Tag Archives: dow jones

Where Have All The Good Times Gone?

Last summer, we were just coming to the realization that the economy might be in some trouble… Bear Stearns had fallen, oil prices were skyrocketing, and George W. Bush was still President. It wasn’t a good time.

We started 2009 thinking that the bad karma in ’08 was all in the past… but a quick comparison suggests that it may be rougher now compared to back then:

YOUNG LOVE
Summer 2008 Winter 2009
What’s worse?
Nick Jonas breaks up with Miley Cyrus over the phone Chris Brown breaks Rihanna’s heart… and her nose Obviously Chris Brown… you don’t send your girlfriend to the hospital, ever
POLITICKIN’
Summer 2008 Winter 2009
What’s worse?
Sarah Palin campaigning for the Vice Preisdency Tim Geithner campaigning for $789 billion Sarah Palin by a wink
CHEATING
Summer 2008 Winter 2009
What’s worse?
A-Rod and Madonna A-Rod and a syringe Almost a toss-up between infidelity and ‘roids, but the juice is illegal… so it’s got to be worse
FAVRE ME
Summer 2008 Winter 2009
What’s worse?
Brett Favre un-retires Brett Favre re-retires Un-retired Brett Favre… the last month of the season counts
BABIES R US
Summer 2008 Winter 2009
What’s worse?
Angelina Jolie has twins! Crazy Angelina wannabe has octuplets! Crazy woman… Angelina only has 6 kids compared to her litter of 14
POOF!
Summer 2008 Winter 2009
What’s worse?
$11 billion (August market cap of soon-to-die Lehman) $50 billion (Bernie) Yup, a vanishing $50 billion is worse…
THE DOW
Summer 2008 Winter 2009
What’s worse?
Down 9% from June to August, finishing just over 11,000 Down 10% year-to-date, clocking in under 8,000 Help.

Final count of crappiness? Summer ’08: 2… Winter ’09: 5

So, things are definitely not getting any better in 2009. In fact, they’re really spiraling more and more out of control, towards utter despair and desolation. But… at least we totally kicked last summer’s ass.

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It’s Beginning to Feel a Lot Like… a Recession

So it’s official: we’re in a recession. On Monday, the mere confirmation that we’re in a recession caused the Dow to drop 680 points. Did we need more proof? The auto industry has been on the verge of collapse for the past few months. Banks are still on life support, trying to raise capital. And yesterday, Harvard announced that its endowment lost 22% of its value in the past four months, or, oh just $8 billion.

And how are our harbingers of corporate America doing?

  • Google (GOOG), which was approaching $700 at the beginning of this year, is now trading at $280
  • General Electric (GE) is currently trading at $18, a ten-year low, and down from $37 since March
  • Goldman Sachs (GS) closed at $199 in May, a mere six months ago; since then, its stock has fallen 65%, now trading at $68

It is not a good time to be checking your 401(k).

It seems like the complete desecration of the stock market has come painfully fast. So, out of curiosity, I looked up some of the other recessions in this century to see if we saw similar declines in the market. According to the gospel of Wikipedia, these are the official recessions since 1929 that have lasted over two years:

  • 2001-03: Bursting of dot-com bubble, September 11, Enron and Worldcom scandals
  • 1980-81: Result of 1979 energy crisis and tight monetary policy to control inflation
  • 1973-75: High oil prices and Vietnam War leading to stagflation

From Google Finance, I looked at a four year period before and after the recession – I’ve also included the largest % declines in the Dow during this time.

recession2000

recession1980s

recession1970s

recessioncurrent1

Some things that jump out:

  • With our current recession, it’s only been a year, and the Dow has already lost 36%, or over 4,800 points. The last time it was this bad, during the 1970s, this pain was spread over two whole years.
  • Bottoming out seems to occur about 1.5 to 2 years after the high point… which means we might still have some time to fall.
  • The good thing is, in all cases, we see the Dow bouncing back a few years after we hit rock bottom… so, if we’re patient, our 401(k)s may recover their losses in a couple years.

Guess I’m waiting until 2011 to buy that flat-screen TV…

Updated (3/11/09): Four months have gone by, and Google and Goldman seem to have recovered nicely… while GE is now trading around $9. Hmm. But not to worry, the General certainly has company: the Dow is now 51% removed from December 2007, versus a mere 36% in December 2008. Again, just by looking at these graphs of the previous recessions, it seems like we’ve got at least two years to go from the peak… By my calculation, it’s looking like December 2009 may be the inflection point where the market will finally bottom out and perhaps start turning up again. With the way things are going now, I’d hope so.

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Random Thoughts on… Reason (and the Financial Crisis)

Reason: (noun): a basis or cause, as for some belief, action, fact, event, etc. Logic. (From Dictionary.com)

Reason tells us that 1+1=2. It tells us that if you leave milk out for too long, it will spoil. It tells us that cars need gasoline in order to run.

But, what if the milk spoils even though we’ve kept it in the fridge all this time? What if our car doesn’t start even though we have a full tank of gas? We might tell ourselves that maybe it’s one bad sample, or an issue with our engine. And so we get another carton of milk at the store, and we bring our car in to the shop. But this second glass of milk is spoiled too, and the mechanic says that while our car is a bit nicked up, he has no clue as to why it isn’t starting. And so we think to ourselves, what the hell is going on?

Welcome to the financial crisis of 2008.

Reason would tell us that Thursday ought to have been a good day for the markets. The Fed announced that it would cut its short-term rates by 0.5% to 1.5% (a four-year low). Because lower rates diminish the cost of borrowing (thus encouraging liquidity), usually such a move would cause the markets to jump. The last rate cut in April was only 0.25%, and the Dow jumped 100 points the next day. The previous rate cut of 0.75% on March 18 caused the Dow to jump 420 points. So, with Thursday’s cut, we could have reasonably expected the Dow to rise anywhere from 100-400 points… or, at the very least, be slightly up.

Similarly, reason would tell us that if a big, blue-chip company hits its earnings targets, the market should respond favorably. After market close on Wednesday, IBM announced that it beat third-quarter expectations and would maintain its year-end target. The stock naturally went up 6% in after hours trading. With this good news, we could reasonably expect that the market would at least calm down on Thursday, and rampant fears about tech stocks would be lessened.

Finally, reason would tell us that if the first two instances occurred (big rate cut, strong earnings from a Dow Jones stock), AND no negative news was reported–then we could expect the market to move up, or at least stay somewhat steady.

Oct 9, 2008 (Dow Jones Industrial Average)

But instead, on Thursday, we saw the Dow Jones Industrial Average fall 679 points, closing about 7% lower than it opened. We saw IBM rise and then drop, finishing right about where it was before it announced earnings, at $90. Staying flat was good comparatively, however, as the tech-heavy Nasdaq index dropped more than 5%. In the month of October, the broad S&P 500 index has fallen 22%, which means that Joe Six Pack’s pension may have just lost a fifth of its value. And all of this is happening on the heels of the $700b bailout that was passed last Friday, which should have moved the market up as well, as it was essentially a capital injection and a government promise to buy up poisonous mortgage-backed assets. So now we’re left to wallow in our shrunken net worth, and play guess-where-the-Dow-will-bottom-out.

References to the Great Depression aren't helping.What is the reasoning behind this recent freefall? According to the Wall Street Journal, “this week’s relentless selloff has been driven by deepening fears about the banking system, and the spillover effects it may have on the rest of the economy.” So, the market did not mysteriously tank on Thursday because something fundamentally bad was uncovered; it tanked because we think something bad is going on, and our thinking that it’s bad has just made it worse. We might be right, or we might be wrong–either way, it’s like we’re saying that the milk has spoiled because everyone thinks it will spoil, or that the car won’t start because everyone believes that a nicked-up car can’t run anymore. Thursday shows us that reason has taken a backseat, and our questions, fears, and now lack of greed are just leading to greater volatility and uncertainty. Furthermore, this dangerous, immeasurable force of fear also has huge implications on what the Fed, the Treasury, and Congress can do to solve this crisis. If the market won’t act rationally to potential solutions, then what’s the point?

Many in the finance industry would likely agree that our world seems fundamentally different than it was even just a week ago. Pretty soon, 1+1 might not equal 2 anymore… instead, it’s whatever we think it is. Any guesses on what that might be?

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Like Wall Street, Making New Year’s Resolutions in October

Now that it’s October, I’d like to initiate a new tradition. Typically, we wait until January to start those dreaded New Year’s resolutions, which inevitably involve working out more and eating less. By mid-January (or February, if we are especially persistent), these resolutions are mostly forgotten. After all, it takes a lot of willpower to stick with something for an entire year, especially if it involves consuming less food.

So, I propose that we do away with our old, daunting, New Year’s resolutions… Instead, as earnings seasons kicks off today, let’s model our resolution revolution (sorry) off the vaunted financial world of Wall Street. As public companies begin reporting their quarterly results, this provides a perfect framework to think about our personal goals. By taking a short-term, myopic outlook, we may actually achieve some of our new “New Year’s” resolutions. So, I present:

My Q4 Resolutions

  1. Inspired by the Dow shedding 800 points at one point on Monday, and the fall launch of my favorite Tuesday TV show, The Biggest Loser, I aim to lose 5 lbs, mostly by working out more, not eating less… OK, I’d also be happy with 3.
  2. Lay off the gum habit… I’m a pack-a-day chewer. I’ll aim for two sticks, max, per day.
  3. Read a new book a month, AND finish Tom Friedman’s The World is Flat, which I’ve been trying to get through for the past two years. By December, I will actually finish it.
  4. Do one cultural activity a month… like go to a museum, national landmark, or nature tour. It will be something that does not involve TV, drinking, or mechanical bulls at Saddle Ranch.
  5. Save more money. As Buffett says: “Be greedy when others are fearful, and fearful when others are greedy.” The market may fall some more, but that extra cash isn’t doing much good under the mattress. If I put it in the market now and wait a few years, maybe I won’t have to work so hard when I’m 30. Or maybe I’ll have lost it all. I’m hoping for the former.

It’s also important to have some easy metrics in which to judge our progress. So, my guidance for Q4 is as follows:

A measuring stick (because this space needed a picture).

Q4 Guidance

  1. Weight: -3 lbs
  2. Cavities: 0
  3. Books read: +4 books
  4. Cultural stuff: +3 experiences
  5. Investments: +5% of income

I could continue this analogy to the point where we’re creating 10-Q progress reports on our weekly weigh-ins, and asking for government assistance in times of book-selecting crises. But, I’ll refrain from contemplating how SEC regulation may impact our jiggly love handles. All I know is that come December, if I don’t hit my numbers, I hope someone will bail me out.

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