Financial-markets

This book provides great insight into investment bubbles and the madness of crowds. My only complaint is that the subtitle, "Surviving the Soft Depression of the 21st Century," is somewhat misleading. There isn't much investment advice to be found here, other than "Sell the DOW and buy GOLD." This is excellent advice as far as it goes, but in this book it doesn't go much farther. Having said this, I think the author does a great job of drawing parallels between the Japanese economy of 1989 and the U.S. economy of 1999. There are compelling arguments to be made that our economy is destined to decline in much the same way that Japan's did ten years earlier, but in greater magnitudes. I also enjoyed the political discussions about democracy and freedom, and how the first doesn't necessarily guarantee the second. The fact that the author is also a copywriter, makes the book a pretty easy read.

The premise of this book is a return to what's essentially and historically true about wealth building and wealth retention. William Bonner develops a very powerful historical analysis of booms, bubbles, and busts in the context of human behavior in the market place. He characterizes how an individual, a nation, and a civilization participate in prevailing markets that produce and destroy wealth. It's a powerfully insightful study of the pros and cons of the uses of paper currency systems, in markets since the first major such boom and bust in circa 1720 France. The reader will find many familiar elements in each of Bonner's historical examples.

The book opens with a review of the most well known corporate failures of the early 21st century. It's an effective survey, explicating details in a cohesive historical manner, which makes those events and times sensible and understandable.

In another chapter, Bonner writes a terrific history and philosophical treatment of Alan Greenspan. This enigmatic character has been something of a mystery to me, and I finally now know whence Greenspan came.

Bonner effectively chastises modern economists who rely exclusively upon quantitative methods without factoring in without understanding the qualitative nature of the markets-for example, the mass psychology of the mob. He identifies the larger quantitative issues that apply to the market-issues that determine how the markets must respond in kind. For example, his chapter on demographics is so compelling that it is almost frightening in places.

He locates two powerful modern demographic surges. One is the aging of the baby boomers, in both Japan and in the rest of the western industrialized world. Craig Karpel developed this factor is very well too, in his book, "The Retirement Myth." Bonner shows how the aging baby boomers will depress the stock market in the long run, and create a very serious crisis in health care costs-especially where large numbers of the aged and longevity are concerned.

The other demographic time-bomb is the radical boom of young males in primarily Islamic countries. This factor is also very well explored some fifteen years earlier, in James Dale Davidson's work, in "The Great Reckoning." In this case, Bonner shows that whenever similar demographic surges occurred in history, socio-political and economic systems were challenged, in crisis, and ultimately transformed into something completely new.

In a major sense, the book appears pessimistic about the future of the American economy. In "The Great Reckoning," Davidson writes, that in what seems to be prosperous modern America, we're actually spending down the capital wealth accrued over two hundred years. Although I intuitively knew he was correct in that assertion, I never fully understood how. With "Financial Reckoning Day," I now have that full understanding at last. It makes so much sense. Yet, under girding Bonner's treatment, is a refreshing grounding of the fundamental principles of true wealth building.

I come away from this book with confirmation that the basics of how to create real wealth (in lieu of deriving it,) saving money (in lieu of spending it,) and storing value in precious assets are fundamental and sound. So much of the market behavior in the past two decades has been counter-intuitive-and often I've been somewhat bewildered, thinking that something was wrong with me. Yet, I have never followed the masses in my investment choices. In his new book, William Bonner has validated the common sense basics that I have believed in, and followed, which will yield prosperity even in the emerging economy.

One more book that warns us about the weakness of the US economy and the possible collapse of the dollar in the short term. What sets this book apart is the approach to the topic through the route of financial history, sociology and of course a good grasp of macro-economics. History, the authors argue, has taught us many lessons, only to be quickly forgotten. Two important lessons from the past are that paper money cannot make paupers rich and empire building through military might has ultimately brought misery to mankind. However, nations have consistently repeated these mistakes and lamented when it was too late. No prizes for guessing who the latest adventurer is.

This book is a brilliant expose of the "new economy", the irrational behavior of crowds and its malaise of overvalued stock and asset prices that cannot be sustained. Even the Nobel prize winning theory of efficient markets fails to describe the phenomenon in US markets during the last decade of the twentieth century. Irrational exuberance cannot be explained by rational theories. The book opens with an analysis of the new economy driven by Information technology, and blasts the myth of the new found prosperity. The new economy was supposed to signal the end of history by shortsighted economists during the days of irrational exuberance. The internet in fact amplified the behavior of crowds across continents and created bubbles that were larger than ever. Companies without any revenue, leave alone profits, were busy making money through IPOs and engaged in the most innovative forms of financial engineering to drive their stock prices north. Who cares as long as it makes us rich. But then, history has taught us that reality will catch up and so it did.

There was a time in the seventeenth century when the infamous John Law ( he was mostly on the opposite side of his second name) created the concept of paper money and central banking that ultimately brought his country on its knees. Using this example, the book attacks monetarists for the unbridled expansion of liquidity in a system that temporarily believes that paper money is real. Modern day economists tend to treat the economy as a machine that can be manipulated by driving some screws and made to run a little faster. The problem , the authors feel, is that soon they will be left with no screws and also run the risk of tampering with the wrong ones. Printing more money at regular intervals, is considered a panacea for all economic ills by these pundits of prosperity.

Economic lessons from Japan are described in a separate chapter and quoted in most other chapters of the book. The chapter devoted to "The Hard Math of Demography" is excellent and the topic of an aging America and its economic implications is discussed with accurate statistics and analysis to back the conclusions.

Finally one gets the big picture of the big bubble. Americans are spending and the Fed is encouraging them to spend borrowed money. To make things easier, the interest raters are lowered and more money is printed. Savings rates in the US have reached an all time low close to zero while private sector debt is three times the GDP. US is now the biggest borrower and foreigners till now have believed that the paper money printed by Fed is a safe currency. This illusion may not continue. The party will soon be over, and a massive hangover is imminent. Currency that is not backed by gold or equivalent assets is nothing but what it is made of - paper. History tells us that forbearance and thrift and not profligacy lead to prosperity.

Text books on history a few decades from now will probably carry a chapter on what went wrong with the worlds' once most powerful nation.

Contrary to the academic snobs this book presents a basic overview with enough general content to get you going in this area. If you are looking for a seminal book on the subject full of derivatives and summation signs compounded with footnotes to obscure books whose seminal ideas are now dated, then look elsewhere. In the retrospect the book is now 3 years old. Given that technology and markets have changed the book still remains current. For you techies still having to buy this book maybe you never applied what the author also taught in the book. Maybe a little realization that this book is also geared to make you money should have any potential buyer realize that the stock market is made up of all kinds of folks who even with no education become millionaires. Such is the difference between Europe and America. Great starting point book to move on to next level with.