PrefBlog

Assiduous Readers will know that I am not averse to a little bit of stimulus in this lousy economy. Deficits are fine, provided they’re backed up with credible research showing a good healthy surplus through a business cycle – many of our current problems are the result of What-Debt? and Spend-Every-Penny goosing an already over-stimulated economy with not just tax cuts, but moronic tax cuts – like cutting the GST.

Infrastructure would be a marvellous place to start. It has a very high economic multiplier and is the type of thing that has a very logical end-point, making it possible to turn off the tap without too much controversy – once you’ve built your subway or repaired your bridge … it’s built! There is only so much you can do (take it too far, for instance, and we end up with 1000% over-capacity in the cement industry and a lot of really shoddy construction that has to be torn down), but in Canada and the Western world generally, there is a huge list of neglected infrastructure that would be a Very Good Thing to chip away at.

However, from Japan comes a cautionary tale about idiotic infrastructure spending:

Japan’s $268 million Ibaraki Airport is on schedule to open for business in March 2010. The hard part will be persuading an airline to fly there.

The government and Ibaraki prefecture, home to 3 million people, are paying for the airport north of Tokyo, which won’t have train services and is a half-hour drive from Ibaraki’s capital, Mito. Japan Airlines Corp. and All Nippon Airways Co., which operate 90 percent of flights in the country, don’t plan to use it.

We don’t have to worry about such boondoggles in Canada, though! What-Debt? has reacted forcefully and decisively to the global economic crisis by forcefully and decisively running away from Parliament for eight weeks. See ya!

The Amazing Takeover Bid That Will Never End continued its gyrations today, with Bloomberg reporting:

The private-equity firms that agreed to buy BCE Inc. for C$52 billion ($42 billion) may instead seek to acquire a minority stake in the Canadian phone company, according to two people with knowledge of the plan.
…
The alternative proposal involves the buyers investing C$8 billion to C$10 billion in preferred securities for about 20 percent of BCE. It also calls for a cash dividend of C$8 to C$10 a share to paid to BCE shareholders.

Citigroup Inc., based in New York, and Frankfurt-based Deutsche Bank AG are leading a group of lenders that also includes Toronto-Dominion Bank and Royal Bank of Scotland Group Plc. The banks would need to approve the new transaction. The debt required to finance the minority stake would be around C$7 billion or C$8 billion, compared with the C$34 billion the banks would fund if the buyout went ahead.

Bloomberg also has a piece on Municipal credit rating upgrades, implying skullduggery by S&P. All the data is cherry-picked, of course, so whether there’s an actual trend or not remains to be see. But I bring this up because of the most interesting quote:

Recent default studies suggesting municipalities’ enhanced creditworthiness don’t account for what happened to issuers during the Great Depression, according to Richard Ciccarone, chief research officer of McDonnell Investment Management LLC. The Oak Brook, Illinois-based firm has $12 billion under management, including municipal bonds.

In 1929, more than 98 percent of the largest U.S. cities were rated Aa or better, according to Ciccarone’s research, which cites a study of municipal bonds showing that 3,252 issues went into default at the peak of the economic contraction in 1935. Almost half the bonds in default were rated Aaa in 1929.

“We may be facing the same conditions today that we did in the 1930s, but they could be worse because of pension and other liabilities,” Ciccarone said. “We have some huge liabilities at the same time that real estate values are falling.”

Yo! Ciccarone! Get with the programme! There’s some political theatre that needs to be played out! What do you think you are, some kind of investment expert or something?

I got a little curious today about relative performances;

RY.PR.D vs. common:

CM.PR.H vs common:

Make of it what you will.

Volume continued heavy today; volume and price advances in split shares were again particularly noteworthy.

There were sixty-one index-included $25-pv-equivalent issues trading over 10,000 shares today

This entry was posted on Friday, December 5th, 2008 at 12:34 am and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.