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To: re3 who wrote (80978)	10/17/1999 6:55:00 PM
From: H James Morris	Respond to of 164687

Ike, oh no!! it hit Canada also? I read Chancellors book and I really enjoyed it. I didn't like that Oils were down 2% though.:-( >>A more oblique approach to hinting a bear market is nigh is taken in Devil Take the Hindmost: A History of Financial Speculation (Farrar, Straus and Giroux, 1999). At age 37 , author Edward Chancellor is hardly old enough to have experienced past financial euphorias first hand. But he has studied history at both Cambridge and Oxford universities and has worked for Lazard Freres, the investment bank. Mr. Chancellor goes over some of the same ground as Charles Mackay's 1841 classic Extraordinary Popular Delusions and the Madness of Crowds, to which Mr. Chancellor compares his own approach. That includes such perennial favourites of "bubbledom" as the great Tulipomania and the South Sea Bubble, as well as less celebrated bubbles. He explains that, while he felt it was time for a fresh examination of financial speculation, he has not attempted to produce a comprehensive history, but rather intersperses his commentary with present-day speculation. Those who have read Extraordinary Popular Delusions, or indeed the more recent Manias, Panics and Crashes, by Charles Kindleberger, may want to cut to the chase and read chapter seven of Mr. Chancellor's book. It looks at the 1929 stock market crash, followed by a postscript to the chapter called The New Paradigm, a 1920s Revival on Wall Street. In seven pages, he sums up the similarities between the 1990s bull market and the run-up to 1929. For the 1990s boom in computers, he substitutes the automobiles of the 1920s; the recent cult of equity is related to the cult of common stocks; mutual funds are compared to the explosion of investment trusts, and so on. He says rampant speculation in both eras put a strain on traditional valuations: "The belief that the stock market would invariably produce the greatest returns led investors to purchase shares regardless of price [in 1929]." In the spring of 1998, the market's price-to-earnings ratio rose to a historic high of more than 28 times earnings. In both periods, investors saw every market decline as a chance to buy the dip. "As a result, every downturn was quickly reversed, supplying the bull market with an aura of invincibility." In the 1920s, the bull cheerleader was Irving Fisher; today, it it's Abby Joseph Cohen, the Goldman Sachs & Co. analyst. For investors who want useable information for today, as opposed to historical titillation, the epilogue is the other key chapter in Devil Take the Hindmost. "The Case of the Rogue Economists" outlines the nature of the central feature of the 1990s financial markets,"trend-following speculation," better known as momentum investing. Mr. Chancellor discusses the dangers of derivatives and other instruments supposedly meant to reduce risks. The book ends with a cautionary tale about the current hedge fund mania, which he terms "the most purely speculative investment vehicles of the late 20th century." He quotes unnamed commentators to the effect hedge funds may be "taking excessively large risks and contributing to the instability of the financial system." Devil Take the Hindmost was finished late last year and could not have predicted the recent surge in the gold price and the probable problems of hedge funds caught in a bear squeeze on gold. "When the tide turns against the speculator there is an inevitable loss of liberty ... the pendulum swings back and forth between economic liberty and constraint," he concludes. If I were to read only one of these books, I would pick When the Dow Breaks. I'd read it before the year ends, just in case. A future column will review the current books by bullish authors. The opportunity they portray also is drawing near. Jonathan Chevreau can be reached by e-mail at jchevreau@nationalpost.com <<