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Subject:  17 year storm (so far) Date:  10/12/2001  6:53 PM
Author:  solasis Number:  85 of 297

with all due respect to the top managers at cisco who are complaining about the "100 year event" or "the perfect financial storm", on 9/21 the S&P was down about 37% from the top in April of 2000. based on the weekly data for US equity (Shiller, Siegel) for the period of 1871-2001, so far this has been the 20 year storm, or there-abouts.

a -20% correction has a historical mean return period of 4.5 years, a -35% correction has a mean return period of about 17 years, and a -50% correction has a mean return period of about 45 years.

the following graph shows the probability of not experiencing a correction of -20%, -35%, -50% in US equities over various time intervals extending out to 35 years. conversely, the probability of experiencing a correction at those magnitudes, based on the historical data would be (1-Ps).

a note of caution - we used weekly closes to construct the graph so intraweek volatility is not represented.

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