My uncle has advised me to sell all my shares and reinvest in bonds/gilts

Lois_and_CK

He has predicted an imminent stock market crash. His prediction is based on the LIBOR rating. He says the last time it was at this level was just before the 2007/2008 crash. He is in the process of selling his shares and putting the money into bonds/gilts instead.


I feel my portfolio is pretty diverse with index trackers such as Vanguard Lifestrategy 80 and therefore see no reason to sell up. I won't be using the money for 15+ years (neither will my uncle with his own investments, but he still believes that now is the time to sell up and then reinvest at a later date). Am I missing something in my inexperience? (He does tend to be the Font of All Knowledge.)

reeac

Has he been reading some newspaper article? If so, which paper?

Lois_and_CK

Not as far as I know - he's basing it on the LIBOR rating.

eskbanker

Why does he believe there's any sort of correlation between LIBOR and stock market(s) performance? There could be any number of coincidences between what's happening now and also in 2008....

jimjames

Lois_and_CK wrote: »

Not as far as I know - he's basing it on the LIBOR rating.

If it was that easy do you think others would have already done so? Did he sell out during the previous drops and how does he know when to buy back in? After a specific % drop or time period?

MK62

Can you tell us more about your uncle's worries about the "LIBOR rating"?

Lois_and_CK

As I said, he has a tendency to be the font of all knowledge and I usually nod and smile politely. Literally everything he said is in my original post. He was impressing upon me and other 'young ones' in the family to get out while we can.

Lois_and_CK

jimjames wrote: »

If it was that easy do you think others would have already done so?

Well yes, my instinct is to agree with you. Glad I wasn't wrong!

Tiexen

Lois_and_CK wrote: »

Not as far as I know - he's basing it on the LIBOR rating.

But wasn't that around the time the Banks were "fiddling LIBOR"?


As early as 2005 there was evidence Barclays had tried to manipulate dollar Libor and Euribor

Aegis

This chart should be interesting for your uncle to take a look at:


http://www.macrotrends.net/1433/historical-libor-rates-chart


In essence:

• The last time LIBOR reached this level from below was around February 2005, which was over three years before the financial crash happened.
• Prior to the financial crash, LIBOR has often risen to or plateaued at much higher levels than current without leading to either a recession or a market crash (except over the very long term, when everything becomes an indicator of a market crash).
• During the last major recessions, strongly falling LIBOR was a leading indicator that recession was imminent. This should be taken with a pinch of salt though, as a recession can only be confirmed after a number of quarters of negative growth, so LIBOR is still probably not a good leading indicator.

I don't think your uncle is on to anything particularly helpful here.

Prism

As interest rates (and LIBOR rates) go up the assumption might be that companies will grow slower than they have over the last 9 years. However this doesn't indicate a crash. It is certainly the case that as interest rates go up, bonds tend to drop in value, especially long term ones. I would rather have cash than bonds right now, and equities more than both.