Bernanke’s Jackson Hole speech carried a warning and a promise:
Second, fiscal policy, at both the federal and state and local levels, has become an important headwind for the pace of economic growth. Notwithstanding some recent improvement in tax revenues, state and local governments still face tight budget situations and continue to cut real spending and employment. Real purchases are also declining at the federal level. Uncertainties about fiscal policy, notably about the resolution of the so-called fiscal cliff and the lifting of the debt ceiling, are probably also restraining activity, although the magnitudes of these effects are hard to judge. It is critical that fiscal policymakers put in place a credible plan that sets the federal budget on a sustainable trajectory in the medium and longer runs. However, policymakers should take care to avoid a sharp near-term fiscal contraction that could endanger the recovery.
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Over the past five years, the Federal Reserve has acted to support economic growth and foster job creation, and it is important to achieve further progress, particularly in the labor market. Taking due account of the uncertainties and limits of its policy tools, the Federal Reserve will provide additional policy accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.
It’s good to know that there is one defender of shareholder rights in this world of cooperative games:
New York-based Mason, which controls just fewer than 20 per cent of Telus’s voting shares, announced Friday that it is calling its own meeting of Telus’s shareholders.
The purpose of the meeting, scheduled for 10 a.m. local time on Oct. 17 in Burnaby, B.C., is to give investors a chance to vote on the hedge fund’s proposal to give voting shareholders a “minimum” premium in the event that Telus completes a share-consolidation transaction.
It’s easy to be a rugged fiscal conservative when times are good. But what will happen in Alberta now?:
Alberta is veering toward a deficit as high as $3-billion this year, more than three times larger than expected, as a slump in oil prices forces the government to find ways to slash spending.
Finance Minister Doug Horner, who delivered the first-quarter fiscal update Thursday, blamed a shaky global economy and said Alberta’s bottom line for 2012-13 has been hammered by weak royalties from bitumen and conventional oil, and low land lease sales to energy producers.
S&P warns that financial repression is not a panacea:
When faced with the painful task of balancing budgets, some governments–we believe–will increasingly be tempted to use instead administrative controls over their monetary systems to lower interest rates below the level at which they would otherwise settle. In other words, they will repress their financial systems to mitigate the premium investors require when inflation expectations become more entrenched. In Standard & Poor’s Ratings Services’ opinion, financial repression creates distortions whose costs exceed the benefits of lower interest rates, until a government’s creditworthiness has become very weak. Under our criteria, this course of action would have mixed effects on sovereign ratings (see “Sovereign Government Rating Methodology And Assumptions,” published June 30, 2011, on RatingsDirect).
High-rated sovereigns likely would suffer because resorting to financial repression would imply an inability or unwillingness to undertake stronger fiscal or structural measures to improve economic dynamics. Sovereigns that we rate lower would benefit from lower interest costs, though this would provide only a small uplift because financial repression would also diminish their economic growth prospects. Both effects would likely be part of broader trends that could have an even more determinate impact on ratings.
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What Is Financial Repression?Financial repression refers to actions that governments and central banks take to depress real interest rates and to increase demand for their own paper. This creates an inefficient allocation of credit, which hinders the financing of economic activity. Ronald McKinnon and Edward Shaw coined the term (2). The work of Carmen Reinhart (3) has partly informed our views on financial repression. Here are some examples.Directed lending to the government Governments can offer incentives to financial institutions to allocate a portion of their assets to government debt. For example, low or no capital charges against government debt can make it more attractive to hold than other assets for a bank trying to satisfy a capital ratio. Favoring government paper over other paper for central bank operations can also increase its demand. Minimum pension fund allocations to government securities would be another example of directed lending to the government. When these macro prudential rules change, they can change the demand for government paper. When existing balances of pension funds are redirected or when bank capital or liquidity requirements are changed to favor additional holdings of government debt, it can be a sign of worsening conditions for the sovereign
Good news! Increased regulation is having the desired effect!
Under changes made by the Dodd-Frank Act, the annual rate changes for fees paid under Section 6(b) of the Securities Act of 1933 and Sections 13(e) and 14(g) of the Securities Exchange Act of 1934 must take effect on the first day of each fiscal year. Therefore, effective Oct. 1, 2012, the Section 6(b) fee rate applicable to the registration of securities, the Section 13(e) fee rate applicable to the repurchase of securities, and the Section 14(g) fee rates applicable to proxy solicitations and statements in corporate control transactions will increase from $114.60 per million dollars to $136.40 per million dollars. The Section 6(b) rate is also the rate used to calculate the fees payable with the Annual Notice of Securities Sold Pursuant to Rule 24f-2 under the Investment Company Act of 1940.
Harvard has a current scandal regarding possible mass cheating in a class titled “Introduction to Congress. I would have thought that would get them all As!
The Canadian preferred share market closed the month on a happy note, with PerpetualPremiums gaining 4bp, FixedResets winning 8bp and DeemedRetractibles up 2bp. Volatility was minimal. Volume was ugly, pathetic and bad.
| 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 | 0.0769 % | 2,404.7 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0769 % | 3,597.2 |
| Floater | 3.03 % | 3.08 % | 55,910 | 19.47 | 3 | 0.0769 % | 2,596.5 |
| OpRet | 4.76 % | 3.37 % | 27,462 | 0.80 | 5 | 0.0230 % | 2,550.8 |
| SplitShare | 5.48 % | 4.93 % | 74,686 | 4.63 | 3 | 0.2673 % | 2,798.8 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0230 % | 2,332.5 |
| Perpetual-Premium | 5.29 % | 3.63 % | 92,657 | 0.37 | 28 | 0.0396 % | 2,278.8 |
| Perpetual-Discount | 4.92 % | 4.93 % | 102,952 | 15.52 | 3 | 0.0691 % | 2,541.9 |
| FixedReset | 4.99 % | 3.03 % | 173,787 | 3.92 | 71 | 0.0810 % | 2,430.1 |
| Deemed-Retractible | 4.94 % | 3.30 % | 120,144 | 0.72 | 46 | 0.0212 % | 2,369.5 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| HSB.PR.D | Deemed-Retractible | -1.56 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2012-12-31 Maturity Price : 25.50 Evaluated at bid price : 25.90 Bid-YTW : 2.67 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| SLF.PR.H | FixedReset | 101,057 | Scotia crossed 49,100 at 24.85; RBC crossed 50,000 at the same price. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.83 Bid-YTW : 3.76 % |
| TD.PR.Y | FixedReset | 28,340 | Nesbitt crossed 18,100 at 25.50. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.48 Bid-YTW : 3.13 % |
| BAM.PR.B | Floater | 23,307 | Nesbitt crossed 20,000 at 17.65. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2042-08-31 Maturity Price : 17.62 Evaluated at bid price : 17.62 Bid-YTW : 3.01 % |
| RY.PR.B | Deemed-Retractible | 21,305 | RBC bought 10,000 from Scotia at 25.75. YTW SCENARIO Maturity Type : Call Maturity Date : 2012-09-30 Maturity Price : 25.75 Evaluated at bid price : 25.80 Bid-YTW : 3.28 % |
| BMO.PR.M | FixedReset | 19,146 | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.43 Bid-YTW : 3.02 % |
| BAM.PF.A | FixedReset | 17,701 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2042-08-31 Maturity Price : 23.25 Evaluated at bid price : 25.46 Bid-YTW : 4.17 % |
| There were 1 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| VNR.PR.A | FixedReset | Quote: 25.75 – 26.50 Spot Rate : 0.7500 Average : 0.5600 YTW SCENARIO |
| HSB.PR.D | Deemed-Retractible | Quote: 25.90 – 26.43 Spot Rate : 0.5300 Average : 0.3636 YTW SCENARIO |
| PWF.PR.O | Perpetual-Premium | Quote: 26.41 – 26.85 Spot Rate : 0.4400 Average : 0.3308 YTW SCENARIO |
| MFC.PR.D | FixedReset | Quote: 26.41 – 26.67 Spot Rate : 0.2600 Average : 0.1647 YTW SCENARIO |
| IFC.PR.C | FixedReset | Quote: 25.91 – 26.23 Spot Rate : 0.3200 Average : 0.2335 YTW SCENARIO |
| W.PR.H | Perpetual-Premium | Quote: 25.65 – 25.98 Spot Rate : 0.3300 Average : 0.2444 YTW SCENARIO |
[…] discussed on August 31, directed lending to the government is a form of financial […]