Recession - Yay or Nay?????

[professor_frink]

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?

 

[Ageo]

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

 

[visual]

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.

 

[Ageo]

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

Super Nintendo? Mario Kart?

Greatest game!

 

[professor_frink]

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?"

 

[Realist]

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.

 

[professor_frink]

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!

 

[professor_frink]

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

Super Nintendo? Mario Kart?

Greatest game!

I eventually got my super nintendo Ageo! Mario Kart ruled

 

[DB008]

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

 

[rub92me]

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.

 

[professor_frink]

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

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?

 

[pepperoni]

Yay (of course)

 

[visual]

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



I eventually got my super nintendo Ageo! Mario Kart ruled

Prof,no offence intended, :

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

 

[professor_frink]

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

 

[twojacks28]

nay. to put it simply

 

[Realist]

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.

 

[Smurf1976]

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.

 

[Knobby22]

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.

 

[GreatPig]

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

 

[Sean K]

: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.