Emergency Fed Cut

Yesterday emergency Fed actions to cut the prime rate by 0.75% is indeed a little too late. It's equivalent to an electric shock to a non-beating heart, even though the heart is temporarily revived, who knows when it would stop again. And the US market probably needs to undergo structural changes akin to a heart operation in order for any recovery.

Currently, sentiments are so bad that regardless of what the fundamentals say, investors would probably not touch any stocks. Hence, even if good news like higher earnings were reported, Dow are still falling. If only drastic measures had been taken earlier, the downturn would not be so bad. Gauging the performance of DJ after the rate cuts had been announced, it does seem to slow the fall but there's still no rebound in sight yet. Thus, this electric shock did not even revive the heart and more shocks would have to be prescribed in order to revive the US market.

I would advise to stay out of everything as cash is king now.

A safer way to invest

A bad start to the year 2008 with uncertainties being certain. There are basically 3 things which I am concerned about. Firstly, recessionary pressure on the US economy which with the rest of the world having not decoupled from the US markets will cause growth in emerging markets to tamper down. Secondly, rising fuel prices. This means that production costs would increase resulting in a lower profit margins or in fact, this simply means that growth will be strifled. Thirdly, runaway inflation in growing economies which can be seen in China where food prices especially meat had risen much too fast due to affluence.

In actual fact, all these would slow growth in 2008 and the impact remains yet to be seen. However, I am still optimistic in the long run but neutral in the short term. My strategy is now changing due to unpredictability in the markets by adopting the DCA (Dollar Cost Averaging) approach. I had set up a regular savings plan to invest a few hundred monthly in a BRIC fund which I still have faith would be the growth engine of the world.

This approach enables me to average the up and down swings of the market that is too unpredictable but would enable me to reap a profit a few years down the road once market stablises and is on the upswing. In this way, I would be able to stay invested and yet adopt a passive approach. In the meantime, there would still be capital accumulation using savings from monthly salary for lump sum cash injections if required.

I believed currently this strategy is safer to spread out risks and yet taking a wait and see approach in the short term.