One year ago, on October 9, 2008, the New York Stock Exchange -- Dow Jones Industrial Average reached its all time high closing price of 14,164.53.
Today, the New York Stock Exchange closed at 9,447.11, a decline of 4,717.42 points in one year, or a loss of 33.3 percent – one third of its value over the past year!
Tuesday, October 7, 2008
just an observation
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9 comments:
One might call that a SIGNIFICANT market correction....
What's your point Sue?
What's my point? I don't quite know yet -- I'm still mulling it over, and hoping for thoughts from others. But what comes to me is something to the effect of what does it all mean? What do these numbers really mean? What are they really a measure of? Is the U.S. economy really one-third of what it was a year ago? Do people have one-third less needs, or one-third less of labor capacity, or one-third less resources to produce with?
Sue: It depends. For the most part it is just paper (err, electrons???). To the companies whose stock has been devalued, it really doesn't mean much (probably). To the people who owned that stock (IRA's, 401K's, 403B's, pensions, state governments, etc.) it means their holdings are worth less (if they were to sell them). For people who depend on dividends for income it might mean less income -- not because the stock market declined, but because the credit markets have tightened (which is what the bailout was all about in the first place). To a large extent, the decline in the stock market is an indicator of the perceived value of the corporations represented by the various averages that we equate with the "stock market." I'm happy to say that although the DOW Averages were down about 1/3, my small holdings are only down about 7%. It really means nothing though unless I were to liquidate those holdings.
The stock value of a company does affect their ability to borrow funds -- which in a tight credit market could be devastating to some of those companies and their owners (stockholders). The stock market should be a good indicator of value but it sometimes is not. Sometimes it is merely an indicator of perception of value -- which in marketing is everything.
Time has an amazing way of healing many things -- even the stock market. Diversification into "recession proof" industries is always prudent. Most people failed to make that adjustment a couple of years ago when the indicators said they should. Greed goeth before a fall (or is that pride? -- maybe they're the same????).
I guess that I'm one of those naive ones who believe that the fundamentals of our economy are still basically sound. Our markets are inflated due to liberal credit policies over the last many, many years. An adjustment in valuation was needed. The ones who will be hit hardest though are those on a fixed income tied to the stock market (many retirees). [again, not because of the stock market, because of the credit market]
I'm one of those naive ones who believe that the fundamentals of our economy are still basically sound. I'm glad you said that, because, I agree with that, although suspect that I mean something slightly different than you mean. I think we have a well trained, hard working productive workforce, and we have a wealth of natural resources, and well developed scientific and technological base that will allow us to exploit new sources of energy, develop more efficient ways of doing things, living our lives. What to me is not sound is the way in which our economic processes are funded and decision-making about what to fund and what not to fund, is handled -- which to me is the financial crisis and the stock market crisis represent. The process by which capital is made available to get work done, the way in which pay is distributed ($5 million dollar salaries to CEO's and CFO's and eroding wages and benefits in the middle), is what is rotten and should be changed. While you probably agree with me on the first part of that (I in fact just heard Senator McCain say exactly the same thing live in Nashville while I was typing those words), I suspect that my views about the capitalization and pay structure are things where we do not agree.
Sue: You might be surprised at my thoughts on pay structure. The difference, I suspect, between you and me, lies in the mechanism we would choose to better allocate pay.
As to capitalization of business -- we need to get the government out of it as much as possible. I think that we now have such a bastardized system that it no longer works. Some areas of our economic system have too much government interference while other areas lack proper enforcement of appropriate regulation. It all stems from the way the lobbyists influence our legislators. Until we have reform in Washington we won't have proper reform on Wall Street and the folks on Main Street will continue to bear the burden.
I do believe that although the system is in desperate need of repair, individuals still have the opportunity to succeed. It requires hard work, perseverance and delayed gratification. That last piece is the most difficult for most people. In a society awash in the message of instant gratification it is difficult to buck the peer pressure. However, it is each individual who must choose. Those who choose wisely can do quite well. It is a worthy task for educators such as you to help shape that idea in the minds of our young people. We need to teach personal responsibility and not seek blame for society's (or the economy's) ills.
Sue,
Are your students expressing any anxiety about paying for school? While there's so much focus on housing (and rightly so), I think financing higher education is worth serious attention as well. Since most people finance their education with loans, and since banks are finding themselves short on capital, this seems like another area where the middle class is getting squeezed.
Yes, my students are expressing some anxiety, but probably not as much as students at more expensive colleges and universities. The cost of attending a community college in Kentucky, while slightly above average for community colleges nation wide (due to lack of state and community level financial support) is still several hundred dollars below the maximum Pell Grant. Because we draw from a very low income population, about 90 percent of our students qualify for Pell Grants. As a commuter school, my students primary concern is the cost of gasoline rather than the cost of tuition, and secondarily the cost of books.
Sue,
Thanks for your kind and supportive comment on my blog JimsWordsandPhotos regarding my response on Blue Island Almanac.
I'm sorry I didn't respond to your comment sooner- I didn't realize I had published anything yet on JimsWordsandPhotos, so I never checked it! Apparently I'm multitasking just a little beyond my capabilities. :)
Most of my work in the bloggosphere is found at
Chemistry for a sustainable world and
Nearly nothing but novels.
Best wishes, Jim
i need a question answered please. which is a safer investment for me, putting my money in the stock market or betting on maryland football?
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