November 3, 2008

Assiduous Readers will remember that the Fed’s balance sheet has been swollen as it has borrowed from Treasury and lent to … various third parties. The fact that Treasuries are being sold to finance the lending makes the various programmes monetarily neutral and therefore, to a first approximation, non-inflationary (inflation may still result if the process generates false signals regarding use of capital funds, but that’s a second order effect). Today the butcher’s bill came in:

The U.S. Treasury predicted it would borrow this quarter more than three times the amount initially forecast as weaker economic growth and the costs of a new bank rescue package swell the budget deficit.

Borrowing needs will rise to $550 billion in the three months to Dec. 31, compared with the $142 billion predicted in July, the Treasury said in a statement in Washington. That would be more than double the largest ever — a record $244 billion in new marketable debt in the first three months of this year.

I am an enthusiastic supporter of the Fed’s actions, but this is illustrative of the need for fiscal restraint in good times – which has been sorely lacking. At some point – as has happened in Taiwan with insurers and agency paper, as mentioned October 28 – the rest of the world will decide it has quite enough US paper, thank you very much, and then we’re all in trouble.

Econbrowser‘s (admittedly partisan) Menzie Chinn provides a comparison of the McCain and Obama tax ‘n’ stimulus plans:

Dr. Chinn also provides a link to the Committee for a Responsible Federal Budget’s Guide to Stimulus Proposals: The 2008 Presidential Election. I confess I have not investigated campaign or third-party reactions to this analysis – but it makes for good reading!

He also performs calculations based on analyses of the Tax Policy Centre:

I have added a bonus spreadsheet to the post regarding my essay on CPD.

A very strong day for PerpetualDiscounts, but volume returned to normal levels.

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.
The Fixed-Reset index was added effective 2008-9-5 at that day’s closing value of 1,119.4 for the Fixed-Floater index.
Index Mean Current Yield (at bid) Mean YTW Mean Average Trading Value Mean Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet N/A N/A N/A N/A 0 N/A N/A
Fixed-Floater 5.45% 5.54% 71,455 14.92 6 +0.4997% 959.1
Floater 6.74% 6.84% 48,590 12.70 2 +0.9284% 516.2
Op. Retract 5.28% 6.11% 129,514 4.00 15 +0.5423% 999.9
Split-Share 6.31% 10.79% 58,350 3.96 12 +0.1262% 932.8
Interest Bearing 8.13% 14.97% 61,714 3.26 3 -3.4615% 871.8
Perpetual-Premium N/A N/A N/A N/A N/A N/A N/A
Perpetual-Discount 6.77% 6.83% 178,900 12.80 71 +1.0859% 805.1
Fixed-Reset 5.35% 5.13% 906,342 15.13 11 +0.5319% 1,077.6
Major Price Changes
Issue Index Change Notes
FIG.PR.A InterestBearing -7.4074% Asset coverage of 1.3+:1 based on Capital Unit NAV of 4.88 and 0.71 Capital Units per Preferred. Now with a pre-tax bid-YTW of 12.41% based on a bid of 7.5 and a hardMaturity 2014-12-31 at 10.00. Closing quote of 7.50-12, 5×1. Day’s range of 7.44-24.
BNA.PR.A SplitShare -6.8519% Asset coverage of just under 2.8:1 as of September 30 according to the company. Coverage now of 2.1+:1 based on BAM.A at 21.96 and 2.4 BAM.A held per preferred. Now with a pre-tax bid-YTW of 19.84% based on a bid of 20.12 and a hardMaturity 2010-9-30 at 25.00. Compare with BNA.PR.B (10.12% to 2016-3-25) and BNA.PR.C (14.16% to 2019-1-10). Closing quote 20.12-70, 1×1. Day’s range 20.06-22.00.
BAM.PR.K Floater -6.6790%  
PWF.PR.F PerpetualDiscount -3.1683% Now with a pre-tax bid-YTW of 6.77% based on a bid of 19.56 and a limitMaturity. Closing quote 19.56-97, 14X1. Day’s range 20.00-06.
MFC.PR.C PerpetualDiscount +3.0534% Now with a pre-tax bid-YTW of 6.83% based on a bid of 16.76 and a limitMaturity. Closing Quote 16.76-25, 7×2. Day’s range of 16.50-75.
GWO.PR.I PerpetualDiscount +3.2719% Now with a pre-tax bid-YTW of 6.58% based on a bid of 17.36 and a limitMaturity. Closing Quote 17.36-55, 4×1. Day’s range of 17.31-74.
BNS.PR.O PerpetualDiscount +3.4722% Now with a pre-tax bid-YTW of 6.31% based on a bid of 22.35 and a limitMaturity. Closing Quote 22.35-89, 10×5. Day’s range of 22.00-90.
PWF.PR.E PerpetualDiscount +4.0099% Now with a pre-tax bid-YTW of 6.60% based on a bid of 21.01 and a limitMaturity. Closing Quote 21.01-49, 2×1. Day’s range of 20.41-21.50.
HSB.PR.C PerpetualDiscount +4.0099% Now with a pre-tax bid-YTW of 6.60% based on a bid of 21.01 and a limitMaturity. Closing Quote 18.73-99, 22X7. Day’s range of 18.49-99.
GWO.PR.H PerpetualDiscount +4.1152% Now with a pre-tax bid-YTW of 6.96% based on a bid of 17.71 and a limitMaturity. Closing Quote 17.71-69, 11×2. Day’s range of 17.24-18.69.
TD.PR.Y FixedReset +4.3497%  
BNA.PR.B SplitShare +4.7726 See BNA.PR.A, above. Closing quote of 18.66-20.55 (!) 13×7. Day’s range of 18.50-49
W.PR.J PerpetualDiscount +4.7953% Now with a pre-tax bid-YTW of 7.92% based on a bid of 17.92 and a limitMaturity. Closing Quote 17.92-24, 3×1. Day’s range of 17.68-96.
RY.PR.A PerpetualDiscount +5.2016% Now with a pre-tax bid-YTW of 6.20% based on a bid of 18.00 and a limitMaturity. Closing Quote 18.00-18, 6×20. Day’s range of 17.15-18.50.
W.PR.H PerpetualDiscount +5.5882% Now with a pre-tax bid-YTW of 7.77% based on a bid of 17.95 and a limitMaturity. Closing Quote 17.95-73, 1×1. Day’s range of 17.75-50.
LBS.PR.A SplitShare +5.5901% Asset coverage of 1.7+:1 as of October 30 according to Brompton Group. Now with a pre-tax bid-YTW of 9.14% based on a bid of 8.50 and a hardMaturity 2013-11-29 at 10.00. Closing quote of 8.50-00, 2×1. Day’s range of 8.12-00.
BAM.PR.B Floater +8.0808%  
Volume Highlights
Issue Index Volume Notes
RY.PR.L FixedReset 418,820 National Bank crossed 175,000 at 24.70 and RBC bought three blocks of 10,000 each, from anonymous (24.74), Dundee (24.75) and CIBC (24.75). New issue, settled today.
GWO.PR.G PerpetualDiscount 75,725 Nesbitt crossed 70,000 at 19.10. Now with a pre-tax bid-YTW of 6.82% based on a bid of 19.36 and a limitMaturity.
TD.PR.O PerpetualDiscount 25,370 Now with a pre-tax bid-YTW of 6.65% based on a bid of 18.39 and a limitMaturity.
RY.PR.G PerpetualDiscount 20,332 Now with a pre-tax bid-YTW of 6.33% based on a bid of 17.85 and a limitMaturity.
RY.PR.D PerpetualDiscount 17,500 Now with a pre-tax bid-YTW of 6.41% based on a bid of 17.61 and a limitMaturity.

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

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