Intermarket analysis is tricky at best. Javier Gonzalez, in How to Make Money with Global Macro,offers a couple of templates to simplify the task. Reduced (and oversimplified) even further, we get the “dollar strategy.” “If the dollar is appreciating, it invests in the Nasdaq. If the dollar is depreciating, it invests in commodity-exporting markets or commodities. There are some conditions, whether the dollar is appreciating or depreciating, in which it is best to hold cash or bonds.” (p. 6)

How to Make Money with Global Macro

At the heart of Gonzalez’s framework is the core-periphery paradigm. Although currencies exist in a continuum, the paradigm divides currencies into the world’s reserve currency (currently the U.S. dollar), hard currencies (ones that appreciate during episodes of risk aversion, such as the Japanese yen, the Singaporean dollar, and the Swiss franc), and soft currencies (emerging market currencies or commodity-exporting currencies). The reserve currency economy has many advantages over other economies. Most notably, “worldwide monetary conditions are typically ‘optimal’ for the reserve currency economy and only for the reserve currency economy.” It can “generate wealth out of thin air,” it has “longer uninterrupted business cycles” (witness 1991-2001), and it can “have a currency account deficit apparently indefinitely.” (p. 22)

Gonzalez presents two blueprints of the dynamics of global macro, the episode from 2003 to 2008 and that from 1995 to 2001. Here things necessarily become more complicated. Nonetheless, Gonzalez suggests that “there are some difficult-to-manipulate relationships” in these blueprints, which is “why they just might increase the odds of profiting from global macro.” (p. 32)

The bulk of the book is a history lesson, from the commodity boom of the 1970s through the monetary experiments of the 2010s. The author analyzes global macro events in each decade and follows that analysis with graphs covering such areas as currencies, U.S. economic policy, U.S. equities, commodities, global equities, U.S. real estate, and U.S. economics.

In the shorter second part of the book Gonzalez offers a topical analysis: the war effect, crashes and crises, commodities, fallacies and the chairman cycle, macro and power, dollar stability, and the gray swan.

The “mother of all gray swans,” according to the author, is climate change. He considers four scenarios—rising sea levels, lack of water in a metropolis, pandemic, and drought—and offers suggestions about where to invest and what to avoid. He recommends that the sophisticated investor monitor water levels in major cities around the world just as she monitors the dollar index. “Other variables to check upon are agricultural inventories, livestock levels, and more-accurate-than-official climate projections. Just as observing U.S. dollar trends has been profitable in the past (and might still be in the future), monitoring the above mentioned variables might produce outsized returns in the future. It might become a necessary defensive strategy.” (p. 282)