by John DePutter, April 5th, 2012
 
I frequently share book recommendations as part of my conversations with customers, and sometimes I hear back from them on how certain books have made an impact on them.

The “recommended reads” posts will be part of a series in which share some of my favourites with a few comments on why I think they’re valuable and how they’ve shaped my view of the markets and agribusiness.

To get started, I’m recommending author Michael Lewis.

Boomerang – Travels in the new third world, by Michael Lewis

Lewis travels widely to visit the real people behind Iceland and Ireland’s banking crises. He heads to Greece to learn what’s really going on with that country’s debt woes. He learns the truth behind German bankers’ willingness to lend their billions of hard-earned German savings to uncreditworthy borrowers.

Lewis even bravely goes for a bike ride with former Californian governor Arnold Schwarzenegger to find out how that state managed to travel down the road to dire financial circumstances.

This book lays bare the mistakes and assumptions made by the people in high finance that we put our blind faith in. It helps us understand how and why markets can get far out of hand and become vulnerable to downfalls, and the hows and whys of public sector indebtedness.

Lewis doesn’t make predictions and that’s a good thing. He does help us understand the flaws in high finance and government debt.

Boomerang talks about real estate crashes, about crazy manias that shoot markets beyond reason, and about the people who fail to recognize them and a few who do.

Already skeptical of the beliefs and assumptions of the masses, I’m even less of a crowd follower, having read this book. I’ll be even less trusting of the big ivory tower financial folks than I used to be. And I hope to be more adept at recognizing houses of cards ready to fall.

This book is on the top of my must-read list. It’s easy to get through. It’s entertaining. And might just find it helpful as you make decisions about your business and your investments.

The Big Short, by Michael Lewis

This book is a second choice after Boomerang. A bit harder to read. A lot more details and complexities, related to the global bond markets.

The messages are somewhat similar yet different.  This book addresses primarily the US sub-prime mortgage crisis. Several people realized the wanton borrowing and unconscionable lending in the US mortgage industry was unsustainable and ultimately doomed. They figured the system had to break down; they just weren’t sure when. They designed a way to profit from the eventual collapse – and some of them did profit, hugely.

I believe there’s something to be learned from some of the players who positioned themselves for the eventual, inevitable downturn. It shows the value of watching bull markets and bubbles that seem to be getting into the crazy stage – the denial of reality stage – and setting up careful, methodical and low-risk ways to profit from their eventual downfall.