She's On The Money - What Is A Recession?

Episode Date: August 16, 2022

Interest rates are rising and inflation is seeing its fastest annual increase in 21 years. Plus, unemployment is at a low, and job vacancies are at a high. These conditions see those in power reluctant to say it, but many people believe we are headed for a recession. So on today's show we look at exactly what recessions are, how they effect us, how long they generally last for and their history. Plus, Victoria assures us that it isn't all doom and gloom! Don't miss fascinating episode.Acknowledgement of Country By Natarsha Bamblett aka Queen Acknowledgements.The advice shared on She’s on The Money is general in nature and does not consider your individual circumstances. She’s on The Money exists purely for educational purposes and should not be relied upon to make an investment or financial decision. Victoria Devine and She's On The Money are Authorised Representatives of Infocus Securities Australia Proprietary Limited ABN 47 097 797 049 AFSL - AFSL 236523.See omnystudio.com/listener for privacy information.

Hello, my name is Natasha Nabanunga-Bamblett. I'm a proud Yorta Yorta, Kernai, Wolperi and Awadjeri woman. And before we get started on She's on the Money podcast, I would like to acknowledge the traditional custodians of the land of which this podcast is recorded on Awadjeri country, acknowledging the elders, the ancestors and the next generation coming through. As this podcast is about connecting, empowering, knowledge sharing and the storytelling of you to make a difference for today and lasting impact for tomorrow. Let's get into it. She's on the money. She's on the money.

Hello and welcome to She's on the Money, the podcast for millennials who want financial freedom. Recession is a word that has lots of negative connotations tied to it. For me, it casts my mind right back to the global financial crisis of 2008, which we know was a terrible time for so many people. So hearing that there is one on the horizon is frankly pretty damn scary. To help us all feel a little less afraid, today we're breaking down exactly what a recession is and what it might mean for you. My name is Georgia King and joining me as she does each and every Wednesday is, of course, Miss Victoria Devine. V, can you please provide us a little context as to where things are at right now and why we're dedicating today's episode

to recession? Oh, you got me on the podcast today so that I could fearmonger our entire community into being absolutely petrified of what a recession is, right? No, you're going to make us feel excited and happy about things to come. I never get to have fun on this podcast. All right. Well, at the end of the day, I've said it a few times, we, from my perspective, are headed towards a recession. And I say that because we have all the indicators of a recession. We have an increasing cash rate. We have, you know, a falling property market. We know that the share market has recently, as in, in the middle of June, which I say is recent. Turns out it was a while ago because, guys, it's August. It has been a few months since the middle of June. And in the middle of June,

we know that the share market officially became a bear market, which for those of you who haven't listened to our bear market episode means that the share market has dropped a minimum of 20% from its 12-month high. So that can be really stressful. And at the end of the day, we've just gone through COVID, which is really significant. And there's a whole heap of indicators that are telling us that we are headed that way. Interestingly, though, I said before we started recording this to you and Annalisa, our producer, for those of you who are following along at home, an absolute legend, you should meet her. But I was saying before that Goldman Sachs, which is a very big investment bank and financial institution in the US, sees a 25% chance of a

recession in Australia over the next year and a 30 to 35% odd of it happening in New Zealand, while cautioning that a sharp US downturn would lift those probabilities to 50 or 60%. And you guys both were like, oh, I thought it was like 80 or 90%. We did, yeah. That's actually a lot, guys. Like there's 25%. Hey, George, let's play Russian roulette. We'll spin a gun.

25% chance. You'll be like, oh, that's pretty high. It's one in four. It's one in four. I'm not a mathematician. It's quite high. But as a financial advisor, all the conversations I'm having with our, you know, investment brokers and all of the connections that I have are, yeah, we're heading towards this.

you can't actually predict a recession, which kind of sucks, but we're all heading towards it. And even if we don't end up in an official recession, at the end of the day, George, we've been talking about it. A couple of weeks ago, we talked about it on our Friday drinks episode. We stressed our budgets are really stretched thin. None of us are feeling good about it. There needs to be some kind of reset. And that's what a recession unfortunately does. As long as it is a time of quite significant economic downturn, which means there's some pretty negative stuff happening. And yes, people will lose their roles and it can be really upsetting. At the end of the day, it's kind of like an economic reset in a way. And it's something

that needs to happen so our economy can keep moving forward. Okay. We're going to get deeper into that coming up, V. But just to be really clear, what's the definition of a recession? How do we know what it actually is? Right. So if you Googled it, George, and said, define a recession, it would come up and say, in economic terms, a recession is a business, cycle contraction where there is generally a decline in economic activity. Recessions generally occur when there is a widespread drop in spending. So you kind of go, all right, that makes sense. Like we've had a drop in spending. COVID has forced people to have a drop in spending. But also think about it. If cash is going to be costing us more, our mortgages are costing us

more. What are we going to do? Cut back. Exactly. So it kind of just makes sense that we're headed that way based on the definition. But to be honest, there is not one single definition of a recession that meets the criteria of what's happened historically, because every single recession has been different. So if you think of the Great Depression, that was a recession. You think of the global financial crisis, that was a recession. This one is going to be, it has the same indicators and markers, but at the same time, the situations are so different that you can't really define it as this is going to happen because you also can't predict it. Yes, we can see some indicators and we're going towards that, but it's kind of like doing an MRI and some things

showing up oddly and you go, oh, that needs some more clarification or we need to look more deeply into that because there's so many more tests we need to do, but we're at that point where there's not many other tests that could tell us. And unfortunately, yeah, that's where we're at, my Georgia King. Yay. Interesting, just from a language perspective, that we had the Great Depression. The word depression is there. We had the global financial crisis. The word crisis is there. What's it going to be for this little missy that's coming our way? I don't know. I hope they come up with a cuter and less dramatic name. Yeah, they need to work on their branding. Yeah, they need to really work on their branding. They. So you mentioned there are many different ways of

defining a recession there, V? What exactly are they? Sadly. So let's start with a technical recession. So technical recession is obviously that most common definition. It's used in the media as a technical recession where there have been two consecutive quarters of negative growth in the real GDP. And that definition often appears in textbooks and it's widely used by journalists because to be honest, it is the easiest definition of a recession to find. So V, this technical recession. Correct me if I'm wrong, but I feel like it's ringing some bells from when we were at the very start of the pandemic from 2020. I feel like we were in a technical recession. A lot of us actually just buried our heads in the sand and I've actually blocked a lot out.

But you're right. We were technically in a recession in June 2020. So Australia was officially in its first recession for almost 30 years with the June quarter GDP numbers showing that the economy actually went backwards by 7% and was the worst fall on record and slightly worse than most economists had actually predicted. So again, we can't predict this stuff. So yes, we were in a technical recession because of what was going on. But, you know, we came back from that pretty quickly. We didn't slip into that full recession period of time. I mean, it was still a bit of a, what would you call it, a circus. However, I think that's a really good pull up at the end of the day. We were technically in a recession and now we are worried about heading

into one again. Recessions, I feel like people are really dramatic about them. Obviously, for good reason. Please don't get me wrong. I'm not downplaying how impactful they can be. But people think that they last for years and years and years. What's the average period of time that a recession lasts for, Georgia King? It's 11 months. All right. I'm glad I had this conversation with you off air. But I think the average Joe would say, oh, a couple of years, this, that, the other. They wouldn't think that it's literally less than a year that a recession usually lasts. In saying that, how long it impacts a community could be way longer than that. Because I mean, George, if we lost our jobs and couldn't work,

and then we're trying to get back into a workforce where it was quite competitive, that is going to last longer than 11 months. Definitely. The next is a sustained period of weak or negative growth in real GDP, which is called output, that is accompanied by a significant rise in the unemployment rate. That's another definition for a recession. So many other indicators of economic activity are also weak during a recession. For example, levels of household spending we talked about before, you're going to like maybe tie your purse strings a little bit tighter and then investment by businesses is usually low during that period of time. In addition to that, the numbers of households and businesses that are

unable to pay back loans are usually unusually high and a number of businesses unfortunately will close down. So that's not that fun. But then if we look at the unemployment-based definitions, which I think are really important because at the same time as talking about, you know, the share markets and I want to say I don't have a lot of sympathy for people who are worried about the share markets. And I don't mean that in a really harsh way. I mean it in a, you need to be better educated because this is a period of time where, you know, on she's on the money. Literally the last three years, I've been harping on about there are ebbs and flows in the market. sometimes you're going to be like, gee, I got a 7% return this year. That's sick. Sometimes you're

going to have a negative return. That is a period of time that we are about to go through or could very likely go through. And that's where we kind of need to have our wits about us, not make emotional decisions and not be so worried that when our share portfolios start to downturn, we pull that money out. Because as we've said a million times on the podcast, the only way you lose money in shares during a period of economic downturn, a couple of them actually, I need to be a little bit more specific. I mean, the business that you own could absolutely go bankrupt and you're absolutely, you know, in a bit of a pickle. George, that's why we diversify and never put all of our eggs in one basket. But one of the most common reasons people lose their money during a

recession, if it is invested, is because they make an emotional decision to pull their money out when it's valued at less or their shares out when it's valued at less and they crystallize their losses. You don't crystallize a loss if you don't trigger a sale. So that sounds quite, I don't mean it to be so complicated, but essentially, gee, if you've got a share today that is worth $1 each and you've got 10 of them, you woke up tomorrow and you're like, oh my gosh, Victoria, I'm so stressed. I looked at my share portfolio. It's now worth five bucks. You still have those 10 shares. What you're doing is accepting $5 for the sale of those because you're anxious and need to get out of it. Whereas if I'd sat you down and said, all right, G, do you actually want to sell 10 of your shares

for $5 when you paid a whole $10 for it? Or do you want to wait for the market to recover? And you'd be like, all right, makes a bit more sense if we put it in perspective. And something I've been seeing all over Instagram, which I love and I've quoted on the show before, is if in doubt, zoom out. Stop looking at what today's returns are. Stop looking at the last month or even the last year. Zoom out. Look at the last five years in the share market. Look at the last 10 years. If you want to feel really secure, look at the last 30 years. The Australian share market, if you look at any 30-year period of time in the Australian share market, never had a negative return if you look at it in a 30-year chunk. That makes you feel so much more secure about things

like your superannuation, right? Because if I say, gee, how much more time have you got your super invested for? You go, oh, plenty of time. But if you looked at it tomorrow and didn't have an education about that, you'd be like, oh my gosh, Victoria, I'm so stressed. Should I switch it to cash? And if you switch your super to cash, what are you doing? Crystallizing a loss. And you're switching that money into a cash option so that you can quote, I'll invest when the markets are better. Cool. But you won't be able to afford as much as what you had before if you're investing at a different time when the markets make you feel more comfortable. So education is the most important thing that we can have when going into a recession. Yeah. Okay. I would like to say rant

over, but we're definitely not done. Absolutely not. What exactly is a business cycle be? Because that's closely tied to recessions, if I'm not mistaken. Yeah. So we spoke about business cycles a little bit earlier, but a business cycle has technically four main stages and they can vary in length and time and what each means, but on a technicality, these four stages are expansion, peak, contraction, and the trough. So in expansion, which is the first one, households demand more goods and services. Businesses hire more workers. The economy's doing great. Wages and prices are typically increasing. You're like, all is good and fair in the world of love and war. This phase ends with a peak in economic activity. So we got to this just before COVID, right? Like everything

was increasing in price anyway. We've just gone through this again, where obviously there's been a fair bit going on in the world. Russia invaded Ukraine, which meant things traveling around the world and goods and services weren't as easy to get hold of. Oil has gone through the roof in terms of pricing and is obviously increasing how much it's going to cost us to put fuel in our cars. So that was kind of the peak where everything was at its most expensive. In contraction, households then start demanding fewer goods and services, businesses start reducing the number of workers that they employ, and growth in wages and prices starts to slow. So this is what we're seeing at the moment, right? In our community, we're talking to people who are like, I asked for

a pay rise, my business said they couldn't afford it. And like, that's a legitimate reason. It's not, oh, you don't deserve it. It's, oh, actually, things have started to stagnate. Maybe they're not making as many sales as they used to, or they're not going through a period of economic growth. And then this phase ends with what's called a trough in economic activity. And this is kind of like that trough, like it's like a bucket. It goes down, but it always has a side to come back up, which I think is really important. We're not absolutely in the bin, George, but it's a period that we go through. It's kind of like a cycle. And once we get back to the start, we have to go around the wheel again. It happens and the economy resets itself.

And I think that once we feel a little bit more comfortable with that, we're not so, what would you say, doom and gloom. We're not so, oh my gosh, this is the end of the end. This is the worst thing ever. It is, but everything will ultimately be okay. All right. That's wholesome advice. V, we looked at bear markets on the show last month.

Great episode. Ladies, if you haven't listened, please go back and do so. How do they play into a recession? So as we know, a bit of a rule of thumb, a so-called bear market is when there's been a 20% or more continuous fall in the share market from the peak levels over the last 12 months, right? So knowing that a recession, George, basically means that yes, there will be a bear market, but a bear market doesn't mean that there will always be a recession. Does that make sense? So like we can experience a bear market and not have a recession, but I don't think there has

been in the history of ever a recession without having a bear market. So like it goes one way and not the other way. But essentially what that means is, you know, over time, if you're an individual consumer, George, you're going to pull back on spending. You're going to pull back on things which ultimately impact small businesses. People also become a lot more conservative during this period of time, especially banks, which then puts a lot more pressure on small business because banks are far less likely to lend to a small business because they're like, oh, we're going through a recession, Georgia. Do you really want, you know, a $50,000 business loan to start a candle business? Like, is that the best time to do that? So it ends up impacting a lot of people,

not necessarily just, you know, consumers. It impacts small business. It impacts big business. It impacts business growth in general. But from my perspective, yeah, bear markets do accompany recessions, but I think it's important to know that one is not effectively a predictor for the other, but more, you know, an interesting, I won't say coincidence because they exist, but it's interesting to see the relationship between the two. At the end of the day, when we look at a bear market and stock prices are falling, it means bad things for businesses and people who are on the share market. But from my perspective, even worse things for small businesses who aren't on the share market, because they're usually the ones that are more seriously

hit because most small businesses usually have some level of luxury afforded to them. So it's not that they are a luxury business. It's that, George, if you're buying off a small business, it's very likely it's not your fuel and it's not the food that you put on the table. It's very likely a luxury that you can go, all right, it's not in the budget for me this month. I can cut it out. And so we're usually putting a lot more stress on small businesses rather than, you know, the big dogs in the market. Because you still need to put food on the table. You still need to get to work, G. Yes, yes. V, what is Australia's history of recessions? How many of these things that we had in the last couple of months. Many, many, many. So our first one, our first recorded

recession or the biggest recession in Australia's history, it peaked in 1931 to 1932. This was because of the worldwide depression, which we touched on before and you said, oh, that's such a negative term. In Australia, thankfully, it wasn't felt as badly. We had increases in productivity from the manufacturing sector and Australia moved from the old model to the new model of production. So we had trade protection, particularly from tariffs that were implemented by the government at that time, and they were instrumental in the wealth of the manufacturing sector. So we were not as hardly hit. Yes, technically we were in a recession, but we were not hit nearly as hard as the US was, where it was very dire. So next recession,

Georgia King was in 1973 to 1975. And there's a few factors here, but essentially the 1973 oil crisis sparked it and it caused prices to spark, which we are outraged about at the moment because obviously putting fuel in cars is very expensive. Thankfully, we live in a world where there's lots of alternative sources now. Historically, there were not. And according to government figures, inflation topped 13% for the year of 1973 to 1974. And by 1974, Australia was technically in an economic recession that was probably perpetuated by the failure of the Whitlam government to effectively manage the Australian economy. And, you know, obviously that was another factor in the crisis that ended the government's term in office at the end of 1975, where we got

a new government and, you know, things started to bounce back. Then, Georgia, we have another recession that occurred in 1982 to 1983. And this was experienced by lots of different economies, particularly in the US. In Australia, the effects of tighter monetary policy and weak global demand were compounded by drought. So that wasn't great. And that was referred to as the, quote, deepest post-war recession that Australia had felt. And again, largely because it coincided with the drought, which obviously in a very farm-heavy production country, obviously impacted us very, very significantly. And then we move on to quote Keating to the recession Australia had to have. And that was in my year of birth, Georgia King. I remember it fondly. From 1991 to 1992 and

the early 1990s recession mainly resulted from Australia's efforts to address excess domestic demand, curb speculative behaviour in commercial property markets and reduce inflation. And as I said before, Keating said it was the recession that Australia had to have. So that's better branding than the Great Depression, Global Financial Crisis. GFC, call Keating. He knows a thing or two. Obviously, there's been a far greater number of recessions worldwide, but those are the ones that have impacted Australia because obviously we could go into the GFC. But Australia managed to skirt that problem. Like we're lucky little friends. We are good. We are going to talk about the GFC a little later on in the show, but let's keep this ball rolling. So the Treasurer

Jim Chalmers in his economic update to Parliament a few weeks ago said that inflation will peak at 7.75% towards the end of this year amid falling wages and slower economic growth. That is frightening. I probably shouldn't make that sound on the show because if you do that to my partner, Steve, he will literally start gagging. So like if he's doing something and you make a gagging sound, it's like completely involuntary and he'll be like, stop it. And I keep doing it. It's just, it's really nice for me. I'm a very supportive, very kind partner and I definitely would never make him feel gross around me. So apologies if anyone was offended by that little sound from not sorry. The Treasurer Jim Chalmers is saying that he doesn't expect Australia to go into a

recession, which contradicts what we've said here on the podcast today and in the past. What do you make of that? I mean, if I was the Treasurer, I'd also say that. I don't want people to be scared about heading towards a recession. I've got a brand to upkeep. I've just gotten into government, haven't I? I can't have my government go straight into a recession. That's bad branding, Georgia King. That's terrible. We have a new prime minister. What's that going to look like on him? But literally, there are a fair few different opinions floating around, right? And as we always say with She's on the Money, because this is coming from my perspective as a financial advisor and watching the markets and going, okay, cool. This is where we're heading towards. This is what

I see. We've got an episode coming up after this because we decided to split this one into two about how to prepare yourself and what's the worst thing that can happen, Georgia, if I prepare our community for a recession, then it doesn't happen. Then everyone's just in a better financial position. Exactly. So I think it's better to be prepared than completely underprepared. And as much as, you know, it's really nice that he's saying, oh, I really don't think that we'll go into a recession, you know, not a thing. All the indicators are showing me that we are. And our community is asking us a lot of questions about what does this mean? How can I be financially secure? I'm really stressed. Like, I don't want that for you guys. So let's treat it as though

we are headed towards one and we will financially prepare ourselves to be in the best possible position. Then if it doesn't happen, money win. So on this theme, V, Jim Chalmers blamed the Morrison government for leaving behind a hot flaming mess. But how much of this is just political mudslinging from either side? Like, can governments really stop a recession with everything that's been at play? As you mentioned before, the war in Ukraine, obviously, we continue to live through a global pandemic. The environmental crisis, there's a lot going on and it's all combining to create a perfect storm. 100%. I don't think that politicians have any say over how this falls out, right? Like we had the bushfires, then we had COVID, then we had Russia

invading Ukraine. And there's just so much going on in the world that it seems a bit silly to go, oh, the politicians could have stopped this from happening. Unfortunately, that's not the case. recessions are cyclical like this is how the market works this is how it ebbs and it flows and they know that which is why Georgia every single parliamentarian in Australian government has a share portfolio because they know that that happens they know how this works they're all property investors they're all share investors they are all in situations where they know how the market works but it's so much better to mudsling and throw shade at the last government so that the current government gets a whole heap of praise, right?

So I feel like it's branding, but also since the Great Depression, governments around the world have adopted counter-cyclical fiscal and monetary policies, that's a mouthful that I've written down, to ensure that the run-of-the-mill recessions don't turn into something much more damaging to their long-term economic prospects. Some of these stabilisers are automatic, like increased spending on unemployment insurance that makes up a fraction of lost income for off-laid workers. Others, like what we're talking about a lot in She's

on the Money at the moment, like rate cuts, are designed to prop up employment and investment and require the decision of a central bank. So in Australia, that central bank is the RBA. We always talk about it. At the time of recording this, George, we've just had an announcement recently that the RBA is rising rates to 1.85%, which lowers growth outlook, but at the same time is happening to put us in a better financial circumstance. I think a lot of people look at this and go, I can't believe this is happening to us. This is awful. I'm never going to get into my first home, this, that, the other. The reason this is happening is far bigger than an individual getting into their first home. It's to make sure that future individuals can get into

their first home, that property stays an asset that can still be bought and sold. The world would go rife if we didn't go through this process. And essentially, as much as it sucks and as much as it increased our interest rates, they're doing this to put our society in the best possible position. And I think we need to remember that. And we need to also remember that the politicians that govern our country are the voice of their party. It's not just Albo going, I want to do X, Y, Z, so therefore we're doing it. There's an entire party behind him making decisions. It's not just our treasurer, Jim, turning around and being like, oh, I don't reckon it's this. it's a plethora of teams behind him coming up with, okay, well, this is what that take looks

like. This is our research. This is the conclusion we've come to. So I think it's important to differentiate, you know, a bit of mudslinging, but also what is the best thing for our economy right now? No politician wants to have things go downhill on their watch. So I'm not surprised that they're shying away from embracing the topic. Yeah. Okay. We have covered a lot in the first half of the show, V. Hopefully it's sinking in for everyone at home. We do have a lot to cover on the other side though, including how we got to the recession that we are potentially entering in and what the devil happened with the global financial crisis. So guys, please don't go anywhere. All righty, V. So straight back into it. We touched on the GFC before. We're speaking

about the looming recession. Oh, back into it with some light content. Exactly right. But let's cast our minds a hundred years back or so-ish, give or take. Nearly. Nearly. Good maths, Jay. Thank you so much. I want to know more about the Great Depression. Can you tell me what went on there? What happened? So that was a big one. Yep. That was a big one that was really, really impactful. The Great Depression began in 1929 and lasted for almost four years. So obviously much longer than our average 11 months for a recession. As with the term recession, there's no single definition of what a depression is.

However, a depression can be thought of as a much bigger version of a recession, both in terms of scale and duration. Four times as long. Yeah, exactly. So consequently, in a depression, there are periods of falling output and high unemployment rates that persist for a number of years, which is honestly very depressing. And the scale and duration of a depression means that there are often negative economic outcomes that are experienced in many countries around the world. So the definition of depression says that there is a severe recession that occurs in one or more economies.

So sometimes, G, when a recession is announced or, you know, we're officially in one, it might only be one country or another. So earlier we were talking about how we were officially in a recession in Australia in the middle of 2020, right? You said, I remember that. But what you might not remember is it was announced in other countries three, four, five months earlier than that. And the US were in that far before us. And we weren't even sure if Australia would be in a recession. And then we obviously made it there and we came out relatively

quickly. So it really depends on where you are as to how significant a recession is or, you know, how impactful it is. But a depression is kind of like the way worse version of a recession where things are pretty dire for a lot of people. Okay. Well said. That makes sense. So, V, we are understanding why we are in this position. How does a recession play out in daily life? How is this going to impact shoes on the money listeners? So, there are a lot of different ways that a recession is going to impact shoes on the money listeners, unfortunately. I have a whole list of them that are not very exciting, but it's nice to be prepared for them. So, to list them off, job loss is a lack of opportunity. You might not get a pay rise

during that period of time. Property is going to be either hard to get into or really hard to sell. Interest rates are going to increase. Investments are going to decrease. Student loans are going to feel like they have a choke hold on us because, you know, we look at our help or hex debt and you go, oh, like the cash rate has increased, therefore inflation has increased, therefore the amount of money that my debt has increased by each year, even though there's no technical interest rate on our HECS debt, there's just a rise in CPI, it still impacts us, right? Like we're talking about it in our community. It's not exciting. At the end of the day, unfortunately, you might lose your job during a recession, which makes sense because unemployment levels are on the rise. So not only

are you more likely to lose your current job G, it then becomes much harder to find a job replacement. So you don't see a lot of people during a recession moving roles. People usually just wait it out. Stay put. Yeah. And I think it's solid advice to go, well, what should I be doing? I would be thinking about what type of industry I'm in. There are going to be industries that aren't nearly as hard done by, like let's say you've got a job at Woolies. Very unlikely that that is going to be impacted because at the end of the day, what is Woolies? It is a supermarket. it. People need to put food on their tables. These commodities aren't really going to go anywhere. If you are, you know, I don't want to dramatize and give terrible examples, but Jess has talked

about it on the show before. Jess was made redundant from her real estate job when the pandemic hit. Like remember her talking about that? That made sense because as the pandemic hit, there's less necessity for people, you know, with their hands on the ground in property because property isn't moving as quickly as it was before. So they're trying to lower their costs because there's less properties being sold, which means there's less commission going around the real estate industry, which means there's less money to pay people. So they're making decisions that are actually in line with their business. And from a bird's eye perspective, you go, that makes sense to strip out costs. But unfortunately, that does mean that our

community could be impacted. Interestingly, in a lot of the articles that I read in the research which I was doing for this episode to put lots on the table, retail and beauty was put on the table as, you know, an area that, you know, could be seriously affected. I think I've mentioned it to you on the podcast before. The lipstick recession. So I find that so interesting to bring up now because one, it makes me feel more educated. Two, you guys will find it relatively interesting. But if you missed it, with the recession threatening, the lipstick effect is going to start kicking in. And although it comes in a few different forms, it's actually when during an economic downturn, although spending in the economy tends to decrease or not grow as much

as usual, there's an uplift in certain categories of small luxuries because you go from being like, oh my gosh, I'll get a facial. You're going to pull that in, but you might go and buy a lipstick to still treat yourself. So it's a very, very interesting phenomenon where there's actually report by the NPD group that says the sales of lipstick are rising more than twice as fast as any other product during a recession. Wow. Gotta look cute. You gotta look cute when you're doing it tough. But I think it's so interesting to think that our consumers are still spending money on small indulgences during a recession when they personally have little cash. I think it's so interesting and I want to talk about it because I think it's something that she's on the money

you'll be like, yes, because I need a pep me up. And that makes sense. Definitely. Feedback to the industries that are affected. And I want to know which ones thrive as well. Which industries are the hardest hit? I'm assuming it's the non-essentials. Yeah. So non-essentials. So restaurants, bars, leisure, automotives. So people are less likely to want to buy brand new cars. They'll put it off. Obviously, oil and gas, which is sucky because we all need to put petrol in our cars. And if you're anything like me, you've been heating your house with gas over the winter. Yep. Sports go down because they are seen as a luxury. And I said before, real estate, that seems to be pretty hard hit each and every single time we have a recession.

And who's killing it? Who's killing it? All right. According to the share market prices that fared best over the GFC, discount stores. Ah, the Rejects shop. Yeah, the Rejects shop. can't even say it. Yeah, the Reject Shop, NQR, they're thriving. Tech. Technology, that makes sense. Biotech. Why? Yeah, because they're usually pretty resourceful. So tech is all about increasing efficiency. And usually when you go through a recession, let's look at me as a business owner. If I can't afford a new staff member, what am I going to do? Try and find a software that might do that same capability for me. So tech usually seems to thrive. Biotech seems to thrive. Drug manufacturing seems to thrive. I would argue that that makes a lot of sense to me because a very

common theme that I found throughout COVID was a lot of my friends, including me, Georgia, went back on antidepressants because we're just going through a bit of a tough time and it makes a lot of sense. Trucking and logistics thrive and then personal services. So things like tax returns are up so y'all are trying to do the right thing for yourselves but unfortunately I think it's you know not without other people suffering yeah okay well I mean I'm happy for the the reject shop that's yeah on you're the reject shop happy for I'm a fan of the reject shop plenty of bargains you'll find there why'd I say that backwards not sponsored George and I just obsessed in fact we've never even spoken to anyone from the reject shop absolutely not moving on what would you like to

know next, Georgia King. So we spoke about the Great Depression. Tell me briefly about the GFC. In 20 words or less, explain to me that horrible event in time. In 20 words or less, you're starting to really constrain me. So I'm going to take as many words as I like, Georgia King. But there have obviously been a number of brief slowdowns in economic activity over the decades. And most recently, during the global financial crisis or the GFC, it resulted in significant negative shocks to the Australian economy. Definitely not nearly as dramatic as what happened in the US. So the global financial crisis from 2008 to 2009 was when international finance markets and banking systems experienced a period of extreme stress and volatility at, I believe it was the start of 2008.

The damage done to the financial markets and the banking systems for many other countries then triggered large-scale losses of economic activity and large increases of unemployment. And for many countries, it was actually the most severe recession since the Great Depression. However, the Australian economy actually fared much better than most because it had a really sound financial system and a relatively large exposure to the buoyant Chinese economy and strong stimulus for small business to cushion it from the global downturn. So that was, from my perspective, obviously benefit of being here in Australia. And Australian GDP only declined in one quarter, although the unemployment rate increased to close to 6% and the underemployment

rate rose sharply. So that said, G, it actually can be traced back to one particular financial stress in the US. And I won't go into this too much because I think it, one, I think it's really interesting and I definitely want to go into this, but you guys might find it really boring. but financial stresses actually peaked following the failure of the US financial firm called the Lehman Brothers in September 2008. Together with that failure or the near failure of a range of other financial firms around that time, it triggered what we would call an absolute panic in the financial markets globally because people started to go, well, if Lehman Brothers, who were one of the biggest financial institutions in the US can go under, what is going on? Like that's

really stressful. That's like me turning around to you, George, and being like, CommBank? Yeah. Gone. You'd be like, what? And thankfully, we live in a country where a lot of our banks are underwritten. Like there has to be something very, very dramatic to happen for our banks to go to absolute junk. And the reason for that is they are underwritten by the government. And I promise you, if anything happened to any of those banks, because of how much Australia relies on them, I mean, we have the big four banks. If you're not with CommBank, you're with NAB. If you're not with NAB, you're with Westpac.

If you're not with Westpac, you're with? What's the fourth one? Bendigo? No. Hang on. I'm going to get this. You're going to get this? NAB, CommBank, Westpac.

Give me the first letter. Are you serious? A and Z. Yay! She's on the money. I get it. You get it. You get it.

You got it. Bendigo Bank. Bendigo Bank. do you know what? They'd be stoked that you put them in that. And we're going to leave that part of the podcast in because I think it's just really wholesome. But at the end of the day, if one of those guys went under, including Bendigo Bank, the government would definitely come in to find a way to make sure that all of its consumers were okay in a way. Like it's not just going to be ripped out from under us like it was in the US. So in the US, it was far more

dramatic. And obviously Lehman Brothers failing was really scary. But the actual catalyst for the GFC was falling US house prices and a rising number of borrowers who were unable to pay their loans. So Lehman Brothers obviously played pretty significantly into that space. But essentially, TLDR, lots of banks gave lots of people mortgages that shouldn't have had them. And what happened there is lots of people couldn't pay it back. And if you can't pay back your loan on a grand scale, the bank has no money. And if a bank has no money, what kind of situation are we in, George? A depression, man. No, it wasn't a depression. A crisis. It was a global financial crisis and I would call that a pretty big pickle. So it's one of those things that, you know, there's obviously

lots to it. And if you guys want to go further into it, at the end of the day, there were lots of markers on the way, but essentially there was a pretty big housing bubble and a lot of people that were maybe not doing the right thing that led to that. So George, it makes sense in that light, if I say lots of people couldn't pay back their mortgages and then you look at Lehman Brothers who were an investment bank they had sub-primed mortgaged back securities which means they basically backed a whole heap of mortgages that weren't being paid back in a little bit of a pickle and whoever had invested in them they lost all of their money so that is not great there's a lot more to it obviously because then you know it's kind of like a domino effect in the US but

we won't go on and on, but it started to pick back up at the end of 2008 because people started investing really heavily in things like gold and bonds and the US dollar and European currency, as these were seen to be much safer alternatives to the ailing housing and share market. But that kind of was that stagnation, right? You're taking your investment out of the share market, which could recover. And if we look at the share market now and we zoom out and have a big look at what that looks like. The share market has absolutely recovered. However, people get scared. They transfer their wealth and it makes sense. But what we need is an education to put us in the best possible position. Great ep today, V Lord. But was there anything we can do outside of here

to kind of increase our education? Any hot tips you have for us to take away today? I mean, you could head to Wikipedia and read a whole heap of stuff. You could head to Investopedia. You could head to the RBA website. You can read more on the news, but no one's going to do that. What I recommend from a personal perspective is watching the movie, the 2015 movie, George, The Big Short. Oh, yeah. Yeah. I mean, it's a great movie, really factually inaccurate, but essentially The Big Short chronicles the years leading up to the 2007 slash 2008 global economic crisis. And from my perspective, I just think it's a really approachable way to get a bit of a handle on what that actually looked like from, you know,

I don't really like how the financial services industry was portrayed in that movie, but at the end of the day, The Big Short is a pretty good movie. It really humorously kind of outlines the complicated events that led to the Great Recession and, you know, from my perspective, you could learn a lot. I mean, you're not going to become a financial advisor from it, but next week on the pod, what are we doing?

We are talking all about how to prepare yourself for a recession. So that'll be more hands-on, full of tips and tricks, I guess. Yeah, exactly. I love it. A real gift. All right. Well, that is unfortunately all we have time for today. George King, could you wrap the boring but important stuff pretty, please?

It would be an honour and a privilege. All righty, guys. Please remember that the advice shared on G's on the Money is general in nature and does not consider your individual circumstances. G's on the Money exists purely for educational purposes and should not be relied upon to make an investment or a financial decision. And we promise Victoria Devine and G's on the Money are Authorised Representatives of InFocus Securities Australia,

Proprietary Limited, ABN 4709-779-7049, AFSL 236-R23. See you on Friday, guys. Bye, guys.