-out-of-the-money call options are almost always far underpriced, giving him these opportunities). His books spend little time on discussing specific trading strategies – really just a few paragraphs – but provide oceans of discussion and examples about his point that most of what we consider to be the predictable results of things are actually the products of chance – luck – and that we are fated to live lives of disappointment if we live as if we can plan out the future and rely on common wisdom to get by. I’ve read his books a couple of times and always find them interesting, informative and entertaining, so I recommend them. But as with all guru-types, I find he takes his one basic point – about the prevalance of randomness and people’s error in seeing causality – a bit too far and his schtick becomes overextended and you want to pull him off the stage and get the next act on. He’s got a good point to make, but unfortunately he like so many of these prognosticators appears to think he can reduce all of human experience to his one big revelation. Still, these books contain a lot of useful grist for the mental mill.
With that I’ll wish you all a Happy New Year, and see you in 2009.
