When Markets Collide: Investment Strategies for the Age of Global Economic Change

When Markets Collide: Investment Strategies for the Age of Global Economic Change | Mohamed El-Erian | 4.5 stars-Needs to clearly differentiate risk from uncertainty

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When Markets Colli...

	When Markets Collide: Investment Strategies for the Age of Global Economic Change Mohamed El-Erian McGraw-Hill, 2008 - 304 pages average customer review:based on 25 reviews view larger image
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"ONE OF THE SMARTEST INVESTORS ON THE PLANET."--MONEY MAGAZINE

?This book is an essential read for those who wish to understand the modern world of investing.?
?Alan Greenspan

When Markets Collide is a timely alert to the fundamental changes taking place in today's global economic and financial systems--and a call to action for investors who may fall victim to misinterpreting important signals. While some have tended to view asset class mispricings as mere ?noise,? this compelling book shows why they are important signals of opportunities and risks that will shape the market for years to come. One of today's most respected names in finance, Mohamed El-Erian puts recent events in their proper context, giving you the tools that can help you interpret the markets, benefit from global economic change, and navigate the risks.

The world economy is in the midst of a series of hand-offs. Global growth is now being heavily influenced by nations that previously had little or no systemic influence. Former debtor nations are building unforeseen wealth and, thus, enjoying unprecedented influence and facing unusual challenges. And new derivative products have changed the behavior of many market segments and players. Yet, despite all these changes, the system's infrastructure is yet to be upgraded to reflect the realities of today's and tomorrow's world. El-Erian investigates the underlying drivers of global change to shed light on how you should:

Think about the new opportunities and risks Construct an appropriately diversified and internationalized portfolio Protect your portfolio against new sources of systemic risk Best think about the impact of central banks and financial policies around the world

Offering up predictions of future developments, El-Erian directs his focus to help you capitalize on the new financial landscape, while limiting exposure to new risk configurations.

When Markets Collide is a unique collection of books for investors and policy makers around the world. In addition to providing a thorough analysis and clear perspective of recent events, it lays down a detailed map for navigating your way through an otherwise perplexing new economic landscape.

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Excellent 5- to 10-year Outlook

It's hard to imagine someone having more cred's than Mohamed El-Erian or having a better understanding of trends in the global economy, and as articulate. For those reasons alone, it's hard for investors, large or small, to justify NOT spending a little with with Mr. El-Erain. This book is a global financial compass, not a recommendation on specific companies to invest in or run from. When Markets Collide gives the reader a frank overview of the forces behind macro global financial trends (i.e, reality check), where those financial trends are almost certainly taking us in the next 5 to 10 years, and what those trends mean for investors that are in the market for the long-term.

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4.5 stars-Needs to clearly differentiate risk from uncertainty

The author of this book is clearly quite knowledgeable about the standard approach to risk management.He knows that it is badly flawed under conditions of herd behavior.Herd behavior occurs under conditions of Keynesian uncertainty(The decision maker DOES NOT know enough or have enough data that is reliable and non-conflicting to specify a unique distribution.The decision maker works with a set of different distributions and/or intervals.Keynesian or Ellsbergian revision can lead to a change in the underlying probability distribution being used as a best estimate of the data.This is completely different from the subjectivist Bayesian view upon which all risk management courses are based on) and/or Ellsbergian ambiguity.The standard risk (The decision maker DOES KNOW the particular probability distribution's population parameters and/or the sample statistics under conditions of risk.Bayesian updating/revision simply means that you continually revise/update the estimates of the mean and standard deviation of the SAME initially specified distribution through time)
management techniques, taught universally in all undergraduate and graduate classes in economics,econometrics,finance,business,and actuarial " science " worldwide, are completely unable to prepare the student for what can happen under uncertainty.For example,the author appears to correctly realize that herd behavior and cascades results from decision making patterns which are completely rational for the individual decision maker operating under conditions of uncertainty but make no sense whatsoever if operating under conditions of risk.Such behavior patterns appear to some authors in the socalled " new " field of behavioral finance to be the result of " irrational exuberance " .Keynes and Ellsberg knew better.Extensive discussions of risk and risk management are made throughout the book but no clearcut distinction appears anywhere in the book that clearly differentiates risk from uncertainty.
Another important analyst's perspective is missing .The missing analyst is Benoit Mandelbrot's distiction between the wild risk of the Cauchy distribution and the mild risk of the normal distribution.The mild risk of the Normal distribution is what risk managers mean by controlling/managing risk.Risk managers are completely helpless when faced with behavior patterns that generate the wild risk of the Cauchy distribution.The recently proposed 1-1.5 Trillion dollar bailout of Wall Street by President Bush,Ben Bernanke,and Treasury Secretary Paulson demonstates the complete and total intellectual bankruptcy of the standard approach to risk management
I recommend that the book be purchased because the author does make it clear that present analytic techniques for evaluating and choosing stock portfolios is flawed.It would have helped if he had been more specific about the nature of the flaws and how the work of Keynes,Ellsberg,and Mandelbrot,if implemented ,would have prevented this type of catastrophe from occurring or reoccurring in the future.

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Needs a good edit

El-Erian's publisher McGraw-Hill badly let down the author, and his readers, with a poor to nonexistent copy-edit. The book is full of jargon and poorly written paragraphs--to illustrate, here is a rather typical one-sentence paragraph: "The challenge of how to deal with consequential and volatile endogenous liquidity relates to another policy issue that I will discuss in Chapter 7: how to refine the traditional instruments of monetary control and ensure more meaningful and sophisticated supervision on a range of activities, with volatile leverage, that have been enabled by the ongoing structural transformations and yet are outside meaningful oversight."

This is technocratic obfuscation at its worst, and El-Erian, who is no lightweight, could have better been served by a heavier edit.

Perhaps the worst feature of the book is its attempt to reach three entirely different audiences--individual investors, policy-makers, and institutional investors. If you are an individual investor, realize that 75% of the book is written for others.

If you find your way through the jargon and infelicitous structure, some solid, thought-provoking ideas gleam in the darkness. Be prepared to dig, though, and bring your headlamp!

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reviews: page 1, 2, 3, 4, 5

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