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Devil Take the Hindmost: A History of Financial Speculation Paperback – June 1, 2000
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"The longest bull market in history" is a term that gets used a lot these days. Since 1990, the Dow Jones Industrial Average has risen some 8,000 points, from around 2,700 in January 1990 to nearly 11,000 today--a boom by anyone's standards, including Edward Chancellor's. In Devil Take the Hindmost, Chancellor takes an entertaining, albeit sobering, look at the history of speculative manias and the mass delusion that surrounds them.
Beginning with the "tulipomania" that gripped Holland in the 1630s, Chancellor chronicles the formations and irrational euphoria that can inflate markets, from shares of South Sea stock in England in the 1720s to real estate in Japan in the late 1980s. He characterizes the speculative spirit as one that
loves freedom, detests cant, and abhors restrictions. From the tulip Colleges of the seventeenth century to the Internet investment clubs of the late twentieth century, speculation has established itself as the most demotic of economic activities. Although profoundly secular, speculation is not simply about greed. The essence of speculation remains a Utopian yearning for freedom and equality which counterbalances the drab rationalistic materialism of the modern economic system with its inevitable inequalities of wealth.But it's precisely such inevitability that always seems to win out, when "sharply rising prices followed by sudden panic without cause" bring speculative excess to an abrupt end.
Chancellor makes Devil Take the Hindmost especially relevant to today's U.S. investors by using his analysis of past speculative manias as a lens through which to view the current bull-market binge. No matter what his or her current investment outlook is--bull or bear--anyone with capital to invest would do well to spend a thoughtful weekend with this book. Highly recommended. --Harry C. Edwards --This text refers to the Hardcover edition.
From Library Journal
In an era of rampant speculation and questionable investor habits, it is a pleasure to read an insightful, well-focused analysis of the events that have dominated social and economic history since at least the second century B.C.E. Starting with the speculative frenzy that gripped ancient Rome, British business journalist Chancellor goes on to provide keen insight into a wide variety of events, including the emergence of stock exchanges from the great fairs of northern Europe, the tulip mania that gripped the Dutch Republic in the 1630s, the insanity of the Mississippi and South Sea bubbles, the robber barons and their impact during the Gilded Age, the events leading to the Crash of 1929, the Japanese bubble economy of the 1980s, the Mexican crisis of 1994, the Asian market crisis of 1997, and the speculative manias that have accompanied the emergence of new technologies, including railroads, the telegraph, automobiles, radio, and the Internet. A well-rounded presentation that should be included in all public and academic libraries.ANorman B. Hutcherson, Beale Memorial Lib., Bakersfield, CA
Copyright 1999 Reed Business Information, Inc. --This text refers to the Hardcover edition.
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Until they don't. And that is what lies at the center of fear and greed, humankind's great motivators. (Not love and hate. Those are just variations on the same theme.)
Chancellor does an admirable job of making an incredibly boring subject human, emotional, and funny (my apologies to those who think finance and markets are super interesting—out of context they are, but relative to most other things in life, they aren't). But let's get back to what matters, Chancellor's book. He makes the subject interesting by bringing the greatest manias in history alive—tulip mania, gold, the South Seas bubble, and railroad stocks, among other more contemporary bubbles and manias.
Entertaining and highly recommended if you like history and psychology. Chancellor skillfully brings to life the psyches of the speculators as well as accurately portraying the social and political landscapes that existed when the bubbles began.
A similar book with some overlap but a somewhat different tone and style is Manias, Panics, and Crashes: A History of Financial Crises, Seventh Edition.
"We intended first to boost the stock and property markets. Supported by this safety net - rising markets - export-oriented industries were supposed to reshape themselves so they could adapt to a domestic-led economy. This step was then supposed to bring about an enormous growth of assets over every economic segment, followed by an increase of investment in plant and equipment. In the end, loosened monetary policy would boost real economic growth."
Sounds about right, doesn't it? There's just one catch....
The official being quoted is not a Chinese central banker circa 2011. He is a BOJ (Bank of Japan) official circa 1988.
And we know what came soon after for the Land of the Rising Sun - a toppling weight of speculative mania collapse, coupled with a truly spectacular misallocation of resources and the dead weight of "zombie banks," that hobbled Japan's economy for decades running.
The above quotation is one of the many cited in the excellent "Devil Take the Hindmost: A History of Financial Speculation" by Edward Chancellor.
Having first read "Devil Take" many years ago, but never having reviewed it, we were inspired by recent events in China to pull it down from the bookshelf and reexamine the chapter on Japan.
The similarities - China now, Japan then - are notable.
Japan in the late 1980s, like China now, was a booming command and control economy. Officials at the all powerful Ministry of Trade and Industry (MITI) and Ministry of Finance, via the power of back channels, chose how to steer "Japan Inc." at will.
Further evoking China, Chancellor observed of the Japan bubble that "speculative mania is often a symptom of hubris," with great manias tending to occur "when the economic balance of power is shifting from one nation to another."
As Chancellor describes the late 1980s scene,
"America was on the run. While Japan had its trade surpluses, America faced growing trade deficits. The Reagan administration also produced enormous budget deficits that were only sustained by the willingness of Japanese investors to sink their country's trade surplus into U.S. Treasury bonds..."
As Yogi Berra might quip, re Japan vs. China, it's "Deja Vu All Over Again."
Or perhaps "Nobody invests there anymore, it's too overbought."
Those timely parallels aside, "Devil Take" is an engrossing book that traces the roots of financial speculation all the way back to Roman times. Thanks to Chancellor we learn the Latin meaning of the word speculator: It originally applied to sentries, whose job it was to "look out" (speculare) for trouble. Ancient Rome's financial players, on the other hand, were known as "quaestors," or seekers.
And the quaestors had much to seek. Chancellor reveals that two millennia ago there were joint stock companies with thousands of employees (slaves), public accounts, and even joint shareholder meetings with differing classes of company shares. One wonders if there could have been rough-hewn J.P. Morgans and Jesse Livermores of the Roman age.
Human nature was certainly the same. As Petronius Arbiter wrote of the Rebublic's final years,
"...filthy usury and the handling of money had caught the common people in a double whirlpool, and destroyed them... the madness spread through their limbs, and trouble bayed and hounded them down like some disease sown in the dumb flesh."
Thus beginning with ancient Rome and the origins of financial speculation, Chancellor then takes an erudite journey through the forgotten touchpoints of speculative mania history - from "stockjobbing" in the London boom of the 1690s, to John Law and the South-Sea Mississippi Scheme, to the "Fool's Gold" of the 1820s and the Railway Mania of 1845.
The book then covers speculation in the Gilded Age, and rounds out the 20th century with a look at the crash of `29 and the go-go 1980s (via cowboy capitalism and, last but not least, Japan).
Needless to say, pollyanna permabulls will not much like this book. But for those with a natural contrarian streak and an acquired taste for the "dark side" (i.e. going short), "Devil Take the Hindmost" is a delicious and informative romp.
The lessons of speculative mania are clearly a warning to unrestrained bulls, but they hold an important message for bears too: Manias can be quite dangerous, fatal even, for those who stand in their path without yielding.
The persistently recurring nature of the episodes Chancellor describes - and the ability of froth to reach incredible heights - is great testimony to the old J.M. Keynes warning: "The market can remain irrational longer than you can remain solvent."
He's not writing with an "agenda" and common themes emerge in a quite natural way from his narrative:
1) Speculation in modern times is closely connected with technological development eg. railways, electricity, automobiles, radio, computers, internet, etc. and this is undoubtedly positive as it directs capital at areas that offer fast increases in development and productivity.
2) Speculation tends to need a widely publicised "success story" to take off eg. 1767 the Duke of Bridgewater's highly profitable 30 mile canal from the coalmine on his estate at Worsley to the new textile factories at Runcorn, or, in more modern times the shockingly successful 1995 Netscape Communications internet flotation.
3) As a speculative area becomes widely subscribed excitement mounts, profitability declines and an urgent demand for credit (to speculate with) is met by the banks eg. 1720 the City exhausting its possibilities of lending against South Sea Company stock and the South Sea Company itself exhausting the possibilities of lending to its own buyers, or, more recently in 2007, (after this book was written), mortgage backed securities accommodating and extending the great New Millennium property speculation.
4) Late stage speculative booms combined with easy credit and lax government supervision attract a fine collection of opportunists and thieves floating overpriced (or worthless) shares onto a gullible public or issuing valueless bonds, eg. 1998 Yahoo! capitalization = 800 times earnings = $35 million per employee, or 1988 Michael Milken fabricating junk bonds (supposedly only junk in name) to finance the LBO wrecking of perfectly good companies for his and his friends vast profit. As the author says, "...junk bond purchasers taking most of the risk and "takeover entrepreneurs" snaffling most of the rewards."
I can highly recommend this book, especially for the way the author evaluates the interaction between investment and speculation. Is investment a by product of speculation or is speculation a by product of investment?
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