Horace W' Brock, Ph'D'

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Horace W. Brock, Ph.D. President Strategic
Economic Decisions, Inc. WWW. SEDINC.com
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Decreased Business Cycle Risk vs. Increased
Financial Cycle Risk A Resolution of this
Paradox from First Principles
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PERCENT DROP DURING 5 RECESSIONS OF KEY US
MACRO VARIABLES
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STANDARD DEVIATIONS US GROWTH RATES
Source BEA, SED
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STANDARD DEVIATIONS OF THE SP 500 (Nominal)
GROWTH RATES
Source Standard Poors, BLS, SED
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STANDARD DEVIATIONS EUROPEAN UNION GROWTH
RATES
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STANDARD DEVIATIONS OF THE S P 500
(Nominal) GROWTH RATES
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THE CHANGING COMPOSITION OF EQUITY MARKET RISK
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INCREASED ENDOGENOUS RISK IN GLOBAL EQUITY
MARKETS
Source SED
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Detailed Reasons for Greater Endogenous
Risk(1950-2000)

• Increased pricing-model uncertainty
• Benchmarking of performance
• New information on market expectations (first
  call)
• New ability to know and to react to the news
• Collapse in cost of trading

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Long-Term Endogenous Risk Bull and Bear Market
Regimes
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REAL RETURNS AND NET WORTH GROWTH The Three
Most Recent Regimes
REAL D-J IND. INDEX
REAL HOUSEHOLD NET WORTH
REAL HOUSEHOLD REAL ESTATE ASSETS
REAL BOND INDEX
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STOCK MARKET VERSUS BUSINESS CYCLES
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EVOLUTION OF MARKET BELIEF STRUCTURES
Source SED
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BEFORE
AFTER