Some things worth reading this weekend.
A friend of mine sent me a copy of Collateral Damage: Global Crash Phase Two
A little knowledge is a dangerous thing. I can see why she’d think this collection of writings from market insiders, pundits, and economists would be up my street. And the truth is I will tuck it away and finish reading it in ten year’s time when I fancy a bit of apocalyptic nostalgia.
But as regular Monevator readers will know, little winds me up more than after-the-event experts who even worse bang the drum for a dance that’s already out of fashion.
I wonder how many of the authors of these largely two-year old essays were worried about the instabilities inherent in the financial system before the CDS hit the fan?
I was, albeit relatively naively. Unfortunately I only started Monevator in 2007, but you can get a flavor of my bearishness from this pre-crash post on the UK buy-to-let boom.
What we can know, though, is that these authors thought the world was ending in 2008/09, as did the book’s editor. In fact, he writes in his introduction:
If there is a consensus in Collateral Damage, it is that 2010 and 2011 will see the situation getting bleaker before it gets better, in many analyses disastrously so. It’s certainly not over, and no one who even vaguely understands money and the markets could have thought it was.
Well, it’s true that was the consensus. But as someone who perhaps vaguely “understands money and the markets” (*cough*) I was:
- Questioning what rational investor wasn’t buying [March 2009]
- Suggesting one should buy shares in the bear market [April 2009]
- Pointing to ongoing permabears in the recovery [October 2009]
- Calling the end of the UK recession [February 2010]
Please note that I am not some sort of genius, or always right. I was buying shares in 2008, too soon, and explaining why I thought there was good logic in doing so (and I stand by that). I don’t claim to have timed the bottom in that post in March, except by accident. Shares could have been lower today than back then, if the dice had fallen differently. Easily.
What I do try to do though is fight this war, not the last one. At the moment inflation is more of a worry than deflation, for instance. And half the problems in this book are no longer relevant (yet new problems are).
Doom laden pronouncements like the one I quoted above are endemic in market panics, but since the depths of the crisis he wrote about:
- The S&P 500 has doubled
- Gross World Production (GDP for Earth!) grew 4.6% in 2010
- The IMF estimates it will grow by 4.4% in 2011
So the markets have recovered and the World Economy is growing, too. A good thing the editors of doom-laden compilations aren’t calling the shots!
Indeed, a recent survey of hedge fund managers found 75% think we’re already mid-way through the new economic cycle:
Leaving aside Collateral Damage’s lamentable predictive powers, I haven’t read all the essays yet, but some are quite good historical records.
A few are plain silly though. Typical of the latter is the confused neo-Marxist rant disguised as reason from Danny Boyle of the New Economics Foundation, who argues against things like property rights (hm, tell that to Hernando de Soto) and says economics doesn’t value the environment.
The latter is a particular bugbear of mine – you might as well say mathematics doesn’t value pandas, because it shows their numbers are declining.
Economics analyzes the distribution of goods and services. If it doesn’t put a value on the environment, it’s for the rather more unfortunate reason that human beings don’t value it.
Still, it’s more interesting to read what you don’t already believe sometimes, and Collateral Damage is good for that. Plus there’s plenty that’s fine but dated; it needs to gestate for a while and it’ll be useful historical evidence.
Finally, I know from the comments that many of you are far more bearish than I am. You should snap it up
From the money and investing blogs
- S&P 500 virtually double its bear market low – Swedroe/Moneywatch
- Asset allocation by age – CoupleMoney
- Financial simulations: Should you trust them? – Oblivious Investor
- Total bond market fund vs. treasury bonds – Oblivious Investor
- A better way to buy a house – Simple in Suffolk
- The trampoline of fear and greed – Investing Caffeine
- Altruism: Signaling corporate fitness – The Psy-Fi blog
- 10 side hustles to keep the wolf from your door – Frugal Dad
Mainstream media money stories
- The contagion effect in politics and the markets – The Economist
- Slow recovery for residential mortgage backed securities – The Economist
- Super computer beats quiz champs – The Economist
- British misery index at 17-year high – FT Alphaville
- With retirement savings, it’s a sprint to the finish – NYT
- Can Indonesia join the BRIC countries? – BBC
- Questions for the world’s new number 2: China – BBC/Flanders
- The country with faster growing cities than China [Chart] – Clusterstock
- Equity bulls have taken over – how long before the crash? – FT
- Investing in soft commodities – FT
- There’s nothing normal about today’s markets – Merryn/FT
- Gold and inflation – The Telegraph
- Coping with rising interest rates – The Independent
- Barclays paid just £113 million in corporation tax in 2009 – The Guardian
Like these links? Subscribe to get them every Saturday!
Comments on this entry are closed.
Very much agree. The pendulum always swings too far. I was buying heavily in 2009 and selling nothing. Now I’m just doing a little of both. We are well into mid-cycle, but I’m not going to waste my time worrying too much about how far it has to go.
Bears beware indeed. One of my links above goes to an article about missing the start of bull markets. Something like half the gains typically occur on the early stage — I.e. Well before now!
I don’t understand the chart – what are all those dots around the side? And how can you tell from looking at it that 75% of ‘managers’ think we’re mid-cycle? Anyway, what managers?
Agree with your point re the stock market, however
> 2010 and 2011 will see the situation getting bleaker before it gets better, in many analyses disastrously so.
is getting to look like a pretty good summary of what’s happening to many people’s finances in the UK. Particulalry when all those local authority job losses roll in, and when interest rates start to go up
> Something like half the gains typically occur on the early stage
Is that why it’s getting such a sod to buy a decent income these days compared ot last year? I’ve going to struggle to find ways to deploy 2011/12’s ISA allowance unless we have another crisis soon 😉
I’ve been swapping some equities back into lloyds prefs (LLPC) recently, having totally fluked my earlier disposal as mentioned here. Currently suspended div but I believe capital gains will make up for that by say 2012. Yield will eventually be over 10% on my 92p buy price.
I’d also consider reits as I keep saying, though LAND has had a bit of a spurt recently on inflation fears and a Goldman Sachs upgrade.
(Note for the unwary: LLPC is NOT guaranteed to ever pay again. It’s a risk I’m taking.)
I’ve got to register a protest, for the sheer principle of it.
The premise, the arguments and the flow itself have more holes than a Swiss cheese.
Since you are disregarding the important, brushing away the not-obvious, etc., I am inclined to treat it as an airy opinion of yours (and everyone’s entitled to a few from time to time). And because it is that (an opinion), I will simply leave it at that.
@surio – Of course it’s my opinion. Opinions are what makes a market.
If you think there’s a purportedly watertight argument for/against the state of the global economy, well you won’t find it on this blog and I don’t think it exists.
Perhaps you should buy the Collateral Damage book. As quoted above, it was full of bearish determination and certainty — and wrong.
To paraphrase Yeats: The worst are full of a passionate intensity. Sound and fury, signifying nothing.
In my humble opinion. 😉
@TI I eventually overcame my detestation of all things property and went with BLND along the logic of the REITs, and these seem to have had the same fillip of late as LAND 😉
@Surio I’m way more bearish than TI on a macro scale, but I’m with him in the respect of not fighting the last war. The Rough Beast’s slow thighs won’t be made from the wreckage of the credit crunch IMO…
The fact is that most people of working age who’ve kept their job have never had it so good, as lord young said. I know plenty gushing with free cash due to mortgage rates.
Believe me, I could do with a bit of UK misery, given I’m short a house. 😉 Maybe if rates are hiked far faster than expected, but I don’t expect that yet. More just normalisation.
Cheers for thoughts, good work on blnd.
@I Must Be Missing Something — Sorry, I missed your query. (Been moderating comments via a smartphone this weekend!) As I understand it the dots are the results of previous surveys, and the date of that survey. So, for instance, in September 08 the consensus from the survey was that we were in the first stages of the the early cyclical recovery.
The are hedge fund managers, as I say in the copy. 🙂
What is scary is how quickly we seemed to have moved to ‘mid-cycle’. Pessimists can blame QE for inflating things too fast, optimists can say the hedgies are too pessimistic, and the first part of the bounceback was a recovery from a financial crisis as much as a recession.
Time, as ever, will tell!
Yeats, eh? I knew there was more than one reason I read this weblog… You are Simon Scharma… and I claim my five pounds. !
I had to laugh at the “asset allocation” when it mentions assets for people under age 22… I mean, seriously, how many college students actually have assets that they can deploy?!?
And then, for us slackers, I was too busy trying to still find a permanent job to have amassed much in the way of assets until I was over age 30. Real jobs were hard to come by in the ’80s, so I was 28 before I even had one after graduating at age 23.
@George – I also thought the shifts in equity allocation were a bit fiddly for those early ages. People really over-complicate this stuff sometimes.
I thought the graphs gave a decent overall picture for latter decades, though.
Now now, my good sirs (TI/ermine),
I am in complete agreement with those points you’ve both raised. I mean, why do I come to this site, week after week, read the posts, and judiciously leave comments, unless I feel I am in the company of like-minded souls? 😉 I’m very much a “Small is Beautiful” man myself (from being an early admirer of “big is better”) and I am not in favour of encouraging the pall bearers of last year’s controversies either.
However, having said that, we’ve seen so far that
a) History has a nasty habit of repeating itself, no? So, should we not even give it a fair hearing (Nouriel Roubini, Akerlof, etc…. have had the last laugh, and it would be petty to dismiss their analysis today, IMO?) ??
b) Totally agree that “Marxism” as practised until it collapsed is absolutely horrifying, but “Capitalism” has been no good an alternative either. Some of us that convene here may have escaped the carnage by-and-large, but that doesn’t mean it wasn’t something big enough to “write to home about”?
c) There’s “property rights” as seen by landed gentry vs. ramblers’ rights or the owning of several homes/holiday homes/etc….. in the UK. Perhaps Danny Boyle/yourself had issues similar to that in mind? but I don’t think Leonard de Soto and that point are the same comparison. Also, Leo’s solution is only part of the solution (Who will those farmers sell those Cocoa pods? Evil middlemen?). In my own studies, I’ve followed institutions such as Mondragon and India Coffee House as some examples, which are actually “Marxist” but “not Marxist” in that sense of the word. I agree that labels are convenient, but when discussing issues that are as important as this, labels send wrong messages (my humble point of view) and I perceived a certain mix-up in how the these were read by TI. So, I left that comment above. I hope no feathers were ruffled.
Meanwhile, the juggernaut rolls! 🙁
> If you think there’s a purportedly watertight argument for/against
> the state of the global economy
Your point suggests you’ve seen some of my recent posts? 😉
Yes, I am currently in a certain “misanthropic” state of mind and in the middle of my own reflections about the overall scheme of things being run, but all said and done, you’ll be relieved to know, I don’t think a new “New World Order” blueprint exists either :-P.
But, someone’s got to highlight the bumps on the road from time to time, Eh? (But like you correctly allude in the post, being proved right in hindsight is no consolation for Cassandras).