Skip to main content

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....

Popular posts from this blog

Ok so I lied...a little (revised)

When we began looking at farming in 2013/14 as something we both wanted to do as a "second career" we invested time and money to understand what sector of farming was profitable.  A few things emerged, First, high-quality, source-proven, organic farm products consistently have much higher profit margins.  Secondly, transformation accounted for nearly 80% of total profits, and production and distribution accounted for 20% of profits: Farmers and retailers have low profit margins and the middle bits make all the money. A profitable farm operation needs to be involved in the transformation of its produce.  The low-hanging fruits: cheese and butter.  Milk, generates a profit margin of 5% to 8%, depending on milk quality.  Transformed into cheese and butter, and the profit margin rises to 40% (Taking into account all costs).  Second:  20% of a steer carcass is ground beef quality.  The price is low, because (a) a high percentage of the carcass, and (b)...
Post a Comment
Read more

Spray painting Taylor Swift G650 aircraft (updated)

 First, a bit of paint will not harm anyone.  These climate activities are going to learn two things in the next few days:  (1) Trespassing at an airport is a felony almost anywhere in the world.  That means criminal prosecution.   (2) removing paint from an aircraft is expensive.   So these climate activists are about to find out the reach of the British criminal system and it will not be pleasant, the UK has very strict laws about that, I would be surprised if cleaning the aircraft of all the paint will cost less than $100,000.     I am sure that when they planned (premeditation) this little show they had a very valid logic to doing this.  Tonight, they are probably realizing the depth of their troubles.   I understand that in the UK it's a minimum one-year jail sentence.    Also, good luck travelling with a criminal trespass charge against you.  I am relatively certain that the airline industry will ...
Post a Comment
Read more

Janet Yellen from China supporter to Hawk...

There is rarely serious news in the world these days, it seems that most newspapers are filled with headlines and little else, and then Ms Yellen went to China.  Secretary Yellen has long been known in the Biden administration as the voice of moderation when dealing with China, yet as her trip which concluded yesterday a hawk was born:  She warned the Chinese against dumping goods in the United States.    fighting words! The American administration is very concerned about the lack of Chinese domestic consumption.   Even before the COVID-19 epidemic, there were already the beginning signs of a slowdown, automobile sales were off.   China is facing domestic deflation (a clear sign of collapsing demand) China imports few consumer goods, they import raw materials and intermediary goods.   It seems that the American administration is concerned that the Chinese administration will dump consumer goods abroad to keep its manufacturing machinery ...
Post a Comment
Read more