New Posts on Wednesdays and Saturdays -- er generally

Sunday, March 29, 2009

The DOW means what exactly?

This is another of those things that I am writing about because I don't understand it, not because I do. How did we end up with the Dow determining most people's ability to retire? Who gets the money that goes into it? When it goes down, does it impact the corporations represented there? Does it have real meaning for how well the economy is doing or is it somehow separate? So many of us have our retirement tied to it-- what is it?

It's easy to read something like that and get a general idea of how they compute the Dow but still why does it matter so much? I have seen times where the unemployment rate went down and the Dow went into a panic of selling (nothing like we have seen the last year). So unemployment isn't what determines the Dow. A certain level of unemployment evidently keeps wages down maybe?

Obama may have little control over the Dow but who or what does? Farm Boss was explaining some of this to me that with these Hedge Funds, they have to keep a certain level of liquidity. When they see the values of their stocks going down, they have to sell to get more money and what does that mean for the value of my stocks?

It is not something I have liked even thinking about. Money and economics are not the kind of thing I understand well nor care about beyond can I afford to buy something I might want/need. Suddenly care or not care, I am being forced to look at a part of American life that is mysterious to most of us.

Was the stock market always overpriced? Has it lost real value or was it a bubble that made people think they were making money? It has always been a little screwy to me for how it was supposedly going to work. So I invest $10 and expect to get $2 profit for doing that. Now that wasn't a real product I made. I helped someone else make one-- theoretically. Was a $2 profit a reasonable expectation on my contribution to productivity? A lot of investors expected that or more. They saw the stock market as a money tree requiring nothing from them after their initial contribution.

What has made the Dow collapse and what is it waiting for before it begins to build again-- or will it? All the people who sold out, will they then lose what they had in it for not waiting while someone else profits from their panic? Can it go so far down that it totally collapses? Is a total collapse possible?

This is a very insecure time and I am not sure what the Obama administration can do about the Dow (if they even wanted to). They might be able to help create jobs, give businesses a boost if they can get health care costs off their backs, but if the government goes more deeply in debt, what will that mean for all of us?

Here's something to think about for those who got out of the market or never were in it: Could our banks go so far down that the FDIC cannot actually cover their collapses (that warning went out in March)? In our wanting to prop up the stock market maybe we need to be sure we aren't sacrificing our future savings security with a government no longer able to cover bank losses. Keep in mind that no bank keeps all the money deposited there. To be able to pay interest, have a profit, it loans it out. If people all want their money, it's not there. Most banks now warn you if you want to withdraw very much they want a week's warning or more.

What makes me so distrusting on any of this is the warnings before and during Vietnam. If it collapses, all else goes with it. Dominoes, they said. Well we got out of there, Vietnam became again one nation and seems to be prospering. Are we hearing more Chicken Little right now but this time the sky is falling? The wolf really is at the door but by crying wolf so many times, we no longer have the energy to deal with it?

(I am in Tucson, had a good trip down even if that many hours in a truck wears out a person my age. For the next three blogs I will use the subjects on economics as I think they are important ones for us all to be thinking about. The photo was in central Nevada. Between my monitor here and the laptop, I can't decide if this photo makes me look short and wide or okay but I like the colors and the memories of the place where the photo was taken. They come from the years of not much money and a small vacation trailer. With our small children, we would stop here as it was a free over-nighter, not sure how safe it'd be today as I didn't see anybody staying there. The kids loved playing in the dust and at the picnic table.)


Kay Dennison said...

Thanks!!!! I don't understand the Dow either. Economics for me is: do I have money? If the answer is yes, I am happy. If the answer is no, I am not.

You look like you!!!

OldOldLady Of The Hills said...

I understand less and less about what is happening with The Stock Market...not that I ever REALLY understood it...But, I think "Hedge Funds" have caused terrible problems that have changed a lot about The Markets ability to be stable....
I know you so enjoy Tuscon and I hope you will be posting some pictures of all the Beauty there...!

bernie said...

The DOW, what is it? Well, I can start the ball rolling. The DOW is a collection of companies who change of value changes as stocks are purchased and/or sold on a real time basis. The prices of the stocks are determined by supply and demand. Some of the things that effect stock prices are, potential sales of goods, merchandise, or services. If some company has the potential to make money in the next quarter, the stock analysts will rate the stock a buy stock and some of those people who research the future of a comapany will buy that stock. The purchasing of a stock then reduces the number of shares of stock and perhaps the value of the stock will rise. If less business is forseen, the value of the stock reduces. That is very rudimentary indicator. The DOW is a stock market that was developed very early in the stock market. The Wall Street Journal was a reporting media for the stock exchange. Well, that is a poor explanation, but it gives you an idea of who you are talking about