Category: Market Action

New York City may bring its pension management in-house:

New York City’s $140 billion retirement system pays Wall Street money managers about $360 million a year, the only one of the 11 biggest U.S. public-worker pensions that refuses to manage any assets internally. Larry Schloss, the city’s chief investment officer, says the practice must end.

Schloss, 58, points to Ontario’s C$130 billion ($126 billion) teachers’ pension fund, which has returned an average 9.6 percent annually on its investments since 2003 — 1.6 percentage points better than New York’s funds. The Canadian system reaped those gains mostly without paying outside asset managers. Schloss says the same in-house approach could work in New York.
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The 38 staff members in the city comptroller’s Bureau of Asset Management oversee five funds for police, firefighters, teachers, school administrators and civil-service workers. They get paid an average of $100,000 a year, less than the median base salary of a first-year Harvard MBA graduate. They farm out asset management to more than 300 firms.

In-house management is definitely the way to go for funds that have the size to justify it – and NYC’s $140-billion meets that criteria! It isn’t a panacea, though – you do have to be careful that you hire actual asset managers, not salesmen. And of course, having hired actual asset managers, being unafraid to fire them.

DBRS confirmed Valener Inc, proud issuer of VNR.PR.A, at Pfd-2(low):

DBRS has today confirmed Valener Inc.’s (Valener or the Company) Cumulative Rate Reset Preferred Shares, Series A rating at Pfd-2 (low), with a Stable trend. The rating is based on the credit quality of Valener’s 29%-owned Gaz Métro Limited Partnership (GMLP), which guarantees the First Mortgage Bonds and Senior Secured Notes (rated “A”) of Gaz Métro inc. (GMi), and Valener’s low non-consolidated leverage. GMi owns the remaining 71% of GMLP.

Approximately 70% of GMLP’s EBITDA is from its relatively stable regulated natural gas distribution business in Québec, which operates under a supportive regulatory regime. GMLP also benefits from cash flow diversification from its investments in regulated energy distribution businesses in Vermont and the pipeline business (see the rating report on Gaz Métro inc. dated May 31, 2013). Distributions from GMLP have sufficiently covered Valener’s preferred dividends and interest and operating expenses. Valener’s rating is one notch lower than the rating of GMi, reflecting its structural subordination to GMLP.

The Canadian preferred share market slid into month end, with PerpetualPremiums down 14bp, FixedResets losing 19bp and DeemedRetractibles off 11bp. Good volatility, comprised entirely of losers including, oddly enough, a large contingent from Canadian Utilities. Perhaps the CU.PR.G recent new issue has caused some indigestion? Volume was very high, with the highlights comprised almost entirely of FixedResets, the only exception being the CGI new issue.

And that’s it for another month!

S&P has a negative outlook on Ontario:

• •In our view, Ontario continues to have a large, wealthy, and well-diversified economy; ongoing transfer payment support from the federal government for various social programs; adequate liquidity support; and exceptional access to capital markets.
• •We are affirming our ratings, including our ‘AA-‘ long-term and ‘A-1+’ short-term issuer credit ratings on the province.
• •The negative outlook reflects our view regarding the minority legislature’s ability in the next one to two years to meet what we view as aggressive cost containment targets necessary for the debt burden to peak in fiscal 2015 as planned.

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The provincial government estimates that real GDP growth slowed to 1.6% in 2012 from a 1.8% gain in 2011. The government is forecasting real GDP growth to advance at a more tepid pace of 1.5% in 2013.
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Ontario’s large budgetary deficits since the recession have significantly boosted its debt burden. At the end of fiscal 2013, Ontario’s tax-supported debt totaled C$259.7 billion, representing 230% of consolidated operating revenues (or about 39% of GDP). This is a sharp increase from 134% of consolidated operating revenues in fiscal 2008. Owing to the still-large after-capital deficits expected for fiscal 2014, the province projects its tax-supported debt burden will increase further to 235% of projected consolidated operating revenues (or about C$271.3 billion) this year, which represents an improvement from its forecast level in the fiscal 2013 budget. However, in our opinion, the rate of growth of Ontario’s debt burden remains a concern, as it is already at the high end of the range for similarly rated domestic and international peers.

The negative outlook reflects our view that there is at least a one-in-three likelihood that we could lower the long-term rating one notch in the next year.

Additionally, DPS.UN is officially defunct:

DBRS has today discontinued the stability rating on the retractable units (the Units) issued by Diversified Preferred Share Trust following completion of its restructuring into an open-end mutual fund on May 24, 2013.

The announcement of the conversion was discussed on PrefBlog.

Of far greater interest was a new visitor to my garden:

Click for Big

Click for Big

It was another negative day for the Canadian preferred share market, with PerpetualPremiums losing 15bp, FixedResets off 6bp and DeemedRetractibles down 9bp. Volatility was minimal – the only highlight is RY.PR.H, which was called today. Volume was high.

Nothing happened today.

PerpetualDiscounts now yield 4.94%, equivalent to 6.42% interest at the standard equivalency factor of 1.3x. Long corporates now yield 4.16% so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 225bp, a slight increase from the 220bp reported May 15.

A more severe drop for the Canadian preferred share market today, with PerpetualPremiums down 10bp, FixedResets off 6bp and DeemedRetractibles losing 22bp. Volatility was good, skewed to the downside. Volume was very high.

Great news! The Ontario Securities Commission is poised to use its awesome power for some good old-fashioned top-down social engineering:

Ontario is crafting new rules requiring public companies to set targets for the number of women in senior roles, a move with national implications that could reverse Canada’s decline in global standings for gender diversity in the corporate world.

Laurel Broten, Ontario’s minister responsible for women’s issues, revealed in an interview that the provincial government is working with the Ontario Securities Commission on ways to compel companies to set goals for boosting the number of women sitting as corporate directors, as well as in senior management.

It was a distinctly negative day for the Canadian preferred share market, with PerpetualPremiums down 9bp, FixedResets losing 15bp and DeemedRetractibles off 5bp. A distinct tilt in the Performance Highlights table towards losing FixedResets was lead by ENB issues, which are experiencing competitition from an attractive new issue. Volume was high.

Nothing happened today.

It was a directionless day for the Canadian preferred share market, with PerpetualPremiums flat, FixedResets gaining 2bp and DeemedRetractibles up 3bp. Volatility was minimal. Volume was light, with the highlights comprised entirely of FixedResets.

Loblaw’s will get out of the real-estate business:

Loblaw Cos. Ltd. filed a preliminary prospectus Friday for a planned $7-billion real estate investment trust for its sizable land portfolio under the name Choice Properties Real Estate.

The units of the REIT will be priced at $10, comprised of 425 properties and 35.3-million square feet of leasable space. It includes 415 retail properties, an office complex and nine warehouse properties.

The total number of units to be offered was not disclosed. A final prospectus will be released in July.

Loblaw says the value of the initial properties inside the REIT is between $7.25-billion and $7.4-billion and represents about 75% of its owned real estate portfolio.

In the wake of this, DBRS confirmed L.PR.A at Pfd-3:

On closing and going forward, it is expected that Loblaw will hold a significant majority ownership interest in the REIT through ownership of REIT units, as well as all of the Class B limited partnership units of the LP (which are economically equivalent to and exchangeable for units of the REIT). The Company believes that as the REIT’s key tenant, this structure will allow it to retain a high degree of operational flexibility. In addition, Loblaw will hold all of the outstanding Class C limited partnership units of the LP. In conjunction with the offering, George Weston Limited will purchase $200 million of units from the REIT at the IPO price.

Loblaw will also receive notes from the REIT which are senior unsecured debt of the REIT and will rank pari passu with all future senior unsecured indebtedness of the REIT. Concurrent with the IPO, the REIT is expected to offer senior unsecured debentures, the proceeds of which are expected to be used to repay a portion of the indebtedness owing to Loblaw. Loblaw is expected to use such proceeds to repay its own maturing indebtedness.

DBRS believes that this structure effectively maintains Loblaw’s current credit ratings because of the Company’s clear intent to continue to own and control its real estate while using intercompany notes to maintain consolidated leverage levels while effectively transferring an appropriate proportion of financial leverage to the REIT.

George Weston Ltd., proud issuer of WN.PR.A, WN.PR.C, WN.PR.D and WN.PR.E, was also confirmed at Pfd-3:

The GWL confirmation is based on DBRS’s confirmation of Loblaw’s ratings at BBB (see separate press release; Loblaw is 63% owned by GWL), as well as GWL’s relatively stable operating performance and the Company’s significant cash resources. GWL’s ratings reflect its holding in Loblaw and the Company’s strong brands and efficient operations, balanced by a continuing volatile input cost environment and the mature nature of the bakery industry.

DBRS will continue to monitor GWL’s decisions on the deployment of its remaining cash, cash equivalents and short-term investments, and will assess any potential impact on the Company’s credit risk profile at such time.

GWL’s liquidity remains commensurate with the R-2 (high) rating category, reflecting the Company’s high levels of cash on hand and marketable investments, positive free cash flow generating capacity and its manageable debt levels and maturity schedule.

It remains a mystery to me why any business would have on-line banking:

Thieves drained $800,000 from a fuel distribution company in the US state of North Carolina earlier this month – a loss that the company thinks might have something to do with its bank having recently upgraded its security system.
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David Alexander, J.T. Alexander & Son’s president, told Krebs that the loss was “pretty substantial” and “painful” for the small company, which employs a staff of only 15.

The company typically spends less than $30,000 on its total payroll every two weeks. In five days, the crooks managed to steal more than a year’s worth of salaries.

I finally got caught up on my spam-cleaning for PrefBlog – it got out of control in May. The amount of spam is increasing horrendously: as of today, there are over 48,000 spam comments on file, which have all been received since I cleaned the database in January. What was once a minor daily maintenance ritual is now not so minor!

On the positive side, I did find a comment by a first-time poster, travesty, that got caught up in the net but has now been approved. travesty can now comment and see the comment immediately; it will also be more visible to me, so perhaps his next comment will receive a more timely reply … unless he is so irritated by the delay he doesn’t post any more …

The Canadian preferred share market closed the week on a positive note, with PerpetualPremiums winning 7bp, FixedResets up 5bp and DeemedRetractibles gaining 3bp. Volatility was low. Volume was low … but with good size in some issues!

The war on bankers’ bonuses is having its intended effect:

TD Securities smoked past analysts’ expectations for the unit’s money-making ability, thanks in large part to the bond desk.

Net income for the wholesale banking business (the way the bank reports its TD Securities income) came in at $220-million, up from $197-million the year before and roughly 10 per cent higher than the $198-million forecast by Peter Routledge of National Bank Financial.
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The other number that jumps out in TD’s wholesale results is the 2.3-per cent decline in non-interest expenses, which at a securities firm includes payroll as one of its biggest components. That means TD reduced costs even as overall revenue increased, to $643-million from $608-million.

It was a quiet day for the Canadian preferred share market, with PerpetualPremiums down 3bp, FixedResets off 1bp and DeemedRetractibles flat. Volatility was minimal. Volume remained very low.

We’ll be seeing more of these, I think:

A freight train jumped the tracks in southeastern Saskatchewan Tuesday and spilled more than 91,000 litres of oil.

The accident happened as the Canadian Pacific Rail eastbound train was rolling through an area near the village of Jansen, about 150 kilometres southeast of Saskatoon.

The company said five cars derailed, but only one leaked its contents. A total of 575 barrels hit the ground, said spokesman Ed Greenberg.

A squib in the Globe & Mail brought to my attention a feature of US regulation of which I had been unaware:

Under questioning by a grand jury, Mr. Cohen would probably invoke his right to remain silent under the Fifth Amendment to the U.S. Constitution, The Wall Street Journal reported, citing lawyers familiar with the case.

If that does occur, it could present a new business challenge for him, said Mr. Stewart of Zuckerman Spaeder. He noted that regulators take a dim view of money managers who exercise their right against self-incrimination under the Fifth Amendment, and have revoked their trading licences in the past.

Typical of government – particularly of modern government. It’s more convenient to provide licenses to do things rather than pass laws prohibiting things … so they go with what’s easy. It reminds me, actually, of some Christian evangelizing I read in my youth, touting the Ten Commandments for being so heavy on the ‘Thou Shalt Not’ side of things.

It’s also typical of governments to recognize individual rights, with ferocious penalties if they are exercised.

Anyway, I found a thoughtful essay titled Averse to Adverse Inferences? Rethinking the Scope Of the Fifth Amendment Protections in SEC Proceedings on the topic which concludes:

The cold reality facing every person caught up in the wide net of securities fraud investigations jointly conducted by SEC and DOJ is that if a criminal charge is successful, an SEC civil charge is routinely successful on a motion for summary judgment based on the conviction at the higher burden of proof and level of intent. Since an adverse inference alone is insufficient to prove a case even by a preponderance of the evidence, drawing the adverse inference may have a very limited impact on an SEC case, while undoubtedly deterring defendants from taking the Fifth. However, the adverse inference for a defendant is a form of burden shifting and a penalty for exercising a constitutional right. Allowing the SEC to continue to draw an adverse inference against individuals who take the Fifth is a deterrent to the exercise of a valid constitutional right. The time has come to rethink whether such a deterrent by a government agency that has concurrent jurisdiction with federal criminal prosecutors is either wise or constitutional.

It was a positive day for the Canadian preferred share market, with PerpetualPremiums and FixedResets both up 6bp and DeemedRetractibles gaining 3bp. Volatility was low. Volume was extremely low.

Bernanke gave a wonderful speech on innovation and economic growth:

Finally, pessimists may be paying too little attention to the strength of the underlying economic and social forces that generate innovation in the modern world. Invention was once the province of the isolated scientist or tinkerer. The transmission of new ideas and the adaptation of the best new insights to commercial uses were slow and erratic. But all of that is changing radically. We live on a planet that is becoming richer and more populous, and in which not only the most advanced economies but also large emerging market nations like China and India increasingly see their economic futures as tied to technological innovation. In that context, the number of trained scientists and engineers is increasing rapidly, as are the resources for research being provided by universities, governments, and the private sector. Moreover, because of the Internet and other advances in communications, collaboration and the exchange of ideas take place at high speed and with little regard for geographic distance. For example, research papers are now disseminated and critiqued almost instantaneously rather than after publication in a journal several years after they are written. And, importantly, as trade and globalization increase the size of the potential market for new products, the possible economic rewards for being first with an innovative product or process are growing rapidly. In short, both humanity’s capacity to innovate and the incentives to innovate are greater today than at
any other time in history.

The spinning wheel goes ’round and ’round:

The U.S. spring homebuying season has been marked by a frenzy of demand fueled by the Federal Reserve’s drive to push down borrowing costs, a scarcity of listings and Wall Street’s new appetite for foreclosed homes. While values remain well below their peak, economists including Stan Humphries of Zillow Inc. (Z) and Mark Vitner of Wells Fargo & Co. assert prices in some areas are rising at an unsustainable pace — a dramatic shift from early 2012, when billionaire Warren Buffett said housing “remains in a depression.”
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U.S. home prices jumped almost 11 percent in March from a year earlier, the biggest gain since the height of the real estate boom in 2006, CoreLogic Inc. reported last week. Values are rising faster than incomes, an indication that prices may fall in some cities once higher mortgage rates erode affordability, Humphries said. Investor purchases will inevitably cool, adding another potential hit to the market, according to Vitner.

Silver is having interesting times:

Silver for immediate delivery tumbled as much as 7 percent to $20.6985 an ounce, and was at $21.345 at 11:32 a.m. in Singapore. The ratio surged to 64.89, the highest since August 2010. Gold lost as much as 1.5 percent to $1,338.85 an ounce, the lowest price since April 18, and was at $1,347.23. Gold is down for an eighth session, the worst run since March 2009.
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Global photovoltaic installations rose at their slowest pace in at least six years in 2012, according to Natixis SA, citing a report by the European Photovoltaic Industry Association. Weak European solar-panel sales will constrain growth in industrial demand for silver, Nic Brown, head of commodities research at Natixis, wrote in a May 16 report.

But not everything is plunging:

Beef prices are hitting all-time highs as supply tightens in the United States thanks to drought-stricken grasslands, expensive corn feed and a surge in demand after a cold spring kept North Americans away from the grill.

The cattle herd in the United States is the smallest it has been since 1952, by some estimates. The recent string of droughts has hammered ranchers needing grass, corn, and hay to keep their animals fat. These factors helped push wholesale beef prices to successive record highs last week. Concerning crop reports are adding to the pressure.

Julie Dickson gave a speech that was devoid of interest. Of more interest was a Globe and Mail report that:

Julie Dickson relayed her fears in a speech during which she said she wouldn’t seek a second term as the head of the Office of the Superintendent of Financial Institutions and will step down from the post next year.

I should run a pool on who hires her.

It was a dull day for the Canadian preferred share market, with PerpetualPremiums up 4bp and both FixedResets and DeemedRetractibles gaining 1bp. Volatility was non-existent. Volume was at the low end of average.

Nothing happened today either, just like yesterday.

It was a day of modest gains for the Canadian preferred share market, with PerpetualPremiums gaining 2bp and both FixedResets and DeemedRetractibles up 5bp. Volatility was minimal. Volume was quite low.