Recession to be longest since WWII

Here’s a fact that I didn’t know (hat tip CNBC), and it is worth considering as one looks out at the prospects for 2009 and 2010:

“If [the recession] lasts into April — as it almost surely will — this one will go on record as the longest in the postwar era. The 1981-82 and 1973-75 recessions each lasted 16 months.”

While we wait for Bank of Canada Governor Mark Carney to update his “Growth by Q3” forecast, I’ve been doing some straw polling myself. At the Blakes law firm seminar last Thursday morning (500 people attended a breakfast on financing), I asked the panel of bankers, lawyers and CFOs if any of them had any anecdotes that would support the idea that the economy will start to grow in about 15 weeks.

None did.

Within our own portfolio at Wellington Financial, there appears to be a basic stability right now that doesn’t entirely reflect Warren Buffett’s “the economy fell over a cliff in January” perspective; his focus is definitely on the consumer. One V.C.-backed software portfolio company of ours signed up two new big-time licence customers this year, despite shrinking their sales and marketing team a bit in 2008 to adjust to the new economic and funding reality. Several of our companies actually beat their forecasts for 2008, and are still projecting growth for 2009.

At Nexient Learning, our national training company, many courses are very suitable for skills upgrade, particularly in Information Technology and Business Leadership Skills.

For all of the appropriate doom, business-to-business transactions are still carrying on. Some IT budgets are still sitting fallow, however, as CFOs wait to see where things are going before releasing funds.

Mobile players (software and services) are still seeing lots of action (consistent with prior post “Vision Critical survey on wireless usage” November 11-08), as consumers appear hooked on their cellphones and smartphones. The fact that so many Canadian companies in the mobile space have sold their wares around the world and diluted the impact that any one carrier has one their top line doesn’t hurt.

As much as one worries about what a five year recession would look life, I’m prepared to say that the U.S. banking crisis is closer to the end than it is to the beginning. There will be more asset writedowns, which will lead to more losses. But Citibank (C:NYSE) shares are off 95% in a year. If the U.S. Treasury puts much more capital in, they’ll become the largest shareholder. Just as they are with AIG. Nationalization will happen selectively, and no one will care. Goldman CEO Lloyd Blankfein is wrong when he says it’s not “a good solution”.

They’ll just be delighted to have the problem solved.

In Canada, we are seeing different behaviours. And they should worry the likes of Mr. Blankfein. The wrong solution is for the Canadian government to throw more money at a Crown Corporation (as they are doing with the Business Development Bank of Canada) and to have it directly compete with the private sector for business that the private sector wants to do. Canadian businesses aren’t well served by more cheap money; isn’t that one of the stupidities that got the world into this mess in the first place? Cheap debt?

What a great strategy to put the private sector out of business over the longer term, and there’s no evidence that it’ll shorten the Canadian recession in the meantime.

Dumb, dumb, dumb.

If the Feds want to shorten the recession, they should be lending where no one wants to tread. Competing with the private sector is cockeyed public policy.

MRM