When Bubbles Burst: Surviving the Financial Fallout - Softcover

John Calverley

Softcover

ISBN 10: 1857885236 ISBN 13: 9781857885231

Publisher: Nicholas Brealey Publishing Ltd, 2009

Synopsis

This is an extremely topical and timely new book from the well known economist and Head of Research, Standard Chartered Bank. "When Bubbles Burst" is the first book to examine in-depth the financial fallout of 2008 and explore the implications and solutions for individuals, companies and central banks. His previous book, "Bubbles and How to Survive Them" predicted the current financial situation. This readable, Enon-technical guide is essential reading for everyone and particularly for investment professionals everywhere. In this new book - an investor's survival kit - he outlines the crises we now face and reviews how we got here. He looks closely at the huge housing bubbles in UK and the US, as well as those in Australia, Spain, Japan and Hong Kong. He explores the anatomy of bubbles and presents a checklist for identifying them. He tells the story of how the housing bubble led to the current financial crisis and how far prices might fall, focusing on household debt as the value of household assets collapse. He examines strategies for investors, who must try to avoid bubbles or, more dangerously, seek them out and ride them. He reveals what will happen next. In his original book, "Bubbles and How to Survive Them" (9781857883480, 2004), John Calverley warned vigorously of the danger from the housing bubble and warned that stock prices might take off again and reach vulnerable levels (as indeed occurred in 2006-7.) 'Indispensable for everyone, investors and students alike, who wants to understand how bubbles arise - and avoid being caught out by the next one' - Roger Bootle, Capital Economics. 'Provides a very thoughtful and incisive look at 'bubbles and busts'...the analysis and content is extremely helpful to understanding the developments over the past few decades and the risks in the current situation' - Dr. Henry Kaufman, President, Henry Kaufman and Company Inc.

About this title

Review:

Provides a very thoughtful and incisive look at bubbles and busts ...the analysis and content is extremely helpful to understanding the developments over the past few decades and the risks in the current situation. --Henry Kaufman, President, Henry Kaufman and Company Inc

Indispensable for everyone, investors and students alike, who wants to understand how bubbles arise -and avoid being caught out by the next one. --Roger Bootle, Founder and Managing Director of Capital Economics and author of Money For Nothing and The Death of Inflation

This is a book written for the general reader striving to understand what is going on in the crazy world at the moment. Policy makers and market participants should also find it interesting ... it is timely, arriving in a period when financial and economic history is being rewritten. Review written by Jim Power, chief economist with Friends First --Sunday Business Post

From the Publisher:

"Calverley has written a book for our times: when growth is fuelled by asset bubbles and central bankers held hostage by the fear of their collapse. He brings a global view and the lessons of economic history to diagnose the problem, to develop new ideas for policy makers and to provide sound advice for investors."
Dr DeAnne Julius CBE
Chairman, Royal Institute of International Affairs and
Member, Bank of England’s Monetary Policy Committee, 1997-2001

"Financial bubbles have always exercised a fascination over academics and financial journalists. Business economists can make their reputation by spotting them in time. But in truth relatively little is known about what generates bubbles, what causes the eventual bust, what damage bubbles can do, and how they can be prevented. Most importantly, are we in one now? In this book, John Calverley explores this subject in considerable depth, using an analytic approach but writing in a style accessible to the interested layman. Calverley is the Chief Economist of American Express bank, so he knows what he is talking about. He belongs to the school that believes bubbles are recognisable, dangerous and preventable. Moreover, he thinks the housing market in Britain and some other countries now displays the characteristics of a bubble. He has a number of policy recommendations, many of which will prove controversial."
Sir Andrew Crockett, President, J. P. Morgan Chase International and Former General Manager, Bank for International Settlements, 1999-2003

First stocks. Now house prices. A series of bubbles and busts in stock markets and home prices have played a central role in the world economy over the last 20 years. The volatile ups and downs of such asset prices may now be a greater threat not only to economic stability but also to the financial wellbeing of investors, homeowners and pension holders.

When Japan’s stock and property bubbles burst in 1990, land prices declined 90% and the Japanese economy was shattered, leading to a "lost decade" of slow growth. Then in the late 1990s Fed Chairman Alan Greenspan stood back and watched as US and then European investors abandoned normal valuation criteria and created the biggest stock market bubble since the 1920s. Economies boomed and money flooded into the markets with the conviction that stocks always outperform "in the long run".

After the inevitable collapse in 2001-2 a new recession followed in the US and much of Europe. But the authorities had learnt the lessons from Japan and the 1930s and avoided a major downturn with rapid cuts in interest rates and the largest fiscal stimulus in US history.

However, there was a price. Low interest rates have inflated housing bubbles, at first mainly in the UK and Australia but now in the US too. Many investors have abandoned stocks and pensions and turned to housing to secure their retirement. The new mantra is safe as houses - prices always rise "in the long run." Yet, if the new housing bubbles burst, past evidence suggests that falling house prices will impact consumer spending far more than stock busts.

Calverley investigates why bubbles occur, focussing on the interaction between interest rate policy mistakes and the psychology of investor behaviour. Central banks are still targeted to control consumer prices but, like old generals, they may be fighting the last war. The theories of behavioural finance and critical states shed new light on why investors lose track of reality and how just a small event can trigger a market crash.

Controversially, the book argues that, contrary to the widely held view, we can identify bubbles as they emerge, based on market valuations and a checklist of other factors. Armed with this knowledge there are ways to prevent bubbles inflating too far.

Meanwhile investors need to find ways to protect themselves. Some may try to ride bubbles, exiting at the top, but market timing is always difficult and risky. A more balanced approach is to focus on avoiding their worst effects by holding a diverse portfolio and adjusting away from bubbling assets, such as housing.

"This is an indispensable book for everyone, investors and students alike, who want to understand how bubbles arise – and to avoid being caught out by the next one."
Roger Bootle, Capital Economics and author of Money for Nothing

"If you are worried about your future, read this book with care. If you're not, read and take heed. This is high quality, X rated stuff, not for the faint-hearted, written with great clarity and balance".

"Essential reading on any public financial education course".
Richard O’Brien, Partner, Outsights.

"This book provides a very thoughtful and incisive look at ‘bubbles and busts’ ... the analysis and content is extremely helpful to understanding the developments over the past few decades and the risks in the current situation."
Dr. Henry Kaufman, President, Henry Kaufman and Company Inc.

"There is no more controversial question that what to do about the housing bubble, whether you are a buyer, a seller, a renter or a central bank governor.

John Calverley has compiled a primer for all, tackling the many difficult questions logically and informatively. He is to be commended for making some very constructive proposals for what looks like a problematic future."
Alex Erskine, Managing Director of Erskinomics Consulting, Visiting Fellow with Macquarie Applied Finance Centre, Sydney and former head of Asian research for a leading global bank.

About this edition

• Publisher: Nicholas Brealey Publishing Ltd
• Publication date: 2009
• ISBN 10: 1857885236
• ISBN 13: 9781857885231
• Binding: Paperback
• Number of pages: 248