PrefBlog

Looks to me as if Obama’s preparing to reject Keystone XL:

U.S. President Barack Obama called into question the number of jobs that would be created from the controversial Keystone XL pipeline in an interview with the New York Times released on Saturday.

“Republicans have said that this would be a big jobs generator,” Obama said, according to the newspaper.

“There is no evidence that that’s true. The most realistic estimates are this might create maybe 2,000 jobs during the construction of the pipeline, which might take a year or two, and then after that we’re talking about somewhere between 50 and 100 jobs in an economy of 150 million working people.”
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The Times said Obama disputed an argument that the pipeline would bring down gasoline prices. He said it might actually increase prices somewhat in the U.S. Midwest, which would be able to ship more of its oil elsewhere in the world, the paper reported.

TransCanada shot back:

In a statement issued late Saturday, TransCanada described the proposed 2,500-kilometre pipeline as the largest infrastructure project waiting to be built in the U.S., with 13,000 construction jobs alone.

Well, 13,000 construction jobs lasting how long each? And it is not clear how that reconciles with their other claim:

The $5.3-billion Keystone XL Pipeline Project is the largest infrastructure project currently proposed in the United States. Construction of the 1,179-mile pipeline will require 9,000 skilled American workers. The project will provide jobs for welders, mechanics, electricians, pipefitters, laborers, safety coordinators, heavy equipment operators and other workers who rely on large construction projects for their livelihoods.

In addition to construction jobs, an estimated 7,000 U.S. jobs are being supported in manufacturing the steel pipe and the thousands of fittings, valves, pumps and control devices required for a major oil pipeline.

There may be some legal tussling over the mosaic theory of investment analysis, given its likely prominence in the SAC trial:

In the 41-page indictment filed July 25, prosecutors alleged that Cohen and his top managers sought to hire traders and analysts who had the ability to deliver any kind of “edge” over the market.

Take Richard Lee, who joined the Stamford, Connecticut-based hedge fund from Citadel LLC in April 2009 even though prosecutors claim SAC had been warned by one of Lee’s former colleagues that he was suspected of insider trading at Citadel. Lee pleaded guilty on July 23 to two counts of insider trading, both of which occurred at SAC in 2009.
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The SAC indictment also cites the examples of Jon Horvath, a former research analyst at SAC who pleaded guilty to insider trading last September, and Mathew Martoma, who has pleaded not guilty to charges that he engaged in insider trading.

In an e-mail cited in the indictment, Horvath justified his recommendation that SAC invest in Sun Microsystems Inc. in October 2007 by saying, “My edge is contacts at the company and their distribution channel.”

As for Martoma, whose trial is scheduled to begin in November, SAC hired him, according to prosecutors, in part because of his “industry contacts beyond management” in the pharmaceutical field.

He’s accused of using tips from a doctor who had access to information on drug trials to recommend Cohen sell his stake in two drug companies, helping SAC make $276 million. It’s the biggest insider trading case in U.S. history, prosecutors said.

“The relentless pursuit of an information ‘edge’ fostered a business culture within SAC in which there was no meaningful commitment to ensure that such ‘edge’ came from legitimate research and not inside information,” the indictment says.

I’m not enough of a barrack-room lawyer to opine on how explicit the pursuit must be in order to be considered criminal; but one thing is clear: when you promise immense rewards if such-and-such is done and a pink slip if it isn’t, you have created a culture in which naughtiness is more likely than would otherwise be the case. But is that criminal? Cohen may well be citing Henry II in his defence: Will no one rid me of this turbulent priest? I mean, geez, that was rhetorical, right?

Politicians all over seem afraid of property bubbles:

Taiwan (TWGDCONY) is considering changes in luxury tax rules to narrow the gap between property prices and incomes amid slower pace of economic expansion.

“Current rules have flaws, for example, we are unable to tax those deep-pocket investors, who can wait for more than two years to sell properties,” Finance Minister Chang Sheng-ford said in a briefing on July 26. Changes may include a levy on buyers of properties, he said. Sellers are already taxed.

The move comes amid an increase in prices of properties in Taipei City, the country’s capital, and a widening in the gap between home prices and incomes. Taiwan, which imposed luxury tax from June 2011, may extend the current levy on investment properties sold within two years of purchase, Chang said.

A 15 percent tax applies to commercial and residential investment properties sold within a year of purchase and 10 percent to those sold within two years. A 10 percent tax applies on sales of luxury goods such as yachts and airplanes worth at least NT$3 million ($100,328), and furs and furniture valued at NT$500,000 or more.

All over? Well, maybe not in Rangoon, Burma (as us crypto-imperialists like to call it) – there it’s considered pretty good:

Sean Danley has spent the past six months scouting office space in Yangon after being sent to establish the Myanmar branch of his U.S.-based employer.

He looked in the city’s three sole 1990s-era towers, where annual rents have climbed to more than $100 a square foot, compared with less than $75 in downtown Manhattan, according to broker CBRE Group Inc. Too expensive, he said.
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Developers are rushing to solve Danley’s problem, one faced by hundreds of multinational companies setting up operations in Myanmar following its political opening and easing of international sanctions. Yangon, the commercial capital, needs at least 8.7 million square feet (800,000 square meters) of office space to support the influx, according to Yoma Strategic Holdings Ltd. (YOMA) About 1.9 million square feet will be available by the end of 2015, compared with 600,000 now, the Myanmar office of broker Colliers International UK Plc estimated.
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Rents have increased almost fivefold in Yangon’s three towers, none of which is higher than 27 stories, from $22 a square foot a year as of the end of 2011, before Myanmar President Thein Sein began allowing more political freedom and loosening economic controls, according to CBRE data. Tenants at the three — Sakura Tower, FMI Centre and Centrepoint Towers — include Standard Chartered Plc (STAN), PricewaterhouseCoopers LLP, Coca-Cola Co., Nestle SA, Sumitomo Corp., Bank of Tokyo-Mitsubishi UFJ Ltd. and Malayan Banking Bhd.

Some interesting testimony from Fabulous Fab:

Tourre testified he made $1.7 million in salary and bonus in 2007.
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Tourre, a French citizen, said he voluntarily testified before a U.S. Senate subcommittee in 2010. After that he “had to take a step back and think about what to do,” as his career had been “effectively destroyed” by the allegations. Tourre was placed on paid leave by Goldman Sachs for one year, at his base salary of about $750,000. He said he hoped he’d be able to return to the firm.

The rewards for being a top-notch institutional salesman at a big-name dealer are pretty good! Of course, that leads to the whole corrosion of ethics problem that is currently at issue at SAC Capital; but the point is, the customers know this. A good institutional salesman will not waste your time; he’ll tell you about events, deals, market colour and trivia in which you might genuinely have an interest (lousy ones are just order takers), get you data, maybe even set up a meeting with somebody; but he will not give you decent investment advice, mainly because that’s not his job and that’s not the business of his firm. Only incompetent idiots, such as Laura Schwartz and Alan Roseman of ACA Management LLC would expect it.

Let’s all laugh at the Greens:

Germany’s air pollution is set to worsen for a second year, the first back-to-back increase since at least the 1980s, after Chancellor Angela Merkel’s decision to shut nuclear plants led utilities to burn more coal.

The nation, which is seeking to lead European climate-protection efforts, probably will produce higher greenhouse-gas emissions in 2013 on top of a 1.5 percent gain last year, according to the DIW economic institute, which acts as an adviser to the government.

Utilities led by RWE AG (RWE) and EON SE boosted hard coal imports 25 percent in the first quarter to 10 million metric tons, the nation’s Coal Importers Association said.

Dodd-Frank is having a visible effect:

American International Group Inc. (AIG) will return funds to customers of its banking unit and shut their accounts as the Dodd-Frank Act places limits on insurers with deposit-taking units.

AIG Federal Savings Bank “will no longer be servicing retail deposit accounts as of Sept. 30,” according to a letter to customers. “All accounts will be automatically closed as of that date and any funds, including all interest due on your accounts, will be returned.”

AIG is joining Principal Financial Group Inc. (PFG) in narrowing its focus ahead of rules that limit proprietary trading and investments in private-equity or hedge funds by insurers with bank units. MetLife Inc. (MET), Hartford Financial Services Group Inc. and Allstate Corp. have sold deposits or retreated from banking as regulators increase oversight.

“AIG Federal Savings Bank is currently undergoing an orderly transition from a traditional savings bank to a trust only thrift,” Jon Diat, a spokesman for the New York-based insurer, said in an e-mail yesterday.

A young man was shot by Toronto police on the weekend. According to a criminal lawyer of my acquaintance, Toronto cops have become increasingly arrogant over the past decade – he’s seeing lots of cases where all the escalation of an incident has come from the police side.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts flat, FixedResets off 9bp and Deemed Retractibles gaining 1bp. Somewhat surprisingly, given the overall lack of movement, the Performance Highlights table is lengthy, with BAM issues notable amongst both winners and losers. Volume was below average.

Wholesale funding? Schmolesale funding!

Investors are ignoring criticism from Standard & Poor’s that Svenska Handelsbanken AB (SHBA) is too reliant on short-term funding as bonds sold by the European Union’s best-capitalized bank rally.
Since S&P’s July 19 warning, the yield on Handelsbanken’s 4.194 percent perpetual bond eased to its lowest since the middle of June.

Five-year credit default swaps on its senior unsecured debt were unchanged at 65 basis points, a few basis points lower than contracts on the governments of Japan and France, suggesting a smaller risk of default. The bank’s shares have gained 5.5 percent since the end of last week, beating a 2.5 percent gain in the 40-member Bloomberg index of European banks.
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S&P said last week it may downgrade Handelsbanken’s AA-issuer rating unless the bank takes steps to wean itself off short-term wholesale funding. Swedish banks in general rely too much on short borrowing compared with their peers in the rest of the world, the rating company said.
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Sweden’s biggest banks have spent the past few years building bigger reserves than their competitors elsewhere. Handelsbanken is now the best-capitalized major bank in the EU, with a core Tier 1 capital ratio of risk-weighted assets of 17.8 percent at the end of June. It was also Europe’s strongest lender and No. 11 globally on a Bloomberg Markets ranking in May that looked at measures such as capital ratios, non-performing assets and deposit-to-funding ratios.

It doesn’t look as if we’ll be paying off the debt incurred during the Great Recession any time soon:

The federal government posted a $2.7-billion deficit over the first two months of the fiscal year, which begins April 1. That compares to a $1.8-billion deficit during the same two months – April and May – the year before.

A manager at Merrill Lynch has gotten into trouble by attempting to train his staff for the world as it is, rather than the world as it might be in some alternate universe:

Three women are suing Merrill Lynch for gender discrimination, alleging that a former manager tried to train them using a book titled Seducing the Boys Club: Uncensored Tactics From a Woman at the Top.

The 2008 book includes handy tips like stocking your desk with candy, bringing in games “like boggle and checkers,” playing on men’s “masculine pride and natural instincts to protect the weaker sex,” as well as constant, unremitting flattery. (“It was also important to reinforce his hunk status,” is one piece of advice.)

I find it rather peculiar that all the European money is flowing into London and not so much to North America:

Voracious investor demand for the best London real estate is approaching record levels that could trigger a price crash in popular areas such as upmarket Bond Street, property experts said this week.

The luxury shopping strip that is home to Prada, Louis Vuitton and Cartier has ultra-low yields that mark it out as the most in-demand stretch of real estate in Europe.

The price of commercial property is dictated by the yield, which is the annual rent expressed as a percentage of a property’s value. Yields fall as investor demand increases and push up real estate prices.

The 2.75 per cent yield on Bond Street properties should fall to 2.25 per cent by the end of the year and could hit the world-record low of 1.75 per cent in 18 months, says David Hutchings, of property consultant Cushman & Wakefield, adding that the record was set by Taipei, Taiwan, in 2011.

It was a rough day for the Canadian preferred share market, with PerpetualDiscounts losing 44bp, FixedResets off 11bp and DeemedRetractibles down 26bp. A lengthy Performance Highlights table is almost entirely comprised of losers, dominated by Straight Perpetuals of various kinds. Volume was average.

There’s an article in the Globe bewailing the decline of telephone polling:

The odds are that, at some point in your life, a polling firm has tried to contact you over the telephone to take part in a survey. The odds are even better that the attempt failed. You were not home, you did not take the call, or you just hung up. This is what happens with roughly nine out of every 10 phone calls a polling firm makes.
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Banks of telephone numbers can be acquired from specialized sampling firms, and numbers can also be dialed randomly. Live telephone operators then follow a script and input responses into a computer (this method is often referred to as CATI, for computer-assisted telephone interviewing). If the person who is called does not pick up the phone, the number is redialed at a later time or date. Otherwise, the sample would not be as random – it would just be a sample of people who were home at a particular time.
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“In some segments – especially young voters – land lines are as archaic as the rotary dial to an earlier generation,” writes Angus Reid, executive chairman of Vision Critical and Angus Reid Public Opinion, in a recent article for Maclean’s. “This means pollsters have a harder time finding younger voters, who either don’t have a landline at all, or are loathe to answer calls from pollsters on their mobile, when they are being charged by the minute.”

I have a wonderful app on my ‘phone: Blacklist. If I get a call and the caller is a robot – or if there is a pause after I say hello, indicating robo-dialling – I hang up and blacklist the number. All calls from a blacklisted number are routed directly to voice mail and don’t ring the ‘phone. I don’t have many apps on my ‘phone, but that single app makes a smart ‘phone worthwhile!

Steve Cohen’s SAC Capital has been indicted:

“When so many people from a single hedge fund have engaged in insider trading, it is not a coincidence,” Manhattan U.S. Attorney Preet Bharara said. “Today’s indictment is not just a narrative of names and numbers, it is more broadly an account of a firm with zero tolerance for low returns but seemingly tremendous tolerance for questionable conduct,” he said. “So SAC, over time, became a veritable magnet for market cheaters.”

I don’t know the details, but one count against them is that they didn’t blacklist people based on whispers from the boys’ club:

In the summer of 2008, Steven A. Cohen was warned by an employee at Citadel LLC that a portfolio manager he was about to hire, Richard S. Lee, had a reputation for insider trading.

Cohen ignored the red flag as well as objections from his own legal department and hired him the following year, according to an indictment yesterday that accused Cohen’s SAC Capital Advisors LP of securities fraud and wire fraud. The government said SAC created an environment in which employees were encouraged to use illicit information and the compliance office identified only one example of suspected insider trading in its history.
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Lee’s hiring was among the evidence cited by the government to allege that SAC, based in Stamford, Connecticut, enabled and promoted insider trading from as early as 1999 through at least 2010. Lee, who co-managed a $1.25 billion portfolio at SAC, including borrowed money, joined Cohen’s firm in April 2009 and left in June 2011 before returning for a second stint last year.

So the moral of the story is: if you want to ruin a security professional’s career, just bad-mouth him. Firms are then required to blacklist him, on pain of criminal charges.

It was another down day for the Canadian preferred share market, with PerpetualDiscounts losing 36bp, FixedResets down 18bp and DeemedRetractibles flat. The Performance Highlights table is fairly lengthy, with low-spread FixedReset losers quite prominent. Volume was high.

I never get tired of mocking the salesmen who pretend to be rough-tough investment analysts. Today’s winners are Alan Roseman and Laura Schwartz, incompetents who feel that “follow the leader” is a dandy investment strategy:

Laura Schwartz, who headed ACA Management LLC’s asset management business in early 2007, testified today that Goldman and Paulson, which is run by billionaire John Paulson, led her to believe that the hedge fund wanted to invest, rather than take a short position, in a mortgage-backed security that lost $1 billion in the crash of the credit markets.
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ACA’s former chief executive officer, Alan Roseman, testified yesterday that Paulson’s long position was “critical” to ACA’s participation in Abacus. The SEC claims Tourre and Paulson misled ACA, believing the firm’s presence on the transaction would lend Abacus credibility and attract investors.

Fabulous Fab testifies today:

Fabrice Tourre, the former Goldman Sachs Group Inc. (GS) vice president facing civil fraud claims over a mortgage bond debacle that made his client $1 billion, may say when he takes the witness stand today that he’s a scapegoat who was only trying to do his best for the firm.

Tourre, now a 34-year-old graduate student, is scheduled to testify before a jury in Manhattan federal court this afternoon about his role in structuring and selling a 2007 mortgage-backed investment that lost a group of investors about $1 billion when the mortgage market crashed. It will be his first chance to make good on a promise, made before Congress in April 2010, to fight the U.S. Securities and Exchange Commission’s allegations that he “categorically” denied.

Tourre’s questioning turns out to be mostly about this stupidity, but:

On cross-examination by Tourre’s lawyer, John “Sean” Coffey, Schwartz told jurors that ACA wouldn’t have changed its standards for selecting a portfolio of mortgage-backed securities whether it was getting input from a long or a short investor. She also said she had worked on deals in which investors took both long and short positions on portfolios.

Tourre’s lawyers are trying to show that Paulson’s participation didn’t increase the risk that Abacus would fail and that it didn’t make a difference to ACA.

Well, of course it didn’t. That’s elementary. What a colossal waste of time and money this trial is.

It was another down day for the Canadian preferred share market, with PerpetualDiscounts losing 34bp, FixedResets off 11bp and DeemedRetractibles down 33bp. The lengthy Performance Highlights table is comprised entirely of losers, all but one a Straight Perpetual of some kind. Volume was high.

PerpetualDiscounts now yield 5.35%, equivalent to 6.96% interest at the standard conversion factor of 1.3x. Long corporates now yield about 4.6%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 235bp, unchanged from July 18.

Nothing happened today.

It was an off-day for the Canadian preferred share market, with PerpetualPremiums off 3bp, FixedResets down 7bp and DeemedRetractibles losing 15bp. There was again a surprising amount of volatility considering the overall small movement. Volume was high.

Westcoast Energy, proud issuer of W.PR.H and W.PR.J, was confirmed at Pfd-2(low) by DBRS:

The rating confirmations reflect Westcoast’s strong business risk profile, underpinned by low-risk, fee-based, mostly regulated operations typically accounting for nearly 90% of earnings. Its financial ratios profile has also remained reasonable for the rating category.

In June 2013, DBRS placed Spectra Energy Capital, LLC (Spectra, rated BBB (high); 100% owner of Westcoast) under review with negative implications. This rating action follows the announcement that Spectra intends to drop down all of its remaining U.S. Transmission and Storage Assets to Spectra Energy Partners (SEP; a master limited partnership controlled by Spectra) by the end of 2013 (for details, refer to DBRS press release, June 12, 2013). Since DBRS rates Westcoast on a stand-alone basis, given its demonstrated independent access to Canadian debt markets and track record of maintaining a prudent financial risk profile, this rating action does not affect current ratings for Westcoast.

DBRS expects Westcoast’s significant capex program, $1 billion in 2012 and a projected $900 million for 2013, to remain elevated in the medium term, resulting in negative free cash flows and a pressuring of its credit ratios, as incremental financing will likely come from increased long-term debt issuance. While the Company’s capex program is substantial, spending is allocated to low-risk transmission, gathering and processing projects in the liquids-rich gas basins of western Canada, which will continue to support Westcoast’s relatively strong business risk profile. DBRS believes the Company will benefit over the medium to long term from strong exploration and unconventional drilling activity in western Canada, given the Company’s planned expansion projects, with long-term contractual commitments being placed into service in stages through 2014. Increasing earnings and cash flow from expansions placed in service to date have resulted in relatively strong credit ratios. Although Westcoast’s credit metrics are underpinned by mostly low-risk and regulated operations, consolidated metrics will likely continue to be pressured over the medium term as a result of its significant growth capex, but will likely remain within the parameters of the current ratings.

S&P has a different view on the independence of the Spectra and Westcoast ratings and has the issues on Credit Watch Negative.

It was another mixed day for the Canadian preferred share market, with PerpetualDiscounts off 3bp, FixedResets up 8bp and DeemedRetractibles gaining 2bp. Volatility was high, with a surprisingly (considering the overall market) lengthy Performance Highlights table fairly evenly split between winners and losers. Volume was low.