martes, 22 de enero de 2008

Dow Jones en 3000 puntos en el 2012

The chart above from Steven Williams at shows the Dow Jones Industrial Average adjusted for inflation since 1800. As you can see, when the effects of inflation have been extracted, the DJIA is much more cyclical than Wall Street promoters would care to admit. In optimistic peaks of 1834, 1906, 1929, and 1966 the DJIA subsequently moved to the bottom of the long term trend channel. These bear markets were either inflationary, such as the 1966-1982 bear market or deflationary such as in 1929-1932. We have also noticed that inflationary/deflationary crashes tend to alternate. We suppose this is because Mr. Market likes to fool even the bears. Today we are again at the top of the trend channel. How will we fall? Most bears remember and fear the stagflation of the 1970s. However with debt levels currently high, inflation cannot be maintained for an extended length of time. Debtors would merely file for bankruptcy or foreclosure (as they have begun recently). Instead a deflationary spiral similar to 1929-1933 or 1834-1842 is likely. It appears the rule of alternation will continue.

This chart also shows possible future levels for the Dow Jones Industrial Average. According to the trend lines followed since 1800, the DJIA could reasonably fall to 3000 by 2012. This is our target.


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