Author Topic: Chart of the Week - Historical Length of Recessions  (Read 4418 times)


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Re: Chart of the Week - Historical Length of Recessions
« Reply #10 on: April 05, 2009, 09:50:06 PM »
Seems that according to the chart, the longer recessions happened earlier in the century and the shorter ones closer to the present. Are we getting better at reducing the length and impact of recessions?

Since the Great depression --- we have purposely chose the path of inflation.  Prior to the 30's, there were spikes of inflation that were typically offset by deflation --- but the end sum was pretty much zero -- Gross GDP more or less equalled Real GDP.  While we have had varying degrees (including spikes) of inflation over the last 7 or 8 decades --- the dominant theme has definitely been inflationary with little (if any) deflation. 

The gold bugs point out all the diminishing dollar effect that inflation causes ..... and there is no question of this.  But as a system that encourages people/business to come out of their caves and spend in a quicker manner than they might have otherwise --- it does seem like the better evil than the system that existed in the pre-30's era.

So are we getting better at reducing the length/impact of recessions?  OR --- are we getting better at managing inflation?  Check back in 5 or 10 years when consumer prices have increased by 50% or more.  Today's short-time solution may well become a longer-time problem -- but that's the system.



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Re: Chart of the Week - Historical Length of Recessions
« Reply #11 on: April 06, 2009, 02:24:09 AM »
I remember when I finally convinced myself that GDP growth is not at all correlated with stock market returns that my investment life was simplified quite a bit.

Grantham understands this, Buffett understands this, but it appears to be a fallacy on the surface to most people.  It surprises me how many experienced investors and economists don't understand this very fundamental concept.

Great chart.


"In our view, though, investment students need only two well-taught courses—How to Value a Business, and ... How to Think About Market Prices."

Simple enough is the former, but it is the latter that Warren has done well with throughout his career, although "on the surface it appears to be a fallacy", it's just an exercise (or tool) to judge the level of those market prices. Same goes with last week's chart of historical P/E ratios adjusted for inflation.

In other words, what that chart says to me (and I'm not sure what it says to others, apparently it says "GDP growth") is that now is the time to invest.

« Last Edit: April 06, 2009, 03:20:12 AM by arbitragr »
"worry top down, invest bottom up ..."


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Re: Chart of the Week - Historical Length of Recessions
« Reply #12 on: April 06, 2009, 05:56:10 AM »

Ubuy2wron, Ecco

You may wish to look at the Berkshire Hathaway 'pullback' thread



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Re: Chart of the Week - Historical Length of Recessions
« Reply #13 on: April 06, 2009, 09:28:02 AM »
I think stocks react VERY strongly to the difference between GDP growth and the EXPECTATION of GDP growth.  I do not think stock perform better with higher GDP growth.  A simple perusal of various emerging economies over the years with high growth compared to Europe would be telling.

To the discussion of stock performing strongly right before the recession ends, it is simply (to me) a matter of psychological fact that when everyone is expecting (and pricing in) a -1% GDP figure and they get a +1% GDP figure then good things happen for stock investors.

But don't confuse 'better than expected' with 'high growth = high stock returns' as it may happen, but is not at all guaranteed.

My 2 cents,

Ben Hacker
Beaverton, Oregon - USA


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Re: Chart of the Week - Historical Length of Recessions
« Reply #14 on: April 06, 2009, 11:52:23 AM »
One of my favorite investment books is Triumph of the Optimists: 101 Years of Global Investment Returns. The authors did a truly outstanding study of returns from 16 countries for the years 1900-2001 and it gives a lot of food for thought. The data shows, for example, that economic growth rate is weakly negatively correlated with stock market returns. The faster the economic growth, the poorer the stock market returns. This is pretty much supports what Benhacker says above.

The best predictor for stock market returns is the starting dividend yield - in other words, valuation. This admittedly crude measure of valuation is in fact the best predictor of the measures studied.

An academic paper that deals with this exclusively is Jay Ritter's "Economic Growth and Equity Returns" for anyone interested in this.


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