Dow Jones Has 4th Losing Week in a Row
Blue Chips Now Off 16% For the Year
July 13, 2008
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By: Jerry Cole - Retirement, Investment
A plucky bounce late Friday lifted the Dow Jones Industrial Average above 11,000 after it had plummeted below that threshold for the first time in two years. At one point earlier in the day the Dow was down nearly 250 points before recovering to close down 128.48 points at 11100.54. The blue chips ended the week off 1.7%, its fourth straight losing week and now down 16% for the year.
A combination of re-surging oil prices brought on by missile test firings by Iran and worry over the financial health of Fannie Mae and Freddie Mac put a cloud over the market and kept anxiety among investors high. After falling almost $10 a barrel earlier in the week, oil prices hit an intra-day record on Friday of $147.27 before settling at $145.08 a barrel in New York.
A lot of volatility to be sure, but is it signaling an end to the fever grip the market's been in for the last 9 months? The financial crisis seems to be deepening with the fall of IndyMac bank which was seized Friday by federal regulators. And housing prices have not as yet reached their bottom. Discussions at the Treasury highlight the dilemma created by the financial crisis where any bail-out of large financial institutions by the U.S. government may only serve to further poor judgments and actions by lenders and borrowers alike.
But, as always in times like these, some see opportunity and make investments that often prove to be very profitable when conditions return to more normal. Consider for example that on Thursday it was announced that Dow Chemical Co. bought rival Rohm and Haas for $18 billion. The purchase price was $78 per share which represented a whopping 74% premium to Rhom and Haas's closing price of $44.83 per share the day before. And who provided some of the financing for this investment but none other than Warren Buffett's Berkshire Hathaway. Now you have to admit that Mr. Buffett has a record of knowing value when he sees it, and rarely is accused of over-paying.
The point is the U.S. has been in any manner of crisis over the years. Yet it has always weathered the storms and continued to grow and add to its strength. However, with respect of investments this doesn't mean you should have blind faith in the system and just hold on to your present positions and all will come out o.k. The economy is a dynamic beast which is always changing. You have to be ready and willing to change with it. This means recognizing opportunity when it presents itself.
At the last shareholders meeting for Berkshire Hathaway, Mr. Buffett made the statement that he would welcome a dip in stocks he owns so that he could buy more at the cheaper price. If you are in the accumulation phase of your investing life, a bear market is a time to add to your investments This sounds easy, but it is not. As Mr. Buffett has pointed out, investing is much like dieting: It is simple but not easy. Everyone knows what it takes to lose weight. (eat less, exercise more.) Nothing could be simpler, but things are harder in a world full of chocolate cake and potato chips.
In the meantime, be sure to keep your risk within your tolerance and keep ahead of inflation.
I invite your questions.
Or Contact Jerry Cole at:
(The opinions expressed are solely those of the author and not Gen worth Financial Securities Corporation.)
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