In percentage terms not one of the triple-digit days the Dow Jones Industrial Average (DJIA) posted in early August merited a place in the top 20 single-session gain or loss rankings. In simple point terms, however, we saw five of the 40 most significant days ever in a span of little more than a week. And we experienced four 400-point days back-to-back-to-back, noteworthy alone for the statistical anomaly let alone the emotional impact such swings exerted on investors.

This round of market volatility was triggered by the decisions by Standard & Poor’s to cut its rating on US government debt from AAA, the first time that’s ever happened. Later in the month a real earthquake–the strongest in to hit the region since World War II–rocked an already shaky Washington, DC. Just four days after the 5.9 tremor, Hurricane Isabel swept up from North Carolina, across Virginia and Maryland, up through Pennsylvania and on to New York and New England, knocking out electricity service for millions.

Downgraded, shaky, soggy, powerless: Events of the past month certainly provide ample metaphorical clay for epic dramatists or historians of empire to build on. It’s pretty clear now that the “great moderation”–presided over by the benevolent hegemon America–that defined the end of the 20th century has given way to something else, a transition period that’s beginning to impact the network of post-war institutions that grew up to support a Pax Americana.

The reordering of global economic and political power will not be smooth; that’s one lesson we can take from the human-scale events of August. For self-directed individual investors, however, there are solutions to the problems afflicting most of the developed world. It’s as clear that buying solid, dividend-paying businesses–no matter where in the world they’re located–is a good way to ride out volatility–even if that volatility is of an historic nature–and build wealth over time.

That’s what we do in Canadian Edge. And it’s what we’ll do in Australian Edge as well, beginning in October.

Canada and Australia: The Commonwealth Connection to China

The chart below is perhaps the simplest illustration of the strength of Canada and Australia versus the rest of the developed world. It depicts net debt-to-GDP ratios for the Group of Seven (G7) economies as well as the Land Down Under. As you can see Canada (green) and Australia (lavender) make a pleasing combination down at the bottom, the countries with the two lowest levels of net debt as a percentage of gross domestic product among the sample group. This is one reason for both countries’ currency strength relative to the global reserve, the US dollar, over the past half-decade.

Source: Bloomberg

This chart compares the Canadian dollar, or the loonie, versus the US dollar (white); the Australian dollar, or the aussie, versus the US dollar (orange); and the US Dollar Index (yellow). The rising white and orange lines indicate a strengthening loonie and aussie, respectively, versus the buck. The yellow line is just to emphasize the point: The US dollar is weak and will remain so versus currencies backed by sound monetary and fiscal policy and solid resources.

Source: Bloomberg

The relative decline of the US does not mean the end of its reign as the leading global power; the fact remains that the US is still, at USD14.58 trillion in 2010, bigger than China, Japan and Germany combined in germs of GDP. China’s rapid growth will continue, and it will surpass the US in nominal GDP simply because its population is so huge. America’s ample wealth and its sophisticated use of its still considerable hard and soft power–not to mention the simple fact of China’s huge investment in US Treasuries–secure its position atop the geopolitical hierarchy. China is getting closer, rapidly, and will have a greater say in the great power game as the 21st century unfolds. Chinese experts are already showing up in critical roles at the International Monetary Fund and the World Bank.

China has more than USD3 trillion of foreign reserves, a lot of fuel for an economy in steady expansion. The Middle Kingdom is pressing on with plans to build more than 200 cities with more than a million residents and eight hypermodern megacities with populations of more than 10 million by 2025. Canada, with abundant natural resources such as coal, oil and potash that will prove critical to an emerging middle class population, will be an important trading partner as China evolves into a modern power.

After getting off to a rocky start, Prime Minister Stephen Harper has steadily worked to improve his and his country’s standing in Beijing. The Prime Minister, whose emphasis on human rights has, in one light, given way to the practicalities of leading a significant global player in the 21st century, will make his first visit to China since leading his Conservative Party to a majority in the House of Commons this fall. Mr. Harper already sent Foreign Minister John Baird to the Middle Kingdom in July.

China, now Canada’s second-largest trading partner, is, in Mr. Baird’s words, “incredibly important” to the Great White North’s economic future. Mr. Harper’s trip will include discussions of investment protections for Canadian companies operating in China, which will hopefully ensure those companies access to enormous potential markets. At the same time China wants more of Canada’s minerals, lumber and oil and gas. It wants to be able to deploy some more of its USD3 trillion in the Great White North. Trade between Canada and China grew by 30 percent in 2010 and is up 31.7 percent to date in 2011. Both sides, however, acknowledge that more will and must be done.

Australia, for its part, was able to avoid sliding into recession while the rest of the world contracted from 2007 to 2009, largely because of its robust trading relationship with China. Simply by proximity and the fact of its large store of coal and iron, Australia is benefitting from still-strong demand from emerging Asia. Unemployment in Oz is just 5.1 percent. There are already USD400 billion worth of resource projects planned over the next five years, which will continue to drive growth in mineral-rich regions such as Western Australia.

S&P’s historic downgrade of US credit got us off on a strange foot in what turned out to be an exciting August. It’s important to note that Canada and Australia both suffered and recovered from ratings downgrades in the recent past, the Great White North in 1992, the Land Down Under in 1986. Both managed to balance the books and regain AAA ratings, Canada by 2002, Australia by 2003. These are positive examples for Americans disheartened by the downgrade.

What’s also encouraging is that the steps both countries took have made them solid markets for US-based investors looking to diversify their holdings. Canada and Australia–rich in resources, fiscally stable, politically predictable–are home to abundant high-dividend-paying opportunities.