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As per the advice of most writers in finance websites, its time to invest in bonds and other safe investment instruments. And tighten your belts until you turn blue. I can’t quite relate though to this “fight to safety/quality” term that they’ve coined. What’s very “qualitative” with earning 3-5% per year in short-term debt instruments (i.e., bonds) when it will just be eaten up by infation? This also doesn’t take into consideration the gas that you’ll be wasting on your trip to the bank. How about 8-10% in long-term, 5- to 10-year bonds? No problem here, just as long as you know what you’re getting into and that your money will be tied up for a long time. Assuming the stock markets turn bullish and you want to take part in it again, you can actually sell your bonds (even way before its maturity date) via the secondary market. This though doesn’t assure you of the original principal that you put in, hence my reluctance to tie up money in these debt instruments. This should be another separate story though. |
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After rejecting the bailout bill early last week, the US Congress quickly turned thing around by passing a slightly different version of the bill which included certain “sweeteners” to pacify earlier concerns by various lawmakers. Investors reacted negatively to the earlier failure with the biggest one-day drop in US history.
Over the weekend, US President Bush signed into law the controversial bill and stated that it was “necessary” to avoid further deterioration in the US financial sector. Although there were some reservations voiced in various sectors, I believe the bill was passed to restore confidence in the market. |
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What is really fascinating about the market is that it is constantly in flux. One moment, you are filled with optimism as you see crude oil prices dropping. The next moment you are worried again about the problems in the US credit market. One day the market goes your way, the next day you are watching it go in the opposite direction. |
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We saw the local equity market getting some sort of reprieve with the recent technical rally after dropping the way it did for the past several months. We saw that the market bottomed out at around 2,280. As a point of explanation, a technical bounce in a bear market is fondly called by traders for some reason or the other as a “dead cat bounce.” And clearly that is what we saw when the market rebounded from the 2,280 low. |
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In the beginning of this year, we had hoped that the spate of rate cuts by the Fed would be good for the DJIA and other markets since this would mean more liquidity. But concerns of inflation all the way to the second quarter of this year dragged the markets down further. It is this dragging and lingering concern that has gotten investors concerned at the present.
Clearly in the first quarter, as far as investors are concerned, the “I” word or inflation has replaced the “R” word or recession. Because of this, the market to watch now is the crude oil market. |
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