Book Review: Endgame—The Problem with Doomsayers

Endgame: The End of the Debt Super Cycle and How it Changes Everything — John Mauldin and Jonathan Tepper

I’ve read as many doom-and-gloom books forecasting world financial demise in the last three or so years as I could get my hands on. Bad debt, bad banks, debased currency, wealth-gap-induced anarchy, you name it. Why do it? Particularly since my view is long-term prospects are far from Armageddon? Mostly, it’s part of the job—you’ve got to thoroughly know the views of those who disagree. And if you study market sentiment, it shouldn’t be surprising most dour-doldrums ditties manifest after a big bear market, not before. So in the wake of 2008’s financial panic, there’s been a bevy to choose from.

Two prominent fire-and-brimstone prophecies, Aftershock and This Time Is Different, this space has reviewed before. My views on these haven’t much changed except I think it’s pretty likely the work behind This Time is Different by Carmen Reinhart and Kenneth Rogoff is likely to win the Nobel Prize maybe a decade from now—their view has become part of the intelligentsia zeitgeist.

And, it turns out, their work is integral to another teeth-gnashing work of prophecy: Endgame, by John Mauldin. Which happens to be a very well-wrought and sometimes even witty tale of doom. If you need a good cry and are into economics, maybe this is for you. The narrative: We’ve all (and I mean globally) sinned grandly, gorging on debt, and thus a cycle of massive, global deleveraging is nigh, with painful economic consequences for years to come. Oh, and there is ABSOLUTELY no way out of it. It’s the Endgame.

Now, MarketMinder’s addressed this issue ad nauseam, putting global debt, including the US’s debt, into proper context. Here’s a great and witty piece from MarketMinder editor and best-selling author Lara Hoffmans.

So let’s not go there. Instead, let’s focus on a uniform feature of doom books: They typically shy away from formal forecasts, particularly in the near term. This has always been a tell. Yet, for a book definitively titled Endgame, it’s interesting how much hedging goes on—in Chapter Two, for instance, we read that the global debt supercycle endgame might not even be another US recession. And, just a few pages before, we’re told huge pain is in store, the dollar must be massively debased just to ensure the country’s survival and so on. Later in the book, we are presented with arguments for why both hyperinflation and destructive deflation are inevitable across the globe. If the berth of possible (and inherently conflicting) outcomes is so wide, what’s really the thesis of the book?

Jason Zweig wrote recently about the nature of financial newsletter writers (read it here). The key to understanding them is that they don’t really have to be right in order to be compelling and gain a wide readership (journalists have known this for eons)—the same is true for academic economists, politicians and pundits in general. So, over the years, I’ve stuffed my bookshelves full of doom books, as trophy reminders of follies past.

Endgame in particular is so definitive in its darned-if-you-do-darned-if-you-don't zeal, you could almost forget for a moment long-term successful market forecasters deal in probabilities and not certainties. If in 2009 or 2010, when much of the latest spate of doom books was proliferating, you forecasted doom for 5 or 10 years out, you would have missed the big run up of the last few years, not to mention the gonzo January we just had. Said differently, markets and economies are hugely complex, adaptive systems—the very notion of trying to forecast asset prices 5 or 10 years from now is bonkers—it’s near-impossible to get 2012 right by thinking primarily about 2020.* Imagine in the year 2000 trying to say what the world would be like in 2010. No system or model on earth has anything near the ability to fathom it with any reliability (sure, maybe some can get lucky) ... particularly and especially economics. Which is why successful market forecasters—rare as they are—limit a forecast to 12 to 18 months and always deal in probabilities. Their jobs depend on it.

Another reason I’m fascinated by doomsday books is their myopia. Global GDP, corporate profits, revenues and a bevy of other pertinent data are back at all-time highs, and the global stock market is up around 90% since the bottom back in March 2009. These mere facts are brushed off as mere blips on the doom crowd’s radar.

There’s a time for doom and gloom—usually when folks are euphoric. Otherwise, it’s the optimists through history who’ve most often triumphed. 2012 is off to a roaring start ... and in MarketMinder’s view, there’s more to come.

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* The misuse of complexity theory in economics lately really sticks in my craw. It’s being used as another argument for certain ruin and inherent instability—which is wrong. The lessons of complexity theory are not to try and reduce a system to another set of rules or to emphasize instability. In particular, comparing natural systems like ant farms, sand piles and oceans to human-based systems is folly. The real lesson of complexity (particularly human-based ones) is that global economies are much stronger and more adaptive than people realize when they’re not being governed by huge central bureaucracies. Boom-and-bust is a feature of capitalism—but long- and medium-term, it nets huge wealth and value to society. That is the lesson of complexity theory to economics.