Category: Market Action

US house prices continue to drop:

Home prices in 20 U.S. cities dropped at a slower pace in January, pointing to stabilization in the real estate market.

The S&P/Case-Shiller index (SPX) of property values in 20 cities fell 3.8 percent from a year earlier, matching the median forecast of 32 economists surveyed by Bloomberg News, after decreasing 4.1 percent in December, a report from the group showed today in New York. Prices were little changed in January from the prior month, the best performance since July.

But some straws in the wind suggest a bottom:

Bidding wars, absent from most parts of the U.S. residential market since its peak in 2006, are erupting from Seattle and Silicon Valley to Miami and Washington, D.C. The inventory of homes hovers close to a six-year low, while an increase in jobs and record affordability are tempting more buyers. The number of contracts to buy previously owned homes jumped 14 percent in February from a year earlier, the National Association of Realtors reported yesterday.

There wasn’t much of interest in today’s Ontario budget. As usual, the politicians are all excited about targetting a balanced budget, and couldn’t care less about repaying today’s borrowings – nor are they interested in making a realistic projection of a business cycle and providing estimates and targets for the budget balance through the cycle.

It was a positive day for the Canadian preferred share market,with PerpetualPremiums gaining 14bp, FixedResets up 3bp and DeemedRetractibles winning 15bp. Volatility was moderate. Volume was average.

Here’s a cheerful prediction from Italy:

Italy’s Prime Minister Mario Monti warned that Spain could reignite the European debt crisis as euro-area ministers this week prepare a deal to strengthen the region’s financial firewall.

Monti pointed to Spain’s struggle to control its finances ahead of a finance ministers meeting in Copenhagen starting on March 30, where officials will seek agreement to raise a 500 billion-euro ($664 billion) ceiling on bailout funding.

.“It doesn’t take much to recreate risks of contagion,” Monti said during the weekend at a conference in Cernobbio, Italy. Days after his Cabinet approved a bill to overhaul Italy’s labor laws, Monti praised Spain’s efforts to loosen work regulations while advising it to focus on cutting the national budget. Spain “hasn’t paid enough attention to its public accounts,” he said.

There are rumours that the acronym “HST” will soon stand for Hot Sex Tax.

It was a positive day overall for the Canadian preferred share market, with PerpetualPremiums down 6bp, FixedResets up 14bp and DeemedRetractibles winning 20bp. Sun Life and Manulife dominated the positive side of a relatively lengthy Performance Highlights table. Volume was almost average.

There may indeed have been some naughtiness at MF Global:

Jon S. Corzine, MF Global Holding Ltd. (MFGLQ)’s chief executive officer, gave “direct instructions” to transfer $200 million from a customer fund account to meet an overdraft in one of the brokerage’s JPMorgan Chase & Co. (JPM) accounts in London, according to an e-mail sent by a firm executive.

Edith O’Brien, a treasurer for the firm, said in an e-mail sent the afternoon of Oct. 28, three days before the company collapsed, that the transfer of the funds was “Per JC’s direct instructions,” according to a copy of a memo drafted by congressional investigators and obtained by Bloomberg News.

There’s some kind of wierd scam going on. Twice in two days, I’ve received a call from somebody (different somebodies!) who asked – right off the bat – whether “you guys accept American Express”. The first time I wanted to know who he was and why he wanted to know – since he claimed to be from California and was only curious, I told him not to call again. The second time I asked who “Leah” worked for; she didn’t work for anybody, she was just curious.

So – a scam. But I can’t figure out how it works!

It was a day of modest gains in the Canadian preferred share market, with PerpetualPremiums gaining 4bp, FixedResets winning 11bp and DeemedRetractibles up 5bp. Considering the overall averages, the Performance Highlights table is relatively lengthy. Volume was very low.

Moody’s has a good idea:

Governments, which have been criticizing credit-rating companies over sovereign-debt downgrades, should start a competing firm, according to Moody’s Corp. (MCO) Chief Executive Officer Ray McDaniel.

“Public institutions that have both the expertise and credibility among market participants should provide credit views on sovereigns,” McDaniel wrote today in a paper called “A Solution for the Credit Rating Agency Debate” that was posted on the New York-based company’s website.

European lawmakers have blamed Moody’s, Standard & Poor’s and Fitch Ratings for complicating efforts to resolve the region’s debt crisis by cutting countries’ ratings, leading the European Union to adopt tougher regulations. While some have considered prohibiting the companies from publishing their opinions, that won’t stop investors from speculating on creditworthiness, McDaniel said.

Looking to see how much credibility and influence a government-run CRA would have would be a hoot!

Spend-Every-Penny said something sensible today:

“I find it a bit odd that some of the bank executives are taking the position that the minister of finance or the government somehow should tell them how to run their business,” Flaherty said during an appearance in Stittsville, Ont., just west of Ottawa.

“We have bank executives in Canada going and saying ‘really, the rules on insured mortgages should be tightened up.’ They must forget that they are actually the ones that issue the mortgages. It’s their market. It’s not my market. They decide what they want to charge in interest rates.

“They’re the ones that make the profits out of this business, so I do find it a bit much when some of the bank executives turn to the government … and say ‘you ought to change the rules and make it tighter.’ It’s very interesting commentary from them.”

Downtown members of Toronto Shitty Council were able to record a political victory today over Mayor Rob Ford. All they had to do was throw Scarborough under the bus streetcar LRT and destroy city finances! Bargain! In related news, daredevil Star reporter Kate Allen was able to drive 6.5 km along St. Clair in only twenty minutes! I’m surprised she didn’t get a ticket!

It was another down day for the Canadian preferred share market, with PerpetualPremiums losing 19bp, FixedResets off 1bp and DeemedRetractibles down 9bp. However, the Performance Highlights table is fairly short. Volume was on the low side of average.

Who will be the next domino? Willem Buiter thinks Spain:

Spain has never been so close to default and Greece, Ireland and Portugal may need further bailouts, Citigroup Inc. chief economist Willem Buiter said.

“Spain is the key country about which I’m most worried,” Buiter, a former Bank of England policy maker, said in a radio interview today on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt. “It’s really moved to the wrong side of the spectrum and is now at greater risk of sovereign restructuring than ever before.”
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Spanish bonds fell, pushing 10-year yields to the highest level in more than a month at 5.388 percent at 5 p.m. Madrid time, widening the spread over similar German maturities to 3.4 percentage points, 20 basis points more than yesterday.

Bottom-fishers are in the US housing market:

Waypoint, a private-equity real-estate fund with $150 million in assets, is pioneering a new approach to making money from the housing crash. Since 2007, investors have been trolling the cratered suburbs stretching from California to Florida (SPCSMIA) for cheap houses to flip. And firms such as PennyMac Mortgage Investment Trust have sought value in subprime-mortgage-backed securities.

Waypoint, which owns 1,100 houses and is buying five more a day, is betting that converting foreclosures into rentals is a better way to make a profit. Other firms, such as Landsmith LP in San Francisco, are now cropping up and pursuing the same strategy in Arizona, California and Nevada.

With many suburban homes selling for half their peak values and demand for rentals from prospective tenants climbing, Waypoint was earning an 8 to 9 percent return on its capital as of Dec. 31, according to a quarterly report it sends to clients. That beats the 6.3 percent gain in the BI NA Multifamily REIT (BRFREITC) Index, which tracks the performance of 27 apartment building operators.

The cost of renting in the U.S. reached an all-time high compared with that of buying a home at the end of last year, indicating it’s a good time for investors to purchase, Deutsche Bank AG (DBK) analysts said in a note today.

There’s a grim outlook for airlines:

Emirates, the biggest airline by international traffic, said more carriers will go bust this year as fuel costs and sluggish economies undermine profitability.
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Airline profits will plunge 62 percent in 2012 to $3 billion, equal to a 0.5 percent margin on sales, as oil prices rise, the International Air Transport Association said this week. Emirates’s fuel bill accounts for 45 percent of costs and may jump by an “incredibly challenging” $1.7 billion in the year ending March 31, according to Clark, who says he’s sticking with a no-hedging strategy rather than risking a losing bet.
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AMR Corp. (AMR1)’s American Airlines is restructuring after filing for Chapter 11 bankruptcy and India’s Kingfisher Airlines Ltd. (KAIR) may lose its license as it struggles with cash shortages and losses. That’s after Barcelona-based Spanair SA collapsed Jan. 27, followed that week by Hungarian national carrier Malev Zrt. (MALEV)

Air Canada will do all right, since competing with them is illegal, as is negotiating labour contracts.

Toronto Shitty Council debated Sheppard Avenue transit today. My favourite question was:

Cllr Minnan-Wong asks Andy Byford why TTC did not have ready figures on operating costs of LRTs v subways. He says wk now done. #TOcouncil

Glad the work’s been done now! Now I want to know: is there anybody, anybody at all in TTC management who deserves to keep their job?

The Canadian preferred share market got smacked again today, with PerpetualPremiums down 20bp, FixedResets off 11bp and DeemedRetractibles losing 27bp. The Performance Highlights table is suitably long. Volume was average.

PerpetualDiscounts (all seven of them!) now yield 5.19%, equivalent to 6.75% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 4.7%, so the pre-tax interest-equivalent spread (in this context, “the Seniority Spread”) is now about 205bp, unchanged from that reported on March 14.

First day of Spring! I was too busy planning the sacred rites that will help my garden grow to pay much attention to the news. Sorry!

The Canadian preferred share market got knocked down today, with PerpetualPremiums down 13bp, FixedResets losing 32bp and DeemedRetractibls off 19bp. The Performance Highlights table was appropriately long and uniformly negative, with BAM and SLF issues conspicuous amongst the losers. Volume leapt upwards, to above average levels.

Greek CDSs are being settled at 21.5%:

Sellers of credit-default swaps on Greece will have to pay as much as $2.5 billion to settle contracts triggered by the nation’s debt restructuring.

The settlement was determined after dealers agreed a final value for Greek bonds of 21.5 percent of face value at an auction, according to administrators Markit Group Ltd. and Creditex Group Inc., and is in line with where the notes have been trading.

Greek credit-default swaps are being settled after investors were forced to exchange their bonds at a loss in the biggest ever debt restructuring. The auction ends more than two years of speculation over whether the derivatives are reliable for insuring sovereign debt after European policy makers sought to prevent payouts on concern they’d worsen the region’s crisis.

OSFI has gone to the unprecedented step of issuing a news release regarding mortgage underwriting guidelines. Naturally, there is no meat at all in the release, but the referenced draft guidelines create the usual paperwork increase.

DBRS has imposed new website conditions:

SITE Lockdown – Public Users must register

So now there will be more moronic spam for me to delete every day. And I just got less inclined to be civil when somebody calls from DBRS. Oh, well.

I wrote a Letter to Toronto City Council regarding the Sheppard Avenue East subway.

It was a quiet day for the Canadian preferred share market, with PerpetualPremiums gaining 1bp, FixedResets flat and DeemedRetractibles losing 19bp. The Performance Highlights table is suitably short; volume was low.

BCE is buying Astral Media:

BCE Inc.’s (BCE-T39.64-0.42-1.05%) massive bet on media is going truly national, as the communications giant makes a $3-billion play for Astral Media Inc. (ACM.A-T48.5512.3033.93%)to shore up its broadcasting business in the one province where it was weak: Quebec.

The deal, announced Friday, gives the country’s largest communications firm a stable of French-language television and radio stations to compete with rival Quebecor Inc. It also cements BCE’s position as the leading force of consolidation in Canada’s media industry: Since 2010, it has announced deals worth nearly $7-billion to buy control of CTV Inc., Maple Leafs Sports and Entertainment Ltd., and now Montreal-based Astral.

DBRS considers it a non-event for credit:

DBRS has today confirmed the long- and short-term ratings of BCE Inc. (BCE) and its wholly-owned operating subsidiary, Bell Canada (the Company), at BBB (high)/R-1 (low) and A (low)/R-1 (low), respectively, following BCE Inc. and Bell Canada’s announcement today that they have entered into a definitive agreement to purchase the shares of Astral Media Inc. (Astral Media) for roughly $3 billion (valuing Astral Media at a total enterprise value of roughly $3.4 billion). The trend on all ratings is Stable.

With an EBITDA multiple of roughly 10 times (x) Astral Media’s F2012 EBITDA, DBRS notes that this transaction is reasonable and consistent with other recent media transactions in Canada. BCE/Bell Canada plans to fund the acquisition of the equity purchase price with cash/debt (for roughly three-quarters) and BCE Inc. common shares (for the remaining quarter, or $750 million). As part of the transaction, Ian Greenberg – one of the co-founders of Astral Media – will join the board of BCE Inc. upon closure of the acquisition.
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From a financial perspective, DBRS notes that leverage is expected to increase for Bell Canada with the addition of Astral Media, from approximately 1.8x gross debt-to-EBITDA expected at the end of 2011 to roughly 2.0x expected at the end of 2013. However, the Company’s commitment to deleverage within 24 months of the close of the transaction gives DBRS greater comfort that Bell Canada’s leverage will improve to more historical levels (and back within its own target range).

It was another quiet day for the Canadian preferred share market, with PerpetualPremiums down 5bp, FixedResets gaining 7bp and DeemedRetractibles off 5bp. The Performance Highlights table is suitably short. Volume was quite low.

It seems that BAM will spin out some real estate:

Now the company’s largest division by far, its $83-billion collection of real estate, is about to receive the spin-out treatment. And therein lies the potential opportunity for investors. The move to create the new venture, to be known as Brookfield Property Partners, could be a catalyst to move the share price higher.

The company states:

“As long-term, value-oriented real estate investors, we believe this is an excellent time to selectively build a portfolio of high-quality industrial properties, and we look forward to expanding our relationship with Hillwood,” said David Arthur, Managing Partner at Brookfield Asset Management. “This initiative expands the scope of our real estate platform in an exciting asset class, strengthening our global property operations in line with the expected launch later this year of our flagship property vehicle, Brookfield Property Partners.”

It was a poor day for the Canadian preferred share market, with PerpetualPremiums down 13bp, PerpetualDiscounts off 4bp and DeemedRetractibles losing 18bp. The Performance Highlights table is short, but comprised entirely of losers. Volume was pathetically, Christmasally low.

Nice story about technological disruption – a big change from The Diving Bell & the Butterfly:

Edwards, who suffered brain damage in 2001, can write e- mails, though, and she’s revisiting a favorite pastime, sketching, for the first time in a decade, thanks to her iPad and software applications that can cost as little as $7.

That’s a switch from the $15,000 communication device she had tried, a 9-pound machine approved by her insurer that tracks eye movement on a special grid corresponding to the alphabet. That device kept her tied to those in the room around her. The iPad, along with several other consumer-driven apps, has reopened the world to her.

Fitch has indicated a negative outlook on UK debt:

Fitch Ratings said Britain risks losing its top investment grade because of its limited ability to deal with shocks, days before Chancellor of the Exchequer George Osborne will present his annual budget.

Fitch changed the outlook on Britain to “negative” from “stable,” indicating a “slightly greater” than 50 percent chance that the AAA rating will be reduced within two years, the company said in a statement in London late yesterday, citing the weak economic recovery, high debt levels and threats from Europe’s debt crisis. Osborne will meet coalition partners later this week to agree on a budget he will present on March 21.

It was a quiet day for the Canadian preferred share market, with PerpetualPremiums gaining 3bp, FixedResets up 1bp and DeemedRetractibles off 1bp. There were no entries on the Performance Highlights table. Volume returned to average levels.

PerpetualDiscounts now yield 5.10%, equivalent to 6.63% interest at the standard equivalency factor of 1.3x. Long Corporates now yield about 4.60%, so the pre-tax interest-equivalent spread (which in this context is the Seniority Spread) is now about 205bp, a slight tightening from the 210bp reported March 7.