This Recession…
The recession we’re in now will doubtless go down, measuring by the depth and duration of the downturn, as one of the three worst since WWII–the others being 1973-74 and 1981-82.
Each of the three have featured a sharp rise in oil prices and the popping of a speculative bubble in the stock market, the “Nifty Fifty” in ’73-’74, the oil stocks in ’81-’82 and the financial stocks now. Other than that, however, the economic and political backdrop has been different in all three cases. ’73-’74 saw wage and price controls, the financial collapse of the United Kingdom, the resignation of the US president in disgrace, the fallout from the end of the Bretton Woods system of fixed exchange rates. ’81-82 saw short-term interest rates shoot up to about 20%, as the US fought accelerating inflation, as well as the collapse of major commercial banks under the weight of wildly imprudent lending to developing countries. These developing countries, notably Mexico, collapsed as well.
…Comes after 25 Years of Growth
Part of the shock of this downturn comes from the fact that it has been so long since the last one. Virtually no one under the age of 50 working in the financial markets today (which description covers just about everyone) lived through 1981-82 as a working adult. And most of that small number were in junior positions at the start of their careers.
Part also comes from the unique set of economic circumstances surrounding the current downturn. It is, of course, much easier to see these circumstances with the benefit of hindsight. From a stock market perspective, though, the sooner we flesh them out, the sooner we understand what’s going on–and the larger the advantage we’ll have over others in making portfolio decisions.
What I Think Sets the Current Recession Apart