Archive for November, 2008

Predicting the future with the Dow Jones Industrial Average (DJIA)

I’ve been trying to make sense of all this political turmoil, from a non-economist view point.  I started looking at the Dow Jones over it’s entire history, and tried to see if statistics/charts could help try and determine the point we really should be at.  Right now we are looking at the disappearance of imaginary wealth–money that was based on nothing but false expectations.   I’m trying to determine where we get back to “real” wealth if there is such a thing.  So here’s the graph:

Historical Dow Jones Industrial Average

Historical Dow Jones Industrial Average

If you note, there are two large changes in the slope of the graph. In the mid-to-late 80s the rate of increase changes upward quite a bit. A colleague, Tim Whibley has mentioned that this is probably because of the change in tax laws regarding mutual funds that was passed in 1986. The next big jump in the rate of increase occurs in the late 90s. Again speaking with Mr. Whibley, that spike probably occurred with the internet, electronic trading, and more public directly trading in stocks. Now did one or both of those changes start to create false–or more accurately–unsustainable wealth? Only time will tell.

I’ve added two lines to the chart that offer crude approximations of the linear rate of increase in the DJIA before the changes. The red-line before 1986, the black line before 1995. Now current conditions are saying that the late 90s increase was unsustainable, which could mean things could drop back in line to say a DJIA of 7000? Pure speculation, but isn’t speculation fun! Now on a negative note, what if pre-’86 was the real line? That line is not much more than inflation (guess), but if that line is the “more true” line, then could we see a DJIA of 2000? Not likely, but you never know.

As I stated before, I have no real answers, just looking at graphs right now. The real world is much more complex than one index. We’ll have to wait and see what really happens.

The American Consumer–who knew that they were that important?

As the world’s economy spirals down the bath drain, it is amazing to think that in these days of the global economy, how much the world relied on the American consumer.  With that market failing, we are seeing a domino effect around the world.  Where will it end–who knows.  One thing that this whole issue brings to mind just how important the American consumer market really is.  (And just how stretched that American consumer really was).  My colleague talks about this most recent reminder of the importance of America in this world here:  TechOnline blog

Convenient Socialism

So complete unfettered capitalism didn’t work out for the Americans.  In their time of need they turn to the presidential candidate with the most socialist ideals (I’m not saying he’s a Socialist), probably the correct choice.  Unfortunately they didn’t think of making that choice 4 years earlier when they were living the Republican high-life. “No taxes for us, keep your hands of our money, government!”  But now when the help is required there is no money left to help out.  Nothing comes for free in this world.  They are looking for a ‘Convenient Socialism’ as opposed to the type of socialism you have to pay for like in the Scandanavian countries.  Higher taxes, but less peaks and valleys.

Oh well, the old saying still holds true–live by the sword, die by the sword.

Back to business

Well after an October where I was in the UK for a week, Toronto for a week, and Boston for a week, I’m back in Ottawa and feeling like I missed two elections!  Canada ended up right where we were before the election with many leaders failing to push forward their agenda, while our neighbours down south have a made a great big change!

Hopefully Obama can do some good down there, but he wasn’t given very much to work with.  Unfortunately this could be a long down spell for the US, and the rest of the countries that rely on the US market (almost everyone).