It looks like Greece is gonna strike a deal today. I find it interesting that this small country has such a very significant affect on the U.S. markets. It must be that the European Union was structured in such a way, that if one country (or some sort of country of significance) breaks the contract or is forced to break the contract, this could, in fact, cause a collapse in the value of the Euro as a currency. And since every corporation and government within the EU has vast amounts of wealth denominated in Euro's, the affects would be globally devastating.
In 1942, the U.S. was finally forced into WWII. We had been in a terrible depression for more than 12 years. The war, among other things, would be about which type of government would lead the world going forward. Would it be Capitalism or Socialism? Beginning of summer 1942, the U.S. defeated Japan in the Battle of the Midway sparking our markets climb. As the weeks and months went by, it continued to anticipate that Capitalism would win in the end. It wasn't until 1945 that Hitler committed suicide confirming an allied victory. It was then another 3 or so years before governments had been rebuilt. Yet the markets rally that began in the summer of 1942 continued through the rest of the decade producing very handsome returns even during this most terrible war. PE ratio's expanded to some of the highest levels ever, anticipating how prosperous we would be in the end.
This is not a comparison of where the world is today, but rather a comparison of how markets can anticipate outcomes far into the future. Because money is made, capital markets (especially equity markets) are leading indicators of the future. And very good ones most of the time. The returns we saw in January convinces me that Europe has a workable solution to solve the problems. And being out of the market right now is simply too dangerous (for long term returns) to ignore.
Jwells
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