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Where is the Dow Jones heading?

By Murray Bourne, 06 Jan 2009

Update: See the most recent comparison: DJIA-Nikkei comparison Sep 2010.

With all the market volatility at the end of 2008, I needed to update the DJIA models on the page, Dow Jones Industrial Average Model.

I used Excel to draw an exponential curve through the data points for the DJIA, and extrapolated it up to the year 2020.

The Optimistic View

If the growth of the last 40 years continues, the Dow will be at around 40,000 by 2020. This model takes into consideration the crash of 2008.

DJIA projection

The Realistic View

I make the case in the article that the Dow may follow Japan's Nikkei. Since the peak of the late 1990s (fueled by rampant speculation on house prices - sound familiar?), the Nikkei has continued to fall, so that it is now down to where it was back in the early 1980s (or about 80% loss of value).

Nikkei 225 index - historical

Real Life Math

Financial literacy is a very important application of math. People get themselves into all sorts of difficulties because they don’t know how mortgages, interest rates and financial markets work.

A lot of lessons are being learned as the US and UK housing markets unwind, and we face the prospect of massive credit card debt defaults during 2009.

See the full story over at: Dow Jones Industrial Average Model.

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