Today, six Central Banks initiated a co-ordinated plan to save the world. The FED cut the cost of emergency funding for European Banks, effectively cutting the cost in half. 

What does this mean for you, the individual investor? Lots. Banks working together is a good thing for investors. Compare this to 2008, when banks were scared of even lending to each other. This caused liquidity to dry up and started the world-wide credit crisis.

This is the opposite of that. 

Also, banks have excess liquidity, they just didn’t want to release it. Now, banks worldwide know that their central banks will help support the financial system, and may be in a position to lend more. As you know, rates are low, and if companies borrow money, their cost of capital is exceptionally low. A company can drive up profits pretty quickly if they make an 11% return on their business but they can borrow money at 2%-which has an after-tax cost of 1%.

The main benefit for you is confidence. Like the asset-buying program in 2008/2009, central banks are trying to reduce the cost of holding assets, they are trying to pump the system with liquidity, they are trying to instill confidence in the system. You know stocks are very cheap. You just need a reason to buy. That reason came today, and we are glad investors figured it out. Almost 500 points on the TSX. Don’t fight the FED now, the worst is likely over. We are not day traders, and you should not be, but this is likely a sea change for investors, such as the FED action in August, 2010, which caused a nice four month rally. Time to buy some of our A and B rated stocks.