Highway to the buying zone – Fed tapers QE and China data disappoints

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The US central bank boss — Federal Reserve chairman, Ben Bernanke — talked to the market in typical central banker ways — hints, winks and generalities — but effectively said he will taper back the third round of quantitative easing (QE3) some time this year and, in all likelihood, end it next year.

He also implied that official interest rates would not go up until 2015. He gave the US economy a tick for the progress of its recovery and gave the US Congress a bit of curry for putting budgetary restraints on the course of economic growth.

Remember, if the US grows more quickly, the Fed can stop pumping $85 billion a month into the economy and then turn off the life-support called QE3.

In case you missed it, the Dow dropped 206.04 points or 1.35% to 15,112.19 while the S&P 500 lost 22.88 points or 1.39% to finish at 1628.93.

This market sell-off is an overreaction but we’re living in volatile times, with the Dow actually putting on seven days in a row of triple-digit moves!

Our local market reaction is really over-the-top — down around 2% by lunchtime, but it was not helped by more weak manufacturing data from China. However, this only reinforces my argument that we are in a buying zone for stocks and we now have to time it to perfection.

Don’t worry, the Yanks won’t stay down for long because their economy is improving and we will follow suit, but in the interim period, share prices will dip some more.

I will let you know when I’m a buyer. I’ve been writing about and waiting for this sell-off since March, so I’ll have to bite the bullet soon. You’ll be the first to know.

Important: 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. Consider the appropriateness of the information in regards to your circumstances.

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