Market Analysis

Book Review: The Reflexive Properties of European Discombobulation

Investing lessons from an interesting little book about the euro crisis.

The Tragedy of the European Union: Disintegration or Revival? - George Soros, Gregor Schmitz

Many read book reviews to decide whether to buy said book. I think that's a bad idea. To me, book reviews are for seeing how experts react to books-it's about public discourse of ideas.

For about 20 years, I've read around 3 books a week and virtually every book review I could get my hands on. But even at that, what I would like to read is still positively overwhelming. Here's what I do: make a list of potential reads each year, then sit on that list for at least a year. If a topic is important and relevant enough to be a book, then it will still be that important a year or two from now. All kinds of topics seem so important today, but are really transient wastes of time and don't deserve to be full tomes. (Plus used books are usually half price on Amazon after about a year, which has kept me solvent through my life of bibliophilia.) Otherwise, current events are what periodicals are for.

So I bought George Soros's book on the European Crisis, published 2 years ago, last week. For three bucks at an airport bookstore in the bargain bin. I picked it up now because this fall a slew of books about the euro will be published, so it's interesting to see what the prevailing views were a couple years ago versus now.

First, Soros is a legendary, highly outspoken hedge fund manager, and very political. Putting all that aside, he's always mercurial, and always fascinating. Actually, he's kind of bonkers. But in a good way-I like bonkers from intelligent people. We'd do well to listen to more bonkers. Too much of accepted thinking about economics and finance is faulty, yet each and every year the same curriculum is taught in colleges throughout the land. We need more and new ideas. Specifically, Soros is known for his philosophy of "Reflexivity," which roughly means: Humans and markets are in a constant feedback loop with each other.[i] Maybe it's right, maybe it's wrong, but in any case it forces you to rethink your baseline views on how markets work and refine your own thinking.

This short, 130-page book is structured as a series of interviews. The virtue of conversation-cum-book is that it flows and reads easy. But the downside is that conversations meander, and often lack the depth of directed and crafted thought on the page. On that count, the book can be redundant and often superficial.

But as that surface is skimmed, a lot of interesting things are said. Soros hits the mark best when describing the long-term, structural problems of the eurozone: namely, by creating one monetary union to rule over the whole zone, but leaving fiscal issues to each country, the result is a nearly intractable situation, leaving Germany the "strong man" and ostensible hegemon, and most of the other countries in the lurch. Someday the eurozone will likely break apart, or be radically different than it is today. But when and how is anyone's guess. It could be decades.

And that's the thing most investors get wrong from this situation: A slow moving crisis is often not a market event. Such situations usually produce outcomes surprising to the experts. Take Brexit-yes, it was a decisive vote, but in reality it's a many years long process, both to negotiate and to implement. That kind of slow, glacial movement means markets can adapt a lot better than people realize. The result? British and European stocks have broadly outperformed since the Brexit-the opposite of what most pundits believed would happen.

And so, while Soros' analysis of Europe is mostly accurate and sometimes prescient, these are not investable insights. These are geopolitical observations. The pragmatist in him results in a lot of flip-flopping-through this book you can watch him go back and forth on trying to save the euro, kill it, or some other approach.

All that makes this book a fun and short synopsis of the euro issue, an ersatz autobiography of Soros' life, and how he came to think the way he does. Don't miss the first chapter-that's the part where he lays out the basics of the eurozone crisis and his own history. From there, decide if you have interest-by the time we get to the final chapter, the discussion devolves toward fairly standard geopolitical talk on par with what you'd read in Foreign Affairs magazine or similar.

And as for that slew of new euro books due out this fall? Put 'em on your list and see if they're relevant a year from now.

[i]Incidentally, reflexivity isn't so far afield from more formalized complexity theory. Soros even often cites Benoit Mandelbrot, famed mathematician and complexity theorist. Here's hoping Soros one day gets hooked up with the folks at the Santa Fe Institute.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.