el-erian - when markets collide; investment strategies for the age of global economic change (2008)

[...]... reinforcing the importance of its findings for those who wish to end up on the beneficial side of significant global changes rather than be victims of the inevitable turmoil that accompanies such changes A xiii This page intentionally left blank introduction: FINDING SIGNALS WITHIN THE NOISE B y the standards of the financial markets, I entered the investment world late I was 39 years old when I left the relative... and stability of a career at the International Monetary Fund (IMF) at the end of 1997 for the rough and tumble world of Salomon Smith Barney in London A fascinating journey followed during which I had the privilege of witnessing at close hand the slow but steady transformation of the global economic and financial landscape At first, the changes impacted relatively small areas of the investment and... instruments The New Secular Reality The reaction of some observers in the recent past—in particular, the once-eager supporters of financial globalization who are now willing to ditch it—reminds me of the way five- to seven-year-olds play soccer: Players on both teams tend to chase the ball in the manner of a noisy herd They are, in effect, totally data dependent Their approach stands in sharp contrast to the. .. sheet The turmoil in the banking system was only part of the story in the financial markets Several mortgage companies went bankrupt AAA companies that insure bonds issued by municipalities and others faced large losses and the prospect of downgrades, forcing them to also look for emergency injections of capital The damage in the financial markets pushed governments and central banks into crisis management... consistent with the forward-looking (as opposed to the historical) secular realities In technical terms, the focus is on the appropriate specification of the belly of the distribution for A x P R E FA C E global outcomes The second component involves managing the tails of the distribution and, in particular, partially protecting the portfolios against the vagaries of the journey to the new secular destination... the influence of those who were hardly considered to be serious competitors just a few years earlier Meanwhile, these suddenly influential players must manage the challenges of success This book will help investors navigate the transformation of the changed global economy—a phenomenon that will seriously impact the potency of investment strategies and influence the effectiveness of risk management approaches... beyond the nearest trigger (namely, the debacle in the subprime mortgage market) and the potential consequences (higher actual and expected foreclosures) It also encompassed the breakdown in consumer protection and financial regulation, the role of fraud, the near paralysis of money markets, the fragility of interbank activities, and the activities of credit rating agencies And, in looking at the potentially... Since then, the global economy has experienced a series of previously unthinkable developments, including the demise of Bear Stearns, an iconic U.S investment bank, and frantic policy attempts on the part of the U.S authorities to contain the damage of the financial market turmoil These developments are consistent with the analysis in this book Indeed, the analysis predicts such disruptions, reinforcing... has fueled the systemic influence of sovereign wealth funds (SWFs),12 reinforced the natural desire to diversify the allocation of their capital, and attracted the attention of politicians in industrial countries • The third is the proliferation of new financial instruments that have deeply altered the barriers of entry to many markets For some, such as Greenspan, they are an important source of risk... in the formulation and implementation of strategies for an age of economic and financial change I would view this book as meeting its objective if it helps readers better understand the nature and implications of the emerging global secular realities To this end, it details the challenges that face market participants and suggests ways to address them The focus is on the ability to address both the . must manage the challenges of success. This book will help investors navigate the transformation of the changed global economy—a phenomenon that will seri- ously impact the potency of investment strategies. terms, the focus is on the appropriate specification of the belly of the distribution for A x WHEN MARKETS COLLIDE global outcomes. The second component involves managing the tails of the distribution. Ziegler Professor at Harvard Business School and author of The House of Rothschild and The Cash Nexus “Mohamed El-Erian is a deep thinker of the global financial and economic scene. In When Markets