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Where's the angst?




Given the plunge in the euro and the rampant speculation that the euro is history and its coming dissolution will prove very painful for the Eurozone economy, you would think that German equities, measured in dollars, would be in free-fall. But you would be wrong, as this chart shows.

Note that the two y-axes on the chart are scaled to be identical—the high point on each axis is 5 times the low point. One thing this reminds us of is that equities have rallied by a factor of almost 3 in the past 15 years. Not too shabby: the S&P 500 index has risen a little over 6% per year, compounded, since the end of 1994. Measured in dollars, Germany's DAX index has risen about 7% per year. So much for the collapse of Europe and the demise of equities.

The chart also illustrates how closely the equity markets of the U.S. and Europe have tracked each other over the years. Most of the variations shown in the chart are due to currency fluctuations, but these tend to wash out over time. In fact, the DM today is about 5% stronger than it was at the end of 1994. So the almost 20% decline in the euro since its Nov. '09 high against the dollar was not so much a collapse as it was a reversion to mean. Just keeping things in perspective.

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