The US Federal Bank Comes to Rescue! The Impact of a Lower Interest Rate
Here departs another round of market correction. And with it's departure, it brings in new hope for a new high at the stock market. The strength of the stock market is renewed when the Federal Bank of USA announces a cut in it's prime rates by a larger than expected 50 basis points (0.50%). The market rallied favorably. Many still thinks that the cut will not delay the inevitable: A recession. The stock market rebound is a dead cat bounce.
Remember the Reason for the Fall?
Many economists have declared that the subprime to be a small issue, compared to the overall US economy. That was in March 2007. Panic and fear is as a result of the credit crunch: The fear of lending to another fellow financial institution, not knowing when the counterpart may collapse, as a result of holding too much bad debts. The gist of the problem here is fear.
The Peace from the Rate Cut
Most Analyst expected the Central bank to cut 25 basis points. Some thought that the Fed shouldn't do anything to bail out careless banks and home owners who tried to chew on more than what they can swallow. The main message which I think the Fed is trying to put across is," Don't worry, we will make sure nothing will derail the economy. So... START LENDING!"
The cut has been working so far. The fear is diminishing day by day. The stock market rallied steadily back up. We are starting to see some of the side effects of the cut:
1) Fund flows to developed nations in Asia will rise as the US Economy slows down. US Investors will look elsewhere for better returns. Singapore, Hongkong and Taiwan will be the main beneficiary of this flow.
2) US dollar will depreciate steadily. Invest in SGD to offset any losses due to currency losses
3) Commodities like gold and oil will appreciate as USD falls. Commodity producing economies like Russia, Brazil, Australia and Indonesia will benefit.
4) Global interest rates will fall in line with US interest rates to maintain their trade competitiveness. Global bond markets will have a reprieve after 4 years of bear market.
5) China and India will still pose significant risks due to their over inflated valuation. But that's where the potential best returns is too, until the Chinese and Indians decide to suddenly stop buying. Buy with moderation and be ready to bail out on the first sight of weakness.
The New Investment Strategy
At this moment in time, bonds are becoming more attractive as parts of the global economies started to slow down. Overweight on commodities and Asian equities. We should see a nice market rally till early next year. We will still have a good few more months to go.
Here departs another round of market correction. And with it's departure, it brings in new hope for a new high at the stock market. The strength of the stock market is renewed when the Federal Bank of USA announces a cut in it's prime rates by a larger than expected 50 basis points (0.50%). The market rallied favorably. Many still thinks that the cut will not delay the inevitable: A recession. The stock market rebound is a dead cat bounce.
Remember the Reason for the Fall?
Many economists have declared that the subprime to be a small issue, compared to the overall US economy. That was in March 2007. Panic and fear is as a result of the credit crunch: The fear of lending to another fellow financial institution, not knowing when the counterpart may collapse, as a result of holding too much bad debts. The gist of the problem here is fear.
The Peace from the Rate Cut
Most Analyst expected the Central bank to cut 25 basis points. Some thought that the Fed shouldn't do anything to bail out careless banks and home owners who tried to chew on more than what they can swallow. The main message which I think the Fed is trying to put across is," Don't worry, we will make sure nothing will derail the economy. So... START LENDING!"
The cut has been working so far. The fear is diminishing day by day. The stock market rallied steadily back up. We are starting to see some of the side effects of the cut:
1) Fund flows to developed nations in Asia will rise as the US Economy slows down. US Investors will look elsewhere for better returns. Singapore, Hongkong and Taiwan will be the main beneficiary of this flow.
2) US dollar will depreciate steadily. Invest in SGD to offset any losses due to currency losses
3) Commodities like gold and oil will appreciate as USD falls. Commodity producing economies like Russia, Brazil, Australia and Indonesia will benefit.
4) Global interest rates will fall in line with US interest rates to maintain their trade competitiveness. Global bond markets will have a reprieve after 4 years of bear market.
5) China and India will still pose significant risks due to their over inflated valuation. But that's where the potential best returns is too, until the Chinese and Indians decide to suddenly stop buying. Buy with moderation and be ready to bail out on the first sight of weakness.
The New Investment Strategy
At this moment in time, bonds are becoming more attractive as parts of the global economies started to slow down. Overweight on commodities and Asian equities. We should see a nice market rally till early next year. We will still have a good few more months to go.
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