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á
h Traditional Definition: Many economists look for two back-to-
back quarters of negative GDP/real economic growth to
define a recession.

h The National Bureau of Economic Research (NBER) is the

official arbiter of recessions.

h Actual Definition: ´A significant decline in economic activity

spread across the economy, lasting more than a few months,
normally visible in ÷
 GDP, ÷
 income, employment,
industrial production, and wholesale retail sales."
 º







Y P 500 Performance Pattern Around Recessions

Indexed price-only data from 1947-March 31, 2002. Yource: Ned Davis Research, Inc., The Ychwab Center for
Financial Research

o The chart above combines all of the 10 prior recessions into a single average
line.
o The market typically peaked about seven months before the recession began,
but bottomed six months into (or 60% of the way through) the recession, with
an average peak-to-trough decline of just under 25%.
 
á


Yource: Crestmont Research (www.CrestmontResearch.com)

oFor most of the mid-2000s, volatility had been unusually low³and by late 2006 and
early 2007, volatility fell into the lowest three percent of all periods since 1950.
oThen a few years ago, volatility surged to startling levels.
oMeasured by the frequency of days each month that close up or down by more than
1% and the intra-day range expressed as a percentage.
 j







h Its kickoff in the U.Y. economy was ´Black Thursdayµ, October 24, 1929,
when 12.9 million shares of stock were sold in one day (triple the normal
amount). Yhare prices fell 15 - 20%, causing a stock market crash.

h Cause: Tight monetary policies that the Federal Reserve instituted at that
time. Fed kept raising the Fed Funds Rate IR·s, further restricting
availability of money. Allowed the money supply to fall to 30%.

h Investors turned to the currency markets sold dollars for gold, causing a
run on the dollar.

h What brought it to an end?

h Franklin Delano Roosevelt was elected President (created Fed Gov·t
programs)
h 42 new agencies were designed to create jobs, allow unionization, and
provide unemployment insurance (ex: Yocial Yecurity, YEC, FDIC)
h Mobilization for World War II caused a huge increase in industrial
production
h Lasted 10 years
 






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Yource: Vanguard

oThe National Bureau of Economic Research (NBER) is the recognized arbiter of U.Y.
recession dates. The NBER has identified 9 recessions in the U.Y. since 1953, with an
average duration of 11 months, not including the most recent 08-09 recessionary
period.
oThe positive takeaway here is that the general long-term stock market trend is UP.
 Great Depression Vs. Great Recession
9,096 ² 50% of banks 184 ² 1.2% of banks
Bank failures
(Jan. 1930 ² March 1933) (Dec. 2007 ² Feb 2010)

Unemployment rate 25% 8.5%

-26.5% -3.3%
Economic decline
(1929 - 1933) (YYecond quarter 2008 - first quarter 2009)

Biggest decline in Dow -89.2% -53.8%

Jones industrial average (Yept. 3, 1929 ² July 8, 1932) (Oct. 9, 2007- March 9, 2009)

-25% +0.5%
Change in prices
(1929 ² 1933) (Dec. 2007-March 2009)

2.5% of GDP for 2 years

Emergency spending 1.5% of GDP for 1 year
(2009 American Reinvestment and Recovery
programs (Increase in 1934 budget deficit)
Act)

Federal stimulus plan gives fiscal relief to states

Ytates· response Raise taxes, cut spending
to lessen impact of tax increases

Increase in money supply 17% 125%

by Federal Reserve (1933) (Yeptember 2008 ² May 2009)

Yource: FDIC, Federal Reserve; Commerce Department; Dow Jones; Christina Romer, Obama economic adviser, ´Lessons from the Great
Depression for Economic Recovery in 2009µ (March 9) and JEC testimony
&# 



Real GDP Growth by Presidential Party
More Current Depiction of Upward Ytock Market Trend
 " 

h The Ychwab Center for Financial Research

h Crestmont Research

h 
 
  

 


h 
 
  


 

h FDIC, Federal Reserve; Commerce Department; Dow Jones; Christina

Romer, Obama economic adviser, ´Lessons from the Great Depression for
Economic Recovery in 2009µ (March 9) and JEC testimony

h Ned Davis Research, Inc.

h http://www.fdic.gov/bank/individual/failed/banklist.html