Category: Market Action

Equities got thumped today, both in the US and Canada on profit warnings of various kinds and weak resources.

Of greater importance to the Canadian bond markets was the retail sales number, which was amazingly strong. The expectation that this will lead the Bank of Canada to increase rates boosted the dollar and, presumably, would have whacked bonds had they not benefited from the flight from equities. As it was, bonds were flat-to-downish, underperforming Treasuries substantially, as Treasuries enjoyed the pain in the equity and junk bond market without such countervailing economic data. Higher grade debt is still thought to be insulated from the sub-prime debacle.

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

A dull day for Canadas and Treasuries, so I suppose the “Flight to Quality” theme is no longer operable. We will find out soon what the next three-day-wonder will be! The brokerage houses are claiming that there is no crisis, that everybody should stay calm and, mainly, buy whatever it is they’re selling, much to the astonishment of pundits everywhere.

Also a fairly quiet day for preferreds but, as the volume table shows, there were a fair number of decent-sized crosses. The perpetual EPP.PR.A, issued on May 25 at $25.00 and rated Pfd-3(high), hit a new low of 22.00 and closed at 21.60-00, 2×21. Ouch!

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

A good day for both Canadas and Treasuries in a day that had not so much news as the continued unfolding of the sub-prime saga.

Junk bonds continued to get hammered today, with a certain amount of leakage into investment grade bonds via financial corporations. Dramatically, credit spreads on the Tribune Co. buyout are now at +770bp [to get an idea of what that means, see the primers].

And – this should not really be a surprise – the finger-pointing has begun. The CEO of KBHome blames the Fed (or, the rapid rise in short rates controlled by the Fed, anyway), while the Fed blames sloppy investors.

I mentioned on July 18 that it would be most interesting to buy foreclosed residential properties in the US on the cheap, and this is exactly what Miami’s developers are hoping for.

The preferred market had a good day, with good volume. A noticable chunk of this volume was in selected split share issues, perhaps due to next week’s index rebalancing.

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

A very quiet day for both Treasuries and Canadas today, as commentators parsed Bernanke’s Congressional testimony and decided it was ‘steady as she goes’.

China is projected to tighten, while Brad Setser worries that the world is taking too long to adjust. China has been stimulated by exports to the US for too long!

Chrysler makes the daily summary again, this time because its finance unit is having to pay up for loans. S&P bit the bullet with another mass downgrade of sub-prime CDOs, while JPMorgan warned that worse is to come in the primary market, but the bad news has been reflected in the ABX Derivatives market.

Mulvihill announced  exchange ratios for Premium Income II today … given that the setting of these ratios was delayed, I suspect that the offering is not doing very well. We shall see, however … and if they sell enough, I’ll add it to the HIMIPref™ universe, since I like the terms of the preferreds.

BCE Prefs had another strong day today, perhaps reflecting Desjardins’ drum-pounding. The preferred share market continued to rise – slowly & haltingly, perhaps, but it is rising!

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

Both Treasuries and Canadas edged up today, as Canadian inflation wasn’t as bad as feared and US inflation didn’t scare anybody. Not Bernanke and not macroblog, anyway!

JPMorgan noted that junk is getting harder to sell and Freddy Mac agreed. Moody’s is claiming their tough-mindedness on sub-prime cost them business, which wouldn’t surprise me. How many Portfolio Managers, though, are going to lose their jobs for buying stuff not rated by Moody’s? That’s what counts.

DBRS has released a report titled “Analysis of Subprime Loan Concentration by Major Metropolitan Area and Corresponding Economic and HPA Trends”, available by emailing them. You know? If I was a smooth-talking salesman type, I’d be trying to put together a REIT at the moment, buying entire residential neighborhoods at half of last year’s prices. I’ve seen anecdotal reports of massive write-downs … and I recall, from somewhere, it is utter confusion over the recovery rate that is holding up ratings revisions of sub-prime CDO’s. Mind you, I also recall seeing … somewhere … some report in which it was claimed that banks et al. are hanging on to useless properties (in Cleveland?) for a long time, because they don’t have to book the loss until they sell the property. One way or another, though, there will be some people making good money from this mess.

BCE prefs had a good day today. It would appear that John Nagel swings a big stick! Volume was good, despite a lack of notable crosses. BMT.PR.A finally declared their dividend.

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

Treasuries outperformed Canada bonds in what is being touted as a continued flight to safety in the US market. Or maybe it was the PPI release. Who knows? Ask a priest.

Mind you, a little safety could be just what the doctor ordered down south! Bear Stearns has warned that the smaller of its two famous hedge funds is a total write-off, and the other one isn’t much better. Take this lesson to heart: just because a firm is good at selling investments doesn’t mean that they’re necessarily good at running investments.

In other sub-prime news, Moody’s is expanding its review and, presumably, hopes to have the barn door locked within three months of the horse being stolen. Chrysler is being forced to pay up for loans (about time), while a couple of brand-name brokerages have been left holding the baby as demand for junk declines.

Interesting times! Particularly if you don’t actually have an investment in the sector yourself! It should be noted that credit spreads in the Canadian preferred market are widening markedly, with Pfd-3 issues getting progressively weaker — but I’m not holding any of those, either, thank heavens. A graph of the After-Tax Pfd-3 Yield Spread for the past three-and-a-half months has been uploaded.

Volume picked up a little today, with a few good size blocks being traded.

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

Treasuries had a good day, possibly due to a projected drop in supply, but more likely a flight to quality amid sub-prime worries, or, even more likely, they just felt like going up.

Hey, if you want somebody with a bright smile to explain to you why everything that happened, happened because it had to happen, go read some other blog.

KKR cancelled a $1.4-billion European issue and Rosneft is rumoured to be doing the same. This is significant … and if this should happen to be a real, no-fooling turning point, then financing the Teachers / BCE deal could be interesting!

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

Bonds closed the week on a happy note, while Dura Automotive Systems reminded investors why junk got such a pejoritive name. New junk issues slowed this week as a few issues were pulled amid widening spreads.

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

In what may well signal the final descent of this degenerate society into slovenly barbaric torpor, a Toronto dry-cleaning conglomerate filed for CCCA protection today. The Bank of Canada projected 3% inflation in 4Q07, possibly because track-suit-wearing sluggards are usually too spaced out to care what they pay for things.

Bonds had a bad day, enlivened by mass downgrades of sub-prime paper, much of it packaged by General Electric, which is planning to exit the business.

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

There was the usual news today: A story about the bonds dip (I know him, he’s the guy at [Deleted on Legal Advice]), Treasuries dropped, credit spreads widened (even in America), Korea tightened, and there are fears Japan might tighten. Same old.

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