Category: Market Action

Assiduous Readers will know that I am not averse to a little bit of stimulus in this lousy economy. Deficits are fine, provided they’re backed up with credible research showing a good healthy surplus through a business cycle – many of our current problems are the result of What-Debt? and Spend-Every-Penny goosing an already over-stimulated economy with not just tax cuts, but moronic tax cuts – like cutting the GST.

Infrastructure would be a marvellous place to start. It has a very high economic multiplier and is the type of thing that has a very logical end-point, making it possible to turn off the tap without too much controversy – once you’ve built your subway or repaired your bridge … it’s built! There is only so much you can do (take it too far, for instance, and we end up with 1000% over-capacity in the cement industry and a lot of really shoddy construction that has to be torn down), but in Canada and the Western world generally, there is a huge list of neglected infrastructure that would be a Very Good Thing to chip away at.

However, from Japan comes a cautionary tale about idiotic infrastructure spending:

Japan’s $268 million Ibaraki Airport is on schedule to open for business in March 2010. The hard part will be persuading an airline to fly there.

The government and Ibaraki prefecture, home to 3 million people, are paying for the airport north of Tokyo, which won’t have train services and is a half-hour drive from Ibaraki’s capital, Mito. Japan Airlines Corp. and All Nippon Airways Co., which operate 90 percent of flights in the country, don’t plan to use it.

We don’t have to worry about such boondoggles in Canada, though! What-Debt? has reacted forcefully and decisively to the global economic crisis by forcefully and decisively running away from Parliament for eight weeks. See ya!

The Amazing Takeover Bid That Will Never End continued its gyrations today, with Bloomberg reporting:

The private-equity firms that agreed to buy BCE Inc. for C$52 billion ($42 billion) may instead seek to acquire a minority stake in the Canadian phone company, according to two people with knowledge of the plan.
…
The alternative proposal involves the buyers investing C$8 billion to C$10 billion in preferred securities for about 20 percent of BCE. It also calls for a cash dividend of C$8 to C$10 a share to paid to BCE shareholders.

Citigroup Inc., based in New York, and Frankfurt-based Deutsche Bank AG are leading a group of lenders that also includes Toronto-Dominion Bank and Royal Bank of Scotland Group Plc. The banks would need to approve the new transaction. The debt required to finance the minority stake would be around C$7 billion or C$8 billion, compared with the C$34 billion the banks would fund if the buyout went ahead.

Bloomberg also has a piece on Municipal credit rating upgrades, implying skullduggery by S&P. All the data is cherry-picked, of course, so whether there’s an actual trend or not remains to be see. But I bring this up because of the most interesting quote:

Recent default studies suggesting municipalities’ enhanced creditworthiness don’t account for what happened to issuers during the Great Depression, according to Richard Ciccarone, chief research officer of McDonnell Investment Management LLC. The Oak Brook, Illinois-based firm has $12 billion under management, including municipal bonds.

In 1929, more than 98 percent of the largest U.S. cities were rated Aa or better, according to Ciccarone’s research, which cites a study of municipal bonds showing that 3,252 issues went into default at the peak of the economic contraction in 1935. Almost half the bonds in default were rated Aaa in 1929.

“We may be facing the same conditions today that we did in the 1930s, but they could be worse because of pension and other liabilities,” Ciccarone said. “We have some huge liabilities at the same time that real estate values are falling.”

Yo! Ciccarone! Get with the programme! There’s some political theatre that needs to be played out! What do you think you are, some kind of investment expert or something?

I got a little curious today about relative performances;

RY.PR.D vs. common:

CM.PR.H vs common:

Make of it what you will.

Volume continued heavy today; volume and price advances in split shares were again particularly noteworthy.

There were sixty-one index-included $25-pv-equivalent issues trading over 10,000 shares today

Econbrowser‘s James Hamilton reviews 5-Year TIPS, which have been showing some rather unusual behaviour recently:

on Monday, the TIPS yield fell 214 basis points, while the nominal yield was down only 22 basis points, leaving the TIPS yield only slightly above the nominal.

Dr. Hamilton quotes extensively from Greg Mankiw who points out:

Starting 12/01/2008, the TIPS yield curve will use on-the-run TIPS as knot points rather than all securities under 20 years

There are two kinds of TIPS – on-the-run (recent issue) and off-the-run (old issue). The older issues will have a lot of prior inflation embedded in their price; the new issues will have none. Since the minimum redemption value of a TIPS is par, this means that a deflationary environment will erode the principal of off-the-run TIPS while leaving the on-the-run issues unscathed; hence, there is now not simply a liquidity premium contributing to the difference in yields, but an embedded put as well.

Assiduous Readers will remember that continued five-year TIPS issuance is dubious. They will also be aware that the Cleveland Fed has given up trying to figure out what TIPS yields really mean!

Entirely reasonable performance today on continued high volume. Of particular interest is the spike in volume and prices of splitShare corporations.

There were sixty-seven index-included $25-pv-equivalent issues trading over 10,000 shares today

Bloomberg reports:

The U.S. Securities and Exchange Commission may act to curb conflicts of interest at credit-rating companies while delaying a mortgage-bond ranking proposal faulted by underwriters, two people familiar with the matter said.

SEC commissioners plan to bar employees who assess debt from discussing compensation with the bankers selling the bonds, said the people, who declined to be identified before a vote in Washington tomorrow. Commissioners also may limit gifts from underwriters and restrict debt analysts from offering advice on structuring securities to win top grades.

Well, it sure sounds tough doesn’t it? The whole point is to ensure that there are enough rules to ensure that everybody is guilty of something. Then when things go wrong, you have your choice of scapegoat … that’s what regulation’s all about. However, some good might come out of the process:

The SEC sought to encourage unsolicited rankings by proposing another rule in June that would have forced credit- rating companies to publish the data that goes into their assessments. As a result, competitors could have graded bonds even if they weren’t paid by debt underwriters.

New York-based Moody’s in a July 28 letter to the SEC said the proposal would trigger lawsuits and encourage banks to take their business to the credit-rating company that asked for “the least amount of information.”

SEC commissioners will seek a second round of public comment on the proposal instead of adopting it at tomorrow’s 10 a.m. Washington time meeting, the people said.

The ratings agencies’ exemption from Regulation FD must be repealed. It’s the only way … I’ve written an essay on the topic. Unfortunately, however, addressing this issue would involve the authorities admitting that the current system works pretty well and the agencies do a pretty good job … subject to all the caveats that apply in assessment of any forecasting ability.

Since the regulators’ myth-du-jour is that the credit crunch was caused by Evil Credit Agency exploitation of Innocent Portfolio Managers (rarely, if ever, criticized; presumably because they already have regulations coming out their ying-yang) it will be inconvenient to acknowledge reality. Fortunately, this bothers neither regulators nor politicians.

A good solid day for PerpetualDiscounts, up nearly 1% in a sloppy market. Another two weeks of good returns like this and we’ll make up for November!

There were fifty-seven index-included $25-pv-equivalent issues trading over 10,000 shares today

Total confusion in the news today about the duration of perpetual annuities, a subject dear to the hearts of preferred share investors. Bloomberg reports (hat tip: Assiduous Reader MP):

The gilts, known as perpetuals because they have no maturity date, have a coupon of 3.5 percent compared with the U.K.’s 4.5 percent inflation rate. Investors hold about 1.9 billion pounds ($2.9 billion) of the securities that still pay interest 90 years after the end of the Great War, according to the U.K.’s Debt Management Office.
…
The “Jolly Long Bond,” as Hendry calls the war loan, will be the most reactive to deflation because not having a maturity means it has long duration, said Charles Diebel, head of European interest-rate strategy at Nomura International Plc in London. A bond with a higher duration will increase more in value than one with a shorter duration for a given decline in yield.

“His philosophy behind it makes a lot of sense,” Diebel said. “If you have an extended period of time where inflation is not a problem, you get no yield at the front end of the curve and people will be forced out the yield curve. You can’t be forced out further on the yield curve than a perpetual.”

Assiduous Readers will instantly recognize this as highly suspicious, at best. The duration of a perpetual annuity is the inverse of the interest rate. Long Gilts are currently yielding about 4.5% … assuming that the Gilt Perpetuals are trading around there, the modified duration is (1 / 0.045) = 22.2 years.

Gilt Strips are well known.

The Macaulay Duration of a strip is equal to its term. The Modified Duration is equal to Macaulay Duration divided by (1+r). Assuming a 5% yield on long gilt strips, we arrive at the conclusion that any Gilt Strip with a term of 25+ years will have a higher duration than the perp.

Sometimes I despair.

Well, things settled down a little today, but I’m still cutting off the price changes table a +- 3%!

PerpetualDiscounts now yield 8.13%, equivalent to 11.38% pre-tax interest at the standard conversion factor of 1.4x. Long corporates look to have settled in at around the 7.50% mark, so the Pre-Tax Interest-Equivalent spread is now 382 … massive, massive, massive!

There were forty-two index-included $25-pv-equivalent issues trading over 10,000 shares today

Chaos and pandemonium today. Perhaps some investors are enthused about the proposed bank stake legislation?

Another piece of legislation made quaint by the financial crisis also forced Mr. Flaherty to risk raising the spectre of a public bailout of Canadian banks by acknowledging the government doesn’t currently have the power to buy shares in financial institutions – something governments in the U.S. and Europe did, to the tune of hundreds of billions this year, to keep their banks from failing.

The new Fed Balance sheet shows a slight shrinkage, with a decline in liabilities to depositors of all stripes balanced by a decline in foreign currency assets. Hmmm … Bloomberg highlights the continued increase in commercial paper holdings.

Sorry folks – no words of wisdom today. Just be grateful the month is over, that’s my advice.

There were sixty-eight index-included $25-pv-equivalent issues trading over 10,000 shares today. Sorry there’s no table!

Spend-every-penny announced today that the proper manner to fight imminent recession is to cut government spending, end the right to strike for civil servants and eliminate the pension problem by eliminating the rules.

After thirteen straight trading days of losses, eight of which were over 1%, and cumulatively a stunning crash of 19.53% … the Americans stayed home to eat turkey … and the PerpetualDiscount market went up!

There were fifty-three other index-included $25-pv-equivalent issues trading over 10,000 shares today.

Moody’s notes that its accuracy ratio has declined:

Moody’s ratings performance has deteriorated sharply from the elevated levels seen in recent years. The deterioration is primarily driven by investment grade defaults that include multiple affiliates of Lehman Brothers and Washington Mutual. The one-year horizon “accuracy ratio” (AR) was 78.7% in the third quarter relative to 94.7% a year ago. This sharp decline in performance is similar to that observed in previous downturns that were marked by a sudden surge in the aggregate default rate. The investment grade default rate at 0.12%, while above its historical average of 0.05%, is currently below the 0.5% observed at the peak of the previous downturn in
2000-2002.

Accrued Interest takes exception to Moody’s negative views on the Financial Guarantee business.

What a day! The TXPR index was down 5.94% on the BCE news.

There were sixty other index-included $25-pv-equivalent issues trading over 10,000 shares today.

The Fed continued its process of reintermediation today – this time purchasing Agency direct and mortgage-backed debt:

Spreads of rates on GSE debt and on GSE-guaranteed mortgages have widened appreciably of late. This action is being taken to reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets more generally.

Purchases of up to $100 billion in GSE direct obligations under the program will be conducted with the Federal Reserve’s primary dealers through a series of competitive auctions and will begin next week. Purchases of up to $500 billion in MBS will be conducted by asset managers selected via a competitive process with a goal of beginning these purchases before year-end. Purchases of both direct obligations and MBS are expected to take place over several quarters.

Assiduous readers will recall that on November 21 I reported a big move by the Chinese out of agencies and into Treasuries … now the Fed’s going to take the other side of that trade. Spreads narrowed considerably:

The yield premium, or spread, on the so-called current coupon 30-year fixed-rate mortgage securities guaranteed by Fannie Mae, over the benchmark U.S. 10-year note narrowed to 175 basis points, from 209 yesterday, data compiled by Bloomberg show.

That’s not all! The Fed will also be financing Asset Backed paper:

Under the TALF, the Federal Reserve Bank of New York (FRBNY) will lend up to $200 billion on a non-recourse basis to holders of certain AAA-rated ABS backed by newly and recently originated consumer and small business loans. The FRBNY will lend an amount equal to the market value of the ABS less a haircut and will be secured at all times by the ABS. The U.S. Treasury Department–under the Troubled Assets Relief Program (TARP) of the Emergency Economic Stabilization Act of 2008–will provide $20 billion of credit protection to the FRBNY in connection with the TALF. The attached terms and conditions document describes the basic terms and operational details of the facility. The terms and conditions are subject to change based on discussions with market participants in the coming weeks.

New issuance of ABS declined precipitously in September and came to a halt in October. At the same time, interest rate spreads on AAA-rated tranches of ABS soared to levels well outside the range of historical experience, reflecting unusually high risk premiums. The ABS markets historically have funded a substantial share of consumer credit and SBA-guaranteed small business loans. Continued disruption of these markets could significantly limit the availability of credit to households and small businesses and thereby contribute to further weakening of U.S. economic activity.

I have no idea of what the office politics behind these two moves might have been … but it is easy to speculate that one’s ideas are taken a lot more seriously when one is the Treasury Secretary Designate!

Sorry, folks! Not only is this late, but there’s only the index table done! I have rather a lot going on…

Treasury Bond trading may soon enter the 18th century – the Treasury Market Practices Group is recommending penalties for ignoring a contract:

The underlying problem is the Treasury market contracting convention that a seller can deliver securities after the originally scheduled settlement date at an unchanged invoice price, i.e., without incurring any penalty. Introduction of a dynamic fails penalty with a finite cap rate would remedy this problem. In particular, a dynamic fails penalty would provide an incentive for sellers to resolve fails promptly, and could lead to repo contracting conventions that would give beneficial owners of Treasury securities an opportunity to earn as much as the cap rate in securities loan fee income regardless of the level of nominal interest rates.

The TMPG recommends that market participants agree that the invoice price–that is, the cash amount that a buyer has agreed to pay against the delivery of securities–on any cash or financing transaction that fails to settle on the originally scheduled date be reduced at a
fails penalty rate equal to the greater of (a) 3 percent per annum minus the fed funds target rate at 5 p.m. EST on the business day prior to the originally scheduled settlement date, and (b) zero.
…
2. Margining of settlement fails: When sellers fail to deliver securities in settlement of agreed upon trades, counterparty risk exposures grow and can become acute as these fails age. To mitigate counterparty risk and to better incentivize delivery by increasing the cost of aged fails, the TMPG recommends that market participants take prompt steps to study the most efficient way to commence margining of fails in all cash and financing transactions in Treasury securities. The TMPG plans to convene a working group on this subject to make a recommendation by January 5, 2009.

Point two may be taken as criticism of the SEC for allowing counterparty risk to go unmargined. It is definitely criticism of bonehead risk control in the industry. Assiduous Readers will recall that on November 18 Scotia announced a big loss on trades – equities, admittedly – that were affected by that there counter-whatsit thingamajig.

RBC has announced that 4Q08 will include some market-related write-downs … but not without some accounting gymnastics:

we reclassified most of our U.S. auction rate securities and U.S. agency and non-agency mortgage-backed securities from held-for-trading to available-for-sale. This reclassification is effective August 1, 2008. Accordingly, any unrealized changes in the fair value of these securities will not be reflected in our fourth quarter earnings

.

Realized pre-tax losses include

• $645-million loss on trading inventory
• $355-million loss on permanent impairment of available-for-sale securities
• $330-million gain on RBC’s liabilities designated as held-for-trading

RBC’s 2007 Annual Report notes that:

The decrease of $18 billion in financial assets classified as
held-for-trading and the increase of $8 billion in financial liabilities classified as held-for-trading in 2007 are primarily due to our equity and bond securities held related to our proprietary equity arbitrage and fixed income trading businesses, where we offset the risks from our securities holdings by short selling other securities that are of similar risks to those in our portfolios. The increase of $29 billion in derivative assets and of $30 billion in derivative liabilities in 2007,
primarily in foreign exchange and interest rate contracts, are largely due to increased volatility, strong shifts in exchange rates and interest rates, and higher client and trading activity, partially offset by the weakening of the U.S. dollar relative to the Canadian dollar. These
activities are consistent with our strategy for these businesses and the increases in 2007 are within the approved risk limits.

… and …

For the year ended October 31, 2007, we recognized a gain of $18 million in Trading revenue as a result of the net increase in fair values in various trading portfolios previously measured at amortized cost. This gain includes a $59 million gain on our deposit liabilities designated as held-for-trading resulting from the widening of our own
credit spread during the year.

… and …

liabilities designated as held-for-trading include (i) deposits and structured notes with embedded derivatives that are not closely related to the host contracts; (ii) assets sold under repurchase agreements that form part of our trading portfolio which is
managed and evaluated on a fair value basis; and (iii) certain deposits to offset the impact of related hedging derivatives measured at fair value. Fair value designation for these financial assets and financial liabilities significantly reduces the measurement inconsistencies.

Econbrowser‘s James Hamilton discusses the deflation problem in his latest post. Assiduous Readers will recall that I am completely unimpressed by the so-called evidence of deflation so far, but Dr. Hamilton takes the view that it doesn’t matter whether low yields on Treasuries are evidence of deflation or of flight to quality:

But a second and equally troubling suggestion of expected deflation is the extremely low yields on short-term Treasury bills. Again there may be those who interpret this not as a harbinger of deflation but instead as a reflection of the astonishing (and equally frightening) flight to quality that we have been witnessing.

Even if you don’t interpret the October CPI, TIPS yields, and nominal T-bill yields as warning flags of deflation, they nonetheless raise what is to me the core question: If the Fed wanted to use monetary policy to stimulate the economy at the moment, as I believe it should, what would it do?

TIPS yields are discussed in a John Dizard column in the Financial Times:

Yet, if you believe the yields on US Treasury inflation protected bonds, or Tips, we shall have a 2.2 per cent fall in prices in 2009, a 2.5 per cent decline in 2010 and only flat prices in 2011. If that turns out to be true, the real interest rate burden on even the highest-rated borrowers will be extremely hard to bear.

As a practical matter, long before we had significant “negative prints” of consumer prices, the Federal Reserve would just flat out buy Treasury bonds and monetise away with “quantitative easing”. Gold dealers would replace hedge fund managers at the art auctions, model agency parties and Congressional hearings.

What’s really going on is another effect of the disappearance of dealer and arbitrageur capital. The dealers can’t afford to make efficient markets, given their decapitalisation, downsizing, and outright disappearance. That means anomalies sit there for weeks and months, where they would have disappeared in minutes or seconds.

The arbs, well, they thought they had risk-free books with perfectly offsetting positions. These turned out to be long-term, illiquid investments that first bled out negative carry and then were sold off by merciless prime brokers.

Whatever the nature of the beast, Dr. Hamilton concurs with Mr. Dizard regarding the policy prescription:

So here’s my suggested Plan C. The goal of monetary policy should be to achieve a core inflation rate of 3.0% (at an annual rate) over the next 6 months. That’s something that can be accomplished without rate cuts or lending facilities, and here’s how.
…
Step 3 is to start creating money and use it to buy up assets until the [3% inflation] goal set out in Step 1 is achieved. What sort of assets?
…
What specifically would such assets be? I’d start with those clearly undervalued TIPS. Next I’d buy short-term securities in the currencies relative to which the dollar has been appreciating. Here again if the Fed has to sell these off in a sudden change in perceptions, the Fed will have both made a profit and, by selling, be a stabilizing force. If we’re still seeing no improvement, the Fed can start to buy longer-term Treasuries.

TD Bank is diluting its common:

The Toronto-Dominion Bank (TD Bank Financial
Group or TDBFG) today announced it expects to further enhance its capital position by issuing common equity. TDBFG has entered into an agreement with a syndicate of underwriters led by TD Securities Inc. for an issue of 30.4 million common shares, at a price of $39.50 per common share, to raise gross proceeds of $1.2 billion.

The issue will qualify as Tier 1 capital for TDBFG and the expected closing date is December 5, 2008.

As announced last week, TDBFG’s Tier 1 capital ratio was 8.3% as of November 1, 2008. On a pro forma basis, adjusting for this $1.2 billion of common equity and the $220 million of Series AC preferred shares issued on November 5, 2008, TDBFG’s November 1st Tier 1 capital ratio would be approximately 9%.

Thanks, guys, for making the world a safer place for preferred share investors!

The preferred share world could use a little more safety, that’s for sure (provided one equates safety with price stability). Because it was yet another thoroughly appalling day. I don’t know where all the worry is coming from – how can people worry about preferred dividend cuts when the common dividend hasn’t even be touched yet? And not just not yet touched, but unlikely to be touched? I’m with Genuity Capital Markets analyst Mario Mendonca and an unnamed analyst quoted in the Globe today:

Mr. Mendonca said he does not expect any bank to cut dividends, and believes they would sooner turn to raising capital like CIBC did earlier this year when it tapped the market for a $2.9-billion equity injection.

“The odds are low, but not zero,” another analyst said of dividend cuts.

It could, just possibly, happen, to a limited extent (it’s more likely they do dilutive issues, like TD & CIBC this year, and keep the dividend steady for a long time). And I’m talking about the common dividends, people!

There were fifty-one other index-included $25-pv-equivalent issues trading over 10,000 shares today.

Across the Curve notes some dealer research that claims:

The NY Fed data released yesterday afternoon shows another huge reduction in Agency debt and MBS held for overseas investors. Of the $1.7tn in GSE debt and MBS held by overseas accounts, $885bn is held in these accounts. The decline in holdings for the week ending Nov 19th was $11.7bn, which is the 3rd largest drop on record, second only to Oct 15th (-18.6bn) and Oct 8th (-24.4bn).

I can’t find the NY Fed Release, but I do have a piece by Brad Setser:

At the end of July, China stopped buying Agencies and corporate bonds and started to pile into Treasuries. Over the last three months of data (i.e. the third quarter), the US data indicates that China has bought $81.1 billion in Treasuries ($45 billion short-term) and added $17.4 billion to its bank accounts — that is a flow of nearly $100 billion into the safest US assets China can find. Conversely, China sold $16 billion of Agencies, $1.8 billion of corporate bonds and a bit less than a billion of equity.

In the second quarter, by contrast, China bought only $13 billion of Treasuries and added only $2 billion to its US bank account while buying $17 billion of Agencies and $20 billion of corporate bonds.

That is a huge swing — and frankly a destabilizing swing. The notion that sovereign investors are always and at all times a stabilizing force in the market should be put to rest. China has clearly kept the RMB dollar stable — and been a big source of demand for Treasuries. But it has been a seller of other assets in a time of stress.

I noted in an update to the most recent post on Effective Fed Funds that the FDIC has finalized the new rule on debt guarantees – Accrued Interest predicts a flood of new US Bank paper – with Goldman Sachs first to go.

There’s a short piece in the WSJ Deal Blog regarding preferred share issuance by SEC regulated companies –

BDCs believe that there may be a substantial opportunity to issue preferred stock either in privately negotiated transactions or otherwise because preferred stock can be customized to some extent to the needs of potential investors. The 1940 act limits the ability of BDCs to issue senior securities, including preferred stock, by imposing a requirement that they maintain a ratio of assets to senior securities of 200%, or 2 to 1. Therefore, if a BDC, for example, has $10 in assets, it cannot have a total of borrowing or outstanding preferred stock of more than $5. If a BDC is already close to its asset coverage limit, it would be limited in its ability to issue preferred stock.

We finally get a decent inflation number and Bang! there are deflation fears. This is a completely crazy market.

Falling car prices and cheaper women’s clothing weighed on the consumer price index. Gasoline was still higher than a year ago, but was rising at a slower pace than in previous months, also bringing the annual inflation rate down, the agency said.

Core inflation, which excludes the most volatile items such as energy and some food, was 1.7 per cent higher on the year – the same as in September, and close to analysts’ expectations. On a month-over-month seasonally adjusted basis, core inflation showed no growth.

I think Econbrowser‘s James Hamilton has the anti-deflation recipe about right:

If the U.S. were ever to arrive at such a situation, here’s what I’d recommend. First, have the Federal Reserve buy up the entire outstanding debt of the U.S. Treasury, which it can do easily enough by just creating new dollars to pay for the Treasury securities. No need to worry about those burdens on future taxpayers now! Then buy up all the commercial paper anybody cares to issue. Bye-bye credit crunch! In fact, you might as well buy up all the equities on the Tokyo Stock Exchange. Fix that nasty trade deficit while we’re at it! Print an arbitrarily large quantity of money with which you’re allowed to buy whatever you like at fixed nominal prices, and the sky’s the limit on what you might set out to do.

Of course, the reason I don’t advocate such policies is that they would cause a wee bit of inflation. It’s ridiculous to think that people would continue to sell these claims against real assets at a fixed exchange rate against dollar bills when we’re flooding the market with a tsunami of newly created dollars. But if inflation is what you want, put me in charge of the Federal Reserve and believe me, I can give you some inflation.

The New York Times reports (to no-one’s great surprise) that Citibank is talking earnestly to Treasury & the Fed. A Sunday Night Special is widely anticipated.

Devastation. After another appalling day, PerpetualDiscounts now yield 8.22% pre-tax dividend, equivalent to 11.51% pre-tax interest at the standard equivalency factor of 1.4x. Long Corporates still yield 7.50% and are still up on the month … the pre-tax interest-equivalent spread is now 401bp.

There are complaints from retail that the preferred share market is way, way too exciting.

There were fifty-two other index-included $25-pv-equivalent issues trading over 10,000 shares today.