Global Shocks

This book, which is written from a practitioner’s perspective, fills the void by providing the reader with a toolkit and guiding principles to manage money when markets are in turmoil. It features ten case studies beginning with the breakdown of the Bretton Woods fixed exchange rate system through the current situation in which investors are assessing whether China could become the next bubble. Each chapter discusses how the respective crisis or bubble unfolded at the time, the way policymakers and markets responded, and the optimal strategy for positioning portfolios.The goal is to share these experiences and the lessons from them, so investors will be better prepared for future shocks. The opening chapter explores whether there are common patterns in movements of interest rates and exchange rates that investors can exploit.  A conceptual framework is presented that helps explain why this is the case for traditional currency crises, but less so for asset bubbles.  The concluding chapter ties the episodes together and considers how the nature of financial crises has evolved since the collapse of Bretton Woods. We cite factors that make it difficult for policymakers and investors to detect problems in advance of an asset bubble. The good news is investors get a second chance to outperform when markets are over-sold; however, they need to formulate a strategy to limit the damage during the sell-off phase and to capitalize on the eventual recovery.  

Nicholas P. Sargen is an international economist turned global money manager.  He has been involved in international financial markets since the early 1970s, when he began his career at the U.S. Treasury and the Federal Reserve.  He subsequently worked on Wall Street for 25 years, holding senior positions with Morgan Guaranty Trust, Salomon Brothers Inc., Prudential Insurance and J.P. Morgan Private Bank.  In 2003 he became Chief Investment Officer for the Western & Southern Financial Group and its affiliate, Fort Washington Investment Advisors Inc, where he now serves as Chief Economist.  Sargen has written extensively on international financial markets, and he currently produces a blog Real-time Financial Thoughts on his website, where his views are updated. He appeared frequently on business television programs throughout his career on Wall Street, and was a regular panelist on Louis Rukeyser’s Wall Street Week.  He was born and raised in the San Francisco Bay Area, and received a PhD in Economics from Stanford University.  He is also an adjunct professor at the University of Virginia’s Darden School of Business.