We generally focus on the last crisis and expect the next crisis to be a simple repeat of that.
This explains why so many are waiting for the euro to cause a financial collapse like we saw in 2008. However, the past rarely repeats but it rhymes, like Mark Twain noted.
With everyone expecting a crash, it is very unlikely we will actually get a crash.
In 1994, Mexico faced problems similar to the ones seen in Europe today. Excessive debt was fueling panic and no one knew if the peso could survive.
In the United States, investors were uncertain about how the problem would spread to other countries. Some feared that Latin America was on the verge of economic collapse. The S&P 500 finished the year just about unchanged as many investors moved to the sidelines, worried about a crash.
The problems were quickly resolved in early 1995 with international bank guarantees and the stock market boomed for the next five years.
The Nasdaq 100 gained 1,200 percent on the back of the Internet bubble and by 1999, no one remembered that Mexico had teetered on the brink of insolvency only five years earlier.
Europe presents the same kind of problems that Mexico did to the global economy, but on a much larger scale. The drama has unfolded slowly during the past two years, and stock markets have largely been unchanged despite significant volatility.
Stock market investors spent 2011 assessing the problem in Europe and seem to have concluded the crisis is manageable.
Stocks are very likely to deliver big gains to investors as Greece and Portugal and other debt-ridden countries turn out to be small in comparison to the global growth story unfolding elsewhere.
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