Bears roared this week and markets take a 5% dive!

This week S&P500 and the Dow Jones Index saw their worst drops in 5 years. S&P500 dropped 75 points while the Dow dropped 586 points for the week ending July 27th, 2007. The NASDAQ dropped 136 points, which was its worst drop since the end of February, 2007. These declines in the market followed record finishes of the previous week.

Experts believe that investors are concerned over bad housing loans, banks issuing fewer loans and rising energy prices. The bad housing loan problem is caused by home owners who are having difficulty paying their mortgages (home loans) to the banks. It is also caused by banks that ignored the rules of credit by giving loans to people with bad credit history or allowed them to borrow beyond their means in the first place. As a result banks are also issuing loans to fewer people now. When banks issue fewer loans, experts also call it “credit tightening.” Please refer the section below for why the credit history is important.

Oil prices went up to $77 per barrel (1 barrel equals to 42 US gallons). This rise was caused by fears that oil supplies may be declining. Investors fear that the increased oil prices will make things more expensive for people and slow down the economy. Note that the price of oil has tripled in the last seven years!

This month marks the beginning of earnings announcement season. A lot of companies announce their quarterly financial results this month. These quarterly reports show how well (or poorly) these companies did in the past quarter and how the future looks for them. It is like your grade card. Results of the companies that announced quarterly results were mixed.

Apple announced the highest quarterly sales and profits in its history because people bought Mac computers and iPods in record numbers. Boeing also reported great sales and record profits. Prices of shares of Apple and Boeing were flat (did not change) for the week at $143.65 and $103.71 per share, respectively. ExxonMobil quarterly profits declined due to higher natural gas prices. On this news ExxonMobil stock dropped significantly, by almost $8 per share to $85.59, this week.

Unexpected bad news makes investors nervous about their stocks and they typically sell stocks of companies with higher risks. In these uncertain situations, investors also take a wait- and-see approach before buying stocks. So this week, the stock market had more sellers than buyers, and therefore the stock prices went down. Let us see what happens in the coming weeks.

Economy grows stronger!

In the second quarter (April to June, 2007) US Gross Domestic Product (GDP) grew by 3.4% annually, said the US Commerce Department. This is good news, especially when compared to the first quarter (January to March, 2007) where GDP grew by just 0.6% annually, the slowest in over four years. Looks like, US companies sold more goods and services around the world and the US government also spent more this quarter to help the economic growth.

Gross Domestic Product (GDP) annual growth is a measure for the country’s economic health. An easy way to understand the GDP is to think about the dollar value of all goods and services that a nation produces in a year. The US GDP for 2006 was over $13 trillion (that is 13 followed by twelve zeros, i.e., 13,000,000,000,000). By far, the US is the world’s largest economy. Next to the US, the GDP of Japan is at $4 trillion, Germany at $3 trillion, and the rest of the world’s GDP is $28 trillion.

Is the bottled water just our good old tap water?

Yes, says Pepsi. So when you buy a bottle of Aquafina, do not think that you are drinking some great spring water but just regular tap water! Pepsi will change its Aquafina label to say that the source of water is tap water.

In 2006, over $8 billion worth bottled water was sold in the US alone. Think of the effect on our environment by the bottles in the land-fills, the amount of plastic processed, and the gas burned to transport bottles to just get the same water as in our taps.

What is Credit History? Why is it important to have a good credit history?

Credit is a trust that is built over time when you borrow money and pay it back on time as agreed. Let us say, you wanted to buy the latest Harry Potter book but needed $10 more to buy it. You go to your mother to borrow $10 and tell her that you will pay her back in two weeks. At the end of two weeks there are few things that can happen.

You did the chores around the house and made enough money to pay $10 back to her. This helped to build the trust and if you keep building it by paying it on time you will have a good credit history and your mother will let you borrow money again.
On the other hand, if you were unable to give the $10 back, you could ask for forgiveness since you do not have the money or ask for an extension. As agreed, if you return the money, it will help to re-build the trust and your credit history. However, if you make it a habit of not returning the money or keep asking for extensions, you do not build trust and your credit history. As a result, you may not be able to borrow money from your mother any more.

The same is the case when you grow older and borrow money from the bank. Banks loan money if the borrower has a good credit history. However, if there are concerns about the borrower’s ability to pay back or payment delays (borrower has bad credit history), the banks will not loan money.

Good credit history allows people to borrow and buy things they need to improve their lives. It is also good for the businesses and economic growth. For example, you and many kids who bought the new Harry Potter book with borrowed money, helped to set the record sale for the book and the publisher, Scholastic made record money. Companies like that a lot because it allows them to sell their products and services.

Some-times, when people borrow more than they can save, it causes problem of delays and non-payment. Many times people also run into health problems, family issues or lose their jobs to pay back their loans on time. Whatever the reason, it is important to learn that not paying back loans is a serious matter. Therefore, it is important to learn about saving and responsible use of money with credit worthy good habits. It is never too late to start on the right path!!

Your Favorite Stocks (For details click Volume 5)

Company

Company known for?

If you bought one stock in Jan-07

This week stock is?

Your gain or loss?

Mickey Mouse, Toys, Entertainment, and more.

$34.20

$34.34

-$0.46

Frosted Flakes, Rice-Krispies, and more.

$49.89

$51.76

$2.06

Fast food hamburgers, restaurants and more.

$43.87

$52.09

$4.89

Coming Soon!!

How many Japanese Yen can you buy for a Dollar?

How Oil Prices and the Gas Price per Gallon change?

Stock Market Summary

Bears Market - Stocks Down!

July 23-27, 2007

Index

Change

Last

DOW

Down 586

13,265

S&P500

Down 75

1,473

NASDAQ

Down 136

2,562

What is Economy? The word economy means everything related to the production and use of goods and services in an area. On a daily basis we buy many things (products) that come from many businesses, such as, food, drinks, toys, cars, etc. When we buy or not buy such products it affects businesses, economy and all of us.

What is a Stock? A stock is a share of a business. So when you buy a stock of a company, say, McDonald's, you become a McDonald's shareholder or part owner of the business.

What is DOW? The Dow (also known as DJIA or Dow Jones Industrial Average) tracks 30 large US companies stocks and it is 100 years old. DOW going up is good news as it indicates that the companies are expected to do well in the future.

What is S&P500? Standard & Poor's 500, is also called S&P500. It tracks 500 companies and how they are doing. It is over 50 years old and most widely used because it is a better way to track the stock market. It represents over 7 out of 10 US public companies.

What is NASDAQ? NASDAQ stands for National Association of Securities Dealers Automated Quotations system. It sounds complicated but it is a highly computerized stock market. It was started in 1971. It has over 3,200 companies that are leaders in technology, communication, media etc.

What is a Business? Business offers goods and services to customers for money. Businesses create jobs for people who work to make goods and or provide services for other who need them.

Who are the Workers? The people who work at the businesses are also called workers. Workers are paid money which they use to take care of their loved ones. When these workers are paid money they pay some money to the governments, called taxes, so that the government can provide the services to the communities where we live such as schools, police, fire station, parks, roads, and many more.

What are Goods? Goods are things that you can see, such as toys, balls, dolls, candies, cereals, etc.

What are Services? Services are things that are done for others for money, such as, barber gives you service of hair cutting, waiter serves you food at the restaurant, etc.

We use information from multiple sources - various websites, company, stock exchanges, newspapers, library, journals, and books.