A couple of years ago we went through a similar period of time. Maybe you remember it. The crisis in Greece made daily headlines and the stock market went through wild swings of value on a daily basis. I remember wondering how such a small country in a far-away place could so dramatically impact the stock markets of the Socialist Democracy of Amerika. I awakened this morning to this headline, "Dow drops 150 points into the red for the year as Greece weighs..." Well there you have it. The SDA stock market is negative this year because of something that is happening in Greece. Who would have thunk it?
All of this got me to thinking....why is Greece so important to the economy and stock markets of the SDA? So I did a little checking into the matter and here is what I discovered:
- The total market capitalization of SDA stocks is $18 trillion. The market capitalization of all stocks in Greece is $45 billion. That means that the total market capitalization of all Greek stocks equals .25% of the size of the SDA stock market. It is hard to see how even the utter annihilation of Greece could have more than a tiny impact upon the economy and stock markets of the SDA.
- A 1% drop in the SDA stock market represents a loss of $180 billion in total equity value. A 1% drop in SDA stocks is equal to four times the total value of all stocks sold in Greece. So even if there is a direct correlation between Greek stocks and the SDA, which there is not, then a total destruction of Greece should result in a one time 1% drop in SDA stock values.
- Next I thought about the nature of SDA exports and imports. Maybe Greece controls SDA stock markets because it is such an important trading partner. The SDA exported $773 million worth of goods to Greece in 2014. The SDA imported $1 billion worth of goods from Greece in 2014. In 2014 the SDA imported $1.6 trillion worth of goods from around the world. Greek imports therefore represented .05% of all SDA imports. Also in 2014, the SDA exported $2.3 trillion worth of goods worldwide, making Greece a receiver of .04% of all SDA exports. So much for my theory that Greece is an important trading partner.
- Maybe Greece is important to SDA stock markets because it is an economic juggernaut. I went in search of Gross Domestic Product numbers in order to find out. What I discovered is that the GDP of the SDA is $18 trillion. The GDP of Greece is $238 billion, or 1.3% of the SDA GDP. It is hard to see how a country with an economy roughly the size of 1.3% of the SDA economy could ever have an economic impact upon the SDA.
- I concluded that the complete annihilation of the Grecian economy would equal 1.3% of the US GDP and 1.3% of the total US stock market capitalization. Clearly Greece is irrelevant when it comes to economic issues. I have to look elsewhere to find out why events in Greece so dramatically impact SDA stock values.
How do the day traders come to their conclusions about the sentiments of their fellow day traders? They scan economic and financial news outlets and try to guess what item is going to be the object of obsession that day. They often get stuck in a rut and the same news ends up determining what they are going to do for weeks. A month or so ago the day traders were obsessing about bonds. Every day the stock market would go up or down by a percent or so and the reason given for the daily change was always the same....bonds. At various times day traders have obsessed on gold, oil, platinum, OPEC, Iraq and political events in Argentina as they seek to read the tea leaves spread out before them and make their trades for the day.
I will let you in on a little secret. Day traders are idiots. They understand nothing about economics and most of them end up losing money in the long term. Despite myriad of technical charts about the stock market they have no idea what is going on in the real world. They are like a pack of dogs, running around sniffing each others bums in a vain attempt to figure out who might do what next. Unfortunately for those who do not understand these things, news about what the day traders believe is what makes up 95% of the daily financial news. That means that 95% of what spews out of the mouths of financial reporters and financial news networks is worthless. Don't believe what you hear from the pundits. Don't believe what you hear from the air-headed financial news reporters. They have no clue what is going on and what they do believe is happening is so far removed from the real world it is laughable. Let me assure you, beyond any possible doubt, even the complete annihilation of the geo-political area known as Greece would not have any long term impact upon the value of your stock holdings. So when you hear about how things in Greece are going to drive us all to financial ruin, go out and play a round of golf and work on correcting your slice. That is a far more valuable way to spend your time.