Stocks went higher following Ben Bernanke surprising many by offering to buy back long-term US bonds which adds liquidity to the system and reduce interest rates. The Fed will also buy mortgage-backed assets from the banks, which will also bring rates down and give banks money to lend.
The Dow Jones added 91 points, or 1.2%, to 7,486. The Nasdaq gained 29 points, or 1.99%, to 1,491. The S&P 500 index rose 16 points, or 2.09%, to 794.
On a day when the central bank didn’t cut interest rates because they are already virtually at zero, the decision to take decisive action to get rates down was a smart move.
One commentator was advising people to get to their nearest mortgage broker and renegotiate their 30-year fixed loan to a lower rate because the rules of the game had changed in their favour.
These actions will put spending power back into US consumers, increase lending, reduce foreclosures and start the process of economic growth again.
I think it’s premature to think there couldn’t be a sell-off to test the fragility of this rally but there is now a good chance that a sell-off wont breach recent lows. This is what’s needed to assure us that a bull market is in train.
The expanded US money supply has hit the greenback and the Oz dollar was up to 67.85 US cents.
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