November 29, 2007

Well … today the TD Bank and National Bank financials were analyzed¬†… and, in addition, month-end is a-coming and duty calls with a shrill, unpleasant voice.

So there won’t be much colour today.

American ABCP outstanding was down another $11-billion this week, continuing its decline as the overleveraged economy continues to unwind. Domestic Financial CP outstanding was up $25-billion; although this figure has not picked up all the slack since the peak, this illustrates the Banks Advantage in Cushioning Liquidity Shocks.

The Florida State-sponsored Money Market Fund mentioned yesterday has suspended redemptions:

Florida officials voted to suspend withdrawals from an investment fund for schools and local governments after redemptions sparked by downgrades of debt held in the portfolio reduced assets by 44 percent.

It wasn’t decided how long the suspension would last. The trustees meet again on Dec. 4.

“We’re getting a lot of calls,” said Mike McCauley, the spokesman for the State Board of Administration.

The Florida pool crisis is a sign of poor risk management by state officials, said Harvey Pitt, former chairman of the Securities and Exchange Commission.

“In the longer-term, it’s unlikely that those whose funds have been frozen will leave their money in the investment fund once the freeze lifts,” Pitt said. “All of this could, and should, have been avoided by careful due diligence, constant reassessment of risk, and paying close attention to market trends.”

Mr. Pitt did not disclose his own track-record as a money manager. His criticisms are the kind that really drive me wild – post-hoc criticisms of fund managers by guys who’ve never done it. It’s very easy to be wise after the fact.

The big danger is that such public funds will eventually migrate to nothing riskier than three-month T-Bills; why would a trustee allow anything else if he’s going to be vilified whenever he’s wrong on something?

One can only applaud Henri-Paul Rousseau in his testimony to the Quebec legislature’s public finance committee:

Executives of Canada’s biggest pension fund agreed after careful study that what constituted a crisis was open to interpretation, but believed the financial institutions would honour their commitments, he said under questioning at the provincial legislature’s public finance committee.

“There was some thinking out there that this was very risky,” Mr. Rousseau said. “We thought it was not plausible and it happened. That’s it.”

“Were we prudent? Yes. Did we miscalculate in terms of the probability that this would happen? Yes,” he said. “Unfortunately, that happens in our business.”

Way to go, M. Rousseau! I have no idea whether you’re a good or bad manager, either of people or of money, but at least you know the right things to say – and on this occasion, when things have gone wrong, you’re willing to wear it. My own question is, regardless of whether or not it was prudent to have $13-billion out of total Caisse assets of $207-billion in Canadian ABCP, was it prudent to have $13-billion in a $35-billion asset class? M. Rousseau’s full remarks have been published by the Caisse. He points out that while liquidity is a problem, the credit quality is entirely acceptable. I will confess that I haven’t even checked to see what proportion of the entire Money Market portfolio was comprised of ABCP, or what the investment rationale behind the MM allocation might have been.

The US bond market is on fire, with a buying panic and lots of corporate issuance; Bernanke seems to be guiding the market to expect an ease.

Another day of good volume for preferreds, with some evidence of rationalization of prices, although overall performance wasn’t all that great. Split shares had a great day, but are still basically clobbered on the month, while floaters are getting hit … trouble is, it’s hard to separate the company specifics (BAM & BCE) from the asset types. Still, that’s what makes it fun, right?

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 4.85% 4.83% 115,784 15.78 2 +0.0205% 1,048.9
Fixed-Floater 4.91% 4.91% 92,665 15.64 8 -0.0607% 1,037.1
Floater 4.85% 4.91% 58,963 15.59 3 -0.7731% 970.3
Op. Retract 4.88% 3.67% 76,988 3.81 16 -0.0594% 1,032.2
Split-Share 5.35% 6.10% 92,427 4.10 15 +0.9467% 1,017.4
Interest Bearing 6.29% 6.63% 67,207 3.73 4 -0.2882% 1,057.2
Perpetual-Premium 5.86% 5.11% 85,981 7.07 11 +0.5354% 1,008.2
Perpetual-Discount 5.62% 5.66% 343,498 13.99 55 +0.0703% 902.3
Major Price Changes
Issue Index Change Notes
FTU.PR.A SplitShare -2.7027% Asset coverage of 1.8+:1 as of November 15, according to the company. Pre-tax bid-YTW now 7.74% based on a bid of 9.00 and a hardMaturity 2012-12-1 at 10.00.
MST.PR.A InterestBearing -2.2287% Asset coverage of 2.1+:1 as of November 22, according to Sentry Select. Now with a pre-tax bid-YTW of 6.49% (as interest net of capital loss) based on a bid of 10.09 and a hardMaturity 2009-9-30 at 10.00.
CIU.PR.A PerpetualDiscount -1.4423% Now with a pre-tax bid-YTW of 5.65% based on a bid of 20.50 and a limitMaturity.
BAM.PR.K Floater -1.3364%  
BAM.PR.B Floater -1.1040%  
WFS.PR.A SplitShare +1.0299% Asset coverage of 1.9+:1 as of November 22, according to Mulvihill. Now with a pre-tax bid-YTW of 6.17% based on a bid of 9.81 and a hardMaturity 2011-6-30 at 10.00.
FIG.PR.A InterestBearing +1.0582% Asset coverage of 2.1+:1 as of November 28, according to Faircourt. Now with a pre-tax bid-YTW of 7.31% (mostly as interest) based on a bid of 9.55 and a hardMaturity 2014-12-31 at 10.00.
CM.PR.I PerpetualDiscount +1.1158% Now with a pre-tax bid-YTW of 5.46% based on a bid of 21.75 and a limitMaturity.
BNA.PR.A SplitShare +1.1779% Asset coverage of just under 4.0:1 according to the company. Now with a pre-tax bid-YTW of 6.38% based on a bid of 24.91 and a hardMaturity 2010-9-30 at 25.00.
SBN.PR.A SplitShare +1.2333% Asset coverage of just under 2.3:1 as of November 22, according to Mulvihill. Now with a pre-tax bid-YTW of 5.57% based on a bid of 9.85 and a hardMaturity 2014-12-1 at 10.00.
PWF.PR.K PerpetualDiscount +1.2785% Now with a pre-tax bid-YTW of 5.64% based on a bid of 22.18 and a limitMaturity.
GWO.PR.F PerpetualPremium +1.4293% Now with a pre-tax bid-YTW of 5.07% based on a bid of 25.80 and a limitMaturity.
LFE.PR.A SplitShare +1.4851% Asset coverage of 2.6+:1 as of November 15, according to the company. Now with a pre-tax bid-YTW of 4.70% based on a bid of 10.25 and a hardMaturity 2012-12-1 at 10.00.
CL.PR.B PerpetualPremium +1.5082% Now with a pre-tax bid-YTW of -0.49% based on a bid of 25.90 and a call 2007-12-31 at 25.75. A negative yield-to-worst! It’s been a while since we’ve seen that … will it be called soon, now that GWO has some money in hand?
NA.PR.K PerpetualDiscount +1.5345% Now with a pre-tax bid-YTW of 6.19% based on a bid of 23.82 and a limitMaturity.
HSB.PR.C PerpetualDiscount +2.2727% Now with a pre-tax bid-YTW of 5.77% based on a bid of 22.50 and a limitMaturity.
BNA.PR.C SplitShare +2.4533% Asset coverage of just under 4.0:1 as of October 31, according to the company. Now with a pre-tax bid-YTW of 7.48% based on a bid of 19.21 and a hardMaturity 2019-1-10 at 25.00. Another long awaited good day – but not as good as yesterday!
HSB.PR.D PerpetualDiscount +2.5846% Now with a pre-tax bid-YTW of 5.83% based on a bid of 21.83 and a limitMaturity.
BNA.PR.B SplitShare +8.4906% Whoosh! When it goes, it goes! Asset coverage of just under 4.0:1 as of October 31, according to the company. Now with a pre-tax bid-YTW of 6.22% based on a bid of 23.00 and a hardMaturity 2016-3-25 at 25.00. All three BNA issues had super days today; the yield on this one may be compared with BNA.PR.A (6.38% to 2010-9-30) and BNA.PR.C (7.48% to 2019-1-10).
Volume Highlights
Issue Index Volume Notes
BCE.PR.C FixFloat 69,400 Three Macs bought 50,000 from DS at 24.80.
BMO.PR.J PerpetualDiscount 68,715 Now with a pre-tax bid-YTW of 5.51% based on a bid of 20.55 and a limitMaturity.
BAM.PR.N PerpetualDiscount 65,710 Now with a pre-tax bid-YTW of 6.96% based on a bid of 17.45 and a limitMaturity.
RY.PR.B PerpetualDiscount 52,655 Now with a pre-tax bid-YTW of 5.44% based on a bid of 21.68 and a limitMaturity.
MFC.PR.C PerpetualDiscount 48,100 Now with a pre-tax bid-YTW of 5.37% based on a bid of 21.00 and a limitMaturity.

There were forty-one other index-included $25.00-equivalent issues trading over 10,000 shares today.

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