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Two fascinating post I am reading today

Fist, is Bank of America death watch by Yves Smith on Salon.  A must read for those who are still curious of  the impact of Level 3 assets on bank's balance sheet.  In a nut shell, today Bank of America (NYSE:BAC) has tangible net worth (difference between total assets and total liability) of $222 billion.  One of the many Level 3 assets held by BAC are second liens mortgages for a total book value of $125 billion.

The average American mortgage created between 2002 and 2008 was for 90% of the then market value of the house.  First, and often conforming mortgages are limited to 80% of the value of homes (so that they can be securitized), the balance is a second mortgage.  in view of the AVERAGE drop in home value between 2007 and 2011 of 30%, what's the bet on the value of these second mortgages?  In fact, the value is near zero (and in some case its negative -- don't ask).  My guess is therefore that there's not much value in this $125 billion "asset".  That's why BAC's share price reflects 30% book value -- Read it its fascinating.

Second the continued "amusement" of watching the death spiral of Chinese foreign listed companies continues.  As the CEO of Muddy Waters Security said a few weeks ago, the issue of disclosure for Chinese companies is the level of "lying".   One of the recent "shorts" story involves Trina Solar (FRA:TR3), in this case it appears that the short got the right strategy, but for the wrong reason.  Bronte Capital a Australian based hedge fund that has made bucket loads of cash shorting China's worse offender of the "lie and obscure" (China media Express and China Agritech) thought he had another play in TR3.  Turns out that this company's sin is to have undertaken huge forward positions to buy polysilicon in the order of $14 billion -- or 7 years of sales.  Moreover, these forward position (actually means obligation to take delivery) are backed by bank L/C. Anyway read the entire analysis.  It shows the power of analysis available to those who really want to understand an investment.

Not much Canadian news today, yield curve is really pricing a 25 bps reduction in Canada's director interest rates (overnight) within the next 3 months -- next meeting of the governors of the Bank of Canada is September 6th.  Mark Carney and his friends are seeing the carnage that is America and Europe, and the impact on Canada could be dramatic.  Already the CAD as dropped 4% over the past 3 weeks, Canada's economy is very exposed to global shocks, and there are a few of those around now....

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