PrefBlog

There is a superb opinion piece in the Globe by Joseph Groia, titled Hey OSC: Can you spare $100-million?:

Do most Ontarians know that there is more than $100-million of public money sitting in a bank account at the Ontario Securities Commission (OSC) just waiting to be spent on health care, education or legal aid? Unfortunately, they may not as the OSC is badly behind on its statutory corporate-governance obligations (ironically for our capital markets regulator). It is also not clear what Queen’s Park plans to do about it.

Where did the $100-million come from? Under the Securities Act, the OSC is required to pay money it receives under certain orders or settlements into Ontario’s consolidated revenue fund for general governmental purposes unless they designate it to be used for third parties or investor education (the 2(b) Fund). The 2(b) Fund now exceeds $100-million, yet the OSC has not said when or how it plans to spend this enormous amount of public money; nor is there clear transparency or accountability about the process they will follow. What is clear is that the Securities Act allows the Ontario government to take surplus money away from the OSC at any time.

This pool of money has been used in the past to fund outfits like “FAIR Canada”, which by some odd coincidence happens to have created jobs for ex-OSC staff. The existence of this pool is a blot on Ontario’s governance. If investor education is important, an allowance for this should be made in the budget. If it’s not important, don’t fund it. But all fines and penalties levied by the OSC should go straight into Ontario general revenues, with no discretion allowed to the OSC to fund their friends.

Today was the Bank of Canada rate announcement:

The Bank of Canada today maintained its target for the overnight rate at 1 ¾ percent. The Bank Rate is correspondingly 2 percent and the deposit rate is 1 ½ percent.

The global economy is showing signs of stabilization, and some recent trade developments have been positive. However, there remains a high degree of uncertainty and geopolitical tensions have re-emerged, with tragic consequences. The Canadian economy has been resilient but indicators since the October Monetary Policy Report (MPR) have been mixed.

Data for Canada indicate that growth in the near term will be weaker, and the output gap wider, than the Bank projected in October. The Bank now estimates growth of 0.3 percent in the fourth quarter of 2019 and 1.3 percent in the first quarter of 2020. Exports fell in late 2019, and business investment appears to have weakened after a strong third quarter. Job creation has slowed and indicators of consumer confidence and spending have been unexpectedly soft. In contrast, residential investment was robust through most of 2019, moderating to a still-solid pace in the fourth quarter.

Some of the slowdown in growth in late 2019 was related to special factors that include strikes, poor weather, and inventory adjustments. The weaker data could also signal that global economic conditions have been affecting Canada’s economy to a greater extent than was predicted. Moreover, during the past year Canadians have been saving a larger share of their incomes, which could signal increased consumer caution. This could dampen consumer spending but help to alleviate financial vulnerabilities at the same time.

Looking ahead, Canadian business investment and exports are expected to contribute modestly to growth, supported by stronger global activity and demand. The Bank is also projecting a pickup in household spending, supported by population and income growth, as well as by the recent federal income tax cut. In its January MPR, the Bank projects the global economy will grow by just over 3 percent in 2020 and 3 ¼ percent in 2021. For Canada, the Bank now forecasts real GDP will grow by 1.6 percent this year and 2 percent in 2021, following 1.6 percent growth in 2019.

While the output gap has widened in recent months, measures of inflation remain around 2 percent. This is consistent with an economy that, until recently, has been operating close to capacity. The Bank expects inflation will stay around the 2 percent target over the projection horizon, with some fluctuations in 2020 from volatility in energy prices. Meanwhile, labour markets in most regions have little slack and wages continue to firm.

In determining the future path for the Bank’s policy interest rate, Governing Council will be watching closely to see if the recent slowdown in growth is more persistent than forecast. In assessing incoming data, the Bank will be paying particular attention to developments in consumer spending, the housing market, and business investment.

… and there is the usual amount of chatter:

The odds of a rate cut at its next announcement in March rose on Wednesday to 24.1 per cent, and the chances of a cut by June jumped to 57.7 per cent, according to bond-market pricing tracked by Bloomberg after the bank’s announcement.

The Canadian dollar was down 0.41 US cents as of midafternoon Wednesday, to US$0.76, and bond yields dropped as well, with the two-year Government of Canada bond down seven basis points to 1.56 per cent.

Several bank economists described the bank’s statements as more dovish than expected.

“Today’s statement makes us more comfortable with our call for a rate cut in April,” Royal Bank of Canada senior economist Josh Nye said in a note.

But National Bank Financial Markets economists said in a research note that despite the change in tone from the central bank, they are not predicting a rate cut before Mr. Poloz’s term expires in June.

… and …

While [The Bank of Nova Scotia’s senior vice president and chief economist Jean Francois] Perrault wasn’t anticipating a recession, he does foresee changes coming to North America’s rate environment.

Interest rates will fall, but not by very much and not enough to enter negative rate territory, he said.

He predicted Canadian rates will fall slightly more in Canada than the U.S.

He anticipated the U.S. will see 25 basis points more of easing by the summer because inflation is still below some objectives and will need a monetary boost.

Canada, he said, will see an easing of 50 basis points by the end of the summer because downward pressures on inflation are slightly stronger than they were six months ago.

So the five-year Canada yield dropped to 1.47%, a far cry from the year-end value of 1.69%. So much for the rally! … unless … ?

PerpetualDiscounts now yield 5.32%, equivalent to 6.92% interest at the standard equivalency factor of 1.3x. Long corporates now yield 3.30%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has narrowed slightly (and perhaps spuriously) to 360bp from the 365bp reported January 15.

Well, well, well! Look who’s back in the news!

Plaintiff U.S. Securities and Exchange Commission (the “Commission”), Brookfield Place, 200 Vesey Street, Suite 400, New York, New York 10281, alleges as follows for its Complaint against Defendants Boaz Manor (a/k/a Shaun MacDonald) (“Manor”) … Between approximately August 2017 and September 2018, Defendants conducted a fraudulent and unregistered offering of digital asset securities, known during most of the relevant time as BCT Tokens (the “Tokens”). Defendants raised at least $30 million from hundreds of investors in the United States and abroad through an initial coin offering (“ICO”) of the Tokens, in a purported effort to develop a suite of technology solutions for hedge funds and other traders investing in digital assets. Defendants raised the funds by engaging in a fraudulent scheme and lying to investors about such material matters as Manor’s identity, criminal background, and role in the business;…In 2010, Manor pleaded guilty in Ontario, Canada to the crimes of laundering the proceeds of a crime and disobeying an order of a court. Both charges related to the 2005 collapse of the hedge fund firm Portus Group (“Portus”).

Brookfield Office Properties has announced:

it has received approval from the Toronto Stock Exchange (“TSX”) for the renewal of its normal course issuer bid to purchase up to 10% of the public float of each series of the company’s outstanding Class AAA Preference Shares that are listed on the TSX (the “Preferred Shares”). Purchases under the bid will be made through the facilities of the TSX and any alternative Canadian trading systems in compliance with applicable Canadian securities laws. The period of the normal course issuer bid will extend from January 21, 2020 to January 20, 2021, or an earlier date should Brookfield complete its purchases prior to such date. Brookfield will pay the market price at the time of acquisition for any Preferred Shares purchased, but not to exceed the redemption price thereof as stated in the company’s articles. All Preferred Shares acquired by Brookfield under this bid will be cancelled.

Brookfield has not repurchased any Preferred Shares in the past 12 months.

There has been great interest on PrefBlog recently about issuer buy-backs, with Assiduous Reader stusclues doing great things with Google Sheet and Google Finance to track changes … I might do something along those lines myself!

The Enbridge story continues! After my complaint to the Ontario Energy Board and follow-up letter, I have received a response from the OEB:

The following summarizes my review of your Enbridge Gas complaint.

We confirmed that your natural gas bills have been reverted to regular mail and Enbridge apologized to you for the delay with responding.

Enbridge made a business decision to switch to eBilling and automatically enrolled customers who accessed My Account online services. They are trying to reduce their carbon footprint and keep gas rates low for their customers. While we appreciate how frustrating and time consuming this experience has been, Enbridge assured the OEB they have discontinued switching their customers to eBilling without consent.

The OEB closely monitors these types of complaints and uses them to identify trends, improper practices or procedures; to help us recommend policy, and procedure changes a company should make.

Thank you for bringing this matter to our attention.

… to which I have responded:

Thank you for your note.

I am puzzled as to why you find it necessary to confirm “that your natural gas bills have been reverted to regular mail and Enbridge apologized to you for the delay with responding.” I advised you of this on page 2 of my letter of 2019-12-24 and Enbridge’s confirmation of this was included in my letter of 2020-1-6. This fact is not at issue. I am not complaining about the mere fact of the original unilateral change to my billing preference; my complaint is about being lied to and about the company’s deliberately poor process for reinstatement.

I was actually lied to by a customer service representative when I attempted to follow the company’s instructions for reverting my billing preference; it is entirely possible that this lie was not a mistake but was actually a deliberate policy of the company. Please let me know why this aspect of my complaint (specified on page 1 of my letter of 2019-12-24 and pages 2-3 of my 2020-1-6 letter) has not been addressed.

In fact, your note does not address my complaint at all, which rests on violations of the Ontario Energy Board’s Consumer Charter and Enbridge’s own Conditions of Service, as noted prominently in both my letters. Please advise why my complaint has not been addressed.

I understand from your note that “Enbridge assured the OEB they have discontinued switching their customers to eBilling without consent”, which is of some interest. I would appreciate learning whether this is a formal “Assurance of Voluntary Compliance” as described at https://www.oeb.ca/industry/rules-codes-and-requirements/compliance-and-enforcement-processes or whether this assurance is merely another transient corporate policy.

PerpetualDiscounts now yield 5.33%, equivalent to 6.93% interest at the standard equivalency factor of 1.3x. Long corporates now yield 3.30%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has widened slightly (and perhaps spuriously) to 365bp from the 360bp reported December 18.

The big argument against market timing is chaos theory. But can chaos be mitigated?

Half a century ago, the pioneers of chaos theory discovered that the “butterfly effect” makes long-term prediction impossible. Even the smallest perturbation to a complex system (like the weather, the economy or just about anything else) can touch off a concatenation of events that leads to a dramatically divergent future. Unable to pin down the state of these systems precisely enough to predict how they’ll play out, we live under a veil of uncertainty.

But now the robots are here to help.

In a series of results reported in the journals Physical Review Letters and Chaos, scientists have used machine learning — the same computational technique behind recent successes in artificial intelligence — to predict the future evolution of chaotic systems out to stunningly distant horizons. The approach is being lauded by outside experts as groundbreaking and likely to find wide application.

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