Monday, June 6, 2011

The Economy : BSP Lifts Ban on Bank Branching

From my research, the root cause of every recession is money supply contraction.
This means, the Money Reserve (BSP), limits the amount of loans and thus the money supply decreases.

A factor of the increase of money supply, is the number of banks or branches due to the fractional reserve banking.

For examples BSP loans 100 Pesos to bank A.
Bank A then is only required to hold a minimum reserve of 10% which is 10 Pesos, and can loan out 90 Pesos to a person or corporation.

When that person/corporation gets the 90 Pesos, the usual practice is that, the 90 pesos is deposited to another bank (Bank B).

Bank B then is only required to hold a minimum reserve of 10% which is 9 Pesos, and can loan out the rest of the 81 pesos.

In short, if there are 10 banks the initial 100 money supplied by the BSP will become 1302.64312 Pesos due to Fractional Reserve Banking.

BSP 100
BANK C 72.9
BANK D 65.61
BANK E 59.049
BANK F 53.1441
BANK G 47.82969
BANK H 43.046721
BANK I 38.7420489
BANK J 651.3215599

TOTAL = 1302.64312

Thus, this is a good sign that the economy is ready for recovery.

PSE MegaWide (MWIDE) - SM's Construction Company

My new stock pick Megawide Construction Corporation MWIDE on the Philippines Stock Exchange (PSE).

I recently bought a couple of Megawide shares, hoping it will follow SMDC's performance.

SMDC started at around 3 and now is at 9. I believe this is solely due to SM's good business sense.

Given that MWIDE is a construction division of SM, it already bags SM construction projects by default, in my opinion. So they have a solid project base from day-0.

I will continue to monitor and study this stock, but same as SMDC, I see a lot of potential.

Bought @ ~8.9.
P/E @ ~ 11.16

I'll be gradually accumulating this stock, while I get more information about this company.

Tune in. :)