Booms, Busts, and Recoveries Message Board

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Strategies & Market Trends : Booms, Busts, and Recoveries

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To: Ilaine who wrote (6044)	7/19/2001 8:14:28 PM
From: Mark Adams	Read Replies (3) of 74559

I am intrigued by Richebacher's claim that "It is estimated that the stock market crash involved a wealth destruction of about $85 billion in total. Capital losses in the first wave of the crash in late October and early November 1929 amounted to about $25 billion." We have been talking about whether there was real wealth that was destroyed when the market crash, and concluded that there was not. The buyer pays the seller, so the money goes from the buyer to the seller, it's not destroyed. Even if the seller sells at a loss, he paid the one he bought from, so that money wasn't destroyed, either. I think this kind of statement rises from the fact that the total pool of stock is valued at the price the last trade took place. So while the last buyer paid $200/share for Ariba to the last seller prior to it's swoon to $5, and that money was not destroyed- the paper wealth of all the other Ariba shareholders appeared to rise and fall. Hence the 'destruction of trillions of dollars of wealth since 3/2000'. My personal thinking regarding the more recent example we've witnessed; because of the speed of the huge run up in share prices during 1q00, the appreciation had not been totally absorbed (and spent) mentally by the <bag>holders. Thus the impact of the reversal did not hurt as much as it might have if the price appreciation had taken place at a slower pace. Don's point on the potential revaluation of share prices in relation to money or real goods is well made. A risk going forward should the boomers decide to change their portfolio allocations en mass. BWDIK?

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