ASX To Face Violent Market Sell-Off According to the RBA

http://www.abc.net.au/news/2014-10-...ets-too-stable-warns-of-violent-moves/5811712

A rising star at the RBA has predicted a major and violent downward movement for the ASX and international markets.

Before we overreact, it pays to look back. For those with long memories:

1. The RBA has gotten it wrong many times before. Does anyone remember them selling our gold reserves copy-cat fashion for around 20% of gold's current worth? There was absolutely no need to sell the nation's gold reserves as they (like other central banks) did.

2. The RBA has a long history of jawboning. They say something and mean the exact opposite. More worryingly, they frequently bully journalists into towing a particular line. Those brave journalists who dissent are often excluded from future RBA briefings.

3. The events of 1987 are relevant. When a violent stockmarket selloff occurs, there is a flight to reinvest money in property, which is considered safer. And that, for us forumites, is a good thing.

We are in for some interesting times. Hold on to your hat - the next few months will be fascinating.
 
It'll be interesting to see what happens.

I'm looking at starting to invest in shares and at this stage the most attractive option looks like just essentially "dollar cost averaging" by bpaying $500/mo in to a Vanguard ETF, so I guess in the long term this is in theory irrelevant.

On the other hand, might be a good idea to hold off and accumulate a bit of capital and then buy a few shares which come down hard?

As always, it depends, it depends.
 
In terms of historical Marcap vs trailing GDP, the ASX is far from expensive. A 20% decline from where we are now will make it even more affordable.

The good news is that any major fall in the ASK will see a rush of money into investment property. That's what happened back in 1987 and during the dot com bust.
 
http://www.abc.net.au/news/2014-10-...ets-too-stable-warns-of-violent-moves/5811712

A rising star at the RBA has predicted a major and violent downward movement for the ASX and international markets.
Huh..... the ABC article doesn't mention the ASX - it actually says...

"There are a few other reasons to suspect that the sell-off, particularly in fixed income, could be relatively violent when it comes," he warned investors

And the actual speech by the RBA merely says 'when a sell off happens there is likely to be less liquidity then usual'.

It is not predicting the timing of a sell-off in the ASX, just that there will be volatility some time in the future & potentially lack of liquidity, particularly in fixed income & bond markets.

Before we overreact....
... so I won't be overreacting.
 
3. The events of 1987 are relevant. When a violent stockmarket selloff occurs, there is a flight to reinvest money in property, which is considered safer. And that, for us forumites, is a good thing.
I think that view is far too simple and ignores more recent events where stock market and housing sold off together (during the GFC). Of course both bounced back mostly as a result of various government / central bank measures (lower interest rates, stimulus, property grants, bank guarantees). In my opinion it really depends on WHY any stock market selloff occurs in the future as to what assets everyone runs to for safety.
 
OP, see post #677 here:

http://tinyurl.com/lxke4kb

The headline is a fabrication on the part of the SMH journo / editor. The actual relevant quote from Guy is:

Citing the 1994 global bond market crash as a "good example," Dr Debelle said there were several reasons to suspect that the next sell-off, particularly in fixed income, "could be relatively violent when it comes".

He is talking about fixed income/bonds, not the share market, in the context of his "violent" comment.

I've emailed the journalist in question and asked for the headline to be corrected. He replied and has now changed it.

http://www.smh.com.au/business/markets/currencies/markets-facing-violent-crash-australian-dollar-too-high-says-rba-official-guy-debelle-20141014-115nwf.html
 
For those of us with longer memories, the bond market bloodbath of '94 was followed by almost two years of ASX malaise. It was not until the unexpected interest rate cut of mid '96 that things started to move again.
 
The fact is that no one knows what's going to happen. We can have a red hot guess but that's about it. The real question is are you prepared for 'x' when it happens? If shares go down, what's your action plan? And at what point does this plan kick in?

If you have a plan, it doesn't matter what happens and it can put you in a position to take advantage of sell offs rather than get flattened by them.
Dollar cost averaging can be a nightmare without an exit strategy.
 
The fact is that no one knows what's going to happen. We can have a red hot guess but that's about it. The real question is are you prepared for 'x' when it happens? If shares go down, what's your action plan? And at what point does this plan kick in?

If you have a plan, it doesn't matter what happens and it can put you in a position to take advantage of sell offs rather than get flattened by them.
Dollar cost averaging can be a nightmare without an exit strategy.

Or Dollar Cost Ravaging when your retirement coincides with a bear market ;)

Regarding Predictions:

Between 2005 and 2012 CXO Advisory collected 6,582 forecasts, offered publicly by experts predicting the direction of the U.S. stock market; They were right just 46.9 percent of the time
May as well flip a coin
 
If you have a plan, it doesn't matter what happens and it can put you in a position to take advantage of sell offs rather than get flattened by them.
Dollar cost averaging can be a nightmare without an exit strategy.

Depends on how you DCA...

If you only DCA disposable income and aren't counting on the divs as income to survive, why does it matter to me if the **** falls out of the market?

If you don't use a margin loan (or debt recycle from PPOR loan instead of Margin) then I don't think you can really get called either.

It'll pick back up in 1, 2, 3 years time...

If the market is down for longer than that, we've probably got bigger problems on our hands.

But even then, losses are only realised when you sell. So if you only invest disposable income and don't rely on dividends to survive.
 
Whats the exit strategy for DCA and why would a long term investor employ one? When prices are low a forced DCA strategy is most effective ;)
 
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