15 Aug When the Going Gets Tough, The Tough Devalue
The “vicious vacation volatility” I mentioned in my last newsletter (click HERE for an archive) 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. As I have previously discussed (click HERE), 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 (click HERE) 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 (click HERE), management noted mortgage origination volumes were plunging. Uh Oh! Stay tuned…we’ve seen this movie before…
I’ll continue to comment on developments I find interesting and noteworthy. In addition to posting my thoughts every Wednesday on my website, I have also begun posting them to LinkedIn, Facebook, and Twitter. Listed below are links to my most recent comments. As always, I’d appreciate feedback!
Sizzling Saigon: Middle Class Boom Forthcoming
Singapore’s Secret Sauce: Humble Leadership?
I had the good fortune to be in Singapore during the country’s 50th birthday party last weekend. The occasion marked tremendous reflection within the country on the origins of Singapore’s success. While many logical explanations exist, the most compelling and convincing one has to do the the country’s spectacular leadership. How much of Singapore’s success can we attribute to Lee Kuan Yew? Click HERE for my comment.
Think You’re Above Average? You’re Not Alone.
In something known as the Lake Wobegon effect, most people believe they are above average. In this comment regarding this phenomenon, I suggest it may not be that bad for us to be (over)confident as it inspires action and risk-taking greater than might otherwise happen. But self-awareness can’t be bad either. Click HERE for my thoughts.
The Trans-Pacific Partnership (TPP) might emerge to be the most important trade development of our time in which countries representing more than 40% of global GDP reduce barriers to exports and imports. Many commentators noted that China was specifically excluded from the TPP, but in this short comment, I question that assumption. Maybe they didn’t want to join? Click HERE for my piece.
The Iran Nuclear Deal & You
If economic sanctions on Iran were removed (an admittedly big “if”), how would it impact the global economy? Five possible developments include a plunge in oil prices, a boom in global supplies of pistachios, greater availability of saffron, an economic boost for Dubai, and a flood of outbound Iranian students and patients. Click HERE for more.
Creepy Cyber Coincidence? Probably Not.
On July 8, the websites of United Airlines, the Wall Street Journal, and the New York Stock Exchange all experienced disruptions that were dismissed by authorities as mere technical malfunctions. I simply didn’t believe it and in this short comment, reflect on why I think there may have been a more malicious driver to these seemingly coincidental developments. Click HERE to read my note.
Sometimes It’s Best to Do Nothing
Many of us use level of activity as a proxy for the degree to which an employee is busy or working hard. Using a story from my Business Ethics class at Yale, I suggest perhaps it’s sometimes best to do nothing. Click HERE for the piece I wrote.