Essential Reading - When Markets Collide

If you are sick and tired of reading Warren Buffett or Ben Graham or even Peter Lynch, try this one. Mohamed El-Erian was the ex-fund manager of PIMCO's highly regarded emerging markets fund. He left to become president of Harvard Endowment for another highly successful tenure, where he managed US$35bn in endowment. Now he is back as co-CEO and co-chief investment officer of PIMCO. He spent 15 years at the International Money Fund, working on policy, capital market, and multilateral economics issues. In 2004, Fortune named him a member of its eight-person “Mutual Fund Dream Team.”

According to the McGrawHill byline: 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.

His main contentions:

a) there is a realignment in global growth, shifting from one big engine (the US) to many smaller planes, which will bring about a bumpy process

b) the return of inflation, the smaller planes went from being producers to being producers and consumers, the inflationary long effects are still not fully appreciated by the markets

c) structured finance has diminished the barriers to entry to mortgage finance, which brought about overeager innovation, and the sub prime crisis, but the global mortgage finance market will never be the same in the future, the sub prime mess was an initial overeager casualty as with any grand innovation, but will elevate the mortgage markets of the future

d) transfer of wealth, debtor countries are now creditor countries, another bumpy ride