What follows are notes prepared and shared by my friend John Diack on a recent web-conference. You are invited to view the full discussion and access source documents: Recession or Depression: Why What Happens NEXT Matters.
Goals for this chat:
- prepare to be our very best as humans, regardless…
- prepare to be our very best as investors, regardless…
- focus on a level of well-being that gives us (and those around us) resilience
Recession – a period of temporary economic decline
- fall in GDP for 2 successive quarters
Depression – a period of extended economic decline
- real GDP drops 10%
- a recession lasting 2 or more years
1980: 6 months; ~10% US unemployment; – 2.2% GDP
1990: 8 months; ~7.8% US unemployment; -1.4% GDP
2000: 8 months; ~6.3% US unemployment; – 0.3% GDP
Past Great Recession:
2008: 18 months; ~10% US unemployment; – 5.1% GDP
1933: 43 months; ~25% US unemployment; – 27% GDP
- usually returns to the previous norm
- markets & customers are often left mostly intact
- A/R is stretched but not ‘broken’
- price compression is often the result of a recession
- the pressure on personal well-being & resilience is lower
+ Cash flow is the key to survival; a strong balance sheet is important but not as critical
Great Recession Characteristics:
- the path to recovery was hard to call
- markets mostly unchanged but customers were lost
- A/R was stretched and often broken
- price compression lasted longer (than expected)
- the pressure on personal well-being & resilience was more prevalent
+ Cash flow was critical and a strong balance sheet was important
1933 Depression – conditions:
- the war had crippled Europe/ a drought crippled the US
- trade policies dragged the US into the depression
- governments did not respond well; they did the opposite
- real-time information/ data/ etc., was not available
- a tech enabled work from home option did not exist
Things to consider:
- was this a perfect storm?
- can we even compare 1933 to 2020?
- it seems unlikely that these conditions will be repeated
What is driving the Depression dialog?
- a highly leveraged population & business environment
- reliance on artificially low interest rates
- governments have responded well, and, have they exhausted their financial tool box?
- can governments fight off (risk based) interest rates?
- will debt to GDP ratios trigger new conditions?
- will trade policies & a trade war accelerate a decline?
With all that in mind, some business thoughts:
- opinions range from ‘a minor economic twitch’ to ’10 yrs of suffering & pain’
- there is NO certainty; there are NO experts
- if this is a hurricane, consider a defensive posture
- customer retention is a major priority; revenue innovation likely next
- keep your powder ($) dry & keep your eyes open
Balance sheet strength becomes a super critical item; +ve cash flow is important but may NOT be sufficient
With all that in mind, some personal thoughts:
- for those that believe in Jesus, giving your worries to Him, over and over, produces peace and freedom
- take notice if you are binging (food, media, exercise, working or a combo); this is a well-being flag
- forcing quiet time into your calendar (force it!!)
- a good sign…. you are being generous with your wisdom, time and resources
- a great sign… you are relating, laughing and praising