Crunch Opportunity

Bernanke reduced a key interest rate by half a percent (discount rate), infused more than US$60 billion into the financial markets, relaxed terms extended to banks (such as honoring mortgage-backed collateral) to mitigate the impact of the credit crunch and prevent it from spilling over to the so-called "real" economy.

This has markets all over the world rallying. Imagine, my FLI dropped to below the secondary offer price of PhP1.608 to PhP1.38! A perfect opportunity to accumulate, really, if only I have the money.

But then again, I believe the volatility will remain. You see, the carry trade phenomenon (borrowing in low-interest rate countries like Japan, and investing in higher yielding instruments like US bonds, which is currently unravelling) has in a way, spread the risk everywhere else. In the coming months, I'm sure many finance companies will start reporting bad news, a consequence of the turmoil. For one, insurers in London will likely take a big hit. So whether or not the Fed's move is simply a stop-gap, temporary measure, remains to be seen.

But valuation wise, stocks are ripe for the picking.