Archive for April, 2011

April 25, 2011

Monday, April 25th, 2011

Nothing happened today.

It was an uneventful day on the Canadian preferred share market, with PerpetualDiscounts gaining 4bp, FixedResets off 4bp and DeemedRetractibles up 3bp. There wasn’t a single entry for the Performance Highlights table; volume was average.

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 0.0000 % 2,414.1
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.0000 % 3,630.8
Floater 2.50 % 2.26 % 35,626 21.63 4 0.0000 % 2,606.6
OpRet 4.92 % 3.26 % 59,484 2.06 8 -0.0289 % 2,411.3
SplitShare 5.20 % -0.83 % 87,837 0.63 6 -0.1354 % 2,494.7
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0289 % 2,204.9
Perpetual-Premium 5.79 % 5.70 % 117,605 6.12 8 0.0348 % 2,050.5
Perpetual-Discount 5.58 % 5.57 % 134,153 14.38 16 0.0360 % 2,121.4
FixedReset 5.17 % 3.51 % 204,044 2.91 57 -0.0392 % 2,292.6
Deemed-Retractible 5.29 % 5.25 % 298,021 8.12 53 0.0276 % 2,074.1
Performance Highlights
Issue Index Change Notes
No individual gains or losses exceeding 1%!
Volume Highlights
Issue Index Shares
Traded
Notes
MFC.PR.D FixedReset 99,684 TD crossed 90,000 at 27.49.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-19
Maturity Price : 25.00
Evaluated at bid price : 27.42
Bid-YTW : 3.68 %
SLF.PR.C Deemed-Retractible 86,938 TD crossed 76,000 at 20.82.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.81
Bid-YTW : 6.74 %
GWO.PR.H Deemed-Retractible 75,595 Nesbitt crossed 70,000 at 22.34.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.20
Bid-YTW : 6.38 %
BAM.PR.X FixedReset 66,709 RBC crossed 23,700 at 25.00.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-04-25
Maturity Price : 23.02
Evaluated at bid price : 24.76
Bid-YTW : 4.43 %
TD.PR.O Deemed-Retractible 56,325 Nesbitt crossed 43,000 at 24.72.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.60
Bid-YTW : 5.07 %
TRI.PR.B Floater 51,320 RBC crossed 50,000 at 23.05.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-04-25
Maturity Price : 22.77
Evaluated at bid price : 23.05
Bid-YTW : 2.26 %
There were 29 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
NA.PR.N FixedReset Quote: 26.50 – 26.85
Spot Rate : 0.3500
Average : 0.2289

Offer expires tomorrow.

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-09-14
Maturity Price : 25.00
Evaluated at bid price : 26.50
Bid-YTW : 2.58 %

GWO.PR.M Deemed-Retractible Quote: 25.01 – 25.64
Spot Rate : 0.6300
Average : 0.5119

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.01
Bid-YTW : 5.88 %

FTS.PR.G FixedReset Quote: 26.38 – 26.99
Spot Rate : 0.6100
Average : 0.4938

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-10-01
Maturity Price : 25.00
Evaluated at bid price : 26.38
Bid-YTW : 3.17 %

HSB.PR.E FixedReset Quote: 27.12 – 27.50
Spot Rate : 0.3800
Average : 0.2671

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-30
Maturity Price : 25.00
Evaluated at bid price : 27.12
Bid-YTW : 4.04 %

NA.PR.M Deemed-Retractible Quote: 26.10 – 26.45
Spot Rate : 0.3500
Average : 0.2450

Offer expires tomorrow.

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-06-14
Maturity Price : 25.00
Evaluated at bid price : 26.10
Bid-YTW : 5.13 %

POW.PR.A Perpetual-Discount Quote: 24.33 – 24.63
Spot Rate : 0.3000
Average : 0.1994

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-04-25
Maturity Price : 24.07
Evaluated at bid price : 24.33
Bid-YTW : 5.79 %

RF.PR.A Special Meeting Adjourned

Monday, April 25th, 2011

C.A. Bancorp Canadian Realty Finance Corporation has announced:

that the Corporation’s special meeting of Class A and Series 1 Preferred Shareholders (the “CRFC Shareholders”) to be held today (the “Special Meeting”) to consider the previously announced Proposed Transaction has been adjourned until May 5, 2011.

An insufficient number of holders of Series 1 Preferred Shares was present in person or represented by proxy to constitute a quorum for the conduct of business at the Special Meeting. The adjourned Special Meeting will be held on May 5, 2011 at 4:00 p.m. EST at the Corporation’s offices at 401 Bay Street, Suite 1600, Toronto, Ontario. Proxies for the adjourned Special Meeting must be received no later than May 3, 2011 at 4:00 p.m. EST.

CRFC Shareholders are encouraged to read the Information Circular for the Special Meeting, which contains detailed information about the Proposed Transaction, and to vote their shares. A copy of the Information Circular is available under the corporate profile of CRFC on the System for Electronic Document Analysis and Retrieval (SEDAR) at www.sedar.com and on CRFC’s website at www.cabancorp.com.

CRFC Shareholders who have questions about the information contained in the Information Circular or the Proposed Transaction or who require assistance in completing the applicable form of proxy, are encouraged to contact Kingsdale Shareholder Services Inc. by telephone at 1-866-581-1513 toll free in North America or 416-867-2272 outside of North America or by email at contactus@kingsdaleshareholder.com.

Director Resignation

The Corporation also announced today that Robert Wolf has tendered his resignation as a director of the Corporation. The Board will consider the need for a replacement director if the Proposed Transaction described in the Information Circular does not proceed. In the meantime, the remaining two directors will continue to carry out the duties of the Board. The Board is currently comprised of John Driscoll (Chair) and Paul Haggis.

The information circular is available on-line and was discussed in the post RF.PR.A: Shareholders to Vote on Manager Change.

In that post I pointed out that the proposed new manager is a hedge fund specialist with no publicly published track record and concluded:

Well, I just plain don’t like this issue and recommend that preferred shareholders vote against the plan. A change in recommendation will be dependent upon:
  • The company should obtain a credit rating for the preferreds
  • The company should present a credible plan for funding the redemption of the preferreds (e.g., a credit line with a major bank).
  • The NAV test should be more stringent.

I see no reason to change the recommendation as yet. Vote No!

Research: The Annuity Decision

Monday, April 25th, 2011

Annuities are very popular for retirees – and, indeed, were until recently compulsory when an insolvent pension plan was being wound down – but are largely misunderstood. I examined some of their investment characteristics in my recent article “The Annuity Decision”, published in the March/April, 2011, edition of Canadian Moneysaver.

Look for the research link!

Update, 2011-6-15: Regretably, the link to the publicly available annuity rate information given in the article is no longer operational.

Update, 2011-9-27: Canadian annuity rate data, collected by CANNEX, is now being published by the Globe & Mail.

BCE.PR.G / BCE.PR.H Conversion Results Announced

Monday, April 25th, 2011

BCE Inc. has announced:

that 370,067 of its 10,051,751 Cumulative Redeemable First Preferred Shares, Series AG (series AG preferred shares) have been tendered for conversion on May 1, 2011, on a one-for-one basis, into Cumulative Redeemable First Preferred Shares, Series AH (series AH preferred shares). In addition, 1,159,372 of its 3,948,249 series AH preferred shares have been tendered for conversion on May 1, 2011, on a one-for-one basis, into series AG preferred shares. Consequently, on May 1, 2011, BCE will have 10,841,056 series AG preferred shares and 3,158,944 series AH preferred shares issued and outstanding. The series AG preferred shares and the series AH preferred shares will continue to be listed on the Toronto Stock Exchange under the symbols BCE.PR.G and BCE.PR.H, respectively.

The series AG preferred shares will pay on a quarterly basis, for the five-year period beginning on May 1, 2011, as and when declared by the Board of Directors of BCE, a fixed cash dividend based on an annual fixed dividend rate of 4.50%.

The series AH preferred shares will continue to pay a monthly floating adjustable cash dividend for the five-year period beginning on May 1, 2011, as and when declared by the Board of Directors of BCE. The monthly floating adjustable dividend for any particular month will continue to be calculated based on the prime rate for such month and using the Designated Percentage for such month representing the sum of an adjustment factor (based on the market price of the series AH preferred shares in the preceding month) and the Designated Percentage for the preceding month.

The conversion notice was reported on March 29; the dividend reset on BCE.PR.G was also reported.

Both issues are tracked by HIMIPref™; both are relegated to the Scraps index based on credit concerns.

CSA/IIROC: Your Order is State Property

Saturday, April 23rd, 2011

This commentary is terribly late, but better late than never! I’ve had the links in my “Draft Posts” pile for a long time, but am only now getting around to posting the stuff.

The Canadian Securities Administrators (which is the securities commissions) and the Investment Industry Regulatory Organization of Canada have released POSITION PAPER 23-405 DARK LIQUIDITY IN THE CANADIAN MARKET, which provides an update to 23-308 and 23-404, which have been discussed on PrefBlog. The comment letters have been published.

One conclusion is:

In our view:
  • An exemption to the pre-trade transparency requirements should only be available when an order meets or exceeds a minimum size (in the Position Paper, we will refer to this as the “minimum size exemption” or “minimum size threshold”). This minimum size threshold for posting passive Dark Orders would apply to all marketplaces (whether transparent or a Dark Pool) regardless of the method of trade matching (including continuous auction, call or negotiation systems), and for all orders whether client, non-client or principal.

They further explain:

Rule 6.3 of UMIR (the Order Exposure Rule) states that “A participant shall immediately enter on a marketplace that displays orders … a client order to purchase or sell 50 standard trading units or less of a security ….”. Aside from the specific exemptions under the Order Exposure Rule, it is currently required that client orders with a quantity equal to or less than 50 standard trading units will be directed to a transparent marketplace in order to be displayed. The Order Exposure Rule encourages transparency and supports the price discovery process, while still providing an opportunity for dealers to minimize large, passive order information leakage. Price discovery is enhanced by requiring smaller passive orders to be posted in a visible marketplace and rewarding those orders with increased execution opportunities. Additionally, IIROC has provided guidance in Market Integrity Notice 2007-019 with respect to the entry of client orders on non-transparent markets or facilities

So in other words, if you want to keep your order for 4900 shares dark – you can’t. It’s illegal. The powers that be have determined that your order is required as a critical part of the price discovery process. Those prefs you want to sell are quoted at 20.50-00, and you’d like to place an offer at 20.90, keeping it dark so the penny algos won’t move to 20.89? Tough luck, sucker. You are required to tip your hand to your broker, the exchange and the world.

The regulators don’t have a clue about the real world, though:

the Order Exposure Rule which requires that participants immediately enter on a marketplace that displays orders, all client orders for 50 standard trading units or less, subject to a number of exceptions. This is a benefit gained by passive, displayed orders in a transparent order book, in that active orders not meeting the size conditions of the rule are obligated to be routed to a transparent market, thus increasing the chances of execution for the displayed order.

If this was really beneficial to retail they wouldn’t need to make it mandatory. It is plainly apparent that not a single writer of this report has ever attempted to execute a trade in an illiquid market. They state that their motivation is:

The posting of limit orders in a visible book is important to maintain the quality of price discovery. To achieve this, limit orders should ideally be directed to, and displayed in visible marketplaces in order to facilitate the price discovery process.

In other words, the purpose of limit orders is not to save some money. The purpose of limit orders is to “facilitate the price discovery process.”. At least, according to the regulators.

It is in the discussion of the rule that the regulatory contempt for retail shines through:

allow larger orders to be executed with decreased market impact costs. However, as the “market impact cost” rationale described above may be less relevant to small Dark Orders, a possible rationale for allowing smaller orders to be posted as Dark Orders and be exempted from pre-trade transparency requirements is that they offer price improvement over the NBBO. While small orders may provide some price improvement when posted as a Dark Order, the limited quantity diminishes the value of price improvement to all market participants when compared to the value, or net benefit, of having larger Dark Orders offering the same price improvement, as well as providing much greater amounts of liquidity to the market as a whole. Currently in Canada, there are Dark Pools or Dark Order types that offer as little as 10% price improvement over the NBBO. In the situation where the NBBO spread for a particular security is very small (for example, one penny), we question whether the price improvement provided by small non-transparent orders is sufficiently meaningful for contra-side participants.

So if you feel that 10% price improvement (which, I take it, is 10% of the quoted spread, not the quoted price) is a worthwhile thing to have in your pocket – tough! Your orders are not for your benefit, they are for the benefit of other marketplace participants.

This is made explicit in the official staff view:

It is our view that the potential negative impact on price discovery of a greater number of small orders being entered without pretrade transparency and the potential drain on visible liquidity outweighs the benefits of the possible price improvement that they may offer. While post-trade information contributes to the price discovery mechanism, pre-trade transparency is an important element. The risk of a significant erosion of the quality of that mechanism exists if a substantial number of small orders are posted in the dark. As regulators, part of our mandate is to foster fair and efficient capital markets. The requirements to post small orders to a visible market and facilitating price discovery are key components of fair and efficient capital markets.

Consequently, we are of the view that an exemption from the pre-trade transparency requirements should only be available for orders meeting the minimum size threshold.

The staff, by the way, are not people with any knowledge of, or interest in, the capital markets and have no idea of what is meant by the phrase “fair and efficient capital markets.” They’re 25-year old B-School grads and 30-year-old lawyers with majors in boxtickingology.

They asked for responses on or before January 10, 2011.

One response which attracted some press attention was a tearful wail from David Panko of TD Securities, who is distraught that he cannot compete unless he has privileged access to the markets:

In addition, the existence of rebates encourages sophisticated high frequency traders to “stack the quote” by bidding and offering in large size. While this is certainly a benefit for small investors with orders that can be filled “on the quote”, it also disincents traders from placing natural bids and offers in the market, as these new bids and offers would be behind a large volume of HFT orders In turn, this leads to a greater proportion of client orders filled actively by crossing the bid-ask spread. The result is a combination of worse average fill prices for the end clients (through more frequent crossing of the bid-ask spread) and much higher marketplace fees for the broker (through a higher active/passive ratio)

Mr. Panko either does not know, or does not care, about the distinction between “informed” and “uninformed” traders.

These are the two types of traders who execute actively. Basically, so the theory goes, there is a “market price” for a security, which is the mid-point of the bid-offer spread. Call that “P” and the spread “S”. There is also a “Value Price” for the issue, P’, which is the Platonic Ideal price in a perfectly efficient world in which all private information has been put to work. It is assumed that over the long run P = P’, but these can vary over the short-run.

An uninformed trader will execute his active order and, on average, lose 0.5*S on each of his trades. If, however, an informed trader oberves that P’ > P + 0.5*S … back up the truck! He’ll execute all kind of active orders, happily paying the spread in exchange for getting his buys filled at a price that may be significantly less than P’.

So while one can certainly say that end-clients, as a group, are getting worse average fill prices, it is trivial to demonstrate that informed traders are getting better average fill prices and uninformed traders are getting worse ones. Informed traders will receive market rewards that reflect the accuracy of their estimates of P’.

To which I say – “Wonderful”. If there is anybody out there who truly wants to encourage price discovery as a valuable social good, they will do everything they can to reward informed traders and punish the uninformed. If we’re lucky, the uninformed ones will go bankrupt, go on welfare and die – that would be good.

Sufficient bankruptcy of the uninformed will, eventually, lead to a higher proportion of informed traders in the market, greater losses by HFT, therefore somewhat wider spreads, therefore more incentive to place “natural” bids and offers in the marketplace and give Mr. Panko something to talk about with his clients. It’s called competition.

So, with the shift to HFT stacking the quote, informed traders are winners – since they can execute at better prices. Uninformed active traders are also winners – since their market orders are executed at better prices. The only losers are the uninformed “market-maker” traders – those who, when attempting to buy a stock, consider it to be the height of genius to place a bid inside the quote rather than lifting the offer. These guys are now having their lunch eaten by people who can do it better. Boo-hoo-hoo. It’s called competition.

Mr. Panko also squares his rot for a good boo-hoo-hoo about how unfair it is for brokers to pay so much money for execution of active orders. Well, Mr. Panko of TD Securities, today is your lucky day because after a lifetime of research into market microstructure I think I’ve hit on a solution for you, which I will provide to TD Securites free, gratis and for nothing: if it costs more, charge more. A crazy idea, I know, but it just might work! Why should an off-quote limit order attract the same commission as a market order?

It’s a shame I’ve been so critical of Mr. Panko’s commentary, because his discussion was quite interesting, with more supporting numbers than is usual with self-serving sell-side lobbying letters in Canada, although the numbers themselves did not get much support. Unfortunately, the decision to “strongly recommend” the complete elimination of liquidity rebates is not particularly well supported by his discussion and argumentation: perhaps TD Securities wrote the recommendations in the executive suite, then assigned him the task of writing the rest of the letter.

April 21, 2011

Thursday, April 21st, 2011

There’s a hot new investment product being flogged in Somalia – piracy futures:

Piracy syndicates are selling shares in planned attacks, fueled by a surge of ransom payments that help attract investors, the U.S. Chief of Naval Operations said.

Piracy syndicates in villages, mainly in largely ungoverned Somalia, solicit investors who buy shares in the attack missions and gain a corresponding share of ransoms paid by the shipping industry, Admiral Gary Roughead said.

The world deserves this, because we’re all wimps now. As I said on August 3:

Julius Caesar knew what to do about pirates; so did Thomas Jefferson.

Maybe the shipping companies should just pay the next ransom in Apple products:

[Alasdair] Allan and former Apple software engineer Pete Warden said they stumbled upon the file where all the location data was being stored by accident while toying with the iPhone to see what other data could be pulled from the device. They were surprised to find a file with about 29,000 logs of their whereabouts — about a year’s worth.

They determined that Apple’s iOS 4 operating system for the iPhone and iPad 3G is logging latitude-longitude coordinates along with the time stamp of when a spot was visited. The data is transferred to the hard drive of a computer when the 3G iPhone or iPad is synched.

And, given that I’m basically ignoring fixed income in today’s report, let’s wrap up with some political F-35 news:

It may cost as much as $1 trillion to operate the military’s fleet of Lockheed Martin Corp. (LMT) F-35 aircraft for several decades, according to a preliminary Pentagon estimate sent to Congress.

The figure is 9.3 percent more than the $915 billion estimate by the Defense Department in its 2009 Selected Acquisition Report to Congress.

The long-term cost estimate, which includes inflation, was submitted to Congress on April 15 in a report obtained by Bloomberg News. It assumes 8,000 hours of flying time for each of the 2,443 aircraft over a 30-year period. The Air Force, Navy and Marine Corps have their own variations of the aircraft, with the last in the fleet to be produced in 2035.

We’re supposed to be buying 65 of them, so our cost should only be about $26.6-billion based on the US estimates, assuming we don’t experience higher unit costs for a smaller-scale programme.

In news related to the Canadian preferred share market that is supposed to be the subject of this blog, it was a pretty quiet day, with PerpetualDiscounts down 5bp, FixedResets gaining 5bp and DeemedRetractibles basically flat. Volatility continued to be low; volume was average, albeit with some big blocks changing hands.

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 0.0000 % 2,414.1
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.0000 % 3,630.8
Floater 2.50 % 2.26 % 36,118 21.64 4 0.0000 % 2,606.6
OpRet 4.92 % 3.59 % 59,180 2.07 8 0.0096 % 2,412.0
SplitShare 5.19 % -1.56 % 88,687 0.64 6 -0.1087 % 2,498.1
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0096 % 2,205.5
Perpetual-Premium 5.80 % 5.60 % 118,633 6.14 8 0.1393 % 2,049.8
Perpetual-Discount 5.58 % 5.57 % 135,765 14.38 16 -0.0452 % 2,120.6
FixedReset 5.17 % 3.46 % 203,740 2.92 57 0.0515 % 2,293.5
Deemed-Retractible 5.29 % 5.27 % 299,876 8.13 53 -0.0023 % 2,073.5
Performance Highlights
Issue Index Change Notes
FTS.PR.F Perpetual-Discount -1.83 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-04-21
Maturity Price : 22.88
Evaluated at bid price : 23.07
Bid-YTW : 5.38 %
IAG.PR.A Deemed-Retractible -1.18 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.71
Bid-YTW : 6.37 %
PWF.PR.O Perpetual-Premium 1.00 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-11-30
Maturity Price : 25.00
Evaluated at bid price : 25.25
Bid-YTW : 5.65 %
BAM.PR.T FixedReset 1.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-04-21
Maturity Price : 23.04
Evaluated at bid price : 24.80
Bid-YTW : 4.71 %
Volume Highlights
Issue Index Shares
Traded
Notes
RY.PR.B Deemed-Retractible 361,029 RBC crossed 354,400 at 24.23.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.04
Bid-YTW : 5.15 %
RY.PR.X FixedReset 121,560 RBC crossed blocks of 23,200 at 27.10 and 55,000 at 27.15; then bought 10,800 from TD at 27.15 again.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-09-23
Maturity Price : 25.00
Evaluated at bid price : 27.10
Bid-YTW : 3.52 %
CM.PR.J Deemed-Retractible 107,161 Nesbitt crossed 100,000 at 23.50.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.50
Bid-YTW : 5.25 %
CM.PR.I Deemed-Retractible 104,770 Nesbitt crossed 100,000 at 23.90.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.90
Bid-YTW : 5.26 %
BNS.PR.K Deemed-Retractible 67,359 Nesbitt crossed 50,000 at 24.25.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.25
Bid-YTW : 5.19 %
BMO.PR.Q FixedReset 36,650 Anonymous sold 10,000 to Scotia at 25.00 and the same amount at the same price to Desjardins.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.95
Bid-YTW : 3.89 %
There were 33 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BNA.PR.E SplitShare Quote: 24.36 – 24.89
Spot Rate : 0.5300
Average : 0.3761

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2017-12-10
Maturity Price : 25.00
Evaluated at bid price : 24.36
Bid-YTW : 5.45 %

RY.PR.P FixedReset Quote: 26.81 – 27.16
Spot Rate : 0.3500
Average : 0.2354

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-03-26
Maturity Price : 25.00
Evaluated at bid price : 26.81
Bid-YTW : 3.48 %

RY.PR.B Deemed-Retractible Quote: 24.04 – 24.30
Spot Rate : 0.2600
Average : 0.1685

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.04
Bid-YTW : 5.15 %

RY.PR.L FixedReset Quote: 26.42 – 26.79
Spot Rate : 0.3700
Average : 0.2858

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-03-26
Maturity Price : 25.00
Evaluated at bid price : 26.42
Bid-YTW : 3.34 %

CIU.PR.A Perpetual-Discount Quote: 22.50 – 22.94
Spot Rate : 0.4400
Average : 0.3603

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-04-21
Maturity Price : 22.35
Evaluated at bid price : 22.50
Bid-YTW : 5.18 %

FTS.PR.F Perpetual-Discount Quote: 23.07 – 23.50
Spot Rate : 0.4300
Average : 0.3526

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-04-21
Maturity Price : 22.88
Evaluated at bid price : 23.07
Bid-YTW : 5.38 %

PSF.UN: Unusual Benchmarking! Nice Fees!

Thursday, April 21st, 2011

Preferred Share Investment Trust was mentioned previously on PrefBlog, in the post Catapult Financial Offering Actively-Managed Preferred Share Trust. I haven’t paid much attention to it since, because the name is something of a misnomer – the indicative portfolio given in the prospectus was 32% bonds, 6% convertible bonds.

However, it was mentioned to me today so I thought I’d look it up: there are very few documents available on the fund’s official website, you have to go to SEDAR for the good stuff.

My first stop was the “Management report of fund performance – English”, filed 2011-3-31, and what immediately hit my eye was:

For the fiscal year ended December 31, 2010, the Net Assets per unit of the Fund was $11.88 after payment of distributions to securityholders compared to $11.80 on December 31, 2009. The Fund paid cash distributions of $0.91 per unit during the year. The Fund had a total return of 8.4% compared to the S&P/TSX Preferred Share Index which returned 2.0%.

Huh? 2.0%?

It appears they are using the Price Index, not the total return index. The total return on the S&P/TSX Preferred Share Index was 7.73% in 2010. Price Index, Schmice Index. The long term expected return on the price index for any fixed income category is a big fat (all together now, folks! 3, 2, 1…) ZERO.

Right away I’ve lost all sympathy and most of my interest in these guys. Let’s just say that comparing fund total return to benchmark price return, particularly in the fixed income sector, is not quite strictly a practice I recommend, and leave it at that, OK? But I’ll soldier on and look at the “Audited annual financial statements – English”, also filed 2011-3-31.

At year-end 2010, they had $21.8-million in margin debt and $56.2-million in equity, for a leverage factor of 1.39:1, while at year end 2009, the figures were $14.3-million, $69.6-million, 1.21:1. So they were levered up big-time during a bull market and were only just able to beat their benchmark after fees.

Ah yes, fees.

TheManager is entitled to an annual fee of 2.10% based on the Net Asset Value of the Fund. This fee is calculated daily and payable monthly in arrears. The Manager is responsible for fees payable to the Portfolio Manager.

In addition, the Manager is entitled to an amount equal to the service fee payable to dealers, which is equal to 0.40% annually of the Net Asset Value of the Fund held by clients of the sales representatives of dealers. This fee is calculated daily and paid quarterly in arrears.

The Fund is responsible for all costs relating to its administration.

The total MER is reported in the Fund Performance hand-out. 3.33%. Nice work if you can get it!

The portfolio at year end was:

  • CAD Preferreds 73.49% (no breakdown by type)
  • USD Preferreds 3.71%
  • CAD ‘bonds, notes and convertibles’ 19.58%
  • USD ‘bonds, notes and convertibles’ 3.08%
  • Gain on USD to CAD forwards 0.14%

Sadly, I have no more interest in the fund now than I had this morning.

April 20, 2011

Wednesday, April 20th, 2011

DBRS confirmed Transcontinental at Pfd-3(high); the ticker is TCL.PR.D.

The Canadian preferred share market had mixed returns today as, in a reversal of recent form, PerpetualDiscounts lost 7bp, FixedResets were essentially flat and DeemedRetractibles gained 13bp. Volatility remained subdued. Volume was high.

PerpetualDiscounts now yield 5.58%, equivalent to 7.25% interest at the standard equivalency factor of 1.3x. Long Corporates now yield about 5.5%, so the pre-tax interest-equivalent spread (also called the Seniority Spread) is now about 175bp, a slight (and perhaps spurious) increase from the 170bp reported April 13.

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 0.0833 % 2,414.1
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.0833 % 3,630.8
Floater 2.50 % 2.26 % 36,155 21.64 4 0.0833 % 2,606.6
OpRet 4.92 % 3.49 % 59,371 2.07 8 -0.1636 % 2,411.7
SplitShare 5.19 % -1.55 % 89,901 0.65 6 0.3035 % 2,500.8
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.1636 % 2,205.3
Perpetual-Premium 5.80 % 5.72 % 118,141 6.13 8 -0.0249 % 2,047.0
Perpetual-Discount 5.58 % 5.58 % 128,367 14.40 16 -0.0678 % 2,121.6
FixedReset 5.16 % 3.46 % 205,036 2.92 57 -0.0027 % 2,292.3
Deemed-Retractible 5.28 % 5.29 % 303,850 8.13 53 0.1294 % 2,073.6
Performance Highlights
Issue Index Change Notes
IAG.PR.C FixedReset 1.19 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-01-30
Maturity Price : 25.00
Evaluated at bid price : 27.17
Bid-YTW : 3.03 %
IAG.PR.F Deemed-Retractible 1.59 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-04-30
Maturity Price : 25.00
Evaluated at bid price : 25.52
Bid-YTW : 5.66 %
Volume Highlights
Issue Index Shares
Traded
Notes
CIU.PR.B FixedReset 204,442 Nesbitt crossed 200,000 at 27.65.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-01
Maturity Price : 25.00
Evaluated at bid price : 27.61
Bid-YTW : 3.59 %
BMO.PR.O FixedReset 76,782 TD crossed blocks of 20,000 shares, 25,000 and 10,000, all at 27.66.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-06-24
Maturity Price : 25.00
Evaluated at bid price : 27.69
Bid-YTW : 3.31 %
RY.PR.A Deemed-Retractible 54,670 Desjardins crossed 25,600 at 23.70.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.75
Bid-YTW : 5.17 %
BNS.PR.Z FixedReset 52,031 Desjardins crossed 30,000 at 24.47, then bought 12,000 from Nesbit at 24.45.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.39
Bid-YTW : 4.08 %
TD.PR.Q Deemed-Retractible 40,122 TD bought 14,500 from RBC at 25.60, then crossed 15,000 at the same price.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-03-02
Maturity Price : 25.00
Evaluated at bid price : 25.56
Bid-YTW : 5.15 %
RY.PR.Y FixedReset 34,275 RBC crossed 15,000 at 27.44.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-12-24
Maturity Price : 25.00
Evaluated at bid price : 27.44
Bid-YTW : 3.58 %
There were 45 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
FTS.PR.G FixedReset Quote: 26.21 – 26.71
Spot Rate : 0.5000
Average : 0.3734

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-10-01
Maturity Price : 25.00
Evaluated at bid price : 26.21
Bid-YTW : 3.43 %

ELF.PR.F Deemed-Retractible Quote: 22.55 – 22.94
Spot Rate : 0.3900
Average : 0.2853

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.55
Bid-YTW : 6.63 %

GWO.PR.H Deemed-Retractible Quote: 22.23 – 22.60
Spot Rate : 0.3700
Average : 0.2662

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.23
Bid-YTW : 6.35 %

TD.PR.C FixedReset Quote: 26.44 – 26.76
Spot Rate : 0.3200
Average : 0.2256

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-03-02
Maturity Price : 25.00
Evaluated at bid price : 26.44
Bid-YTW : 3.43 %

PWF.PR.E Perpetual-Discount Quote: 24.30 – 24.69
Spot Rate : 0.3900
Average : 0.3078

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-04-20
Maturity Price : 23.99
Evaluated at bid price : 24.30
Bid-YTW : 5.67 %

CIU.PR.A Perpetual-Discount Quote: 22.50 – 22.85
Spot Rate : 0.3500
Average : 0.2729

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-04-20
Maturity Price : 22.35
Evaluated at bid price : 22.50
Bid-YTW : 5.18 %

April 19, 2011

Tuesday, April 19th, 2011

A European has said something sensible!

As European finances continue to decay, one of the central bankers at the heart of the sovereign debt crisis departs his post with a lament for lack of political leadership.

Calling the crisis a “man-made” problem, Nout Wellink, the outgoing Dutch central bank president and member of the European Central Bank’s governing council, blamed irresponsible fiscal policy that left the ECB no choice but to wade into murky, unfamiliar waters beyond its mandate of price stability.

“The ECB has increasingly been burdened with solving problems that do not form part of her core task, because other authorities failed to take responsibility,” Mr. Wellink said in a speech in Toronto on Monday.
“And I’m talking about politicians. Politicians should not shy away from solving problems in the hope that central banks will come to the rescue.”

And the domino theory is making a comeback:

European investors and politicians prodding Greece to restructure its debt may end up wishing they hadn’t.

Talk of restructuring spurred by Germany risks re-igniting Europe’s debt crisis, enveloping Spain just weeks after European leaders said bailouts of Greece, Ireland and Portugal ended contagion. Under a Greek default, Europe’s financial system would strain as banks in and outside Greece and holders of Greek bonds, such as the European Central Bank and domestic pension funds, tally losses.

“By restructuring Greek debt you also may precipitate a crisis in Spain,” David Watts, a strategist at CreditSights Inc. in London, said in a telephone interview. “At that point it doesn’t matter how much you’ve saved by restructuring Greece, the fallout from Spain is much greater. The issue comes back to not knowing the ultimate cost.”

French and German lenders accounted for almost two-thirds of lending to Greek public and private debtors as of Sept. 30, according to the Bank for International Settlements. French banks held $59.4 billion and German banks $40.3 billion, followed by U.K. and Portuguese lenders to Greece.

European central bankers have also pushed back against Germany after the ECB bought an estimated 76 billion euros ($108 billion) in bonds to try to stem the crisis. ECB President Jean- Claude Trichet was thwarted by European Union leaders who rejected his bid to shift the bond-purchase program to the EU’s 440 billion-euro European Financial Stability Facility.

Greek 10-year debt trades for 60 cents and yields 14.26 percent, more than 11 percentage points higher than benchmark German bunds. Two-year Greek yields soared above 20 percent and credit-default swaps signal a 64.5 percent chance of default within five years.

We know that Black Friday and the Great Depression caused Americans to swear off equities for a generation. Could the same thing be happening in real estate?:

The most affordable real estate in a generation is failing to lure buyers as Americans like Pauli sour on the idea of home ownership. At the end of 2010, the fourth year of the housing collapse, the share of people who said a home was a safe investment dropped to 64 percent from 70 percent in the first quarter. The December figure was the lowest in a survey that goes back to 2003, when it was 83 percent.

“The magnitude of the housing crash caused permanent changes in the way some people view home ownership,” said Michael Lea, a finance professor at San Diego State University. “Even as the economy improves, there are some who will never buy a home because their confidence in real estate is gone.”

The SEC is requesting comment on effective Investor Education programmes. What’s even more amazing is that the detailed request includes such revolutionary nit-picking as:

Please describe the program, including its duration, target audience, and any measurable goals and objectives aimed at changing investor behavior.

If yes, please describe the findings of the evaluation, including any statistical evidence of how your program effectively changed one or more investor behaviors among participants.

“Measurable”? “Evidence”? “Effectively”? What is this? What are they doing? Don’t they realize that the purpose of public investor education programmes is to give money to public investor educators? What’s all this “measurement” and “effectiveness” crap?

Who wants to know about cash drag? Here’s an article about cash drag:

The Teacher Retirement System of Texas needs an annual return of 21 percent in the year ending Aug. 31 to maintain an 80 percent funded ratio, the level actuaries consider adequate to cover liabilities, said its deputy director.

“We’d have to have remarkable investment returns for the rest of the year to reach 80 percent,” Brian Guthrie, the fund’s executive director-designate, said at a Texas House hearing today in Austin.

Even with the gains, the pension’s funded ratio — the portion of promised benefits covered by current assets — dropped to 81.3 percent as of Feb. 28 from 82.9 percent on Aug. 31, 2010, because of trading losses in 2008 and 2009 included through a process called smoothing, Executive Director Ronnie Jung said April 7.

Fortunately, the Texas legislature is taking prompt and decisive action:

Texas legislators are considering reducing the state’s contribution to the fund, which is now 6.64 percent of employees’ salaries.

So are many employees:

California, Florida and Texas are seeing more retirements as rising benefit costs, pay cuts and looming furloughs prompt workers to leave. Inducements to quit early also boosted departures in New York as U.S. states tackled budget gaps totaling more than $540 billion since fiscal 2009, according to the Center on Budget and Policy Priorities. In New Jersey, Wisconsin and Ohio, added motivation came from attacks on unions over costs that strained budgets.

DBRS confirmed Canadian Utilities and also confirmed CU Inc..

The politicians can’t resist proposing changes to the TMX/LSE deal:

A deal between the operators of the Toronto and London stock exchanges should live up to its billing as a “merger of equals” by giving Canada a bigger voice on the combined entity’s board of directors, says an influential committee of the Ontario Legislature.

The board should consist of an equal number of directors from Canada and the United Kingdom, and the transaction should preserve the Toronto Stock Exchange’s role as the global leader in raising equity for mining companies, a report by an all-party committee says.

“Ontario has been very successful with its financial services sector, and the TMX is a significant part of that,” Gerry Phillips, chairman of the committee, told reporters. “If the centre of gravity does in fact shift from here to London, it does raise risks of us not having the same success we’ve had.”

“We” and “us”, eh, Mr. Phillips? Just what exactly have you had to do with it? Supply evidence of your effectiveness!

Here’s something interesting: Milevsky and Macqueen wrote a book called Pensionize Your Nest Egg last year, touting “Product Allocation” as the key to a happy retirement. Now Manulife has started a website with that title at http://www.productallocation.ca/home/ … which is officially to be read only if one is a “Dealer, Broker or Advisor affiliated with Manulife Financial”. I see a link titled RSQ on the page, but sadly, once I click “I Disagree” I’m kicked off the site.

It would be most interesting to learn what financial arrangements, if any, exist between Manulife, the authors and the authors’ institutions and what input, if any, Manulife had in the preparation of the book. A Manulife functionary is given pride of place in the acknowledgments of outside readers.

After months of intensive research, Torture-Boy has figured out how a parliamentary system works. What-Debt? considers the idea rather obscene.

The Canadian preferred share market had a respite today from the steady drip-drip-drip of negative returns, with all three main sectors gaining a little ground: PerpetualDiscounts were up 8bp, FixedResets won 6bp and DeemedRetractibles inched up 2bp. Not much volatility, with only one Performance Highlight. Volume was good.

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 0.1085 % 2,412.1
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.1085 % 3,627.8
Floater 2.50 % 2.26 % 36,281 21.64 4 0.1085 % 2,604.4
OpRet 4.91 % 3.05 % 55,570 2.07 8 -0.0529 % 2,415.7
SplitShare 5.20 % -0.37 % 93,361 0.65 6 -0.1206 % 2,493.2
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0529 % 2,208.9
Perpetual-Premium 5.80 % 5.74 % 119,401 6.14 8 0.0000 % 2,047.5
Perpetual-Discount 5.58 % 5.62 % 126,045 14.39 16 0.0759 % 2,123.0
FixedReset 5.16 % 3.50 % 205,793 2.93 57 0.0584 % 2,292.4
Deemed-Retractible 5.28 % 5.29 % 305,501 8.15 53 0.0181 % 2,070.9
Performance Highlights
Issue Index Change Notes
PWF.PR.K Perpetual-Discount 1.28 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-04-19
Maturity Price : 22.78
Evaluated at bid price : 22.99
Bid-YTW : 5.40 %
Volume Highlights
Issue Index Shares
Traded
Notes
MFC.PR.D FixedReset 156,073 RBC crossed blocks of 50,000 and 100,000, both at 27.50.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-19
Maturity Price : 25.00
Evaluated at bid price : 27.50
Bid-YTW : 3.56 %
CM.PR.D Deemed-Retractible 80,450 Nesbitt crossed 70,000 at 25.20.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-05-30
Maturity Price : 25.00
Evaluated at bid price : 25.22
Bid-YTW : 4.79 %
SLF.PR.B Deemed-Retractible 56,768 Nesbitt crossed 50,000 at 22.40.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.40
Bid-YTW : 6.20 %
TRP.PR.B FixedReset 54,611 RBC crossed 49,300 at 25.15.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-04-19
Maturity Price : 25.11
Evaluated at bid price : 25.16
Bid-YTW : 3.85 %
RY.PR.D Deemed-Retractible 42,265 TD Crossed 35,000 at 23.75.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.67
Bid-YTW : 5.27 %
BMO.PR.L Deemed-Retractible 34,960 Nesbitt crossed 25,000 at 26.10.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-06-24
Maturity Price : 25.00
Evaluated at bid price : 26.01
Bid-YTW : 5.23 %
There were 37 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
IAG.PR.C FixedReset Quote: 26.85 – 27.50
Spot Rate : 0.6500
Average : 0.4072

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-01-30
Maturity Price : 25.00
Evaluated at bid price : 26.85
Bid-YTW : 3.50 %

FTS.PR.C OpRet Quote: 26.13 – 26.50
Spot Rate : 0.3700
Average : 0.2534

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2011-05-19
Maturity Price : 25.75
Evaluated at bid price : 26.13
Bid-YTW : -3.94 %

PWF.PR.P FixedReset Quote: 25.58 – 25.92
Spot Rate : 0.3400
Average : 0.2452

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-03-01
Maturity Price : 25.00
Evaluated at bid price : 25.58
Bid-YTW : 3.86 %

IAG.PR.F Deemed-Retractible Quote: 25.12 – 25.60
Spot Rate : 0.4800
Average : 0.4012

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-04-30
Maturity Price : 25.00
Evaluated at bid price : 25.12
Bid-YTW : 5.91 %

GWO.PR.M Deemed-Retractible Quote: 25.26 – 25.60
Spot Rate : 0.3400
Average : 0.2639

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-04-30
Maturity Price : 25.00
Evaluated at bid price : 25.26
Bid-YTW : 5.72 %

FTS.PR.G FixedReset Quote: 26.20 – 26.50
Spot Rate : 0.3000
Average : 0.2346

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-10-01
Maturity Price : 25.00
Evaluated at bid price : 26.20
Bid-YTW : 3.45 %

April 18, 2011

Monday, April 18th, 2011

Today the US got a wake-up call:

Standard & Poor’s put a “negative” outlook on the U.S. AAA credit rating, citing rising budget deficits and debt.

“We believe there is a material risk that U.S. policy makers might not reach an agreement on how to address medium-and long-term budgetary challenges by 2013,” New York-based S&P said in a report today. “If an agreement is not reached and meaningful implementation does not begin by then, this would in our view render the U.S. fiscal profile meaningfully weaker than that of peer ‘AAA’ sovereigns.”

The markets reacted immediately:

U.S. stocks sank the most in a month as Standard & Poor’s Ratings Service cut the nation’s long-term credit outlook to negative. Ten-year Treasuries erased earlier gains and the cost to protect corporate bonds from default climbed to the highest level this month.

The S&P 500 declined 1.5 percent to 1,300.24 at 9:58 a.m. in New York, its biggest drop since March 16. The yield on the 10-year Treasury note climbed three basis points to 3.44 percent after declining four basis points earlier. The dollar was up 1.1 percent at $1.4275 per euro. Gold for June delivery advanced 0.5 percent to $1,493.50 an ounce.

This is a prime example of why I want investible entities to have credit ratings. Not because I can’t come to any conclusions myself, not because I worship the credit rating agencies, but because when they alter their opinions it serves as a focal point for discussion.

However, the announcement did not prevent do-goodism:

The U.S. offered a $2.1 billion loan guarantee to help Solar Trust of America LLC build the world’s largest solar-energy generating station in Southern California.

The project will create 484 megawatts of electricity to be transported over an eight-mile transmission line near Blythe, California, about 230 miles (370 kilometers) east of Los Angeles, according to an Energy Department statement.

“This is the largest amount offered to a solar project through the loans program office,” Energy Secretary Steven Chu said today on a conference call.

Oh well … mere loan guarantees never cost any money, right? I couldn’t find any discussion of the relative cost of this plan – which is suggestive in itself – but a 2008 US Government Report put Natural Gas at $61.77 / Mwh, vs. $100.32 for Solar Thermal.

Remember CalPERS? The humongous pension fund that can’t be bothered to do its own credit analysis? Here’s how they assess investment managers:

In late May 2004, Alfred Villalobos hosted a meeting at his home in Nevada, a few miles from Lake Tahoe and the California border. Villalobos, a former member of the CalPERS Board of Administration and a former Deputy Mayor of the City of Los Angeles, was joined by David Snow, the Chairman and Chief Executive Officer of Medco Health Solutions, one of the nation’s largest pharmacy benefit management (“PBM”) companies, and Fred Buenrostro, who was the Chief Executive Officer of CalPERS – a public official – at the time. We will not discuss the reported details of the conversations between Buenrostro, Villalobos and Snow regarding the CalPERS PBM contract Medco had lost years earlier, in deference to law enforcement authority requests and as we understand that the independent directors of the Medco board are also reviewing these events.

Soon after the May 2004 meeting at the Villalobos home, Medco agreed to retain Villalobos as a consultant and pay him $4 million. Medco agreed to pay Villalobos and his firm even though, as we understand it, Villalobos had no prior PBM counseling experience, and even though Medco had already hired another consulting firm to assist it in securing the CalPERS contract.

Snow would return to the Villalobos home for another meeting in September 2004, when we understand that Buenrostro and Villalobos were joined by three long-time colleagues: Charles “Chuck” Valdes, Kurato Shimada and Robert “Bob” Carlson. The five men – Villalobos, Buenrostro, Valdes, Shimada and Carlson – had served together on the CalPERS Board ten years earlier, when Buenrostro served as a representative for other California state officials. Valdes, Shimada and Carlson were all public officials and still members of the Board in 2004, and were reportedly introduced to Snow as such at the meeting. There were apparently other meetings over the next year between Snow and some or all of the five men, including what appear to have been private meetings at a Sacramento hotel and another at Medco’s Las Vegas pharmacy facility. That November, Buenrostro would also allow Villalobos to host Buenrostro’s wedding at the Villalobos home and reportedly pay for the new couple’s related expenses.

On October 18, 2005, the nine-member Health Benefits Committee of the CalPERS Board convened at a regularly scheduled meeting to interview finalists and to recommend to the full CalPERS Board the award of the PBM contract. Buenrostro attended as CalPERS CEO and was joined by Board members Valdes, Carlson and Shimada. Snow spoke on behalf of Medco, whom the CalPERS staff had already ranked as first choice among the candidates. Although it is unclear how it happened, Medco apparently obtained an internal copy of the Health Benefits Committee’s background documents. Health Benefits Committee members Valdes and Carlson voted in favor of awarding the contract to Medco, with Valdes making the motion to recommend the award of the PBM contract to Medco. That motion passed and Medco was awarded the contract. (Years later, as has been publicly reported, Valdes would invoke his Fifth Amendment right against self-incrimination when government attorneys questioned him about the PBM contract.) Notably, Board member Shimada also attended the Committee meeting and asked a number of questions of the candidates, even though he was not a Health Benefits Committee member. While there, Shimada asked that his questions be reflected in the official record, along with unspecified others that he said he had planned to ask but that had already been posed by the members of the Health Benefits Committee.

Medco apparently had a check cut for hand-delivery that same day – a $1 million payment to Villalobos, the final installment of the initial $4 million agreement. Thereafter, Medco would pay Villalobos a $20,000 monthly retainer, reportedly until sometime in 2009 when Villalobos’ placement agent activities relating to investment managers came under public scrutiny.

They’re not alone. This is an ongoing scandal in the US.

Some shops aren’t just buying gold – they’re buying physical gold:

Dallas hedge-fund manager J. Kyle Bass helped advise the University of Texas Investment Management Co. on taking delivery of 6,643 gold bars, worth $987 million on April 15, now stored in a bank warehouse in New York.

Bass, who made $500 million with 2006 bets on a U.S. subprime-mortgage market collapse, said managers of the endowment, known as UTIMCO, sought board approval to convert its gold investments into bullion this year. A board member, Bass, 41, said he was asked to help with that process.

The Texas fund’s $19.9 billion in assets ranked it behind only Harvard University’s endowment as of August, according to the National Association of College and University Business Officers. Last year, UTIMCO added about $500 million in gold investments to an existing stake, said Bruce Zimmerman, the endowment’s chief executive officer. The fund’s managers sought to take delivery of bullion to protect against demand for the metal overwhelming supply, according to Bass.

Open interest in gold futures and options traded on the Comex typically exceeds supplies held in its warehouses. If the holders of just 5 percent of those contracts opted to take delivery of the metal, there wouldn’t be enough to cover the demand, Bass said.

The Finns are kicking about paying for Greece:

Finland’s euro-skeptic bloc is poised to form a government with the pro-Europe National Coalition led by Finance Minister Jyrki Katainen after voters used yesterday’s election to protest against funding bailouts.

The True Finns, whose leader Timo Soini says taxpayers shouldn’t have helped rescue Greece or Ireland, jumped almost 15 points to 19 percent, the Justice Ministry said. Katainen’s National Coalition won 20.4 percent to become Finland’s biggest party for the first time. Prime Minister Mari Kiviniemi’s Center Party got 15.8 percent and the Social Democrats, which also opposed bailouts for Greece and Ireland, won 19.1 percent. Kiviniemi will lead her party in opposition after its “huge defeat,” she told broadcaster YLE.

“They could not leave the True Finns out of government after this landslide,” said Tuomo Martikainen, professor emeritus in political science at the University of Helsinki, by phone. “It would be making a mockery of democracy.”

Perhaps Mr. Martikainen should consult our own What-Debt? about the construction of coalitions in a democracy!

There were very disparate returns in the Canadian preferred share market today, with PerpetualDiscounts gaining 37bp, FixedResets losing 4bp and DeemedRetractibles getting whacked for 26bp. Volatility was fair, with five entries in the Performance Highlights table. Volume was on the light side.

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 0.0357 % 2,409.5
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.0357 % 3,623.8
Floater 2.50 % 2.27 % 37,762 21.55 4 0.0357 % 2,601.6
OpRet 4.91 % 3.04 % 56,181 2.08 8 0.0963 % 2,417.0
SplitShare 5.20 % -1.54 % 96,938 0.65 6 0.1050 % 2,496.2
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0963 % 2,210.1
Perpetual-Premium 5.80 % 5.71 % 120,730 1.15 8 -0.0398 % 2,047.5
Perpetual-Discount 5.58 % 5.66 % 127,387 14.40 16 0.3727 % 2,121.4
FixedReset 5.17 % 3.48 % 206,969 2.93 57 -0.0385 % 2,291.0
Deemed-Retractible 5.28 % 5.30 % 309,674 8.16 53 -0.2621 % 2,070.5
Performance Highlights
Issue Index Change Notes
IAG.PR.F Deemed-Retractible -1.42 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.05
Bid-YTW : 5.95 %
MFC.PR.D FixedReset -1.05 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-19
Maturity Price : 25.00
Evaluated at bid price : 27.24
Bid-YTW : 3.88 %
MFC.PR.C Deemed-Retractible -1.05 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.76
Bid-YTW : 6.83 %
POW.PR.D Perpetual-Discount 1.17 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-04-18
Maturity Price : 22.38
Evaluated at bid price : 22.56
Bid-YTW : 5.57 %
FTS.PR.F Perpetual-Discount 1.73 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-04-18
Maturity Price : 23.28
Evaluated at bid price : 23.50
Bid-YTW : 5.28 %
Volume Highlights
Issue Index Shares
Traded
Notes
RY.PR.E Deemed-Retractible 113,892 Desjardins crossed 100,000 at 23.75.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.66
Bid-YTW : 5.27 %
MFC.PR.F FixedReset 98,880 Anonymous bought 17,900 from HSBC t 25.00; Nesbitt crossed 55,000 at 25.08.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.96
Bid-YTW : 4.16 %
CM.PR.G Deemed-Retractible 59,357 RBC crossed 42,400 at 24.90.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.95
Bid-YTW : 5.44 %
MFC.PR.D FixedReset 41,847 Nesbitt crossed 31,300 at 27.50.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-19
Maturity Price : 25.00
Evaluated at bid price : 27.24
Bid-YTW : 3.88 %
BNS.PR.N Deemed-Retractible 37,738 Desjardins crossed 25,000 at 25.07.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-02-26
Maturity Price : 25.00
Evaluated at bid price : 25.11
Bid-YTW : 5.16 %
CM.PR.I Deemed-Retractible 32,033 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.63
Bid-YTW : 5.39 %
There were 25 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BAM.PR.P FixedReset Quote: 27.51 – 28.00
Spot Rate : 0.4900
Average : 0.2842

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-10-30
Maturity Price : 25.00
Evaluated at bid price : 27.51
Bid-YTW : 4.05 %

MFC.PR.D FixedReset Quote: 27.24 – 27.59
Spot Rate : 0.3500
Average : 0.2197

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-19
Maturity Price : 25.00
Evaluated at bid price : 27.24
Bid-YTW : 3.88 %

IAG.PR.F Deemed-Retractible Quote: 25.05 – 25.48
Spot Rate : 0.4300
Average : 0.3149

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.05
Bid-YTW : 5.95 %

CIU.PR.A Perpetual-Discount Quote: 22.58 – 22.95
Spot Rate : 0.3700
Average : 0.2852

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-04-18
Maturity Price : 22.43
Evaluated at bid price : 22.58
Bid-YTW : 5.16 %

TDS.PR.C SplitShare Quote: 10.50 – 10.80
Spot Rate : 0.3000
Average : 0.2214

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2011-12-15
Maturity Price : 10.00
Evaluated at bid price : 10.50
Bid-YTW : -1.54 %

CM.PR.J Deemed-Retractible Quote: 23.31 – 23.60
Spot Rate : 0.2900
Average : 0.2116

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.31
Bid-YTW : 5.34 %