PrefBlog

It was a day of mixed indicators, with frenzied traders choosing random bits of data and making bets on them! US equities rose again, continuing a huge rise from yesterday while all sensible people were on holiday, on the very good rationale that the Fed says the economy is growing enough that the main risk is inflation. It therefore makes all kinds of sense that Canadian equities fell on fears that the US Economy is slowing, doesn’t it? Is the glass half-empty or half-full? I guess it depends how far away you are from the glass.

The US Treasury market did homage to the Fed statement as well, falling a bit – not much – as traders appeared to take the view that the expected rate cut will take longer to arrive than expected. Torn between the domestic equity market and the Treasury market, Canadian bonds declined a bit, but nothing to write home about.

The knock-on effects of tighter credit in the wake of the sub-prime frenzy are showing amongst those firms attempting to finance share buy-backs in the bond market. Bear Stearns, which has been caught up in this debacle more than it would probably like to, has indicated it will not be buying back shares, has paid up big-time to get some five-year money to reduce dependence on the money-market, and gotten rid of a high-ranking executive. Sounds like they’re taking things seriously!

The Fed statement today was notable for more than the usual reasons. There was a rare mention of the global economy, and its role in buying American stuff rather than selling cheap stuff to Americans. There is some further comment to the effect that American productivity growth is slowing. Meanwhile, there are rumblings that maybe Greenspan should be blamed for sub-prime and that US officials think the market is always perfect.

All in all, an interesting day!

Not the most active of days in the preferred share market, but at least trading was more inspired than it was Friday. InterestBearing issues did well and the PerpetualDiscount index continued what has been a fairly steady grind upwards since mid-July.

A number of Pfd-3 and worse issues did horribly, with YPG.PR.B, for instance, hitting a new low. It can only be detected over long periods of time … but yes, the preferred market does eventually  reflect the bond market! YPG.PR.B now yields 6.48% based on a bid of 22.60 and a softMaturity 2017-6-29 at 25.00 … not bad! At a conversion factor of 1.4, that’s equivalent to interest of over 9% …. but it’s a Pfd-3(high). Suitable only in very sparing quantities!

There were twelve other $25-equivalent index-included issues trading over 10,000 shares today.

It turned out that the end of the world, previously thought to have been cancelled, was merely postponed; a few proponents of the Efficient Market Hypothesis (strong form) received bruises in the rush to the exits but, as they themselves noted, they probably would have got them anyway.

The day started well for fixed-income investors, with the Non-Farm Payrolls report showing that 92,000 jobs were created while unemployment crept up a fraction. James Hamilton at Econbrowser says it actually be worse than it looks, since it does not go far enough to contradict his other indicators. Other reactions have been compiled by the Wall Street Murdoch is Magnificent Journal.

The report was weak enough that even hawkish economists conceded a rate-increase might be further off than anticipated so Treasuries had a great day, closely followed by Canadas.

This exuberance does not extend to lending money to actual companies, however, especially not those involved in sourcing, packaging and selling mortgages. Employees of such firms hoping to get work processing redemptions from hedge funds were disappointed when another European fund halted redemptions.

All this crushed US stocks, while Canada had to deal not only with the US news, but also the fact that it doesn’t look like we’ll be able to go work at Telus, either. So Canada got squashed.

Speaking of Telus, they released their quarterlies today, and noted:

TELUS in July continued its assessment of whether it should potentially make a competing offer for BCE. TELUS has concluded this assessment and it does not intend to submit a competing offer to acquire BCE.

I’m still not convinced that Teachers / BCE story is over yet. I have convinced myself, however, that the secret of happiness is putting oneself into a position of not caring. Which is to say, not holding BCE Prefs.

Meanwhile, the preferred share market simply continued not reacting much to anything at all, but there was one notable exception. The Argus Preferreds, AR.PR.B, are tracked by HIMIPref™ for the very good reason that about ten years ago they were in an index for ten minutes. They were down 63.69% today (bid/bid) on no volume, as the already pathetic bid vanished. To be perfectly frank, I don’t know off the top of my head who owns Argus. Is it the soon to be bankrupt Hollinger or the soon to be jailed Lord Black? Whatever … this issue hasn’t paid its dividend for over two years, so it will be of interest only to hedge funds and scrip collectors.

The post regarding Malachite’s recent performance has been updated with figures for DPS.UN and a joke, so read it again. Read it many times!

There were NO other $25-equivalent index-included issues trading over 10,000 shares today.

Zip. Zero. Zilch. There weren’t even enough issues trading in size to fill a table with five prime examples.

Much to investors’ relief, the previously scheduled end of the world was cancelled today, which was considered good news for both American and Canadian equities. A good day all ’round, in fact, as Treasuries rose, dutifully followed by Canadas.

It is entirely possible that this exuberance has been caused by reports that Stephen Harper said there had been a lot of easy credit internationally, suggesting the recent turmoil was a reassessment of risk. We shall all sleep better tonight provided, of course, that the cheques resulting from massive redemptions of US Junk Funds don’t bounce. Meanwhile, Flaherty says he’s from the government and he’s here to help us.

Sub-Prime had a bad day amongst some indications that credit standards spiralled downwards over the past few years:

It makes one feel at least a little bit more sympathetic to the ratings agencies criticized for over-optimism!

Fed Funds contracts are showing a Fed easing ahead, but this is not necessarily a logical conclusion, especially considering that Europe might tighten.

Rio Tinto’s financing of its Alcan takeover is reported to be doing well.

As far as prefs are concerned … BSN.PR.A has been removed from the HIMIPref™ universe, due to its redemption.

There were Ten other $25-equivalent index-included issues trading over 10,000 shares today.

A wild day for stocks, as American equities gained sharply in the last hour to record good performance on the day, while Canadian stocks … shoulda stood in bed.

Meanwhile, Treasuries fell sharply, which may be due to reallocation to equities, reduced hopes for a rate cut, or simply because they felt like it. Ask a priest.  Fitch cut ratings on a lot of sub-primes (which, I’ll bet, still doesn’t get the ratings in line with the prices) and clarified some of their rating processes. Canada still doesn’t have a dedicated bond blog or even any decent wire services (if I’m wrong, tell me!), so you’ll have to trust me again … Canadas did not have an exciting day. Flat-to-boring about sums it up.

Yesterday I highlighted a Bloomberg story claiming that some major brokerage bonds were trading as junk. Tom Graff says that’s a load of hooey, and provides some examples of bellwether junk bonds vs. the brokers of interest … broker spreads are wide, he says, but not actually junk!

Back to prefs … CM.PR.C has been redeemed and been removed from the “PerpetualPremium” index. To my shame, I confess that the HIMIPref™ Indices have not been rebalanced for July month-end and I will have to catch up at another time – hopefully tomorrow. The market had a good day – as suggested by the “Major Price Changes”, but beyond that, I’m afraid you’ll have to wait.

There were eleven other $25-equivalent index-included issues trading over 10,000 shares today.

Update, 2007-08-02