PrefBlog

There was some moderately hawkish Fed chatter today:

Federal Reserve Chair Janet Yellen still has faith.

On Friday she expressed confidence that tighter labor markets over time will push inflation back to the central bank’s 2 percent goal, setting up a rate hike this year — possibly as soon as next month — if jobs data remain strong. That view breaks with a minority group of Fed officials who are more pessimistic about the relationship between labor markets and prices.
…
Ending two months of public silence about her views, Yellen cited “continued solid performance of the labor market” and said the “case for an increase in the federal funds rate has strengthened in recent months” in her speech Friday to central bankers and economists in Jackson Hole, Wyoming.

Stocks initially rose after Yellen’s remarks, only to decline after Stanley Fischer, the Fed’s vice chairman, reiterated in an interview on CNBC that the possibility exists for two rate increases this year, starting as soon as September.

Yellen’s remarks also signaled she didn’t need to see actual inflation rising toward 2 percent to raise interest rates. She said inflation would reach their 2 percent target “over the next couple of years,” and emphasized that gradual, timely moves were required “to achieve and sustain employment and inflation near our statutory objectives.”

So for what it’s worth – and remember, you’re reading this for free – I think that for the next year or so Fed hikes will be of the ‘one and done’ variety, rather than the steady increase variety. But eventually (probably after the Fed Rate has struggled carefully and cautiously to 1% and above) there will be a series of hikes, bang, bang, bang, bang, that will result in a very nasty environment for bonds.

Assiduous Readers will remember my rants about risk; risk is not something dumb, like “monthly volatility of portfolio value” (which, by the way, implicitly assumes that the critical consideration is Preservation of Capital); risk is the chance that a portfolio will not meet its objectives and hence cause the portfolio holder to revise his lifestyle downward from the expected level. I was pleased to find an essay today on this topic by Jean L.P. Brunel, titled Goals-Based Wealth Management in Practice:

Wealth management processes have not always been responsive to individual clients’ priorities and modes of thinking. A model is presented and evaluated that uses goals-based wealth management concepts to generate module-built portfolios, each of which is driven by a client’s expressed goals. This model allows for a high degree of flexibility and responsiveness to client needs with a practical level of standardization.

I can’t say I’m a fan of the module-based approach to implementation, however:

GenSpring uses four sets of goals-focused modules in creating portfolios:
1. Tax aware with nontraditional strategies,
2. Tax agnostic with nontraditional strategies,
3. Tax aware with only traditional strategies, and
4. Tax agnostic with only traditional strategies.

Goals-Focused Modules. Each of the four sets consists of nine modules that address all the categories of a client family’s needs. The modules are contiguous, but each module must be sufficiently different to distinguish it from the others. Each module must also be optimal within the constraints created by inevitable trade-offs while leaving room for flexibility.

Who woulda thunk it? Fiduciary rules have some drawbacks:

As brokers lay plans to satisfy new federal rules governing their relationships with retirement savers, one thing is becoming clear: Some clients will see their investment options diminished or face the prospect of higher fees.

Brokerage Edward Jones, anticipating the fiduciary rule that will require brokers to put the interests of retirement savers ahead of their own, said on Wednesday that it would stop offering mutual funds and exchange-traded funds in retirement accounts that charge investors a commission. The move makes the St. Louis firm the first big player to disclose detailed plans on retirement accounts that charge a commission.

Retirement savers could be forced to make decisions in the months ahead as other firms determine how they plan to operate under the Obama administration’s new rule, which starts to take effect in April. The rule doesn’t extend to nonretirement accounts.

I’ve heard that regulators everywhere are calling their kindergarten teachers and asking why everybody doesn’t just play nicely.

Spectra Energy has announced:

Westcoast Energy Inc. (the “Corporation”) announced today that it has entered into an agreement with a syndicate of underwriters co-led by TD Securities Inc. and CIBC Capital Markets. The underwriters have agreed to buy 8 million Cumulative 5-Year Minimum Rate Reset Redeemable First Preferred Shares, Series 12 (the “Series 12 First Preferred Shares”) at a price of $25.00 per share for aggregate gross proceeds of $200,000,000. The proceeds are expected to be used to fund capital expenditures and for general corporate purposes.

The Corporation has granted the underwriters an option to purchase up to 2 million additional Series 12 First Preferred Shares at the offering price, exercisable until 48 hours prior to closing, which, if fully exercised, would increase the total gross proceeds of the Series 12 First Preferred Share offering to $250,000,000.

The Series 12 First Preferred Shares will be issued to the public at a price of $25.00 per share and holders will be entitled to receive fixed cumulative preferential cash dividends, payable by quarterly instalments for an initial period of five years, as and when declared by the Board of Directors of the Corporation, at a rate of $1.30 per share per annum, to yield 5.20% annually. Thereafter, the dividend rate will reset every five years to the sum of the then current 5-Year Government of Canada Bond yield and 4.52%, provided that, in any event, such rate shall not be less than 5.20%. On October 15, 2021, and on October 15 of every fifth year thereafter, the Corporation may redeem the Series 12 First Preferred Shares in whole or in part at par.

Holders will have the right to elect to convert all or any of their Series 12 First Preferred Shares into an equal number of Cumulative Floating Rate Redeemable First Preferred Shares, Series 13 (the “Series 13 First Preferred Shares”) on October 15, 2021, and on October 15 of every fifth year thereafter. Holders of the Series 13 First Preferred Shares will be entitled to receive quarterly floating rate cumulative preferential cash dividends, as and when declared by the Board of Directors of the Corporation, equal to the sum of the then current 3-month Government of Canada Treasury Bill yield and 4.52%. On October 15, 2026, and on October 15 of every fifth year thereafter, the Corporation may redeem the Series 13 First Preferred Shares in whole or in part at par. On any other date after October 15, 2026, the Corporation may redeem the Series 13 First Preferred Shares in whole or in part by the payment of $25.50 for each share to be redeemed.

The offering is being made only in the provinces of Canada under the Corporation’s short form base shelf prospectus dated March 18, 2016, and a prospectus supplement to such short form prospectus. The closing date of the offering is expected to be on or about August 30, 2016.

This news release does not constitute an offer to sell securities, nor is it a solicitation of an offer to buy securities, in any jurisdiction. All sales will be made through registered securities dealers in jurisdictions where the offering has been qualified for distribution.

Westcoast Energy Inc. is an indirect subsidiary of Spectra Energy Corp.

They later announced:

that as a result of strong demand for its previously announced offering it has agreed to increase the size of the offering to 12 million Cumulative 5-Year Minimum Rate Reset Redeemable First Preferred Shares, Series 12 (the “Series 12 First Preferred Shares”) at a price of $25.00 per share for aggregate gross proceeds of $300,000,000. There will not be an underwriters’ option as was previously granted. The Series 12 Preferred Shares are being offered on a bought deal basis by a syndicate of underwriters co-led by TD Securities Inc. and CIBC Capital Markets.

The proceeds are expected to be used to fund capital expenditures and for general corporate purposes.

The offering is being made only in the provinces of Canada under the Corporation’s short form base shelf prospectus dated March 18, 2016, and a prospectus supplement to such short form prospectus. The closing date of the offering is expected to be on or about August 30, 2016.

This news release does not constitute an offer to sell securities, nor is it a solicitation of an offer to buy securities, in any jurisdiction. All sales will be made through registered securities dealers in jurisdictions where the offering has been qualified for distribution.

Westcoast Energy Inc. is an indirect subsidiary of Spectra Energy Corp.

This creates an interesting tension with W.PR.K, which is a FixedReset, 5.25%+426M525, that commenced 2015-12-15 after having been announced 2015-11-24, in that the new issue has a significantly higher spread but a slightly lower guarantee.