Tuesday, 3 March 2015

Book review: "Print: The Central Bankers Bubble" by Lindsay David


In order to shape the future we need to understand the lessons of the past.  Anyone who has participated in financial markets over the last few years is a richer, stronger investor/analyst for having seen (or suffered directly from) the mistakes, fear and losses made during the 2007-9 period.  The following five or so years have been rich in educational narrative too - with the difference this time being that mistakes have become returns, fear has evolved to at worst a 'buy on the dips' mentality and losses are seemingly not allowed unless you are a short seller.  

The title of Lindsay David's book is a nice summary of this switch around.  Expanding the central bank balance sheet has become the one-way ticket to cure all evils. As with most non-medicinal cures however there are side effects.  Lindsay refers to it as an 'IZNOP business model' or a business model that is akin to the more naturally famous "PONZI" scheme and spends the latter half of the book moving through each of the major geographies of the world pointing out policy short comings and challenges emanating from such a financial system set-up.  

Early chapters focus on the building blocks to the current crisis.  Whilst this is a story that has been told in many places I enjoyed the personal insights ('I was in New York on a business trip in September of 2008. I will never forget the shocked faces I saw on the day Lehman collapsed. A grown man in a suit walked past me on a busy Midtown Manhattan street openly weeping') which added vivid colour for the reader.  The re-telling of the slip slide of what were initially temporary stimulus measures in the context of a patient evolving from being a temporary morphine user to a drug addict seeking new higher highs to today's "Interest-Rate Flatline Era" worked particularly well in my view:  
"Even if it’s the slightest headache, he wants to take more heroin—until the inevitable when he takes too big a dose and his heartbeat flatline"

The linking of Japanese historical-current policy-making with Europe's evolving choices is well thought out even if events in the latter are moving at such a speed currently that it is difficult to stay timely.  Lindsay's personal insights again add colour here with his observations from attending IMD’s Executive MBA program in Switzerland in 2013 making particularly galling reading for French policy makers.

A particular strength of this book is the discussion of the Australian property and financial markets drawing off Lindsay's previous publications in this area.  This certainly caused me to (negatively) reconsider my perceptions towards the potential range of outcomes - and the extent of the inter-relationship with the evolving Chinese economy.  I agreed less with Lindsay's assertions that not only is QE4 not likely (or sensible) for the US economy but that the inherent strength of the US economy means that it is not required.  My own view is that the date of a material rise in US interest rates is years off and that in terms of ultimate economic strength some of the creditor emerging market nations hold a stronger position.  

With ending chapters pulling together many of the above factors into some viable and practical policy applications, Lindsay nicely lays out an alternative vision of how to counter some of the accidents, challenges and mis-allocations of the last decade or so.  These policy prescriptions made general good sense and provide a feeling that this unorthodox economic journey could have a finale which is not apocalyptic. Readers however are likely to conclude that some element of private prudence with their finances remains highly sensible.

In conclusion an enjoyable and accessible read for practitioners and amateurs alike on a subject where an understanding of historic and practical/reasonable policy applications are both hugely important.

(Purchasing link here).

(Disclosure: Lindsay David provided a pdf version of his book to allow this review.  No remuneration or editorial control was provided for this review).  

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