# Recession - Yay or Nay?????



## DB008 (4 August 2006)

Hello all,
l have read a few articles and heard a few people mention the ''R'' word. Speculative comments about the housing bubble bursting in the US and more rate rises is generation some interest in the "R" word.
So my question is, if one is coming, what time period are we looking at?
I am fairly new to this stock market stuff, but l wanted to ask that if one does come and everything does crash, is there anything that does go up in the market? Or do we have to play short and make money off bear futures etc etc.
Go easy on me, l'm only a rookie.
DB008 out.


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## Realist (4 August 2006)

I would not have thought the Australian stock market could "crash" in the near future. Because it is not overvalued, the large corporates are making large profits and are fairly valued at the moment.

Still, maybe I am wrong.  Fosters would be reasonable bet during a crash.   People always need alcohol!! Especially if things are going badly.


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## Ageo (4 August 2006)

i suspect if we were to have 1 then around 2008-2010 (after the olympics and when the baby boomers pull all there cash out of super to retire).

Thats just an assumption thow and in no way advice.


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## ghotib (4 August 2006)

Ageo said:
			
		

> i suspect if we were to have 1 then around 2008-2010 (after the olympics and when the baby boomers pull all there cash out of super to retire).



Point of detail. In 2008 - 2010 the youngest baby boomers will only be 50: they won't even be starting to pull their cash out of super. Leading edge baby boomers like me will be in our very early 60s. We won't be pulling "all" our cash out of super either; it has to support us for another 30, 40, or 50 years. I wish people would realise that "baby boomer retirement" is not an instant thing. A lot of boomers are going to see a lot of changes yet.


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## Realist (4 August 2006)

Why would baby boomers pulling their money out of super affect the economy anyway?

A few old farts taking their super out is a drop in the ocean compared to the 9% of everyone elses income that goes into super each year.

Maybe it will affect city house prices negatively and beach town house prices positively - the wrinklies for instance may leave Sydney and Melbourne and move to the Sunshine Coast, Coffs Harbour or Forster??


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## Ageo (4 August 2006)

ghotib said:
			
		

> Point of detail. In 2008 - 2010 the youngest baby boomers will only be 50: they won't even be starting to pull their cash out of super. Leading edge baby boomers like me will be in our very early 60s. We won't be pulling "all" our cash out of super either; it has to support us for another 30, 40, or 50 years. I wish people would realise that "baby boomer retirement" is not an instant thing. A lot of boomers are going to see a lot of changes yet.





I was referring to the U.S as the aussies tend to work a tad longer.

anywayz i hope your right as personally it doesnt bother me if there is a recession or not (its actually a good thing for me, since interest rates drop and so does the cost of many other things).


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## Sean K (4 August 2006)

I actually think Howard and Costello's statements about POI are on the money. Be worried. Oil over $1.00 for a sustained period will bring on recession. Depending on the Middle East, and Hugo Chavez, sooner rather than later perhaps.


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## Julia (4 August 2006)

Realist said:
			
		

> Why would baby boomers pulling their money out of super affect the economy anyway?
> 
> A few old farts taking their super out is a drop in the ocean compared to the 9% of everyone elses income that goes into super each year.
> 
> Maybe it will affect city house prices negatively and beach town house prices positively - the wrinklies for instance may leave Sydney and Melbourne and move to the Sunshine Coast, Coffs Harbour or Forster??



Realist

Is there really any need to be so disrespectful towards the generation which preceded you? Your arrogance does not become you.

Julia


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## Realist (4 August 2006)

Julia said:
			
		

> Realist
> 
> Is there really any need to be so disrespectful towards the generation which preceded you?





Yes, of course there is.


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## visual (4 August 2006)

I`m not sure if this is relevant to this thread,but my husband keeps telling me that things arent right out there,he visits lots of workshops and everywhere he goes people are complaining they are too quiet,people aren`t getting their cars fixed,they are using public transport more,and spending less on maintenance,I suppose if things are coming off the rails the smallest business will feel the pinch first,


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## swingstar (4 August 2006)

Yay. This year / early next.


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## The Mint Man (4 August 2006)

> the large corporates are making large profits and are fairly valued at the moment.



realist, I have never been through a recession (and I gather you havn't either) but would it matter if they are fairly valued??? 
point is, if there was a recession wouldn't they go down either way?


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## Realist (4 August 2006)

I hope there is a recession actually. House prices to crash, yuppies deep in credit to go bankrupt. Overpaid dickheads that do nothing to lose their jobs, Sounds good to me.

Are there any downsides to a recession if you have money sitting in safe shares and some in the bank and you are renting?


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## Realist (4 August 2006)

The Mint Man said:
			
		

> realist, I have never been through a recession (and I gather you havn't either) but would it matter if they are fairly valued???
> point is, if there was a recession wouldn't they go down either way?




Yes they would go down if their profits went down, they'd go down less than overvalued or speculative shares would.

And houses and other things would go down, so you are no worse off in my situation.  A recession if anything would suit me rather than hinder me.  My shares are fairly recession proof as well.   WDC, CBA, FGL, PRG etc.


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## professor_frink (4 August 2006)

The Mint Man said:
			
		

> realist, I have never been through a recession (and I gather you havn't either) but would it matter if they are fairly valued???
> point is, if there was a recession wouldn't they go down either way?




Nobody our age has mint man. I wonder how alot people out there in their early to mid 20's will go if we hit some hard times  :fan


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## Ageo (4 August 2006)

professor_frink said:
			
		

> Nobody our age has mint man. I wonder how alot people out there in their early to mid 20's will go if we hit some hard times  :fan




depends on what they do Frink. If they own a small business than maybe yes!

but if you have the option of making money in a Up and Down market than i see no difference?


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## wayneL (4 August 2006)

Neither.

I'm thinking more along the lines of the big "D".

(Just gotta to live up to my reputation)


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## visual (4 August 2006)

professor_frink said:
			
		

> Nobody our age has mint man. I wonder how alot people out there in their early to mid 20's will go if we hit some hard times  :fan




Professor,you have been through a recession,remember when you used to say,but mum!! but dad!!!!!!!!!! and your parents used to say no,and dont ask again.
That was the recession,you might have had enough to eat,but your parents were paying 27% on their mortgage or like me 13.5%capped thanks to the Hawke gorvernment,in order to win they capped the existing mortgage holders to that figure anyone who came after that they were on their own.


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## professor_frink (4 August 2006)

Ageo said:
			
		

> depends on what they do Frink. If they own a small business than maybe yes!
> 
> but if you have the option of making money in a Up and Down market than i see no difference?




I was mainly thinking of your average guy our age, has an average job, may have just bought a house, little in savings, and has no idea what it's like to live through a recession. Someone who loses their job and can't find another could suffer just as much as a small business owner.


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## swingstar (4 August 2006)

professor_frink said:
			
		

> Nobody our age has mint man. I wonder how alot people out there in their early to mid 20's will go if we hit some hard times  :fan




Absolutely great if they're shorting the market.


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## professor_frink (4 August 2006)

visual said:
			
		

> Professor,you have been through a recession,remember when you used to say,but mum!! but dad!!!!!!!!!! and your parents used to say no,and dont ask again.
> That was the recession,you might have had enough to eat,but your parents were paying 27% on their mortgage or like me 13.5%capped thanks to the Hawke gorvernment,in order to win they capped the existing mortgage holders to that figure anyone who came after that they were on their own.




good point visual! I got that alot growing up! They always said no!
Bloody stupid responsible parents- why couldn't I have chocolate for breakfast? Why couldn't I have a nintendo with super mario bros?


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## Ageo (4 August 2006)

professor_frink said:
			
		

> I was mainly thinking of your average guy our age, has an average job, may have just bought a house, little in savings, and has no idea what it's like to live through a recession. Someone who loses their job and can't find another could suffer just as much as a small business owner.





well obviously if it does it, many many people will be in for a huge shock!

As i always live by "always expect the unexpected" and people that arnt prepared will get hammered.

I spose at least there will be bargains on the real estate market


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## visual (4 August 2006)

professor_frink said:
			
		

> good point visual! I got that alot growing up! They always said no!
> Bloody stupid responsible parents- why couldn't I have chocolate for breakfast? Why couldn't I have a nintendo with super mario bros?




Maybe thats how you get responsable parents in the first place,no money.


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## Ageo (4 August 2006)

professor_frink said:
			
		

> Why couldn't I have a nintendo with super mario bros?




Super Nintendo? Mario Kart?

Greatest game!


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## professor_frink (4 August 2006)

wayneL said:
			
		

> Neither.
> 
> I'm thinking more along the lines of the big "D".
> 
> (Just gotta to live up to my reputation)




Wayne- beautifully bearish as always!

Now the big "D" word would create some havoc- The only people who know what that's like were locked up in nursing homes long ago(I'm only kidding if your reading this nanna frink  )

Can anyone say "shoe shine mister?"


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## Realist (4 August 2006)

professor_frink said:
			
		

> I was mainly thinking of your average guy our age, has an average job, may have just bought a house, little in savings, and has no idea what it's like to live through a recession. Someone who loses their job and can't find another could suffer just as much as a small business owner.




I had the joy of working in IT in 2000.  That was a recession - for many in the industry. Shares plummetting, companies going under, people fired or salaries halved overnight. No companies hiring. It was pretty bad.


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## professor_frink (4 August 2006)

Realist said:
			
		

> I had the joy of working in IT in 2000.  That was a recession - for many in the industry. Shares plummetting, companies going under, people fired or salaries halved overnight. No companies hiring. It was pretty bad.




Finding work in that type of environment would have been tough. I wonder how many people still work in the industry? I bet there would be alot of degrees with nice shiny frames around them gathering dust these days!


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## professor_frink (4 August 2006)

visual said:
			
		

> Maybe thats how you get responsable parents in the first place,no money.




My parents weren't overly wealthy, but they were fairly comfortable- one of the advantages of moving out of sydney just before I was born was that didn't have much of a mortgage.

I think they were more concerned with raising kids that weren't spoiled little s***s! Unlike my Cousins- they had all the cool toys- nintendos, segas, and a commodore 64  



			
				Ageo said:
			
		

> Super Nintendo? Mario Kart?
> 
> Greatest game!




I eventually got my super nintendo Ageo! Mario Kart ruled


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## DB008 (4 August 2006)

The big "D"............oh oh.
So, when something like a "R" or "D"  happens, is the only way of making money on the market is through bear warrants/futures/CFD's??

l'm just trying to get a feel for what might be around the corner. Then again, nothing could come for the next 10 years. 

Hey professor_frink, l like it when you and the Realist fight. Keep it going.

DannyBoy80


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## rub92me (4 August 2006)

Probably the usual thing will happen in a recession. People with money to play before it happens will find other ways to make more money (e.g. shorting the market, buy up real estate from people forced to sell at basement bargain prices, etc.) People with little or no money to play will get it even harder, but they'll manage somehow by sucking sugarcane, giving up the 6th hand car, selling the shed they live in, etc.


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## professor_frink (4 August 2006)

DB008 said:
			
		

> The big "D"............oh oh.
> So, when something like a "R" or "D"  happens, is the only way of making money on the market is through bear warrants/futures/CFD's??
> 
> l'm just trying to get a feel for what might be around the corner. Then again, nothing could come for the next 10 years.




If you didn't invest money whenever there was talk of a recession coming, you'd probably never start. There are always permabears out there who will tell you the sky is falling! It rarely does though. Because I've now said that, watch out-it's coming  



			
				DB008 said:
			
		

> Hey professor_frink, l like it when you and the Realist fight. Keep it going.
> 
> DannyBoy80




Glad we have entertained you! We don't fight- we are just two people looking at the stockmarket from completely opposite angles! Aint that right Realist?


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## pepperoni (4 August 2006)

Yay (of course)


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## visual (4 August 2006)

professor_frink said:
			
		

> My parents weren't overly wealthy, but they were fairly comfortable- one of the advantages of moving out of sydney just before I was born was that didn't have much of a mortgage.
> 
> I think they were more concerned with raising kids that weren't spoiled little s***s! Unlike my Cousins- they had all the cool toys- nintendos, segas, and a commodore 64
> 
> ...




Prof,no offence intended, : 

it`s good you eventually got your super nintendo, : did you like your cousins?


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## professor_frink (4 August 2006)

visual said:
			
		

> Prof,no offence intended, :
> 
> it`s good you eventually got your super nintendo, : did you like your cousins?




None taken Visual  

I got on ok with my cousins when I was younger. Not great, just ok. Get on fine with them now. One of them actually introduced me to my girlfriend, so that kind of makes up for any arguments growing up


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## twojacks28 (4 August 2006)

nay. to put it simply


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## Realist (4 August 2006)

professor_frink said:
			
		

> Glad we have entertained you! We don't fight- we are just two people looking at the stockmarket from completely opposite angles! Aint that right Realist?






No.


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## Smurf1976 (4 August 2006)

If you look at economic history, not just here but in the US as well (and also the UK) then a few points about recessions stand out. I'm ignoring the "causes" here and focusing on the "how to tell it's coming" aspect.

The following is the approximate order to my understanding. Not advice etc, just my opinion.

1. Usually a background of rising interest rates and relatively slack lending standards.

2. Frist hard evidence is house prices begin to fall in real terms. They may or may not also fall in nominal terms, depending on the overall inflation situation at the time. The housing market is incredibly important to the overall economy and it tends to be house price crashes which cause recessions, not the reverse. Last time, in the early 1990's, house prices fell in real terms and in some cases outright crashed in nominal terms. That doesn't mean _all_ houses or even all locations fell in value however so look at the wider market and not just your own property. 

3. Sales of expensive luxury items fall, most notably cars. In this context, anything larger than a Camry is "luxury".

4. Slowing sales of houses etc push some state government finances into the red.

5. The general mood of consumers shifts from borrow and spend to save and repay. This is the most critical point IMO. All of a sudden, it's better to fix the old furniture and cancel the holiday in order to repay that mortgage. Building industry struggles.

6. Resale value of expensive cars drops.

7. The hospitality and tourism industry starts to experience a downturn in custom. Likewise dealer car servicing etc as cheaper garages and DIY becomes more popular and non-essential spending is avoided. More people start wearing clothes from K-Mart etc as household finances tighten (driven largely by the reluctance (and in some cases inability) to borrow and for others the increased focus on repaying existing loans).

8. Government starts the conditioning process. What used to be "a minor problem that won't hurt the economy beyond a bit of a bump" becomes "the cause of our economic troubles. If only we didn't have this problem". I expect oil prices to cop a fair bit of the blame this time since bashing oil companies is popular with voters even without a recession.

9. Unemployment starts rising at a pace which quickly becomes alarming. A trickle rapidly turns into a flood with thousands of job losses per week or even per day becoming a feature of the likes of ACA and Today Tonight. A self reinforcing cycle as consumers stop spending and repay debt, thus sending more businesses to the wall. This is the point where the recession becomes "real" for ordinary people, regardless of whether it has been officially proclaimed or not.

10. Banks tighten lending criteria further. Existing risky borrowers tend to be watched _very_ closely for the first sign of trouble, at which point the loan is recalled at short notice. Cash is king in a recession - you generally won't be able to borrow without a solid deposit or other sound financial backing. Simply having a high income does not in itself constitute sound financial backing in this situation.

...

When the recession is here:

1. Houses, boats and luxury cars become cheap for those still able to buy them (those with cash) as supply soars (forced sellers) and demand slumps.  

2. Regional newspaper job ads become limited to few other than taxi drivers (night shift) and the sex industry. Even in the major cities, hundreds or even thousands apply for a single job so your odds of getting it are low (in the unlikely event you even get a response to your application).

3. It becomes normal and socially acceptable to say "I'm unemployed" amongst a group of people. If they aren't unemployed themselves, they will have family or friends who are and as such the stigma associated with it largely disappears. "You're a bludger, get a job" becomes "I'm sorry to hear that, I'll let you know if I hear of anyone with a job going".

4. Actually paying back the loan, not how much interest you are paying or what "features" it has, becomes a priority for many.

5. Apart from jobs and money, "shortages" of things disappear. It's easy to get a builder and easy to get tickets to a show. Problem is, the builder might go broke before the job is finished and the show might be cancelled due to lack of ticket sales.

...

I believe we are headed straight into recession and are in the early stages of point 8 at the moment. 

That said, there will be regional differences. For example, the "early" 1990's recession didn't really end in Tasmania until 1998 when the then "doom and gloom" government was removed and consumers and business alike opened their wallets. This time, NSW seems to be leading the downturn with WA more linked to the global economy (commodity prices) than what happens in the Eastern states. 

The above is my opinion only and may or may not be correct etc.


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## Knobby22 (5 August 2006)

Great writing Smurf, you really should be a financial writer.
Have to admit that my atitude has changed and have stopped buying shares and selling any when I think the price is right to reduce my mortgage. As interest rates rise it is harder to justify that my shareholdings wil go better than my mortgage rate after tax.

I am even reading a traders book at present. Daryl Guppy's Bear Trading.
Wayne would be happy.


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## GreatPig (5 August 2006)

Knobby22 said:
			
		

> I am even reading a traders book at present. Daryl Guppy's Bear Trading.



In Guppy's latest newsletter he pointed out the possibility that the current consolidation of the XJO is perhaps formation of the right shoulder of a large H&S formation (left shoulder back in Jan, and head in early May), with the downside target if it completes being around 4300. Those bear-trading tactics may well be useful soon. 

I've essentially stopped buying for my investment portfolio at present, only selling the odd ones if they drop beyond my price limit. Too many of the stocks I normally watch are now just going sideways or heading into downtrends through my trendlines. I'm not into buying investment shares while they're falling on the basis that they must be cheap now compared to what they were before. One day's cheap is another day's expensive.

I'm focusing more on my trading portfolio, and while I'm still buying the odd long share, I'm finding the risk of a few days profit being wiped out and more in a single day is getting rather high. I'm currently reading up a lot on options, and have started playing around with a few warrant trades, taking my first put warrant recently (I considered buying some on RIN, but everything available was too far ITM already for my liking).

Anyway, most of my cash is still in the bank, with only a relatively small percentage in shares at the moment. I'm keeping an eye on gold and also for distress in the residential property market, hopefully to pick up a few bargains in the coming years.

In the meantime, I'm brushing up on statistics and my Greek  - even if does all sound like something from Star Trek at times: Mr Zulu, warp factor five for the Delta quadrant...

Cheers,
GP


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## Sean K (5 August 2006)

:iagree: 

I'm doing exactly the same GP. 

I think we might have a few months to trim the investment portfolios though. There will be declines leading into the next RBA meetings, and then if/when they lift the rate .50 instead of .25, interest rate sensitve stocks will be smashed. 

I'm far less optomistic than I was a few weeks ago.  

Wild cards are US inflation, Chindia growth, and geopolitical turmoil. All out of our hands but will have massive influences on our economy. Good, or bad.


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