Arohan’s investing life

You read this headline and say, Duhh!

But really, the economy was kind of stalled for some time now with many institutions taking a wait and see approach. Not that the basic industrial sectors were suffering much, they were still humming along, albeit at a reduced pace. However, what had really taken a hit was the consumer confidence and the risk appetite of the financial firms

A total of 1.25% rate cut is nothing to sneeze at. All of a sudden, many homeowners who were looking at unaffordable resets on their adjustable mortgages will get some room to breathe. The more money that is left in the consumers pockets, the more the American consumer is willing to go out and spend. At this point though I really hope that the consumers have learnt the lesson and start putting some money towards savings and building an emergency cash portfolio

Look for increased mortgage refinancing activity in the coming months. 1.25% drop in ARMs (or close to it, depends on the lender on how much will actually flow through to the consumer) should be enough to make re-financing the mortgage an economical proposition for many homeowners

What this also means is that for many lenders, this will be an opportunity to replace riskier loans with more traditional and discipline-infused product. Should do wonders for their asset quality

Another effect of the rate cut would be to bring the liquidity back in the credit markets. Many institutions were having difficulty syndicating debt as there were no buyers. This situation should ease

And finally, CD and money market rates should decline. This along with the juicy yields now available on many stocks should help investors slowly come back into the stock market

Is inflation still a risk given the scale of the interest rate cuts? Probably, but with everything else going on in the economy and the stress on the housing sector (a house is probably still the most prominent part of any American’s net worth), I really think that the consumers are not likely to embark on a shopping spree anytime soon. I think we will start seeing a fundamental change in how the public spends their money. There will be a move towards smarter spending. That is my hope anyway

My best stock play for a recovering economy remains Bank of America. In the next post I will outline the best way to buy Bank of America today. Stay tuned

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1. The best way to buy Bank of America
2. The other side of the recession debate
3. Will US fall into recession this year - or is it already in one
4. Recession is here! What should an investor do?
5. New fed plan to slow foreclosures