You can almost hear the collective sigh of relief as the latest round of quantitative easing was announced – to no one's surprise – by the US Federal Reserve overnight.
What was surprising was the fact that the program was open-ended and that it had a very specific objective – an improvement in the US labour market.
While the market was expecting a third round of quantitative easing (QE3), some have taken to calling the announcement "QE-infinity", as there is no predetermined end to the program, unlike the previous two.
American stock exchanges may have rallied to near new multiyear highs (and last night's announcement saw all three major US exchanges add more than 1.3 per cent), and the US economy is showing signs of life, but the unemployment level has remained stubbornly high.
Amid concerns of a "jobless recovery", the US Federal Reserve has taken it upon itself to fix the problem. The result is that near-zero interest rates will continue in the world's largest economy for at least a couple of years yet as the Fed does what it can to stimulate jobs growth.
Unsurprisingly, the Australian dollar jumped sharply on the news, trading around US105.5¢ this morning.
The surprising thing about Fed chief Ben Bernanke's move overnight is that in some senses he has just gone "all in". Without an announced end date to the program, it's not like Bernanke can announce a fourth QE program to follow this one.
Sure, he can buy more or riskier securities, and we shouldn't rule that out, but QE-infinity is on one hand a very definitive action and on the other smells just a little of a Fed that has fired (almost) all of its bullets in a final stand that it hopes says of the malaise "this ends here".
Of course, the question does have to be asked – if the previous rounds of quantitative easing weren't enough, why would this one be any different? The answer takes us back to QE-infinity – the Fed is acknowledging that the US economy just needs more time in the casualty ward before it gets the all clear. After two courses of economic antibiotics have failed to do the trick, the economic doctors have hooked the patient up to an intravenous drip for as long as it takes.
We've got it good
Meanwhile, the Fed's actions show Australians how well we really are doing – especially compared with much of the developed world.
It reminds me of the Regina Brett quote: “If we all threw our problems in a pile and saw everyone else's, we'd grab ours back.”
Low unemployment, historically low interest rates, good GDP growth and a stable banking system are a nice set of "problems" to have. Of course, things can always improve and some sectors are doing it tough, but I'd take our problems over those of the rest of the OECD any day.
Opportunities for Australian investors
Australian investors have some clear opportunities from the latest announcement of quantitative easing. The most glaring, in my view, is the opportunity to take advantage of the high dollar to invest in international shares, particularly in the US.
With some high-quality businesses in the technology, consumer goods, energy and retail sectors in particular, a dollar near historic highs is icing on the cake. With a consumer recovery still nascent in the US and non-existent (yet) in Europe, the opportunity to buy shares in companies leveraged to that coming recovery is compelling.
Of course, there are Australian companies that have a significant portion of their earnings in the US economy or in US dollars. Those businesses will take a hit when the dollar goes higher, but if your view is that the Australian dollar will return towards its long-run average (as mine is), you stand to benefit from not only the performance of those businesses, but also a nice earnings kicker as the company's USD-denominated profits are brought home.
As we've seen with our iron ore miners recently, investing in companies at the top of their cycles can be hazardous to your wealth. The time to buy is when prices are at cyclical lows, or those businesses whose growth paths allow them to keep expanding, despite economic peaks and troughs.
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Scott Phillips is a Motley Fool investment analyst. You can follow Scott on Twitter @TMFGilla. The Motley Fool's purpose is to educate, amuse and enrich investors. This article contains general investment advice only (under AFSL 400691).