Category: Market Action

The Old Boys Club is making good progress in the war against innovation:

Federal agents are investigating whether high-frequency trading firms break U.S. laws by acting on nonpublic information to gain an edge over competitors.

The Federal Bureau of Investigation’s inquiry stems from a multiyear crackdown on insider trading, which has led to at least 79 convictions of hedge-fund traders and others. Agents are examining, for example, whether traders abuse information to act ahead of orders by institutional investors, according to an FBI spokesman. Even trades based on computer algorithms could amount to wire fraud, securities fraud or insider trading.

It is, of course, simply a politically motivated fishing expedition:

Federal agents are making an unusual public plea for the financial industry to bare its secrets.

The Federal Bureau of Investigation has openly solicited traders and stock-exchange workers to blow the whistle on possible front-running and manipulation via high-speed computers.

Even so, they’re losing the war:

Goldman Sachs Group Inc. (GS) is seeking a buyer for its New York Stock Exchange designated market-making business acquired through the 2000 purchase of Spear, Leeds & Kellogg, a person briefed on the matter said.
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The NYSE, purchased in November by Atlanta-based IntercontinentalExchange Group Inc., relies on traders known as designated market markers, or DMMs, to facilitate buying and selling. The firms help run the opening and closing auctions of NYSE-listed stocks.

They used to be known as specialists, and there were dozens of them. Reduced profits from equity trading dwindled their ranks during the past decade. London-based Barclays Plc (BARC) and Jersey City, New Jersey-based KCG Holdings Inc. are the biggest DMMs, followed by Goldman Sachs, according to a person with direct knowledge of the matter.
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Even if Goldman Sachs gives up its spot on the NYSE floor in Manhattan, that doesn’t mean it will stop making markets in U.S. stocks. Almost all American equity trading is done electronically, and banks are among those that provide liquidity on computerized platforms such as NYSE Arca, the Nasdaq Stock Market and the four exchanges owned by Bats Global Markets Inc. Goldman Sachs is among the owners of Bats.

It’s always nice to see market timers get their comeuppance:

Lenders from JPMorgan Chase & Co. to Bank of America Corp. warned that corporate-bond buyers were in for another year of rising yields that would erode returns. China, the polar vortex and Vladimir Putin are upending those forecasts.

Bonds of companies worldwide tracked by Bank of America Merrill Lynch indexes returned 2.7 percent in the first quarter through March 31, compared with a 1.42 percent gain for the MSCI World Index of stocks, the first time the debt beat equities since the second quarter of 2012. The gain follows a 1.45 percent loss for debt investors last year as shareholders reaped a 27 percent windfall.

“It wasn’t perhaps the one-way bet that people thought it was,” said Andrew Chorlton, a New York-based money manager for a Schroders Plc unit that oversees more than $90 billion. Bonds beating stocks is “contrary to what virtually every investment bank you care to mention had on their outlooks for 2014.”

The Ontario Legislature’s Standing Committee on Social Policy has released its report titled DILUTED CHEMOTHERAPY DRUGS, regarding the screw-up with cancer drug concentrations discussed on PrefBlog on August 8, 2013:

The Standing Committee notes that it was also the [Medbuy] pharmacy committee that failed to notice the contract’s lack of clarity with respect to the need for concentration-specific formats for gemcitabine and cyclophosphamide.
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Although appreciative of what was provided, the Committee remains concerned about the lack of transparency with respect to the receipt of rebates and how they are used, by hospitals and by Medbuy alike. Large amounts of public money are involved in these transactions, all of which are conducted without public oversight.
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Contrary to what the Committee had heard, value-adds were included in Medbuy’s 2011 RFP. They were not a mandatory requirement but were encouraged and included in the score. Like Marchese, Baxter chose to participate in Schedule B; Gentès & Bolduc did not.
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The Committee believes the above responses were inappropriate and are evidence of a lack of due diligence on the part of health care professionals. It sees these communications as more missed opportunities to catch the need for concentration-specific admixtures and avoid the circumstances of March 20, 2013 and their negative impact on 1,202 patients.

But all of this is simply the lead-up to what I’ve been saying all along:

Committee members are perplexed by the fact that pharmacists and pharmacy assistants/technicians at WRH, LHSC, and Lakeridge Health failed to notice the inconsistencies discovered by the staff at PRHC when preparing for the initial use of MHS gemcitabine.
The Committee is concerned about the professional conduct of pharmacists connected to this incident, including those employed by Medbuy and sitting on its pharmacy committee. This concern is so significant that the Committee has written to the Registrar of the Ontario College of Pharmacists (OCP) requesting an investigation. Copies of letters sent by the Committee to the OCP are found in Appendix D.
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[extract from Appendix D] During the hearings the Committee heard testimony from a number of Pharmacists from Marchese Health Care, Medbuy Corporation and the purchasing hospitals involved. The Committee is concerned that the diluted chemotherapy treatments went unnoticed by all of the pharmacists directly involved, for an extended period of time (February 2012-March 2013) without one of them bringing the matter forward.
The Committee has asked me to bring this to the attention of the Ontario College of Pharmacists and for you to launch an investigation.

The more I learn about health care in Ontari-ari-ari-o, the more amazed I am that so many of us remain alive.

The Canadian preferred share market opened the new quarter with mixed performance, with PerpetualDiscounts gaining 12bp, FixedResets off 2bp and DeemedRetractibles up 14bp. There was a full contingent of Floaters but not much else in the Performance Highlights table, which is notable for being comprised entirely of winners. Volume was slightly below average.

Looks like the public bond market in Russia is sending a message … so turn it off!

Russia is selling notes directly to pension funds and banks for the first time in 1 1/2 years, sidestepping the bond market after four failed auctions since President Vladimir Putin’s incursion into Crimea.

The Finance Ministry is offering 100 billion rubles ($2.8 billion) of non-tradeable securities today, with half due March 2015 at a 7.73 percent yield and the rest maturing in February 2016 at 8.25 percent, it said on its website on March 26. The yield on government ruble bonds due January 2016 rose 190 basis points since the start of the year and was at 8.25 percent the day before the sale was announced.

By offering almost three times the amount auctioned this year in one day, Russia may be signaling it doesn’t foresee investor sentiment being restored anytime soon, according to BCS Financial Group and GHP Group. Russian borrowing costs rose to a record after Putin’s annexation of Ukraine’s Crimea peninsula sparked the worst standoff with the U.S. since the Cold War.

Yellen is showing her dovish side:

Federal Reserve Chair Janet Yellen said “considerable slack” in the labor market is evidence that the central bank’s unprecedented accommodation will still be needed for “some time” to put Americans back to work.

Large numbers of partly unemployed workers, stagnant wages, lower labor-force participation and longer periods of joblessness show that Fed officials must continue their easing, Yellen said today in remarks prepared for a speech in Chicago.

“This extraordinary commitment is still needed and will be for some time, and I believe that view is widely shared by my fellow policymakers at the Fed,” Yellen said in her remarks to a Fed community development conference. “The scars from the Great Recession remain, and reaching our goals will take time.”

I knew that mobile eMoney transactions were catching on in Africa … but I didn’t realize it was this big:

All the talk of bitcoin in recent years has overshadowed the real e-finance revolution: In Africa, India and now Eastern Europe, a service called M-Pesa has replaced banking for millions of people who don’t have or, in fact, even need a bank account.

Safaricom, Kenya’s leading mobile operator, majority-owned by a subsidiary of France’s Orange and operated by the U.K.’s Vodafone, introduced M-Pesa — mobile money in Swahili — in 2007. Soon the system had an agent in just about every village and every corner of Nairobi’s vast Kibera slum. Locals came to the agents with their phones — just plain old Nokias, not fancy smartphones — signed up and received a new menu from the operator, allowing one to transfer money to another mobile number. M-Pesa could be cashed at an agent’s — by sending a text message and receiving money then and there — and, eventually, at automated-teller machines, without the need for a debit card. Sending money to family in a remote part of the country or paying at a market stall was suddenly as easy as texting. Nobody was sending wads of Kenyan shillings on buses, hoping they would make it to relatives in Mombasa or Kitale, or carrying much cash around. M-Pesa was cheaper then a bank, and it was everywhere, with hand-painted signs for agents popping into view in the unlikeliest places.
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About 43 percent of Kenya’s $40 billion gross domestic product flows through the system. And, speaking of Bitcoin, M-Pesa is far, far ahead of the fashionable digital currency in transaction numbers.

Brookfield Renewable Energy Partners L.P. had its outlook raised to ‘Positive’ by S&P:

• •We are revising our outlook on Brookfield Renewable Energy Partners L.P. (BREP) to positive from stable.
• •The outlook revision reflects the increasing amount of parent-only cash flow that the partnership is generating combined with a relatively modest level of parent only recourse debt.
• •We are also affirming our ratings on BREP and subsidiaries Brookfield Renewable Power Equity Inc. and BRP Finance ULC, including our ‘BBB’ long-term corporate credit rating on BREP.

Standard & Poor’s Ratings Services today said it revised its outlook on Brookfield Renewable Energy Partners L.P. (BREP) to positive from stable. At the same time Standard & Poor’s affirmed its ratings on BREP and subsidiaries Brookfield Renewable Power Equity Inc. and BRP Finance ULC, including its ‘BBB’ long-term corporate credit rating on BREP.

Brookfield Renewable Power Pref Eqty Inc is the proud issuer of BRF.PR.A, BRF.PR.C, BRF.PR.E and BRF.PR.F. S&P does not go so far as to say there is 100% correspondence between the parent company and its preferred issuer subsidiary, but I’d call it a pretty good bet.

The Canadian preferred share market closed the month on a happy note, with PerpetualDiscounts winning 10bp, FixedResets gaining 3bp and DeemedRetractibles up 4bp. Volatility was minimal. Volume was below average.

And that’s it for another quarter!

Placeholder won’t interfere with mortgage rates:

In contrast, when Mr. Oliver spoke to [BMO CEO] Mr. [Bill] Downe this week, he told the bank CEO that the government wants to be less involved in the mortgage market, and gave him the tacit go-ahead to cut rates.

Mr. Oliver went so far as to tell reporters in Ottawa Thursday that he would not be concerned if other banks followed suit, suggesting it was a private sector decision.

“There’s a market, and the bank made its decision,” he said.

“The chief executive officer of the Bank of Montreal informed me about it. I listened to his explanation, his reasons. I reiterated what I just stated, which is the government is gradually reducing its involvement in the mortgage market.”

Assiduous Readers will be used to, and perhaps even tired of, my complaints about SEDAR – a bank-owned (via the Canadian Depository for Securities) outfit that has been granted a monopoly on the publication of public documents that issuers are required to file, and which abuses that monopoly to an appalling extent with the smiling approval of the Canadian Securities Administrators.

But I don’t care if you’re tired of my complaints! I recently had occasion to require some information on CI Income Fund … and turned to SEDAR. So, the first thing on the document list found after a preliminary search is:

Jan 3 2014 16:06:24 ET Amended and restated final fund facts – English

So, let’s look at the precious Fund Facts, shall we? The wise securities administrators keep chanting about how vital and important Fund Facts are, so let’s start off by taking a peek at them.

Open the file and what do we find? There are actually quite a few:

• CI Canadian Dividend Growth Fund (Class A units): Fund Facts
• CI Canadian Dividend Growth Fund (Class D units): Fund Facts
• CI Canadian Dividend Growth Fund (Class F units): Fund Facts
• CI Canadian Dividend Growth Fund (Class I units): Fund Facts
• CI Canadian Dividend Growth Fund (Class O units): Fund Facts
• CI U.S. Dividend Growth Fund (Class A units): Fund Facts
• CI U.S. Dividend Growth Fund (Class AT6 units): Fund Facts
• CI U.S. Dividend Growth Fund (Class D units): Fund Facts
• CI U.S. Dividend Growth Fund (Class F units): Fund Facts
• CI U.S. Dividend Growth Fund (Class I units): Fund Facts
• CI U.S. Dividend Growth Fund (Class O units): Fund Facts

Nothing – not a single damned thing – about CI Income Fund. Well done!

It was a good, if mixed, day for the Canadian preferred share market, which some might consider surprising because TMXMoney reports that TXPR was off 12bp and TXPL was down 17bp. A lot of issues went ex-dividend today … maybe somebody forgot to accrue? Anyway, PerpetualDiscounts were up 21bp, FixedResets were off 1bp and DeemedRetractibles gained 7bp. The Performance Highlights table is of average length, but notable for the inclusion of both Westcoast issues, which went ex-dividend but didn’t lose much bid. Volume was low, but block trading held up well.

The world is about to end – banks are competing on price:

Just one week after Jim Flaherty stepped down, Bank of Montreal is shaking up the mortgage market, aggressively cutting its five-year rate to levels that caused the former finance minister to intervene last year.

BMO is now offering five-year fixed mortgages at 2.99 per cent, slashing its rate from 3.49 per cent. While that’s not the lowest rate in the market, BMO is the first big bank to move below the sensitive 3-per-cent threshold.

The last time a Canadian bank’s mortgage rates fell this low, in March of 2013, Mr. Flaherty stepped in and publicly called for “responsible lending” because he worried about an overheated housing market.

BMO’s rate cut comes after Toronto-Dominion Bank lowered its four-year rate to 2.97 per cent earlier in March. Last week, shortly after Mr. Flaherty stepped down, Bank of Nova Scotia also slashed its mortgage rates, and instituted a special 2.94-per-cent four-year rate.

At least one credit union also moved its five-year rate to 2.99 per cent in February.

Meanwhile, the Feds are defending their data:

Federal Employment Minister Jason Kenney defended his government’s use of Kijiji, but acknowledged there are technical concerns with the data including the need to weed out repeated postings for the same position.

“People are laughing at Kijiji, but it’s the new classified ads,” he told CTV’s Power Play. “I would just invite some of these economists – who sit in front of their spreadsheets of inadequate data trying to figure out the world – I wish they would actually go out into the real world and talk to employers like I do all the time.”

Mr. Kenney said critics should recognize the challenge of producing reliable labour data in a world of online job boards.

Let’s all square our rots for a good boo-hoo-hoo about how analysis is hard. It’s easier than reviewing the strengths and weaknesses of our analysis.

David Parkinson of the Globe points out:

Finance’s dramatic numbers don’t pass a basic sniff test. Specifically, if Canada really was suffering from acute skills shortages across a broad swath of the economy, it would manifest in significant upward pressure on wages. Those wage pressures, in general, simply aren’t there.

Year-over-year increases in Canadians’ average weekly wages have trended downward over much of the past two years, even as the country added more than 400,000 jobs. Average year-over-year wage growth last year was just 2 per cent, well below the 10-year average of 2.9 per cent and the five-year average of 2.5 per cent.

That said, there is certainly evidence of pockets where wage pressures are significant, indicative of possible skills shortages.

In Alberta, average weekly wages were up 4.6 per cent year over year in December. Two other oil-industry-heavy provinces, Newfoundland and Saskatchewan, posted increases of 3.8 per cent and 3.6 per cent, respectively. Skills- and education-heavy segments of the economy – such as business management; professional, scientific and technical services; mining and oil and gas extraction; and construction – have, indeed, shown some of the biggest year-over year wage gains.

It was a soft day for the Canadian preferred share market, with PerpetualDiscounts down 4bp, FixedResets off 1bp and DeemedRetractibles flat. Given the overall move, the Performance Highlights table is surprisingly lengthy, with a fair number of losers. Volume was average, but with some very nice block trades.

Some civil servant claims that we need more civil servants:

Accordingly, in January, OSFI announced that, consistent with its mandate and expertise, it will supervise the effectiveness of governance and risk controls surrounding banks’ CDOR submission processes. Subsequently, in its recent budget, the federal government announced its intention to include a regulation-making authority in the Bank Act covering bank submissions to financial benchmarks.

Furthermore, the banks on the CDOR panel should, fairly soon, release a submitters’ code of conduct that they have developed in consultation with IIROC and the Bank of Canada. In addition to providing a formal definition of CDOR and requirements for being a submitter, the code will specify minimum standards for submission methodology, internal oversight and records retention.

Work continues to strengthen other aspects of the governance of CDOR to meet the principles established by IOSCO. For instance, we have discussed with industry the need for it to establish more formal administrative arrangements for CDOR, and the industry has begun work to take this forward.

Yeah, right. This guy works for the Bank of Canada, which reports 5-year GICs at 1.63%, and 5-year mortgages at 4.99%, in addition to problems with the housing price/rent ratio.

But there’s no shortage of questionable statistics:

Economists have been scratching their heads for weeks as to how the Conservative government could claim on budget day that Canada’s job vacancy rate was on the rise when Statistics Canada said it was declining.

The answer, it appears, is that Finance Canada’s numbers were thrown off by data from a surprising place: questionable job postings on Kijiji, a popular classified site used by Canadians to buy and sell everything from rarely used exercise bikes to old electronics.

Officials with the Parliamentary Budget Office say Kijiji is so unreliable as a job site that it can single-handedly explain away the government’s claims. With the simple removal of that one site from the search, the steep rise Ottawa flagged becomes much closer to a flat line.

The Fed’s regulators have determined that Citigroup doesn’t employ enough ex-regulators:

Citigroup Inc.’s capital plan was among five that failed Federal Reserve stress tests, while Goldman Sachs Group Inc. and Bank of America Corp. passed only after reducing their requests for buybacks and dividends.

Citigroup, as well as U.S. units of Royal Bank of Scotland Group Plc, HSBC Holdings Plc and Banco Santander SA, failed because of qualitative concerns about their processes, the Fed said today in a statement. Zions Bancorporation was rejected as its capital fell below the minimum required. The central bank approved plans for 25 banks.
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The central bank identified multiple deficiencies in Citigroup’s planning practices, including areas the Fed had flagged previously. The regulator expressed concern with the New York-based company’s ability to project losses in “material parts of its global operations” and to reflect all business exposures in its internal stress test.

“Taken in isolation, each of the deficiencies would not have been deemed critical enough to warrant an objection, but when viewed together, they raise sufficient concerns regarding the overall reliability of Citigroup’s capital planning process,” the Fed said.

Mike Corbat, the bank’s chief executive officer, said in a statement that Citigroup is “deeply disappointed” by the rejection and said the company will “work closely with the Fed to better understand their concerns so that we can bring our capital planning process in line with their expectations.” The timing of any resubmission hasn’t been decided, he said.

Osler has a chapter in their Capital Markets 2013 report titled Canada’s Technology Renaissance. It seems a successful entrepreneurs are mainly successful at sucking the public tit:

In addition, the Business Development Bank of Canada provides further funding to each successful accelerator graduate in the form a $150,000 convertible note.

The federal government has demonstrated its strong commitment to the sector by announcing (as part of the 2012 budget) that it would set aside $400 million for investment in Canadian venture capital funds. The Ontario government demonstrated a similar commitment by announcing in March 2013 that it would set aside $50 million for a new Ontario venture capital fund. In addition, the Ontario government continues to be an active direct investor through initiatives such as the Ontario Capital Growth Corporation (which matches investments made by qualified investors) and MaRS Innovation Accelerator Fund (which provides seed investments of up to $500,000 to promising Ontario-based start-ups).

The other point, in the chapter The Leading Role of Canadian Pension Funds at Home and Abroad is that returns look better when you mark to make-believe:

Pension funds have increased their direct investments in private equity, infrastructure and real estate as they continue to seek to align fund investment horizons with their long-term liability profile and reap the rewards of higher returns. Preliminary results from an ongoing survey by global consultant Mercer LLC reveal that the percentage of Canadian pension funds investing in alternative investments climbed to 38% from 25% over the past three years and that the average allocation to alternatives has increased to 18% from 15% in 2010.1 As their allocations to these areas have increased, Canadian pension funds have become highly visible in these markets. Smaller Canadian pension funds have also demonstrated an inclination towards alternative asset investing, guided by the expertise of Canadian pension consultants.

Yes, sir, if you want good investment advice, you really can rely on the expertise of Canadian pension consultants, all right! This isn’t going to turn out well.

Hedge funds are helping the US housing market renormalize. Of course, it helps when somebody else takes the first loss:

Louis Ragusa, who hasn’t paid his mortgage in two years, says he now has a chance to save his Blackwood, New Jersey, home from foreclosure after a hedge fund bought the loan.

American Homeowner Preservation, a Chicago-based investment firm, purchased the mortgage for less than half of what Ragusa owed. Chief Executive Officer Jorge Newbery called the father of three in August with an offer: Pay $5,000 and the company will drop the foreclosure case and erase the more than $100,000 of unpaid principal and penalties amassed.
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The firms are making deep cuts to loan balances so borrowers can afford to pay again and the mortgages can be sold as more valuable “performing” notes. Another strategy is to offer thousands of dollars to those who agree to hand over keys without a fight. While borrowers seeking foreclosure alternatives from large banks have complained of lengthy processes and lost paperwork, Newbery says his company requires little or no documentation to approve a sale or loan workout.
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Lenders are selling pools of soured mortgages as they face new regulations that make bad debt more expensive to hold. Banks sold $34.7 billion in nonperforming loans last year, up from $13.1 billion in 2012, according to Mission Capital Advisors, a New York-based real estate loan broker.
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A delinquent mortgage in [judicial] New Jersey [where foreclosures need court approval] will cost about 60 percent of the property’s current value, compared with as much as 80 percent for a similar loan in California, a nonjudicial state, according to Derek Katz, managing director of Denver-based MountainView Capital Holdings, a residential whole-loan investor and sale adviser.

It is interesting to note that Enbridge has issued 50-year paper at 4.56%. This may be contrasted with their recent issue of ENB.PF.A, a FixedReset, 4.40%+266. I like the preferred better – and I didn’t like the preferred much!

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts up 14bp, FixedResets gaining 3bp and DeemedRetractibles off 2bp. Volatility was nothing special. Volume was slightly below average, but there were some nicely sized block trades.

PerpetualDiscounts now yield 5.47%, equivalent to 7.11% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 4.5%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 260bp, a significant tightening from the 275bp reported March 19 … although that figure is now suspect, given that the March 12 calculation resulted in an estimate of 265bp.

Geez, much more of this and I’ll have to go work for the Bank of Canada.

This BMO Field thing really irritates me, so I have sent the following eMail:

Dear Mr. Ford, Ms. Doucette, Ms. Nash and Ms. DiNovo [my Mayor, Councillor, MP & MPP]

I write to urge very close scrutiny of the proposed arrangement whereby the City, provincial government and federal government are being asked to invest $10-million each in leasehold improvements for BMO Field in Toronto.

It has been claimed (link ) that this represents “a pretty good healthy return on the $10 million”.

I have made approximate calculations of the Internal Rate of Return based on figures published in the Toronto Star (link ) and arrive at a figure of approximately 6.2%. While this certainly exceeds the rate available on twenty year bonds, it is far below the rule of thumb for equity and, I suspect, far below the rate of return expected by MLSE, which has been described as “really good” in the context of private equity investments (link ) which have historically averaged more than double the IRR offered to the city ( link )

In addition, it will be noticed that there will be no return of the provincial and federal contributions, which will be lost completely. I wish to remind you all that it is all taxpayer money and for my part I am not too greatly concerned with the details of the route my money takes between my pocket and MLSE’s coffers.

It is apparent that the City has been taken to the cleaners under the give-away splashed out by the previous city administration. The city’s gross undervaluation of naming rights allowed MLSE to make an instant profit from its investment (link ) and in addition, the city’s current and projected receipts from the stadium and parking (roughly $500,000 p.a. to increase to $1.3-million p.a.) are laughable when compared to receipts on, for example, Ricoh Coliseum, estimated at $4-million p.a. (link citing Peddie, Richard (2013). Dream Job. Harper Collins ).

It is my understanding that MLSE wishes to extend the term of their lease in connection with their leasehold improvements, which is entirely understandable. I strongly urge that any such lease extension be examined with great care, with the City taking the opportunity to negotiate much higher payments by MLSE.

Sincerely,

DBRS confirmed BRF at Pfd-3(high):

BREP’s business risk profile is in the BBB (high) range. The Company’s output is highly contracted (93% of expected 2014 generation) with investment-grade counterparties, with an above-average weighted-average duration of approximately 18 years. In addition, BREP’s significantly diversified portfolio of 193 hydro-electric generating stations mitigates the Company’s exposure to hydrology and operational risk at each facility. However, over the last year, BREP has repeatedly purchased hydroelectric facilities that are exposed to the wholesale pricing environment in North America, including the White Pine and Black Bear facilities. Although DBRS expects BREP to attempt to secure long-term contracts for these assets, should BREP’s contracted output fall below 80%, the Company’s business risk profile could be negatively affected.

BREP’s financial risk profile is based on its deconsolidated credit metrics and is reflective of a BBB (high) rating because of the Company’s prudent financing strategy. BREP finances its assets with mostly non-recourse project level debt. With hydrology returning to a long-term average, BREP’s deconsolidated EBITDA-to-interest and deconsolidated cash flow-to-debt ratios returned to ranges reasonable for its current rating. While BREP’s deconsolidated debt-to-capital ratio in 2013 was slightly above the 20% threshold, DBRS expects BREP to maintain this ratio below the 20% threshold as the Company closes the acquisition of Safe Harbor and Bord Gáis with a prudent mix of non-recourse project-level debt and equity.

Brookfield Renewable Power Preferred Equity Inc. is the proud issuer of BRF.PR.A, BRF.PR.C, BRF.PR.E and BRF.PR.F.

It was a mixed day for the Canadian preferred share market today, with PerpetualDiscounts up 4bp, FixedResets off 6bp and DeemedRetractibles gaining 3bp. Volatility was average. Volume was on the low side of average.

Top o’ the news banner headline! Live, real-time stock quotes for Globe Unlimited subscribers!

We are pleased to bring our Globe Unlimited subscribers live, real-time stock quotes from the Toronto Stock Exchange and TSX Venture Exchange.

Our Globe Investor readers have asked for this feature for years, since Canadian media websites and portals offer stock quotes with a 15-minute delay. Our real-time quotes, which come with a Globe Unlimited subscription, are sourced from the TSX and reflect a large trading volume, for the most accurate price.

This is the first time a Canadian media site has integrated live stock quotes with market data and breaking news. Our subscribers can now see the latest news on their investments on the same page as real-time stock quotes. You can find them at the top of our company stock quote pages — all you need to do is type in a ticker symbol and click on it to get to the page.

They will probably just be the bare quote (i.e., no depth information, possibly no size), but I won’t know until I’ve looked at it during market hours tomorrow. But one way or another, it’s good news!

The Pension Fund That Doesn’t Do It’s Own Credit Analysis has won a round against S&P:

McGraw Hill Financial Inc. (MHFI)’s Standard & Poor’s unit must face California’s claims it deceived the state’s pension funds in its ratings of mortgage-back securities, a judge said in a provisional ruling.

California Superior Court Judge Curtis Karnow in San Francisco said yesterday he was inclined to deny the company’s request to throw out the state’s claims of deceptive conduct from a lawsuit alleging S&P violated false-advertising and business practices laws.
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The California pension systems bought the securities because they had received AAA ratings, signaling they were low-risk, California Attorney General Kamala Harris said in the lawsuit.

Rob Ford doesn’t believe in corporate welfare:

The deal to expand BMO Field will see Maple Leaf Sports and Entertainment pony up $90 million to add a second deck, a roof over the stands and make it both football and soccer friendly.

But for it to go ahead they will be asking all three levels of government for $30 million, which would include a $10-million loan from Toronto.

“I just don’t think the taxpayers should have to pay for it,” said the mayor. “It should be paid for by the private sector. It would be nice if we wanted to expand Deco Labels and have the taxpayers help us out, but it doesn’t work like that.”

Ford says taxpayers already built a stadium on the CNE grounds to the tune of $55 million in cash and land contributions and if MLSE wants to change it, it should be them who pays for it.

… so naturally he’s getting criticized again:

It’s a measure of his frustration with Ford’s attempt to make the expansion of BMO Field a political issue that Leiweke chose this venue to air his grievances.

Leiweke first talked about the surprisingly decent weather, before segueing to more prosaic matters.

“The other good news I had today is that the mayor’s going to vote against our (stadium expansion) plan, which probably means we win 42-2.”

I don’t know the details on this particular issue, but I do know that the city got taken to the cleaners by the MLSE welfare bums on the initial deal:

Even before the team began playing its owner, Maple Leaf Sports and Entertainment, partnered with all three levels of government to build the team’s home stadium. MLSE pledged $18 million to the stadium’s $62.8 million cost, while the city contributed $9.8 million in cash and donated land worth $10 million.

MLSE quickly recouped its initial investment by selling the stadium’s naming rights to Bank of Montreal for a reported $27 million, but the cash-strapped city’s return on investment has materialized more slowly.

Monday MLSE and the city issued a joint press release stating that BMO Field had tuned a $1.1 million profit, which the city and MLSE would split.

In the five years since the stadium opened the city’s share of the profits has totaled $1.75 million, enough to make author Dave Zirin wonder whether Toronto had wasted cash on a team that didn’t need its help.

“The people of Toronto would be better off if that money was dropped from a plane and people could just pick it up and spend it (locally)” says Zirin, author of Bad Sports: How Owners are Ruining the Games we Love. “Every bit of factual data shows that the return on the investment is just not worth it.”

Poor Rob! He never learned the rules of the Club: when you get some influence, you have to grease the other club members. If he’d followed that rule, I don’t think there would be quite so many other issues.

A buddy sent me a link to Did Hyman Minsky find the secret behind financial crashes?:

The “Minsky moment”, a term coined by later economists, is the moment when the whole house of cards falls down. Ponzi finance is underpinned by rising asset prices and when asset prices eventually start to fall then borrowers and banks realise there is debt in the system that can never be paid off. People rush to sell assets causing an even larger fall in prices.

It is like the moment that a cartoon character runs off a cliff. They keep on running for a while, still believing they’re on solid ground. But then there’s a moment of sudden realisation – the Minsky moment – when they look down and see nothing but thin air. Then they plummet to the ground, and that’s the crisis and crash of 2008.

Those of a historical bent may find amusement in my market report of November 23, 2007:

Times are tough. There’s a big indigestible mass of dubious debt on the books all over the place, but – as far as I can see – the financial system is not melting down and we are not in a depression. I’ll simply repeat what I’ve been saying for the past several months: Times are tough. Firms that have been living on the edge may find they fall off. There may even be a spectacular blow-up or two, if a financial institution finds out its risk controls aren’t what they might have wished them to be. And I most certainly would not want to be earning my living as a casual labourer in the US housing industry. But it’s a pause, nothing more.

We arrived at the Minsky Moment about ten months later. To my astonishment, the blog Naked Capitalism is still going strong … gloom, doom and complete lack of analytical ability sells well!

It was a good day for the Canadian preferred share market, with PerpetualDiscounts winning 20bp, FixedResets gaining 11bp and DeemedRetractibles up 12bp. There were quite a few performance highlights, all but one of them winners. Volume was below average.

There was a thought-provoking comment in a Globe & Mail story on the Ukraine’s importance to the global grain trade:

One thing I don’t see in this article: to what extent is Ukraine dependant on Crimean ports for its grain exports?

There’s a very good infographic published by Lloyd’s List … most of the shipping is from western ports around Odessa, but there are quite a few busy ports in the Crimea. Lloyd’s List has a long string of articles about the Crimean situation, but there’s a pay-wall. One purported reprint claims:

“But the situation with the sea ports is much more serious, because the Crimean ports cover nearly 5.4m tonnes of potential shipment volumes, through Sevastopol, Kerch and Feodosia,” said Mr [Rodion] Rybchinskiy [head of the business projects division at APK-Inform, a Russian-owned agricultural consultancy with a Kiev office].

His expectation is that secession after Sunday’s referendum will see grain shipments changed to ports that remain in Ukraine, namely Odessa, Nikolayev and Kherson, which stand to benefit from the situation.

Bloomberg’s Matt Levine highlights the fact that competent traders don’t get cheated:

He then tendered it into the quantitative easing auction at the end of that day, and … oops! The BOE decided to be price-sensitive, for the only time ever,3 because this bond’s price got really out of whack, and because other dealers called the BOE to complain, as you’d expect them to:

By 09:39 (38 minutes after Mr Stevenson began trading in the Bond), a market participant had telephoned the BOE regarding the Bond’s outperformance. Several other market participants telephoned the BOE throughout the day, suggesting that the Bond had been “squeezed”, “rammed”, and that someone “was messing around with” it.

No honor among thieves etc. So the BOE didn’t buy any of the bond that Stevenson was trading, its price got right back into whack, and Stevenson lost a lot of money:
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One lesson here is, if you’re going to manipulate markets, you should be really sure that your price-insensitive buyer is in fact price-insensitive,4 and a buyer.

Which is exactly what should be happening, but Stevenson’s been banned from the industry anyway, just to prove how rough and tough the regulators are in their desire to protect incompetent traders from facing the consequences of their incompetence. This ensures that there will always be lots of incompetent traders, and hence a need to protect them.

We might soon be getting crowdfunding:

Crowdfunding would be available to Canadian issuers (both reporting issuers and non-reporting issuers), other than investment funds, non-reporting real estate issuers and issuers without a written business plan. Under the exemption, a crowdfunding issuer, its affiliates and others in a common enterprise with the issuer would be permitted to raise an aggregate of $1.5 million within any 12-month period. (The British Columbia proposal limits a crowdfunding issuer to two offerings of a maximum of $150,000 each over any calendar year). Investment by a purchaser under the proposed OSC exemption would be limited to $2,500 per single investment with a $10,000 aggregate limit on all crowdfunding investments for each calendar year.

Investors must receive a disclosure document containing basic information about the offering, the issuer and the funding portal and sign a risk acknowledgement form. If the issuer has incurred expenditures prior to using the exemption, the disclosure document would be required to include annual financial statements and, if specified capital raising ($500,000) or expenditure ($150,000) thresholds have been surpassed by the issuer, the financial statements would haved to be audited. Investors will have a right of action for damages or rescission if any materials made available to them by the issuer, including the disclosure document, contain a misrepresentation, and will have 48 hours prior to the disclosed offering deadline to withdraw their subscription.

I’m sure I’m way behind the curve on this one, but I’ve become aware of a new trend in Toronto real-estate:

In some cases, the eye-popping amounts that some home buyers are flinging around in order to win bidding wars in Toronto these days lead to an inevitable question.

“I wonder what it will get appraised for,” speculate the real estate agents who keep an eye on the action.

In other words, a bidder who pays $150,000 above an asking price of, say, $700,000 or $800,000 better hope that an appraiser won’t balk at the selling price if the buyer hopes to have a mortgage and mortgage insurance.

Mr. Fleming says bidders who are tempted to overpay in their desperation to obtain a house can run into difficulty if the property appraiser estimates that the house is worth far less. He says deals don’t often fall through but buyers should be aware of the pitfalls. “I think it very rarely happens. But if you don’t have the minimum required, you end up having to go to the bank of mom and dad.”

A buddy of mine recently sold her condominium for about $150,000. She got one lowball and two acceptable offers … both of the acceptable offers were conditional on financing and were void when the CMHC turned down the banks’ applications for insurance. She’s sold it now, thanks to the purchaser’s Bank of Mom and Dad.

It was a fine day for the Canadian preferred share market, with PerpetualDiscounts up 16bp, FixedResets winning 24bp and DeemedRetractibles gaining 4bp. Volatility was average, but comprised exclusively of FixedReset winners. Volume was average.

The war on traders is having one predictable effect:

Junior bankers in the United Arab Emirates are reaping almost 36 percent more salary than their counterparts in London, with bonuses almost double those paid in the U.K. capital, compensation data provider Emolument said.

Fixed salaries at the analyst level in the U.A.E. average $91,000, compared with $73,000 in London, the group said in an e-mailed statement. Bonuses in the U.A.E., which consists of sheikhdoms including Dubai and Abu Dhabi, averaged $27,000 compared with $14,000. For associates, fixed pay in the U.A.E. was $107,000, compared with $108,000 in London, while bonuses of $40,000 in the U.K. were about 29 percent higher.

The SEC is hoping to destroy the remnants of the public bond market:

The U.S. Securities and Exchange Commission is examining how electronic bond-trading platforms allow dealers to give clients different prices on the same securities in the $40 trillion market, potentially hurting smaller investors.

SEC regulators want to understand why brokers sometimes block their rivals and clients from seeing some of their prices for municipal, corporate and other bonds, according to a person with direct knowledge of the examination. They’re concerned that being able to turn quotes on and off may allow market manipulation, and that smaller buyers may not get the best prices, the person said.
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Banks have increasingly turned to electronic systems to sell bonds on behalf of their clients as a way of aggregating a greater number of bids. That’s become more appealing as it’s become more expensive for dealers to use their own money to make markets because of higher regulatory capital requirements.

U.S. investment firms predict that 30 percent of corporate-bond trading will occur electronically by 2015, up from 14 percent of investment-grade notes in 2012, according to an August 2013 report by Greenwich Associates and McKinsey & Co. As much as 50 percent of municipal trades already may occur electronically, according to a TMC Bonds comment letter to the SEC last year.

Today was something of a non-event for the Canadian preferred share market, with PerpetualDiscounts and FixedResets both flat, while DeemedRetractibles were off 3bp. Volatility was minimal. Volume was above average.

Jonathan Weil of Bloomberg decries regulatory extortion:

New York Attorney General Eric Schneiderman is out again with another reminder that he doesn’t like the way high-frequency traders operate. He believes they have unfair advantages, and that it’s a bad idea for stock exchanges to sell them special services that cater to their wants. For that matter, so do I. So on that we can agree.

But Schneiderman also says there’s something about these arrangements that might be illegal, without saying what it is. If that’s true, he ought to spell it out. Instead, he’s back to his old ways of threatening to investigate companies and maybe sue them for fraud unless they change their practices in a way that he deems acceptable. No matter how noble his intentions, this isn’t how a law-enforcement officer should operate.

Sadly, extortion works:

Marketwired, a company that publishes and distributes corporate earnings and other market-moving news releases, said on Wednesday that it will no longer sell directly to high-frequency trading companies.

The action comes amid a wide-ranging probe by New York Attorney General Eric Schneiderman to end early access to information by technologically sophisticated traders, and follows a similar decision last month by Berkshire Hathaway’s Business Wire.

Marketwired said it would no longer provide its distribution service to high-frequency trading firms to “eliminate any perceived advantages gained through technology by certain customers,” according to a statement.

Naturally, there is a little reaction:

Mark Gorton knows what will happen on the day high-frequency traders’ computers get kicked out of the New York Stock Exchange.

“All you’re going to do is have a data center that’s across the street,” said Gorton, founder of the Lime Wire LLC music-sharing service and managing director of Tower Research Capital LLC, one of the most prolific equity traders in America. “Everyone’s going to want to put their computers there.”
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During a panel discussion yesterday following Schneiderman’s speech, Chad Johnson, chief of the New York Investor Protection Bureau in the attorney general’s office, said his boss doesn’t “pine for the days before electronic trading,” and recognizes there were issues in the past.

“The focus of our initiative is on the abusive practices, the latency arbitrage and the like,” Johnson said yesterday. “The strategies are ultimately extracting from the capital markets enormous sums of money and not providing benefit that makes that worthwhile,” he added. “You don’t necessarily have to get rid of the bad and toss the good — if there is good — at the same time.”

At issue is a model that regulators have permitted for years. Firms pay to place their systems in the same data centers as the exchanges, letting them directly plug in their companies’ servers and trade thousandths or even millionths of a second faster. They also purchase proprietary data feeds, which are faster and more detailed than the stock-trading information available on the public ticker.

The fact is that the market structure rewards speed. So there’s going to be competition for speed. I don’t see that there’s any way around that, even supposing that a rational person would want to get around that. The best that the regulators can do – assuming they are stupid enough to do it – is create a forest of totally arbitrary rules, which people will then devote vast resources to getting around. Sheer craziness. But Gorton’s last point is best:

“It’s true that grandma is not putting a computer in the data center to execute her orders,” Gorton said. “But when she routes her orders through a brokerage firm, that firm has an order and now actually the computer at the brokerage firm and the computer of the professional traders are on an exact level playing field.”

Exactly. It’s called competition. Why is Schneiderman so eager to protect the incompetent?

The article referenced a paper by Eric Budish†, Peter Cramton and John Shim titled The High-Frequency Trading Arms Race: Frequent Batch Auctions as a Market Design Response:

We argue that the continuous limit order book is a flawed market design and propose that financial exchanges instead use frequent batch auctions: uniform-price sealed-bid double auctions conducted at frequent but discrete time intervals, e.g., every 1 second. Our argument has four parts. First, we use millisecond-level direct-feed data from exchanges to show that the continuous limit order book market design does not really “work” in continuous time: market correlations completely break down at high-frequency time horizons. Second, we show that this correlation breakdown creates frequent technical arbitrage opportunities, available to whomever is fastest, which in turn creates an arms race to exploit such opportunities. Third, we develop a simple new theory model motivated by these empirical facts. The model shows that the arms race is not only socially wasteful – a prisoner’s dilemma built directly into the market design – but moreover that its cost is ultimately borne by investors via wider spreads and thinner markets. Last, we show that frequent batch auctions eliminate the arms race, both because they reduce the value of tiny speed advantages and because they transform competition on speed into competition on price. Consequently, frequent batch auctions lead to narrower spreads, deeper markets, and increased social welfare.

The FOMC announced more tapering:

The Committee currently judges that there is sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions. In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions since the inception of the current asset purchase program, the Committee decided to make a further measured reduction in the pace of its asset purchases. Beginning in April, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $25 billion per month rather than $30 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $30 billion per month rather than $35 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee’s sizable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee’s dual mandate.

Mexico is issuing long bonds:

When a French utility completed its sale of 100-year bonds denominated in pounds in January, Mexico took note.

Four years after becoming just the second country to sell dollar debt due in 100 years, Mexico last week issued 1 billion pounds ($1.66 billion) of securities that mature in 2114, becoming the only nation with two century bonds. U.K. investors accounted for 84 percent of buyers in the March 12 offering, said Alejandro Diaz de Leon, Mexico’s public debt chief. The sale by Electricite de France SA in January underscored the pent-up demand for longer-dated debt in pounds, according to Barclays Plc, which helped underwrite both deals.

“Mexico historically has distinguished themselves from other sovereigns in terms of always looking at creative ways of getting more efficiency in terms of their debt management strategy,” Raul Martinez-Ostos, head of Mexican operations at Barclays, said by phone from Mexico City. “Here it was really driven by real-money institutional accounts in the U.K.”

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts off 6bp, FixedResets up 10bp and DeemedRetractibles gaining 5bp. Volatility was low. Volume was low.

PerpetualDiscounts now yield 5.54%, equivalent to 7.20% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 4.45%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 275bp, a significant widening from the 265bp reported March 12.