There is no depression in NZ (yet)

I wonder: how far into what we now call the Great Depression did they start to call it a Great Depression as opposed to a regular old recession?

The US stock markets just recorded their worst month since 1933.  The amount of money that has been wiped off the value of listed companies around the world is staggering.

As this chart from Financial Graph & Art shows, this is now the second worst bear market when measured by the percentage decline in values, but we still have some way to go to match both the length and severity of the market drop between 1929 and 1932.

20090306_3

This is clearly somewhat uncharted waters.  And, it’s interesting to see what different countries around the world are doing to try and address this situation.

Having spent a few weeks in the US recently, it feels like we’re much less optimistic here in NZ.  Obviously the recession/depression is dominating the news over there too, but the mood is still “yes we can!” rather than “gulp, we’re stuffed!”.

For example this (from the New York Times)

“Wrapped inside the economic stimulus package is about $80 billion in spending, loan guarantees and tax incentives aimed at promoting energy efficiency, renewable energy sources, higher-mileage cars and coal that is truly clean. As a stand-alone measure, these investments would amount to the biggest energy bill in history.”

Not sure about the “truly clean coal” part, but that does seem positive.

And, it makes the 9-day-fortnight proposal seem pretty modest.

On the other hand, I’m not necessarily sure much of the optimism is warranted.

What are they going to do about their auto industry?  More bail outs?  Or let them fail?  Neither seem like especially attractive options.

While I was there Hyundai were running a series of positive TV ads highlighting their assembly plants based in Alabama, employing lots of Americans, etc, etc (and without saying as much noting that this was all without government bail outs).  As Fred Wilson pointed out: “the auto sector has the potential to be the ‘Vietnam’ of his energy plan” and “when a portfolio company acts like [GM] in our business, they are dead on arrival”.

Whether you’re optimistic or pessimistic, it’s difficult to disagree that this is a horrible mess.

So, what are we going to do about it?  What are you going to do about it?

Do you feel like there is anything you can do, or is this something that they have to solve?  And, if so, who is “they“?

Think about the things you have already personally done: do you think they have made things better or worse?  For example, if you have stopped spending so much on stuff you can do without, what’s the impact on the companies that used to make and sell that stuff, and the people who work for those businesses?

Amongst this carnage, where are the opportunities?  Remember: Trade Me was launched in 1999, just as the first tech bubble burst spectacularly.

And, is anybody else worried that we’ve all started to feel that things are inevitably going to get worse?

If you want to understand how this whole mess has come about, here is an excellent animated overview:
credit-crisis-explained-on-vimeo

http://www.vimeo.com/3261363

Interested in your thoughts.

21 thoughts on “There is no depression in NZ (yet)”

  1. Rowan – interesting to hear your perspective. I’m heading to the US in a few weeks and have been talking to lots of people there of late. My perception is different than yours – I’m sensing a real negativity there that we here in New Zealand seem to be ignoring. The pessimists amongst us would say that we’re standing with our heads in the sand and not seeing the tsunami which is approaching us.

    I’d kind of say that the “yes we can” attitude you’ve seen is more a gung-ho reaction to a massive injection trying to continue the status quo as much as possible. It’s this years, and this presidency’s, war on terror – but the attitude of the general populace is still one that “we can beat this thing through sheer financial clout” – I’m just not sure if that’s a valid hope anymore…

  2. I’m with Ben. I’m not hearing much positivity from the US or Europe, and my sense is that we’re going to start doing it much tougher locally over the next 6mths.

    That said, there’s cause to be excited because now is the time to double down on product development…be frugal and creative and build cool stuff.

  3. The key factor that got us into this mess was that people (collectively and individually) became simultaneously stupid, greedy and lazy, allocating their time and resources into things that weren’t productive (rising house prices, wars, decrepit automobile industries, rampant consumerism, etc). The only way out will be through reorganising ourselves (collectively and individually) to be smart, generous and hardworking, focusing on the things that matter. The devil is in the detail of course, but hopefully the current reshuffling of the pack will clean out a lot of cruft and provide a more realistic foundation for a sustainable planet. Unfortunately there will likely be much pain along the way likely to be borne by those least capable and least culpable, but we’ll emerge stronger (collectively and individually) in the end.

  4. Johnny-johnny, outside NZ the 1987 crash was a blip that was forgotten in around a year. A panic within a long running bull-market

  5. If anything I think most new zealanders are still quite naive about the extent of pain that we’re going to feel as a result of the global slow down.

    People the world over are freaking out and stopping buying non-essentials. To an extent we’re lucky that we’re food exporters, people still have to eat. People don’t still have to buy flat screen TVs or over priced strollers for kids. On the whole this trend away from wasteful consumption is probably positive but the shock to the system will be painful. At least our slumping dollar makes us exporters a little better off.

    One of my hobbies now is watching re-runs of residential property investment TV shows. People with young families borrowing 100% to buy their 5th investment property. If the producers of the show were anything other than scumbags they’d be doing follow-up visits now and showing the pain and suffering the families feel now that their levered asset bubble has burst.

  6. Working from Wellington, I’m actually noticing more effect from the change of Govt than the downturn. The new Govt is using the downturn as an excuse to freeze projects and ‘reallocate priorities’ but everyone knows their agenda would have happened anyway. Few Wellingtonians are willing to talk about it, but I’m hearing of stories all over the place from various companies who have had contracts ripped from under them or stalled. The Govt’s policy-motivated decisions are costing people their jobs. The Emissions Trading Scheme is just one example of where many small business were set-up to utilise and support the scheme but are now in limbo.

  7. I have a simple view of economics – its that digging stuff out of the ground, or refining raw materials into physical goods should be the majority of your economy – and financial / real estate trading should be a small percentage of your economy.

    The baby boomers who had money to invest should’ve been using that money to buy tool and die machines from hamburg, not pricing younger people out of the housing markets and buying 7 series cars from munich. A factory in Levin can export to all over the world – how does another mcmansion suburb in tawa make New Zealand more competitive internationally?

    The benefits that I see from this coming crunch (which is going to get a lot worse imho before it bottoms out and starts to organically right itself) are:

    * Companies that export and are contributing to the economy will be the success stories – not property investors / financial companies.

    * House price affordability will be corrected.

    * People doing cool stuff will be the focus on the internet again, not start-ups with VC money and good PR companies.

    :)

  8. @Koz

    “If the producers of the show were anything other than scumbags they’d be doing follow-up visits now and showing the pain and suffering the families feel now that their levered asset bubble has burst.”

    Some (not me, note) might argue that it would be reasonably scumbag-ish either way. :-)

  9. Good comments, thank you. Keep them coming.

    I’m very pleased to note the absence of anybody saying “when the tide goes out everybody gets to see who has been swimming naked”. As true as that may be, it has quickly become the most overused metaphor.

    Have you noticed how many of the habits and behaviours that are being suggested as solutions to this situation are “old fashioned”:

    Spend less than you earn
    Sell things at a profit
    Live in a house you can afford
    If you want to get ahead, make something new and do the hard yards – i.e. no short cuts
    Try and be “smart, generous and hard working” (well put Mr Moscovitz)

    My grand-parents would feel right at home today. Then again, the Depression wasn’t something they read about on Wikipedia.

  10. Just prior to the recession/depression (whatever you want to call it) I started my website marketing and promoting boutique accommodation throughout New Zealand. The last 6 months have been flat out for me.

    These accommodation properties are starting to struggle and have begun re-accessing their marketing plans. Because my website is devoted to accommodation with experiences, I seem to have become a winner with many of them wanting to join.

    No longer do they need to compete against big brand hotels or run-down motels who are flogging themselves at cut throat prices. Now they can stand apart.

    Unlike most hotels, boutique accommodation is an experience, not just a room, so they will always cost a little more.

    My plan is to continue to invest in my site and work my little ass off so that in 3 years time when greed dominates again, I will hopefully be able to take full advantage of it.

  11. @Ben

    “People doing cool stuff will be the focus on the internet again, not start-ups with VC money and good PR companies.”

    Agreed. A friend working on a web start-up has iterated numerous times in the past 3 years and recently arrived at a solution pretty well matched to the recession.

    “…out of destruction a new spirit of creativity arises”

    http://en.wikipedia.org/wiki/Creative_destruction

    On another note, maybe all this will lead to an increase in business blogging, given its cost effectiveness.

  12. A good read for today’s climate both economic and social is,
    ‘No Man is an Island’ by Thomas Merton, written in 1948 it is a profound read. “Simplicity is the key”, that quote is from an Interview I filmed in Ogden Utah back in 2005. A single white mormon woman with 3 children learning to start life over again. We are in a momentus time of history, what has worked to date, what got us here, doesn’t carry much weight at present. As a generation or two or three we have lost the plot, lost our way. The main way forward is to acknowledge first that we do indeed have a problem, then anything is possible. Denial is a killer and I believe much of society, not only in aotearoa nz, but around the planet, is not willing to accept reality. At the present time America is in free fall and it will not leave us untouched. In 1987 I arrived in New York, the downturn was a boom period for me but that was then and this is now and this period is going to shred wealth in a way we have not seen since the 1870’s, yep, go back that far and see what happened in America. There was financial and social chaos. This was the period of unprecedented development in the American West, the age of the cowboy. The age of the Rustler. We are but a corner store in the south pacific and we need to cut our cloth accordingly. Hard work, thrift, innovation, value, integrity. These need to be our mantra.
    Courage, faith, hope, trust. These need to be our creed. i can but hope that I can practice these attributes.

  13. @Kristin
    It is my belief that PR companies can destroy start-up businesses (or any business for that matter). Take “Ferrit” as an example, the advertising and PR all convinced us to take a look, but when we got there it was crap.

    I don’t understand why more advertising agencies don’t front up to their clients and tell them to refine their online assets before advertising it to the broader market. Just because you have the money to advertise doesn’t mean its a good time to spend it.

    If the experience of using the site is crap, then bad “word of mouth” will follow.

    Rowans motto of build a good site and then let customers sell it for you in my mind is the ultimate form of advertising.

    To do that you have to win a niche group of individuals.

  14. I love Zef’s Wellington conspiracy theory. There isn’t really an economic downturn in Wellington at all, it’s actually a political move by a new government to punish Helen supporters. Where’s the Scooby Doo ending?

  15. Related to all of this, here is an excellent graphic from the Mint Blog:

    So, in my lifetime there have been just 49 months (or slightly over 4 years) of recession, compared to 350 months of expansion.

    That doesn’t seem a bad ratio?

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