We were fortunate at NSB this spring to host global economics and trends expert Vikram Mansharamani to an intimate breakfast event here at our offices. And it felt like important timing – it was just the day after the Alberta election ousted a conservative government after forty years and the same trip where he had the taxi driver experience he shares below. He’s been giving a lot of attention to Canada over the past year and customizing his insights for Canadian audiences, reviewing oil, agriculture, housing and credit. Vikram’s advice to our team: Don’t get complacent living here in Canada. Much is good, but there is much to pay attention to.
Guest Post by Vikram MansharamaniMay 2015
Breaking the Monotony of Counting Profits
“I remain firmly convinced that Canada’s economic vulnerability is as high as ever. As noted in an article I wrote for the PBS Newshour titled “Why Canada’s Economy is Headed Off the Cliff” (PBS Article), there is a toxic combination of elevated housing prices, extraordinarily high household debt, a booming private mortgage market, and a weak outlook for jobs. The residents of Alberta added to the list of my concerns earlier this month when they took to the polls. By voting the conservative party out of office, they put in power a government that promised higher corporate taxes and a re-evaluation of royalty rates on the natural resource sector. Given that Alberta accounted for somewhere ~90% of all job growth in Canada last year, these political dynamics only exacerbate my concerns.
The most convincing evidence that the Canadian housing boom cannot continue, however, was eagerly presented to me in a taxi ride from Toronto’s airport to my hotel. Unsolicited, the driver asked if I were in town to buy real estate. Unable to resist, I said “No, but should I be buying now?” to which I received a long sermon about how he had been making more money in real estate than driving the cab. Eager to demonstrate my gratefulness for such an auspicious cab ride complete with investment tips, I started taking notes. I was glad I did, because he soon came up with the best line I’ve heard in a long time, one that epitomizes the spirit of hubris, overconfidence, and invincibility capturing most bullish Canadian condo buyers: “I only drive this cab to break the monotony of counting my profits.”
While the global economy continues to feel fragile, I sense a rising complacency among the professional investment community. I am particularly struck by the deflationary pressures that seem so regularly dismissed by commentators. As I’ve stated previously, I firmly believe that the increasing use of robots and automation will only intensify this dynamic. Let’s also not forget that in a time of insufficient aggregate demand, productivity gains (i.e. getting more output with fewer inputs) can be very counterproductive. Add on top of this list a slowing China and a struggling Europe… With markets prices as they are, it seems prudent to exercise caution at this stage. Better to miss gains than capture losses.”
Want to know more about Canada’s future challenges and opportunities? Consider Vikram for your next event.