Brandy:
It’s now time for 4 Your Money. We’re joined by David Nelson, CEO of Nelson Corp Wealth Management. Welcome back, David.
David Nelson:
Thank you, Brandy.
Brandy:
So last week, we talked about consumers as a source of liquidity for markets and the economy. What other areas can impact the flow of money?
David Nelson:
Sure. I’ve spoken at great length about the importance of liquidity, as far as in the marketplace. It’s one of those things that can really dominate as far as markets. When liquidity is high and money flows are freely flowing, typically, interest rates are low and people are willing to take on more risk. And you can flip at the other direction as far as when things aren’t as good. The chart that I have today is a nice visual, as far as what’s taking place underneath, as far as the importance of bank reserves and cash balances. That’s one of the measures that we look at, which is called bank free reserves. The banking system, the bankers have to keep so much money as far as the reserves, but anything above that falls under the definition of free reserves.
David Nelson:
And the red line is showing here at the bottom. It shows that the current bank reserves compared to the annual average. And when current free reserves are high, there’s plenty of movement as far as the market, as far as moving in an upward trajectory and vice versa. So this is really, really key as far as in looking forward.
Brandy:
All right. So given these warning signs, could we still see risk assets like stocks move higher?
David Nelson:
The track record of this metric is really good. And basically, we’re in unchartered territory now with the government pulling back as far as the punch bowl, and we’re keeping a really close eye on things as far as in different measurements to try to, again, give people a little heads up as far as when things really get rocky.
Brandy:
If you missed any of our discussion, we’ll make it available for you on ourquadcities.com.