Explaining recession

fc123

setmefree2 wrote: »

OMG - you make me feel so old! If you were born in 1962 - it's all you knew until the 1990's....in fact it's all we knew until there was a labour govt...."a little bit of politics"....don't worry the world's changed, we have China & India now:D There is no recession coming...

OMG is that me?! I was born in 1963 :eek: ( but us oldies age better now...think Madonna!)
So, please correct me if I'm wrong (because I could really do with some positive news right now).
I recall the 70's ...now that was Rubbish...Dad lost a a load of £££ on the stock market (but he is an academic so the S + S are a hobby) and I remember not having elec on all the time, sugar and living on mince and mash and NO new clothes.
Fortunately the Punk thing came along when I was a teenager so it was the thing to do to make your own stuff and get the raw materials from jumbles.

The 80's boom passed me by; Baby, LA high Rise...in real life it's not so cool...not like that annoying BBC fill-in. of the estate.....no doubt executed by some media type who grew up in Gloucestershire.

Do you REALY think that things are OK now? Do you think that China + India are going to share nicely?
Do you really think that things, as they have been over the past deacade, are going to remain constant??

Oh, I think you are in for a shock...I hope not as life is ticking over OK for me and I really want it to continue as such............but you sound like a late 20 something or early thirty something???


AND where is Macacque???? He should be contributing to this!

fc123

Generali wrote: »

IIRC, the last time I worked it out (back of envelope) about 6% of GDP was MEW'd. Obviously, not all of that went on consumer goods. Some would have been used to start a business (a traditional use of MEW), add value to the house (possibly not a bad idea), buy a BTL or holiday home etc. but clearly plenty has been spent.

I'm posting this from the train so can't look it up for you but try googling for the 'wealth effect'. That's an economic theory that says that people will save less as their wealth rises and more as it falls.

So to put it another way, you'd expect to see consumption and house prices to move in the same direction at the same time. The BoE did some research in about 2004 or 2005 that claimed that the relationship had broken down but I still reckon there's a strong correlation.

At a guess I imagine that consumption would fall by perhaps 0.3% per 1% drop in house prices. That implies a worst case scenario of a 15% drop in consumption (50% drop in house prices) with perhaps a more likely outcome of 3-9% (a 10-30% fall in HPs).

There are loads of complications though. Clearly one still has to eat, keep a roof over your head, maintain addictions (like drinking, smoking, gambling etc) and pay to get to work so you'd expect spending on discretionary stuff like fancy clothes, big cars, holidays and so on to fall off a cliff. I believe that is bourne out by the data.

I think that spending on what is perceived as 'good value' holds up well. People will go for good quality at a good price rather than the very cheapest (anyone that's tried drinking Tesco Basics Cider will tell you why). Perhaps you can reposition your stock a little in that direction - more look at the craftsmanship in that, you'll pass it on to the kids than 'never mind the quality, feel the width in that'.

Apologies for the rambling post. The short version is 'look up 'the Wealth Effect' on Google.'

Thanks, I will do that (the wealth thingy).

Today was dead busy for this time of yr and a lot of visitors n the area (we are becoming like a museum shop (as we are surrounded by chains, people know when they are walking into something that is a bit more personal and individual).

Haven't got time to post on this thread at the mo..Oh about to return from working away for the week (1 day off, 6 days on) ooops he just came in!!!

BTW do you read Brian Sewell's articles on Art???...or glaze over? Just a point that when one is reading stuff outside of ones expertise..then you can understand about how to convey the information in a more popular way.
It's a knack...not a learned thing.


This thread is beciming my therapy thread....and I am officially OLD:eek:

OH has a a shop fit contract totally funded by China in a couple of wks so I guess they are sharing a little bit

Generali

fc123 wrote: »

BTW do you read Brian Sewell's articles on Art???...or glaze over? Just a point that when one is reading stuff outside of ones expertise..then you can understand about how to convey the information in a more popular way.
It's a knack...not a learned thing.


This thread is beciming my therapy thread....and I am officially OLD:eek:

OH has a a shop fit contract totally funded by China in a couple of wks so I guess they are sharing a little bit

I find Brian Sewell a bit of a stick in the mud. I love modern art, even some of the conceptual stuff (although there's a lot of dross too). I really enjoy reading simple writers that have a genuine passion: John Major's book on cricket is a classic of the type as is Melvyn Bragg on the English language.

If you mean I can convey complex ideas in a simple way then thank you, I take that as a huge compliment. If you're saying I can't and I can never learn then oh well, I'd best stick to high finance!

It's not in China's interests to have the West crippled unless they want to wage war without dropping a single bomb of course.

fc123

Generali wrote: »

I find Brian Sewell a bit of a stick in the mud. I love modern art, even some of the conceptual stuff (although there's a lot of dross too). I really enjoy reading simple writers that have a genuine passion: John Major's book on cricket is a classic of the type as is Melvyn Bragg on the English language.

If you mean I can convey complex ideas in a simple way then thank you, I take that as a huge compliment. If you're saying I can't and I can never learn then oh well, I'd best stick to high finance!

It's not in China's interests to have the West crippled unless they want to wage war without dropping a single bomb of course.

It was a compliment because it is a skill to be able to unravel complicated things, make them easier to understand paticularly if they are out of the readers normal expertise.
Brian Sewell almost alienates people from what he is writing about by making his prose obscure and using language that can be difficult to follow...one has to read it twice to get the message sometimes. I love reading his writing as it is quite chewy and already know about the subject that he is discussing sometimes (say an exhibition ) .

BTW; I am thinking that 20% of our T/O in the past 5 yrs has come from the never never.....so if a recession reduces it further by 5%....I can survive! Yay!

Mind you, we have just been through our own personal recession since 2004 (post losing rent review)....swapped the London hamster wheel for one of those grindstones that donkeys pull in a slow trudging fashion.;)

Generali

Very kind of you to say so. I've not really read much of Sewells writing. I love his accent though. Even The Queen stopped speaking like that about 30 years ago!

An analogy could be helpful to sum up my opinion of the best way to survive a recession as a business. You know about two men in the jungle that come across a tiger. "We're doomed" cries the first.

"No you're doomed", says the second.

"But you can't run faster than a tiger".

"No but I can run faster than you".

As long as you're in a business that is fundamentally viable and not just been overrun by the times (eg trying to sell hand made pistols when Smith and Wesson and Colt started to get mass production going properly) then you'll be fine as long as you can stay in business longer than your slower competitors and can come out the other side in reasonable shape.

My feeling, and I'm not really a businessman remember, is that cashflow is everything at times like this. The bank will squeeze from one side and your suppliers from the other as their bankers squeeze them.

Jonbvn

fc123 wrote: »

Do you REALY think that things are OK now? Do you think that China + India are going to share nicely?

Do you really think that things, as they have been over the past deacade, are going to remain constant??

Oh, I think you are in for a shock!

The fact is that nobody knows, as detailed in my signature.

Do you believe Soros, who thinks we are the end of a 60-yr boom? I think he may just be playing politics, given that he is the largest contributor to the US Democrats.

Toto

fc123 wrote: »

What sector are you in?

I work in the entertainment industry. I am a musician but I also own a production company. Obviously we are the first to feel the pinch, after all, if people feel they have less money the first thing they stop is buying CDs and going to gigs.

Generali

Jonbvn wrote: »

The fact is that nobody knows, as detailed in my signature.

Do you believe Soros, who thinks we are the end of a 60-yr boom? I think he may just be playing politics, given that he is the largest contributor to the US Democrats.

I feel that there is a good argument for that due to the huge numbers of people that are going to be retiring over the next 10-15 years. They are going to want to take their money out of 'risky assets' (shares, corporate bonds, maybe BTL) and put it into 'risk free assets' (cash and govt bonds, govt bonds usually through the proxy of an annuity).

That is likely to make it much more expensive for companies to borrow through the equity and bond markets and cheaper for them to borrow from the bank. It should also make it cheaper for the govt to borrow so perhaps the massive govt debts being run up at the moment aren't as troublesome as we think. Finally it should also push down house prices as a lot of people are likely to be trying to turn housing equity into cash.

So I agree with this idea that we're nearing the end of a 60 year boom (and have since the early-90s when The Economist started writing about the 'demographic timebomb') although for different reasons than most investors as most of them seem to believe in a 'super business cycle'. I don't believe in the 7 year business cycle let alone the 60 year super one! I think that could be a post for another thread/site though as it's quite esoteric.

fc123

Toto wrote: »

I work in the entertainment industry. I am a musician but I also own a production company. Obviously we are the first to feel the pinch, after all, if people feel they have less money the first thing they stop is buying CDs and going to gigs.

Same as my brother! I can PM you who he is...but then I want to gossip about him too....(which I cannot do if I identify who he is) I can gossip if he is anonymous.

He has had a ball the past 15 yrs (Aston, adulation and a load of cash!) but he has been gearing up to the changes in how music is purchased and sold during the past few yrs. He gets most of his income from live performance now plus selling soundtracks to filmakers.
His last albulm was the most well-known but sold the least ammount of CD's (so less royalty payments). Plus his record co. ditched loads of acts 3 yrs back but kept him on the books.
However his life circumstances have altered massively, so as a single man, if earnings drop, it's not such a stress. If one becomes a family man with a HM spouse and 2 babies, then life moves up an octave...so-to-speak....but I cannot gossip more...wouldn't be appropriate:cool:

Perhaps there are recessions in different industries at different times? These are caused by changing times (I know that is a vague term) and the City / finance one that may happen is just more high profile? Plus the trickle down affects a larger swathe of people in diff ways.

OMG...That French bloke...."The Power of One" and all that......but reassuring as I thought we were going into meltdown......plus I don't truly understand how it all works...though I am really trying.
A. Hilton wrote a good piece last night in The Standard...and I understood it. He dismissed a lot of Sorus' opinions....comforting.

fc123

Generali wrote: »

Very kind of you to say so. I've not really read much of Sewells writing. I love his accent though. Even The Queen stopped speaking like that about 30 years ago!

An analogy could be helpful to sum up my opinion of the best way to survive a recession as a business. You know about two men in the jungle that come across a tiger. "We're doomed" cries the first.

"No you're doomed", says the second.

"But you can't run faster than a tiger".

"No but I can run faster than you".

As long as you're in a business that is fundamentally viable and not just been overrun by the times (eg trying to sell hand made pistols when Smith and Wesson and Colt started to get mass production going properly) then you'll be fine as long as you can stay in business longer than your slower competitors and can come out the other side in reasonable shape.

My feeling, and I'm not really a businessman remember, is that cashflow is everything at times like this. The bank will squeeze from one side and your suppliers from the other as their bankers squeeze them.

Thanks for this! As the old person (44) who didn't know what an internet forum was 12 months ago, can I just say that I appreciate the time you have spent writing out info.....after all, you could have just read a Heat magazine on the train instead!

The MAIN thing that bothers me is the lump of debt left to clear.
I find the DFW board really helpful but could not possibly say our debts against incomings as they are shockingly high.
We traded for years with small borrowings. As I said, in the olden days one had to go and justify borrowing five grand to buy a van or a piece of machinery.

In 2003, I took a lot of advice on the rent review and most of it was wrong as each individual was advising me according to how THEY would benefit from our situation.
The best advice (now I look back with hindsight) was from our employment solicitor who advised me to make redundant most of our 9 staff, shut the least profitable part of the business and take over (on a day to day level) the
most profitable part.

In the end, that is what happened. But....... what did Mrs good person do? Couldn't face doing that (as when one employs, one has responsibilities....esp if one has a good socialist heart) so I borrowed.

When we look back, we cannot believe the ammount of debt that we were able to build up....and in a short space of time too...the computer kept saying "yes" so it didn't feel that we were doing the wrong thing.....but deep down I knew it wasn't right.


So, the point of this post is that the credit boom was NOT a good thing for my business at all and has made it more vulnerable than it should be.

However, the core of the business is sound plus the downsizing of our lfestyle has been a very "character building" experience...it feels rubbish at the time......but it is like editing who you REALLY are.