PrefBlog

Last mentioned on January 31, 2013, the Litvak case has been brought to an appalling new development:

Litvak, 39, of New York, was found guilty by a federal jury today of all counts including securities fraud and making false statements as well as fraud connected to the U.S. government’s Troubled Asset Relief Program following a trial before U.S. District Judge Janet C. Hall in New Haven, Connecticut. He is scheduled to be sentenced May 30.
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Prosecutors accused Litvak of defrauding investors of $2 million by misrepresenting how much sellers were asking for the securities, or what customers would pay, and keeping the difference for New York-based Jefferies. Richard Khaleel, a spokesman for Jefferies, declined to comment on the verdict.

Litvak was also accused of defrauding investors by telling some buyers that the bonds in the Jefferies inventory were being offered for sale by a third-party seller that didn’t exist. Prosecutors said the claim allowed Litvak to charge an extra commission and increase the profitability of his trades as his trading revenue declined.

Smith said the judge didn’t allow the testimony of expert witnesses who would have testified about the mortgage-backed securities markets and would have shown Litvak’s “good faith state of mind,” and also made several evidentiary rulings limiting the amount of evidence about similar behavior of other Jefferies traders and employees.

So the US is trying to make markets safe for grossly incompetent professional traders. I don’t know where this will end. Trying to pretend that negotiating 9-figure financial deals as principal is not a jungle will lead to more problems than it solves – the world needs fewer “cooperative games” and more recognition of reality:

Click for Big

On the Crimean issue (I think the French and British should arrange for support from Turkey and invade again), the markets are doing a better job than the Boo-Hoo-Hoo Brigade.

Dudley reiterated that tapering is not the same as tightening:

Federal Reserve Bank of New York President William C. Dudley said he sees a “reasonably favorable” outlook for the U.S. economy, even as elevated joblessness and too-low inflation warrant a high level of stimulus for a “considerable time.”

“I would very much prefer faster economic growth and more rapid progress towards our dual mandate objectives of maximum sustainable employment and price stability,” Dudley said today in the text of remarks given at Brooklyn College in New York. “Hence, the continued need for monetary policy to remain highly accommodative to support the economic recovery to the fullest.”

Dudley said a decline in the jobless rate “significantly overstates the degree of improvement in the labor market” because much of the decrease has been caused by people dropping out of the job market. Unemployment fell to 6.7 percent in December, close to Fed’s threshold for considering an increase in the benchmark interest rate, from 7.5 percent last June.

There are stirrings of long overdue competition in US health care:

In the changing world of health care, patients are finding that the best care may be several hundred miles away.

When Travis Bumbaugh needed heart surgery, the Pennsylvania general contractor chose the cheapest option in the Lowe’s Cos. (LOW) health plan. He flew to Cleveland, to one of the top-rated heart hospitals in the nation.

By bundling all costs for the surgery under one negotiated price and offering expertise that lowers the odds of complications, the Cleveland Clinic gave Bumbaugh and his employer a better deal than the hospital close to his home. In some cases, hospitals will drop their prices as much as 40 percent to guarantee a steady stream of patients they wouldn’t have otherwise, said Terry White, president of the BridgeHealth Medical Inc., a Denver-based benefit manager.

To encourage employees, Lowe’s covers the full cost of surgery, as well as travel and lodging for the worker and a relative. The company health plan won’t cover thousands of dollars of unbundled costs at local hospitals.

It was an off day for the Canadian preferred share market, with PerpetualDiscounts off 1bp, FixedResets down 5bp and DeemedRetractibles losing 10bp. Volatility was minimal. Volume was on the high side of average.

Nothing happened today, but I must say that I am astonished at the UofO hockey-team / facebook chat kerfuffle:

As the University of Ottawa wrestles with its response to a week of sexually charged scandals, its leaders promised a new task force to help the school “face up” to issues of violence within the campus culture.

The university’s president, Allan Rock, announced a task force on respect and equality in his first public comments since his school revealed on Monday that police are investigating an alleged sexual assault involving some players from its men’s hockey team. At a Thursday news conference with Michaëlle Jean, the U of O’s chancellor and a former Governor-General, he pledged to “take fearless inventory of our practices and our assumptions.”

The university is still staggering from another revelation, days earlier, of a sexually graphic online chat that several student leaders had about a colleague. In response, many at the school have decried a “rape culture” they say is quietly pervasive on and off campus. Now, public attention is focusing on whether universities are willing and able to drive changes to social attitudes that minimize the real impact of sexual violence.

I simply cannot understand why “changes to social attitudes” are any of the universities’ business; I have come up with a few explanations:

• Young people are being infantilized – 35 is the new 20, as far as maturity goes. Used to be that at age 20, most people would get a job, get married, buy a house … all that grown-up stuff. Now, there’s a longer period of adolescence before adulthood, and the universities are responding to that (while under pressure).
• University administrations are being feminized … when I was of university age, the fact that more than half of all undergrads were female was front page news. Now the proportion is pushing 60% in the US and I’ll guess it’s the same here. So administrations are responding to that and they’re also responding to (what I assume is, without any data at all) an increasing female component of influential administrative staff. A male will – stereotypically – respond to nastiness on his own, while females will – stereotypically – seek to organize a clique to punish the offender properly; this is what the universities are now doing
• Normal bureaucratic mission creep. “We’re in a position to do so much good! Therefore we must promote proper behaviour!”
• It’s all marketting. All the universities now have MBAs in their admissions department who don’t care about much other than getting lots of admission applications through a Positive Public Image. The potential for bequests and alumni donations is important too.

That’s the best I can do; feel free to respond in the comments, even if it’s only to tell me you’re here for the preferred shares and I should shut the hell up (if male) or that you have brought my views to the attention of the appropriate authorities (if female). But one implication of all these precious bureaucrats having earnest discussions with each other about Proper Standards Of Behaviour, and sitting in tribunals to Enforce Promote Community Expectations Of A Safe Learning Environment is increased costs. This type of non-academic activity at universities is one reason why the price keeps going up; and why student debt increases in lockstep.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts gaining 6bp, FixedResets off 3bp and DeemedRetractibles up 22bp. Volatility was muted. Volume was above average.

There is confusion at the Bank of England:

The Bank of England suspended a member of staff as it conducts a probe into allegations that officials condoned practices behind the currency-manipulation scandal.

While the BOE said it has found no evidence to date of collusion, it requires staff “to follow rigorous internal control processes and has today suspended a member of staff, pending investigation.” No decision has been taken on disciplinary action against any employees, it said.

Bloomberg News reported on Feb. 7 that senior currency dealers at banks including Citigroup Inc. and UBS AG told BOE officials at an April 2012 meeting that they discussed positions ahead of key benchmarks and matched buyers and sellers ahead of the fix to avoid trading then. Central bank representatives said they viewed the practices as positive to reduce market volatility and banks should formulate their own policies, according to three people with knowledge of the matter.

The Bank of Canada claims our economy’s not getting any worse:

In Canada, economic growth in the fourth quarter of 2013 was slightly stronger than the Bank anticipated, and upward revisions earlier in the year further raised the level of GDP. The Bank still expects underlying growth of around 2 1/2 per cent in 2014, with the current quarter likely to be softer. Exports have been a little stronger than previously thought but continue to underperform, and overall business investment has yet to pick up. Meanwhile, recent data support the Bank’s expectation of a soft landing in the housing market and stabilizing debt-to-income ratios for households.

On the whole, the fundamental drivers of growth and inflation in Canada continue to strengthen gradually, as anticipated. With inflation expected to be well below target for some time, the downside risks to inflation remain important. At the same time, the risks associated with elevated household imbalances have not materially changed. The Bank judges that the balance of risks remains within the zone for which the current stance of monetary policy is appropriate and therefore has decided to maintain the target for the overnight rate at 1 per cent. The timing and direction of the next change to the policy rate will depend on how new information influences this balance of risks.

If there’s one thing welfare bums hate, it’s answering questions:

Chrysler Group LLC walked away from talks with the federal and Ontario governments after they asked how much of its proposed $3.6-billion investment would be spent in Ontario – a request that was likely to draw out negotiations and delay the company’s effort to bring a new minivan to market.

The federal government and the province sent Chrysler a joint letter and term sheets that offered to put up money as a percentage of the investment the company would be spending in Ontario, a source with knowledge of the talks said.

But those terms didn’t appear to sit well with Chrysler chief executive officer Sergio Marchionne.

It was a modestly positive day for the Canadian preferred shares market, with PerpetualDiscounts up 4bp, FixedResets gaining 1bp and DeemedRetractibles winning 5bp. Volatility was very low. Volume was average.

PerpetualDiscounts now yield 5.53%, equivalent to 7.19% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 4.5%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 270bp, unchanged from the February 26 report.

There’s a bit of a move forward with the Danish question:

Denmark’s biggest mortgage bank said about a fifth of covered bonds in the nation’s $550 billion market can be excluded from the top liquidity status, opening up for compromise in talks with Europe.

Nykredit Realkredit A/S said it would be willing to back down from earlier industry demands that all covered bonds be given the top liquidity designation as the Danish government talks with other European Union member states in an effort to reach an agreement.
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The comments mark the first time industry representatives have shown willingness to accept a compromise after condemning a proposal last year by the European Banking Authority to give all covered bonds second-class liquidity status. Denmark is home to the world’s biggest mortgage-backed covered bond market per capita and its banks use the securities to meet more than 70 percent of their liquidity needs.

The London-based EBA, which is made up of European regulatory heads, published a recommendation in December that would cap banks’ covered bond usage at 40 percent and force lenders to book the bonds at only 85 percent of their market value. It also said all government bonds should get the highest liquidity status, including debt sold by bailed out nations like Greece.
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An empirical study by the EBA last year found that covered bonds sold in issues of 500 million euros ($689 million) or more in principle have the characteristics needed to have an “extremely high liquidity and credit quality.”

Danish covered bonds were last discussed on February 7.

Some welfare bums are whimpering that there’s not enough swill in the trough:

Chrysler Group LLC is withdrawing its request for funding from the federal and Ontario governments, but says it could begin making new investments for a new minivan assembly line at its Windsor, Ont. factory.

The auto giant had asked for some $700-million in public funds to expand its operations in the province, most crucially at a minivan plant in Windsor. Chrysler had been willing to sink $3.6-billion into Windsor and Brampton, Ont.

But the company has now walked away from that request.

“It is clear to us that our projects were being used as a political football, a process that, in our view apart from being unnecessary and ill-advised, will ultimately not benefit Chrysler,” the company said in a statement.

Some pension plans are getting smarter:

Canada has seen its first major deal for a company to outsource its pension plan risk by buying about $500-million worth of annuities from an insurer.

Pension consulting firm Towers Watson revealed the transaction Tuesday, saying Canada’s first “jumbo” pension annuity deal occurred in the fourth quarter of 2013 and involved a Towers Watson client firm.
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While many U.S. and U.K. companies have been structuring deals for years to shift the risk of their pension obligations to a third-party insurer, the trend has been slow to come to Canada. But Towers Watson said 2013 was a record-breaking year for group annuity purchases by companies, suggesting deals may be picking up speed as firms look for ways to shift pension risk off their books.

A total of $2.2-billion in group annuities were sold in Canada last year – including $1.3-billion in the fourth quarter alone – an increase from $1.05-billion in all of 2012.

Here’s a recent paper of interest by Ranadeb Chaudhuri, Zoran Ivkovich, Joshua Matthew Pollet and Charles Trzcinka :

Several hundred individuals who hold a Ph.D. in economics, finance, or others fields work for institutional money management companies. The gross performance of domestic equity investment products managed by individuals with a Ph.D. (Ph.D. products) is superior to the performance of non-Ph.D. products matched by objective, size, and past performance for one-year returns, Sharpe Ratios, alphas, information ratios, and the manipulation-proof measure MPPM. Fees for Ph.D. products are lower than those for non-Ph.D. products. Investment flows to Ph.D. products substantially exceed the flows to the matched non-Ph.D. products. Ph.D.s’ publications in leading economics and finance journals further enhance the performance gap.
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The existing literature has explored some aspects of the link between managerial talent and both ability and education in the context of money management. For instance, Chevalier and Ellison (1999) find that mutual fund performance is related to certain educational characteristics of mutual fund managers. In particular, mutual fund managers graduating from undergraduate institutions with higher average SAT scores achieve higher raw fund returns. Similarly, Chevalier and Ellison (1999) also find that raw fund returns achieved by managers with an MBA outperform those without an MBA by 63 basis points per year. However, upon adjustments for risk, only the differential in risk-adjusted performance between the managers graduating from undergraduate institutions with higher average SAT scores and those graduating from undergraduate institutions with lower average SAT scores persists, whereas the risk-adjusted performance differential between funds managed by MBAs and non-MBAs disappears.

It may well be that PhDs and ‘institutions with higher average SAT scores’ both correlate well with ‘not a salesman’. I would be interested to get data based on field of specialization, but it’s not there yet – and isn’t likely to be, as long as business school profs have specializations in finance, economics and other mumbo-jumbo.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts up 26bp, FixedResets off 13bp and DeemedRetractibles gaining 14bp. Volatility was average. Volume was on the high side of average.