Well! There I was, all set to attend David Berry’s contested hearing with RS, having spent all weekend choosing overly ripe tomatoes to hurl at any disingenuous Scotia executives with the effrontery to show up … and now I find that it’s been postponed! I have no idea what’s going on. Maybe RS has gotten a little embarrassed about being used as a pawn in a contract negotiation. Maybe somebody’s realized that if Jesus Christ Himself was subjected to the same level of scrutiny as Scotia has inflicted on Berry, then there’d be equal cause for firing, mudslinging and character assassination. Stay tuned!
Possible Fed moves this week are being discussed all over, with the consensus calling for a 25bp cut to 4.50% (and Bill Gross of PIMCO is calling for 3.50% in the near future). There is more than one report that the Fed is unhappy with such certainty, but I’m not convinced that this is the case. The Fed is adept at manipulating opinion; if they were truly unhappy with the forecasters, they would send a few hawks out to make speeches about the dangers of hyper-inflation. Poole has been given a lot of attention in the past few months; the WSJ has grilled him about his high profile.
The Super-Conduit debate continues, with a report that:
the banks will earn 1% on structured investment vehicles of less than $5bn, and 1.5% for SIVs over $15bn
…
The prospectus also details what SIVs will receive for selling their assets to M-LEC. Qualifying SIV holders will be eligible for up to 94% of the value of the assets they sell in cash, or 89% cash and 5% in senior capital notes, in the form of medium- term notes, that will participate in part of the upside when the assets mature.
I have not yet seen this report confirmed by more usual sources – but I’m looking! I guess my reaction is dependent upon the interpretation of the word “value” in the above paragraph. If we can presume that “value” means “recent trading prices in small lots”, then I believe I have every right to refer to Super-Conduit as Vulture Fund … but if “value” means something else, then we’re back to uncertainty. We shall see!
Well … PerpetualDiscounts were whacked again today – and the Question Regarding BAM.PR.N I received today makes me wonder if we have reached the point of self-feeding gloom-and-doom, otherwise known as capitulation. Long Term corporate bonds yield about 5.8%, according to Canadian Bond Indices … at 5.65% Dividend, the perpetual discounts have an interest equivalent of 7.91%.
Ah well. Remember why you bought them! In the absence of default – which, for the the companies in the indices, seems no more likely than ever – I’m willing to cash the dividend cheques for quite some time.
| Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version. In this version, index values are based at 1,000.0 on 2006-6-30 | |||||||
| Index | Mean Current Yield (at bid) | Mean YTW | Mean Average Trading Value | Mean Mod Dur (YTW) | Issues | Day’s Perf. | Index Value |
| Ratchet | 4.93% | 4.88% | 438,210 | 15.58 | 1 | +0.4905% | 1,049.2 |
| Fixed-Floater | 4.88% | 4.82% | 99,789 | 15.74 | 7 | +0.0588% | 1,039.1 |
| Floater | 4.51% | 3.86% | 68,880 | 10.69 | 3 | +0.2241% | 1,041.3 |
| Op. Retract | 4.88% | 3.76% | 78,864 | 3.40 | 15 | -0.0742% | 1,025.5 |
| Split-Share | 5.20% | 5.14% | 86,251 | 4.10 | 15 | -0.0448% | 1,037.8 |
| Interest Bearing | 6.25% | 6.33% | 62,221 | 3.59 | 4 | -0.1004% | 1,057.9 |
| Perpetual-Premium | 5.74% | 5.66% | 102,241 | 10.48 | 17 | +0.0390% | 1,000.9 |
| Perpetual-Discount | 5.60% | 5.65% | 320,818 | 14.44 | 47 | -0.2680% | 901.0 |
| Major Price Changes | |||
| Issue | Index | Change | Notes |
| BAM.PR.M | PerpetualDiscount | -3.2812% | Now with a pre-tax bid-YTW of 6.29% based on a bid of 19.16 and a limitMaturity. Closed at 19.16-35, 3×5, much higher than its pair, BAM.PR.N, which closed at 18.35-40, 40×1. |
| GWO.PR.I | PerpetualDiscount | -2.1608% | Now with a pre-tax bid-YTW of 5.86% based on a bid of 19.47 and a limitMaturity. |
| BNA.PR.C | SplitShare | -1.7217% | Now with a pre-tax bid-YTW of 6.76% based on a bid of 20.55 and a hardMaturity 2019-1-10 at 25.00. |
| CL.PR.B | PerpetualPremium | -1.7154% | Now with a pre-tax bid-YTW of 6.19% based on a bid of 25.21 and a call 2011-1-30 at 25.00. OK, so now we’ve got a Pfd-1(low) (DBRS) / P-1(low) (S&P) issue, a PerpetualPremium, yielding 6.19%, which is 8.67% interest equivalent. Go figure. I just don’t know what to say. Remember when I couldn’t understand why they hadn’t been called? |
| ENB.PR.A | PerpetualDiscount | -1.6667% | Now with a pre-tax bid-YTW of 5.77% based on a bid of 24.19 and a limitMaturity. |
| BAM.PR.N | PerpetualDiscount | -1.6086% | Now with a pre-tax bid-YTW of 6.57% based on a bid of 18.35 and a limitMaturity. 9.20% interest-equivalent. Is this capitulation selling? See BAM.PR.M, above. |
| BMO.PR.J | PerpetualDiscount | -1.2375% | Now with a pre-tax bid-YTW of 5.52% based on a bid of 20.75 and a limitMaturity. |
| RY.PR.F | PerpetualDiscount | -1.2285% | Now with a pre-tax bid-YTW of 5.55% based on a bid of 20.10 and a limitMaturity. |
| SLF.PR.D | PerpetualDiscount | -1.1990% | Now with a pre-tax bid-YTW of 5.47% based on a bid of 20.60 and a limitMaturity. |
| BAM.PR.K | Floater | +1.0656% | |
| PWF.PR.L | PerpetualDiscount | +1.1364% | Now with a pre-tax bid-YTW of 5.76% based on a bid of 22.25 and a limitMaturity. |
| Volume Highlights | |||
| Issue | Index | Volume | Notes |
| RY.PR.A | PerpetualDiscount | 95,000 | Scotia crossed 60,000 at 20.25. Now with a pre-tax bid-YTW of 5.52% based on a bid of 20.20 and a limitMaturity. |
| RY.PR.G | PerpetualDiscount | 88,800 | Now with a pre-tax bid-YTW of 5.55% based on a bid of 20.30 and a limitMaturity. |
| MFC.PR.B | PerpetualDiscount | 84,850 | Now with a pre-tax bid-YTW of 5.43% based on a bid of 21.65 and a limitMaturity. |
| GWO.PR.G | PerpetualDiscount | 70,570 | Now with a pre-tax bid-YTW of 5.80% based on a bid of 22.66 and a limitMaturity. |
| PWF.PR.L | PerpetualDiscount | 61,150 | Now with a pre-tax bid-YTW of 5.76% based on a bid of 22.25 and a limitMaturity. |
There were twenty-eight other index-included $25.00-equivalent issues trading over 10,000 shares today.
In terms of credit risk, can a distinction be drawn between BNA.PR.C (which I understand holds the BAM common shares) and BAM.PR.N, and, if so, do you have a view on which is riskier?
I should clarify: I know they have the same credit rating and very different durations, but I’m wondering whether you think they would likely perform similarily in the event of credit stress as opposed to bankruptcy.
[…] The hearing into David Berry’s preferred share trading practices originally set for October 29, then postponed has now been rescheduled for December 10 after a rather cryptic ruling on disclosure. […]
[…] Bill Gross of PIMCO (whose forecast of FedFunds at 3.50% was mentioned here on October 29) has called for rough justice for the monolines: As long as the illusion lasted, however, it is clear that monoline guarantees fostered an expansion of our modern shadow banking system and therefore an extension of US and even global economic prosperity. … …authorities through both official and backdoor channels now endorse a rescue effort. What is good for Ambac, they reason, is good for the country – and by extension the world. … As stock markets rise on optimistic workout developments, it is clear that it is – in the short run. But like General Motors a half century back, the sense of stability imparted to an oligopolistic industry with visible flaws is not likely to last, nor may the hope for a return to economic growth of recent years. The modern US financed-based economy has a striking resemblance to Barney Fife, guaranteeing global prosperity without the productive industrial-based firepower to back it up. Neither ultra-low interest rates or tax rebates, nor investor-led and authority-based monoline bailouts are likely to change that significantly during the next few years. […]