Max Zeledon's  Instablog

In a Fondo Libre interview, Thomas P.M. Barnett,  a foreign policy consultant to U.S. leaders on national security issues discusses China, globalization, and why we shouldn’t fear a rising Chinese middle class. Barnett taught at the Naval War College, worked at the Department of Defense as the Assistant for Strategic Futures, and is now Senior Managing Director at Enterra Solutions. His research focus is the relationship between the United States and the rest of the world in the Post Cold War Era and 9/11 attacks. He is the author of Great Powers: America and the World after Bush, he writes a column for Esquire, and maintains a fascinating blog you should definitely read.

Anatomy of the Bear: Lessons from Wall Street's Four Great Bottoms
By Russell Napier
Harriman House Ltd., 304 pp. $39.95

Reviewed by Max Zeledon

Two things stand out in Mr. Napier's narrative: it's dull and a bit too long for what he is trying to say. Any historical narrative devoid of characters and drama equals boring. To have this much contempt for your readers in the digital age is either an act of arrogance or just pure indifference in my view. Financial markets offer plenty of high drama but Mr. Napier managed to extricate most of it to make room for an exhaustive amount of newspaper sources that were probably better suited for an appendix section. It's not easy to write a good book on the stock market because it requires talent. Being well-versed in finance and economic history is not enough--it's merely fulfilling the minimum requirement.

Mr. Napier relies on four U.S. bear markets (1921, 1932, 1949 and 1982) to help readers determine what characteristics make up a market bottom. But I'm not so sure that writing a book based on 70,000 Wall Street Journal articles will help investors spot the next market bottom. Saying that the stock market moves from periods of overvaluation to periods of undervaluation is nothing new and using commodity prices as a leading bullish indicator is not a revelation either. Try building an investing strategy from that.

Napier certainly provides some insights about the past and shows us that there's nothing new under sun, but to assume this can somehow predict future market action is a dangerous proposition considering everything that we've gone through in recent years. I'm not sure we can take these type of narratives too seriously anymore. "It is the higher volume at higher levels that confirms the bear market is over," Mr. Napier tells us at the end of his book. In retrospect such statements are like a tarot card reading. But what happens when the fundamentals and earnings Mr. Napier talks about seize to matter? Can you tell me equities are undervalued now by looking at market patterns of the past? Would you bet your money on it?

The past, of course, can be irrelevant and highly misleading. Today we're much more globalized and interconnected and far more dependent on automated computer programs. And lets not forget the hedge fund industry. These factors make markets much more volatile and unpredictable. Besides, each financial crisis introduces new elements that were unforseen previously (e.g. credit default swaps).

Financial Speculation: Trading Biases and Behaviour
by Gerald Ashley
Harriman House Ltd., 289 pp. $39.99

Reviewed by Max Zeledon

Trading is a risky business for both newbies and experts alike. Indeed, the more we learn about the markets the less confident we feel about our own abilities to manage risk and uncertainty. Are we investing, speculating or gambling when we enter the market? Financial speculation, of course, is the topic of the day and everyone seems to have an opinion. Books on the subject abound and the clichés are almost pornographic in their redundancy. It's rare to find a good book on trading biases and behavior but Gerald Ashley has written a first-rate book on the subject and the latest edition has been updated marvelously. What is Ashley's central thesis? Scientists and fancy math models took over the markets (giving us the illusion of sophistication) but the core principles of finance and speculation remain the same because behind the complex math and jargon is the human variable.

The last thing I wanted to do this summer was read another finance book but that's precisely what I did when I got Mr. Ashley's book in the mail. I could not put it down--instead of pondering about useless models and "trading" secrets he dutifully set out to demythologize finance, writing a highly instructive and engaging work full of colorful historical personalities, market anecdotes, and useful lessons that will definitely make you a better trader.

Mr. Ashley provides a fresh assessment of the core principles that have ruled finance for decades and plucks the most useful elements to shows us what really drives the market in booms and busts. He writes with the thirty plus years of experience he accumulated in the financial markets and his passion for the subject is obvious in every page. This is not a book for beginners but you certainly don't need an MBA to grasp the concepts covered. However, if you want to mature as a trader this is the book for you.