Global Shocks

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Written from a practitioner’s perspective, this book provides a toolkit and guiding principles for managing money during market turmoil. It includes ten case studies, starting with the collapse of the Bretton Woods fixed exchange rate system and extending to current concerns about China as a potential bubble. Each chapter examines how crises or bubbles developed, the responses from policymakers and markets, and optimal portfolio strategies. The aim is to share experiences and lessons learned, equipping investors for future shocks. The opening chapter investigates common patterns in interest and exchange rate movements that investors might exploit, presenting a conceptual framework that explains these patterns for traditional currency crises but not for asset bubbles. The concluding chapter connects the various episodes and discusses how financial crises have evolved since Bretton Woods, highlighting challenges for policymakers and investors in detecting asset bubble problems in advance. Importantly, investors have a second chance to outperform during oversold markets, but they must devise a strategy to mitigate damage during sell-offs and capitalize on eventual recoveries.