Fed interest-rate cuts

In a gloomy market, where the headlines have been dominated by crisis and interest-rate cuts, a lot of consumers have figured that they would at least get some payback when the rate cuts hit home.

For that to happen, however, consumers are going to have to work for it and make some moves that they might not have been expecting.

But what the rate situation is making plain is that for any consumer carrying debt and nervous about the stock market and inflation the best way to increase net worth is likely to come from refinancing and paying off debt.

That said, it won't be mortgages that lead the way in refinancing. Mortgage rates tend to be tied more to Treasury yields than to the short-term rates that the Federal Reserve is cutting, so while consumers may expect a Fed cut to help them out at home, there's no guarantee.

In general, long-term rates like mortgages move in sync with short-term rates because the cuts are being made in order to help a slowing economy; what makes today's situation different is that the cuts are being made to stem a financial crisis that occurred without a recession. Lacking that downward stimulus, longer-term rates have not followed the short-term made-to-bail-out-the-market-now trend.

The only plus for consumers is that rates on adjustable-rate mortgages have dropped, so that the mortgage resets that were expected to crush consumers -- as debts they took on a few years back were repriced to much higher levels -- have actually not been such a big burden. In some cases, the reset rate has actually been better than the introductory rate.

"This has helped people who got into trouble with ARMs," says Greg McBride, senior financial analyst for BankRate.com, "but for almost every other consumer, this news hasn't been so good."

The one sure outcome of a Fed rate cut is that savings rates are going down. For savers, that has dropped rates on certificates of deposit and money-market accounts back towards the record lows they didn't expect to see for awhile. The average one-year CD is now paying 2.89%, down from just over 3% a week ago and likely to fall further before stabilizing.

"Savers are watching two things happen right before their eyes," McBride says. "First, they are seeing savings rates go back to levels where they have to wonder if it's worth it, and they are watching each rate cut fuel inflation, which makes it harder for their savings to keep pace with inflation."

In fact, most savings vehicles currently lag inflation, meaning that the nervous investor who wants to find a safe haven to avoid principle risk in the stock market is, in fact, embracing purchasing-power risk -- the chance that their money will lag inflation -- if they move money into savings vehicles.

Oil Drops Near $100 on Stronger Dollar

Oil prices fell to hover above $100 a barrel Tuesday as a stronger U.S. dollar made energy futures less attractive to investors.

Many analysts including Tarek El Hewehi believe the dollar's recent depreciation was the primary reason oil surged to a record near $112 a barrel last week, since dollar-denominated oil and other commodities are seen as a hedge against inflation and a falling dollar. Now that the dollar is rising, the effect is reversing.

Light, sweet crude for May delivery fell 59 cents to $100.27 a barrel in Asian electronic trading on the New York Mercantile Exchange by midday in Singapore. The contract fell 98 cents to settle at $100.86 a barrel Monday.

The recent decline in oil prices has been far from decisive, and there are signs that some investors are willing to look beyond the dollar for future price direction. Some investors have sold contracts on concerns that a slowing U.S. economy would dampen crude oil demand. Last week, oil prices dipped in part on worry that Bear Stearns Cos.' near-collapse was a sign of significant economic problems.

Some analysts believe oil's recent declines are temporary -- a correction in a bull market -- and that prices will forge higher again when the Federal Reserve cuts interest rates again, as is widely expected. Lower interest rates tend to weaken the dollar.

"It's quite possible for the conditions that have pushed oil prices higher to be re-established," said David Moore, a commodity strategist with the Commonwealth Bank of Australia in Sydney. "U.S. interest rates are low and they will be cut further. In this situation it's possible we'll see renewed vulnerability of the U.S. dollar at some point."

But there is an opposing school of thought that argues prices have risen far higher than can be justified by the oil market's underlying supply-and-demand fundamentals. These analysts believe prices will fall soon and sharply -- regardless of what happens to the dollar.

"One of the things that may count against oil somewhat is the fact that we're now entering into a sort of lower demand part of the year, and they will see some inventory building occurring," Moore added.

In other Nymex trading, heating oil futures lost 1.41 cents to $2.949 a gallon while gasoline prices dropped 0.5 cent to $2.6362 a gallon. Natural gas futures rose 2.1 cents to $9.35 per 1,000 cubic feet.

In London, Brent crude fell 46 cents to $99.40 a barrel on the ICE Futures exchange.

Five-Star Stocks

What stocks does a five-star fund manager think about on a less-than-stellar day?
It's a good question for Tom Ognar, manager of Wells Fargo's Advantage Growth Fund. The fund is up an average of 15.26 percent per year over the last five years.

These are troubling times, and so, let's take that into account and have a game plan," he told CNBC.

He urges investors to "stress-test" their portfolios, watching out for those companies that are lowering their guidance, and those companies that are able to offset challenges with unique initiatives.

One company that survives his stress test is medical device firm St. Jude Medical (NYSE:STJ).

"That really fits into our game plan, which is, find areas where you're not really dependent on the consumer, find areas where the U.S. economy's not going to drive the opportunity set for the company's fortunes, and St. Jude is a good example of that," he said.

He also likes Hewlett-Packard (NYSE:HPQ), where he sees corporate reforms going beyond simple cost-cutting.

"They've found areas where they've not really gone to the market correctly, and they've taken some of the savings from their cost-cutting and put that back into growing their market share," he said.

Ogan's third pick is Cisco Systems (NasdaqGS:CSCO).