April 19, 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
(at bid)
Mod Dur
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
MFC.PR.D FixedReset 156,073 RBC crossed blocks of 50,000 and 100,000, both at 27.50.
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.
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.
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.
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.
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.
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

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

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

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

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

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

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

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