I picked this link from Kirk’s site; it says volumes about buy and hold investing. http://kirkreport.com/tkr/zgwDnkm9
Run on a bank. My sister, Connie, gave me Niall Ferguson’s The Ascent of Money and find a morsel on every page. For example, if you want to understand money supply…..I have $100 and deposit with Bob the banker. I am Bob’s first client. Because Bob is a cautious banker he operates on a 10% reserve ratio. So, he deposits $10 with the central bank and lends the other $90 to Sally. While Sally decides what to do with her loan, she deposits the money in another bank. This bank also has a 10% reserve rule so it deposits $9 at the central bank and lends out the remaining $81 to Jason. By the time the money has been deposited at three different banks the money supply (called M1) has increased $271 ($100+$90+$81).
Now I want the original $100 I gave to Bob the banker. Bob has to draw upon his reserves and call his loan to Sally. This sets off a domino effect that causes money supply to contract as swiftly as it expanded. Since Bob only had one depositor, me, my withdrawal constituted a call ten times larger than its reserves ($10). The survival of Bob’s bank depended on his being able to call in the loan he made to Sally, who in turn had to withdraw all her deposits from the second bank, and so on. Now you can understand how runs on banks can be so devastating. And, how money supply can expand and contract so swiftly.
Are things really beginning to turn around? Despite all the job losses, corporate earnings reductions, dividend cuts, etc., etc., there seems to be a positive attitude building. To whit:
- My friend Sandy, who is wintering in Naples, Florida suggests that the Florida housing market may have found a bottom. Sandy has a good feel for these things. He feels the foreclosure market has dried up and that will push buyers to the retail housing market.
- In our area a local real estate office had a $1million week two weeks ago. Its first in a year.
- The Michigan consumer confidence survey showed an ever-so-slim increase, but an increase nevertheless.
- Motorola received a Buy rating from Wall Street and the stock, long moribund, was up 21% for the week. When a down and outer begins to make a recovery it should be heralded.
- Other stocks last week: Ford +29%, Bank America +83%, Citibank +72%, GE +36%, Intel +18%, JP Morgan +49%, Hartford Group +95%.
- Country indexes last week: Mexico +18%, Sweden +18%, Canada +12%, Korea +11%.
- Important companies reporting this week: General Mills, Adobe, Nike, FedEx.
- Regarding the Jon Stewart/Jim Cramer flap: George Will said it best….”Don’t play poker with anyone named Slim, don’t buy a Rolex from someone out of breath and don’t take financial advice from anyone who shouts.”
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Photo is Daisey as a puppy. She is an American Mastiff belonging to our son Matt and daughter-in-law Wendy. Daisey is now 160 pounds.
