Vikram Mansharamani

August 17, 2015 by Speakers' Spotlight

When The Going Gets Tough, The Tough Devalue…

Boom-bust cycles. They’re occurring more frequently than ever. The most notorious ones impact financial markets, but they also impact nations, healthcare, food, energy, education, technology and many other areas as well. Vikram Mansharamani, the bestselling author of Boombustology, is expert at helping audiences recognize and manage the risk of “bubble trouble.” He steps back from complex market dynamics and uses a multiple-lens framework to look at disparate data to provide actionable insights and indispensable information. Below, Vikram looks at the current market condition in both China and Canada:

The “vicious vacation volatility”seems to be rearing its ugly head, driven in large part by China’s surprise announcement that they would devalue the yuan.  As an avid student of financial market and Chinese history, I have often cited a Chinese devaluation as a meaningful risk if the economy slowed enough.  Why’s that?  Because in early 1994, the Chinese pulled a similar move in which they significantly devalued their currency.

Much has been made of the possible ramifications of the Chinese currency moves, with speculation of global contagion as a negative and a more flexible currency regime as a positive. I strongly believe China’s 1994 devaluation was a major contributor to the Asian Financial Crisis.  How?  By improving the competitiveness of Chinese exports, the devaluation effectively made exports from southeast Asia more expensive and therefore less desirable.  Might a similar set of dominoes fall again this time?   I was in Singapore when the Chinese currency moves happened and the chatter seemed disproportionately focused on possible currency wars in which competitive devaluation gets increasingly intense.  Definitely something to watch.

In other news that’s caught my attention, Canada seems to be cracking.  I’ve noticed renewed interest in my earlier post regarding the forthcoming Canadian consumer recession and have had lots of media inquiries on the topic — a telling indicator that people are noticing Canada’s precarious economic condition.  One of Canada’s leading home finance companies, Home Capital Group, may exemplify the situation.  During a conference call with investors last month, management noted mortgage origination volumes were plunging.  Uh Oh!  Stay tuned…we’ve seen this movie before…

Vikram Mansharamani/August, 2015