This morning as I read the Globe & Mail over breakfast, I could not help but be drawn into a column by writer Harry Koza.

Mr. Koza did a splendid job of really laying bare the truth that lurks in the shadowy world of sub prime mortgages. He notes that $50 billion worth of mortgages come due in August and homeowners will have to re-new these mortgages as traditional principle/interest mortgages. No low teaser rates, no interest only schemes. Providing these mortgages can be rolled over successfully all will be OK. But if a chunk of this $50 billion ends up in default then expect more market turmoil.

This past week the Wall Street Journal ran an interesting article that caught my attention. I have since done some digging and what I have found is quite interesting....

My searches took me to a website called www.markit.com, which by the way is a treasure chest of information. It turns out that the odds of an "A" rated sub-prime default have been dropping. This is a good thing. But where the story takes a murky turn is when we look at the cost of insuring Bonds and insuring assets backed by commercial mortgages. The cost of this insurance has been rising. Evidently the markets are bracing for something bad. If the cost of this insurance stays elevated, buyers will steer clear of bond and asset backed products with high insurance costs. Lack of demand will affect the bid-ask of these products which will ultimately mean some write-downs as these products are "marked to market". In fact this week, Goldman Sachs noted that we can expect Q1 write-downs from each of the major investment banks of between $1 billion and $12 billion each !! There has been a quiet sense of optimism coming back into the markets. Now I fear this optimism could be challenged once again. Trade wisely in the weeks to come. Make judicious use of stop loss orders to protect gains that you have accumulated in the past weeks. We will eventually work our way out of this messy stuff. Until then, be careful.