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4.2 out of 5 stars
Mr. Market Miscalculates: The Bubble Years and Beyond
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71 of 74 people found the following review helpful
on November 2, 2008
"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.
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17 of 17 people found the following review helpful
on February 16, 2011
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.
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16 of 16 people found the following review helpful
on May 3, 2009
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.
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27 of 30 people found the following review helpful
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.
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16 of 18 people found the following review helpful
on November 28, 2009
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.
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4 of 4 people found the following review helpful
on May 15, 2009
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."
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4 of 4 people found the following review helpful
VINE VOICEon April 27, 2009
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.
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4 of 4 people found the following review helpful
on May 5, 2009
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.
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2 of 2 people found the following review helpful
on January 23, 2010
Since the first time I read him, I have been a fan of James Grant. He helped to sharpen my focus on how money and credit work in the long run, and how they affect the economy as a whole. Reading one of his early books, Minding Mr. Market: Ten Years on Wall Street With Grant's Interest Rate Observer, I gained perspective on the increasingly complex financial world that we were moving into.

But not all have shared the opinion of Mr. Grant's wisdom. When I worked for Provident Mutual, the Chief Portfolio Manager (at that time new to me, but eventually a dear colleague) said to me, "feel free to borrow any of the publications we receive." For a guy who likes to read, and learn about investments, I was jazzed. But, when I came back and asked whether we subscribed to Grant's Interest Rate Observer, I got the look that said, "You poor fool; what next, conspiracy theories?" while she said, "Uh, noooo. We don't have any interest in that."

Now the next two firms I worked for did subscribe, and I enjoyed reading it from 1998 to 2007. But now the question: why buy a book that repeats articles written over the last fifteen years?

I once reviewed the book Just What I Said: Bloomberg Economics Columnist Takes on Bonds, Banks, Budgets, and Bubbles, by another acquaintance of mine, the equally bright (compared to James Grant) Caroline Baum. This book followed the same format, reprinting the best of old columns, with modest commentary. In my review, I cited Grant's earlier book as a comparison, Minding Mr. Market.

As an investor, why read books that will not give an immediate idea of where to invest now? Isn't that a waste of time? That depends. Are we looking to become discoverers of investment/economic ideas, or recipients of those ideas? Books like those of Grant and Baum will help you learn to think, which is more valuable than a hot tip.

Here are topics that the book will help one to understand:

* How does monetary policy affect the financial economy?
* Why throwing liquidity at every financial crisis eventually creates a bigger crisis.
* Why do value (and other) investors need to be extra careful when investing in leveraged firms?
* What is risk? Variation of total return or likelihood of loss and its severity?
* Why financial systems eventually fail at compounding returns at rates of growth significantly above the growth rate of GDP.
* Why great technologies may make lousy investments.
* Why does neoclassical economics fail us when trying to understand the financial economy?
* How does one recognize a speculative mania?
* And more...

The largest criticism that can be leveled at James Grant was that he saw that he would happen in this crisis far sooner than most others. Being too early means you eventually get disregarded. The error that the "earlies" made, and I knew quite a few of them, was not recognizing how much debt could be crammed into the financial economy in order to juice returns on fixed income assets with yields lower than likely default losses. That's a mouthful, but the financial economy had not enough good loans to make relative to the amount of loans needed to maintain the earnings growth expectations of the shareholders of financial companies. Thus, the credit bubble, facilitated by the Fed and the banking regulators. You can read all about it in its many facets in James Grant's book.
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2 of 2 people found the following review helpful
on August 15, 2009
Mr. Market always miscalculates and the author of this book predicted the housing bubble that burst last year. This book is a collection of Grant's Interest Rate Observer letters from 1990s to the present economic crisis. He mainly blames human nature for leading us to where we are today. He says that the cause that led to the housing and stock market bubble was the lenders' willingness to loan money to speculators or house flippers. It was not the low interest rate policies of the Fed as many might believe. However, our regulators are not without fault. They set the stage in the 1970s with the deregulation of financial markets.

I really liked the author's description of the financial instruments, especially CDS derivatives. Even if you are not a financial expert, you should be able to understand it because the author has described it in simple terms. Although there is so much evidence supporting the idea that Mr. Market miscalculates, I am amazed at how many institutional investors believe in efficient market theory and have managed their investments through indexing.

- Mariusz Skonieczny, author of Why Are We So Clueless about the Stock Market? Learn how to invest your money, how to pick stocks, and how to make money in the stock market
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