Are we in a recession or a depression? A recession usually means a temporary dip in an otherwise growing economy. A depression is much worse, feeding on itself and dragging the economy lower and lower. A recession carries hope. A depression is pure hopelessness.

We have all kinds of forecasts, from extreme optimism to bleak pessimism. Government officials and the mainstream media are touting this as a dip in a long-term growth cycle.

Continue reading Are We in a Recession or a Depression?

Are We in a Recession or a Depression? originally appeared on BloggingStocks on Thu, 02 Sep 2010 10:30:00 EST. Please see our terms for use of feeds.

"A recession is when your neighbor loses his job. A depression is when you lose your job," according to About.com. This definition may be an example of economist black humor, but it does contain a seed of truth.

The conventional definition of a recession, however, is where the Gross Domestic Product (GDP) declines for two or more consecutive quarters. This is a fairly crude measure, so some economists like to factor in additional measures such as unemployment, industrial output and retail sales. The key point, however, is that a quarter-on-quarter deterioration in these measures will result in a recession being called out.

Continue reading What Is a Depression?

What Is a Depression? originally appeared on BloggingStocks on Fri, 12 Mar 2010 08:00:00 EST. Please see our terms for use of feeds.

It has been about a year since Lehman Brothers failed and this financial crisis started, and it has hit many of the banks hard including Bank of American (NYSE: BAC), Citigroup (NYSE: C) and America International Group (NYSE: AIG).

There has been one thing that has been bugged me in the coverage of it since then. Frequently, reporters use words like unprecedented or unparalleled to describe it. That is false! Financial crises, panics, crashes, bubbles, and bank failures are really about a dime a dozen.

Continue reading Are we going to crash again?

Are we going to crash again? originally appeared on BloggingStocks on Mon, 14 Sep 2009 14:20:00 EST. Please see our terms for use of feeds.

As one of the few people to publicly call the internet and real estate bubbles for what they were, he has more credibility than just about anyone. And he's saying the stimulus package is too small and we need more if we are to avert another depression.

In an op-ed piece for Bloomberg, Shiller writes that "In the face of a similar Depression-era psychology today, we are in need of massive pump-priming again. We appear to be in a much better situation due to the stronger efforts to date. Still, there is a danger that, because of a combination of faulty economic theory and inadequate appreciation of human psychology, as well as deep public anger, we will not continue with such stimulus on a high enough level."

Continue reading Robert Shiller says we need more economic stimulus to avoid Depression

Robert Shiller says we need more economic stimulus to avoid Depression originally appeared on BloggingStocks on Wed, 15 Apr 2009 14:20:00 EST. Please see our terms for use of feeds.

Continue reading Doomsday Scenario: Craig's List is another nail in the news coffin

Doomsday Scenario: Craig's List is another nail in the news coffin originally appeared on BloggingStocks on Tue, 07 Apr 2009 17:06:00 EST. Please see our terms for use of feeds.

Continue reading Doomsday Scenario: Lame Treasury auctions, travel numbers shot down

Doomsday Scenario: Lame Treasury auctions, travel numbers shot down originally appeared on BloggingStocks on Wed, 25 Mar 2009 17:40:00 EST. Please see our terms for use of feeds.

Former Federal Reserve chair and current presidential adviser Paul Volcker says that the global economy may be deteriorating even more precipitously than it did during the Great Depression.

"I don't remember any time, maybe even in the Great Depression, when things went down quite so fast, quite so uniformly around the world," he said at a Columbia University luncheon. He also dismissed the notion that the financial innovation of the past decade has had any positive results: "There is little correlation between sophistication of a banking system and productivity growth."

Continue reading Volcker says this could be worse than the Great Depression

Volcker says this could be worse than the Great Depression originally appeared on BloggingStocks on Sat, 21 Feb 2009 18:40:00 EST. Please see our terms for use of feeds.

General Motors Corp.'s (NYSE: GM) problems are well known: declining growth, huge debts, and enormous contingent liabilities (such as for retirement and health care benefits).

Yes, it also sounds like the U.S. economy, huh?

Well, this is the gloomy assessment from Ray Dalio, who is the chief investment officer of Bridgewater Associates. A few years ago, he warned about the overleveraged economy. More importantly, he positioned his portfolio for the New Reality.

In fact, in 2008 the Bridgewater Pure Alpha 1 fund was up 8.7% and the #2 vintage increased 9.4%.

So, what's is his thinking now? Unfortunately, it's fairly gloomy (this is according to a great interview in this week's Barron's, which is a paid publication).

Continue reading How the U.S. economy is like GM

How the U.S. economy is like GM originally appeared on BloggingStocks on Sat, 07 Feb 2009 12:40:00 EST. Please see our terms for use of feeds.

Jeff Immelt, the CEO of General Electric (NYSE: GE), said the economy could get worse, much worse. According to the FT, he said "Unlike the other downturns that I've been a part of, this one is faced with limited liquidity," Mr Immelt, GE's chief since 2001 told a conference. "Once you break through '74-'75, you don't stop 'til you get to 1929."

There is a lot of shock value to the comment, but GE shareholders ought to consider the statement as their stock trades at multi-year lows.

Continue reading Holding GE shares? CEO talks about an economic depression

Holding GE shares? CEO talks about an economic depression originally appeared on BloggingStocks on Fri, 06 Feb 2009 09:55:00 EST. Please see our terms for use of feeds.

This post is part of AOL Money & Finance's Best & Worst in Money 2008 feature.

The year 2008 brought the word "greed" to new levels with major companies going bankrupt thanks to the greed of their top execs, who were more worried about lining their own pockets than about the interests of their customers and shareholders. This greed also helped to fuel the housing bubble that burst and sent home prices falling in what seems like an unending downward spiral. As the financial news continues to worsen, it's hard to pick the biggest money story of the year. We've pulled together our top four picks, and it's up to you to vote on the biggest money story of the year.

Here are our top four picks in alphabetical order:

Collapse of Wall Street
The world hasn't seen so many Wall Street firms go bust since the Great Depression, and we seem to be teetering on the edge of another worldwide depression. Top Wall Street execs pocketed millions, and in some cases, billions of dollars thanks to sales of complex financial instruments that it appears no one truly understood (or if they did understand their toxic natures they perpetrated a huge fraud on the investors who bought them). Now these same executives pocket millions in golden parachutes as they leave the firms they destroyed. And, while they enjoy their millions, investors, customers and employees of these now defunct or badly bruised firms face destroyed careers and/or portfolios.

Continue reading Best & Worst in Money 2008: Money story of the year

Best & Worst in Money 2008: Money story of the year originally appeared on BloggingStocks on Tue, 09 Dec 2008 18:40:00 EST. Please see our terms for use of feeds.

If people don't know this, it is worth pointing out. If they do, it is worth repeating. Unemployment in the U.S. is well above 10%. The government numbers do not include those people who are "no longer looking for work" or those who are not receiving unemployment payments.

According to The New York Times, "The Labor Department does publish an alternate measure of unemployment, which counts part-time workers who want full-time work, as well as anyone who has looked for work in the last year."

That would put the total "unemployment" rate closer to 13%.

It raises the issue of how close the U.S. is to the much higher rates of joblessness in the Great Depression. The number of people without work rose to 25%. The government did not make the distinctions then by subtracting people who were part-time.

If, using the government's yard stick, unemployment in the U.S. gets to the double digits next year, the economy is closer to a depression than it might appear.

Douglas A. McIntyre is an editor at 247wallst.com.

Is unemployment really above 10%? originally appeared on BloggingStocks on Sat, 06 Dec 2008 17:10:00 EST. Please see our terms for use of feeds.

The CBOE Volatility Index (VIX) is recently up 3.62 to 71.26, above its 500-day moving average of 20.77, 200-day moving average of 30.38, 100-day moving average of 38.09, 50-day moving average of 53.53 and 10-day average of 64.18 according to Track Data. This suggests that the market is pricing in an upcoming soft economic depression.

Yahoo Inc. (NASDAQ: YHOO) is recently down $2.10 to $9.45. Microsoft (NASDAQ: MSFT) Chief Executive Steve Ballmer said today that talks with YHOO are "finished." Ballmer remains open to a potential search deal with YHOO. YHOO December option implied volatility of 133 is above its 26-week average of 63 according to Track Data, suggesting larger price movement.

Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.

Options Update: VIX indicates potential soft depression originally appeared on BloggingStocks on Wed, 19 Nov 2008 15:15:00 EST. Please see our terms for use of feeds.

Pfizer cancels obesity drug, the latest to do so originally appeared on BloggingStocks on Thu, 06 Nov 2008 11:51:00 EST. Please see our terms for use of feeds.

The Financial Times was good enough to ask what the difference between a "recession" and a "depression" is. The paper did not have an answer. The author of the articles writes what any historian of the economy already knows: "From 1929 through 1933, the United States saw real economic output fall by nearly a third and unemployment soar from 3 per cent to 25 per cent."

Depending on who is counting, the U.S. has had ten recessions since the end of WWII. These are identified by the classic definition that says a recession is two quarters of GDP growth shrinkage.

The oil embargo of 1973 caused the last really nasty depression that most Americans can remember. Unemployment went over 8%. In the 1981 recession, that figure moved over 10%.

What would a depression look like? Probably a period when GDP dropped by 5% for three or four quarters in a row and unemployment was steady above 10%. That may seem arbitrary, but the numbers would be much worse than any period since WWII. Almost no one living would remember a similar period. People's memories of what is economically awful should be taken into account. Bad times are only really bad if someone can put them in reference to their own memories and experience.

Continue reading What is a 'depression'?

What is a 'depression'? originally appeared on BloggingStocks on Sat, 18 Oct 2008 11:40:00 EST. Please see our terms for use of feeds.

Most of what the public hears from the government and from the media indicates that the economy is sliding into a recession, perhaps a deep one. Consumers is not buying that at all. They see the world in much more dire shape.

According to the CNN/Opinion Research Corp. poll, "Nearly six out of ten Americans believe another economic depression is likely." And those surveyed know what a depression is. They understand that it would mean a 25% unemployment rate, bank failures and an increasing number of homeless Americans.

Most economist asked to respond to the results said that no depression is likely. They government's current programs to buttress the economy are too widespread. Unemployment might hit 7% or a bit more, but that would be it.

Of course, many economists were slow in calling the recession, so their track records as forecasters are in doubt.

What stands out from the survey is the extent to which Americans have succumbed to a feeling of despair and hopelessness. To be resigned to the near-complete death of the economy and almost unimaginable national suffering gives every indication of people being certain that the worst is coming and believing it is a near-certainty.

The depression may not come to the economy, but it has certainly come to the minds of the average working person.

Douglas A. McIntyre is an editor at 247wallst.com.

An American depression originally appeared on BloggingStocks on Tue, 07 Oct 2008 09:50:00 EST. Please see our terms for use of feeds.

Let's see if I can touch on your worst fears:

A collapse of the banking system and the insolvency of the FDIC is surely among them.

The Comptroller General advised the Senate Banking Committee that both were likely in April, 1991.

An "unprecedented" worldwide "economic convulsion" -- Newsweek used the quoted language in September, 1998.

A fundamental change in the world's economic condition. Fortune reported on that view in September, 1998.

The worst economic conditions since the Depression. Time made that observation in June, 1970.

Investor "shock felt round the world" was breathlessly reported by Time in November, 1987, complete with a story about a trader who withdrew $100 from his ATM because it gave him "a sense of security."

Pillars of the NYSE crumbling from the onslaught of a huge bear graced the cover of Newsweek in September, 1974.

The triple whammy of "inflation, recession and a frantic bear market" was reported by Life magazine on the cover of its June 5, 1970 issue.

Continue reading Kissing cousins: The Wall Street collapse and media hype

Kissing cousins: The Wall Street collapse and media hype originally appeared on BloggingStocks on Sun, 28 Sep 2008 17:10:00 EST. Please see our terms for use of feeds.

Nouriel Roubini, a professor at New York University, has recently been profiled in both Barron's and The New York Times. There may be nothing special about his training or methods, but what is fairly unique is his opinion that we are on the brink of a modern version of the Great Depression.

It is hard to say why the media wants to give his analysis voice, but he has become the object of almost endless fascination.

The foundation of his view of the economy is that the current housing disaster will get much, much worse and that banks will end up writing off almost $1.5 trillion in mortgage-related paper. That is about three times what they have taken as charges so far. The New York Times quotes Roubini as saying, "A good third of the regional banks won't make it."

While a number of experts believe that the recession could last a year, Roubini would he called an extremist by most measures. He foresees a downturn lasting 18 months.

The media does not like Roubini because he may be right. They like him because predictions of great economic collapse and mayhem sell papers. That is too bad. The public deserves a more balanced view.

Douglas A. McIntyre is an editor at 24/7 Wall St.

The most negative economist in the world originally appeared on BloggingStocks on Sun, 17 Aug 2008 14:40:00 EST. Please see our terms for use of feeds.

Ted Allrich is the founder of The Online Investor and author of the just released book: Comfort Zone Investing: Build Wealth And Sleep Well At Night. In this weekly column, he'll offer advice to investors who are just getting started.

And why not? Ford Motor (NYSE: F) announced it won't introduce a new F-150 truck, the best selling truck of all time. The reason: there are acres and acres of old F-150s sitting on dealer lots that no one wants. General Motors (NYSE: GM) is shutting truck plants longer than usual since very few of its big moneymakers are moving off lots. Homebuilders are showing huge losses and all of them say there is no light at the end of this dark tunnel. Bank news gets worse each day, with headlines screaming that we aren't near to knowing how bad this mortgage and credit crisis really is.

There is no shelter in this storm. Everywhere investors look, they see more dark clouds. Most of them believe that it gets darkest just before it get pitch black. Is the American dream gone, turned into an economic nightmare, the likes of which we haven't seen since the Depression?

Hardly. During the depression, over 30% of the workforce wasn't working. Prices were constantly going lower as fewer and fewer goods were sold. All the banks were shut for a "Bank Holiday" for three days shortly after Roosevelt was elected. People were roaming the country, looking for a job, anything to keep food on the table for their families. If the American dream were going to die, it would have done so in the late 30's and early 40's. But it didn't.

Continue reading Comfort Zone Investing: No, the sky is not falling

Comfort Zone Investing: No, the sky is not falling originally appeared on BloggingStocks on Sat, 28 Jun 2008 10:30:00 EST. Please see our terms for use of feeds.

Commercial real estate developers are no longer immune to the credit crunch hitting residential real estate owners and developers, according to today's Wall Street Journal. Yesterday in visible proof of the problem, a Las Vegas casino developer, Bruce Eichner, defaulted on a $750 million loan from Deutsche Bank because he was not able to refinance the debt. It's not the first time he's been caught up in a credit crunch. The Journal reports he lost several projects in New York City during its real estate downturn in the early 1990s.

The Journal also points out he's not the only one having trouble getting refinancing. Other commercial developers in trouble according to the Journal include:

• A major Australian shopping mall developer, one of the largest owners of shopping centers in the U.S., has been unable to refinance $3.4 billion in short-term debt.

• New York developer Harry Macklowe, who bought office buildings at the top of the commercial real estate market, can't refinance $7 billion in debt that's due in February. He's trying to sell his General Motors Building in midtown Manhattan to come up with cash.

Continue reading Mortgage mess impacting commercial real estate lending

Mortgage mess impacting commercial real estate lending originally appeared on BloggingStocks on Thu, 17 Jan 2008 10:47:00 EST. Please see our terms for use of feeds.

Everybody's been wondering when the housing market will finally hit bottom. Moody's decided to take a stab at that question with its new extensive report, "Aftershock: Housing in the Wake of the Mortgage Meltdown." It will cost you $3,995 to order the full report, but you can read excerpts from its Executive Summary.

While Moody's agrees the outlook for housing is daunting, it expects as the most likely scenario that housing should bottom by early 2009. That bottom is expected to result in an average annual national house price decline of 12%. Of course, some areas will be much harder hit and parts of Florida and California are predicted to bottom out with a 30% loss from the housing price peak.

Moody's believes the fallout from the current housing recession -- yes, they do call this a recession -- will be serious enough to characterize what we're now living through as a housing crash. Anyone doubting it? Moody's expects housing sales to hit bottom in early 2008, declining over 40% from their peak. Housing starts will reach their lowest point in mid-2008 and fall by 55% from their peak.

Continue reading Moody's thinks house prices will bottom in early 2009

Moody's thinks house prices will bottom in early 2009 originally appeared on BloggingStocks on Fri, 07 Dec 2007 14:17:00 EST. Please see our terms for use of feeds.