PrefBlog

Sorry this is so late, folks! What can I say? Time flies like an arrow, but fruit flies like bananas.

The Bank of Canada has released a working paper by Ron Alquist, Lutz Kilian and Robert Vigfusson titled Forecasting the Price of Oil:

We address some of the key questions that arise in forecasting the price of crude oil. What do applied forecasters need to know about the choice of sample period and about the tradeoffs between alternative oil price series and model specifications? Are real or nominal oil prices predictable based on macroeconomic aggregates? Does this predictability translate into gains in out-of-sample forecast accuracy compared with conventional no-change forecasts? How useful are oil futures markets in forecasting the price of oil? How useful are survey forecasts? How does one evaluate the sensitivity of a baseline oil price forecast to alternative assumptions about future demand and supply conditions? How does one quantify risks associated with oil price forecasts? Can joint forecasts of the price of oil and of U.S. real GDP growth be improved upon by allowing for asymmetries?

Maybe another movie? “How Yellow was my Valley”? About a family of unfortunate preferred share investors.

It was an uneventful day for the Canadian preferred share market, with PerpetualDiscounts down 3bp, FixedResets losing 3bp, and DeemedRetractibles up 5bp. There was only minor volatility. Volume was quite low.

Plans for a Greek debt restructuring are moving along;

European officials preparing Greece’s second bailout in two years may offer bondholders incentives to roll over maturing debt without triggering a credit-rating downgrade that would roil Europe’s banking system, two people with knowledge of the talks said.

Investors may be given preferred status, higher coupon payments or collateral as inducements to buy bonds replacing Greek debt maturing between 2012 and 2014, said the people, who declined to be identified because the talks are in progress.
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“We are also examining the feasibility of voluntarily rescheduling, which would not create a credit event,” European Union Economic and Monetary Commissioner Olli Rehn said in an interview yesterday in New York. “Debt restructuring is not on the table, it’s not in the cards, it will not be part of our agenda.”

DBRS has placed some Master Asset Vehicle notes under Review-Positive. The MAV notes are repackaged, term-extended ABCP.

Wow, the Boston Fed gets its fingers into a lot of pies! A working paper by Mary A. Burke and Frank W. Heiland is titled Explaining Gender-Specific Racial Differences in Obesity Using Biased Self-Reports of Food Intake:

Policymakers have an interest in identifying the differences in behavior patterns—namely, habitual caloric intake and physical activity levels—that contribute to demographic variation in body mass index (BMI) and obesity risk. While disparities in mean BMI and obesity rates between whites (non-Hispanic) and African-Americans (non-Hispanic) are well-documented, the behavioral differences that underlie these gaps have not been carefully identified. Moreover, the female-specificity of the black-white obesity gap has received relatively little attention. In the National Health and Nutrition Examination Surveys (NHANES) data, we initially observe a very weak relationship between self-reported measures of caloric intake and physical activity and either BMI or obesity risk, and these behaviors appear to explain only a small fraction of the black-white BMI gap (or obesity gap) among women. These unadjusted estimates echo previous findings from large survey datasets such as the NHANES. Using an innovative method to mitigate the widely recognized problem of measurement error in self-reported behaviors—proxying for measurement errors using the ratio of reported caloric intake to estimated true caloric needs—we obtain much stronger relationships between behaviors and BMI (or obesity risk). Behaviors can in fact account for a significant share of the BMI gap (and the obesity gap) between black women and white women and are consistent with the presence of much smaller gaps between black men and white men. The analysis also shows that the effects smoking has on BMI and obesity risk are small-to-negligible when measurement error is properly controlled.

Jule Dickson highlighted fraud as a problem for the P&C industry in a speech to the 2011 Property and Casualty Insurance Industry Forum:

Rate increases, together with progress in curtailing fraudulent claims, are required if the industry is to continue to provide the services it offers Ontario drivers.

While recent measures to curtail fraud are encouraging, there is no short-term solution to deal with the escalating losses residing in the GTA. Individuals, institutions, the government and the police must continue to be vigilant in curtailing fraud if they want to ensure the Ontario auto line returns to profitability.

I’m thinking of producing a movie: “I am volatile – yellow”, starring a young female preferred share investor.

It was a good start to the month for the Canadian preferred share market, with PerpetualDiscounts leaping 28bp, FixedResets gaining 17bp and DeemedRetractibles up 6bp. Volatility was good. Volume was elevated.

PerpetualDiscounts now yield 5.50%, equivalent to 7.15% interest at the standard equivalency factor of 1.3x. Long Corporates now yield a little under 5.3% (!) so the pre-tax interest-equivalent spread is now about 185bp, a wee bit tighter than the 190bp reported on May 26, as the PerpetualDiscounts play catch-up.

There was a yellow cat bounce today.

It was a relatively quite day on the Canadian preferred share market, with PerpetualDiscounts up 6bp, FixedResets basically flat and DeemedRetractibles gaining 4bp. Volatility was muted, with only two issues on the Performance Highlights table. FixedResets thoroughly dominated the Volume Highlights table, possibly due to the settlement today of SJR.PR.A; although it looks like HSBC (who?) got some work acting for a big client reducing preferred share exposure in a big way.

Greece is sliding closer to bankruptcy:

The European Union may withhold the next amount of credit to Greece after a report by an international panel of inspectors concluded that the debt-laden country has missed all the fiscal targets agreed in its rescue plan, Der Spiegel said, without saying how it obtained the information.

Portuguese 10-year bonds fell the most in a week, sending the yield spread with German bunds, Europe’s benchmark government security, 18 basis points higher to 678 basis points, the most since Bloomberg began gathering the data in 1997. Italian 10-year yields rose six basis points to 4.81 percent after the government sold 8.3 billion euros ($12 billion) debt. Spain is due to sell debt on June 2.

and Moody’s put Japan on Review-Negative.

Yellow bellies continued to panic.

It was a mixed day on the Canadian preferred share market, with PerpetualDiscounts gaining 17bp, FixedResets basically flat, and DeemedRetractibles down 4bp. Volatility was minimal, with only one entry in the Performance Highlights table. Volume was OK, a little on the low side, as befits a day when the US market was closed.

US housing sales are slow:

The number of Americans signing contracts to buy previously owned homes plunged more than forecast in April, a sign the industry that triggered the recession continues to struggle.

The index of pending home resales declined 12 percent after a revised 3.5 percent increase the prior month, the National Association of Realtors said today in Washington. The median forecast in a Bloomberg News survey called for a 1 percent decline.

The prospect that foreclosures will continue to drive down property values may keep buyers on the sidelines awaiting further price declines. Unemployment at 9 percent and stricter credit requirements are further signs that a housing recovery may take years to unfold.

And things are unfolding elsewhere, too:

Dexia SA (DEXB), the bank that took the most Federal Reserve discount-window help in October 2008, said it will take a charge of 3.6 billion euros ($5.1 billion) for the anticipated sale of mostly U.S. residential mortgage-backed securities and long-term bond disposals.
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By writing down the U.S. asset-backed securities to their market value, Dexia said it will be in a position to waive the Belgian and French state guarantees covering losses on those assets and renegotiate the terms and consequences arising from the state support.

Note that they’re going to “take a charge” rather than cover the loss with reserves. That gives you a nice warm feeling about European bank balance sheets, doesn’t it?

Long-term readers of PrefBlog will recognize one of my hobby-horses: genetic modification of cellular organisms to take carbon dioxide out of the air (good) and convert it to fuel (better). So I was pleased to see news of the Solazyme IPO:

Solazyme Inc., the developer of oil products from genetically modified algae, jumped as much as 22 percent in its first day of trading.

The shares rose $3.15, or 18 percent, to $21.15 at 1:18 p.m. in Nasdaq Stock Market trading. Earlier it reached $22, a 22 percent gain from its initial price of $18 a share. The South San Francisco, California-based company sold 10.975 million shares, raising $197.55 million, according to a regulatory filing.

The demand validates the technology used to convert organic material into biofuels and specialty chemicals, according to Pavel Molchanov, an analyst for Raymond James & Associates Inc. It remains to be seen whether Solazyme, or rivals that are developing similar products such as Gevo Inc., and Amyris Inc. (AMRS), can do so cost-effectively.

“The science in their process works,” Molchanov said today in a telephone interview. “So as we think about the risk factors that investors in these companies have to confront, it’s not a science risk. It’s how successfully can they scale up to be a large production business.”

The logic of the third paragraph there rivals that seen during the Tech Boom, but never mind (the demand validates the science? Let’s take a vote on gravity!). Note that I have no idea of whether the science works, whether the engineering for scale-up is promising, or whether the shares are good value at the price … I’m just happy to see that a technology I’ve wondered about for thirty years is coming to market.

What the world needs is a new phrase, something along the lines of “as vindictive as an American”. When one of them takes a stand against retroactive rules, it’s considered news:

I join the Chairman in thanking the Division of Corporation Finance and the other divisions and offices that have contributed to the proposal under consideration today.

As required by Sec. 926 of the Dodd-Frank Act, we are proposing rules that would disqualify securities offerings involving certain “felons and other ‘bad actors’” from reliance on the safe harbor from Securities Act registration provided by Rule 506 of Regulation D.

Unfortunately, however, I am not able to support this proposing release, because the proposed rules would apply retroactively by disqualifying transaction participants from engaging in Rule 506 offerings for conduct occurring prior to enactment of the Dodd-Frank Act.

I want to emphasize at the outset that I do not disagree, as a policy matter, with disqualifying so-called “bad actors” from Rule 506 offerings.
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Where, as here, the statute and jurisprudence do not, in my view, support retroactive application of these rules, it would be more appropriate to apply our rules prospectively, and/or seek from Congress a technical amendment to the statute to clarify that these provisions should be applied retroactively if that was indeed Congressional intent.

Rule 506 of Regulation D is, basically, the accredited investor exemption.

Yellow Fever continued to plague the market.

All that aside, the Canadian preferred share market had a reasonably good day overall, with PerpetualDiscounts gaining 18bp, FixedResets up 4bp and DeemedRetractibles off 1bp. Volatility was muted. Good volume was dominated by CM issues.

Yellow got clobbered again!

Apart from that, said Mrs. Lincoln, it was a very nice evening at the theatre! The Canadian preferred share market did quite well today, with PerpetualDiscounts gaining 15bp, FixedResets picking up 1bp and DeemedRetractibles winning 29bp. A good crop of winners is in the Performance Highlights table, led by CM.PR.H, which is being redeemed and followed by others that are not seeking NVCC status. Volume was good, and again CM issues were featured.