Tuesday, October 18, 2011

Greece is the Problem? How Dumb Do They Think We Are?

There has been a tremendous amount of nervousness in public sentiment about the state of the economy.  Some of it is certainly legitimate, with the S&P 500 down double digits in the 3rd quarter alone.  As I started to write writing this in early October, much talk over the summer about the market tumble centered around the European debt crisis as being a primary factor.  Then last Thursday's local paper proclaimed "U.S. stocks surge after course of action is presented to strengthen Europe's banks and lower Greece's debt" following the S&P's 8% gain over the trailing week and I couldn't put off injecting some intelligent thought into this discussion.

While it is factually true that Europe has a debt problem, how can anyone give legitimate credence to that problem 'causing' the stock market decline? Let's look at the facts - last year between April and July the market plummeted over 15% because of the threat of Greece defaulting on their debt.  So far, so good, right?

Then, for the nine months between July 2010 and April 2011, the market went up 33%. 

What happened to Greece and the Euro debt concerns during those nine months?   Were they fixed?

Do the talking head really expect us to believe that the Greek / European banking problems signaled impending doom for three months in 2010 (causing the markets to drop sharply), then became magically cured for nine months (causing the stock market to soar majestically), and then become a sign of the apocalypse once again earlier this year - and now that there's a plan in proposed to fix them, markets should rise again?

If it sounds silly when reading the above paragraph out loud, forgive me for for interrupting the hysteria with facts. 

I cannot predict what the short-term future holds with regard to European banks, Grecian debt or stock market returns (and neither can anyone else - at least I don't pretend to!) But it seems far more likely to me that the current death-of-equities is, as usual, caused by media-driven fear as opposed to real economic disaster.

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