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Look Around
for Opportunities
The
Federal Reserve has lowered interest rates twice this year
and it looks like more rate cuts are on their way. The lower
interest rates will have many positive effects on the U.S.
economy and it will provide opportunities for long-term investors.
Like a line of dominos, there are certain businesses
that will be positively affected when the first domino with
the sign "lower interest rates" gets pushed over.
So where is the investment opportunity? One of the normal
outcomes of lower interest rates is a sharp increase in the
number of home mortgages that get re-financed, and to a lesser
degree new loans on new home purchases spurred on by the lower
interest rates. You've purchased one or two or ten homes before
and you know the procedure, and it's in this procedure that
the investment opportunity resides. A typical homeowner will
approach a lender to begin the loan process. They could approach
their regular bank but many will approach a savings and loan,
which have customarily done the bulk of the mortgage lending
in the U.S.
The increased
business from re-financing wouldn't significantly move the
profits of a large, commercially focused, multi-national bank.
The savings and loans are the first investment opportunity.
The increased business from re-financing wouldn't significantly
move the profits of a large, commercially focused, multi-national
bank. The savings and loans are the first investment opportunity.
These frequently local and regional banks will have a heyday
with the new plethora of re-financing business. Mr. and Mrs.
America have sat down at the savings and loan, completed the
application, and it looks like they are going to be able to
trade in their old unlikable loan for a new unlikable loan,
or just get a new unlikable loan for their new home purchase.
But the process still has a number of often forgotten hurdles
to get over. The lender needs to know there are no unexpected
liens against the property. They could just check the public
record but they'll typically need title insurance to protect
their interests. And in many states a title company doesn't
just provide title insurance they also administer the entire
escrow process. (A godsend compared to those states that have
to use attorneys to close on a real estate deal.) Here's another
investment opportunity. Title insurance companies will be
going crazy over the next 6 months, and collecting a lot of
revenue for the services they perform. Two other parts of
the loan and home purchase process, real estate appraisals
and termite inspections don't offer investment opportunities
because most of this work is done by companies that aren't
publicly traded. Another area that should benefit from lower
interest rates and could provide investment opportunities
is the car leasing market.
A
tighter economy causes consumers to look at ways to reduce
their expenses and the lower monthly payments car leasing
affords compared to auto purchases begin to look more attractive
to consumers and increases the flow of leasing business for
financial companies that cater to leasing, and the car companies
that focus on leasing. Lower rates also make the lease
terms even more attractive. Keep your eyes open and you'll
see investment possibilities, lower interest rates is just
one venue where groups of companies will benefit from the
events taking place around us.
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