Anticipation of the Next Recession or Great Depression

It is said that there are definite signs of Recession or Great Depression. Man on the street will say that each Economic Cycle last 10 years and the next Recession can be anything from now to 2010. Where’s the facts and figures?

I would like to analyse some facts and figures and make my assumption and guess timing of the next potential Recession, or possibly, the Great Depression (which is scarier than recession).

Baby Boomer Generation
The Baby Boomer Generation refers to babies born from the period 1945 to 1965. During these period, there were more than 4 million babies born in America yearly. Huge childbirth were also experience in United Kingdom, Australia, Soviet Union, Canada.

There were 76 million American children born during the Baby Boomer period and that comprised of 28% of the adult US population while 80% of the wealth in UK are from Baby Boomers.

(extract from http://en.wikipedia.org/wiki/Baby_boomer#Size_and_economic_impact)

The Great Depression
The Great Depression is caused by the Worldwide economic decline, that started in 1929 and lasted till early 1940s. The Great Depression was a decade of unemployment, low profits, low prices, high poverty and stagnant trade that affected the entire world in the 1930s. The stock market crash of 1929 triggered the Great Depression in the United States, which then spread across the world's economies. (A depression cycle is said to be every 50 years).

The long term sufferings and memory made the American resolve that such a financial disaster would not be allowed to happen again, and that the nation would have "Freedom from Fear. Would you believe what they claim?

The stock market crash in 1929 didn’t last long. In the first half of 1930, the US stock market recovered to pre-market crash level. However, consumers cut back on spending and borrowings, and eventually brought down sales and prices began to decline across the board

The decline in the American economy was the motor that pulled down most other countries at first, then internal weaknesses or strengths in each country made conditions worse or better. By late in 1930, a steady decline set in which reached bottom by March 1933. This produced the greatest long-term market declines by any measure and erased billions in assets.

In the 1920s, widespread use of the home mortgage and credit purchases of automobiles and furniture in the U.S. boosted spending, but created consumer debt. People who were deeply in debt when a price deflation occurred were in serious trouble — even if they kept their jobs — and risked default. They drastically cut current spending to keep payments on time, thus lowering demand for new products. Furthermore, the debts grew when prices and incomes fell 20-50%, but the debts remained at the same dollar amount. With future profits looking poor, capital investment slowed drastically. In the face of bad loans and worsening future prospects, banks became more conservative in lending money.

The Singapore / South-east Asia Recession
In 1997, the Indonesia Rupiah devalued, follow by few other countries including Malaysia and Thailand. Singapore dollar had lost ground but comparing to our neighbours, the devaluation of Sing Dollars is mild. This can be explained by our strong reserves that the government had unlocked to prevent the fallout.

Few countries in SEA went into Recession during the periods of 1997 to 1999 and started to bottom out in 2000. However, 9/11 occurred in 11 Sept 2001. 9/11 was the incident whereby terrorist had attacked the United States. This caused another downward swing in many parts of the world, and tourism sector suffered badly (tourism is one key income and employment for Singapore).

As the economy started to recover in 2002, SEA were hard hit by SARS in 2003. The triple impact lasted till late 2004 and started to finally bottom out in early 2005, with banks starting to adjust interest rates upwards and economy started to show promising growth in 2006.

This period lasted almost 10 years, which I would relate to, a domestic Great Depression of Singapore. There is no economist value in my statement though. The happenings during this period is akin to the Great Depression in 1929 to 1939, where unemployment rates were high, spending were low, value of assets fell and lack demand, etc.

The Next Sign
The first batch of Baby Boomers will turn 65 in year 2010. From 2010 onwards, there will be more than 4 million people retiring from the workforce. With the biggest spending power and retiring, their lifestyle needs will diminish, they may start moving out of the cities into sub-urb areas. With retirement, they may even withdraw their investments in the stock market, and start selling away their properties to move out of city.

On the other hand, the current sub-prime issue may have bottom out currently, but it does not mean things will improve. Property loan default have increase from the current sub-prime. Seizure and lower property demand has caused a decline in property valuation and worrying ripple effects in the stock market has been experienced despite the downward Fed Rate adjustment (0.5%) on 18 Sept 07.

By year 2010, even if the property and stock market starts recovering, the retiring 4 million baby boomers per year may cause prolong lower demand.

Lastly, heard on CNN.com (Concerns over U.S economy) 25/10/07. Mark Konyn, CEO of RCM, had shared his knowledge. The concern is whether US economy slowdown may spill over to the world. Auto mobile sale (loan) has fallen, credit card debts had maintain (mount). There are signs of recession including tax coming down, sub-prime spill over, inflation, slow sales, etc.

This analysis may not hold much water since it has not taken into many economic consideration, but it has caused me to stop and wonder, if the signs are showing, shouldn’t I take a precautionary stand on my investment?