August 15, 2008

James Hamilton of Econbrowser takes a brief look at the US Inflation numbers and concludes:

there is a clear need to net out the May-to-July energy price increase– it’s already been reversed. The US national average gas price is back to $3.78/gallon, right where it was in mid-May. Thus, even without any further drop in the price of gasoline– and personally, I do expect further drops– the 4-1/2% number is a better summary of where we stand right at the moment than 5-1/2%.

So no, I don’t think that yesterday’s CPI numbers will cause the Fed to panic. Because yesterday’s news is already way of out of date.

Stephen Foley of The Independent looks at the Fed/SEC turf battle (hat tip: Naked Capitalism):

But [SEC Chairman Christopher Cox] starts an important battle for the soul of US financial regulation several laps behind the Federal Reserve and opponents on Wall Street who see this as the perfect time to take a few teeth out of the SEC.

A blueprint for regulatory reform by Mr Paulson, which envisages the Fed as a super-regulator with only a narrow role for the SEC, was forged out of Wall Street’s frustration with SEC red tape and what investment banks complained was their diminishing competitive advantage over London. Britain, they argued, had a risk-based approach to regulation that was light-touch in day-to-day matters and only descended on institutions regarded as risking damage to the financial system. The SEC, with its raft of rules, would be wrapped into a much-diminished third-tier regulator responsible for protecting investors and market participants from fraud and market manipulation.

Now, I don’t want it to seem as if I’m defending the SEC and its regulatory approach – for one thing, I’m simply not familiar enough with the issues. But although there are some very good arguments to be made that central banks should combine the regulatory and lender of last resort functions, I’m not sure how well this works in practice. Particularly when applied to investment banking – which is supposed to be wilder and riskier than regular banking, by design! – this simply places too much power in the hands of a single agency. Many nations separate the regulatory and lending functions (Canada, to name but one) without huge problems; it seems to me that separation of function is Good.

After all, isn’t this what the regulators are always telling us about separation of function when they pontificate? Bookkeepers should not cut cheques. Internal Audit should not sell IPOs. And lenders should not be regulators.

We may, eventually, be getting towards the end of the ABCP legal saga:

Investors in the frozen $32-billion asset-backed commercial paper market will find out on Monday what will happen to the money they put into the troubled paper when an appeals court renders its decision.

The Ontario Court of Appeal says it will release its decision on the restructuring plan on Monday at 5 p.m. ET.

An Ontario Superior Court judge accepted the plan, but the decision also left open a 21-day window for individual and corporate investors to file appeals on the case.

Several corporations with the paper filed appeals claiming that the plan wrongfully granted immunity from litigation to the banks, brokers and the rating agency involved in ABCP.

The decision will be posted on the court’s website …

The Canadian Press reporter was good enough to note that the decision will be posted on the court’s website, but got the address wrong. The announcement is here.

PerpetualDiscounts continued their recovery today, but the total return index remains a hair below its level of June 30. The weighted average yield to maturity for these issues is currently 6.13%, compared to 6.07% on June 30 and a high of 6.63% on July 16.

The fund is doing quite well this month; trading volume has been quite heavy since mid-July (when chaos and confusion reigned unchallenged in the sector) and these relative-value trades are starting to pay off handsomely. How handsomely? I’d better keep my mouth shut, but I will say that I’m feeling a lot happier halfway through August than I was halfway through July!

Volume was light today.

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 N/A N/A N/A N/A 0 N/A N/A
Fixed-Floater 4.63% 4.37% 58,923 16.45 7 -0.0637% 1,104.6
Floater 4.07% 4.11% 47,256 17.15 3 -0.0163% 906.4
Op. Retract 4.97% 4.30% 114,408 2.92 17 +0.0460% 1,047.2
Split-Share 5.32% 5.86% 56,047 4.44 14 +0.3404% 1,042.0
Interest Bearing 6.18% 6.52% 48,923 5.26 2 -0.1008% 1,132.4
Perpetual-Premium 6.19% 6.20% 67,910 2.25 1 0.0000% 987.7
Perpetual-Discount 6.08% 6.13% 199,080 13.53 70 +0.2117% 874.6
Major Price Changes
Issue Index Change Notes
ENB.PR.A PerpetualDiscount -2.2505% Now with a pre-tax bid-YTW of 5.98% based on a bid of 23.02 and a limitMaturity.
ELF.PR.F PerpetualDiscount -1.4646% Now with a pre-tax bid-YTW of 6.89% based on a bid of 19.51 and a limitMaturity.
PWF.PR.K PerpetualDiscount +1.0412% Now with a pre-tax bid-YTW of 6.14% based on a bid of 20.38 and a limitMaturity.
BAM.PR.N PerpetualDiscount +1.0753% Now with a pre-tax bid-YTW of 7.15% based on a bid of 16.92 and a limitMaturity.
HSB.PR.D PerpetualDiscount +1.1214% Now with a pre-tax bid-YTW of 6.13% based on a bid of 20.74 and a limitMaturity.
FTN.PR.A SplitShare +1.1236% Asset coverage of just under 2.0:1 as of July 31 according to the company. Now with a pre-tax bid-YTW of 5.49% based on a bid of 9.90 and a hardMaturity 2015-12-1 at 10.00.
BNA.PR.C SplitShare +1.1696% Asset coverage of 3.3+:1 as of July 31, according to the company. Now with a pre-tax bid-YTW of 9.18% based on a bid of 17.30 and a hardMaturity 2019-1-10 at 25.00. Compare with BNA.PR.A (6.02% to 2010-9-30) and BNA.PR.B (8.55% to 2016-3-25).
PWF.PR.L PerpetualDiscount +1.2328% Now with a pre-tax bid-YTW of 6.03% based on a bid of 21.35 and a limitMaturity.
TD.PR.R PerpetualDiscount +1.2679% Now with a pre-tax bid-YTW of 5.70% based on a bid of 24.76 and a limitMaturity.
TD.PR.Q PerpetualDiscount +1.2700% Now with a pre-tax bid-YTW of 5.71% based on a bid of 24.72 and a limitMaturity.
WFS.PR.A SplitShare +1.2807% Asset coverage of 1.6+:1 as of August 7, according to Mulvihill. Now with a pre-tax bid-YTW of 7.57% based on a bid of 9.49 and a limitMaturity.
BAM.PR.M PerpetualDiscount +1.3814% Now with a pre-tax bid-YTW of 7.17% based on a bid of 16.88 and a limitMaturity.
PWF.PR.G PerpetualDiscount +1.4493% Now with a pre-tax bid-YTW of 6.07% based on a bid of 24.50 and a limitMaturity.
Volume Highlights
Issue Index Volume Notes
CM.PR.G PerpetualDiscount 211,700 Nesbitt crossed 200,000 at 20.00. Now with a pre-tax bid-YTW of 6.75% based on a bid of 20.24 and a limitMaturity.
TD.PR.P PerpetualDiscount 77,900 National crossed 75,000 at 23.10. Now with a pre-tax bid-YTW of 5.73% based on a bid of 23.08 and a limitMaturity.
BCE.PR.G FixFloat 69,200 Desjardins crossed 66,900 at 24.60.
BCE.PR.Z FixFloat 36,606 Nesbitt crossed 36,400 at 24.40
RY.PR.B PerpetualDiscount 21,890 Now with a pre-tax bid-YTW of 6.06% based on a bid of 19.51 and a limitMaturity.

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

Leave a Reply

You must be logged in to post a comment.