I mentioned complexity of computer systems on January 22 – here’s another example:
Computer Sciences Corp. (CSC)’s performance on a failed $1 billion software project for the U.S. Air Force and the service’s management of it are under investigation by the Senate Armed Services Committee.
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The Expeditionary Combat Support System, once described as “revolutionary” by the Air Force, was canceled in November after the service determined the supply-chain management project was “no longer a viable option” to help meet a goal of having its financial books in shape for a federal audit by 2017.That’s been a major objective of departing Defense Secretary Leon Panetta. An additional $1.1 billion would have been required to fix the system and put it in operation by 2020 — eight years after the planned date, according to the Air Force.
Of nine software systems that the Pentagon is installing to improve longstanding financial management deficiencies, the Air Force program was one of at least six that were running as much as 12 years late and $6.9 billion over their original cost estimates, the Government Accountability Office reported in September 2010.
The trouble with large software projects is that everybody in a suit measures his self-worth according to the number of features that he is able to add on to the specifications … preferably introduced after the basic architecture has been determined.
There’s more chatter of Beggar Thy Neighbor:
Yields on sovereign debt of countries from Spain to Greece have fallen since European Central Bank President Mario Draghi announced an as-yet-untapped bond-purchase plan in September last year. [George] Soros, reiterating his view that austerity is the wrong policy at this time, said the German insistence on tight fiscal and monetary policies means the euro will appreciate as other countries pursue more expansive policies, a situation that may lead to a currency war.
“Currencies have been remarkably stable in the last few years,” Soros said. “Now there is the making of more fireworks, more volatility.”
Soros said at the same event last year that the German-led policies risked creating tensions that could destroy the European Union. In a speech in April, he said the Bundesbank, Germany’s central bank, was taking steps to limit potential losses if the euro splintered, creating a “self-fulfilling prophecy.”
Bundesbank President Jens Weidmann has denied taking such steps, calling the allegations “ridiculous.”
Weidmann this week criticized moves by Japan’s Prime Minister Shinzo Abe to devalue the yen, saying such measures risked “politicizing” the yen’s exchange rate. Soros said the extent to which Japan can push its currency lower will be limited by what the U.S. is willing to tolerate.
The momentum is for the “euro to rise and yen to fall,” Soros said. “I generally don’t know how far things go but I can see which way they are going.”
Soros holds a special place in the hearts of all – he made a billion proving to politicians that they were being stupid.
Towers Watson has published its Pension Finance Watch — December 2012:
December saw increases in long bond yields and strong equity returns, which resulted in the Towers Watson Pension Index moving up 2.1% for the month. However, results for the full year included a 50+ basis point drop in long corporate yields, which pushed up liability values and fully offset the impact of the year’s strong portfolio returns. The Pension Index ended the year at 62.3, unchanged from its year-end 2011 value.
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Long corporate bond yields declined in 2012 while long Treasury yields remained stable. The resulting decline in credit spread — from 160 basis points to 100 basis points over the course of the year — essentially reversed the “flight to quality” experienced in 2011.
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The Towers Watson Pension Index tracks the performance of a hypothetical pension plan invested in a 60% equity/40% fixed income portfolio. This portfolio recorded 0.9% return for December and 11.5% for the full year.
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Pension plan liabilities as defined for U.S. accounting purposes are typically measured based on yields available on high quality corporate bonds as of the measurement date. Using our RATE:Link methodology, which matches yields on high quality corporate bonds to projected cash flows, the benchmark discount rate was determined at 3.96%. Despite an increase of 13 basis points for December, the year-end discount rate remains down 55 basis points for the year.
It was another mixed day for the Canadian preferred share market, with PerpetualPremiums off 2bp, FixedResets down 9bp and DeemedRetractibles up 8bp. Volatility was muted. Volume remained well above 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 | 0.0524 % | 2,527.8 |
| FixedFloater | 4.25 % | 3.57 % | 27,133 | 18.23 | 1 | 0.0000 % | 3,827.9 |
| Floater | 2.75 % | 2.94 % | 72,414 | 19.87 | 4 | 0.0524 % | 2,729.4 |
| OpRet | 4.64 % | 1.11 % | 51,519 | 0.40 | 4 | -0.0191 % | 2,590.1 |
| SplitShare | 4.57 % | 4.43 % | 43,601 | 4.30 | 2 | 0.1394 % | 2,912.9 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.0191 % | 2,368.4 |
| Perpetual-Premium | 5.25 % | -1.71 % | 77,360 | 0.11 | 30 | -0.0187 % | 2,348.1 |
| Perpetual-Discount | 4.85 % | 4.88 % | 136,973 | 15.67 | 4 | -0.0102 % | 2,646.3 |
| FixedReset | 4.91 % | 2.84 % | 240,480 | 3.58 | 78 | -0.0911 % | 2,480.2 |
| Deemed-Retractible | 4.88 % | 1.91 % | 127,838 | 0.33 | 45 | 0.0785 % | 2,429.3 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| HSB.PR.D | Deemed-Retractible | 1.60 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2013-02-23 Maturity Price : 25.50 Evaluated at bid price : 25.97 Bid-YTW : -13.00 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| RY.PR.P | FixedReset | 189,766 | Scotia crossed 30,000 at 25.99; RBC crossed 152,900 at 25.96. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-02-24 Maturity Price : 25.00 Evaluated at bid price : 25.99 Bid-YTW : 2.07 % |
| RY.PR.X | FixedReset | 172,790 | RBC crossed blocks of 154,400 and 10,000, both at 26.45. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-08-24 Maturity Price : 25.00 Evaluated at bid price : 26.50 Bid-YTW : 2.07 % |
| BNS.PR.Z | FixedReset | 85,337 | RBC crossed 50,000 at 24.95. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.86 Bid-YTW : 3.19 % |
| ENB.PR.T | FixedReset | 61,940 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-01-24 Maturity Price : 23.23 Evaluated at bid price : 25.41 Bid-YTW : 3.79 % |
| BNS.PR.Y | FixedReset | 57,792 | RBC crossed 10,000 at 24.70 and bought 10,100 from Scotia at the same price. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.61 Bid-YTW : 3.03 % |
| GWO.PR.R | Deemed-Retractible | 42,012 | National crossed 30,000 at 25.45. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.45 Bid-YTW : 4.62 % |
| There were 42 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| TRI.PR.B | Floater | Quote: 22.80 – 23.55 Spot Rate : 0.7500 Average : 0.5075 YTW SCENARIO |
| BNS.PR.J | Deemed-Retractible | Quote: 25.68 – 25.89 Spot Rate : 0.2100 Average : 0.1307 YTW SCENARIO |
| PWF.PR.R | Perpetual-Premium | Quote: 26.72 – 26.94 Spot Rate : 0.2200 Average : 0.1425 YTW SCENARIO |
| RY.PR.X | FixedReset | Quote: 26.50 – 26.70 Spot Rate : 0.2000 Average : 0.1274 YTW SCENARIO |
| FTS.PR.J | Perpetual-Premium | Quote: 25.78 – 26.07 Spot Rate : 0.2900 Average : 0.2236 YTW SCENARIO |
| GWO.PR.H | Deemed-Retractible | Quote: 25.21 – 25.43 Spot Rate : 0.2200 Average : 0.1557 YTW SCENARIO |