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[Welcome Charles R. Morris and Host, Nomi Prins - bev]

The Sages: Warren Buffett, George Soros, Paul Volcker, and the Maelstrom of Markets

The highly prolific and wonderful author, Charles R, Morris has written 12 books, including the recent New York Times Bestseller, The Trillion Dollar Meltdown, which just won the 2009 Loeb Prize for best business book, and its revised paperback version, The Two Trillion Dollar Meltdown. His book, The Cost of Good Intentions was selected a best book of 1980 by the New York Times. The Coming Global Boom was a New York Times notable book of 1990, and The Tycoons was selected a Barron’s best book of 2005. A lawyer and former banker, Morris’ articles have appeared in numerous publications including the New York Times, Wall Street Journal and The Atlantic Monthly. 

His new book, The Sages: Warren Buffett, George Soros, Paul Volcker, and the Maelstrom of Markets is perfectly titled. For it is the wisdom of this trio, throughout tumultuous times, that Morris so expertly depicts. The Sages is also a very compelling read that combines vivid history,individual philosophy and market strategy stemming from observation and experience, rather than theory.

Morris brilliantly draws each man’s unique perspective on the markets, as manifested from their past, personal code of ethics, ability to remain level-headed in periods of financial chaos, and talent for seeing beyond the models and theories of the herd to adapt their own practical, often bold, style.

Perhaps the strongest link between these men and Morris’ own beliefs is the shared knowledge that market theorists, economists in particular, get it wrong most of the time. The book opens and closes with the observation that almost all (well, 99.9%) of the traditional market economists are wrong in their predictions about the economy. Morris offers a sobering statistic in the first page of his book: only one of 51 top economists ranked by the Wall Street Journal even had the sign as to what 2008 GDP would be, right. That means 50 out of 51 of them said it would rise, when it actually fell. A coin flip would be a more accurate predictor.  

The respect that Morris has for these men is evident throughout the book. The chapters on George Soros and Warren Buffet are especially excellent in their complementary nature. George Soros is the global investor, who bets big on shifting global and currency tides. Warren Buffet is the value investor, who shirks classical ideas of portfolio diversification as being key to the best investment strategy, choosing instead to invest in a smaller number of companies in which he has solid knowledge, over the long-term. Morris shows that though their methods differ, each man marches to the beat of his own drum, has requisite patience, doesn’t do things he doesn’t understand, and is deeply critical of the methods and machinations of Wall Street. 

In a riveting passage in the Buffet chapter, Morris writes of how Buffet came to take the helm of the once prestigious investment bank, Salomon Brothers, as it was engulfed in a scandal of its own making. The firm, disgraced by having rigged its participation in Treasury note auctions, needed a leader to regain respect.  Warren was brought in, but hated the job. Equally, he disdained the entitlement and money that Salomon’s employees felt they deserved.

There is something instructive in studying these men at this time. What’s most interesting is despite their considerable wealth and trading prowess, they are not despised. Because they have the same disdain for the callousness that prevails Wall Street as we do. Of course, they also received their rightful share of critical scrutiny, which Morris fairly describes rather than choosing to depict these men as market deities.  Soros took much heat for his role in bringing down the British Pound in the early 1990s, and Buffet was embroiled in an SEC investigation regarding his over-paying (uncharacteristic for him) for a chunk of the California savings and loan bank, Wesco.

Morris provides explanations of each man’s remedies for this crisis. Soros’ ideas for fixing our problems are well laid and quite relevant given this week’s congressional hearings on derivatives, he believes that credit default swaps should be banned, not merely moved to regulated exchanges, as Obama’s current financial proposals suggest. Morris tells us why Buffet is uncomfortable speaking about regulation. Buffett finds value over the long term, a philosophy that lives to some extent, outside of regulation, so he avoids the topic.

As for former Fed chairman, Paul Volcker – you can tell that he holds a special place in Morris’ esteem. In contrast with William Greider’s description of Volcker as succumbing to the Milton Friedman School of free-market monetarist economists who were pushing Volker to shift money supply to reduce inflation, Morris shows Volcker did things his own way.

Volcker did indeed adjust money supply to assuage them, but, according to Morris whose investigations led him to related FOMC transcripts showing this, he mostly stuck to the standard Fed tools of manipulating short-term interest rates. And, he was ultimately (though it took several years) successful in this strategy. 

More recently, Volcker had the steadfastness and even at his advanced age, the drive, to be at the helm of his funds during the recent financial crisis, the one that he saw it coming.  

Morris’ final chapter opens with a statement revisiting the sheer ineffectiveness of market economists and their predictions with a sentence that made me laugh out loud. Morris writes, “My impression has long been that macro-economic forecasts are nearly useless.” He provides proof to that belief through the examination of the White House’s Council of Economic Advisors economic forecasts over the past decade. The results aren’t good. This makes you very worried that the ‘brightest lights of the economic profession’ as Morris refers to them, have so much influence over the policy that impacts our economy.