What is a Depression?

There has been talk of recessions, deep recessions and depressions and I am confused. I think I have my head around a recession but what the hell is a depression?

You would have to be blind, deaf plain stupid or just Al Gore if you didn't know about the current global recession.

So read on and let me explain how I see things

Some commentators are saying recession, some deep recession and some the dreaded "D" word, depression.

A recession is technically 2 quarters of negative economic GDP growth with various other determinants depending on what school of economics you when to.

A deep recession is a prolonged deeper felt recession.

But what is a depression?

Well, those of us old enough to know about economic depressions know about them from their knowledge of the Great Depression. Briefly, in case you didn't, the Great Depression kicked off on October 24, 1929, or “Black Thursday” when U.S. stock prices fell 15 - 20%, causing a stock market crash. The following depression was a worldwide economic collapse that lasted approximately 10 years and led to massive unemployment in the U.S. of 25% at its peak in 1933 and those that were in work having their incomes drop by 40%. GDP halved and world trade dropped 65% ! Similar events occurred world-wide.



We have all seen the images of long lines of people queuing at soup kitchens for food, rushing their banks to get their money out and vast tracts of empty business.

Assets were worth what you could get for them depending on your need to sell.

We are also aware of the bailouts by the Roosevelt Government and the subsequent failure of those measures as they prolonged the downturn.

People were in despair.

The globe only recovered because of WW2.

A depression though seems technically harder to define than a recession but many economists think that a 10% GDP drop in one year indicates one but others would define it by the number of quarters there was double digit unemployment.

Many economists would say that a depression is merely a "prolonged recession" and from the reading I have done I think that this description best suits.

The impetus for the current global recession was the U.S. housing bubble finally bursting and that took the banks down, then weak businesses, then the US stockmarket dropped by nearly half and unemployment looks set to top 10% when figures are released tomorrow.

Global trade has been hit badly in January dropping by around 40%.

Assets of all kinds are not selling for their true worth.

This has also reverberated around the globe.

I don't know whether we are currently in the middle of a deep recession or some kind of depression but one would have to consider the amount of fear and angst there was during the Great Depression and what is happening now.



89 year old Victor Zarnowitz has an interesting take:

Victor Zarnowitz also doesn't think we're there yet. He ought to know. The 89-year-old is one of six NBER board members that date U.S. business cycles. Besides being one of the world's leading economists, Zarnowitz was also a young man himself during the Depression of the 1930s. "It's too close, and the information is too incomplete to be sure we are in a depression and not a severe recession," he said. "Unemployment is much lower than it was at the peak. It was much worse than what I see today." Forbes.com

Personally I have not been affected badly yet.

It is really hard to know in the middle of all this what is really happening and we will always know more looking back but what is clear is that the recession we are experiencing now is nowhere near as bad as the Great Depression.

What is also very clear is that we have not seen the worst yet.

Roll on 2018 or boom 2011?


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Media not blameless in climate of "financial fear"

At the best of times the mainstream media in New Zealand struggles with the full unvarnished truth.

At the worst of times this struggle comes at a cost, not to the media outlet but to the individuals at the other end of the story.

Business media coverage in New Zealand can be the worst branch of the mainstream bunch.

They rarely know what the heck they are talking about, usually from an ignorance of business and/ or their knowledge comes from a book rather than practical experience.

Accuracy and ethics are often practiced with a very light hand when it comes to the coordination of the brain to the pen and often sacrificed for more viewer eyeballs or paper sales.

Why the hard word on mainstream journos Darren?

Well, let me tell you and please read carefully because what I am saying is true.

I have a healthy disrespect for the media as a whole but the coverage of the financial turmoil the world has been experiencing over the last 2 years or so has left me with my disrespect hanging in tatters around my ankles.

Mainstream media emphasize the negative ad nauseam that is because the more they do the more product they sell.

Sure things are bad but half the worlds problem at the moment is fear, a fear that is being somewhat artificially stimulated by green journos with a company axe to grind.

This clearly doesn't help our current situation and now more than ever there is a requirement to be deadly accurate.

The reason for writing this in the first place was motivated by an incident that happened to one of my clients a week or so ago and it involved a young woman journo from the New Zealand Herald/Newstalk ZB using "off the record" information from her subject (after cold calling) specifically asked by the subject not to use that information but did so anyway.

Not only was the first request by the subject not to use the information ignored but the report was highly inaccurate.

The aforementioned "news" piece subsequently sparked a week long agony as the subject of it had to take hundreds of calls from suppliers asking if their company was going out of business, including, I must say with much shame, myself.

Jobs and a reasonable sized business were at stake and if a story were to be done first, the subject's permission is required and the story needs to at least reflect the truth of the matter.

It aint always about selling advertising boys and girls.

Sometimes it is simply about people's lives.

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Market Meltdown: I can smell the fear from here

An irrational smell is permeating global sharemarkets at present and it is the bitter smell of fear.


The "Sage of Omaha" Warren Buffett, is a popular
Google search in times of volatile markets, from people
seeking his advice.


Hits today(like they always do on days like these)on the Share Investor Blog are at an all time record and they are mostly from America and they are googling such things like "what would Warren Buffett do?" and lots of related Buffett searches, "market crash", "market meltdown" and "market volatility".

People are seeking reassurance as to what they should do with their stock holdings.

As much as I like to get new readers I'm a bit concerned that this frenzy is gaining a momentum that the current state of global economic growth doesn't deserve.

Now I'm not the right individual to ask when the "bottom" is going to be reached, because I simply don't know but what I do know is people are selling irrationally and they are going to regret it months and years from now.

Allot of the current sell offs are being triggered by margin calls and by traders shorting stocks, that is, betting that share prices will fall, and it has had a momentous snowball effect so far and will probably continue until the buyers come out of the woodwork for some bargain stocks.

Few of the New Zealand companies beaten down so far are in danger of serious real business difficulties and so too global companies, so the disconnect between reality, and the psychological schizophrenia that mums and dads are facing by selling their company holdings at a serious discount is a big one, and only getting bigger as stocks tumble like dominoes.

Don't take this as an endorsement to go out and start buying but I have $NZ50000.00 ready to spend on top ups to my portfolio and I'm feeling like my wife when she goes to the Thanksgiving day dress sales in Dallas Texas, very excited!

So lock up the razor blades, tip the sleeping pills down the drain and use that rope to tie up the bear outside, 'cause its goin' to get turbulent.


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c Share Investor 2008