The Best Recession <> Depression Chat Ever

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 Definitions: 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 Past Recessions: 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 Past Depression: 1933: 43 months; ~25% US unemployment; - 27% GDP Recession Characteristics: • 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