Rob Garbin's Blog

You know that feeling you get when you look back at certain ideas you had when you were younger but life made you shove them aside until much later. When you do remember, you say to yourself "Wow, I was actually right." Well I think I'll post about two of them.

The first has to do with the Dow Jones Industrials. Back in 1982 through 1984 I was in senior high school and Ronald Reagan was our President. I was just learning about the roll of the NYSE in our economy from, surprise, Economics class. We had to get together in groups and use the manual method of selecting a number of stocks for our portfolio, you know, a newspaper. One idea that stuck with me was how long it had taken the Dow Jones Industrials to reach 1,000.

I recall that point because my "Aha" moment came around that time. I took time before posting today to pull up a chart of the Dow Jones Industrials from 1900 untill today. The chart actaully went back to about 1928. Here are some highlights I cherry picked:

April 1929 - DJ 319.29
March 1976 - DJ 999.45
March 1987 - DJ 2304.69
April 1999 - DJ 10789.04

The time from 29 to 76 is 47 years and the NYSE tripled in value. Next, from 76 to 87 is 11 years for more than double that value. Finally, from 87 to 99 is another 12 years to almost make the value five times more; more importantly, form 76 to 99, which is only 23 years, we increased the vaule to almost eleven times the 76 value. In other words, it took 47 years to double the NYSE and then less than half that time to blow that value out of the water.

The funny part is that, given the relatively small jump I saw in 1983, I had decided something was wrong. I had reasoned that for such drastic increases to be occurring, there was a problem. Little did I know how right I was at the time. I think my upbringing made me realize the truth because I was always taught that you don't get something for nothing.

That truth has been born out in the state of our economy and the NYSE today. I knew then that this creation of fast wealth had to come at a cost. We have seen the costs in the Savings and Loan Bailouts, the Dot.com bubble, and now the realestate bubble/credit default crisis. Basically, from my point of view, the wealth created for certain individuals has been made upon the backs of the middle class. People whom may or may not actively participate in the stock market. Unfortunately, our economy is so tied up within the stock exchange that we can be hurt by it through no fault of our own. Our companies may invest or trade as part of their day to day operations. Our pention plans, as well as our banks, use the stock exchange to provide all or part of the interest we earn. In short, you don't have to buy stocks to be burned by the market. If your company makes some bad investments, who will more than likely pays the cost, top brass or some pencil pusher. Just ask the people who lost jobs in the banking industry while their bosses were getting bonuses from taxpayer bailouts.

Suprisingly, I knew this even in highschool. I may not have known all the particulars from lack of life experience, but I knew something was not right. Unfortunely, I was more interested in the next Star Wars movie than I was about the real world. Looking back; however, I see that I was right.

Simple truth for me:

The NYSE no longer serves the purpose it was created for, which was to help make funds available for companies driving our economy. In exchange for these funds companys would grow and return value to the investors. A key point to me was that the companies and our economy were the driving force behind the NYSE. However, today the NYSE seems to drive the decisions of the companies and is more geared to making wealth for some investors than growing the economy.