Tuesday January 19, 2016
IN the bear market of 1973-74 I formed my Black Hole Theory of Stock Valuations in a Bear Market.
Which is, while only a few of all the outstanding shares trade each day, when they trade lower the value of all outstanding shares drops. Thus huge chunks of valuation or wealth simply disappear in a bear market. EWI addresses that issue below.
Can Stock Values Simply "Disappear"? Yes.
And it's happened before, too -- just think back to the 2007-2099 financial crisis
By Elliott Wave International
On Wednesday (Jan. 13) CNBC reported that,
"Almost $3.2 trillion has been wiped off the value of stocks around the world since the start of 2016, according to calculations by a top market analyst. U.S. stocks are now off $1.77 trillion, while overseas stocks are down $1.4 trillion."
Stocks rallied on Thursday -- but then tanked even harder on Friday, which probably made that $3.2 trillion figure even bigger.
But how can that be? Doesn't money simply move from one asset class to another?
Our readers have asked us this question before -- especially during the 2007-2009 financial crisis, when 54% of the Dow's value got erased in just 18 months.
You may be wondering this, too. Well, here's an answer -- from Ch. 9 of Bob Prechter's New York Times Business bestseller, Conquer the Crash:
Financial Values Can Disappear
(Excerpt, Conquer the Crash, ch. 9)
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