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ASX plunges with billions wiped off sharemarket in minutes after Barefoot Investor prediction

Best-selling financial author Scott Pape argues that a stock market crash is long overdue because the global financial crisis happened more than a decade ago — when stocks plummeted on Wednesday.

Australian investors haven’t experienced a protracted stock market crash linked to poor credit conditions since 2008, with shares only briefly plummeting at the start of the Covid pandemic more than two years ago.

But on Wednesday, the Australian Securities Exchange plunged 2.75 percent in the opening minutes, after new high inflation in the US fueled fears of further rate hikes.

“We’re way too late for a stock market crash,” Pape said.

Scott Pape, the author known as the Barefoot Investor, issued the warning just days before the ASX plummeted

Scott Pape, the author known as the Barefoot Investor, issued the warning just days before the ASX plummeted

“After all, they happen every 10 years on average, and the last one (aside from the Covid-induced flash crash) was 14 years ago.”

The GFC was the last major sustained downturn in the stock market in Australia.

The Australian Securities Exchange’s benchmark S&P/ASX200 peaked at 6828.7 points on November 1, 2007, before a long series of consecutive daily slides began in early 2008.

The crisis in the US subprime mortgage market led to the collapse of 161-year-old US financial services firm Lehman Brothers in September of that year, as the GFC marked the worst global economic crisis since the Great Depression of the 1930s.

On March 6, 2009, the Australian stock market plunged 53.8 percent from its 2007 peak to 3145.5 points and it took another decade to reach the previous record.

Pape said the GFC’s financial post-traumatic stress disorder was particularly traumatic for those nearing retirement.

“I still have PTSD from the GFC,” he said.

“People about to retire wrote to me in tears as they watched the value of their super disappear before their very eyes.

“They had no idea how much risk their super-fund was taking…until the market collapsed.”

The Australian Securities Exchange got off to a poor start on Wednesday morning, with the benchmark S&P/ASX200 plunging 2.75 percent to 6,817 points in the first half of trading.

The Australian Securities Exchange plunged 2.75 percent in the opening minutes after new high inflation in the US fueled fears of further rate hikes.

The Australian Securities Exchange plunged 2.75 percent in the opening minutes after new high inflation in the US fueled fears of further rate hikes.

The Australian Securities Exchange plunged 2.75 percent in the opening minutes after new high inflation in the US fueled fears of further rate hikes.

The Commonwealth Bank, Australia’s largest mortgage lender, plunged 2.97 percent to $95.03 while mining giant BHP fell 1.88 percent to $38.56.

Bad stock market crashes linked to bad credit conditions

While the 2020 Covid stock market crash was short-lived, a downturn linked to poor credit conditions could leave a trail of damage lasting a decade

Before the 1987 crash, the All Ordinaries peaked at 2376.88 on September 21, 1987. After the Black Monday Crash of October 19, 1987, it plummeted 49.2 percent on February 10, 1988, and did not surpass its old peak until December 27. 1996

During the global financial crisis, the S&P/ASX200 peaked at 6828.7 points on November 1, 2007. On March 6, 2009, during the global financial crisis, it had plunged 53.8 percent to 3145.5, taking another decade to reach the previous record.

Source: CommSec

Buy now, pay later app ZipCo plummeted 6.2 percent to 88 cents.

The Australian stock market is expected to take losses on Wednesday after Wall Street’s main Dow Jones Industrial Average fell 3.9 percent in response to US consumer price index data that showed an annual inflation rate of 8.3 percent in August.

This was more moderate than the four-decade high of 9.1 percent in June, but the result reminded investors that the US Federal Reserve was more likely to raise interest rates.

Australia’s annual headline inflation rate rose 6.1 percent in June, with quarterly figures showing CPI rising to its highest level since 1990, when the one-off effect of the introduction of GST in 2000 was ruled out.

The Reserve Bank of Australia expects inflation to hit a 32-year high of 7.75 percent this year, meaning interest rates will rise more in 2022.

Saxo market strategist Jessica Amir said high inflation was bad news for stock markets.

“Overall, expect stronger-than-expected inflation prints later this year,” she said.

This will shock markets and warn growth sectors of a haircut – technology, real estate, consumer spending.

If inflation is generally stronger than expected, that gives the central bank room to raise interest rates more than expected.

“And if interest rates rise faster than expected, future earnings growth will be taken away from the growth sectors.”

Saxo market strategist Jessica Amir said high inflation was bad news for stock markets

Saxo market strategist Jessica Amir said high inflation was bad news for stock markets

Saxo market strategist Jessica Amir said high inflation was bad news for stock markets

The era of the record-low cash interest rate of 0.1 percent ended in May and since then, borrowers have endured five consecutive monthly rate hikes, pushing the cash interest rate to its seven-year high of 2.35 percent.

The 2.25 percentage point RBA increases marked the most severe monetary policy tightening since 1994.

They have also made investors nervous in the stock market, after a huge surge in 2021, when interest rates were lowered to record lows.

The Australian Securities Exchange had fallen by a third in three weeks in March 2020 when the World Health Organization declared a Covid pandemic.

But the market surpassed its February 2020 peak in May 2021, with the benchmark S&P/ASX200 hitting a new peak in August 2021 — nine months after the Reserve Bank of Australia cut cash to 0.1 percent.

Australia also had a major stock market crash in 1987.

The All Ordinaries peaked at 2376.88 on September 21, 1987. After the Black Monday crash of October 19, 1987, it plummeted by 49.2 percent on February 10, 1988, and only surpassed its old peak on December 27, 1996.