Bonner & Rajiva's "Mobs, Messiahs, and Markets"

This is fun read until you get to the last chapter where the authors preach their own financial philosophy and let their religious predelections show: libertarian Christians. Also, they show a contempt for "the masses" and preen about their "knowing" better.

The authors are "contrarians" so there is a wonderful history of investment mania in the early chapters. The language is colourful and the writing is sometimes over-the-top which I find charming. I love the shadenfreude of it all. There are lots of little bits to enjoy. Here they are talking about how those "in the know" sell you snake oil but keep the good stuff for themselves:

Andy Warhol was not a great artist, but he was no fool. When he died, it was discovered that with his own money he had bought traditional, representational paintings. But he was a great promoter.

They are full of diatribes against the current leadership in the US:

Success has transformed a modest people whose greatest virtue was once minding their own business into a vainglorious race, who mind everyone's business but their own. They cannot save a dime for themselves, but now they offer to save the entire planet.

I give the authors credit for seeing the coming collapse in the housing market. The book was written in 2006 and published in early 2007, but they saw the collapse, and cited a bit of history to forewarn people:

When our office building in Baltimore was sold during the early 1900s, it brought a price that -- in real terms -- was not matched for another 70 years. Our point is that really big moves in the market ... are driven by sentiment, which follows very long patterns...

In Boston, Mr John C. Kiley, writing in 1941, observed that prices had been going down for 11 years. He noted that "in some of the older business and residential sections of the city of Boston have returned to levels below those of the pre-Civil War years. ...

House prices went nowhere for most of the 20th century. They rost only 0.4 percent per year from 1890 to 2004. And in many parts of the country they went down. (The price of farmland in western Kansas, for example, hit a high in the commodities boom of the late 1880s and has still not recovered). Then from 1997 to 2005 house prices soared, doubling in many areas, setting off a consumer boom.

The authors are "hard currency" enthusiasts, i.e. gold bugs, and have an utter hatred for Alan Greenspan:

As a young man, Alan Greenspan had written a celebrated essay explaining why paper dollars -- unbacked by gold -- were a swindle and a nuisance. Yet, more of these dollars started life while he was the nation's top banker than under all the other Fed chiefs combined. ...

Alan Greenspan had been on the job a few weeks when he was put to his first test. The crash of 1987 came as a shock to world stock markets and to Greenspan, too. The man had run an economic forecasting business -- nortoriously badly. ... He drove blind and head-on -- into financial potholes, stock crashes, bubbles, busts, and recessions.

On Monday, October 19, 1987, the Dow Jones Industrial Average fell 22.6 percent. ...

Alan Greenspan reacted quickly, nipping a couple of basis points off the federal funds rate. In retrospect, it was unnecessary. When the crash was over and the dust had settled, investors quickly recovered their nerve.

I don't claim any great expertise in stock market gyrations, but this rant strikes me as extreme. It reminds me how today analysts yell that Bernanke should not have "saved" Bear Sterns. That the Fed's action has destroyed the "discipline of the market" because there is no longer any "moral hazard". Funny, I would think that the stockholders of Bear Sterns feel disciplined by the market and learned that there was a bite to the moral hazard. The Fed under Bernanke did not step in to "save" Bear Sterns, it stepped in to save the market. When the market didn't collapse people came out of the carping about Bernanke's action. Similarly, these authors make after-the-fact judgments Greenspan's actions. I have no respect for this. These are cheap shots.

While the authors are very clear about the madness of markets, their libertarian philosophy shines through when complain about SEC regulations and other mechanisms to either control markets and protect people from some of the predatory characters who inhabit Wall Street. We are supposed to enjoy the "colourful characters" but do nothing to protect people from the sharpsters who inhabit The Street.

In the final chapter the authors show themselves to be gold bugs with advice on taking refuge from the coming market fall by investing in gold: gold coins, gold ETFs, and gold mines.