Thursday, May 20, 2010

US Stock Market Statistics


The equity markets have provided wonderful growth opportunities and have built tremendous amounts of wealth throughout history. This is NOT to say there isn't any risk associated with the capital markets because there is always a risk/return equation for everything in life.

If history can be used as a guide, investors should expect to see routine declines of 5-10% quite often with more more pronounced retreats every few years. Since 1900 (through 12/31/2009) there have been 374 corrections of at least 5% and 32 declines of 20% or more.

So, a lot of history made short - bull & bear markets - are actually healthy and should be considered part of the overall game plan. Don't panic. Maintain your perspective and make sure your portfolio is aligned with your long term financial goals. If the ups/downs are too much for you to take, a more conservative portfolio may be appropriate.

US Stock Market Scorecard:

***"Routine" Declines (5%+ loss) happened 374x since 1900, occur 3.4x per year and last 39 days on average.

***"Moderate" Corrections (10% + loss) have happened 121x since 1900, occur 1.1x per year and last 105 days on average.

***"Severe" Corrections (15% + loss) have happened 60x since 1900, occur 0.5x per year and last 208 days on average.

***"Bear" Markets (20% + loss) have happened 32x since 1900, occur 0.3x per year and last 372 days on average.




Wednesday, May 5, 2010

Greece: Cradle to Grave


The Hellenic Republic, also known as Greece, has fallen to new lows in economic reality. The largely socialist country credited for starting the Olympics is now realizing entitlement programs and the 'better of the nation' mentality - doesn't work monetarily.

Since joining the Economic Union in 1981 and the Economic and Monetary Union in 2001, Greece has struggled with its national budget and trade deficits.

Without detailing current events - economic bailout, strikes, protests, etc. - the bigger picture may pertain to it's survival in the Euro zone and the Euro single currency.

Let's admit the obvious, having partners in any business endeavor is difficult. Greece is currently 1 of 16 nations comprising the European single currency ("Euro"). Making its debut in 1999, Greece qualified to join the Euro in 2000. Although they only represent about 4% of Euro zone GDP, their financial woes are now having repercussions throughout Europe & the world.

German Chancellor, Angela Merkel, has been a vocal critic of a Greek bailout package. Only recently has she agreed to an aid package with strict Euro guidelines going forward. Merkel has been calling for the EU treaties to be re-opened to rewrite the rules.

"The Germans are really on their own there" said a European Diplomat.

I may be on my own in making this prediction: The Euro will disappear in the future. It may not be in our lifetime, but significant changes are inevitable. It is far too difficult having one partner with political, economic and cultural differences, yet alone 16 nations. Over time, we'll come to admire countries like England and Switzerland for their stubborn pride in not relinquishing the Pound Sterling and Swiss Franc in 1999.