The real meat can be found in chapters five, six, four and three which cover the issues of sovereign defaults, the eurozone, emerging markets and gold, with the latter two providing useful insights as to what may lie ahead from investing in these areas. Chapter five gives a very helpful historical trip down memory lane covering the Mexican default of 1994, the Russian default of 1998 and the Argentine default of 2001/2 and draws comparisons. The revealing feature in all three is how the government in each case remained in denial until the speculators took over and forced the ministry of finance of the time to go begging to the International Monetary Fund. It is a fascinating catalogue of the inner workings of government when faced with an impossible scenario that can only result in its own demise.
Although chapter six covers the eurozone, it is already slightly out of date following the Outright Monetary Transactions policy announcement in September 2012 – a symptom of the evolving crisis. The principal take-away thought is that without the ability to devalue the currency, the afflicted countries are facing a lost decade.
Currency devaluation has provided the exit route in each of the historic cases in chapter five and there seems little alternative, but once again it is a battle of political collective will against the markets.
The inevitable outcome will be a splitting of the eurozone into Germany, France and Holland with the others joining a second division and devaluation, but the current treaty does not allow for this. Germany does not want to be on the hook for Greece’s largesse and the populace has run out of patience in both countries with historic wounds reopening as seen during Angela Merkel’s recent visit to Athens.
The other chapters are useful background reading for the uninitiated but tend to state the obvious depending on the financial sophistication of the reader.
That said, it was useful to revisit issues like how historic lost eras in equities have occurred and why, the effect of leveraging, the psychological effect of media-induced fear and the ineffectual influence of regulation which repeatedly fails to spot fraud. A very readable book.
