The fearful rise of markets : global bubbles, synchronized meltdowns, and how to prevent them in the future

“This enjoyable, fast-moving book is concise, relevant, and perceptive. My bottom line is a simple one: This book should be read by all those interested in the way markets operate, be they investors, analysts, or policy makers.” From the Foreword by Mohamed A. El-Erian , CEO and co-CIO of PIMCO, and author of When Markets Collide “This book is a must-read for anyone concerned about how we can avoid recurring debt-induced busts in the years ahead, or anyone who wonders how to invest if (when!) the crisis returns. Authers’ insights on the global financial crisis are profound.” Robert D. Arnott , Chairman, Research Affiliates, LLC, and author of The Fundamental Index: A Better Way to Invest “This book illustrates the dangers to investors who fail to recognize that global asset markets have become more synchronized over time. In a crowded field of works on the financial crisis, Authers’ work is unique in both its insight and style.” Robert R. Johnson , Ph.D., CFA, Senior Managing Director of the CFA Institute “John Authers has combined his journalistically honed FT skills with great insights. Serious investors and policymakers should read this book.” David R. Kotok , Chairman and Chief Investment Officer of Cumberland Advisors “John masterfully drives a stake through the myth of global economic decoupling one chapter and example at a time. A must-read in today’s economy.” Vitaliy Katsenelson , Director of Research at Investment Management Associates, Inc, author of Active Value Investing: Making Money in Range-Bound Markets Are we barreling toward another massive global financial catastrophe? How can so many bubbles form all at once? Why are so many “disconnected” markets now capable of collapsing in unison? In this remarkably readable book, award-winning Financial Times columnist John Authers takes on these critical questions and offers deeply sobering answers. Authers reveals how the first truly global super bubble was inflated--and might now be inflating again. He illuminates the multiple roots of repeated financial crises: a massive shift in investing power from individuals to big institutions; the migration of key decisions from banks to capital markets; the wholesale financialization of many asset classes; and fundamental failures of both theory and policy. The Fearful Rise of Markets presents a truly global view, avoiding oversimplifications and ideology as it outlines how we got here and where we stand. Even more valuable, it offers realistic solutions--for decision-makers who want to prevent disaster and investors who want to survive it. • The herd grows ever larger--and more dangerous How institutional investing, indexing, and efficient markets theory promote herding • Cheap money and irrational exuberance Super fuel for super bubbles • Too big to fail: the whole story of moral hazard Banks, hedge funds, and beyond • Danger signs of the next bubble Forex, equity, credit, and commodity markets move once more in alignment Cover......Page 1 Contents......Page 8 Acknowledgments......Page 10 About the Author......Page 13 Foreword......Page 14 Timeline......Page 17 Chapter 1: The Fearful Rise of Markets......Page 24 Part I: The Rise......Page 31 Chapter 2: Investment Becomes an Industry......Page 32 Chapter 3: Indexes and Efficient Markets......Page 39 Chapter 4: Money Markets Supplant Banks......Page 48 Chapter 5: From Gold Standard to Oil Standard......Page 55 Chapter 6: Emerging Markets......Page 63 Chapter 7 Junk Bonds......Page 71 Chapter 8: The Carry Trade......Page 78 Chapter 9: Foreign Exchange......Page 85 Chapter 10: Irrational Exuberance......Page 92 Chapter 11: Banks Too Big to Fail......Page 99 Chapter 12: Hedge Funds......Page 106 Chapter 13: Dot Coms and Cheap Money......Page 113 Chapter 14: BRICs......Page 120 Chapter 15: Commodities......Page 127 Chapter 16: Credit......Page 135 Part II: The Fall......Page 142 Chapter 17: Ending the Great Moderation......Page 143 Chapter 18: Quant Funds......Page 150 Chapter 19: Trust......Page 156 Chapter 20: Bank Runs......Page 162 Chapter 21: Bastille Day: Reflexive Markets......Page 168 Chapter 22: Lessons from Lehman......Page 175 Chapter 23: Politics and Institutions......Page 181 Chapter 24: The Paradox of Diversification......Page 186 Part III: The Fearful Rise......Page 193 Chapter 25: Decoupling......Page 194 Chapter 26: Banks Bounce......Page 202 Chapter 27: A New Bubble?......Page 209 Conclusion: 2010 and After......Page 217 Notes......Page 225 Select Bibliography......Page 238 B......Page 246 D......Page 247 F......Page 248 H......Page 249 L......Page 250 N......Page 251 Q–R......Page 252 V......Page 253 X–Y–Z......Page 254 Cover 1 Contents 8 Acknowledgments 10 About the Author 13 Foreword 14 Timeline 17 Chapter 1: The Fearful Rise of Markets 24 Part I: The Rise 31 Chapter 2: Investment Becomes an Industry 32 Chapter 3: Indexes and Efficient Markets 39 Chapter 4: Money Markets Supplant Banks 48 Chapter 5: From Gold Standard to Oil Standard 55 Chapter 6: Emerging Markets 63 Chapter 7 Junk Bonds 71 Chapter 8: The Carry Trade 78 Chapter 9: Foreign Exchange 85 Chapter 10: Irrational Exuberance 92 Chapter 11: Banks Too Big to Fail 99 Chapter 12: Hedge Funds 106 Chapter 13: Dot Coms and Cheap Money 113 Chapter 14: BRICs 120 Chapter 15: Commodities 127 Chapter 16: Credit 135 Part II: The Fall 142 Chapter 17: Ending the Great Moderation 143 Chapter 18: Quant Funds 150 Chapter 19: Trust 156 Chapter 20: Bank Runs 162 Chapter 21: Bastille Day: Reflexive Markets 168 Chapter 22: Lessons from Lehman 175 Chapter 23: Politics and Institutions 181 Chapter 24: The Paradox of Diversification 186 Part III: The Fearful Rise 193 Chapter 25: Decoupling 194 Chapter 26: Banks Bounce 202 Chapter 27: A New Bubble? 209 Conclusion: 2010 and After 217 Notes 225 Select Bibliography 238 Index 246 A 246 B 246 C 247 D 247 E 248 F 248 G 249 H 249 I 250 J 250 K 250 L 250 M 251 N 251 O 252 P 252 Q–R 252 S 253 T 253 U 253 V 253 W 254 X–Y–Z 254