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Oh what a night!

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by Peter Switzer

Oh what a night! The Federal Reserve delivered and now it’s up to the US economy to deliver.

I wanted QE3 and I got it and Wall Street liked what it saw with the Dow up 206.51 points or 1.55 per cent to 13,539.86, while the S&P 500 slammed on 23.43 points or 1.63 per cent to finish at 1459.99. The trifecta has been completed — the European Central Bank got it right, the German court got it right and now the Fed has followed the script.

Over the past couple of weeks, the negatives that could take stocks down have been turned into positives and that confidence snowball I have been talking about is starting to roll and get bigger. That’s what is needed to pump up economic growth, which in turn will feed into the stock market.

For the record, the Fed will purchase $40 billion worth of mortgage debt each month until the job market recovers and it raised its GDP growth forecast to three per cent from 2.8 per cent. It’s also buying long-term Treasury bonds as well to bring down yields, which is meant to stimulate borrowing.

The reaction was solid with the Oz dollar up over one cent to 105.46 US cents, oil shooting up and the VIX or fear index falling to around 14.

What’s huge about this decision is that Bernanke hasn’t put a lid on the spend — like ECB president Mario Draghi, he will do “whatever it takes” to create jobs in the USA.

This is a major play and that’s why Wall Street has shot up, but it doesn’t mean that it won’t retreat a bit from here. Profit-takers will eventually test these new levels.

However, if the US election doesn’t spook the market and the so-called fiscal cliff is beaten, then 2013 is poised to be the year when the market could really put the bears back in their cave!

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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Published on: Friday, September 14, 2012

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