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Today's Conceptions can be Tomorrow's Misconceptions
Laguna Niguel, CA
Tuesday, November 17, 2009
Recent events have validated the notion that the unexpected can and will occur. A nationwide decline in housing prices can and did occur. Homeowners discovered that the homes they had speculated on had become worth less than the outstanding balances of their mortgages. Wall Street geniuses, developing highly sophisticated strategies that only they understood to hedge risk, discovered that while an event may be highly improbable it can occur. Unfortunately, the world financial system nearly collapsed as a result of their efforts.
The world's stock markets are, in fact, interrelated. Many on Wall Street expounded on the notion that investing in foreign markets would protect investors should there be a decline in the United States equity markets. It was postulated that the emerging markets such as the BRIC Countries (Brazil, Russia, India and China) were a most especially attractive place to invest. The year 2008, debunked these notions. All of the world's equity markets declined in 2008. The only country whose stock market declined less than that of the United States was Japan's which declined by 28.5 percent in dollar terms as opposed to the 38.4 percent decline in the S&P 500. It should be noted that were it not for the strengthening of the Yen versus the Dollar, the decline in the Nikkei 225 would have been 43.7 percent. Emerging Markets declined by 52.9 percent and even the BRIC countries averaged a loss of 60.6 percent in 2008.
In the early stages of the decline in the equity markets, some pundits espoused on the notion that the decline in the economy would only affect consumer spending. This is an interesting bit of wisdom since consumer spending accounts for over 70.0 percent of the United states GDP. Since consumer spending affects such a significant portion of the economy, it would not take a Nobel Prize winning economist to understand that those sectors of the economy that satisfy the needs of consume would also be affected by the slowdown in consumer spending
The world's stock markets are, in fact, interrelated. Many on Wall Street expounded on the notion that investing in foreign markets would protect investors should there be a decline in the United States equity markets. It was postulated that the emerging markets such as the BRIC Countries (Brazil, Russia, India and China) were a most especially attractive place to invest. The year 2008, debunked these notions. All of the world's equity markets declined in 2008. The only country whose stock market declined less than that of the United States was Japan's which declined by 28.5 percent in dollar terms as opposed to the 38.4 percent decline in the S&P 500. It should be noted that were it not for the strengthening of the Yen versus the Dollar, the decline in the Nikkei 225 would have been 43.7 percent. Emerging Markets declined by 52.9 percent and even the BRIC countries averaged a loss of 60.6 percent in 2008.
In the early stages of the decline in the equity markets, some pundits espoused on the notion that the decline in the economy would only affect consumer spending. This is an interesting bit of wisdom since consumer spending accounts for over 70.0 percent of the United states GDP. Since consumer spending affects such a significant portion of the economy, it would not take a Nobel Prize winning economist to understand that those sectors of the economy that satisfy the needs of consume would also be affected by the slowdown in consumer spending
Marvin H. Doniger
Doniger Associates
Laguna Niguel, CA
949-661-5456
