Thursday, September 18, 2008

Putting It in Perspective

It's been bad week for everyone in terms of the economy. We are seeing things happen in the financial markets and with long-standing financial institutions which resemble more the events of October 1929, not September, 2008.

It's been particularly brutal on Wall Street with the Dow Jones daily average losing close to 900 points total on two different days this week, before rallying more than 410 points today (Thursday) to close at 11,019.

Right now, no one knows for sure what the future, or even tommorrow or next week holds for the economy and the markets. But it is interesting to look at these things from the perspective of our years at Vanderbilt from 1969 to 1973 (even though I am fairly sure very few, if any of us, paid much attention to the stock market during these years...OK, maybe Bill Spitz). :)

If you were paying attention to stocks, here's what you would have seen:

The Dow Jones Averages:

1969 High 952 Low 769

1970 High842 Low 699

1971 High 950 Low 790

1972 High 1036 Low 921

1973 High 1051 Low 788

Notice first, how very much lower the range of stock averages were then than they are today (trading in a range of 769 for a low to 1051 for a high in those days, compared stocks averages above 11,000to 12,000 in recent years).

Clearly what we've told for years has been true (at least over the last 39 years): investing for the long term does pay off as the economy grows and expands.

Also notice that in our first two years at Vanderbilt, stocks dipped in average, closing in 1970 below what the market had done in 1969 for both highs and lows. And while the decline in raw numbers looks almost insignificant today, remember what a smaller range of overall stock averages were in play back then, and you can see that perhaps the 110 point differances in high water marks for stocks between 1969 and 1970 was quite significant to the overall value of stocks (and if you'll recall those years were a somewhat difficult time economically).

Also notice how stocks rebounded so well in 1972 and 1973, with highs above 1,0000 (for the first time in history I believe) and even the stock lows in those years were better than all but one other year during that period.

Now none of this is meant to be an endorsement or a condemnation of any one's ideas about how (or how not) to reform or change Wall Street in the wake of its current difficulties. But maybe it will help me feel a little better (and have a little hope for the future) the next time I get my 401K statement. :)

Don't forget to take a chance and enter the Vandy trivia quiz a few blog postings below. We still have two nice prizes from the Vanderbilt Reunion Office left to give away.

And to make it easier than an open book exam, the correct answers are listed in Steve Womack's winning entry which you can find in the reply area of the quiz posting. And that's where you can leave your correct answers as well.

Oh, if some of my Vanderbilt exams had just been this easy!


Steve said...

Hey, what about the honor code?

Copying MY answers. now that's desperate!

Looking at those Dow Jones Averages from 1971, remember that was the beginning of Inflation...running at 5-6% per year. That Summer we had Nixon's Phase One, which was a 90 day wage and price freeze. Phase two took us off the Gold Standard, and allowed only government approved rises in prices and wages.

This took us through 72 and 73 when Prices took off and wages remained the same. Watergate happened, the Vietnam war ended for our ground troops, and most people didn't notice inflation kept hanging in there at 5 to 6%.

We graduated, there was a middle east war. OPEC was born, gas was rationed as the price went up 2 1/2 times in six months. The dollar fell, and Gold skyrocketed.

35 years later the numbers on the Dow are up by a factor of 12.

Following that logic we'd be paying $4.80 for a gallon of gas today...come to think of it, I saw prices like that last week here in Macon.

Lest we forget, the economics of the 1970's were pretty wicked. Being newly minted in the job market, most of us thought of that as normal. Now we look back on our adult lives and realize, as bad as we think we have it now, 30 to 35 years ago, it really was a whole lot worse.

Food for thought. Hey buddy can you spare a dime?

Steve Womack

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