Part One: Vikram Mansharamani on the Four Transitions Explaining Today’s Economic Climate in the U.S.
Posted on 08/21/2018
“There are four major transitions underway which explain virtually all of the dynamics we face in the U.S. economy today,” said Vikram Mansharamani, Ph.D., a recent guest speaker at the Investments & Wealth Institute 2018 Annual Conference Experience—ACE Nashville.
“Yes,” he said. “Only four.”
Recognized as an authority on geo-politics and geo-economics, Harvard lecturer Mansharamani wasted no time in outlining his premise. The first transition, he suggested, is currently taking place in China. For many years, “we’ve enjoyed an investment led boom that we now hope is heading toward a consumption boom. It is possible; however, as we move from the valley created by the financial crisis that we’re headed toward an overhang,” so that consumption boom remains to be seen.
"The expanding supply of technology is the second transition," Mansharamani said. More and more countries are producing products, and those products are requiring fewer and fewer inputs, and as market competition ramps up, currency wars are occurring as a means to gain an edge.
Energy and demographics are the last two transitions currently underway, according to Mansharamani. The move from traditional hydrocarbon energy sources to alternative forms is set to produce major ramifications, geo-political and otherwise, for areas in the Middle-East. “Couple this with the fourth, and maybe most significant transition, the aging demographic of the world’s largest economies and the spending-squeeze this creates, and these four transitions seem to have major deflationary pressures.”
Here’s why: The China transition creates too much capacity in certain areas and lower prices, the proliferation of technology creates more supply and less demand, energy is becoming lower cost, and the demographic transition creates a spending slow-down. According to Mansharamani, “with all these deflationary pressures, which historically have been known to increase inequality, the rise of populism and nationalism should not be surprising.”
“Forget about the global economic pie,” is their line of thinking, said Mansharamani. “Instead, we care about our slice.”
There are many metrics that suggest globalism is in retreat: protectionism is up, cross-border lending is down, foreign direct investment is plunging, etc. “This is the world as it is today,” Mansharamani added. “But in a way, this is all irrelevant.”
What Mansharamani suggests is that instead of focusing on where the world is, “we should focus on where it is going, because that is fundamentally more important to what financial advisors do.” Some of the best indicators which allow us to do this, is a closer look at population growth and decline. Though countries like China and the U.S. will face declining populations in the future, “countries like India and Africa are set to grow exponentially.” Considering that the middle class in these countries is also growing, what sort of consumer boom could this create? What impact would these changes create for the U.S. economy and investors?
Learn the answer next week as InvestmentSense shares the second part of this post, “Vikram Mansharamani on the Four Transitions Explaining Our Current Economic Climate — Part 2.”
The purpose of this blog post prepared for the Investments & Wealth Institute, is to provide members with knowledge shared at one of our educational events. It is strictly informational and should not be relied upon as investment, legal, tax, or compliance advice. The Institute, as an education and credentialing organization, does not lobby Congress or regulators, and does not advocate for any particular legislative or regulatory position either on its own or through any outside source.