The editor and publisher of the Gloom, Boom & Doom Report said Monday on CNBC’s Trading Nation ” that stocks are likely to endure a gut-wrenching drop that would rival the greatest crashes in stock market history. On the other hand, the financial crisis of 2008 may have affected people’s expectations in qualitatively different ways than the more gradual changes witnessed in 2002, especially if people had different views about the condition of the economy in 2002 and in 2008.
The answer to this could end up being worth at least $2.2 trillion, which is how much money would essentially be wiped out of the stock market if we finally get the much-discussed 10% correction in the overall market (the total U.S. stock market capitalization was $22.5 trillion as of June 30, according to the Center for Research in Security Prices).
In addition, stock market expectations are of methodological interest because the history of stock returns and their daily realizations are public information, enabling researchers to investigate how news affects the updating of beliefs without the need to adjust for differences in private information.
In the midst of a weakening global economy, stagnant wages, and non-existent savings, an increase in interest rates from zero to historical levels near three percent could cripple huge portions of the U.S. and global economies and stock markets around the world.
As railroad stocks soared to astounding heights, railroad companies massively overbuilt thousands of kilometers of railway lines throughout the UK. When the Railway Mania bubble eventually popped, many railroad companies went out of business, railway stock investors were ruined and enormous debts were left throughout the country.