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Dow Jones Ends Third Quarter With a Whimper

Third Quarter Features Highs and Lows During Volatile 90 Day Span

September 30, 2007       Leave a Comment
By: Jerry Cole - Retirement, Investment

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The market ended the third quarter in a whimper. The Dow Jones Industrial Average closed down 17.31 points to 13895.63 on Friday, but was up 3.6% for the quarter. It was quite a remarkable quarter at that however, after hitting an all-time high on July 19, then falling almost 10%, and then recovering virtually all of those losses.

The dollar is falling relative to other currencies, which could be a worry for the economy, but in the meantime is great for exports. The Canadian dollar is now on par with the U.S. dollar. When measured against a group of other currencies, the dollar is at its lowest point in over a decade.

Usually the dollar decline is not bad for stocks. It makes conditions easier for exporters, and lifts overseas earnings when they are converted back into dollars. A weak dollar also supports commodity prices, including crude oil. Although oil prices slipped Friday (probably on some profit taking), contracts for November delivery are at $81.66 a barrel, up 15.5% for the third quarter.

The cut in interest rates the Fed gave us recently will surely ease some of the pain many have experienced. But it also has raised the prospects for inflation. Actually, PROSPECTS is not a good choice of words. I filled my car's gas tank yesterday and paid $2.979 a gallon for a total bill of $52.70! My utility bill is up over 10% in the last year for the same usage. Food is up around 10% from a year ago. I won't even discuss what a glass of my favorite adult beverage costs today.

So we may have to be ready to digest oil prices reaching $100 a barrel. This, by the way, would not be an all-time high when adjusted for inflation, but it is pretty close. The record was set in 1980 and was more than $101 a barrel in today's dollars. However, tight oil supplies and the weak U.S. dollar suggest that oil prices have further to rise from today's prices.

When you put the high oil prices on top of the housing slump, it seems the consumer will have to slow down his spending. Consumer spending has been the main engine of growth in the U.S. economy and represents two thirds of the gross domestic product. The retailers such as Target have already adjusted their sales estimates downward for the remainder of 2007.

Some analyst however, believe the subprime issue will not have a significant impact on the economy. The strong global economy and the very favorable corporate earnings results far outweigh any negative pressure to the credit markets as a result of the slowing-down in real estate. The balance of payments has turned more favorable because U. S. exports have improved significantly.

Again, we have to keep our risk within our tolerance and keep ahead of inflation. This takes constant vigilance.

I invite your questions.

Or Contact Jerry Cole at:
509 Center Ave, Suite #102, Bay City, MI
(989) 892-5055

(The opinions expressed are solely those of the author and not Gen worth Financial Securities Corporation.)

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Jerry Cole - Retirement, Investment

Jerry Cole has been a Financial Planner for almost 30 years in the Tri-City area and holds and MBA from USC.
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