When Markets Collide: Investment Strategies for the Age of Global Economic Change

by EL-ERIAN

"When Markets Collide" is a timely alert to the fundamental changes taking place in today's global economic and financial systems--and a call to action for investors who may fall victim to misinterpreting important signals. While some have tended to view asset class mispricings as mere noise, this compelling book shows why they are important signals of opportunities and risks that will shape the market for years to come. One of today's most respected names in finance, Mohamed El-Erian puts recent events in their proper context, giving you the tools that can help you interpret the markets, benefit from global economic change, and navigate the risks.

The world economy is in the midst of a series of hand-offs. Global growth is now being heavily influenced by nations that previously had little or no systemic influence. Former debtor nations are building unforeseen wealth and, thus, enjoying unprecedented influence and facing unusual challenges. And new derivative products have changed the behavior of many market segments and players. Yet, despite all these changes, the system's infrastructure is yet to be upgraded to reflect the realities of today's and tomorrow's world. El-Erian investigates the underlying drivers of global change to shed light on how you should: Think about the new opportunities and risks Construct an appropriately diversified and internationalized portfolio Protect your portfolio against new sources of systemic risk Best think about the impact of central banks and financial policies around the world

Offering up predictions of future developments, El-Erian directs his focus to help you capitalize on the new financial landscape, while limiting exposure to new risk configurations.

"When Markets Collide" is a unique collection of books for investors and policy makers around the world. In addition to providing a thorough analysis and clear perspective of recent events, it lays down a detailed map for navigating your way through an otherwise perplexing new economic landscape."

SELECTED AS A 2008 BEST BUSINESS BOOK OF THE YEAR BY THE ECONOMIST

Winner of the 2008 "Financial Times" and Goldman Sachs Business Book of the Year Award

Genres: Economics, Finance, Business, Nonfiction, History, Money

361 pages, Hardcover

First published January 1, 2008

Reviews

[Virginie · Rating 3 out of 5]

Mohamed El-Erian has both the private sector and public sector experience as he worked at the IMF, for the Harvard Endowment and Pimco. That is a unique set of experience that he leverages in this book to take both an investor and a policy maker point of view.

He starts providing his "proprietary tool" to identify turning point in the market:
- Observe noises
- Identify the source of the noise that creates an unusual market dislocation
- Be disciplined in treating each episode of such noise as potentially containing important signals
- Assess the actual signal content through an evaluation based on the a priori modelling of the economic or market phenomenon.
- Differentiate between factors that influence the destination and factors that influence the journey
- only then actively pursue the views of the experts
- Be open to finding not only cyclical influences but also secular ones

The book has been written in 2008 and his view of major changes or "the new destination" were the following:
- Increasing importance of Emerging Market economies in the world economy
- EM growth driver will evolve away from high reliance on exports and towards internal consumption
- Inflation due to commodity price increase
- Global allocation of capital increasingly influenced by SWF
- Securitisation is here to stay.

He then provides his asset allocation for a 8-10% expected long term nominal return, 5-7% real return and 8-12% volatility :
Equities: 49%
United States: 15%
Other advanced economies: 15%
Emerging economies: 12%
Private: 7%

Bonds: 14%
United States: 5%
International: 9%

Real Assets:27%
Real Estate: 6%
Commodities: 11%
Inflation protected Bonds: 5%
Infrastructure: 5%

Special opportunities: 8%


He mentions that going forward, asset allocation will be increasingly done by risk factor rather than asset classes.
he also mentions that efficient markets are better tracked passively while inefficient markets can be actively managed.

[Rahul · Rating 3 out of 5]

Mohamed El-Erian has attempted to put together his vast knowledge of the global economy and markets into this relatively light and easy to read guide for investors and scholars alike. His insights into the changing nature of the global economy make this a must read for those who are interested in international finance and global economics, but may have not kept up with some of the more nuanced news in the past few years. While most of the knowledge in the book can be gleaned from careful reading of the WSJ, Economist and FT (where the author wrote countless editorials), El-Erian puts together the information in a logical and cohesive way to paint the new landscape of international finance.

I found the first 1/3 of the book to be bit dated (the book was released in January of 2008), but it's fascinating to read about his insights vis a vis the global crisis that struck in 2008. While he's not off the mark the whole time, some of his key assumptions are up ended.

The last 1/3 of the book is more of a 'how-to' for individual investors to position themselves to take advantage of the shifts he talks about in the first 2/3. While quite basic, the framework he introduces should help any of us looking to make some 401(k) decisions put together a decent long term portfolio.

Fortunately El Erian's writing is clear and concise, and he does not bore too much. Overall an enjoyable book that's a must for those interested in global finance.

[Russ · Rating 3 out of 5]

Timing matters when publishing financial concept books. Published as the economy was collapsing in 2008, most of El-Erian's descriptions and prescriptions seem dated. As an investor based in the US, I can appreciate his chapter on analyzing and investing in emerging economies. Besides that and the mention of tail insurance, most of the book is forgettable. I wonder if later editions removed all of the references to his former boss, Bill Gross.

[Wael Alghamdi · Rating 5 out of 5]

For ordinary people who wish to understand the global financial crisis that hit the world in 2008

[Hailey Taylor · Rating 4 out of 5]

"When Markets Collide" is a powerful wake-up call to the profound shifts unfolding in today’s global economic landscape. In an era where the traditional rules of finance seem to be in flux, this book is an essential guide for investors who risk misinterpreting key market signals. While many have dismissed asset class mispricings as irrelevant noise, Mohamed El-Erian demonstrates why these anomalies are crucial indicators of emerging opportunities and risks that will shape the markets for years to come.

El-Erian, a globally recognized authority in finance, provides an insightful context for recent market events, offering the tools needed to better navigate this complex environment. He encourages readers to embrace the new realities of the global economy and equips them with strategies to capitalize on the changes ahead.

The world is undergoing a dramatic economic transformation. Nations that once held little sway are now driving global growth, while former debtor nations have emerged as newfound financial powers, grappling with both opportunities and challenges. At the same time, the rise of sophisticated financial products has reshaped market dynamics. Despite these seismic shifts, however, the global financial infrastructure has yet to adapt to the modern landscape.

El-Erian dives deep into the forces driving these changes, revealing how investors can:

- Identify emerging opportunities and risks in a rapidly changing world
- Build a diversified and internationally-balanced portfolio that accounts for global shifts
- Safeguard investments from evolving systemic risks
- Understand the far-reaching impacts of central banks and global financial policies

With sharp predictions for the future, "When Markets Collide" offers not only a comprehensive analysis of the present economic upheaval but also a roadmap for thriving in the new financial order. El-Erian’s focus on managing risk while embracing new opportunities is essential reading for anyone looking to stay ahead in this turbulent era.

[Nam KK · Rating 4 out of 5]

It is a very thought provoking book that I learned a lot from. However, the writing is very annoying - it often reads as if it is written in a foreign language. The author seems to target the book as a GMAT or an LSAT preparation one. For example: "Indeed, for the private sector to get it right, it needs support in the form of concurrent adjustments in the parameters that govern important aspects of market behavior, including those in the regulatory and policy channels at both the national and multinational levels." I guess that's why I started reading the book in 2009, and could only finish it after a decade.

[Samuel Maina · Rating 3 out of 5]

What El-Erian managed to do in this book is prove to us that sound strategy is based on the premise that you must have many sounding boards in whatever it is that you aim to achieve.
Investment decisions must remain to be seen as such and any other approach that does not give good results would mean leveraging and pivoting which will essentially mean we have failed in our original plan.
For me, this is a book that explains very well the morphology and changes that have continued to face Countries both in the advanced economies, emerging economies and LDCs. One this is for sure....investment is a 3 step affair...
Invest in a good asset
Use a good vehicle
Manage risk.

A worthy read!

[Robert]

Real assets remain essential for hedging inflation, diversifying risk, and building portfolios that can withstand economic shifts. Historically, these assets have shown low correlation to traditional equity-bond portfolios. That makes them valuable additions, especially in market cycles where inflation and volatility are rising. real assets – such as TIPS (providing fixed returns above inflation), commodities, infrastructure, and real estate. Good summary of human failings when investing ie overconfidence, herd mentality, fear of walking away from losses (ie holding on to long or selling too soon) etc…

[Ramy · Rating 2 out of 5]

This is one of the most frustrating books for me. My expectations was way better but the book is quite an unpleasant read -I think- unless you're a fund manager or on your way to become one. The language is complicated in an unneeded way, and the ideas in the book could have been covered in way less number of pages.

[Mid L · Rating 4 out of 5]

Excellently written. Insightful: Full of frameworks to understand the global economy. Started to age a bit but actually extremely accurate in its predictions of our time. Also interesting if you think a global crisis could happen again: what conditions apply?

[Heidi Foster · Rating 3 out of 5]

I enjoyed seeing what Mohamed El-Erian was looking at in the markets right before the Great Recession, although I don't think this book held the answers that I had hoped it would.

[Jon · Rating 2 out of 5]

finally finished this book, was tough to read actually, didn't flow, and not a page turner.

[Sangam Agarwal · Rating 1 out of 5]

one star is enough for this book

[Matt Matusiak · Rating 5 out of 5]

Very good explanation of market activity.

[Indraneel Dabhade · Rating 3 out of 5]

While the book contains a lot of information for anyone interested in global markets, the major flaw lies in its storytelling. This short read often feels like diverse ideas stitched together in a mild hodgepodge. For a non-finance professional, there is enough information to gain an understanding of the investment world.

[Hundeschlitten · Rating 3 out of 5]

El-Erian is probably one of the smartest 100 guys in the investing world and, while that world has changed alot in the months since this was first published, he is prescient about alot of what has happened since then, and there are many insights buried within this tome. Unfortunately, El-Erian's writing style, like much financial writing, is dull, bordering on unreadable, complicated by his unfortunate tendency to want to kiss the rear end of every major figure in the financial world, like El-Erian is primarily writing for the honchos he hopes to meet at the conferences and high-octane cocktail parties he frequents. But if you could tease El-Erian's revelations from his long sting of bland generalities, you would actually have a pretty good formula for both your own investing as well as a solid response for the planet as a whole. So, I will try to do that for you, in 100 words or less:

1) The world is in the midst of a massive economic rebalancing, one that holds the prospect to make us all alot of money, as long as we quit behaving like a bunch of greedy morons.

2) China, India, Brazil, Africa, Russia, and Mexico (probably in that order): These are the places that matter now. Get used to it, find out how to take advantage of this new landscape, and you too can become rich.

3) Over the long term, surging demand will fuel commodity inflation, but have no fear, the growth in global wealth will overwhelm this demon.

4) Things will be volatile. Lots of folks are looking for new ways to skim the cream off the financial milk bottle, and many of these ideas will be dangerous ones. Cover your backside so that you can live to fight another day in case the market turns on you or you're just flat out wrong.

[John · Rating 5 out of 5]

Written a good year ahead of the financial crash, this investment guide is spot on. There are two modest criticisms which are barely worth mentioning. The book came out ahead of the crash so some parts may need to be updated or amended (like recommending bond investors check values against a Lehman Index). Secondly, there is some modest horn tooting -- El-Erian did acquit himself at the IMF, PIMCO and the Harvard Endowment Fund before he was lured back to PIMCO -- but he deserves all the accolades. He does admit to some miscues and bad trades. Every great manager has a few stinkers in the portfolio. These can be a valuable source of instruction for students of finance.

This book was voted the best business book of 2007 by Goldman Sachs. Even if you don't care much for Goldman, their business book awards are commendable (at this stage they are due to choose the award in the next week and my money is on Steve Jobs by Walter Issacson... but it went to Steve Coll for his book on Exxon).

When Worlds Collide takes an inclusive, broad-based approach in laying out sound principals for individual investors, fund managers, policymakers and central bankers. If you don't have time to digest the entire book at least read the first two chapters and then skip ahead to the last two on risk management and conclusions. Always a live talking head on the financial news channels, El-Erian writes in pretty basic terms shorn of the supertechnical jargon and complex models that quants love to spew. I like this guy.

[Jeffrey · Rating 4 out of 5]

El-Erian's book is a good overall read and is recommended. However, those looking for all the answers to be laid out are bound to be disappointed. Nevertheless El-Erian excels in laying out the key thematic moves and guideposts for investors to look for - but leaves the reader to do much hard work. But as recently pointed out: “Nothing in life that’s worth anything is easy.” (Sergeant First Class Cory Remsburg)

The first half of the book starts strongly. In particular, El-Erian excels at outlining his view that anomalies are often dismissed as noise, when instead they portend important structural shifts in the economy (e.g. the shift in the US becoming the largest debtor in the world, financed largely by emerging market creditors; the inversion of the yield curve that signaled large amounts of reserves held by emerging markets). Although some of El-Erian's pronouncements did not pan (e.g. continued price pressures on commodities), by and large his insights are thoughtful.

I found however that the second half of the book lost focus, in particular towards its stated aims to held guide the investor through the coming turbulent times. For example, El-Erian spends large parts discussing reform at the IMF - a topic clearly close to his heart given his background, but I doubt of little relevance to most investors.

[Chunwo · Rating 4 out of 5]

El-Erian snapshotted the happenings of financial market meltdown in 2007-2008 and illustrated the cause-and-effects with his in-depth knowledge in macroeconomics principles, modern portfolio theory, empirical studies on assets allocation, neuroscience, and behavioural finance.

This book is akin to textbook/academic essay. Not an easy read, yet I (gladly) picked up several more jargons, e.g. “The Market for Lemons” and "virtuous circle and vicious circle".

Notwithstanding that S&P 500 tripled since his write-up, his unique insights, integrated with his invaluable industrial experience, and solid analysis on evolving global financial market landscape remain highly relevant, and are worthwhile for us who are swimming tirelessly in the aftermath of the 2007 global financial crisis/sub-prime mortgages meltdown.

[Joel · Rating 3 out of 5]

Quite good. El-Erian is the head of PIMCO and the equal of one of the greatest money men to ever live - bond king Bill Gross. He has an interesting discussion of the old paradigm of US-centric markets and the emergence of a multi-polar world, along with a neat emphasis on the importance of policy makers considering moral hazard. I was a bit suspicious of his enthusiastic description of many emerging markets (China is definitely not as transparent and easy as he makes it sound). Interesting points on American economic protectionism in cases like Dubai Ports and the CNOOC.

[Luc · Rating 5 out of 5]

Dr. Mohamed El-Erian main argument is that the International Financial System is progressing towards new territories and that market participants, including policy makers as well as investors, must plan for a long journey towards a destination that is not yet well define.

As explained in his acknowledgements, the author took his ideas largely from his extensive professional activities, personal discussions and his academic life. This gives this book a depth that help us navigate through the subject.

[Rob · Rating 4 out of 5]

This is one of the better investment books I've read in a long time, but don't expect explicit directions about where to put your money. El Arian is great communicator of big picture themes, and this book shares his thoughts on where the world economy is heading over a multi-decade time period. Breezy at times, and not necessarily anything that someone who reads the business section everyday wouldn't know, but he does a great job of using everyday analogies to convey his message.

[Aaron · Rating 2 out of 5]

Mohamed El-Erian has had a fascinating and varied career in finance, working for the IMF, a big Wall Street firm, Harvard's endowment and the biggest bond fund manager in the world, PIMCO. But his book is just boring, boring, boring. Other savvy and sophisticated investors like Yale endowment chief David Swanson have written much more useful and accessible books for investors. El-Erian is too caught up with jargon and generalities. I had expected more. Oh well.

[Vandita · Rating 3 out of 5]

Pimco's Mohammed El-Erian's book on why we need a 'new normal' because of major changes happening in financial landscape and the (in-)ability of the players to cope with and factor in these changes in their decisions...a little technical, insights which no one will disagree with but written in a boring way. As far as the style of writing an engaging book is concerned, Mr El Erian has a long way to go!

[Akshay · Rating 2 out of 5]

More interconnectedness of markets - Emerging markets outside of the US are becoming a bigger and bigger part of global markets (SWF and emerging market growth)

Importance of risk management and mitigation - Tail risk is avoided by investors because of the prinicpal / agent problem of "negative carry" for insurance

Portfolio Manager pschology cycle - arete (excellence) --> hubris (excessive pride) --> ate (blind recklessness) --> nemesis (retributive justice)

[Alberto Lopez · Rating 5 out of 5]

No doubt that Mr. El-Erian is one of the smartest economists in the world. This book is fantastic, although a bit deep for anyone not intimate with economic or financial terms. Mr. El-Erian describes a great way to understand the divergence of key macro indicators such as volatility, equities and bonds during times of change. This book is also a great compliment to "The Black Swan" by Nassim Taleb.

[Christian · Rating 3 out of 5]

I had high expectations for this book - El Erian is an investment genius - but I have to admit, I found it disappointing. He takes a long, hard look at market structure, and while these insights are both original and important, they don't really apply to the little guy's portfolio. As is usual for these sorts of books, the title promises more bang than the book delivers.

[Robert · Rating 3 out of 5]

I have known of this book for a while. I then heard it panned by KSL 102.7. I got a chuckle that they would review this book (same reviewer for the vampire series etc). I thought the book made some great points and arguments, but it did not have some of the structure and formality I was expecting. A lot of typos.

[John Hibbs · Rating 4 out of 5]

Good book that provides excellent analysis of seeds of current economic crisis. Other parts of book I did not find so interesting.
This is not for the faint of heart. If you don't have a basic understanding of credit markets, economics and financial derivatives don't bother. Start reading the Finance and Economics section of the Economist instead.

[anwar · Rating 5 out of 5]

قرأت النسخة العربية من الكتاب
الكتاب رائع و يضم معلومات و تحليلات للتغيرات الحاصلة في الاقتصاد العالمي
الكاتب يبشر بمسار جديد للاقتصاد العالمي و يتعرض بالتفصيل لمسار الرحلة حسب رؤيته و المعوقات التي قد تكتنف الرحلة و الضغوطات التي ستلقي بثقلها على البنى التحتيه و النظم السائدة والكيفية التي يجب على الحكومات التعامل مع المسار الجديد
كتاب يستحق القراءه لكل مهتم بالاقتصاد