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State of the Economy

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Most days, I try to avoid watching CNBC. I'm weird in that I often find it entertaining. I avoid it because I often get the feeling that I'll be able to time the stock market. Yesterday, I couldn't resist temptation and I flipped on CNBC for a few minutes.

The Price of Oil

The price of a barrel of oil jumped over $140. It seems like yesterday that people were wonder if oil would top $100. It came close for a while and would dance between $90 and $95. I expected $140 to happen at some point. Like most people, I just figured it would take a good 3 or 4 years.

As much as I wish we didn't have to more than $4.00 for a gallon of gas, I'm extremely happy that this is spurring people to buy cars that get more miles to the gallon. Maybe I live in an idealistic world, but perhaps people will realize that it's not so bad and make other cuts in their spending.

The Price of General Motors (NYSE:GM)

If you missed the news yesterday General Motors hit a 53-year low. For those unfamiliar with what that means, CNBC anchor Mark Haines put it best, "If you bought a share of General Motors 53 years ago, in 1955, you would not have made any money. In fact you would have lost a lot due to inflation."

Think about that for a second. I realize that car companies have been put through the ringer for quite some time. However, I can't imagine a company that my parents have grown up with to not grow shareholder value their entire lifetime. I picture what it might be like to crawl though an attic. There you find an old dusty box. Inside some long-lost shares stock certificates. You're in luck! The company still exists. You're not in as much luck as you thought though as it's not likely worth a lot.

I thought these two points together add to something really interesting. The price of oil is rising so much, while the value of the car companies drop. Is this like 2000 when Internet companies were skyrocketing and energy stocks are low. I don't think so, but crazy things happen in 8 years.

Last updated on June 26, 2008.

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4 Responses to “State of the Economy”

  1. David Wynn says:

    Wait, hasn’t GM stock split at some point during that time?

    If so, saying you’ve lost money on a simple share to share price comparison is inaccurate, due to the fact that you’d be holding more shares today than in 1955.

  2. The statement is that the “price” of GM is at the same level as in 1955. However, adjusted for dividends, split, and carve outs ( companies that GM spun off and thus investors received stock in other companies) GM investors should have achieved some return. Yahoo finance only goes as far back as 1962. Adjusted for everything I mentioned above, $1000 invested in GM on 1/1/1962 would be worth about $5650 as of yesterdays close.

  3. Lazy Man says:

    I will give you there are likely dividends and carve outs (Dish Network comes to mind, I think), but the price takes splits into account. It’s the total market capital of the company then vs. the total market capital now. If a company splits it’s shares, you don’t just say, they reached a new 52-week low. You adjust that 52-week low price to coincide with the split.

  4. The GM low IS adjusted for splits (I thought it was only the lowest in 30 years, but I might have missed a new low). It’s not adjusted for dividends though. Historically dividends have been 3-4% (e.g. much higher than they were last year), and GM’s seem quite high, comparably speaking. Thus dividends would have adjusted for inflation.

    Yes, in my opinion, the oil run up looks eerily like the NASDAQ run up. Complete with new era speak, and the making fun of those who say it’s not a new era. What is happening is that peak oil is getting popular whereas it used to be a fringe group.

    Disclaimer: I have very little in oil anymore. I’m buying banks (only certain ones) which with reference to the indeces are down a lot more. The energy source may change, but banking is forever. If it isn’t (hyperinflation, complete monetary crash), all paper assets will die, so …

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