Toronto’s main indeed dropped 98.87 points, or 0.87 per cent, to 11,196.06, down more than 400 points for the week. Eight of the 10 sub-indexes fell Friday, led by a steep decline in materials as Canadian gold stocks played catch-up (Canada Day holiday Thursday), from Thursday marked gold’s biggest one-day fall in five months.

Stateside, the Dow Jones industrial average closed down 46.05 points, or 0.47%, at 9,686.48, its seventh consecutive drop. The Nasdaq composite index was lower by 9.57 points, or 0.46%, at 2,091.79.

For the week, the Dow was down 4.5% and the Nasdaq was down 5.9%.

The U.S. Labor Department said Friday there were 125,000 fewer jobs in June than the month before, though the unemployment rate fell to 9.5 per cent from 9.7 per cent due to fewer people seeking work. The job losses were within the range of most economists' estimates. There were 83,000 jobs added to the private sector.

While private employers added 83,000 jobs last month, it was fewer than the 112,000 analysts had forecast.

So why the sell-off? The problem boils down to the overly optimistic run World markets embarked on since the March 2009 lows which appeared to anticipate a “V” shaped recovery.

For the past six to eight months we have clearly stated that a “V” shaped recovery was very unlikely and have taken profits as stocks appeared pricy, building in the best case scenario following the recession. At this point, investors have begun to identify this reality and now fear a double-dip.

We are of the opinion that a double-dip is a possibility, but not necessarily a global double-dip. In other words, there are certain areas of the World (Europe comes to mind), that seem more suceptable to these pressures than others (China and India come to mind). As such, the sell-off is beginning to produce some bargain hunting opportunities and if it heats up, we will see some babies inevitably thrown out with the bath water.

While we do not expect to see the same type of bargains we saw in late 2008 and early 2009 over the next 6-months, we will look forward to scooping up some long-term opportunities as they present themselves.

Looniversity - Recession vs. Depression

There is an old joke among economists that states: A recession is when your neighbor loses his job. A depression is when you lose your job. While it can receive a chuckle in boom times, of late, it has become a great way to clear a room.

The difference between the two terms is not very well understood for one simple reason: There is not a universally agreed upon definition. If you ask 100 different economists to define the terms recession and depression, you would get at least 100 different answers.

While unpopular to 99 of those 100 economists, the standard definition of a recession is a decline in the Gross Domestic Product (GDP) for two or more consecutive quarters. Before the Great Depression of the 1930s any downturn in economic activity was referred to as a depression. The term recession was created in this period to differentiate periods like the 1930s from smaller economic declines that occurred in 1910 and 1913. This leads to the simple definition of a depression as a recession that lasts longer and has a larger decline in business activity.

A good rule of thumb for determining the difference between a recession and a depression is to look at the changes in GNP. A depression is any economic downturn where real GDP declines by more than 10 percent. A recession is an economic downturn that is less severe.

Put it to Us?

Q. What is the strict definition of a “double-dip recession”? .

- Marina Coyle, Toronto, Ontario

A. In many respects, there is no strict definition of a double-dip recession, but generally economists classify it as a period when gross domestic product (GDP) growth slides back to negative after a quarter or two of positive growth. In other words, a recession followed by a short-lived recovery, followed by another recession. The causes for a double-dip recession vary but often include a slowdown in the demand for goods and services because of layoffs and spending cutbacks from the previous downturn.

Recently, economist have also put forth the proposition that a double-dip is akin to a continuous recession that’s punctuated by a period of growth, then followed by a further decline in the economy. Are we in store for this scenario over the next year? There are certainly signs that point in this direction.

Again, in terms of a definition, there is no mathematical formula; for economists it ends up being a judgment call. Perhaps this is why many quibble with the “science” that is economics.

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