Category: Market Action

Bloomberg’s Matt Levine pens a good review of JPMorgan’s $1.7-billion Madoff fine:

If you think of JPMorgan’s businesses as operating more or less independently, but occasionally making each other money by cross-selling, then this mess makes more sense. A London investment bank that considered and rejected a derivative-linked investment in Madoff would have no obligations to report its suspicions to U.S. regulators. A boring custody bank that ran Madoff’s checking accounts but had no derivatives traders to get suspicious about him also probably wouldn’t be in trouble for missing the Madoff red flags. Combine the two businesses and the same behavior gets you in trouble. In that sense, JPMorgan’s $1.7 billion forfeiture here looks a bit like a tax on bigness and integration: You can grow huge, offer a loosely integrated set of every conceivable financial product, and bask in the cross-selling opportunities, but every now and then it’ll cost you a couple of billion dollars. So far that trade-off still seems to be worth it for JPMorgan.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts gaining 8bp, FixedResets up 16bp and DeemedRetractibles off 11bp. The Performance Highlights table is heavily skewed towards winners. Volume was well above average.

Today’s new issue from PPL is the second this week (too bad they’re both junk), so I win the nickel I bet last Friday. Now let’s go for #3!

Eric Rosengrun of the Boston Fed urges a restrained approach to tapering:

Federal Reserve Bank of Boston President Eric Rosengren, who cast the lone dissent last month against a Fed decision to taper bond buying, said policy makers shouldn’t rush to cut stimulus with inflation below 2 percent.

“With the inflation rate below target and the unemployment rate significantly above target, we believe strongly that monetary policy makers have the opportunity to be patient in removing accommodation,” Rosengren said today on a panel discussion at the American Economic Association’s annual meeting in Philadelphia. “This was one of the motivations for my dissenting vote.”

Consumer prices rose 0.9 percent in November from a year earlier, according to an inflation measure watched by the Fed. The central bank aims for inflation of about 2 percent.

That should get him into the good books of the new chairman!

Yellen, 67, was confirmed today by a 56-26 vote, with 11 Republicans supporting her. She’ll replace Ben S. Bernanke, whose second term as chairman expires Jan. 31, as the Fed trims monthly bond purchases in a first step toward lessening the unprecedented stimulus.

Spend-Every-Penny commented directly on interest rates, rather than getting his puppet to do it:

Finance Minister Jim Flaherty says Canada will be under pressure to raise interest rates in 2014, something Bank of Canada Governor Stephen Poloz has signaled won’t happen soon.

In an interview with CTV aired Sunday, Mr. Flaherty said clawed-back stimulus spending by United States’ Federal Reserve will, along with calls by the Organisation for Economic Co-operation and Development (OECD) and International Monetary Fund (IMF), leave Canada under pressure to raise its rates.

“I think the pressure will be there, because the Fed in the U.S. should stop printing money, and taper off as they say. And that should help,” he said, referring to the dialing back of U.S. bond-buying, or quantitative easing. “The OECD and the IMF have both said to Canada we ought to let our interest rates go up a bit. So there’ll be some pressure there for that to happen.”

There’s some interesting commentary on tenure on Bloomberg:

The proximate cause of the most recent explosion is a letter that University of California at Riverside sent to applicants for tenure-track positions in the English department, informing them that five days hence, they would have the opportunity to interview at the annual meeting of the Modern Languages Association. Rebecca Schulman reasonably, if somewhat intemperately, pointed out that for people living on the paltry wages of a grad student, a last-minute plane ticket is a pretty expensive entry fee for a slim chance of a tenure-track job.

Karen at The Professor Is In blog followed up with a long, angry post about the blind eye that tenured faculty turn to the travails of adjuncts and grad students. The title, “How the Tenured are to the Job Market as White People are to Racism” drew more than a little anger, understandably. But her broader point is sound: academia is now one of the most exploitative labor markets in the world. It’s not quite up there with Hollywood and Broadway in taking kids with a dream and encouraging them to waste the formative decade(s) of their work life chasing after a brass ring that they’re vanishingly unlikely to get, then dumping them on the job market with fewer employment prospects than they had at 22. But it certainly seems to be trying to catch up.
…
Professional sports also runs on the tournament model, but with one key difference: athletes find out pretty early that they’re not going to make it — early enough to still have a basically normal life doing something else. As the time it takes to get a PhD has stretched out, academia is looking less and less like athletics, and more and more like the theater. The students would be much better off if they were weeded out earlier, in the application process for PhD programs. A substantial fraction — maybe the majority — of PhD programs really shouldn’t exist.

One thing that’s interesting is the assertion that job prospects for the losers of the tenure competition are worse than they would have been had they not done a PhD. That does not speak well for the concept of a liberal arts education, if true. But all in all, my worry is research standards: there’s a lot of dumb research done and a certain amount of it is fabricated.

It was another good day for the Canadian preferred share market, with PerpetualDiscounts winning 17bp, FixedResets gaining 5bp and DeemedRetractibles up 14bp. A good-sized Performance Highlights table is heavily skewed towards winning Straight Perpetuals. Volume was low.

There was a new issue announced today, so the dime I bet on Friday is safe. Now let’s look for #2!

Bernanke gave himself a little pat on the back:

“The combination of financial healing, greater balance in the housing market, less fiscal restraint, and, of course, continued monetary policy accommodation bodes well for U.S. economic growth in coming quarters,” Bernanke said today in remarks prepared for a speech in Philadelphia. “Of course, if the experience of the past few years teaches us anything, it is that we should be cautious in our forecasts.”
…
He said the decision to taper bond purchases “did not indicate any diminution of its commitment to maintain a highly accommodative monetary policy for as long as needed.”

Bernanke cited payroll employment rising by 7.5 million since 2010 and the economy growing in 16 of the 17 quarters after the recession ended as evidence the Fed’s policies, which also included providing more information on the likely future path of interest rates, have succeeded.

“The economy has made considerable progress since the recovery officially began some four and a half years ago,” the 60-year-old former Princeton University professor said to the annual meeting of the American Economic Association. His tenure ends Jan. 31.

“When the economy was in free fall in late 2008 and early 2009, such improvement was far from certain, as indicated at the time by stock prices that were nearly 60 percent below current levels and very wide credit spreads,” Bernanke said.

Could it be that even Spain and Italy are on the mend?

Spain’s government bonds advanced, pushing 10-year yields to the lowest since May 2010, as a report showing unemployment fell the most in six months in December added to signs the region’s economy is gaining momentum.

The extra yield investors demand to hold Spanish 10-year debt instead of similar-maturity German bonds shrank below 2 percentage points for the first time since May 2011. Spanish unemployment fell 107,570 last month, the biggest decline since June, the Ministry of Labor said. Italy’s bonds also rallied, with 10-year yields dropping to the lowest since May. Germany’s benchmark 10-year bund yield was about three basis points from the highest level since September.

But bank crises take a long time to heal:

It takes eight years on average for economies to regain the level of income lost in a banking crisis, and the U.S. and Germany are alone among 12 in having already done so since the 2008 turmoil, according to Harvard University professors Carmen Reinhart and Kenneth Rogoff.

Their study of 100 banking crises over two centuries, scheduled to be presented today at the conference of the American Economic Association in Philadelphia, found part of the costs of banking difficulties relate to how long it takes economies to recover.

Of the 12 economies examined since 2008, the per-capita gross domestic product of Greece, Italy, Netherlands, Portugal and Spain kept contracting through 2013, according to a draft of the paper. Other than the U.S. or Germany, the rest either didn’t grow or didn’t grow enough to attain their previous income peaks.

In 43 percent of the historical cases studied, economies double-dipped back into recession. The paper covered 63 crises in advanced economies and 37 in larger emerging markets.

The recent rally in the Canadian preferred share continued, with PerpetualDiscounts up 13bp, FixedResets gaining 12bp and DeemedRetractibles winning 30bp. The Performance Highlights table is heavily skewed towards winners, with insurance DeemedRetractibles notable among the winners. Volume picked up a little from its seasonal depths, but remains very low; but as a change of pace, two SplitShare issues made the list.

We can now look forward to next week: I’ll bet a dime that at least one new issue is announced, and a full nickel that there’s at least two.

Nothing happened today, either.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts up 27bp, FixedResets off 1bp and DeemedRetractibles gaining 12bp. The Performance Highlights table is heavily skewed towards winners, with Floating Rate issues notable on the plus side. Volume was abysmally low – will the current rally in Straight Perpetuals survive the return of trading activity?

Nothing happened today.

Another hot day for the Canadian preferred share market, with PerpetualDiscounts winning 53bp, while both FixedResets and DeemedRetractibles were up 25bp. Volume was abysmally low.

It seems I have another competitor, of whom I was not previously aware: NexGen Canadian Preferred Share Tax Managed Fund, managed by Jeff Herold of JZechner Associates Inc.. He had a piece in the Globe today titled Preferred shares offer lush yields for those who do their homework.

They’ve accumulated over $37-million in assets! Sure is nice to have good distribution channels…

Boyd Erman of the Globe writes a polemic titled Hyperinflation thesis has been discredited, yet it still ticks:

Looking back over 2013, it’s hard to imagine a more off-base call than the hyperinflation thesis. In fact, the whole idea that “money printing” would cause prices to skyrocket, turning the world into one big Zimbabwe, has been wrong for a number of years since it cropped up as a result of central banks’ response to the 2008 crisis.

As that realization finally set in this year, most commodity prices fell. Worse for many Canadian investors, gold went off a cliff, falling from nearly $1,700 (U.S.) an ounce to about $1,200. Without the notion of the metal as an inflation hedge, any “need” for gold vanished, aside from bling.
…
Wrong-headed forecasts about inflation are hammering lots of small investors who were sucked into the hysteria. They, of course, are not alone. John Paulson, please stand up, along with gold miners who invested in big projects at the peak.

The Canadian preferred share market was on wheels today, with PerpetualDiscounts winning 68bp, FixedResets gaining 3bp and DeemedRetractibles up 24bp. Not surprisingly, the Performance Highlights table was dominated by winning PerpetualDiscounts and DeemedRetractibles. Volume, such as it was, which wasn’t much, was also notable for its high proportion of Straights.

There are some interesting battles surrounding solar energy in the States:

A system of generous net metering rules may have made sense at the outset of the solar revolution to get the party started. Now, however, it’s clear that it will have enormous disruptive impacts on APS and other utilities that bear the burden of keeping the grid operating.

“Somebody has to pay for maintenance and upkeep,” Guldner said, and solar users in the current rate structure aren’t doing so.
…
Republican and libertarian support for solar is informed by a “don’t tread on me” response to the utility monopoly system, making foes of those that might have been friends. It’s a wing of the pro-solar coalition that no one — and certainly not the anti-solar crowd — anticipated.
…
Inside, it was clear that APS and its supporters were out of luck. The idea for the $4.90 [grid maintenance] fee [for household solar users] came from the solar side — and very likely swung the vote.

The charge won’t be enough to cover the utility’s grid costs until their next rate case in 2015, APS’s Guldner said, and will probably require the company to ask for much bigger fees down the road.

“In 2016, that rate increase could be a big one” and the utility will probably win the argument, Guldner said.

My guess? The grid will be ignored until the next disaster.

It was a mostly negative day for the Canadian preferred share market, with PerpetualDiscounts down 14bp, FixedResets flat and DeemedRetractibles off 9bp. Volatility was muted. Volume was extremely low.

PerpetualDiscounts now yield 5.69%, equivalent to 7.40% interest at the standard equivalency factor of 1.3x. Long Corporates now yield about 4.8%, so the pre-tax interest-equivalent spread is now about 260bp, a slight (and perhaps spurious) narrowing from the 265bp reported December 18.

TD.PR.A and TD.PR.C were called for redemption yesterday, filling in a blank in the schedule of upcoming Exchange Dates. Of the thirteen Exchange Dates between now and February 24, ten will be resolved by redemption. Next up is BMO.PR.N, (Exchange Date 2014-2-25) but with an Issue Reset Spread of +383bp, there’s not much suspense surrounding the eventual announcement. In fact, the seven following Exchange Dates (going out to June 1) are all for issues with spreads in excess of 400bp, so there’s not a lot of scope for entertaining speculation.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts up 14bp, FixedResets down 3bp and DeemedRetractibles off 2bp. The Performance Highlights table is surprisingly lengthy. Volume was very low, as might be expected on a half day.

Bloomberg has an article detailing the importance of going to the right school.

The Globe & Mail today features some of the more unusual investment advice I’ve seen recently:

While the couple pay a low-cost annual fee for management of their investments, [Raymond James advisor] Ms. [Patti] Dolan says they are not reaping any benefit from this arrangement. “From my review of the statements it appears the accounts are being charged a 1-per-cent management fee – for what?” she asks. “The concept of paying a percentage of assets is to lower commission costs.” Their account shows little activity in recent months, and it’s clear that most of the past activity has only served to hurt their financial position. “If you are paying a fee, no matter if you are making or losing money, there should be activity in the account to justify the money the adviser is receiving.”

Um … no. You pay asset-based fees in order to disengage trading activity from portfolio management. Sometimes the smartest thing to do is nothing. Secondarily, in a AUM-based fee situation, the advisor’s financial interest is somewhat better aligned with that of the client’s.

Utility Split Trust, proud issuer of UST.PR.B, was confirmed at Pfd-2(low) by DBRS.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts gaining 4bp, FixedResets up 11bp and DeemedRetractibles off 1bp. The Performance Highlights table was lengthier than might be expected, but with no clear pattern. Volume was above average.

Nothing happened today.

It was a fine day for the Canadian preferred share market, with PerpetualDiscounts winning 37bp, FixedResets gaining 21bp and DeemedRetractibles up 22bp. Volatility was average. Volume was very high.