Book Review: How to Make Money with Global Macro
Successful execution of global macro eludes most practitioners because of its complexity. Both fiscal and monetary policy, along with sometimes-unpredictable political and economic ructions in different parts of the world, produce varied outcomes. The ability to apply one’s intellectual mettle across a constantly changing set of inputs is an ongoing challenge.
How to Make Money with Global Macro is written for the practitioner and the novice alike. Javier Gonzalez states in the preface that this book should be a tool that enables the user to interpret global macroeconomic events. It fills a gap in a literature that tends to be either politically biased or merely illustrative and lacking in analysis of causality. The overall presentation is more qualitative than quantitative, making the content accessible to a wide audience.
The author builds a foundation for the practice of global macro by rigorously exploring the factors that drove returns in global financial markets over several decades. Central to the strategy is the core–periphery paradigm, which divides the world’s currencies into three types. First is the reserve currency — at present, the US dollar. Second are the hard currencies, which appreciate during periods of heightened risk aversion. They are currencies of countries viewed as safe havens within developed markets. These countries can borrow at competitive rates in their own currencies and are importers of commodities. Finally, there are the soft currencies, which depreciate during periods of heightened risk aversion. They are typically currencies of emerging market, commodity-exporting nations.
Monetary and fiscal conditions influence the exchange rate movements of these three currency types. The reserve currency is the global hegemon, guiding monetary policy across the world for its benefit, often to the detriment of other economies. Shrewd traders can exploit currency fluctuations that are an expression of macroeconomic policy. Critical to an understanding of Gonzalez’s investment thesis are two case studies that illustrate the dynamics of the paradigm with all the factors that bear on investment returns from this perspective. Consistent with the reserve currency’s dominance in the international financial system, dollar instability has the power to wreak economic havoc.
Chronologies of political and macroeconomic developments from the 1970s to 2016 contextualize relevant events. The author elaborates on critical policy and financial market issues for the decades examined, reviewing the seminal factors behind market performance and the determination of winners and losers. Accompanying graphs bring together each decade’s key developments along with succinct conclusions, reinforcing critical concepts.
A tasting menu of sorts on selected topics that, in Gonzalez’s opinion, are relevant to his recommended strategy makes for a well-informed and thought-provoking read. In this portion of the book, the author explores some important themes in greater depth. A discussion on market behavior during armed conflict briefly examines the dynamics at work during wartime, beginning with World War I and concluding with the Iraq War. Such conflicts can induce ill-timed and flawed execution of fiscal and monetary policy. The author also takes a close look at commodities, highlighting their role in the core-versus-periphery geopolitical scrum.
Particularly relevant in light of recent global macroeconomic turmoil are examinations of core and periphery market crashes and a critique of macroeconomic policymakers. Making comparisons between various market crashes in history can be dangerous. Past is not prologue. A careful reading of the circumstances at hand is essential. In Gonzalez’s estimation, the global financial edifice enables Wall Street’s periodic recklessness. The International Monetary Fund and the Federal Reserve are often complicit, frequently exacting terms unfavorable to the periphery.
The book’s conclusion offers thoughtful prognostications on potential geopolitical disruptions that could ensue from climate change. Rising sea levels, a dearth of water in a major metropolitan area, pandemics, and droughts all present risks and — for the agile trader — opportunities. Fossil fuels could become stranded assets, whereas renewable energy and water assets could be viable and profitable alternatives.
How to Make Money with Global Macro challenges the reader to think multidimensionally and unconventionally through a robust examination of history and geopolitics. A lack of rigorous editing, however, mars a highly relevant work. Typographical errors, misplaced commas, and instances of faulty diction occur frequently. Additionally, the book’s reference section warrants improvement.
Its flaws aside, How to Make Money in Global Macro is a stimulating short history of global macroeconomics for investors and students of financial history alike. It provides a healthy reminder of the relevance of financial history.
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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.