Category: Market Action

There is some indication that the Europeans are beginning to realize that their voluntary debt exchange idea is stupid:

Opposition to payouts on Greek credit-default swaps from European Union policy makers is softening as disputes over a voluntary debt exchange threaten to push the nation into default.

Any agreement between the Greek government and the Washington-based Institute of International Finance on debt writedowns will only bind 50 percent of investors in the 206 billion euros ($270 billion) of notes being negotiated, Barclays Capital estimates. Hedge funds may resist a deal, seeking to get paid in full or compensated from insurance contracts.
…
“Politicians seem less concerned than before about CDS triggers,” said Michael Hampden-Turner, a credit strategist at Citigroup Inc. in London. “Having a payout on Greek CDS is probably better than the alternative: a loss in market faith of the product’s ability to provide a hedge against sovereign risk.”

Officials, including former European Central Bank President Jean-Claude Trichet, have insisted that a swaps trigger was unacceptable because traders would be encouraged to bet against indebted nations and worsen the crisis.

Fitch is not impressed:

Spain, Italy, Belgium, Cyprus and Slovenia had their debt ratings cut by Fitch Ratings, which said these nations do not accure [sic] “the full benefits of the euro’s reserve currency status.”

Ireland had its ratings affirmed by Fitch. The outlook on all six nations is negative.

But fear not! Soon credit rating agencies in Canada will have a lot more forms to fill out and boxes to tick and regulatory employment will increase so everything will be fine!

Canadian securities regulators are preparing to impose new rules on agencies that assess the creditworthiness of the millions of dollars in debt issued by corporations, governments and other instructions.

The Canadian Securities Administrators said Friday that credit ratings agencies in this country who want their opinions to be eligible for use under securities laws will need to apply to become a “designated rating organization.”

The Volcker Rule continues re-shuffle the deck:

Citigroup Inc. (C), the third-biggest U.S. lender, will close a proprietary-trading desk that makes bets with the firm’s own money and most of the unit’s staff will leave before rules banning the practice take effect.

Citigroup is shutting the Equity Principal Strategies business and most staff will leave the bank after Feb. 6, according to a memo by Derek Bandeen, head of equities for the New York-based bank, and obtained by Bloomberg News.
…
“Pursuant to various regulatory initiatives and changes, we have made the strategic decision to exit the Principal Strategies business,” Bandeen said in the memo. “The team, led by Sutesh Sharma, have been aware of this for some time and have worked diligently to wind down the positions over the last few months.”

Sharma intends to form a hedge fund, two people familiar with the matter said in August. His Citigroup team managed about $2 billion, one of the people said.

It was another mixed day for the Canadian preferred share market, as the (relatively tiny) PerpetualDiscounts index shot ahead 54bp, FixedResets lost 6bp and DeemedRetractibles gained 9bp. Volatility was good, skewed to the upside; volume was above average.

All I can say is: it’s about time:

The federal government says it is abandoning plans to create a national securities regulator following a stinging courtroom defeat.

Finance Minister Jim Flaherty on Thursday delivered his most elaborate public reaction since last month’s critical ruling by the Supreme Court of Canada.

Mr. Flaherty told The Canadian Press that he recognizes that the day-to-day regulation of financial markets is a provincial responsibility — as determined by the high court.

Another bank is going to limit cash bonuses for investment bankers:

Bank of America Corp., the U.S. lender seeking to preserve capital, will freeze base salary levels and limit cash bonuses to $150,000 for some investment bankers, said two people with knowledge of the plans.

The cap on cash payments applies to those getting as much as $1 million in total year-end bonuses, with the rest coming in shares of the Charlotte, North Carolina-based lender, said the people, who asked for anonymity because the matter is private. Employees are being told of their payments today and can sell some of the stock starting on Feb. 15, the people said.

So my question is: when we will see the first public offering underwritten by a hedge fund? A hedge fund based in Singapore? But at the moment, the mood among investment bankers leans to fear more than greed:

In London, with financial sector jobs on the chopping block, bankers lucky enough to have a job are staying put even if they are dismayed when they hear about their bonus.

A new survey of almost 1,400 bankers and fund employees shows that far fewer employees are likely to try to swap jobs if they don’t like their bonuses. The research, done by recruiting firm Astbury Marsden, found that only one-third of workers in London who were surveyed said they would seek a new job. A year ago, the figure was 48 per cent.

They are facing a job market where finding a new spot is tough. According to the firm’s earlier research, competition for roles is rising fast. In 2011, there were 3.16 qualified candidates for financial job in London, up from 2.17 in 2010.

Such figures are likely to embolden bank bosses as they face political and shareholder pressure to cut bonuses. The usual threat of “cut my bonus and I leave” is a lot less threatening in a market where jobs are disappearing.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts down 21bp, FixedResets gaining 5bp and DeemedRetractibles up 1bp. There was a lengthy list of volatile issues, with a preponderance losers but no clear pattern. Volume was high.

The FOMC release was fascinating:

To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee expects to maintain a highly accommodative stance for monetary policy. In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions–including low rates of resource utilization and a subdued outlook for inflation over the medium run–are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.

The Committee also decided to continue its program to extend the average maturity of its holdings of securities as announced in September. The Committee is maintaining its existing policies 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.

Equities liked the news:

The Fed extended its previous pledge to keep rates low at least until the middle of 2013 as inflation remains tame and more than two years of economic growth have failed to push unemployment below 8.5 percent. Some Fed officials have said further easing might be needed to put more Americans back to work and revive the housing market.

Stocks erased losses and Treasuries extended gains after the statement. The Standard & Poor’s 500 Index rose 0.1 percent to 1,315.66 at 12:34 p.m. in New York. The yield on the 10-year Treasury note fell to 1.98 percent from 2.06 percent late yesterday.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts gaining 11bp, FixedResets down 12bp and DeemedRetractibles losing 16bp. The longer than usual Performance Highlights table was nearly all losers, most notably recent big gainers. Volume was above average.

The IMF has released the January 2012 Global Financial Stability Report:

Since the last Global Financial Stability Report (GFSR), risks to stability have increased, despite various policy steps to contain the euro area debt crisis and banking problems. European policymakers have outlined significant policy measures to address the medium-term issues contributing to the crisis, and some of these have helped to improve market sentiment, but sovereign financing remains challenging and downside risks remain. If funding challenges result in a round of deleveraging by banks, this could ignite an adverse feedback loop to euro area economies. The United States and other advanced economies are susceptible to spillovers from a potential intensification of the euro area crisis, and some have homegrown challenges to the removal of financial tail risks, including overcoming political obstacles to achieving an appropriate pace of fiscal consolidation. Developments in the euro area also threaten emerging Europe and may spill over to other emerging markets. Further policy actions are needed to restore market confidence. This effort will require building larger backstops for sovereign financing, assuring adequate bank funding and capital, and maintaining a sufficient flow of credit to the economy, possibly by establishing a “gatekeeper” charged with preventing disorderly bank deleveraging.

The euro area debt crisis has intensified further, requiring urgent action to prevent highly destabilizing outcomes.

That last sentence in the first paragraph is a good reason why I simply would not put any money into a European bank right now except as a total speculation; the politicization of European banking is getting intense. Can you imagine? If a bank wants to sell a wealth management unit, or halt lending in Greece, or something like that, they have to fill out a form and ask the regulator for permission? It may be good politics, but …

Cool graph:

Click for big

Extremely slow response from my websites today led me to learn a new command-line command: pathping

Tracing route to 2a.4b.5646.static.theplanet.com [70.86.75.42]

over a maximum of 30 hops:

0 j-7da53dda1cb54 [65.95.191.3]

1 bas2-toronto08_lo0_SYMP.net.bell.ca [64.230.200.160]

2 agg1-toronto12_4-3-0_100.net.bell.ca [64.230.58.190]

3 bx5-chicagodt_xe6-1-0.net.bell.ca [64.230.186.90]

4 te1-7.bbr01.eq01.chi01.networklayer.com [206.223.119.63]

5 ae20.bbr01.eq01.dal03.networklayer.com [173.192.18.136]

6 po31.dsr02.dllstx3.networklayer.com [173.192.18.227]

7 * * *

Computing statistics for 175 seconds…

Source to Here This Node/Link Hop RTT Lost/Sent = Pct Lost/Sent = Pct Address

0 j-7da53dda1cb54 [65.95.191.3] 0/ 100 = 0% |

1 11ms 0/ 100 = 0% 0/ 100 = 0% bas2-toronto08_lo0_SYMP.net.bell.ca [64.230.200.160] 0/ 100 = 0%

2 12ms 0/ 100 = 0% 0/ 100 = 0% agg1-toronto12_4-3-0_100.net.bell.ca [64.230.58.190] 0/ 100 = 0%

3 26ms 0/ 100 = 0% 0/ 100 = 0% bx5-chicagodt_xe6-1-0.net.bell.ca [64.230.186.90] 100/ 100 =100% |

4 – 100/ 100 =100% 0/ 100 = 0% te1-7.bbr01.eq01.chi01.networklayer.com [206.223.119.63]0/ 100 = 0%

5 – 100/ 100 =100% 0/ 100 = 0% ae20.bbr01.eq01.dal03.networklayer.com [173.192.18.136]0/100 = 0%

6 – 100/ 100 =100% 0/ 100 = 0% po31.dsr02.dllstx3.networklayer.com [173.192.18.227] 0/ 100 = 0%

7 – 100/ 100 =100% 0/ 100 = 0% j-7da53dda1cb54 [0.0.0.0] Trace complete.

Looks like Bell was having some major problems connecting with the world!

It was a very good day for the Canadian preferred share market, with PerpetualDiscounts winning 40bp, FixedResets gaining 15bp and DeemedRetractibles up 20bp. All entries on the Performance Highlights table are winners. Volume was average.

There’s a story about Credit Suisse’s toxic asset bonuses:

The toxic-asset bonuses given to senior Credit Suisse Group AG (CSGN) bankers at the depths of the 2008 financial crisis are turning out to be almost as good as gold.

Credit Suisse employees who got $5.05 billion of junk-grade loans and commercial-mortgage-backed bonds in late 2008 as part of annual bonuses have reaped gains of 75 percent on the payouts since the end of that year through Nov. 30, people with knowledge of the results said. Gold futures returned 98 percent in the period, while Credit Suisse’s shares declined 23 percent.

The gains, which also beat the 4.8 percent return of two- year Treasuries, show how the rebound in debt markets from the lows of 2008 has sweetened the Zurich-based bank’s executive bonuses compared with the cash and stock bonuses rivals paid.

Assiduous Readers with extremely good memories will remember that on December 18, 2008 I wrote:

If I am correct – with the support of the BoE – and bank assets have, in general, been written down to far below fundamental value, this is a clever way for the executives to (a) earn brownie points, and (b) give themselves enormous bonuses.

It was reported that this pool was up 17% on August 7, 2009.

Bloomberg brings to my attention an interesting survey on global real-estate prices titled 8th Annual Demographia International Housing Affordability Survey: 2012:

The five least affordable major metropolitan markets remained the same in 2011. Hong Kong, Vancouver and Sydney continued to be the most unaffordable major markets. However Vancouver displaced Sydney as the second most unaffordable market. Hong Kong ranked as the least affordable major market (81st)8, with a median multiple of 12.6. Vancouver ranked second least affordable (80th), with a Median Multiple of 10.6. Sydney ranked third most unaffordable, with a Median Multiple of 9.2 (79th). Melbourne ranked 78th, with a Median Multiple of 8.4. Plymouth & Devon was also above 7.0 (78th ), with a Median Multiple of 7.4. The 5 major metropolitan areas with a Median Multiple above 7.0 is an improvement from last year’s 8 (Table 4).

The Median Multiple is the Median House Price divided by Median Household Income. For Toronto, this is $406,400 / $73,600.

Click for Big

I’m not certain that I like this measure of “Affordability” and also not certain that I like the term “Affordability” at all. After all, if houses were genuinely unaffordable, then nobody would be able to buy them and the price would come down. I would be interested in a measure that took into account income inequality; if we were to say, as a rule of thumb, that a house should cost three times household income, then what percentage of the population can afford to buy a house? e.g., if the median house in Toronto costs $406,400 then we can say that you need household income of $135,500 to buy one – so what percentage of the Toronto population has household income in excess of $135,500?

It was a strong day for the Canadian preferred share market with PerpetualDiscounts up 22bp, FixedResets gaining 18bp and DeemedRetractibles winning 27bp. All entries on the Performance Highlights table were winners, with a marked preponderance of SLF DeemedRetractibles. Volume was high.

The day was enlivened at the close by some idiot trading through Credit Suisse.

It was a mixed day in the end, with PerpetualDiscounts down 8bp, FixedResets gaining 2bp and DeemedRetractibles winning 17bp. Overall volatility was muted, but with a few spikes courtesy of Credit Suisse. Volume was very high; there’s a good chance the boys at Nesbitt had to work late counting their commissions.

Sorry it’s late!

Nothing happened today.

I have an engagement tomorrow evening, so tomorrow’s report will be very, very late, by which I mean “maybe Friday”.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts winning 33bp, FixedResets up 1bp and DeemedRetractibles down 4bp. Volatility was muted. Volume was above average.

PerpetualDiscounts now yield 4.91% (lower than the Current Yield because some of the issues are now actually Premiums … with so few issues left in this class, special cases are a problem) equivalent to 6.38% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 4.55%, so the pre-tax interest-equivalent spread (in this context also referred to as the Seniority Spread) is now about 185bp, an increase from the 170bp reported January 11.

DBRS has released their Split Share Funds Quarterly Report – Q4 2011:

Of the 34 split share unique issuers currently rated by DBRS, 19 experienced losses in net asset value (NAV) in Q4 2011, with the average NAV declining approximately 0.4% over the quarter. Funds with exposure to Canadian life insurance companies experienced the heaviest losses, while the biggest gainers were the more diversified funds with holdings in Canadian banks and energy companies. DBRS confirmed the ratings on six preferred shares issued by five split share companies and trusts and downgraded the rating on one preferred share in the fourth quarter. The rating confirmations were based on the performance and structural features of the issuers, which benefi t the preferred shares. Other key rating factors include the credit quality and diversifi cation of each portfolio, the amount of distributions paid to the holders of capital shares, and the expected maturity date of the preferred shares of each issuer.

It was a strong day on the Canadian preferred share market, with PerpetualDiscounts up 12bp, FixedResets gaining 16bp and DeemedRetractibles winning 27bp on the basis of good performance from insurance issues, which dominated the good part of the Performance Highlights table. Volume was quite good.

Austria may have experienced a Chretien moment:

It is evident, but again that Austria must be more independent from the financial markets.

-Werner Faymann, Austrian Chancellor (translation by Bing)

Remember Chretien back in 1994? ‘We aren’t doing this [austerity programme] because the bond markets think we should! We are doing this because we don’t want to care what the bond markets think!’ or words to that effect. It was the only intelligent thing ever said by a senior politician about national debt. Ever. Until Faymann.

Wikipedia is going dark on Wednesday to protest the US Stop Online Piracy Act. Good for them!

It was a mixed day on light volume for the Canadian preferred share market, with PerpetualDiscounts losing 32bp, FixedResets off 4bp and DeemedRetractibles gaining 5bp. Not much volatility, with only four entries in the Performance Highlights table. As noted, volume was light.