By Brian M. Boyce
The Tribune-Star
TERRE HAUTE
October 10, 2008 10:01 pm
—
On Friday afternoon, the Dow Jones Industrial Average danced down to a low point of 7,882.51, just 60 points above the point reached Oct. 9, 2002, and nearly half its record high 14,164.53 hit the same day last year.
By the day’s close, the Dow finished at 8,451.49, leaving a world of investors to wonder what’s next.
“Some people are not going to be able to retire,” said Bill Treash, president of the Wabash Valley Central Labor Council, AFL-CIO.
U.S. Sen. Richard Lugar, R-Ind., in town for another event, answered questions from worried Wabash Valley residents, calling recent market turmoil “very, very serious.”
“I share their feeling of being extremely worried about circumstances that none of us have seen before. This is going to require creative thinking and bold leadership because we have to recover … competitively as a nation as well as in a humane way helping our people,” Lugar said.
And for those nervous investors, Chuck Stafford of Edward Jones recommends seeking counsel from an investment representative.
“It would depend on what your long-term goals are,” Stafford said when asked whether he would advise clients to sell falling holdings or jump in to look for bargains.
“We’ve experienced bear markets before and each time we’ve recovered,” Stafford said. “The stock market then reached new highs.”
Stafford said many have lost confidence in the financial sectors of the market, including many banks now seeking federal aid.
“Banks won’t even loan to each other right now,” he said, adding, “Financials right now present a great deal of risk, but also a great deal of reward.”
And back on Wall Street, investors with cash on hand know this.
Dow Jones Private Equity Analyst reported Tuesday that 18 distress funds have raised $37.9 billion so far this year.
One big player, Oaktree Capital Management, has set aside a whopping $10.6 billion to invest in distressed debt.
Goldman Sachs announced last fall that it had raised $4.5 billion to invest in distress opportunities in the credit markets.
Even Lehman Brothers had been preparing a $1.25 billion fund for distressed mortgage-backed securities before filing for bankruptcy last month.
“There is much more money raised for these distressed assets than there are distressed assets themselves,” said Tomasz Piskorski, assistant professor of finance at Columbia University.
But experts said even the bargain hunters are wary these days, waiting to see just how low the financial limbo can go before jumping into the mix.
But for the working classes, Treash said the entire debacle is just “devastating.”
“It scares the living hell out of you,” he said, noting friends who’ve lost tens of thousands of dollars per fund in recent days.
“I’ll tell you, this is the worst thing I’ve ever seen,” he said, adding that older people he knows are thinking back to the Great Depression.
People who “thought they had something,” be it a 401(k), a pension or the value of their home, are suddenly realizing that they might have very little, if anything, left before things shore up, he said.
And in the wake of that, some want to see “jail time” for the Wall Street executives they blame for the breakdown.
“They’re really upset, big time,” he said, recalling the luxury resorts insurance company AIG executives attended after receiving recent payouts.
But Stafford advised people to retain perspective.
“I’m telling my clients, and anyone that calls me, to focus on what you can control,” he said.
Bull markets are followed by bear markets, and bear markets by bulls, he said, and the current down-time gives investors an opportunity to reconsider and rebalance their portfolio.
“Focus on quality. Diversify your portfolio. Be patient. Don’t lose hope,” he said, adding that most of his clients are “long-term investors.”
According to one Associated Press report, the major indexes’ sharp swings throughout Friday were likely exacerbated by the computer-driven “buy” and “sell” orders that kicked in when prices fell far enough to make some stocks look like attractive bets or make other investors want to exit the market.
The spurts of buying didn’t reflect an easing of the market’s despair, and trading is likely to remain volatile when the market reopens on Monday.
Treash expressed shock at General Motors’ closing price of $4.76 per share, a price it hasn’t sold at since the Korean War.
“That’s General Motors,” he said. “That’s a good, established company.”
Treash encourages people to contact their representatives, and most of all, to vote.
“I wonder how much the Chinese are buying,” he said when told GM’s closing price. “The USA needs to start taking care of ourselves and the people around here and then, if we have anything left over, go over there and help.”
Through Thursday, the Dow has lost 5,585 points, or 39.4 percent, since closing at a record 14,164.53 on Oct. 9, 2007.
The value of all the shares in the U.S. stock market has plunged $8.33 trillion since last year’s high, based on figures measured by the Dow Jones Wilshire 5000 Composite Index, which tracks 5,000 U.S.-based companies’ stocks and represents almost all stocks traded in the country.
Brian Boyce can be reached at (812) 231-4253 or brian.boyce@tribstar.com. The Associated Press contributed to this article.
Copyright © 1999-2008 cnhi, inc.