Follow Fed Watch Start the conversation
Comment on This Story
Or to contact Money Morning Customer Service, click here.
Editor's note: Speaking of crystal balls, a revolutionary new AI technology could mint millionaires this year. It's part super-computer, part artificial intelligence, and part quant-trading algorithm. It can conduct a staggering 15.8 billion calculations per second. And on Thursday, December 6 at 1 p.m. (ET), Tom Gentile will reveal how this revolutionary AI technology could help you become a millionaire in the next 12 months. Click here to secure your free spot to this special event.
Today we are going to talk about the Federal Reserve.
While I am aware that a certain percentage of you have now clenched your fists in rage and are mumbling about the vast global conspiracy, the Illuminati, and the trilateral commission, and another segment of you are yelling about gold standards and the evils of fiat currency, let's table all those conversations for another day.
The Federal Reserve may not be the best way to manage our nation's money supply, but it's what we have and what we will have for a very long time to come.
Whatever you think of the Fed and their policies, you cannot debate this one thing: When it comes to collecting and distributing economic information, they are unsurpassed by anything on the planet. They have tremendous resources, and they do not hesitate to share all that data with taxpayers.
I pay very close attention to reports from the Fed for the simple reason that they have more data than anyone else. Reading the Beige Book and other informative releases from the central bank gives a much better picture of the U.S. economy than all the talking heads and pen-wielding experts combined.
We can listen to the chorus of doom and gloom or the cheerleaders who predict easy money and vast fortunes ahead, or we can pay attention to what the actual data is telling us.
The data is giving us a crystal clear overview of how banks, as well as individual and business loans, are faring.
So let's take a look at how we should divvy our finances, given the banking data from this important document the Fed just released…
New Fed Document Reveals Banks Look Great and Individual Finance Is Rosy
Last week, when the Fed issued a new report – The Financial Stability Report – I was one of the first in the electronic line to download a copy. This new report looks at the financial system and all the players therein and evaluates the stability of the financial system.
Measuring the quality of lenders and borrowers alike, as well as actively hunting for excesses in the system, can help us avoid another credit crisis – or at least contain the proportions of the next one.
Watching loan quality, the types of loans in the system, and how those loans are being funded can tell us a lot about how safe – or unsafe – the financial system is at a given point in time. As we discovered in 2008, riding out a recession is not that big a deal, but enduring a financial system meltdown feels catastrophic in nature.
The $10 Company at the Center of a Revolution: It’s inked four deals with huge players in its sector, and it’s holding the keys to a potential global product. Click here to learn more…
So how do we look today? Not bad, my friends, not bad at all.
The banking system is in remarkable shape. Banks have plenty of excess capital on hand to deal with any problems that may pop up in the economy. The larger banks (the ones most prone to making stupid mistakes) have enough capital to remain functional even in another 2008–2009 scenario.
Insurance companies and brokerage firms are also lowering the amount of leverage they use to conduct their operations as well. There is little sign of the type of leverage and therefore risk that we saw in the system back in 1999 or 2007.
The economy is growing at a fast enough pace that individuals are paying their loans, and credit quality is as good as it has ever been. That consumer debt problem we have been hearing about appears to be something of a myth. According to the Fed, "Expansion of household debt has been in line with income gains, and for the past several years, all of the net increase in total household debt has been among borrowers with prime credit scores and very low historical delinquency rates."
Contrary to the very dramatic headlines suggesting another debt-driven housing implosion, the mortgage market is actually in fantastic shape. The amount of leverage in the housing market is back to 1990s levels, and delinquencies remain very low. The only signs of potential trouble are in auto and student loans, and even that is manageable for the time being.
Despite Growth, Trouble Is Brewing in the Business Sector
About the Author
Tim Melvin is an unlikely investment expert by any measure. Raised in the "projects" of Baltimore by a single mother, he never attended college and started out as a door-to-door vacuum salesman. But he knew the real money was in the stock market, so he set sights on investing - and by sheer force of determination, he eventually became a financial advisor to millionaires. Today, after 30 years of managing money for some of the wealthiest people in the world, he draws on his experience to help investors find "unreasonably good" bargain stocks, multiply profits, and build their nest eggs. Tim tirelessly works to find overlooked "hidden gems" in the stock market, drawing on the research of legendary investors like Benjamin Graham, Walter Schloss, and Marty Whitman. He has written and lectured extensively on the markets, with work appearing on Benzinga, Real Money, Daily Speculations, and more. He has published several books in the "Little Book of" Investment Series and a "Junior Chamber Course" geared towards young adults that teaches Graham's principles and techniques to a new generation of investors. Today, he serves as the Special Situations Strategist at Money Morning and the editor of "Max Wealth" and Heatseekers.