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

0:00
Speaker 1: Hello, my name's Santasha Nabananga Bamblet. I'm a proud yr
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Speaker 1: the Order Kerni Whoalbury and a waddery woman. And before
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Speaker 1: we get started on She's on the Money podcast, I
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Speaker 1: would like to acknowledge the traditional custodians of the land
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Speaker 1: of which this podcast is recorded on a wondery country,
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Speaker 1: acknowledging the elders, the ancestors and the next generation coming
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Speaker 1: through as this podcast is about connecting, empowering, knowledge sharing
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Speaker 1: and the storytelling of you to make a difference for
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Speaker 1: today and lasting impact for tomorrow.
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Speaker 2: Let's get into it.
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Speaker 3: She's on the Money, She's on the Money.
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Speaker 4: Hello, and welcome to She's on the Money, the podcast
1:01
Speaker 4: for millennials who want financial freedom. Recession is a word
1:04
Speaker 4: that has lots of negative connotations tied to it. For me,
1:08
Speaker 4: it custs my mind right back to the global financial
1:10
Speaker 4: crisis of two thousand and eight, which we know was
1:13
Speaker 4: a terrible time for so many people, so hearing that
1:16
Speaker 4: there is one on the horizon is frankly pretty damn scary.
1:20
Speaker 4: To help us all feel a little less afraid, today,
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Speaker 4: we're breaking down exactly what a recession is and what
1:26
Speaker 4: it might mean for you, my name is georger King
1:30
Speaker 4: and joining me as she does each and every Wednesday, is,
1:32
Speaker 4: of course, Miss Victoria divine. Can you please provide us
1:37
Speaker 4: a little context as to where things are at right
1:40
Speaker 4: now and why we're dedicating today's episode two recession.
1:43
Speaker 2: Oh you got me on.
1:44
Speaker 5: The podcast today so that I could fearmonger our entire
1:47
Speaker 5: community into being absolutely petrified of what a recession is.
1:50
Speaker 4: Right, You're gonna make us feel excited and happy.
1:53
Speaker 5: I never get to have fun on this podcast, all right. Well,
1:56
Speaker 5: at the end of the day, I've said it a
1:58
Speaker 5: few times, we from my perspective, are headed towards the recession.
2:02
Speaker 5: And I say that because we have all the indicators
2:04
Speaker 5: of a recession. We have an increase in cash rate,
2:07
Speaker 5: we have, you know, a falling property market. We know
2:10
Speaker 5: that the share market has recently, as in in the
2:12
Speaker 5: middle of June, which I say is recent, turns out
2:15
Speaker 5: it was a while ago, because guys, it's August.
2:18
Speaker 2: It has been a few months since the middle of June.
2:20
Speaker 5: And in the middle of June, we know that the
2:22
Speaker 5: share market officially became a bear market, which, for those
2:25
Speaker 5: of you who haven't listened to our bear market episode
2:27
Speaker 5: means that the share market has dropped a minimum of
2:29
Speaker 5: twenty percent from its twelvemonth high, so that can be
2:33
Speaker 5: really stressful. And at the end of the day, we've
2:35
Speaker 5: just gone through COVID, which is really significant, and there's
2:37
Speaker 5: a whole heap of indicators that are telling us that
2:40
Speaker 5: we are headed that way. Interestingly, though, I said before
2:43
Speaker 5: we started recording this to you, Annanna Lisa, our producer
2:46
Speaker 5: for those of you who are following along at home,
2:48
Speaker 5: an absolute legend.
2:49
Speaker 2: You should meet her. But I was saying before that
2:52
Speaker 2: Goldman Sachs, which is a very big investment bank and
2:55
Speaker 2: you know financial institution in the US, sees a twenty
2:59
Speaker 2: five percent chance of a recession in Australia over the
3:02
Speaker 2: next year and a thirty to thirty five percent odd
3:04
Speaker 2: of it happening in New Zealand, while cautioning that a
3:07
Speaker 2: sharp US downturn would lift those probabilities to fifty or
3:10
Speaker 2: sixty percent. And you guys both were like, oh, I
3:12
Speaker 2: thought it was like eighty or ninety percent. We did, Yeah,
3:15
Speaker 2: that's actually a lot.
3:16
Speaker 5: Guys like, there's twenty five percent. Hey, hey, George, let's
3:19
Speaker 5: play Russian Roulette. We'll spin a gun, twenty five percent
3:23
Speaker 5: chance you'll be like, oh, that's pretty hard.
3:25
Speaker 2: Just one in four. It's one in four like that.
3:27
Speaker 2: In musition, it's quite high.
3:28
Speaker 5: But as a financial advisor, all the conversations I'm having
3:32
Speaker 5: with our you know, investment brokers and all of the
3:35
Speaker 5: connections that I have are, yeah, we're heading towards this.
3:38
Speaker 5: You know, you can't actually predict a recession, which kind
3:41
Speaker 5: of sucks, but we're all heading towards it. And even
3:44
Speaker 5: if we don't end up in an official recession at
3:47
Speaker 5: the end of the day, George, we've been talking about
3:49
Speaker 5: it a couple of weeks ago. We talked about it
3:50
Speaker 5: on our Friday Drinks episode. We're stressed, our budgets are
3:54
Speaker 5: really stretched thin. None of us are feeling good about it.
3:57
Speaker 5: There needs to be some kind of reset. That's what
4:00
Speaker 5: a recession, unfortunately does, as long as it is a
4:03
Speaker 5: time of you know, quite significant economic downturn, which means
4:07
Speaker 5: some pretty negative stuff happening, and yes, people will lose
4:10
Speaker 5: their roles and it can be really upsetting. The end
4:13
Speaker 5: of the day, it's kind of like an economic reset
4:16
Speaker 5: in a way, and it's something that needs to happen.
4:19
Speaker 5: So our economy can keep moving forward.
4:21
Speaker 4: Okay, we're going to get deeper into that coming up V.
4:25
Speaker 4: But just to be really clear, what's the definition.
4:28
Speaker 2: Of a recession? How do we know what it actually is?
4:31
Speaker 1: Right?
4:31
Speaker 5: So, if you googled it, George and said define a recession,
4:34
Speaker 5: it will come up and say, in economic terms or
4:36
Speaker 5: recession is a business cycle contraction where there is generally
4:39
Speaker 5: a decline in economic activity. Recessions generally occur when there
4:42
Speaker 5: is a widespread drop in spending. So you kind of go,
4:46
Speaker 5: all right, that makes sense, like we've had to drop
4:48
Speaker 5: in spending. COVID has forced people to have a drop
4:51
Speaker 5: in spending. But also think about it, if cash is
4:53
Speaker 5: going to be costing us more, our mortgages are costing
4:56
Speaker 5: us more, what are we.
4:57
Speaker 2: Going to do cut back exactly?
5:00
Speaker 5: So it kind of just makes sense that we're headed
5:02
Speaker 5: that way based.
5:03
Speaker 2: On the definition.
5:04
Speaker 5: But to be honest, there is not one single definition
5:07
Speaker 5: of a recession that meets the criteria of what's happened historically,
5:11
Speaker 5: because every single recession has been different. So if you
5:14
Speaker 5: think of the Great Depression that was a recession, you
5:16
Speaker 5: think of the Global Financial crisis that was a recession,
5:19
Speaker 5: this one is going to be you know, it has
5:22
Speaker 5: same indicators and markers, but at the same time the
5:25
Speaker 5: situations are so different that you can't really define it
5:29
Speaker 5: as this is going to happen because you also can't
5:31
Speaker 5: predict it. Yes, we can see some indicators and we're
5:34
Speaker 5: going towards that, but it's kind of like doing an
5:36
Speaker 5: MRI and some things showing up oddly and you go, oh,
5:40
Speaker 5: that needs some more clarification or we need to look
5:42
Speaker 5: more deeply into that, because there's so many more tests
5:46
Speaker 5: we need to do, but we're at that point where
5:47
Speaker 5: there's not many other tests that could tell us and unfortunately, Yeah,
5:51
Speaker 5: that's where we're at.
5:52
Speaker 2: My Georgia King yay.
5:55
Speaker 4: Interesting just from a language perspective that we had the
5:59
Speaker 4: Great Depression, the word depression is there, we had the
6:01
Speaker 4: global financial crisis, the word crisis is there. What's it
6:05
Speaker 4: going to be for this little missy that's coming our way?
6:07
Speaker 2: I don't know. I hope they come up with a
6:09
Speaker 2: cuter and less dramatic name.
6:11
Speaker 4: Yeah, they need to work on their branding.
6:12
Speaker 2: Year, they need to really work on their branding.
6:14
Speaker 4: They So you mentioned there are many different ways of
6:17
Speaker 4: defining a recession. There v what exactly are they? Sadly,
6:20
Speaker 4: So let's start with a technical recession. So technical recession
6:24
Speaker 4: is obviously that most common definition. It's used in the
6:26
Speaker 4: media as a technical recession where there have been two
6:29
Speaker 4: consecutive quarters of negative growth in the real GDP, and
6:33
Speaker 4: that definition often appears in textbooks and it's widely used
6:36
Speaker 4: by journalists because, to be honest, it is the easiest
6:38
Speaker 4: definition of a recession to find. So be this technical recession.
6:43
Speaker 4: Correct me if I'm wrong, but I feel like it's
6:46
Speaker 4: ringing some bells from when we were at the very
6:48
Speaker 4: start of the premier twenty twenty twenty, I feel like
6:50
Speaker 4: we were in a technical recession.
6:52
Speaker 5: So a lot of us actually just buried our heads
6:54
Speaker 5: in the sand. I've actually enough to fe.
6:56
Speaker 2: A lot out.
6:57
Speaker 5: But you're right, we were technically in a recession in
7:00
Speaker 5: un twenty twenty, So Australia was officially in its first
7:03
Speaker 5: recession for almost thirty years, with the June quarter GDP
7:07
Speaker 5: numbers showing that the economy actually went backwards by seven
7:10
Speaker 5: percent and was the worst fall on record and slightly
7:12
Speaker 5: worse than most economists had actually predicted. So again, we
7:16
Speaker 5: can't predict this stuff, so yes, we were in a
7:18
Speaker 5: technical recession because of what was going on. But you know,
7:21
Speaker 5: we came back from that pretty quickly. We didn't slip
7:24
Speaker 5: into that full recession period of time. I mean, it
7:28
Speaker 5: was still a bit of a what would you call
7:30
Speaker 5: it a circus. However, I think that's a really good
7:32
Speaker 5: pull up. At the end of the day, we were
7:34
Speaker 5: technically in a recession and now we are worried about
7:37
Speaker 5: heading into one again. Recessions, I feel like people are
7:40
Speaker 5: really dramatic about them, obviously for good reason. Please don't
7:44
Speaker 5: get me wrong, I'm not downplaying how impactful they can be,
7:46
Speaker 5: but people think that they last for years and years
7:49
Speaker 5: and years.
7:50
Speaker 2: What's the average period of time that a recession last?
7:52
Speaker 2: For George King, it's eleven months, all right.
7:54
Speaker 5: I'm glad I had this conversation with you off air,
7:56
Speaker 5: But I think the average Joe would say, oh, full
8:00
Speaker 5: of years this that the other like. They wouldn't think
8:02
Speaker 5: that it's literally less than a year that a recession
8:05
Speaker 5: usually lasts in saying that how long it impacts a
8:09
Speaker 5: community could be way longer than that, because I mean, George,
8:12
Speaker 5: if we lost our jobs and couldn't work and then
8:14
Speaker 5: we're trying to get back into a workforce where it
8:16
Speaker 5: was quite competitive. That is going to last longer than
8:19
Speaker 5: eleven months. The next is a sustained period of week
8:23
Speaker 5: or negative growth in real GDP, which is called output,
8:27
Speaker 5: that is accompanied by a significant rise in the unemployment rate.
8:30
Speaker 5: That's another definition for a recession. So many other indicators
8:34
Speaker 5: of economic activity are also weak during a recession. For example,
8:38
Speaker 5: levels of household spending we talked about before you're going
8:41
Speaker 5: to lack, maybe tie your purse strings a little bit tighter,
8:44
Speaker 5: and then investment by businesses is usually low during that
8:47
Speaker 5: period of time. In addition to that, the numbers of
8:49
Speaker 5: households and businesses that are unable to pay back loans
8:52
Speaker 5: are usually unusually high, and a number of businesses unfortunately
8:57
Speaker 5: will close down. So that's not that fun. But then
9:01
Speaker 5: if we look at the unemployment based definitions, which I
9:04
Speaker 5: think are really important because at the same time as
9:06
Speaker 5: talking about, you know, the share markets, and I want
9:09
Speaker 5: to say, I don't have a lot of sympathy for
9:11
Speaker 5: people who are worried about the share markets. And I
9:13
Speaker 5: don't mean that in a really harsh way. I mean
9:15
Speaker 5: it in a you need to be better educated because
9:18
Speaker 5: this is a period of time where you know, on
9:20
Speaker 5: she's on the money. Literally the last three years I've
9:22
Speaker 5: been harping on about there are ebbs and flows in
9:25
Speaker 5: the market. Sometimes you're going to be like, gee, I
9:27
Speaker 5: got seven percent return this year.
9:29
Speaker 2: That's sick.
9:30
Speaker 5: Sometimes you're going to have a negative return. That is
9:33
Speaker 5: a period of time that we are about to go
9:35
Speaker 5: through or could very likely go through. And that's where
9:38
Speaker 5: we kind of need to have our wits about us,
9:40
Speaker 5: not make emotional decisions, and not be so worried that
9:44
Speaker 5: when our share portfolios start to downturn we pull that
9:47
Speaker 5: money out, because, as we've said a million times on
9:50
Speaker 5: the podcast, the only way you lose money in shares
9:53
Speaker 5: during a period of economic downturn a couple of them. Actually,
9:56
Speaker 5: I need to be a little bit more specific. I mean,
9:59
Speaker 5: the business that you own could absolutely go bankrupt, and
10:01
Speaker 5: you're absolutely, you know, in a bit of a pickle, George.
10:04
Speaker 5: That's why we diversify and never put all of our
10:07
Speaker 5: eggs in one basket.
10:08
Speaker 2: But one of the.
10:09
Speaker 5: Most common reasons people lose their money during a recession
10:13
Speaker 5: if it is invested, is because they make an emotional
10:16
Speaker 5: decision to pull their money out when it's valued at
10:19
Speaker 5: less or their shares out when it's valued at less,
10:22
Speaker 5: and they crystallize their losses. You don't crystallize a loss
10:25
Speaker 5: if you don't trigger a sale. So that sounds quite
10:28
Speaker 5: I don't mean it to be so complicated, but essentially, Gee,
10:31
Speaker 5: if you've got a share today that is worth one
10:33
Speaker 5: dollar each, and you've got ten of them, you woke
10:35
Speaker 5: up tomorrow and you're like, oh my gosh, Victoria, I'm
10:38
Speaker 5: so stressed. I looked at my share port folio. It's
10:40
Speaker 5: now worth five bucks. You still have those ten shares.
10:44
Speaker 5: What you're doing is accepting five dollars for the sale
10:47
Speaker 5: of those because you're anxious and need to get out
10:49
Speaker 5: of it. Whereas if I'd sat you down and said,
10:51
Speaker 5: all right, g do you actually want to sell ten
10:54
Speaker 5: of your shares for five dollars when you paid a
10:56
Speaker 5: whole ten dollars for it? Or do you want to
10:58
Speaker 5: wait for the market to recover and you'll be like,
11:00
Speaker 5: all right. Makes a bit more sense if we put
11:02
Speaker 5: it in perspective. And something I've been seeing all over Instagram,
11:07
Speaker 5: which I love and I've quoted on the show before,
11:10
Speaker 5: is if in doubt, zoom out, stop looking at what
11:12
Speaker 5: today's returns are Stop looking at the last month or
11:15
Speaker 5: even the last year.
11:16
Speaker 2: Zoom out.
11:17
Speaker 5: Look at the last five years in the share market,
11:19
Speaker 5: Look at the last ten years. If you want to
11:21
Speaker 5: feel really secure, look at the last thirty years the
11:25
Speaker 5: Australian share market. If you look at any thirty year
11:27
Speaker 5: period of time in the Australian share market never had
11:30
Speaker 5: a negative return. If you look at it in a
11:32
Speaker 5: thirty year chunk, that makes you feel so much more
11:34
Speaker 5: secure about things like your superannuation, right because if I say, Gee,
11:37
Speaker 5: how much more time have you got your super invested for,
11:40
Speaker 5: you go, oh, Lenny, plenty of time. But if you
11:43
Speaker 5: looked at it tomorrow and didn't have an education about that,
11:46
Speaker 5: you'd be like, oh my gosh, Victoria, I'm so stressed.
11:48
Speaker 5: Should I switch it to cash? And if you switch
11:51
Speaker 5: your super cash, what are you doing crystallizing a loss
11:55
Speaker 5: and you're switching that money into a cash option so
11:57
Speaker 5: that you can quote, I'll invest when the market a
12:00
Speaker 5: better cool, but you won't be able to afford as
12:02
Speaker 5: much as what you had before if you're investing at
12:05
Speaker 5: a different time when the markets make you feel more comfortable.
12:08
Speaker 5: So education is the most important thing that we can
12:11
Speaker 5: have when going into a recession. Yeah, okay, I would
12:13
Speaker 5: like to say rantover, but we're definitely not done.
12:16
Speaker 2: Absolutely not.
12:17
Speaker 4: What exactly is a business cycle v because that's closely
12:21
Speaker 4: tied to recessions, if I'm not mistaken.
12:23
Speaker 5: Yeah, so we spoke about business cycles a little bit earlier.
12:27
Speaker 5: But a business cycle has technically four main stages, and
12:30
Speaker 5: they can vary in length and time and what each means.
12:33
Speaker 5: But on a technicality, these four stages are expansion, peak, contraction,
12:38
Speaker 5: and the truugh. So In expansion, which is the first one,
12:41
Speaker 5: households demand more goods and services, businesses, home, or workers.
12:44
Speaker 5: The economy is doing great, wages and prices are typically increasing,
12:48
Speaker 5: and you're like all is good and fair in the
12:51
Speaker 5: world of love and war. This phase ends with a
12:54
Speaker 5: peak in economic activity. So we got to this just
12:58
Speaker 5: before COVID, right, like everything increasing in price. Anyway, we've
13:02
Speaker 5: just gone through this again where obviously there's been a
13:04
Speaker 5: fair bit going on in the world. Russia invaded Ukraine,
13:07
Speaker 5: which meant things traveling around the world and goods and
13:10
Speaker 5: services weren't as easy to get hold of. Oil has
13:13
Speaker 5: gone through the roof in terms of pricing and is
13:15
Speaker 5: obviously increasing how much it's going to cost us to
13:18
Speaker 5: put fuel in our cars. So that was kind of
13:20
Speaker 5: the peak.
13:21
Speaker 2: Where everything was at its most expensive. In contraction.
13:25
Speaker 5: Households then start demanding fewer goods and services, businesses start
13:29
Speaker 5: reducing the number of workers that they employ, and growth
13:32
Speaker 5: in wages and prices starts to slow. So this is
13:35
Speaker 5: what we're seeing at the moment right in our community.
13:38
Speaker 5: We're talking to people who are like, I asked for
13:40
Speaker 5: a pay rise, my business said they couldn't afford it,
13:42
Speaker 5: and like that's a legitimate reason. It's not oh, you
13:45
Speaker 5: don't deserve it. It's oh, actually things have started to stagnate.
13:49
Speaker 5: Maybe they're not making as many sales as they used to,
13:51
Speaker 5: or they're not going through in a period of economic growth.
13:54
Speaker 5: And then this phase ends with what's called a truff
13:57
Speaker 5: in economic activity. And this is kind of like that
13:59
Speaker 5: truck fleck. It's like a bucket. It goes down, but
14:02
Speaker 5: it always has a side to come back up, which
14:05
Speaker 5: I think is really important. We're not absolutely in the bin, George,
14:09
Speaker 5: but it's a period that we go through. It's kind
14:11
Speaker 5: of like a cycle, and once we get back to
14:13
Speaker 5: the start, we have to go round the wheel again.
14:15
Speaker 5: It happens, and the economy resets itself. And I think
14:19
Speaker 5: that once we feel a little bit more comfortable with that,
14:22
Speaker 5: we're not so what would you say, doom and gloom. We're
14:25
Speaker 5: not say, oh my gosh, this is the end of
14:27
Speaker 5: the end.
14:27
Speaker 2: This is the.
14:27
Speaker 5: Worst thing ever it is, but everything will ultimately be okay.
14:32
Speaker 4: All right, that's wholesome advice. Phoebe looked at bear markets
14:36
Speaker 4: on the show last month. Great episode, ladies, if you
14:40
Speaker 4: haven't listened, please go back and do so.
14:42
Speaker 2: How do they play into a recession?
14:45
Speaker 5: So, as we know, a bit of a rule of
14:47
Speaker 5: a so called bear market is when there's been a
14:49
Speaker 5: twenty percent or more continuous fall in the share market
14:52
Speaker 5: from the peak levels over the last twelve months. Right,
14:55
Speaker 5: So knowing that a recession, George basically means that yes,
14:59
Speaker 5: there will be a bear market, But a bear market
15:01
Speaker 5: doesn't mean that they will always be a recession. Does
15:03
Speaker 5: that make sense? So like, we can experience a bear
15:05
Speaker 5: market and not have a recession. But I don't think
15:08
Speaker 5: there has been in the history of ever a recession
15:10
Speaker 5: without having a bear market. So like it goes one
15:13
Speaker 5: way and not the other way. But Essentially, what that
15:16
Speaker 5: means is, you know, over time, if you're an individual consumer, George,
15:20
Speaker 5: you're going to pull back on spending. You're going to
15:22
Speaker 5: pull back on things, which ultimately impacts small businesses. People
15:26
Speaker 5: also become a lot more conservative during this period of time,
15:29
Speaker 5: especially banks, which then puts a lot more pressure on
15:32
Speaker 5: small business because banks are far less likely to lend
15:36
Speaker 5: to a small business because they're like, oh, we're going
15:37
Speaker 5: through a recession, Georgia, do you really want you know,
15:40
Speaker 5: a fifty thousand dollars business loan to start a candle business?
15:43
Speaker 1: Like?
15:43
Speaker 2: Is that the best time to do that?
15:45
Speaker 5: So it ends up impacting a lot of people, not
15:48
Speaker 5: necessarily just you know, consumers. It impacts small business, it
15:51
Speaker 5: impacts big business, It impacts business growth in general. But
15:55
Speaker 5: from my perspective, yeah, bear markets do a company recessions.
16:00
Speaker 5: But I think it's important to know that one is
16:02
Speaker 5: not effectively a predictor for the other, but more, you know,
16:06
Speaker 5: an interesting I won't say coincidence, because they exist, but
16:09
Speaker 5: it's interesting to see the relationship between the two. At
16:13
Speaker 5: the end of the day, when we look at a
16:14
Speaker 5: bear market and stock prices are falling, it means bad
16:17
Speaker 5: things for businesses and people who are on the share market,
16:21
Speaker 5: but from my perspective, even worse things for small businesses
16:24
Speaker 5: who aren't on the share market, because they're usually the
16:27
Speaker 5: ones that are more seriously hit. Because most small businesses
16:32
Speaker 5: usually have some level of luxury afforded to them. So
16:36
Speaker 5: it's not that they are a luxury business. It's that George,
16:39
Speaker 5: if you're buying off a small business, it's very likely
16:42
Speaker 5: it's not your fuel and it's not the food that
16:44
Speaker 5: you put on the table. It's very likely a luxury
16:47
Speaker 5: that you can go all right, it's not in the
16:48
Speaker 5: budget for me this month, I can cut it out.
16:51
Speaker 5: And so we're usually putting a lot more stress on
16:54
Speaker 5: small businesses rather than you know, the big dogs in
16:57
Speaker 5: the market, because you still need to put food on
16:59
Speaker 5: the table, It still need to get to work.
17:01
Speaker 2: G Yes, yes, v.
17:02
Speaker 4: What is Australia's history of recessions? How many of these
17:06
Speaker 4: things we had in the last couple hundred many many
17:09
Speaker 4: manys okuess.
17:10
Speaker 5: So our first one, our first recorded recession or the
17:13
Speaker 5: biggest recession in Australia's history. It peaked in nineteen thirty
17:17
Speaker 5: one to nineteen thirty two. This was because of the
17:20
Speaker 5: worldwide depression, which we touched on before, and you said, oh,
17:23
Speaker 5: that's such a negative term. In Australia, thankfully it wasn't
17:27
Speaker 5: felt as badly. We had increases in productivity from the
17:31
Speaker 5: manufacturing sector and Australia moved from the old model to
17:34
Speaker 5: the new model of production, so we had trade protection,
17:38
Speaker 5: particularly from tariffs that were implemented by the government at
17:40
Speaker 5: that time, and they were instrumental in the wealth of
17:43
Speaker 5: the manufacturing sector. So we were not as hardly hit. Yes,
17:48
Speaker 5: technically we were in a recession, but we were not
17:50
Speaker 5: hit nearly as hard as you know the US was,
17:54
Speaker 5: where it was very dire. So next recession, Georgia king
17:58
Speaker 5: was in nineteen seven three to nineteen seventy five, and
18:01
Speaker 5: there's a few factors here, but essentially the nineteen seventy
18:05
Speaker 5: three oil crisis sparked it and it caused prices to spark,
18:08
Speaker 5: which we are outraged about at the moment because obviously
18:11
Speaker 5: putting fueling cars is very expensive. Thankfully, we live in
18:14
Speaker 5: a world where there's lots of alternative sources now. Historically
18:18
Speaker 5: there were not, and according to government figures, inflation topped
18:22
Speaker 5: thirteen percent for the year of nineteen seventy three to
18:25
Speaker 5: nineteen seventy four, and by nineteen seventy four Australia was
18:28
Speaker 5: technically in an economic recession that was probably perpetuated by
18:33
Speaker 5: the failure of the Whitlam government to effectively manage the
18:35
Speaker 5: Australian economy. And you know, obviously that was another factor
18:39
Speaker 5: in the crisis that ended the government's term in office
18:42
Speaker 5: at the end of nineteen seventy five, where we got
18:44
Speaker 5: a new government and you know, things started to bounce back.
18:48
Speaker 5: Then Georgia, we have another recession that occurred in nineteen
18:51
Speaker 5: eighty two to nineteen eighty three, and this was experienced
18:54
Speaker 5: by lots of different economies, particularly in the US. In Australia,
18:58
Speaker 5: the effects of tighter monetary policy and weak global demand
19:01
Speaker 5: were compounded by drought. So that wasn't great and that
19:05
Speaker 5: was referred to as the quote deepest post war recession
19:08
Speaker 5: that Australia had felt, and again largely because it coincided
19:12
Speaker 5: with the drought, which obviously in a very farm heavy
19:16
Speaker 5: production country, obviously impacted us very very significantly. And then
19:22
Speaker 5: we move on to quote keating to the recession Australia
19:25
Speaker 5: had to have, and that was in my year of birth,
19:28
Speaker 5: Georgia King. I remember it fondly from nineteen ninety one
19:31
Speaker 5: to nineteen ninety two and the early nineteen nineties recession
19:35
Speaker 5: mainly resulted from Australia's efforts to address excess domestic demand,
19:38
Speaker 5: curb speculative behavior in commercial property markets and reduce inflation.
19:43
Speaker 5: And as I said before, Keating said, it was the
19:45
Speaker 5: recession that Australia had to have.
19:47
Speaker 4: So that's better branding than the Great Pression Financial Crisis GFC.
19:52
Speaker 5: GFC col Keating, he knows a thing or two. Obviously
19:56
Speaker 5: there's been a far greater number of recessions worldwide, but
19:58
Speaker 5: those are the ones that had impacted Australia because obviously
20:01
Speaker 5: we could go into the GFC, but Australia managed to
20:04
Speaker 5: skirt that problem. Like we're lucky little little friends.
20:08
Speaker 2: We are good.
20:09
Speaker 4: We are going to talk about the GFC a little
20:11
Speaker 4: later on in the show, but let's keep this ball
20:13
Speaker 4: a rollin. So the Treasurer Jim Charmers, in his Economic
20:17
Speaker 4: Update to Parliament a few weeks ago, said that inflation
20:21
Speaker 4: will peak at seven point seventy five percent towards the
20:24
Speaker 4: end of this year, a mid falling wages and slower
20:27
Speaker 4: economic growth that is frightening.
20:30
Speaker 5: I probably shouldn't make that sound on the show because
20:33
Speaker 5: if you do that to my partner, Steve, he will
20:36
Speaker 5: literally start gagging. So like, if he's doing something and
20:40
Speaker 5: you make a gagging sound, it's like completely involuntary, and
20:44
Speaker 5: he'll be like stop it, and I keep doing it.
20:45
Speaker 2: It's just really nice for me.
20:47
Speaker 5: I'm a very supportive, very kind partner and I definitely
20:50
Speaker 5: would never make him feel gross around me.
20:52
Speaker 4: So apologies if anyone was offended by that little sound
20:56
Speaker 4: for sorry. The Treasurer Jim Chalmers is saying that he
21:01
Speaker 4: doesn't expect Australia to go into a recession, which contradicts
21:05
Speaker 4: what we've said here on the podcast today and in
21:07
Speaker 4: the past. What do you make of that?
21:08
Speaker 5: I mean, if I WASO the Treasurer, I'd also say
21:10
Speaker 5: that I don't want people to be scared about heading
21:13
Speaker 5: towards a recession. I've got a brand to upkeep. I've
21:15
Speaker 5: just gotten into government, haven't I. I can't have my
21:18
Speaker 5: government go straight into a recession. That's bad branding. Georgia King,
21:22
Speaker 5: that's terrible. We have a new prime minister.
21:24
Speaker 2: What's that going to look like?
21:26
Speaker 5: On him, but literally, there are a fair few different
21:29
Speaker 5: opinions floating around, right, And as we always say, with
21:31
Speaker 5: she's on the money, because this is coming from my
21:34
Speaker 5: perspective as a financial advisor and watching the markets and
21:37
Speaker 5: going okay, cool, this is where we're heading towards.
21:40
Speaker 2: This is what I see.
21:41
Speaker 5: We've got an episode coming up after this because we
21:43
Speaker 5: decided to split this one into two about how to
21:46
Speaker 5: prepare yourself and what's the worst thing that can happen Georgia.
21:50
Speaker 5: If I prepare our community for a recession, then it
21:53
Speaker 5: doesn't happen, then everyone's just financial physically exactly. So I
21:57
Speaker 5: think it's better to be prepared than can letely underprepared.
22:01
Speaker 5: And as much as you know, it's really nice that
22:03
Speaker 5: he's saying, oh, I really don't think that we'll go
22:05
Speaker 5: into a recession, you know, not a thing. All the
22:08
Speaker 5: indicators are showing me that we are, and our community
22:12
Speaker 5: is asking us a lot of questions about what does
22:14
Speaker 5: this mean? How can I be financially secure? I'm really stressed,
22:17
Speaker 5: like I don't want that for you guys. So let's
22:19
Speaker 5: treat it as though we are headed towards one and
22:21
Speaker 5: we will financially prepare ourselves to be in the best
22:24
Speaker 5: possible position. Then if it doesn't happen.
22:26
Speaker 2: Money win.
22:28
Speaker 4: So on this theme, v Jim Charmers blamed the Morrison
22:31
Speaker 4: government for leaving behind a hot, flaming mess. But how
22:35
Speaker 4: much of this is just political mudslinging from either side?
22:39
Speaker 4: Like can governments really stop a recession with everything that's
22:43
Speaker 4: been at play as you mentioned before the war in Ukraine.
22:46
Speaker 4: Obviously we continue to live through a global pandemic, the
22:48
Speaker 4: environmental crisis. There's a lot going on and it's all
22:51
Speaker 4: combining to create a perfect storm.
22:53
Speaker 2: One hundred percent.
22:54
Speaker 5: I don't think that politicians have any say over how
22:57
Speaker 5: this falls out, right, Like we had the bush fires,
23:00
Speaker 5: then we had COVID, then we had Russia invading Ukraine,
23:04
Speaker 5: and there's just so much going on in the world
23:07
Speaker 5: that it seems a bit silly to go, Oh, the
23:09
Speaker 5: politicians could have stopped this from happening. Unfortunately that's not
23:12
Speaker 5: the case. Recessions are cyclical, like this is how the
23:16
Speaker 5: market works, this is how it ebbs and it flows,
23:19
Speaker 5: and they know that, which is why Georgia, every single
23:22
Speaker 5: parliamentarian in Australian government has a share portfolio because they
23:27
Speaker 5: know that that happens. They know how this works. They're
23:30
Speaker 5: all property investors, they're all share investors, they are all
23:34
Speaker 5: in situations where they know how the market works.
23:36
Speaker 2: But it's so much better to.
23:38
Speaker 5: Mudsling and throw shade at the last government so that
23:41
Speaker 5: the current government gets a whole heap of praise. Right,
23:44
Speaker 5: So I feel like it's branding. But also since the
23:48
Speaker 5: Great Depression, governments around the world have adopted countercyclical fiscal
23:52
Speaker 5: and monetary policies. That's a mouse that I've written down
23:55
Speaker 5: to ensure that the run of the meal recessions don't
23:58
Speaker 5: turn into something much more damaging to their life long
24:00
Speaker 5: term economic prospects. Some of these stabilizers are automatic, like
24:04
Speaker 5: increased spending on unemployment insurance that makes up a fraction
24:08
Speaker 5: of lost income for off laid workers. Others like what
24:11
Speaker 5: we're talking about, a lot in cheese on the money
24:13
Speaker 5: at the moment, like rate cuts, are designed to prop
24:16
Speaker 5: up employment and investment and require the decision of a
24:20
Speaker 5: central bank. So in Australia that central bank is the RBA.
24:23
Speaker 5: We always talk about it. At the time of recording this, George,
24:27
Speaker 5: We've just had an announcement recently. The RBA is rising
24:30
Speaker 5: rates to one point eighty five percent, which lowest growth outlook,
24:35
Speaker 5: but at the same time is happening to put us
24:38
Speaker 5: in a better financial circumstance. I think a lot of
24:41
Speaker 5: people look at this and go, I can't believe this
24:43
Speaker 5: is happening to us.
24:44
Speaker 2: This is awful. I'm never going to get into my
24:46
Speaker 2: first home.
24:46
Speaker 5: This that the other like, the reason this is happening
24:49
Speaker 5: is far bigger than an individual getting into their first home.
24:54
Speaker 5: It's to make sure that future individuals can get into
24:56
Speaker 5: their first home. That property stays an asset that can
25:00
Speaker 5: still be bought and sold, like the world would go
25:02
Speaker 5: rife if we didn't go through this process. And essentially,
25:06
Speaker 5: as much as it sucks and as much as it
25:08
Speaker 5: increase our interest rates, they're doing this to put our
25:11
Speaker 5: society in the best possible position. And I think we
25:13
Speaker 5: need to remember that. And we need to also remember
25:16
Speaker 5: that the politicians that govern our country are the voice
25:19
Speaker 5: of their party. It's not just elbow going I want
25:22
Speaker 5: to do X y ZX, so therefore we're doing it.
25:24
Speaker 5: There's an entire party behind him making decisions. It's not
25:27
Speaker 5: just our treasure a gym turning around and being like,
25:29
Speaker 5: oh I don't reckon it's this. It's a plethora of
25:33
Speaker 5: teams behind him coming up with Okay, well, this is
25:35
Speaker 5: what that take looks like. This is our research. This
25:37
Speaker 5: is the conclusion we've come to. So I think it's
25:40
Speaker 5: important to differentiate a bit of mud slinging, but also
25:44
Speaker 5: what is the best thing for our economy right now?
25:46
Speaker 5: No politician wants to have things go downhill on their watch,
25:50
Speaker 5: so I'm not surprised that they're showing away from embracing
25:54
Speaker 5: the topic.
25:54
Speaker 4: Yeah, okay, we have covered a lot in the first
25:58
Speaker 4: half of the show. Vot's syncing in for everyone at home.
26:02
Speaker 4: We do have a lot to cover on the other side, though,
26:05
Speaker 4: including how we got to the recession that we are
26:08
Speaker 4: potentially entering in and what the devil happened with the
26:11
Speaker 4: global financial crisis. So guys, please don't go anywhere alrighty vs.
26:19
Speaker 4: So straight back into it. We touched on the GFC before,
26:22
Speaker 4: we're speaking about the looming recession.
26:24
Speaker 2: Back into it with some light content.
26:27
Speaker 4: Nicely, right, but let's cast our minds one hundred years back. Also,
26:31
Speaker 4: Ish give nearly, I Matja, thank you so much. I
26:36
Speaker 4: want to know more about the Great Depression. Can you
26:39
Speaker 4: tell me what went on there, what happened?
26:41
Speaker 5: That was a big one. Yep, that was a big one,
26:43
Speaker 5: that was really really impactful. The Great Depression began in
26:47
Speaker 5: nineteen twenty nine and lasted for almost four years, so
26:51
Speaker 5: obviously much longer than our average eleven months for a recession.
26:55
Speaker 5: As with the term recession, there's no single definition of
26:58
Speaker 5: what a depression is. However, depression can be thought of
27:01
Speaker 5: as a much bigger version of a recession, both in
27:04
Speaker 5: terms of scale and duration. Four times as long, yeah, exactly.
27:08
Speaker 1: So.
27:09
Speaker 5: Consequently, in a depression there are periods of falling output
27:12
Speaker 5: and high unemployment rates that persist for a number of years,
27:15
Speaker 5: which is honestly very depressing. And the scale and duration
27:19
Speaker 5: of a depression means that there are often negative economic
27:22
Speaker 5: outcomes that are experienced in many countries around the world.
27:25
Speaker 2: So the definition of.
27:26
Speaker 5: Depression says that there is a severe recession that occurs
27:30
Speaker 5: in one or more economies. So sometimes, gee, when a
27:34
Speaker 5: recession is announced or you know we're officially in one,
27:38
Speaker 5: it might only be one country or another. So earlier
27:41
Speaker 5: we were talking about how we were officially in a
27:44
Speaker 5: recession in Australia in the middle of twenty twenty. Right,
27:46
Speaker 5: you said, I remember that, But what you might not
27:49
Speaker 5: remember is it was announced in other countries three four
27:52
Speaker 5: five months earlier than that, and the US were in
27:55
Speaker 5: that far before us, and we weren't even sure if
27:58
Speaker 5: Australia would be in a and then we obviously made
28:01
Speaker 5: it there and we came out relatively quickly. So it
28:04
Speaker 5: really depends on where you are as to how significant
28:07
Speaker 5: a recession is or you know, how impactful it is.
28:10
Speaker 5: But a depression is kind of like the way worse
28:13
Speaker 5: version of a recession, where things are pretty dire for
28:18
Speaker 5: a lot of people.
28:19
Speaker 4: Okay, well said that makes sense. So V we are
28:23
Speaker 4: understanding why we are in this position. How does a
28:27
Speaker 4: recession play out in daily life? How is this going
28:29
Speaker 4: to impact shees on the money listeners?
28:31
Speaker 5: So there are a lot of different ways that a
28:33
Speaker 5: recession is going to impact She's on the money listeners
28:35
Speaker 5: unfortunately have our whole list of them that are not
28:39
Speaker 5: very exciting, but it's nice to be prepared for them,
28:42
Speaker 5: so to list them off. Job loss is a lack
28:44
Speaker 5: of opportunity. You might not get a pay rise during
28:47
Speaker 5: that period of time. Property is going to be either
28:49
Speaker 5: hard to get into or really hard to sell. Interest
28:53
Speaker 5: rates are going to increase, investments are going to decrease,
28:55
Speaker 5: student loans are going to feel like they have a
28:58
Speaker 5: choke hold on us because you know, we look at
29:01
Speaker 5: our help or hex debt and you go, oh, like,
29:04
Speaker 5: the cash rate has increased, therefore inflation has increased, Therefore
29:07
Speaker 5: the amount of money that my debt has increased by
29:09
Speaker 5: each year. Even though there's no technical interest rate on
29:14
Speaker 5: our hex debt, there's just a rise in CPI still
29:17
Speaker 5: impacts us, right, like we're talking about it in our community.
29:20
Speaker 5: It's not exciting at the end of the day. Unfortunately,
29:24
Speaker 5: you might lose your job during a recession, which makes
29:27
Speaker 5: sense because unemployment levels are on the rise, So not
29:31
Speaker 5: only are you more likely to lose your current job
29:33
Speaker 5: g it then becomes much harder to find a job replacement.
29:37
Speaker 5: So you don't see a lot of people during a
29:39
Speaker 5: recession moving roles. People usually just wait at our staple. Yeah,
29:43
Speaker 5: and I think it's solid advice to go, well, what
29:45
Speaker 5: should I be doing? I would be thinking about what
29:48
Speaker 5: type of industry I'm in. There are going to be
29:50
Speaker 5: industries that aren't nearly as hard done by. Let's say
29:53
Speaker 5: you've got a job at Woolly's very unlikely that that
29:57
Speaker 5: is going to be impacted because at the end of
29:59
Speaker 5: the day, what is willis it is a supermarket. People
30:03
Speaker 5: need to put food on their tables. These commodities aren't
30:06
Speaker 5: really going to go anywhere if you are you know,
30:09
Speaker 5: I don't want to dramatize and give terrible examples, but
30:12
Speaker 5: Jess has talked about it on the show before. Jess
30:14
Speaker 5: was made redundant from her real estate job when the
30:17
Speaker 5: pandemic hit, Like remember her talking about that. That made
30:21
Speaker 5: sense because as the pandemic hit, there's less necessity for people,
30:26
Speaker 5: you know, with their hands on the ground in property
30:29
Speaker 5: because property isn't moving as quickly as it was before.
30:33
Speaker 5: So they're trying to lower their cost because there's less
30:35
Speaker 5: properties being sold, which means there's less commission going around
30:38
Speaker 5: the real estate industry, which means there's less money to
30:40
Speaker 5: pay people. So they're making decisions that are actually in
30:43
Speaker 5: line with their business. And from a bird's eye perspective,
30:45
Speaker 5: you go, that makes sense to strip out costs, But
30:48
Speaker 5: unfortunately that does mean that our community could be impacted. Interestingly,
30:53
Speaker 5: in a lot of the articles that I read in
30:56
Speaker 5: the research I was doing, for this episode to put
30:58
Speaker 5: lots on the table. Retail and beauty was put on
31:01
Speaker 5: the table as you know, an area that you know
31:04
Speaker 5: could be seriously affected. I think I've mentioned it to
31:08
Speaker 5: you on the podcast before recession, So I find that's
31:12
Speaker 5: so interesting to bring up now because one, it makes
31:16
Speaker 5: me feel more educated too. You guys will find it
31:18
Speaker 5: relatively interesting. But if you missed it, with the recession threatening,
31:22
Speaker 5: the lipstick effect is going to start kicking in. And
31:25
Speaker 5: although it comes in a few different forms, it's actually
31:28
Speaker 5: when during an economic downturn, although spending in the economy
31:32
Speaker 5: tends to decrease or not grow as much as usual,
31:35
Speaker 5: there's an uplift inserting categories of small luxuries because you
31:39
Speaker 5: go from being like, oh my gosh, you'll get a
31:41
Speaker 5: facial you're going to pull that in, but you might
31:43
Speaker 5: go and buy a lipstick to still treat yourself.
31:45
Speaker 1: Right.
31:45
Speaker 5: So it's a very very interesting phenomenon where there's actually
31:49
Speaker 5: a report by the NPD Group that says the sales
31:52
Speaker 5: of lipstick are rising more than twice as fast as
31:55
Speaker 5: any other product during a recession.
31:57
Speaker 4: Well gotta look cute, You gotta look cute, look cute
32:02
Speaker 4: doing it tough.
32:02
Speaker 5: But I think it's so interesting to think that our
32:06
Speaker 5: consumers are still spending money on small indulgences during a
32:10
Speaker 5: recession when they personally have little cash. I think it's
32:13
Speaker 5: so interesting and I want to talk about it because
32:15
Speaker 5: I think it's something that she's on the money. You'll
32:17
Speaker 5: be like, yes, because I need to pep me up.
32:21
Speaker 5: And that makes sense.
32:22
Speaker 4: Definitely feedback to the industries that are affected, and I
32:27
Speaker 4: want to know which ones thrive as well, which industries
32:31
Speaker 4: are the hardest hit.
32:31
Speaker 2: I'm assuming it's the non essentials.
32:33
Speaker 5: Yeah, so non essentials, so restaurants, bars, leisure, automotives, so
32:38
Speaker 5: people are less likely to want to buy brand new cars.
32:40
Speaker 2: They'll put it off.
32:41
Speaker 5: Obviously oil and gas, which is sucky because we all
32:44
Speaker 5: need to put petrol in our cars. And if you're
32:46
Speaker 5: anything like me, you've been hitting your house with gas
32:49
Speaker 5: over the winter. Sports go down because they are seen
32:53
Speaker 5: as a luxury. And I said before real estate that
32:56
Speaker 5: seems to be pretty hard hit each and every single
32:58
Speaker 5: time we have a recession.
33:00
Speaker 4: And who's killing it?
33:01
Speaker 2: Who's killing it?
33:02
Speaker 1: All? Right?
33:02
Speaker 5: According to the share market, prices that fared best over
33:05
Speaker 5: the GFC discount stores.
33:07
Speaker 4: AH the rejects shop. Yeah, the reject shining, say, yeah,
33:11
Speaker 4: the reject shop.
33:13
Speaker 5: Rich tech technology? That makes sense? Bi tech, why yeah,
33:18
Speaker 5: because they're usually pretty resourceful. So tech is all about
33:21
Speaker 5: increasing efficiency. And usually when you go through a recession,
33:26
Speaker 5: let's look at me as a business owner, if I
33:28
Speaker 5: can't afford a new staff member, what am I going
33:29
Speaker 5: to do? Try and find a software that might do
33:32
Speaker 5: that same capability for me. So tech usually seems to thrive.
33:36
Speaker 5: Biotech seems to thrive, drug manufacturing sure seems to thrive.
33:41
Speaker 5: I would argue that that makes a lot of sense
33:44
Speaker 5: to me because a very common theme that I found
33:47
Speaker 5: throughout COVID was a lot of my friends, including me Georgia,
33:52
Speaker 5: went back on antidepressants because we're just going through a
33:55
Speaker 5: bit of a tough time. And it makes a lot
33:57
Speaker 5: of sense trucking and logistics thrive, and then personal services
34:02
Speaker 5: so things like tax returns are up. So y'all are
34:06
Speaker 5: trying to do the right thing for yourselves. But unfortunately,
34:08
Speaker 5: I think it's you know, not without other people suffering.
34:12
Speaker 4: Yeah, okay, well, I mean I'm happy for the reject shop.
34:15
Speaker 2: That's o the reject shop. Happy for that. I'm a
34:18
Speaker 2: fan of the reject Shop.
34:19
Speaker 4: Plenty of bargains you'll find there.
34:21
Speaker 2: Why'd I say that backwards? Not sponsored? George and I
34:24
Speaker 2: just obsesssed.
34:25
Speaker 5: In fact, we've never even spoken to anyone from the
34:27
Speaker 5: reject sl Moving on, what would you like to.
34:30
Speaker 2: Know next, Georgia King?
34:31
Speaker 4: So we spoke about the Great Depression, tell me briefly
34:34
Speaker 4: about the GFC in twenty words or less. Explained to
34:37
Speaker 4: me that horrible event in twenty words all less?
34:41
Speaker 2: Starting to really constrain me.
34:42
Speaker 5: I'm going to take as many words as I like,
34:45
Speaker 5: Georgia King. But there have obviously been a number of
34:47
Speaker 5: brief slowdowns in economic activity over the decades, and most
34:51
Speaker 5: recently during the Global Financial Crisis or the GFC. It
34:55
Speaker 5: resulted in significant negative shocks to the Australian economy, definitely
34:59
Speaker 5: not not nearly as dramatic as what happened in the US.
35:03
Speaker 5: So the Global Financial Crisis from two thousand and eight
35:06
Speaker 5: to two thousand and nine was when international finance markets
35:09
Speaker 5: and banking systems experienced a period of extreme stress and volatility.
35:14
Speaker 5: At I believe it was the start of two thousand
35:16
Speaker 5: and eight. The damage done to the financial markets and
35:19
Speaker 5: the banking systems for many other countries, then triggered large
35:22
Speaker 5: scale losses of economic activity and large increases of unemployment,
35:27
Speaker 5: and for many countries it was actually the most severe
35:30
Speaker 5: recession since the Great Depression. However, the Australian economy actually
35:34
Speaker 5: fared much better than most because it had a really
35:37
Speaker 5: sound financial system and a relatively large exposure to the
35:41
Speaker 5: buoyant Chinese economy and strong stimulus for small business to
35:45
Speaker 5: cushion it from the global downturn. So that was from
35:48
Speaker 5: my perspective obviously benefit of being here in Australia, and
35:52
Speaker 5: Australian GDP only declined in one quarter, although the unemployment
35:57
Speaker 5: rate increased to close to six percent and the underemployment
36:00
Speaker 5: rate rose sharply. So that said, gee, it actually can
36:04
Speaker 5: be traced back to one particular financial stress in the US.
36:10
Speaker 5: And I won't go into this too much because I
36:12
Speaker 5: think it one I think is really interesting and I
36:14
Speaker 5: definitely want to go into this, but you guys might
36:16
Speaker 5: find it really boring. But financial stress is actually peaked
36:20
Speaker 5: following the failure of the US financial firm called the
36:23
Speaker 5: Lehman Brothers in September two thousand and eight. Together with
36:27
Speaker 5: that failure or the near failure of a range of
36:29
Speaker 5: other financial firms around that time. It triggered what we
36:33
Speaker 5: would call an absolute panic in the financial markets globally
36:36
Speaker 5: because people started to go, well, if Lehman Brothers, who
36:39
Speaker 5: were one of the biggest financial institutions in the US,
36:42
Speaker 5: can be.
36:42
Speaker 2: Really untrusted, what is going on?
36:45
Speaker 5: Like, that's really stressful. That's like me turning around to you,
36:48
Speaker 5: George and being like, comebank, yeah gone. You'd be like
36:51
Speaker 5: what And thankfully we live in a country where a
36:55
Speaker 5: lot of our banks are underwritten, Like there has to
36:56
Speaker 5: be something very very dramatic to happen for our banks
37:01
Speaker 5: to go to absolute junk. And the reason for that
37:04
Speaker 5: is they are underwritten by the government. And I promise
37:07
Speaker 5: you if anything happened to any of those banks, because
37:10
Speaker 5: of how much Australia relies on them. I mean, we
37:12
Speaker 5: have the big four banks. If you're not with Combank,
37:15
Speaker 5: you're with NAP. If you're not with NAB, you with Westpac.
37:17
Speaker 5: If you're not with west Pac, you're with.
37:19
Speaker 2: What's the fourth one?
37:20
Speaker 4: Bendigo, No, hang on, I'm gonna get this.
37:24
Speaker 2: You're gonna get this.
37:25
Speaker 4: NAB, Combank, west Pack give me the first letter. Are
37:31
Speaker 4: you serious, A and z yeay, just on the money,
37:37
Speaker 4: ey I.
37:37
Speaker 2: Get it, you get it, you get it, you got it.
37:40
Speaker 2: Bend to Go Bank, Bend you Go Bank. Do you
37:42
Speaker 2: know what?
37:43
Speaker 5: They'd be stoked that you put them in that, And
37:45
Speaker 5: we're going to leave that part of the podcast in
37:47
Speaker 5: because they think it's just really wholesome. But at the
37:50
Speaker 5: end of the day, if one of those guys went under,
37:52
Speaker 5: including Bendigo Bank, the government would definitely come in to
37:55
Speaker 5: find a way to make sure that all of its
37:57
Speaker 5: consumers were okay in a way like it's not just
38:01
Speaker 5: going to be ripped out from under us like it
38:03
Speaker 5: was in the US. So in the US it was
38:05
Speaker 5: far more dramatic, and obviously Liman Brothers failing was really scary,
38:10
Speaker 5: but the actual catalyst for the GFC was falling US
38:13
Speaker 5: house prices and a rising number of borrowers who were
38:16
Speaker 5: unable to pay their loans. So Lehman Brothers obviously played
38:19
Speaker 5: pretty significantly into that space. But essentially TLDR lots of
38:24
Speaker 5: banks gave lots of people mortgages that shouldn't have had them,
38:28
Speaker 5: and what happened there is lots of people couldn't pay
38:30
Speaker 5: it back and if you can't pay back your loan
38:32
Speaker 5: on a grand scale, the.
38:33
Speaker 2: Bank has no money.
38:35
Speaker 5: And if a bank has no money, what kind of
38:37
Speaker 5: situation are we in, George.
38:39
Speaker 4: A depression?
38:40
Speaker 2: Man not Well, wasn't a depression.
38:43
Speaker 5: It was a global financial crisis, and I would call
38:46
Speaker 5: that a pretty big pickle. So it's one of those
38:49
Speaker 5: things that you know, there's obviously lots to it, and
38:51
Speaker 5: if you guys want to go further into it, at
38:53
Speaker 5: the end of the day, there were lots of markers
38:55
Speaker 5: on the way, but essentially there was a pretty big
38:58
Speaker 5: housing bubble and a lot of people that were maybe
39:01
Speaker 5: not doing the right thing that led to that. So George,
39:04
Speaker 5: it makes sense in that light if I say lots
39:06
Speaker 5: of people couldn't pay back their mortgages. And then you
39:09
Speaker 5: look at Lehman Brothers, who were an investment bank. They
39:12
Speaker 5: had subprimed mortgaged backed securities, which means.
39:15
Speaker 2: They basically backed a whole heap of mortgages.
39:17
Speaker 5: That weren't being paid back in a little bit of
39:20
Speaker 5: a pickle, and whoever it invested in them, they lost
39:23
Speaker 5: all of their money. So that is not great. There's
39:26
Speaker 5: a lot more to it, obviously, because then you know
39:29
Speaker 5: it's kind of like a domino effect in the US.
39:31
Speaker 5: But we won't go on and on. But it started
39:34
Speaker 5: to pick back up at the end of two thousand
39:36
Speaker 5: and eight because people started investing really heavily in things
39:39
Speaker 5: like gold and bonds and the US dollar and European currency,
39:43
Speaker 5: as these were seen to be much safer alternatives to
39:45
Speaker 5: the ailing housing and share market. But that kind of
39:48
Speaker 5: was that stagnation, right, You're taking your investment out of
39:52
Speaker 5: the share market, which could recover. And if we look
39:55
Speaker 5: at the share market now and we zoom out and
39:58
Speaker 5: have a big look at what that looks like, the
40:00
Speaker 5: share market has absolutely recovered. However, people get scared, they
40:05
Speaker 5: transfer their wealth, and it makes sense. But what we
40:07
Speaker 5: need is an education to put us in the best
40:09
Speaker 5: possible position. Great today, v Lord, But was there anything
40:15
Speaker 5: we can do outside of here to kind of increase
40:19
Speaker 5: our education? Any hot tips you have for us to
40:21
Speaker 5: take away today? I mean, you could head to Wikipedia
40:23
Speaker 5: and read a whole here of stuff. You could head
40:25
Speaker 5: to investor Pedia, you could head to the RBA website.
40:28
Speaker 5: You can read more on the news, but no one's
40:30
Speaker 5: going to do that. What I recommend from a personal
40:32
Speaker 5: perspective is watching the movie, the twenty fifteen movie, George,
40:36
Speaker 5: The Big Short.
40:37
Speaker 2: Ah yeah, yeah, I mean Bale Yeah.
40:40
Speaker 5: Great movie, really factually inaccurate, but essentially The Big Short
40:44
Speaker 5: chronicles the years leading up to the two thousand and
40:47
Speaker 5: seven slash two thousand and eight global economic crisis, and
40:50
Speaker 5: from my perspective, I just think it's a really approachable
40:52
Speaker 5: way to get a bit of a handle on what
40:55
Speaker 5: that actually looked like. From you know, I don't really
40:58
Speaker 5: like how the financial service is into three was portrayed
41:00
Speaker 5: in that movie. But at the end of the day,
41:03
Speaker 5: The Big Short is a pretty good movie. It really
41:05
Speaker 5: humorously kind of outlines the complicated events that led to
41:08
Speaker 5: the Great Recession, and you know, from my perspective, you
41:11
Speaker 5: could learn a lot. I mean, you're not going to
41:13
Speaker 5: become a financial advisor from it. But next week on
41:15
Speaker 5: the pod, yep, what are we doing?
41:17
Speaker 4: We are talking all about how to prepare yourself for
41:21
Speaker 4: a recession, So that'll be more hands on, full of
41:23
Speaker 4: tips and tricks.
41:23
Speaker 2: I guess exactly. I love it really.
41:25
Speaker 5: Yeah all right, well that is unfortunately all we have
41:28
Speaker 5: time for today.
41:29
Speaker 2: George King, could you wrap the boring but important stuff
41:32
Speaker 2: pretty please?
41:32
Speaker 4: Would be an honor and a privilege. Alrighty guys, please
41:36
Speaker 4: stop that. The advice yet on G's on the Money
41:38
Speaker 4: is general in nature and does not consider out your
41:41
Speaker 4: individual circumstances. She's on the Money exists purely for educational
41:45
Speaker 4: purposes and should not be relied upon to make an
41:47
Speaker 4: investment or a financial decision. And we promise Victoria Devine
41:50
Speaker 4: and She's on the Money are authorized representatives of in
41:53
Speaker 4: Focused Securities Australia Priortarily Limited ABN four seven zero nine
41:57
Speaker 4: seven seven nine seven zero four nine, APHA, Salt three
42:00
Speaker 4: six on two three.
42:01
Speaker 2: See you on Friday, guys.
42:13
Speaker 4: M