Question: Slater and Gordon (SGH) is under $1 as I write (the shares have since closed at $1.27) on the news of changes to UK legislation affecting motor accident claims. Surely SGH has to be worth more than this, even with the Quindell and ASX enquires still to report. What is happening to this stock?
Answer (by Paul Rickard): I am tempted to buy, but it will come down to the short sellers. Today’s ASIC figures show that 13.68% of the shares are short sold. If they decide to cover, we may have seen the bottom. See my article today on the lessons learnt from the Slater & Gordon fallout.
Question: If a technical recession is two negative quarters in a row, could you please tell me what are the numbers relative to? For example, if the first quarter is up 2%, what is the next quarter judged against, and does it have to be minus 2.1% to be negative, or just 1.9% (i.e. lower than the first).
Answer (by Paul Rickard): It is a convention, rather than a hard fact. The convention is two consecutive quarters of negative growth.
In Australia (at least), growth is measured relative to the previous quarter’s outputs (incomes, expenditure, production).
If one quarter is say -2.1%, and the next quarter is perhaps +1.9%, while growth for the half-year might be marginally negative, that doesn’t make it a recession. It would be deemed a recession, for example, if the first quarter was -0.1%, and the second quarter also -0.1%.
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