Many analysts have warned us that the dollar is approaching its last legs, in the next phase of a secular decline. In Making Sense of the Dollar (Bloomberg Press, August 2009), Marc Chandler travels beyond the usual perimeter of a treatise on currency, and the drivers that account for the strength or weakness of the greenback. The dollar remains at the nexus of all his arguments, as the central protagonist that binds his themes together. Such a panoramic view allows the author to traverse a broad spectrum of topics, including typical foreign exchange issues, like trade and capital flows, current account balances, the carry trade or purchasing-power parity. Yet Chandler journeys afield from standard forex territory, into labor market mobility, socialism, manufacturing, technology and productivity.
What makes for an engaging and challenging read, also delivers practical implications for a clearer investing perspective, going forward. Financial advisors may benefit from Chandler’s material, gleaning valuable insights for advising their own clients. In terms of wealth management, the book’s multiple themes can be boiled down into a unified view of global economic stability. This coherent vision could serve to help rebuild confidence among clients whose own outlooks have been shattered over the past year, after they may have seen their assets decimated. Financial planners must deal with new attitudes toward risk, in what clients perceive as a changed environment. Should investors be adjusting their portfolios to reflect a post-crisis reality?
Chandler’s strong opinions assert confidence in U.S. competitiveness, the resilience of the American consumer, and the benefits of globalization. Unlike commentators who decry the chronic current account deficit, the author takes heart from the dollar’s place as the safety valve for the rest of the world’s savings. We are the “world’s banker,” he explains, a job no one else is ready or equipped to perform, and as such can maintain our status as global reserve currency.
More specifically, the book offers some thoughts for portfolio construction. Diversification has become increasingly hard to achieve, as international equity indices move toward closer correlations. Foreign-exchange exposure is one of the few remaining opportunities available for spreading risk. While retail investors cannot compete against proprietary traders at banks or hedge funds, they may be able to participate through trading in multinational corporations, international funds and ETFs or foreign currency CDs.
Chandler is no cock-eyed optimist, dishing up comfort food and empty promises. On the contrary, he backs up his assertions with detailed data, accounting and trade statistics, supporting his analysis with descriptions of productivity and net worth that many economists neglect. Do not expect to be spoon fed. The reader must contribute serious intellectual effort to follow complex arguments, but that attention should be rewarded. Gradually, an economic infrastructure that regulates world commerce and capital investment becomes visible, as the blocks fall into place, and his model takes palpable shape.
Vanessa Drucker is a New York-based financial writer and a frequent contributor to Wealth Manager. She previously practiced law on Wall Street.