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Some Perspective on the Dow Jones March 4, 2009

Posted by Kate Ryan in Barack Obama, Economic Stimulus, Economy, National Politics, Wall Street.
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Dow Jones Historical Performance
Dow Jones Historical Performance

Jim Cramer, host of CNBC’s “Mad Money”, is having a bit of a pissing contest these days with the Obama administration and Press Secretary Robert Gibbs.  Commenting on Cramer’s assertion Monday that the recent losses in the stock market represent “the greatest wealth destruction I’ve seen by a president”, Gibbs told the Washington press corps “No offense to my good friends, er, good friend at CNBC. But the president has to look out for the broader economy and for the broader population, many of whom are investors, but not exclusively.”   Gibbs’ statement, of course, prompted Cramer to say on “Hardball with Chris Matthews” yesterday that when a man is drowning you have two choices..throw him a life preserver…or throw him an anvil.  Well, look out, we got the anvil.”

The sickening drop in the Dow is alarming, especially for those Americans who no longer have defined-benefit retirement plans and must rely on what their 401K’s earn in the market.  Jim Cramer, who is well known for his histrionics, should be more careful about fanning the flames of those fears.  We need to all take a deep breath and get some perspective here.

First of all, it is not President Obama’s policies that caused the current bear market.  Indeed, most Americans tend to agree with that view according to an NBC-Wall Street Journal poll released yesterday.  Eighty-four percent of Americans know that the President inherited this crisis.  If you look at the data, the Dow had already lost 37% in 2008.  Many small investors were virtually wiped out before election day, and certainly before Christmas.  Theirs is not the wealth that is bleeding these days.

As of 2006 (the last year for which I can find data) the top 20% of households in the U.S. owned over 80% of all financial securities (stocks & bonds).  Though more people were invested in the market than ever before, thanks to 401Ks and 529s, their actual ownership share was quite small.  The wealthiest Americans and institutional investors are the ones that still have large stakes in the market and are the ones in a panic right now.  The losses mean a great deal to Wall Street, but they really don’t mean much to everyday Main Street.  In the current environment, having a job and a house is a little more important to most Americans than socking money away for retirement.  Those are the things that worry everyday people.

Secondly, the stock market suffers losses every few years, on average.  Period of loss are usually preceded by and followed by periods of gain.  Some period are greater than others.  From 2000 through 2002, the Dow experienced three losing years in a row with losses totalling 43%.  This was preceded by the boom years of 1991 through 1999 (just what party controlled the White House most of those years?) when the market gained over 193% and was followed by a boom in 2003, where the market gained over 28%.  Overall, the market has gained about 65% since 2003, overcoming the losses of the early 2000’s. 

The message here is that this too shall pass.  Overall, investing in the stock market is a good bet.  If you can stand the stomach-churning drops, you will be better off than if you invested in any other instrument.  Right now, there are shares in good, solid companies that are trading at rock-bottom prices.  The people that have the money will jump back in eventually because the opportunities for huge gains are there. 

That is what President Obama is trying to do – make everyday Americans the people that have the money.  As we were watching Hardball last night, my husband said about Cramer’s anvil comment, “No, he’s wrong.  The problem isn’t that there’s one guy drowning – it’s that there are a thousand people in the water drowning and we only have 200 life preservers.  The choice isn’t to throw a life preserver or an anvil, the choice is to throw out the 200 and tell the people to share them.  That way they can tread water until the ship that we sent to Walmart to buy 800 more comes by so we can save them all and pull them in.  Some of them might drown, but many more will be saved.  Or we can do like the Bushies, and only save the richest 200, and not care if the rest of them drown.”

Sometimes, Mr. Kitchen Table is SO smart!

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