PrefBlog

Nothing happened today.

The Canadian preferred share market got smacked again, with PerpetualDiscounts losing 113bp, FixedResets down 34bp and DeemedRetractibles off 28bp. BAM issues were prominent on the very lengthy Performance Highlights list, and not on the good part of it either! Mind you, the good part wasn’t all that lengthy. Volume was quite high.

Nothing happened today.

It was another terrible day for the Canadian preferred share market, with PerpetualDiscounts losing 67bp, FixedResets off 32bp and DeemedRetractibles down 63bp. The Performance Highlights table is suitably enormous, with bank issues making a relatively rare ascent into prominence amongst the losers. Volume was above average.

I’ve just had a look at A Review of the Oncology Under-Dosing Incident by Jake J. Thiessen, Ph.D. … the report on the chemotherapy scandal in which neither hospitals nor purchasing agents made the slightest effort to determine just what it was they were buying or had bought.

What a whitewash.

The early days of the incident began with the discovery of a questionable MHS GEMCITABINE product on March 20, 2013 at the Peterborough Regional Health Centre.

This, of course, is bullshit. The early days of the incident began with the tendering of the contract to supply the drug. The contract was incompetently drafted and handling of the delivered materials was also incompetent. He didn’t address (or even acknowledge) the kickback negotiated as part of the contract.

As a former chemist, the part I like best is:

The clear difference factor in bulk reconstitution preparation lies in the overfill within the normal saline bags used in hospitals and by MHS. That is, although a bag may be nominally labeled to contain 100, 250, 500 or 1000 mL of 0.9% sodium chloride, the actual volume may be somewhat larger. Such overfill is widely known and is not limited to diluents. For example, Baxter had declared its overfill (shown in Appendix 4). Both the GPO and MHS were apparently aware of such overfills. The degree of overfill is not standardized; it becomes part of a manufacturer’s finished product specifications. The reason for this overfill is that the fluid bags are to some extent permeable to water. That is, water can move through the membrane and then evaporate from the outside surface. On storage, the contents of the bags can thereby decrease. The product’s shelf life is defined by the length of time it would normally take before the contents are reduced to the aforementioned nominal contents (e.g., 100 mL) on the label. Obviously, the rate of loss is determined by the permeability of the bag, fluid volume to surface ratio, and the storage conditions. This influences both the overfill variability used by a manufacturer and the contents determined at any point in time

So it is known that the concentration of active material in the bags will increase over time, but the clowndorks in charge of preparing medication for administration use the bags as a source of stock solution at the concentration shown on the label.

Don’t get sick in Ontari-ari-ari-o.

As a nod to the ostensible subject of this blog (Canadian preferred shares. Remember?) I’ll highlight Assiduous Reader adrian2‘s trip down memory lane to May, 2008, when we were all trying to figure out just what these funny new Fixed-Reset thingamajigs were all about.

It was another day of sickness in the Canadian preferred share market, with PerpetualDiscounts off 1bp, FixedResets down 16bp and DeemedRetractibles losing 19bp. The Performance Highlights table is again very lengthy, but with no obvious patterns. Volume was high.

Nothing happened today.

Another crushing day for the Canadian preferred share market, with PerpetualDiscounts losing 77bp, FixedResets off 8bp and DeemedRetractibles down 23bp. There is a suitably lengthy Performance Highlights table, suitably featuring PerpetualDiscount losers, but with an impressive number of FixedReset losers and a few winners to provide some variety. Volume was quite high.

PerpetualDiscounts now yield 5.64%, equivalent to 7.33% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 4.7%, so the pre-tax interest-equivalent spread is now about 265bp, an extremely sharp widening from the 240bp reported July 31.

The Fabulous Fab verdict is having its intended effect: funding prospects for the SEC have brightened:

The win adds weight to pledges by SEC Chairman Mary Jo White to reinvigorate the regulator, seeking more onerous settlements in some cases and, if necessary, taking them to trial. It also could bolster support for a 27 percent budget increase for the agency that Congress is considering.
…
“The SEC needed at least one scalp from the financial crisis, or they were going to face a lot of heat from Congress,” said Adam Pritchard, a University of Michigan law professor who previously worked as a lawyer for the regulator.

The only thing that might actually have a chance of working is going after incompetent idiots, such as Laura Schwartz and Alan Roseman of ACA Management LLC, which funded the deal due to analysis critically based on an investment technique called “Follow the Leader”. Fortunately for them and many, many of their peers, though, gross incompetence is not a legitimate target for a regulator, so we’ll have to leave that one up to the clients, ha-ha. I suppose it’s nice to see that Laura Schwartz has her own problems.

Canadian pension plans are about to get hit by the pointy end of longevity risk:

The bottom line in the Towers Watson report is this: Just as things are looking up for pension plans, the fact that we’re living longer may soon officially change assumptions, undoing the recent gains from stronger stock markets and rising interest rates.

Towers Watson based its report on new, draft mortality tables unveiled last week by the Canadian Institute of Actuaries. These are used to measure how much pension plans require to meet their obligations to retirees going forward.

“Although the effect will vary from plan to plan, adoption of the proposed mortality tables and acceptance of the study’s prediction of future mortality improvements could also immediately increase pension accounting liabilities by 5 per cent to 10 per cent for many plans, potentially impacting corporate income statements and balance sheets,” Towers Watson said.

The proposed new tables increase the life expectancy of a 60-year-old man by 2.9 years, and for a woman by 2.7 years.

Mind you, pensions have had a good year:

U.S. state and local-government pension investments gained the most in two years in fiscal 2013, overshadowed by intensifying scrutiny of underfunded municipal-retirement plans following Detroit’s record bankruptcy.
Public pensions booked a median gain of 12.4 percent for the 12 months through June, powered by a surge in U.S. stock prices to a record, Wilshire Associates said today in a report. The funds chalked up an annualized three-year median return of 11.4 percent while their assets surpassed a pre-recession peak to reach $2.9 trillion, according to U.S. Census Bureau figures.

Spend-Every-Penny is beginning to address the Canadian mortgage problem – in his own socialistic way:

The Crown corporation has notified banks, credit unions and other mortgage lenders that they will each be restricted to a maximum of $350-million of new guarantees this month under its National Housing Act Mortgage-Backed Securities (NHA MBS) program. The decision comes in the wake of “unexpected demand” for the guarantees, a spokeswoman for CMHC said in an e-mailed statement.

Hurray! When demand outstrips supply … ration the commodity! Isn’t that the Canadian way?

Bloomberg has an interesting story showing how Wal-Mart haters can be efficiently exploited:

In the city of Selma, a Central Valley town south of Fresno, Wal-Mart accused Save Mart of being behind an anti-Wal-Mart group, Save Our Selma Coalition, in a 2005 filing requesting a subpoena. Bentonville, Arkansas-based Wal-Mart built its store anyway. In Tracy, California, WinCo accused Save Mart in 2007 of directing a lawsuit filed by neighborhood group Tracy First against the city for approving a new WinCo store, according to a state court document. WinCo also built its store.

[Consultant Burt] Flickinger said Save Mart’s territory still only has one Wal-Mart supercenter for every 150,000 people, compared with one for every 45,000 in Alabama.

“It’s not for lack of trying either,” Flickinger said.

The only thing that can possibly make wind power economical is storage. In Ontario we’ve blown the budget on not-ready-for-prime-time technology, but market leaders are doing research:

On a windy island 500 miles north of Tokyo, Japan is about to experiment with a battery designed to transform the way electricity is supplied and at the same time boost Prime Minister Shinzo Abe’s economic rescue plan.

The Ministry of Economy, Trade and Industry is investing 20 billion yen ($203 million) on a Sumitomo Electric Industries Ltd. (5802) device to be used by Hokkaido island’s utility to store excess solar and wind power, stabilizing flows to consumers.
…
The battery, which uses the metal vanadium to store electrical energy in electrolyte tanks, has been researched from Australia to China and promises to handle the sort of large power surpluses that can develop on a transmission grid.

Speedy subways or slow LRTs for Toronto? Well, here’s the London experience:

Crossrail, Europe’s largest construction project, costing an estimated 15 billion pounds ($23 billion), will cut commuting times by as much as half, enticing tenants to rent offices in once-overlooked corners of the City. Plans for buildings from Farringdon through Smithfield to the Thameslink overland rail station to the south represent the City’s biggest development pipeline since 2011, when a cluster of towers went up near the Lloyds of London insurance building, said Peter Rees, the City’s planning officer.

CRUNCH! The Canadian preferred share market took a shellacking today, with PerpetualDiscounts losing 102bp, FixedResets down 88bp and DeemedRetractibles off 72bp. The Performance Highlights table is suitably enormous and comprised entirely of losers. Volume was high, but nothing extraordinary.

I suspect that the problem is a massive batch of sell orders placed through Citigroup Global markets (Broker #123). Now, I am hesitant to criticize traders for their trading, because I have no way of knowing who their client is or what their instructions were …. but I will go so far as to say their selection of trading algorithm is a red flag. In many cases they used what I call a “drip algorithm” (the cool guys probably call it something else) whereby you sell 100 shares at market every X seconds. It is the easiest thing in the world to spot and a marvellous thing to exploit. Just sit on the bid and get N different fills over the next NX seconds. It has the advantage from the seller’s perspective of getting done, guaranteed: since when will a market order not get filled? It has the advantage from the buyers’ perspective of being the way most likely to take the market price down to ridiculous levels. To sum up: somebody is probably a moron, but there’s no way of knowing who: the seller or the trader. And the seller might have been doing something better to compensate on the other side of his trade.

“Drip Algorithms” might work OK in a deep, liquid market, but in the thin little world of Canadian preferreds … sorry, Charlie.