“Canada has optionality – you pretty much have everything,” explained Nassim Nicholas Taleb during an exclusive interview in advance of his keynote address at the 2015 Global Investment Conference. It’s being held in Whistler from April 7 to 9, 2015. His books, The Black Swan, Fooled By Randomness, and Antifragile: Things That Gain From Disorder have laid the groundwork for a different way of thinking about tail events and random events.
One of the new ways of thinking that informs Taleb’s writing is the idea of optionality – of keeping oneself at a theoretical sweet spot, capable of choosing from multiple options at the exact time choices for others are dwindling (i.e., you’re not loaded down with debt during a financial crisis).
So, is Canada in that plum position?
It certainly was during the financial crisis, Taleb tells me: “You guys were saved not because of excellent foresight or anything, but because you did not encourage people to have debt for housing.” Taleb explains that Canada walked into the U.S. subprime debacle without the same level of debt as our neighbours to the south – and we were able to walk away relatively unscathed.
Although much has changed with Canadians’ debt levels (and Taleb notes it that debt is a concern), it’s only part of the picture: Canada has resources, Taleb says — and importantly it does not rely solely on resources for the economy.
“You have everything – Canada is exactly like Russia without the Russians,” he jokes. “You do not need these resources in the way Russia needs its resources for its entire economy. For you in Canada it’s an option – you have optionality.”
It’s a positive message at a time when many are concerned about high debt levels and Canada’s ability to weather the impact of plunging oil prices on Alberta’s economy. And while Taleb is concerned about the debt his view also echoes those who believe Canada’s diverse economy will kick in and pick up the slack as the energy sector wanes.
“For Canada, your resources are the icing on the cake – they are not the cake. Countries that have the curse of resources have that problem. It remains that Canada is probably the only country on the planet that is self-reliant – you have a North American economy that is also resource rich. This is where the optionality and the future lie.”
He adds that commodities are extremely “convex” – meaning that they respond to demand and often quite dramatically. Demand can shift and turn quickly – both on the downside, and also on the upside. Couple that with Canada’s small population and it’s a recipe for long-term growth.
Now, if we can just get those debt levels under control….