March 7, 2013

I have a little difficulty with the definition of “skilled workers” in the following but it’s nice to see people who can actually do things in demand:

After spending years searching for enough crude to pump, the U.S. oil and natural gas industry now is struggling to find and pay for enough skilled workers to tap the abundant supply in shale rock, putting $100 billion in planned petrochemical projects at risk.

Engineers and similar professionals earned an average $183,000 to $285,000 in 2012 depending on their position and background, a 20 percent to 50 percent jump since 2009, NES Global Talent data show. Wages in energy and mining have grown at nine times the rate of all industries since 2008, and starting salaries for petroleum engineering graduates are about $98,000, up 9.7 percent since 2008, according to PayScale Inc.

Chevron Phillips expects to employ 10,000 engineers and construction workers to build an ethylene plant and two plastics factories outside Houston at a cost of $5 billion. Chevron is racing competitors such as Dow, Exxon Mobil Corp. and a half dozen other companies that have announced plans to build plants for converting gas into ethylene, the most used petrochemical, on the Gulf Coast.

To me, “skilled workers” means tradesmen – electricians, plumbers, mechanics – not engineers, who I think of as “professionals”. But no matter.

John Paulson, whose successful bet against sub-prime made him a fortune and attracted a lot of assets, is the poster-boy for performance chasing:

John Paulson posted an 18 percent decline in his Gold Fund last month as a slump in the metal, after more than a decade of gains, undermined efforts by the billionaire hedge-fund manager to rebound from two years of losses in some strategies.

Paulson is being hurt as gold fell for the fifth straight month, its longest slump in 16 years. The manager told clients in 2012 his Gold Fund would beat his other strategies over five years because the metal was the best hedge against inflation and currency debasement as countries pump money into their economies. Falling gold stocks helped fuel losses last year in the manager’s $4.9 billion event-driven Advantage funds and the Gold Fund, and he also made wrong-way bets that Europe’s debt crisis would worsen.

The latest New Big Thing in junk bonds is Covenant Arbitrage, which is the cool way to say “reading the prospectus”:

The hundreds of pages of tedious documents that govern every corporate bond sold are suddenly a hot commodity as traders look for an edge with the biggest bull market ever in junk debt slowing.

Chesapeake Energy Corp. (CHK)’s $1.3 billion of 6.775 percent notes climbed to a record 104.5 cents on the dollar in a wager that the natural gas producer has run out of time to repurchase the debt at par, or 100 cents, as allowed by the debt’s covenants. Plano, Texas-based J.C. Penney Co. (JCP)’s 7.125 percent notes due 2023 have risen 9 percent this month, even as the rest of its debt plummets, in a bet the retailer will be forced to repay the issue early because of a covenant breach.

Investors began pushing up the price of Chesapeake’s 2019 notes last month to take advantage of “sloppy” language in the deal documents, according to Covenant Review’s [founder Adam] Cohen. Those securities rose above par even though the bond covenant has a redemption provision based on a March 15 date. The debt has since declined to 103.5 cents.

Some traders believe that the company is wrong that it can redeem the notes at par and that Chesapeake would have to pay a substantial premium if it wanted to repurchase them, Cohen said. If a so-called make-whole call provision were triggered, the company would have to pay bondholders as much $400 million in addition to the principal amount of the notes.

“The value of litigating the position may be high enough to make a little legal spending on a narrow issue worthwhile,”
Cohen wrote in a March 1 report. “Hiring a law firm to challenge the narrow issue of a par call would be relatively inexpensive.”

Jim Gipson, a spokesman for Oklahoma City-based Chesapeake, said he couldn’t immediately comment.

I quite agree with the conclusion of this article comparing US and Canadian mutual fund fees:

Over the longer term, fund investors should be asking regulators to allow the sale of U.S.-domiciled funds in Canada. While a common regulatory regime similar to the UCITS system in Europe (which allows funds to be sold throughout the European Union) may not be possible between Canada and the United States, fund regulation between the two countries is not so different as to prohibit the creation of a passport system.

Such a move would give Canadian fund investors more choice and more access to economies of scale, which could only translate into further reductions in the cost disparity between the two countries.

However, we have a mercantilist regulatory environment in Canada: US funds are disallowed in a tit-for-tat move taken in reaction to the SEC’s ban on US investment in Canadian funds. “You’re screwing your consumers, eh?” shout our red-faced regulators while practicing for their next job interviews. “Ha! We’ll just screw our consumers MORE! That’ll show you!”

What is it about university administration that attracts the brain-dead?

Scholarship programs funded by some of the nation’s biggest donors, including Gates, Coca-Cola Co. and Michael Dell, are taking aim at practices used by wealthy colleges, such as Boston College, which has a $1.65 billion endowment, Amherst, with a $1.64 billion fund and Barnard, with $216.4 million. They say the schools hurt poor and minority students by rescinding aid once they find out they have awards from outside sources or by banning use of the funds to cover some student contributions.

Letting students like Brindis use outside grants to cover the contribution “would be unfair to all the other ones who didn’t win the Gates,” [Boston College director of student financial strategies Bernie] Pekala said.

Similarly at Amherst College, a wealthy liberal arts school in Massachusetts, students can’t use outside scholarships to pay their “summer contribution,” which can run as high as $1,600, said Tom Parker, dean of admission and financial aid.

“Here’s the conundrum. You want to treat everybody as equally as you can,” Parker said. “Morally it’s a difficult question.”

Um … isn’t the whole point of scholarships to discriminate on the basis of ability?

It was a day of highly segmented gains for the Canadian preferred share market, with PerpetualPremiums up 3bp, FixedResets winning 27bp and DeemedRetractibles gaining 1bp. This may be due to the market absorbing the TRP.PR.D monster issue, or it may not. Volatility was high and dominated by – you guessed it – winning FixedResets. Volume was very high.

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 0.3787 % 2,617.3
FixedFloater 4.09 % 3.43 % 29,237 18.42 1 -0.2151 % 3,971.7
Floater 2.54 % 2.86 % 90,567 20.00 5 0.3787 % 2,826.0
OpRet 4.80 % 2.49 % 51,048 0.31 5 0.0077 % 2,596.5
SplitShare 4.41 % 4.54 % 117,993 5.13 3 -0.4592 % 2,920.5
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0077 % 2,374.3
Perpetual-Premium 5.20 % 0.98 % 86,686 0.15 31 0.0331 % 2,357.3
Perpetual-Discount 4.81 % 4.85 % 137,883 15.66 4 0.1720 % 2,660.6
FixedReset 4.89 % 2.59 % 292,915 3.50 80 0.2732 % 2,511.4
Deemed-Retractible 4.86 % 2.52 % 138,273 0.21 44 0.0132 % 2,446.2
Performance Highlights
Issue Index Change Notes
MFC.PR.J FixedReset 1.00 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-03-19
Maturity Price : 25.00
Evaluated at bid price : 26.15
Bid-YTW : 2.99 %
HSB.PR.D Deemed-Retractible 1.01 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-04-06
Maturity Price : 25.50
Evaluated at bid price : 26.05
Bid-YTW : -10.11 %
BMO.PR.Q FixedReset 1.02 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.76
Bid-YTW : 2.62 %
BAM.PR.Z FixedReset 1.08 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-12-31
Maturity Price : 25.00
Evaluated at bid price : 27.20
Bid-YTW : 3.04 %
FTS.PR.H FixedReset 1.35 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-06-01
Maturity Price : 25.00
Evaluated at bid price : 26.25
Bid-YTW : 2.00 %
MFC.PR.H FixedReset 1.47 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-03-19
Maturity Price : 25.00
Evaluated at bid price : 26.94
Bid-YTW : 2.53 %
TRP.PR.C FixedReset 1.49 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-03-07
Maturity Price : 23.69
Evaluated at bid price : 25.93
Bid-YTW : 2.68 %
Volume Highlights
Issue Index Shares
Traded
Notes
TRP.PR.D FixedReset 192,507 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-03-07
Maturity Price : 23.24
Evaluated at bid price : 25.45
Bid-YTW : 3.49 %
FTS.PR.E OpRet 103,100 National crossed 60,000 at 26.35; Scotia crossed 40,000 at the same price.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-06-01
Maturity Price : 25.75
Evaluated at bid price : 26.27
Bid-YTW : -3.40 %
BNS.PR.X FixedReset 90,122 TD crossed 75,000 at 26.35.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-04-25
Maturity Price : 25.00
Evaluated at bid price : 26.33
Bid-YTW : 2.02 %
ENB.PR.B FixedReset 88,556 Nesbitt crossed 75,800 at 26.00.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-06-01
Maturity Price : 25.00
Evaluated at bid price : 25.97
Bid-YTW : 3.05 %
PWF.PR.S Perpetual-Discount 81,622 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-03-07
Maturity Price : 24.59
Evaluated at bid price : 24.98
Bid-YTW : 4.81 %
FTS.PR.C OpRet 76,295 Scotia crossed 75,000 at 25.20.
YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2013-08-31
Maturity Price : 25.00
Evaluated at bid price : 25.16
Bid-YTW : 4.30 %
There were 62 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
PWF.PR.A Floater Quote: 23.87 – 24.29
Spot Rate : 0.4200
Average : 0.3528

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-03-07
Maturity Price : 23.60
Evaluated at bid price : 23.87
Bid-YTW : 2.18 %

TD.PR.P Deemed-Retractible Quote: 26.50 – 26.70
Spot Rate : 0.2000
Average : 0.1337

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-04-06
Maturity Price : 26.00
Evaluated at bid price : 26.50
Bid-YTW : -12.09 %

CIU.PR.A Perpetual-Premium Quote: 25.12 – 25.31
Spot Rate : 0.1900
Average : 0.1251

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-03-07
Maturity Price : 24.78
Evaluated at bid price : 25.12
Bid-YTW : 4.59 %

RY.PR.L FixedReset Quote: 25.72 – 25.90
Spot Rate : 0.1800
Average : 0.1234

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-02-24
Maturity Price : 25.00
Evaluated at bid price : 25.72
Bid-YTW : 2.78 %

BMO.PR.L Deemed-Retractible Quote: 26.65 – 26.85
Spot Rate : 0.2000
Average : 0.1515

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-05-25
Maturity Price : 26.00
Evaluated at bid price : 26.65
Bid-YTW : -5.11 %

CM.PR.M FixedReset Quote: 26.76 – 26.90
Spot Rate : 0.1400
Average : 0.0957

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-31
Maturity Price : 25.00
Evaluated at bid price : 26.76
Bid-YTW : 1.88 %

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