It’s The End of The World As We Know It And I Feel Fine

R.E.M. broke up last week which initially caused me to say to my wife "I didn’t know they were still together", but then again my music habits tend to be more retro so I was probably unlikely to hear anything new they released anyway. A few days later one of my fellow Partners and I were commenting on the breakup and some of their great songs, Shiny Happy People, Everybody Hurts and ‘Its the end of the world as we know it’, which was bouncing around in my head when I saw this chart from JPM via The Big Picture Blog.

The last month or so has been quite turbulent in the markets with economic indicators showing a slow down in global growth and more serious talk of a double dip recession. This is quite reasonable discussion given the information coming out of various economies but sometimes it can veer towards the extreme with people making outrageous statements based on very sketchy evidence that we are all doomed and are heading into an abyss from which we will never recover.

i.e. The end of the world as we know it!………….So lets get a little perspective shall we?

Firstly, lets address the extreme case of another 1930’s style depression which some believe we are heading for. The GFC (or Great Recession as its know in the U.S.) saw a 4.1% decline in real GDP compared to a 26.7% decline during the Great Depression. That’s some 500% greater than the recession we just emerged from as is shown quite clearly by the distinct difference in the size of the bubbles in the right hand chart.

The left hand part of the chart is equally important as this shows us the since 1900 economic expansions have lasted on average 44 months or just over 3.5 years, whilst recessions have last 15 months on average, so just over 12 months.

Continued on the next page  

Daniel is the head of Wealth Management at Moore Stephens in Melbourne Australia and has worked with a broad spectrum of clients from small individuals to large private family groups. The advice Daniel provides spans cash flow, debt structuring, personal …

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