December 31, 2009

James Hamilton of Econbrowser has an excellent post on the Fed and the proposed term deposit facility:

We sometimes describe fiscal policy as determining the overall level of the public debt, while monetary policy determines the composition of that debt between money and interest-bearing federal obligations. By that definition, the Fed has clearly now entered the realm of implementing fiscal policy, by issuing debt directly in the form of interest-bearing reserves, reverse repos, and now term deposits.

But I fear that as this marriage between fiscal and monetary policy becomes consummated, an amicable divorce is not the most likely outcome.

My advice would be the sooner the Fed can return to plain vanilla central banking, the better.

I have heard reports that driving in the country has become a process of counting windmills … but I have my own way of counting. Say a standard wind farm has the following specifications:

The facility is expected to be completed in one year at a cost of CA$285 million, and will generate 300 GWh of wind energy a year from 43 Siemens 2.3 MW turbines.

So each turbine costs about $7-million bucks and generates about 7.5 GWh electricity per year. Ontario will pay 13.5 cents per kWh for on-shore wind. A profligate energy user (i.e., somebody who uses a toaster while the kitchen light is on) will pay 6.7 cents per kWh. So the loss to Smitherman’s ex-ministry is … call it 7 cents per kWh … and remember, we have assumed that transmission and administration is free, never mind the fact that wind power needs back-up plants built, and will accrue extra costs as this back-up switches on and off.

So, a loss of 7 cents per kWh on 7.5GWh annually is … um … carry three … 52.5 megacents per annum; in more familiar units, over half a million bucks. Enjoy the view! And remember – it’s not just empty-headed feel-goodism … it’s also an exciting new class of parasitic pseudo-industry creating jobs for pseudo-entrepreneurs!

The US Municipal Bond Insurance market is still trying to find its feet:

Insured bonds reached a peak of 57.1% of new issuance in 2005, but as most insurers were downgraded after they unsuccessfully ventured into the hazardous territory of structured finance, that number dwindled to just 8.7% this month, according to Thomson Reuters.

But responding to claims that the insurance market has a much-diminished future, Dominic Frederico, chief executive officer of Assured Guaranty Ltd., has a pretty simple reply.

“If there are naysayers, I would say, ‘Okay, then: explain my third quarter,’ ” he told investors in a conference call last month.

Assured, which operates the only two legacy insurers to have made it through the recession with investment-grade ratings, saw operating earnings — excluding net-realized investment gains and losses — jump to $70 million last quarter, compared to $26 million in the third quarter of 2008.

Preferred shares closed the year strongly on light volume, with PerpetualDiscounts up 26bp and FixedResets gaining 13bp.

PereptualDiscounts closed yielding 5.85%, equivalent to 8.19% interest at the standard equivalency factor of 1.4x. Long Corporates closed yielding 6.0% – maybe just a hair over – so the pre-tax interest-equivalent spread (also called the Seniority Spread) is about 220bp, a slight tightening from the December 16 and November 30 figures of 225bp.

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 0.3484 % 1,626.4
FixedFloater 5.69 % 3.84 % 37,404 18.97 1 -0.4690 % 2,736.4
Floater 2.41 % 2.82 % 106,796 20.16 3 0.3484 % 2,031.8
OpRet 4.83 % -1.09 % 115,458 0.09 15 0.0406 % 2,333.8
SplitShare 6.40 % -6.01 % 189,048 0.08 2 0.6219 % 2,098.6
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0406 % 2,134.0
Perpetual-Premium 5.83 % 5.71 % 73,799 2.30 7 0.2659 % 1,891.1
Perpetual-Discount 5.79 % 5.85 % 188,197 14.11 68 0.2613 % 1,804.6
FixedReset 5.39 % 3.59 % 312,272 3.85 41 0.1268 % 2,177.5
Performance Highlights
Issue Index Change Notes
BMO.PR.K Perpetual-Discount -1.06 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-12-31
Maturity Price : 23.22
Evaluated at bid price : 23.40
Bid-YTW : 5.68 %
CL.PR.B Perpetual-Premium 1.01 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2010-01-30
Maturity Price : 25.25
Evaluated at bid price : 26.10
Bid-YTW : -31.38 %
BNS.PR.T FixedReset 1.07 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-05-25
Maturity Price : 25.00
Evaluated at bid price : 28.05
Bid-YTW : 3.20 %
BAM.PR.K Floater 1.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-12-31
Maturity Price : 13.80
Evaluated at bid price : 13.80
Bid-YTW : 2.85 %
RY.PR.C Perpetual-Discount 1.12 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-12-31
Maturity Price : 20.85
Evaluated at bid price : 20.85
Bid-YTW : 5.59 %
SLF.PR.C Perpetual-Discount 1.27 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-12-31
Maturity Price : 19.10
Evaluated at bid price : 19.10
Bid-YTW : 5.87 %
BNS.PR.J Perpetual-Discount 1.46 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-12-31
Maturity Price : 22.80
Evaluated at bid price : 23.86
Bid-YTW : 5.45 %
BNA.PR.C SplitShare 1.50 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2019-01-10
Maturity Price : 25.00
Evaluated at bid price : 18.90
Bid-YTW : 8.34 %
SLF.PR.B Perpetual-Discount 1.52 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-12-31
Maturity Price : 20.65
Evaluated at bid price : 20.65
Bid-YTW : 5.85 %
HSB.PR.C Perpetual-Discount 1.83 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-12-31
Maturity Price : 22.11
Evaluated at bid price : 22.25
Bid-YTW : 5.76 %
Volume Highlights
Issue Index Shares
Traded
Notes
GWO.PR.F Perpetual-Premium 84,426 RBC crossed 83,100 at 24.55.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-12-31
Maturity Price : 24.24
Evaluated at bid price : 24.55
Bid-YTW : 6.04 %
CM.PR.E Perpetual-Discount 47,540 RBC crossed 40,100 at 23.93.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-12-31
Maturity Price : 23.61
Evaluated at bid price : 23.90
Bid-YTW : 5.85 %
BMO.PR.L Perpetual-Discount 29,930 CIBC sold 15,000 to RBC at 25.15 and 10,800 to Desjardins at the same price.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-12-31
Maturity Price : 24.82
Evaluated at bid price : 25.05
Bid-YTW : 5.86 %
PWF.PR.I Perpetual-Discount 25,500 TD crossed 18,900 at 25.12.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-12-31
Maturity Price : 24.75
Evaluated at bid price : 25.07
Bid-YTW : 6.09 %
GWO.PR.G Perpetual-Discount 22,900 RBC crossed 15,000 at 21.90.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-12-31
Maturity Price : 21.61
Evaluated at bid price : 21.90
Bid-YTW : 5.96 %
RY.PR.T FixedReset 17,700 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-09-23
Maturity Price : 25.00
Evaluated at bid price : 28.10
Bid-YTW : 3.58 %
There were 10 other index-included issues trading in excess of 10,000 shares.

6 Responses to “December 31, 2009”

  1. prefhound says:

    If you think a subsidy of 50% looks bad for wind power, you’ll love the apparent 10X subsidy for solar.

    Over the holidays, my brother in law told me of people offering to sell him solar equipment connected to the grid earning 80.5c/kwh from Ontario Hydro. This is about twice what I have expected is the cost of generation, so solar is way more expensive than wind.

  2. jiHymas says:

    Yeah, the solar scam is ridiculous.

    If they spent all that money on a really good faculty of engineering – top staff, top grad students, assured funding – then I wouldn’t mind. I might even support it! But this is just a money-flush.

    The thing that amuses me is that we in the West love to mock Mao’s Great Leap Forward, with millions of home blast furnaces busily being as inefficient as all get out … and now we’re doing the same thing.

  3. […] MAPF Portfolio Composition: December 2009 analysis(which is in excess of the 5.85% index yield on December 31). Given such reinvestment, the sustainable yield would be $10.5662 * 0.0597 = $0.6308 whereas a […]

  4. […] December 31 I mentioned the scourge of windmill-promoting enviro-weenies. I now see there is a huge run to the […]

  5. […] spread of PerpetualDiscounts over Long Corporates (which I also refer to as the Seniority Spread) closed the year at 220bp, a slight tightening from the 225bp at November […]

  6. […] spread of PerpetualDiscounts over Long Corporates (which I also refer to as the Seniority Spread) closed the year at 220bp, a slight tightening from the 225bp at November […]

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