Customer Reviews

Mr. Market Miscalculates: The Bubble Years and Beyond

5 star:		(15)
4 star:		(7)
3 star:		(4)
2 star:		(2)
1 star:		(0)

 

 

"The Cassandra industry is not so remunerative as the hedge fund business, so the professional investors and bankers stay in the race, taking the kind of risks that their better judgment tells them to avoid." states James Grant in his 'Mr. Market Miscalculates, The Bubble Years and Beyond,' a work comprised of pieces from his 'Grant's Interest Rate Observor.'

Grant has been charting the course of market excesses on a fortnightly basis for 25 years, and he has a remarkable record of getting it right. Most pointedly, Grant illuminates the human foibles to which we all fall prey and how these foibles precipitate the daily gyrations of stock and bond price levels. Grant's wealth of understanding is outstanding enough to recommend the book, but his ability to generously lace his writing with his sense of humor makes his writing simply priceless.

About the dismal financial crisis, Grant wryly remarks that there is more than enough blame to go around. Grant faults human nature in general for markets gone wild, yet he is particularly impressed by the level of incompetence exhibited by recent leaders who, according to Grant, "failed almost to the man."

The no-holds-barred book journeys through the missteps of the economic leaders of our times, and it does so with a breath-taking straightforwardness. Given the state of the world's economic affairs, I hope 'Mr. Market' becomes required reading for the legislators, the judiciary, and the executives charged with fixing the world's financial systems.

Grant has written a very nice critique of the deregulation of the financial markets that has been going on since the late 1970's.The Federal Reserve System(Fed) and SEC(Securities and Exchange Commission)simply allowed the big commercial banks and investment banks to ignore all of their OWN creditworthiness standards on who qualifies for a loan ,as well as letting them load up on all types of highly speculative types of assets, like collateralized debt obligations(CDO's). He pinpoints the major problem that led to the current collapse of both the housing bubble and the stock market bubble.It was not the low interest rate policies of the Fed.It was the decisions made to loan money to speculators and well known house flippers(in some real estate markets, 35% -40% of the housing loans were going to house flippers)that set the stage that created the housing bubble and then led to the total collapse of the construction sector in the vast majority of the 50 states.
I have deducted 1/2 of a star because the author is apparently unaware that Adam Smith spent 80 pages of The Wealth of Nations(1776;pp.260-340, especially pp.339-340) warning about the dangers of allowing banks to make loans to projectors,imprudent risk takers,and prodigals(These categories of borrower are equivalent to the speculators and rentiers responsible for creating the housing bubble of the mid-to late 1920's and the stock market bubble of the late 1920's).Smith made it clear that such categories of borrower will waste and destroy the loans generated from the savings of the bank's depositors.The central bank should aim at maintaining low rates of interest while simultaneously restricting loans to the three categories of borrower mentioned above.

Interesting book for those who wonder how we messed up our financial system. Book consists of 60 articles/essays by Grant, originally written during the years 1999-1Q08, so it takes you back in time to when the bubble was inflating. Each article is 6-10 pages long, so ordinary readers who normally avoid reading economics can enjoy and finish each one, plus Grant is a witty/skillful writer. Biggest revelation is Grant's plain-English criticism of Alan Greenspan's policies (made during Greenspan's reign). We all know the "Maestro" kept rates too low too long, now we see why. Makes you wonder why Congress and the public treat Fed chairmen with fawning exaltation.

Mr. Market Miscalculates was my first sustained introduction to the writings of James Grant. I became an immediate fan-boy.

The book is a collection of essays that originally appeared in the pages of Grant's Interest Rate Observer, a must-read research publication for serious investors. The book however is organized in such a way that both professional and novice market observers will gain from. Grant's style is sophisticated and somewhat verbose, yet elegantly, if not effortlessly, weaves both history and current cultural phenomenons into his prose.

Grant takes the reader on a journey through two of the most amazing bull market turned bubble manias in history: The late 1990s Tech-Media-Telecom led boom in US stocks and the follow on act in the Housing and eventually Mortgage-backed Securities markets. The insights come mostly in "real-time" which allows us to appreciate the insanity of the times without the benefit of Monday Morning Quarterbacking. One can't help but think, had he or she been reading Grant at the time (and heeded his advice) then there would have been plenty of opportunity to not only avoid some of the largest losses of the decade, but actually prosper.

The other top level topics covered by Grant include two of his favorite: Monetary policy and the consequences for bond markets and currencies, including gold; Value investing and the immortal advantage of knowing what something is worth.

Mr. Market Miscalculates is an excellent collection of Grant's unmatched combination of style and substance. Be warned however, if you get hooked on Grant as I have, you will be forced into becoming a subscriber of his paid newsletter/research service and it will cost you. It's worth every penny.

Although this book provides excellent information on how the market works and what has gone wrong over the last decade(s), it is somewhat dated since the book is simply a compilation of sometimes-prescient but outdated articles (from the '90s) published in GRANT'S Interest Rate Observer. Unfortunately, whoever put the book together was in such a hurry to get it into print, he/she/they forgot either to INCORPORATE the charts, tables and graphs that appeared in the original articles or to ELIMINATE the REFERENCES to them. I found several references (and I'm paraphrasing) to "In the table that follows ..." - but there WAS no table. Instead of enjoying the author's insights, I was constantly annoyed at the sloppiness of the editing, which, with any foresight by the editor or author, should have been much more carefully done in a presumably "precise" non-fiction book.

This is not a single book, but rather a collection of essays from Jim Grant's Interest Rate Observer. Many financial professionals at hedge funds and other institutions subscribe to Jim Grant for his witty, intellectual approach and macro views on the market. He often finds a bond, stock, or other investment that is over- or under-priced and explains why. He is a value investor, capitalist, and gold bug at heart. A subscription to his newsletter costs nearly $2000 per year, so this book is a bargain if you want to get a taste of his own favorite essays for only $9.99.

Many of these essays are fascinating, especially the ones foretelling certain doom in mortgages, CDOs, CDSs and other derivatives. I found the "book" to be intellectually stimulating and refreshing for the first two-thirds, until at that point I wanted to relax my mind. I found myself saying "I got it, Jim, you like Gold instead of Paper Money!"

If you are looking for an explanation of value investing or a breezy read on the markets, this is not the book for you. If you're the type of reader that relishes the long essays in the New York Times Weekend magazine focused on a specific topic, this book will give you great joy.

For financial professionals, this book is worth the price for the articles on CDS derivatives alone.

One of my favorite quotes:
"How convenient it would be now if mansions and subdivisions could be exported, to improve our foreign trade balance. Since they cannot be exported, perhaps the foreigners who own our massive debts can be repaid by coming to live in our McMansions, with homeowners serving as houseboys and house maids to the visiting Japanese and Chinese owners of our debt"

A typical passage from an essay on CDOs:
"Synthetic CDOs are different. They don't buy actual mortgages, or mortgage slices, as their cash-flow cousins do. Rather, they sell credit protection against such loans and slices. That is, they gain exposure to the subprime market by writing credit-default swaps on it."

I haven't finished the book - but I have greatly enjoyed what I have read so far.

And yes, it is a compilation of old bi-monthly written reviews from Grant's Interest Rate Observer, and it is a recently selected compilation.

perhaps that means that the less perspicacious reviews were left out and as such we are seeing the author as smarter than he really was.

but regardless, I have enjoyed and learned from the reviews that have been printed in this book - and I believe that I am seeing the present world and possible future worlds a little more clearly as a result of what I have been reading in this book...

I heartily recommend it.

This is my first contact with Grant, the editor of "Grant's Interest Rate Observer". I just wish I had been a subscriber since 2000 and one who would have acted on what he said. Not since I read Winston Churchill's, "The Gathering Storm" have I read a book that shows such prescience and gives over and over the warnings of a boding calamity that, if the warnings had been heeded, could have been lessened in intensity if not prevented.

But one great mind is never able to sway leaders and politicians bent upon a self serving course of affairs, be it conquest on one side vs appeasement on the other or in the financial world greed/financial power on one hand vs political power and its misuse on the other.

His article of 8/11/2006 predicts, "the long -provoked national bear market[in housing]already underway."
The article of 9/22/2006,"Age of Aquarius", describing CDO's and subprime mortgages in general as well as,"ACA Aquarius 006-1 is a $2 billion,mezzanine-structured, hybrid collateralized debt obligation, or CDO." in particular makes one wonder how these impossibly complex and unsound instruments ever floated. But greed and the fear of not getting in on easy money makes people do amazing things. This is the one chapter we all should memorize.

He nails the big banks like GS, C, and defunct Merrill as well as their sometimes nefarious CEOs like Ruben and Paulson who obtained great political as well as financial power or ones like O'Neal, and Thain who broke their companies and gives a new(to me) inside view of Alan Greenspan that shows him to be merely mortal and sometimes pretty fallible too.

A great read and fun to see his humor poke the 'questionable' guys. The cartoons of Hank Blaustein are a lesson in themselves as well as humorous.
I just wish I could afford a subscription to the newsletter.

I found the essays here somewhat predictable and no great joy as to style.

But this new book led me backwards to his earlier book MONEY OF THE MIND, a wry and spunky 100-year history of debt, booms, busts, and folly, which I enjoyed a great deal and found a real page-turner.

What can I say... if only more people, from policy makers to most investors, had read these articles back in 2005/2006, would the crisis be less severe ?? perhaps not... it's however prob. worth >$400 annual subsription fee if u knew back in 2005 there was something v. wrong in the US housing market...

On mark to model in Aug 2005: In the absence of deep and liquid public markets, such a fund can value its mortgage derivatives according to what a P.H.D infers they ought to be worth.

and then you have articles in 2006 on CDOs with conclusion like:

The primary drivers of housing securities and home prices are the rating agencies - whose models and calculations of correlations, diversity and default probabilities are currently based only on bull market experience

How v. true...