Generally speaking, when the market falls there is a common belief that it’s because negative economic news was released. In some respects, the opposite has rung true.

It began a week ago when US Federal Chairman, Ben Bernanke, alluded to the fact that Government purchases of US bonds might soon reduce, otherwise known as quantitative easing (QE). This would potentially occur because the US economy was strengthening. So why did world markets go into a momentary tail spin?

It began in the US, based on a fear that this would stifle US economic growth and Australian markets soon followed. Bernanke’s statement caused a spike in the US dollar and conversely a fall in the Aussie dollar. Here’s where it gets interesting…

Australian markets have a significant amount of foreign investment. When the AUS currency falls foreign investors lose money on the exchange rate, regardless of whether stock prices move or not. The shift in currencies saw foreign investors board the first plane out of Oz, which caused falls in the sharemarket, causing even more investors to jump ship.

This situation was magnified when some manufacturing statistics out of China were lower than expected. Good night Irene!

So, is it time to panic?

If you are a long term investor, the answer is no. Mainly because you would have enjoyed gains of around 27% since mid 2012. If you have only just joined the market, but are planning to be here for the long term, then again, I stress this is not a time to panic.

We must remember Bernanke’s news was actually positive for the US economy long term. It’s a bit like convincing a baby they do not need their dummy anymore.

Given the recent strong gains in the Aussie market, we shouldn’t be surprised investors have used this as an excuse to take some profits.

Instead, look at this more as an opportunity to snap up more high yield stocks, such as the banks. Those dividends are not going anywhere, other than to grow your bank account.