A decade of Dow

 

Call it curiosity or joblessness, today I decided to spend few hours looking at the Dow Jones Index data for the last decade. I have no stake in any US stock, but my objective here is to understand the magnitude of impact of any event on the stock market. Though doing this exercise on the Sensex would have made more sense to me, I figured that finding data and information on something that is US based is probably faster than its Indian counterpart. 🙂 

Thanks to MSN, I got the Dow Jones Industrial average data for the period Oct 1998 to Oct 2008 within seconds. I marked all the major high and low points in the graph (in blue). And a mouse over feature on MSN helped me find out the dates and correspoding closing values of the index. That data, in turn was used to create the left side of the table below the graph. 

The right side of the table shows information collected on the events that coincide with the corresponding high-low points. These events have been gathered from google searches which resulted in articles and news reports relevant to the months/indices in question.

 

 

 

The first row of the table shows an important event that is not marked in the chart. 1997 saw turbulence in the Asian market that affected the world markets. The major event was the fall of LTCM hedge fund and default by Russia which led to a major financial crisis. Prior to that the US economy, since 1992 was on a Clinton Bull Run. The Dow was at around 4000 when Clinton took office and went on to hit 12000 by 1999.

Bush took office in 2000 and for the next 3 years a series of major events of all kinds – social, economic and financial, resulted in a very erratic market behavior. During that period, Federal interest rates were cut multiple times resulting in very cheap credit. Slowly, the housing mortgage market began growing. Internet and technology companies continued seeing good boosts and grew at phenomenal rates.

The Bush Bull Run from mid 2003 to 2007 was initially marked by the capture of Saddam Hussein. The same period saw tax cuts and rise of internet giants like Microsoft and Amazon. General confidence in US market started growing and companies across industries did well. The Industrial average index saw new Tech companies being a part of it. The year 2005-2006 saw setbacks that had impact on oil (in the form of hurricanes Katrina and Rita) and uncertainty (due to change in Fed Chairman). However those were minor and the general trend was bullish.

The subprime mortgage credit crunch that we talked about in previous posts, characterizes the major dip since end of 2007. As you can see, the fall till date is a very steep one. And every other day marks a new record of historic importance. The past year has seen a tumble of about 7000 points which is more than the points gained in the Bush Bull Run.

While there is no particular conclusion I can or like to draw from this post, I am wondering if I can do something with this and my earlier post about technical analysis and make some predictions. Well then, I guess the agenda for the next post is set and if it doesnt work, I’ll go on and do the Sensex version of this one! 🙂

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Greasy affair – Oil prices and economies

 

I try my best to understand international affairs, economics and foreign policies but sometimes I simply don’t get it. Are policies formed and strategies built to make life easier for people or what?

Take a look at the latest global oil crisis. Oil prices are at an all time high. People all over the world are suffering (except probably the people in OPEC). Within and amongst countries the blame game is on about increasing demand, falling supply, declining production initiatives, and so on.

Saudi Arabia (which is the largest producer) says it will increase the production to meet higher demand; US blames its oil companies for making windfall profits and still not doing anything about the prices; the companies in turn say they are reinvesting the profits for exploration. Meanwhile US imports of oil have risen to 65% of its total consumption (witness yet another George Bush-ism – “It is clear our nation is reliant upon big foreign oil. More and more of our imports come from overseas”)J ; India, China and other developing countries are being pointed at for their outrageously (!) high quantities of oil consumption; suddenly press and people of the developed nations are accusing Governments for not being concerned about developing other sources of energy.

Interestingly, the story in India goes like this – In spite of the record oil prices abroad, Indian oil companies in the public sector are on the verge of bankruptcy. The Government decides to subsidize fuel prices, which means that the petrol sold by the likes of IOL and BP in India, is much cheaper than the petrol sold by Chevron in the US; meaning, IOL makes a loss every time it sells fuel to the Indian public.

When oil prices went up further, the Government had no choice but to hike the prices by an average of 13% at one go which came under sharp protests by the Opposition. Between soaring prices and subsidies from PSUs, the private players like Reliance are having a tough time too because if they don’t lower prices, they remain uncompetitive. With oil prices still soaring, the Government’s lack of nerve (in view of coming elections) to remove subsidies, the PSU oil companies road to bankruptcy and the private players not able to do anything, there is no doubt that the economy is in turmoil. Rate of inflation will soar, stock markets will suffer and the dream run part II of the sensex will become more and more elusive.

All said and done, the fact still remains that there is no short term solution for high oil prices and at least 90% of the world’s population is suffering from it. Given this, I can’t help wondering, “Why can’t we just lower the prices? I mean, what’s the big deal? If everyone faces the problem, nobody would not want to see the prices go down, right? So let’s just bring them down!”

Alas, if only it were that simple.

When such crises occur, I think Governments everywhere can(rather, should) learn some lessons – about making compromises, about understanding the importance of being interdependent, about reminding them that they are representatives of a large population and that there needs to be a human aspect to everything.