Some things worth reading this weekend.
A friend of mine sent me a copy of Collateral Damage: Global Crash Phase Two [1]
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 [2].
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.
[3]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 [4].
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 [5] [March 2009]
- Suggesting one should buy shares in the bear market [6] [April 2009]
- Pointing to ongoing permabears [7] in the recovery [October 2009]
- Calling the end of the UK recession [8] [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 [9] 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 [10] 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% [11] 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 [12] of hedge fund managers found 75% think we’re already mid-way through the new economic cycle:
[13]
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 [14]) 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 [15] 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 [1]
From the money and investing blogs
- S&P 500 virtually double its bear market low – Swedroe/Moneywatch [16]
- Asset allocation by age – CoupleMoney [17]
- Financial simulations: Should you trust them? – Oblivious Investor [18]
- Total bond market fund vs. treasury bonds – Oblivious Investor [19]
- A better way to buy a house – Simple in Suffolk [20]
- The trampoline of fear and greed – Investing Caffeine [21]
- Altruism: Signaling corporate fitness – The Psy-Fi blog [22]
- 10 side hustles to keep the wolf from your door – Frugal Dad [23]
Mainstream media money stories
- The contagion effect in politics and the markets – The Economist [24]
- Slow recovery for residential mortgage backed securities – The Economist [25]
- Super computer beats quiz champs – The Economist [26]
- British misery index at 17-year high – FT Alphaville [27]
- With retirement savings, it’s a sprint to the finish – NYT [28]
- Can Indonesia join the BRIC countries? – BBC [29]
- Questions for the world’s new number 2: China – BBC/Flanders [30]
- The country with faster growing cities than China [Chart] – Clusterstock [31]
- Equity bulls have taken over – how long before the crash? – FT [32]
- Investing in soft commodities – FT [33]
- There’s nothing normal about today’s markets – Merryn/FT [34]
- Gold and inflation – The Telegraph [35]
- Coping with rising interest rates – The Independent [36]
- Barclays paid just £113 million in corporation tax in 2009 – The Guardian [37]
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