January 16, 2013

Yesterday I highlighted political violence in Greece. Now there’s talk of currency wars:

The world is on the brink of a fresh “currency war,” Russia warned, as European policy makers joined Japan in bemoaning the economic cost of rising exchange rates.

“Japan is weakening the yen and other countries may follow,” Alexei Ulyukayev, first deputy chairman of Russia’s central bank, said at a conference today in Moscow.

The alert from the country that chairs the Group of 20 came as Luxembourg Prime Minister Jean-Claude Juncker complained of a “dangerously high” euro and officials in Norway and Sweden expressed exchange-rate concern.

The push for weaker currencies is being driven by a need to find new sources of economic growth as monetary and fiscal policies run out of room.

Does anybody feel nervous yet? How about this?

The World Bank cut its global growth forecast for this year as austerity measures, high unemployment and low business confidence weigh on economies in developed nations. German Chancellor Angela Merkel’s government cut its growth forecast for Europe’s biggest economy. Luxembourg Prime Minister Jean- Claude Juncker said the strength of the euro poses a threat to the region’s economy.

The OSC has issued an invitation to some Consultation Sessions on OSC Staff Consultation Paper 45-710, Considerations for New Capital Raising Prospectus Exemptions.

Some oil company executives are taking time off from their busy schedule of explaining why the price of gas goes up on summer long-weekends to rail against the law of supply and demand:

Major oil companies are eager to ship to the coast to take advantage of higher prices on world markets than they can get by shipping to refineries in the U.S. Midwest and Southeast. But some of them are balking at the price – known in the industry as tolls – which they argue would allow Kinder Morgan to earn returns on the project that are far above its historical 7 to 12 per cent.

Suncor, in response, say it is “critical” for the NEB to make sure there is a “just and reasonable” cost to shipping oil to the West Coast at a time when companies are desperate for new pipelines. The company says it is “disturbed” by how pipeline firms are “exerting market power that flows from the infrastructure shortage and need and necessity of take away capacity.”

Three tears for Suncor! Boo! Hoo! Hoo!

This story regarding modern day moonlighting is hilarious:

Bob was his company’s best software developer, got glowing performance reviews and earned more than $250,000 a year.

Then one day last spring, Bob’s employer thought the company’s computer system had been attacked by a virus.

The ensuing forensic probe revealed that Bob’s software code had in fact been the handiwork of a Chinese subcontractor.

Bob was paying a Chinese firm about $50,000 a year to do his work, then spent the day surfing the web, watching cat videos and updating his Facebook page.

Telecommuting, anyone? There’s more detail on Verizon’s security blog.

Reuters warns about “showrooming”:

More than 80 percent of shoppers in the study from International Business Machines Corp last bought something at a store, but only half said they would go to a brick-and-mortar retailer next time.

The study showed both the importance and global reach of “showrooming,” in which shoppers examine products in stores and then make their purchase online.

Of eight categories tracked in the IBM survey of 26,000 shoppers, the two most popular for online purchases were consumer electronics and luxury items, including jewelry and designer clothing.

Nearly 25 percent of Internet shoppers had intended to buy in the store but ultimately purchased online, primarily for price and convenience, IBM said. Retailers that only operate online account for one-third of purchases by showroomers, IBM said.

I think showrooming is the way of the future. Why stock all that inventory? Open up a pop-up store for a weekend – or rent a corner in a large store that exists for the purpose of selling shelf space to distributors – and take all your orders on-line.

Some may recall my musing on housing affordability, last mused on December 27. If only 60% of the population own a house, is it appropriate to use the average income of everybody to measure affordability? And if we restrict the calculation to the top 60%, does this change the numbers? Assiduous Reader BB writes in and says:

I ran across the following, from which I was able to derive the information:
link

Looking at income based on household:
22%: >100k
4%: 90-99k
5%: 80-89k
30% falls somewhere in the 80-89k category. Let’s say 84k.

That got me wondering, and I checked the census. The following is from 1996. However, they have this information for other years as well.

Go to link then choose Statistical Profile of Canadian Communities. On the page that is loaded (link) choose Profile of Census Metropolitan Areas and Census Agglomerations, 1996 Census. On this page (link), which shows the data, choose Toronto in the Geography drop down list.

Looking at Census family income of all families (20% sample data):
15%: >100k
5%: 90k-99,999
6%: 80k-89,999
8%: 70k-79,999

30% falls somewhere in the 70k-79,999 category, probably right in the middle. Let’s say 75k.

In other words the median income of the 60% of the top earning households increased 12% from 1996 to 2006. You can probably figure out various other trends for different years.

So from a website of unknown credibility, I got the following chart of Toronto housing prices:


Click for Big

At a glance the chart looks more than just a little bit fishy: the y-axis is linear. Given that the “trend-line” goes from about $90,000 to about $420,000 in 50 years, the slope is about $6,600 per year, or +7.3%p.a. in 1953 and only +1.6%p.a. in 2012 (expressed in constant 2012 dollars). But never mind that, we’re only interested in the 1996 to 2006 period.

According to the Bank of Canada Inflation Calculator, inflation was just under 2%p.a. over 1996-2006, for a total deflator of 1 / 1.2174.

My calculation from the 1996 StatsCan data makes the 30 percentile just under $80,000, rather than about $75,000 (I multiplied the number of households, 1,162,145 by 0.3 to get 348,643, then subtracted the number in the top tiers from this until I got close to zero).

A proper comparison does not seem to be available from Statistics Canada, so I’ll go along with eyeballing the chart of 2005 data on page 5 of the City of Toronto document and go along with the estimate of about maybe $84,000.

These results are highly unfortunate for my theory, since this implies that there was a decline in real income even for those in the 30 percentile in the period 1996-2005/6, even while the real price of houses increased substantially. Or revise my theory. Or – even better – use different data! Or maybe vote just vote NDP next time, comrades.

Shaw Communications, proud issuer of SJR.PR.A, recently did a deal with Rogers:

Shaw Communications Inc. (“Shaw” or “the Company”) announced today that it has entered into agreements with Rogers Communications Inc. (“Rogers”) to sell to Rogers its shares in its Hamilton-based cable operations, Mountain Cablevision Limited (“Mountain Cable”), grant to Rogers an option to acquire Shaw’s spectrum licenses for advanced wireless service in British Columbia, Alberta, Saskatchewan, Manitoba and Northern Ontario (the “Spectrum Licenses”) and to purchase from Rogers its 33.3% partnership interest in the TVtropolis General Partnership (“TVtropolis”).

DBRS comments:

DBRS recognizes the strategic merit behind the transaction as we believe Shaw could stand to benefit from enhancing its network and service quality as competition continues to intensify in its core business lines. Proceeds from the planned divestures are intended for long-term strategic network investments; however, DBRS believes the resulting impact on operating income and cash flow growth over the near term is difficult to gauge. DBRS also notes the magnitude of the incremental investment is meaningful, but not momentous in terms of Shaw’s overall capital budget for the next couple years.

In terms of the transaction’s broader significance, DBRS appreciates a formal sale of the Company’s wireless spectrum as it will remove lingering concerns associated with the risk of wireless expansion in the future. DBRS also likes the fact that Shaw may be able to finance the acceleration of its capex program with the sale of non-core assets as opposed to raising debt. Although these factors have a one-time positive effect on Shaw’s credit risk profile, the broader forces at play on the Company’s core businesses generally remain the same.

As such, DBRS will continue to focus on Shaw’s ability to maintain and grow its subscriber base as it competes with IPTV and works to improve its product offerings. DBRS believes the trajectory of operating income and cash flow remain the key driver of the Company’s credit risk profile going forward, particularly since DBRS does not expect material debt reduction over the near to medium term, as Shaw’s free cash flow after dividends will likely be nominal over this time frame.

It was a mixed day for the Canadian preferred share market, with PerpetualPremiums up 14bp, FixedResets flat and DeemedRetractibles off 2bp. Volatility was above average, but is reverting towards normal levels as corrections from Monday’s big rejigging work themselves out. Volume was extremely high.

PerpetualDiscounts now yield 4.87%, equivalent to 6.33% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 4.25% (maybe at bit over), so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 205bp, a widening from the 195bp reported January 9.

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 0.3183 % 2,505.3
FixedFloater 4.36 % 3.67 % 30,460 18.06 1 -1.3122 % 3,733.7
Floater 2.78 % 3.01 % 61,606 19.72 4 0.3183 % 2,705.1
OpRet 4.63 % 1.80 % 51,943 0.42 4 -0.1622 % 2,592.8
SplitShare 4.59 % 4.49 % 43,410 4.32 2 0.5210 % 2,904.8
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.1622 % 2,370.9
Perpetual-Premium 5.25 % -2.14 % 74,655 0.13 30 0.1363 % 2,346.4
Perpetual-Discount 4.84 % 4.87 % 136,722 15.70 4 0.2237 % 2,649.0
FixedReset 4.91 % 2.84 % 219,202 3.60 78 0.0010 % 2,478.7
Deemed-Retractible 4.87 % 1.86 % 115,433 0.35 45 -0.0219 % 2,427.1
Performance Highlights
Issue Index Change Notes
BAM.PR.G FixedFloater -1.31 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-01-16
Maturity Price : 22.40
Evaluated at bid price : 21.81
Bid-YTW : 3.67 %
RY.PR.I FixedReset -1.19 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-02-24
Maturity Price : 25.00
Evaluated at bid price : 25.82
Bid-YTW : 2.66 %
HSB.PR.D Deemed-Retractible -1.12 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-12-31
Maturity Price : 25.25
Evaluated at bid price : 25.57
Bid-YTW : 3.84 %
IFC.PR.A FixedReset 1.12 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 26.12
Bid-YTW : 3.22 %
GWO.PR.N FixedReset 1.30 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.40
Bid-YTW : 3.96 %
Volume Highlights
Issue Index Shares
Traded
Notes
BAM.PF.C Perpetual-Discount 110,897 Added to TXPR.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-01-16
Maturity Price : 24.59
Evaluated at bid price : 24.98
Bid-YTW : 4.90 %
ENB.PR.F FixedReset 75,922 Added to TXPL.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-06-01
Maturity Price : 25.00
Evaluated at bid price : 25.52
Bid-YTW : 3.70 %
FTS.PR.J Perpetual-Premium 75,209 Added to TXPR.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-12-01
Maturity Price : 25.00
Evaluated at bid price : 26.00
Bid-YTW : 4.34 %
MFC.PR.J FixedReset 65,660 Added to TXPR and TXPL.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-03-19
Maturity Price : 25.00
Evaluated at bid price : 25.79
Bid-YTW : 3.44 %
BNS.PR.M Deemed-Retractible 59,123 TD crossed 49,000 at 25.90.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-07-27
Maturity Price : 25.75
Evaluated at bid price : 25.89
Bid-YTW : 3.02 %
RY.PR.I FixedReset 55,688 Added to TXPL.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-02-24
Maturity Price : 25.00
Evaluated at bid price : 25.82
Bid-YTW : 2.66 %
There were 61 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
PWF.PR.K Perpetual-Premium Quote: 25.26 – 25.99
Spot Rate : 0.7300
Average : 0.4909

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-10-31
Maturity Price : 25.00
Evaluated at bid price : 25.26
Bid-YTW : 4.25 %

CU.PR.C FixedReset Quote: 26.43 – 27.00
Spot Rate : 0.5700
Average : 0.3653

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-06-01
Maturity Price : 25.00
Evaluated at bid price : 26.43
Bid-YTW : 2.74 %

BNS.PR.Y FixedReset Quote: 24.38 – 24.89
Spot Rate : 0.5100
Average : 0.3172

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.38
Bid-YTW : 3.16 %

HSB.PR.D Deemed-Retractible Quote: 25.57 – 25.90
Spot Rate : 0.3300
Average : 0.2000

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-12-31
Maturity Price : 25.25
Evaluated at bid price : 25.57
Bid-YTW : 3.84 %

BAM.PR.R FixedReset Quote: 26.37 – 26.69
Spot Rate : 0.3200
Average : 0.2026

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-01-16
Maturity Price : 23.71
Evaluated at bid price : 26.37
Bid-YTW : 3.67 %

TCA.PR.X Perpetual-Premium Quote: 51.81 – 52.15
Spot Rate : 0.3400
Average : 0.2692

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-10-15
Maturity Price : 50.00
Evaluated at bid price : 51.81
Bid-YTW : 0.43 %

One Response to “January 16, 2013”

  1. [...] PerpetualDiscounts now yield 4.88%, equivalent to 6.34% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 4.25%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 210bp, a slight (and perhaps spurious) widening from the 205bp reported January 16. [...]

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