Do You Follow the DOW?

If you are in business, have a pension or retirement plan, or are an investor, then DOW or the Dow Jones Industrial Index is part of your everyday vocabulary.

If you watch the News on Television, listen to the Radio, or view News Online, then you know the daily DOW numbers are reported all the time, often many times during the day.

A change in the DOW results in a great adrenaline rush. When the DOW goes down, the National Public Radio program, Marketplace, plays the song Stormy Weather. Lately there's been a lot of Stormy Weather and DOW has been falling from its recent 11,000 highs down to 10,100s.

In Feb 24, 2009 we wrote Dow Up, Dow Down! What Does It All Mean? At that time the DOW was at 7100 and a crash was apparent. So 11,000 or even 10,000 is better than February 2009. The DOW has increased by more than 50% since those lows. For what's behind these numbers click on the article.

The DOW is made up 30 carefully selected companies, selected by the Wall Street Journal editorial boards. These stocks are highly valued and fairly stable, but when General Motors and Citigroup dipped below $10 a share they were removed from the DOW and replaced by Travelers Companies and Cisco Systems.

When we want to know what's happening on the DOW, we check out 2 websites that are particularly good. The first site is Bloomberg.com where there are updates every 15 minutes and it lists ongoing activity for the 30 DOW stocks that make up the Index. (It also answers the reference question, What companies make up the DOW Jones Industrial Index?) The second site we like is MarketWatch.com, where it gives you minute by minute trading results and fluctuations on the DOW (not for those with heart conditions if volatility causes you great concern) like a ticker.

All kinds of people try to figure out what these ups and downs mean and commentators make regular prognostications. But there are no fixed answers and all the activity feeds into those fascinated with numbers games, statistics, and real life gambling.

When the DOW closed today at 4 pm Eastern Time, it had fallen to 10,068, 376 points from the previous day's closing of 10,444. Does this mean crash or correction or nothing at all? Such is the Market and only Time will tell its ultimate effects. But after 2008 the economy did go into a dramatic spin and now foreclosures, state bankruptcies, 9.9% unemployment rates, and dramatic 1st quarter 2010 profits were the effect. And financial reform after 2 years has still not happened.

Dow Up, Dow Down -- What does it all mean?

It's no secret! We're in an economic crisis of great proportions. But it's really hard to get an uncluttered answer about what essentially needs to be done to bring about stability.

In politics we get an overwhelming Republican No on the President's stimulus plan. An almost equally overwhelming Yes from Democrats on the plan. Result: Well there are more Democrat votes than Republicans. So a stimulus plan exists. That works both in sports and politics.

Does that cure the situation? We'll have to wait and see. Meanwhile other initiatives to stimulate banks and release of credit do not appear to be working. General Motors and Chrysler have once again asked for more billions and AIG is back asking for more government assistance.

Meanwhile, yesterday, February23, the Dow Jones Industrial Average and the NASDAQ (National Association of Securities Dealers Automated Quotation) fell to lows not seen since 1987. Today they are going up once again. Are these indexes accurate measures of the state of the economy? The answer is not self evident. What the Dow and NASDAQ show is Investor Trends and investor confidence or lack of confidence in the marketplace. All are looking for answers and coming up with more questions. (There are no simple answers.)

Meanwhile companies listed in The Dow may give us some idea of the strength of the economic recession. The Dow is made up of a select group of companies numbering just 30, whose growth and decline are critical to the marketplace, according the editors of the Wall St Journal, who select these companies for inclusion in the Index. (For a discussion of how the Dow is composed and points calculated see Investopedia's article here)

What companies, listed in The Dow are in trouble? They are names in the news -- General Motors, currently trading at $1.77, Ford Motor Company at $1.73, General Electric at $8.85, Bank of America at $3.91, Citigroup at 2.14, Alcoa at $5.81. Faring not much better are Intel at $12.08, American Express at $12.20, Pfizer at $13.41, Walt Disney at $17.56, Microsoft at $17.91 and Home Depot at $19.97. Other companies such as Proctor and Gamble, IBM, Wal-Mart, McDonald's, Coca-Cola, Exxon and United Technologies are doing quite well. These companies form the Dow Jones benchmarks for the economy. As these companies trade lower and lower so too does the Index itself go lower. A little over a year ago The Dow was over 14,000 points; today it's at 7100. A company by company, minute by minute watch of the Dow Jones Index, may be viewed and monitored on Bloomberg. (Just click on the link.)

These are bargain basement prices for these companies. Obviously millions of investors have shed their stocks in these companies and have experienced great losses. For those who have never owned stocks due to high prices, now might be advantageous. In this kind of climate it takes a bit of courage to put your own money on the line. Do you think GE, Ford and GM will be around, that the banks are still critical? When stocks cost less than coffee, they do provide an option. With prices this low, it becomes a little easier to see why government involvement is necessary and practical, if not mandatory.

Two books from the recent past can now be seen as cautionary in the wake of the former bubbles that have now been burst thoroughly: Robert Shiller's Irrational Exuberance and Maggie Mahar's Bull! A History of Boom and Bust, 1982 to 2004; What 21st Century Investors Need to Know About Financial Cycles. Both of these books may be found at the Berkshire Athenaeum and other public libraries.