Category: Market Action

The Europeans are going to solve all their problems by monetizing the Greek default:

European governments are considering cutting interest rates on emergency loans to Greece and using contributions from the European Central Bank to plug a new financing gap in the second bailout program for Athens, two people familiar with the discussions said.

Finance ministers wrangled over how to close the funding hole in a teleconference last night after seeing estimates that Greece’s debt would fall to 129 percent of gross domestic product in 2020, missing a target of 120 percent, said the people, who declined to be named because the talks are still in progress. Last year, the level was about 160 percent.

It was another down day for the Canadian preferred share market, with PerpetualPremiums off 5bp, and both FixedResets and DeemedRetractibles losing 31bp. PerpetualDiscounts (all four of them) were hammered for 194bp. Lots of volatility, heavily skewed towards losers. Volume was above average.

A Bloomberg editorial states:

Should European leaders fail in this endeavor, the danger is that they will be blamed if the austerity medicine fails, regardless of whether many of Greece’s troubles are self- inflicted. Already, hyperbolic analogies between Nazi and current Germany are creeping into public discussion. The politics of anger can quickly overtake rational economic debate. How that would unfold is impossible to predict, but it is unwise to assume that Greeks would never decide to roll the dice on a euro exit, putting to the test assurances that contagion won’t follow.

I’m a lot more concerned about analogies between Weimar Germany and current Greece.

One difficulty is that the gun held to Europe’s head might not be loaded:

Greece said that Europe’s wealthier countries are “playing with fire” by toying with the idea of expelling it from the 17-nation euro area as talks over a second aid program ran into new obstacles.

Finance Minister Evangelos Venizelos leveled the accusation after a decision slated for tonight on aid totaling 130 billion euros ($171 billion) was postponed until at least Feb. 20 and possibly until after a full-time Greek government emerges from elections later in the year.

“We are continually faced with new terms,” Venizelos told reporters in Athens today. “In the euro area, there are plenty who don’t want us anymore. There are some playing with fire, domestically and abroad. Some are playing with torches and some are playing with matches. But the risk is equally great.”

For example, here’s some tough talk:

The chief executive of one of Germany’s most respected manufacturers and an advisor to Chancellor Angela Merkel has called for Greece to be kicked out of the European Union because it is an “unbearable” burden.

“This state with its phantom pensioners and rich people that don’t pay taxes, a state without a functioning administration, has no place in the European Union,” Bosch CEO Franz Fehrenbach told Manager Magazin, according to a transcript of an interview to be published on Friday.

He is the latest in a number of senior German business figures to lash out at Greece over its role in the EU and a second eurozone bailout. A survey of over 300 managers in the magazine shows roughly 57% want Greece to drop out of the euro and reintroduce the drachma.

And things are getting a little testy:

Greek President Karolos Papoulias slammed Germany’s finance minister for recent comments about his country as stalled bailout talks stoked tensions between Greece and the northern European countries funding its rescue.

“I don’t accept insults to my country by Mr. Schaeuble,” Papoulias, who fought in the resistance against the Nazis during World War II, said in a speech today. “I don’t accept it as a Greek. Who is Mr. Schaeuble to ridicule Greece? Who are the Dutch? Who are the Finns? We always had the pride to defend not just our own freedom, not just our own country, but the freedom of all of Europe.”

As far as I can tell, though, he will accept a welfare cheque.

But don’t worry! Europe is saved!

China is ready to be more involved in resolving the crisis through the European Financial Stability Facility and European Stability Mechanism, said People’s Bank of China Governor Zhou Xiaochuan in a speech, echoing comments made yesterday by Premier Wen Jiabao.

Oh, and by the way … that human rights stuff is getting pretty old, you know? And the Dalai Lama should be arrested.

Canada – the land where investors are so smart, they never lose money:

Investors who were caught up in the asset-backed commercial paper freeze in 2007 may be in line for a big cheque, as regulators are hoping to distribute as much as $60-million they collected from banks who sold the money market paper.

The Investment Industry Regulatory Organization of Canada and the Ontario Securities Commission will apply to the judge who oversaw the restructuring of the ABCP for permission to distribute the money, which would go to individual and institutional investors who were affected. An announcement is expected as early as Thursday morning, said two people familiar with the plan.

Whoosh! Another nasty day for the Canadian preferred share market, with PerpetualPremiums down 25bp, FixedResets off 11bp and DeemedRetractibles losing 34bp. Lots of volatility, heavily skewed towards losers. Volume was high.

PerpetualDiscounts now yield 4.98%, equivalent to 6.47% interest at the standard equivalency factor of 1.3x. Long Corporates now yield about 4.5%, so the pre-tax interest-equivalent spread (which in this context is the Seniority Spread) is now about 195bp, a sharp increase from the 165 bp reported February 8.

Greece is unloved:

European officials jacked up the pressure on the Greek government to deliver budget cuts in exchange for a second bailout as they insisted that default is not an option.

Finance ministers canceled a Brussels meeting slated for tomorrow and will hold a teleconference instead to prod Greece to do more to clinch an aid package worth 130 billion euros ($170 billion) along with roughly 100 billion euros of debt relief from private bondholders.

“I did not yet receive the required political assurances from the leaders of the Greek coalition parties on the implementation of the program,” Luxembourg Prime Minister Jean- Claude Juncker, chairman of the euro finance panel [and liar – JH], said in a statement today.

Surprise, surprise:

Antonis Samaras, leader of Greece’s conservative New Democracy party and early favourite to win the next election in the spring, told party members to approve the budget cuts in a parliamentary vote on the weekend. But he angered the Europeans by signalling his intention to renegotiate the terms after voters replace the current caretaker government.

“I want to avoid jumping over the cliff today, to buy time, and to go to elections tomorrow,” he said.

Mr. Samaras at first refused to commit to the budget cuts in writing, a condition demanded of all the Greek party leaders by Brussels. But he is now expected to sign and deliver the necessary letter on Wednesday, clearing one more obstacle to the rescue.

Maybe he should bring in the Canadian defense minister as a consultant on signing the letter!

There were big losses in the Canadian preferred share market today – perhaps the recent spate of new issues has made the cunning folk nervous! PerpetualPremiums were down 59bp, FixedResets were off 44bp and DeemedRetractibles lost 64bp. The Performance Highlights table was not only very lengthy, but comprised entirely of losers, with insurance issues dominating the list. The volume table was similarly dominated by insurers – only one bank! Volume was high.

The Greek austerity measures passed:

Greek Prime Minister Lucas Papademos won parliamentary approval for austerity measures to secure an international bailout after rioters protesting the measures battled police and set fire to buildings in downtown Athens.

A total of 199 lawmakers voted in favor and 74 against, Parliament Speaker Filippos Petsalnikos said in remarks carried live on state-run Vouli TV. When, on Nov. 16, Papademos won a mandate from the Parliament to implement budget measures and secure the bailout of 130 billion euros ($172 billion) he received the support of 255 lawmakers in the 300-strong chamber.

“It is up to us, our vote, whether the country will remain in the euro or be led to a disorderly default,” Papademos told parliament. “Voting for the economic program and opening the road for a loan accord sets the basis for the modernization and recovery of the economy.”

OK, so parliament’s voted for it and all the senior party leaders are on board. So what? There will be elections soon – will any of the major parties now be major parties in June? There really needs to be a referendum on this, because I’m not convinced the political class can deliver.

Meanwhile Moody’s used its knife:

Moody’s Investors Service cut the debt ratings of six European countries including Italy, Spain and Portugal and revised its outlook on the U.K.’s and France’s top Aaa rating to “negative.”

Spain was downgraded to A3 from A1 with a negative outlook, Italy was downgraded to A3 from A2 with a negative outlook and Portugal was downgraded to Ba3 from Ba2 with a negative outlook, Moody’s said. It also cut Slovakia’s, Slovenia’s and Malta’s ratings.

“The uncertainty over the euro area’s prospects for institutional reform of its fiscal and economic framework” and the resources that will be made available to deal with the crisis, are among the main drivers of Moody’s action, the ratings company said.

“Europe’s increasingly weak macroeconomic prospects, which threaten the implementation of domestic austerity programs and the structural reforms that are needed to promote competitiveness,” are also factors, it said. These factors will continue to affect market confidence, “which is likely to remain fragile, with a high potential for further shocks to funding conditions for stressed sovereigns and banks.”

Call the papers! There’s been an outbreak of common sense in Europe!

The European Parliament may scrap plans to force firms that use algorithmic-trading programs to continue trading throughout the day, said Markus Ferber, the lawmaker writing the assembly’s response to the proposals. The measure was meant to prevent them creating volatility by diving in and out of the markets.

“We are really rethinking on the whole approach the European Commission has proposed,” Ferber said in an interview. The all-day trading rule was intended to promote market liquidity by ensuring a steady supply of buyers and sellers. “No one can answer me” why such firms should be expected to provide liquidity throughout the trading day, Ferber said.

Sorry, folks, but PrefLetter Weekend knocked me for a loop this time ’round. I’ll update with Monday’s performance when I get a chance.

Astonishing! There is a continued Greek crisis:

In Athens, unions struck for the second time this week and police used tear gas to counter protesters. George Karatzaferis, who heads one of the three parties supporting interim Prime Minister Lucas Papademos, said he wouldn’t support austerity measures worked out for a rescue. He spoke hours after German Finance Minister Wolfgang Schaeuble told lawmakers in Berlin that Greece was missing deficit targets.

“What has particularly bothered me is the humiliation of the country,” Karatzaferis, whose Laos party has 16 members in the 300-seat parliament, said in televised comments. “Clearly Greece can’t and shouldn’t do without the European Union but it could do without the German boot.”
…
“The Greek offer is not sufficient and they have to go away to come up with a revised plan,” Bertrand Benoit, a spokesman for the German Finance Ministry, said by telephone.

Assiduous Readers will be accustomed to my occasional rants about bond market structure and auction design – these are usually triggered by ignorant whining about exchange trading of bonds, but now the Fed has become involved:

The Federal Reserve secretly selected a handful of banks to bid for debt securities acquired by taxpayers in the U.S. bailout of American International Group Inc., and the rest of Wall Street is wondering what happened to the transparency the central bank said it was committed to upholding.

“The exclusivity by which the process has shut out smaller dealers is a little un-American,” said David Castillo, head of sales and trading at broker Further Lane Securities LP in San Francisco, who said he would have liked to participate. “It seems odd that if you want to get the best possible price that it wouldn’t be open to anyone who wants to put in the most competitive bid.”

After inviting more than 40 broker-dealers to take part in a series of auctions last year, the Federal Reserve Bank of New York asked only Goldman Sachs Group Inc. (GS), Credit Suisse Group AG (CSGN) and Barclays Plc (BARC) to bid on the full $13.2 billion of bonds offered in two sales over the past month. The central bank switched to a less open process after traders blamed the regular, more public disposals for damaging prices in 2011. This week, Goldman Sachs bought $6.2 billion of bonds in an auction.
…
“The purpose should be to get the best price for the taxpayer,” said Robert Eisenbeis, a former research director at the Federal Reserve Bank of Atlanta who’s now chief monetary economist for Sarasota, Florida-based Cumberland Advisors. “Anybody knows the more bidders the better, so it’s a little hard to understand why they would essentially pick potential winners and losers. That smacks of crony capitalism.”
…
The New York Fed was criticized for damaging credit markets with the regular sales, and halted them in June after disposing of about $10 billion in face value of the assets.

It resumed the sales on Jan. 19, when it unloaded about $7 billion of assets in one block to Credit Suisse, after receiving an unsolicited bid for the securities from Goldman Sachs. Only Barclays and Bank of America were invited to also participate in that auction. Goldman Sachs won the auction for $6.2 billion of bonds this week after Credit Suisse placed an unsolicited bid for the assets. Barclays, Morgan Stanley (MS) and RBS Securities Inc. were also included in that sale. Barclays presented the second- highest offer in both auctions this year, according to a person familiar with the process.

The New York Fed didn’t announce either auction until after they closed, and said the broker-dealers it included were chosen based on the strength of previous bids. The Wall Street firms, and their clients who wished to bid on the assets, were required to sign non-disclosure agreements forbidding them from discussing the offerings. At least one investor opted not to participate for that reason.

Now, I’m not going to state that the Fed did things in the best possible way. I’m not even going to state that the auction method they chose is better than a fully public process! But I will state that calling the process “un-American” or stating that “Anybody knows the more bidders the better” is just plain pig-ignorant.

The Canadian preferred share market took a thumping today, as the very attractive GWO 5.40% Straight issue announced – and later upsized – today sucked all the money out of the market. PerpetualPremiums were down 34bp, FixedResets off 10bp and DeemedRetractibles lost 59bp. There is a very lengthy list of losers – and no winners – in the Performance Highlights table, overwhelmingly comprised of insurance DeemedRetractibles. Volume was a little on the light side.

Greece claims to have reached agreement:

“Discussions between the Greek government and the troika were successfully completed this morning,” Greek Prime Minister Lucas Papademos’s office said in an e-mailed statement today in Athens. “Political leaders have agreed with the result of those negotiations. Therefore there is a general agreement in the context of the new program ahead of tonight’s euro group meeting.” The statement didn’t include any details.

But PIMCO notes potential resistance of Greeks:

“It is very unlikely to lead to growth, jobs, financial stability and new investments,” El-Erian, chief executive and co-chief investment officer of the world’s biggest manager of bond funds, said in a radio interview today on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt. “This agreement will be very difficult to sell when the principals, those who have agreed, have to go to their constituents.”

The question on my mind is still: will Greek politicians sell the deal to Greek voters? I supported the idea of a referendum when the idea was floated – very briefly! – last fall. We continue to live in interesting times.

Meanwhile, the guys with the money say “Show me!”:

European finance chiefs are set to defer ratifying a 130 billion-euro ($173 billion) rescue for Greece, pressing the government in Athens to put a newly struck austerity plan into action.

“It’s up to the Greek government by concrete actions — through legislation, other actions — to convince its European partners that the second program can be made to work,” European Union Economic and Monetary Affairs Commissioner Olli Rehn said today as he arrived for an emergency meeting of euro-area finance ministers in Brussels.

And how many stories like this are we going to see?

Greek doctors are fighting a new invisible foe every day at their hospitals: a pneumonia-causing superbug that most existing antibiotics can’t kill.

The culprit is spreading through health centers already weighed down by a shortage of nurses. The hospital-acquired germ killed as many as half of people with blood cancers infected at Laiko General Hospital, a 500-bed facility in central Athens.

The drug-resistant K. pneumoniae bacteria have a genetic mutation that allows them to evade such powerful drugs as AstraZeneca Plc (AZN)’s Merrem and Johnson & Johnson’s Doribax. A 2010 survey found 49 percent of K. pneumoniae samples in Greece aren’t killed by the antibiotics of last resort, known as carbapenems, according to the European Antimicrobial Resistance Surveillance Network. Many doctors have even tried colistin, a 50-year-old drug so potent that it can damage kidneys.

“We’re not used to seeing people die of an untreatable infection,” said John Rex, vice president for clinical infection at London-based AstraZeneca, which is developing a new generation of antibiotics. “That’s like something in a novel of 200 years ago.”

The Bank of Canada has provided another nail in the coffin of Efficient Market Theory:

This paper develops and estimates a model to explain the behaviour of house prices in the United States. The main finding is that over 70% of the increase in house prices relative to trend during the increase of house prices in the United States from 1995 to 2006 can be explained by a pricing mechanism where market participants are ‘Fooled by Search.’ Trading frictions, also known as search frictions, have been argued to affect asset prices, so that asset markets are constrained efficient, with shocks to liquidity causing prices to temporarily deviate from long run fundamentals. In this paper a model is proposed and estimated that combines search frictions with a behavioural assumption where market participants incorrectly believe that the efficient market theory holds. In other words, households are ‘Fooled by Search.’ Such a model is potentially fruitful because it can replicate the observation that real price growth and turnover are highly correlated at an annual frequency in the United States housing market. A linearized version of the model is estimated using standard OLS and annual data. In addition to explaining over 70% of the housing bubble in the United States, the model also predicts and estimation confirms that in regions with a low elasticity of supply, price growth should be more sensitive to turnover. Using the lens of turnover, a supply shock is identified and estimated that has been responsible for over 80% of the fall in real house prices from the peak in 2006 to 2010.

Search costs are important!

This paper examines the impact of bank consolidation on mortgage rates in order to evaluate the extent to which mortgage markets are competitive. Mortgage markets are decentralized and so rates are determined through a search and negotiation process. The primary effect of a merger therefore is to reduce the number of partners available with whom to negotiate, although it can also change the characteristics of the product, and impact the search effort of consumers. Using a Canadian merger as a case study, we find that, overall, consolidation had little effect on rates suggesting that, on average, the mortgage market is fairly competitive. However, a decomposition of the aggregate treatment effect reveals important heterogeneity in the impact of the merger. We find that consumers gathering multiple quotes are affected by the merger, while those who do not search are not. These results suggest that market power originates in large part from the presence of asymmetric search costs.

Woo-Hoo, we’re saved! The CSA is bringing in new Money Market Fund regulations:

Canadian securities regulators have slapped new rules on money market funds in a move that could push already puny yields on these investments even lower.

Under the new regulations, these funds, which typically pay investors around 1 per cent a year, will need to hold at least five per cent of their assets in cash or in securities that can easily be converted into cash within a day. In addition, they must hold at least another 15 per cent of their assets in securities that can be converted within a week.

As I have pointed out until I’m sick to bloody death of saying it, the problem is not liquidity (although that can become a factor in an extreme case, just like any other extreme case) the problem is credit quality – and these rules do absolutely nothing to improve credit quality, which requires mandatory support from the sponsor. But why would a regulator worry about what might actually work?

It was a weak day for the Canadian preferred share market, with PerpetualPremiums down 8bp, FixedResets off 12bp and DeemedRetractibles losing 20bp. Volatility was average, skewed to the downside. Volume was average.

ITG claims that high frequency trading in Canada is becoming less frequent:

“This quarter’s analysis of message traffic data reveals changes in trading behaviour that may signal the begginings of a new regime,” ITG’s analysts wrote. “Improvements in our metric for the quality of order flow, combined with a decline in fleeting orders points to a structural change amongst HFT participants.”

Why are HFTs backing away? Money.

Study author Doug Clark, a managing director at ITG, said that other markets are showing similar trends. That suggests that the business of high-frequency trading is so competitive that some players weren’t making money.

Also, brokerage houses are doing a better job of offering clients algorithms and routers that handle trading in ways that combat high frequency traders and cut their profits.

Zerohedge continues to whine about HFT. Institutional Investor breathlessly tells us of how some “real money” investors’ agents have attempted to remain competitive by the unheard of strategy of getting better at their jobs:

The electronic-trading team at RBC decided to fight back against the problem of “phantom” or “disappearing liquidity,” which they blamed on a subset of high frequency traders using “predatory” tactics. That is how they came up with THOR, a system to help clients such as institutional money managers combat predatory HFT strategies and complete trades at the desired price.

The system has been in use for a year, and Steiner says it has greatly improved liquidity for RBC and its clients — allowing them to execute orders at the desired price.

The real reason behind the fashionability of deprecating HFT can be found in the recent IIAC publication Securities Industry Performance 11Q3:

Even though trading revenue only accounts for about 10% of overall revenue, the severe collapse in net trading revenue of nearly 50% in the year, reflecting substantial losses for equity market-makers, put a significant dent in overall earnings.

The industry’s prop-traders are having their lunch eaten by HFT practitioners who didn’t even go to the right schools! The horror!

Lucas van Praag, world’s greatest corporate spokesman, is leaving Goldman Sachs:

Lucas van Praag, who became one of the public faces of the U.S. financial industry as Goldman Sachs Group Inc.’s global head of corporate communications, is leaving the firm after 12 years.

Van Praag, a 62-year-old British citizen, will retire at the end of March and continue to provide strategic advice as a consultant to the company, according to an internal memo signed by Chief Executive Officer Lloyd C. Blankfein and President Gary D. Cohn. The memo’s contents were confirmed by Michael DuVally, a spokesman. Van Praag was promoted to partner, the highest rank in the New York-based company, in 2006.

The Canadian preferred share market resumed its winning ways today, with PerpetualPremiums winning 18bp, FixedResets gaining 9bp and DeemedRetractibles up 18bp. Volatility was good and highly skewed to the upside, with SLF notable among the winners. Volume was average.

PerpetualDiscounts (those few that are left; only four issues from two issuers) now yield 4.80%, equivalent to 6.24% interest at the standard 1.3x equivalency factor. Long corporates now yield a hair under 4.6%, so the pre-tax interest equivalent spread is now about 165bp, a sharp decline from the 190bp reported on February 1.

This looks better than a government programme as a way to address delinquent underwater mortgages:

Banks, accelerating efforts to move troubled mortgages off their books, are offering as much as $35,000 or more in cash to delinquent homeowners to sell their properties for less than they owe.

Lenders have routinely delayed or blocked such transactions, known as short sales, in which they accept less from a buyer than the seller’s outstanding loan. Now banks have decided the deals are faster and less costly than foreclosures, which have slowed in response to regulatory probes of abusive practices. Banks are nudging potential sellers by pre-approving deals, streamlining the closing process, forgoing their right to pursue unpaid debt and in some cases providing large cash incentives, said Bill Fricke, senior credit officer for Moody’s Investors Service in New York.

What’s more, it seems like there is a direct connection with auto loans:

Three years ago, credit was so tight that the owner of a legal firm with a $400,000 salary and a very good credit score of more than 700 couldn’t get financed to buy the car he wanted from Michael Mosser’s dealership.

“The world is upside-down compared to then,” said Mosser, general manager of Chevrolet and Cadillac stores in Ann Arbor, Michigan. “Today, somebody with a 500 credit score, I can get approved and in a Malibu,” which starts at $22,110.

Lenders resisted extending credit to car buyers when the mortgage market collapsed in 2008, helping push General Motors Corp. and Chrysler LLC into bankruptcy and sending U.S. sales to the lowest point in almost three decades. Amid a slow housing market, auto demand is rebounding, spurring lenders from Bank of America Corp. to Capital One Financial Corp. to approve buyers faster and at better rates to compete for a piece of an expanding market.

Amazingly, another Greek deadline has been missed:

Greek political parties delayed yet again on Tuesday making the tough choice of accepting painful reforms in return for a new international bailout to avoid a chaotic default, seemingly deaf to EU warnings that the eurozone can live without Athens.

With a series of deadlines come and gone, leaders of the three parties in the coalition of Prime Minister Lucas Papademos postponed what was supposed to be a crunch meeting until Wednesday.

S&P affirmed AltaGas, proud issuer of ALA.PR.A:

• AltaGas Ltd. has announced it is acquiring SEMCO Holding Corp., the sole shareholder of SEMCO Holding Corp. from Continental Energy Systems LLC for about C$1.1 billion.
• We are affirming our ratings, including our ‘BBB’ long-term corporate credit rating, on AltaGas.
• In our view, SEMCO has an excellent business risk profile and a highly leveraged financial risk profile.
• We have revised AltaGas’ business risk profile to strong from satisfactory and financial risk profile to significant from aggressive, assuming the transaction closes as expected. The stable outlook reflects our assessment of the company’s business mix, which is increasingly diverse with a greater contribution from fee-based and regulated utility cash flows.

It was another down day for the Canadian preferred share market, with PerpetualPremiums off 16bp, FixedResets down 14bp and DeemedRetractibles losing 18bp. Volatility was minor. Volume was a little below average.

Bloomberg has an interesting story about the legal snarl of an effective Greek default:

Hedge funds seeking to wring profits from a Greek debt restructuring are underestimating the will of policy makers to impose losses on them, according to investors who say trying to beat the politicians is too risky.
…
European banks own most of the 200 billion euros ($263 billion) of Greek debt held by non-government investors. Hedge funds, pension funds, sovereign wealth funds and other “non- regulated investors,” own a further 60 billion euros, according to estimates by Pavan Wadhwa, JPMorgan Chase & Co.’s head of global interest-rate strategy.
…
Because hedge funds and other holders could collectively keep the participation rate below that level, Greece has said it may approve legislation that imposes losses on investors who don’t support the voluntary swap by adding a retroactive collective action clause into its bond documentation. Such a provision would give a majority of bondholders the ability to force holdouts to accept the same terms as everyone else.
…
It will be difficult for holdouts to assemble enough votes to block any collective action clause, because European banks have an incentive to support the provision, fund managers said.

A lawsuit against a collective-action clause legislated by the Greek government may also be difficult to win, because it would probably have to be filed in Greece, said a hedge-fund executive whose firm holds the country’s debt and has examined the legal options.

Never play poker with somebody who can change the rules! The question is: will anybody in their right minds ever buy Greek debt again? Or any European’s?

DBRS confirmed GMP.PR.B at Pfd-3(low):

DBRS has confirmed the Pfd-3 (low) rating on the Preferred Share obligations of GMP Capital Inc. (GMP or the Company) with a Stable trend. The rating reflects the strength of the Company’s business franchise as a premier provider of investment banking and capital markets products and services to its targeted market of mid-sized Canadian companies, most of whom operate in the resource and energy sectors. Following the issue of preferred shares in early 2011, the Company’s capitalization has become relatively more aggressive as a result of $66 million in share buybacks completed during the first nine months of 2011. At current levels of financial leverage, the Company’s financial flexibility is somewhat impaired. A continued slump in underwriting and trading activities, which DBRS does not expect to recover in the short to medium term given the weak global economic outlook and continued absence of investor confidence, will prevent a material improvement in this condition in the medium term. Nevertheless, DBRS remains comfortable with the Pfd-3 (low) rating, given the Company’s flexible cost base and its excess regulatory capital at its operating subsidiaries.

The recent run-up in the Canadian preferred share market took a pause today, with PerpetualPremiums down 7bp, FixedResets off 2bp and DeemedRetractibles losing 13bp. Volatility was significant and fairly evenly distributed between asset classes, winners and losers. Volume was average.

Very nice US jobs number today:

The U.S. jobless rate unexpectedly fell in January to the lowest in three years as payrolls climbed more than forecast, casting doubt on the Federal Reserve’s plan to keep interest rates low until late 2014.

The unemployment rate dropped to 8.3 percent, the lowest since February 2009, Labor Department figures showed today in Washington. The 243,000 increase in jobs was the biggest in nine months and exceeded the most optimistic forecast in a Bloomberg News survey. Service industries grew by the most in a year, according to a separate report.
…
The Standard & Poor’s 500 Index rose 1.5 percent to 1,344.90 at the close of trading in New York, extending the best start to a year since 1987. The index is up 6.9 percent in 2012. The yield on the benchmark 10-year Treasury note climbed to 1.92 percent from 1.82 percent late yesterday.

The median projection in the Bloomberg survey called for payrolls to rise by 140,000. Estimates of the 89 economists ranged from increases of 95,000 to 225,000. Revisions added a total of 60,000 jobs to payrolls in November and December.

The most left wing PM since Trudeau just can’t stop meddling with the economy:

Prime Minister Stephen Harper drew an apparent line in the sand on foreign takeovers on Friday, saying he wanted to see BlackBerry-maker Research In Motion grow “as a Canadian company” and questioning whether hostile takeovers of key domestic firms are in the country’s best interests.
…
“Takeovers of critical technology that the government’s invested in, or … hostile takeovers of key Canadian businesses, are obviously something that I think is widely understood is not in this country’s interest,” Mr. Harper said.

Well, it’s been a week and I still don’t see OSFI doing the decent thing and releasing the documents obtained by Bloomberg with a Freedom of Information request:

Bank of Canada Governor Mark Carney talks about the potential impact of the so-called Volcker rule on the trading of government bonds, the European Central Bank’s efforts to ease the region’s debt crisis and bank capital regulations. He speaks with Bloomberg’s Erik Schatzker on the sidelines of the World Economic Forum’s annual meeting in Davos, Switzerland. (Source: Bloomberg)
Attachment: Documents Obtained by Bloomberg. .Canadian lenders are loosening standards, offering mortgages similar to U.S. subprime loans that pose an “emerging risk” to financial institutions, according to the country’s banking regulator.

Banks and other lenders are becoming “increasingly liberal” with mortgages and home-equity credit lines that don’t require individuals to prove their income, according to 152 pages of documents obtained by Bloomberg News under freedom of information law from the Office of the Superintendent of Financial Institutions. The mortgages, typically granted to the self-employed and recent immigrants, “have some similarities to non-prime loans in the U.S. retail lending market,” the documents show.

But then, you don’t often see OSFI doing the decent thing.

Another very strong day for the Canadian preferred share market, with PerpetualPremiums winning 33bp (taking the median YTW down to -8.58%), FixedResets gaining 28bp and DeemedRetractibles up 36bp. All fourteen entries on the Performance Highlights table wer winners. Volume continued to be extremely heavy.