Dear John: If, in March or April of 2002 I offered you a Dow that was above 13,000 in mid-2007, would you have taken it? J.R.
Dear J.R.: Absolutely. I would have also loved for you to have informed me about an unknown company called Google back then. In either case I would have made a whole lot of money. But what’s your point?
A 13,000 Dow Jones industrial average index now (or even 14,000 as it was a few days ago) would have given you a pathetic total return of about 14 percent over the last seven years. That’s the total return – not annual return – since January of 2000. So your point (and with the Google example, my point) is that timing is everything. Do you think the time is right to buy the Dow stocks now that the index is between 13,000 and 14,000 even though there are a lot of disturbing things happening in the economy?
Ah, if only we could see the future! But if you feel lucky, go for it. But remember, a lot of people felt lucky at the peak in 2000.
By the way, under your example if someone had bought the Dow stocks at the bottom in October of 2002 (not March or April as you suggest) he would have achieved about an 86 percent return on his investment.
Dear John: I read your column recently for the first time and found it very informative. Usually writers assume that the reader is as savvy as they are and convolute the information with jargon that is not familiar to the average reader. You on the other hand were straightforward and direct in your writing. In your opinion do you think that mortgage rates will go down, up or remain the same for the remainder of the year? A.B.
Dear A.B.: Now that you’ve swelled my head, I’ll disappoint you by saying, I don’t know. With the economy doing as poorly as it has been in recent months mortgage rates should be going down. In fact, the Federal Reserve should be actively lowering them.
That’s the logical thing to happen. But there are a couple of factors that need to be watched.
One, if foreign countries continue to raise their interest rates then ours might be going up no matter what our economy is doing.
It’s complicated and I don’t want to get accused of making things too complex. But the simple explanation is that all countries in the world compete for money. And the nations with higher interest rates generally get the dough, all other things being equal.
But there is also something else going on right now that is really uncharted territory.
With all the talk in this country about the failure of the subprime mortgage market, banks and other financial institutions might make it more expensive to get mortgages. If they perceive you to be a less than stellar borrower – or can even make the case that you are – banks may decide to charge you a premium to make up for the risk.
So, the real answer is: who knows?
Send your questions to Dear John, The N.Y. Post, 1211 Ave. of the Americas, N.Y., N.Y., 10036, or john.crudele@nypost.com.
