On October 9th 2002 the S & P 500 Index closed at 785 euros. Today it
closed at 781 euros. European investors who mistakenly believed that last October’s
low was “the low” of the bear market, have again been disappointed
by yet another false bear market bottom. Why should Americans care if the U.S.
stock market makes a new low in euros? Because America’s most significant export
is financial assets. The “viability” of the American “borrow
and consume” economy rests upon the willingness of foreigners to accept
U.S. financial assets in exchange for consumer goods. The fact that European
investors have just seen their U.S. stock holdings crash though last October
lows, with no bottom anywhere in sight, potentially undermines the attractiveness
of U.S. stocks. Anything which makes U.S. stocks less attractive to Europeans
should be of major concern to Americans, who depend on this export to finance
an enormous current account and merchandise trade deficit. And if the S & P
500 Index can take out its October low in terms of euros, how much longer will
it be before it performs a similar feat in dollars?