Here’s another exhibit regarding the reluctance of asset management firms to promote star managers:
Roger Guy and Guillaume Rambourg, Gartmore Group Ltd.’s two star managers, won European fund of the year at a black-tie gala at London’s Grosvenor House Hotel on Jan. 21. Ten months later, both have quit and the company is considering putting itself up for sale.
…
Rambourg and Guy together managed about a third of the company’s assets after its IPO. Three other managers have departed, prompting the company to hire Goldman Sachs Group Inc. to help find a buyer after investors including Skandia Investment Management Ltd. pulled or planned to pull 3.3 billion pounds ($5.3 billion), or about 14 percent of its assets under management, since Rambourg was suspended in March. The performance of their funds has lagged behind competitors this year, according to data compiled by Bloomberg.
… and here’s one about the usual effect of politicized regulation:
U.S. airlines canceled 4,754 flights in September, a 62 percent jump from the same month a year ago, as the government requires carriers to let passengers off stuck flights within three hours.
…
Carriers are seeking to avoid fines as high as $27,500 per customer stuck on a plane during a lengthy delay under the rule by Transportation Secretary Ray LaHood. Airlines said the requirement would lead to cancellations, and as of September an additional 5,000 flights were scrapped, an 18 percent rise, since the rule took effect.
…
“Cancellations are a much worse result for passengers” than long delays, said David Stempler, president of the Air Travelers Association, an advocacy group in Chevy Chase, Maryland. “The time it takes them to get to their destinations may last up to days” after a flight is scrubbed, he said.
One of China’s major credit rating agencies has downgraded the US to A+:
China’s Dagong Global Credit Rating Co. reduced its credit rating for the U.S. to A+ from AA, citing a deteriorating intent and ability to repay debt obligations after the Federal Reserve announced more monetary easing.
The credit outlook for the U.S. is “negative,” as the Fed’s plan to buy government debt will erode the value of the dollar and “entirely encroaches” on the interests of creditors, analysts at Dagong, one of China’s five official ratings companies, said in a statement.
…
Dagong, seeking to become an alternative to S&P, Moody’s and Fitch Ratings, ranks China’s debt higher than that of the U.S. and Japan, citing widening deficits in the developed world. Global ratings methodology is “irrational,” Dagong Chairman Guan Jianzhong said in July, and “cannot truly reflect repayment ability.”In September, the Securities and Exchange Commission denied the application of Dagong to become a Nationally Recognized Statistical Rating Organization in the U.S.
Life will become even more fun if the EU sets up its own captive credit rater!
I ran across an interesting essay … The Impact of High Frequency Trading on the Canadian Market by members of the BMO-CM Quantitative Execution Services, dated July 2009 … it’s filled with the familiar booHooHoos about Portfolio Managers having their lunch eaten. I mean, look at this:
Liquidity has become less obvious – As predatory high frequency trading creates extra volume without creating additional real liquidity, it become increasing difficult for fund managers to discern the real achievable liquidity in a given stock. To date we have witnessed many instances where portfolio managers looking at total trading volume attempt to buy (sell) too much of a given stock resulting in additional market impact. This cost is again shouldered by the individual end clients
They hired an incompetent manager and it cost them. I’m not wringing my hands.
We have had several discussions with Canadian buy side accounts who have noted the decreasing effectiveness of their pre-trade analytic tools. Typically these tools rely on volume and a number of other market metrics (e.g. spread, volatility) to predict the impact a given order will have on the market for that issue. As ‘real’ volume becomes less discernable these tools have greater difficulty determining this number. Portfolio managers, who have become increasingly reliant on these tools over the last several years, are becoming increasingly frustrated with their performance.
Not frustrated enough, apparently, to do a damn bit of work to fix the problem.
The Bank of Canada has released a working paper by Céline Gauthier, Zhongfang He and Moez Souissi titled Understanding Systemic Risk: The Trade-Offs between Capital, Short-Term Funding and Liquid Asset Holdings:
We offer a multi-period systemic risk assessment framework with which to assess recent liquidity and capital regulatory requirement proposals in a holistic way. Following Morris and Shin (2009), we introduce funding liquidity risk as an endogenous outcome of the interaction between market liquidity risk, solvency risk, and the funding structure of banks. To assess the overall impact of different mix of capital and liquidity, we simulate the framework under a severe but plausible macro scenario for different balance-sheet structures. Of particular interest, we find that (1) capital has a decreasing marginal effect on systemic risk, (2) increasing capital alone is much less effective in reducing liquidity risk than solvency risk, (3) high liquid asset holdings reduce the marginal effect of increasing short term liability on systemic risk, and (4) changing liquid asset holdings has little effect on systemic risk when short term liability is sufficiently low.
I don’t like it much becaue it does not address the role of the Central Bank in reducing liquidity risk.
Regulators continue to run amok in the UK, once best known as the home of Magna Charta:
Traders’ mobile-telephone calls may be taped in an effort to stamp out insider trading under new rules scheduled to be published by the U.K. financial regulator as soon as this week.
The Financial Services Authority has said cell phones used for business shouldn’t be exempt from rules requiring banks and brokerages to record employees’ calls so that they can be listened to later. In March, the agency said in draft proposals that around 22,000 phones would be covered.
…
The regulator in September warned companies to prevent leaks to the media as part of its effort to crack down on market abuse. The FSA started to cold-call traders to interview them under caution two years ago about possible insider trading, a strategy that fell prey to hoax calls.
…
“We continue to work to keep undesirable people out of our financial services industry,” FSA enforcement chief Margaret Cole said in a speech yesterday. “We use information and intelligence from a range of sources to consider whether those who own or run financial firms, as well as people in sensitive roles within those businesses, are ‘fit and proper.’”
There’s more about the cold-calling here. For now, it’s all to the good – I know some fine immigrants from the UK who came here out of disgust with the ubiquitous camera monitors, ASBOs and so on. But this trend will eventually hurt us all.
Another strong day on the Canadian preferred share market, but this time with a big difference in inter-sector performance. PerpetualDiscounts gained 41bp, while FixedResets lost 3bp; today’s performance takes the Bozo Spread (the difference between PerpetualDiscount and FixedReset Current Yields) down to a mere 9bp. I am all agog to see if this spread goes negative … it is my theory that this spread shows the retail perception of the interest rate risk inherent in a Straight Perpetual … but who knows? Maybe it doesn’t. Volume was very heavy.
| HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly |
|||||||
| Index | Mean Current Yield (at bid) |
Median YTW |
Median Average Trading Value |
Median Mod Dur (YTW) |
Issues | Day’s Perf. | Index Value |
| Ratchet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.1272 % | 2,232.1 |
| FixedFloater | 4.93 % | 3.53 % | 27,559 | 19.14 | 1 | -0.6757 % | 3,410.6 |
| Floater | 2.67 % | 2.34 % | 64,550 | 21.40 | 4 | 0.1272 % | 2,410.0 |
| OpRet | 4.78 % | 2.87 % | 80,881 | 1.87 | 9 | -0.1875 % | 2,396.4 |
| SplitShare | 5.84 % | -14.84 % | 66,296 | 0.09 | 2 | -0.0403 % | 2,410.3 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.1875 % | 2,191.3 |
| Perpetual-Premium | 5.62 % | 5.01 % | 160,386 | 3.08 | 24 | -0.0805 % | 2,028.0 |
| Perpetual-Discount | 5.28 % | 5.27 % | 257,751 | 14.96 | 53 | 0.4123 % | 2,068.4 |
| FixedReset | 5.19 % | 2.86 % | 352,075 | 3.21 | 50 | -0.0298 % | 2,296.6 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| BAM.PR.H | OpRet | -1.53 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2010-12-09 Maturity Price : 25.25 Evaluated at bid price : 25.70 Bid-YTW : -8.13 % |
| FTS.PR.H | FixedReset | 1.02 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2015-07-01 Maturity Price : 25.00 Evaluated at bid price : 26.00 Bid-YTW : 3.23 % |
| RY.PR.D | Perpetual-Discount | 1.07 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-11-09 Maturity Price : 22.57 Evaluated at bid price : 22.73 Bid-YTW : 4.96 % |
| RY.PR.E | Perpetual-Discount | 1.12 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-11-09 Maturity Price : 22.49 Evaluated at bid price : 22.65 Bid-YTW : 4.97 % |
| SLF.PR.C | Perpetual-Discount | 1.13 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-11-09 Maturity Price : 21.53 Evaluated at bid price : 21.53 Bid-YTW : 5.24 % |
| SLF.PR.E | Perpetual-Discount | 1.21 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-11-09 Maturity Price : 21.46 Evaluated at bid price : 21.77 Bid-YTW : 5.22 % |
| FTS.PR.F | Perpetual-Discount | 1.22 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-11-09 Maturity Price : 23.21 Evaluated at bid price : 23.42 Bid-YTW : 5.23 % |
| TD.PR.O | Perpetual-Discount | 1.24 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-11-09 Maturity Price : 24.30 Evaluated at bid price : 24.57 Bid-YTW : 4.96 % |
| RY.PR.F | Perpetual-Discount | 1.30 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-11-09 Maturity Price : 22.41 Evaluated at bid price : 22.56 Bid-YTW : 4.94 % |
| RY.PR.A | Perpetual-Discount | 1.33 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-11-09 Maturity Price : 22.62 Evaluated at bid price : 22.80 Bid-YTW : 4.88 % |
| NA.PR.L | Perpetual-Discount | 1.45 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-11-09 Maturity Price : 23.59 Evaluated at bid price : 23.85 Bid-YTW : 5.09 % |
| MFC.PR.B | Perpetual-Discount | 1.61 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-11-09 Maturity Price : 21.79 Evaluated at bid price : 22.10 Bid-YTW : 5.33 % |
| GWO.PR.I | Perpetual-Discount | 1.62 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-11-09 Maturity Price : 21.65 Evaluated at bid price : 22.00 Bid-YTW : 5.16 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| MFC.PR.A | OpRet | 151,540 | RBC bought 35,700 from Nesbitt at 25.59. RBC then crossed 24,300 at 25.59, while Nesbitt crossed 57,000 at 25.60. YTW SCENARIO Maturity Type : Soft Maturity Maturity Date : 2015-12-18 Maturity Price : 25.00 Evaluated at bid price : 25.60 Bid-YTW : 3.72 % |
| BNS.PR.N | Perpetual-Discount | 120,002 | Desjardins crossed 10,000 at 25.09; RBC crossed 70,500 at 25.14. Anonymous crossed (?) 13,000 at 25.14. YTW SCENARIO Maturity Type : Call Maturity Date : 2017-02-26 Maturity Price : 25.00 Evaluated at bid price : 25.06 Bid-YTW : 5.27 % |
| PWF.PR.P | FixedReset | 117,485 | TD crossed 10,700 at 26.25, then sold 10,000 to Desjardins at 26.27. Finally, TD crossed 39,500 at 26.00. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-11-09 Maturity Price : 23.44 Evaluated at bid price : 26.00 Bid-YTW : 3.44 % |
| BNS.PR.J | Perpetual-Discount | 89,000 | RBC crossed 76,500 at 25.15. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-11-09 Maturity Price : 23.41 Evaluated at bid price : 25.11 Bid-YTW : 5.17 % |
| RY.PR.F | Perpetual-Discount | 88,487 | RBC crossed 50,000 at 22.56. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-11-09 Maturity Price : 22.41 Evaluated at bid price : 22.56 Bid-YTW : 4.94 % |
| RY.PR.A | Perpetual-Discount | 87,814 | RBC crossed 47,900 at 22.78. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-11-09 Maturity Price : 22.62 Evaluated at bid price : 22.80 Bid-YTW : 4.88 % |
| There were 64 other index-included issues trading in excess of 10,000 shares. | |||