April 4, 2014

I mentioned on April 4 that Charles Schwab, Inc., had come out against High Frequency Trading (HFT). Assiduous Readers have been on tenterhooks all day, wondering when Schwab will reveal the secrets of the universe and the golden key to riches through equity investment. Today, we got an answer:

“When you’re at record high levels, people start to get a little tentative going into weekends,” Randy Frederick, managing director of trading and derivatives at Charles Schwab Corp. which manages $2.2 trillion in client assets, said in a phone interview. “Taking a few profits off the table going into the weekend is probably not a bad strategy.”

What a thoroughly asinine remark, illustrative of Big Broker culture: ‘Go with the flow and avoid thinking’.

Meanwhile, another firm has been victimized for not being kind to stupid people:

The Securities and Exchange Commission today charged the owner of a Holmdel, N.J.-based brokerage firm with manipulative trading of publicly traded stocks through an illegal practice known as “layering” or “spoofing.”

The SEC also charged the owner and others for registration violations. Two firms and five individuals agreed to pay a combined total of nearly $3 million to settle the case.

In layering, the trader places orders with no intention of having them executed but rather to trick others into buying or selling a stock at an artificial price driven by the orders that the trader later cancels. An SEC investigation found that Joseph Dondero, a co-owner of Visionary Trading LLC, repeatedly used this strategy to induce other market participants to trade in a particular stock. By placing and then canceling layers of orders, Dondero created fluctuations in the national best bid or offer of a stock, increased order book depth, and used the non-bona fide orders to send false signals to other market participants who misinterpreted the layering as true demand for the stock.

“The fair and efficient functioning of the markets requires that prices of securities reflect genuine supply and demand,” said Sanjay Wadhwa, senior associate director of the SEC’s New York Regional Office. “Traders who pervert these natural forces by engaging in layering or some other form of manipulative trading invite close scrutiny from the SEC.”

Well, if technical analysts want to play around attempting to measure “true demand” for any particular stock, let them. But the fair and efficient functioning of the markets actually requires that the prices of securities reflect, to as close a degree as possible, the fundamental value of those securities. That’s how you get the best results in capital allocation, both by issuers getting clear signals about what their businesses are worth, and by investors being rewarded according to the accuracy of their estimates of fundamental value.

I will also point out that this spoofing strategy can get very expensive if somebody starts running a pounce algorithm.

By keeping markets safe for the stupid, the regulators are encouraging bubbles and hindering sustainable expansion of the economy.

There was a pretty good US jobs number today:

Companies powered the U.S. job market past a milestone in March as private employment exceeded the pre-recession peak for the first time, showing the kind of progress Federal Reserve officials look for to maintain their current policy course.

Payrolls excluding government agencies rose by 192,000 workers after a 188,000 gain in February that was larger than first estimated, the Labor Department reported today in Washington. That brought the job count to 116.1 million, beating the January 2008 high of 116 million. The jobless rate held at 6.7 percent even as almost half a million people entered the workforce.

… but Pew Research reminds us that there is a lot of catching up to do:

Because more people are entering the labor force each month, merely replacing all the jobs lost during the recession won’t bring employment back to its pre-crisis level.

Under the most optimistic scenario — the economy adds 472,000 jobs a month, the highest single-month rate in the 2000s — it would still take until October 2015 for employment to regain its pre-recession level. If the economy replicates its performance in 2005 (the best year since 2000) and adds about 208,000 jobs a month, it would take until September 2018. And if the economy continues to add jobs at the rate it has since late 2010 — an average of 182,000 a month — the employment gap won’t be closed till August 2019.

It was another positive day for the Canadian preferred share market, with PerpetualDiscounts up 5bp, FixedResets winning 10bp and DeemedRetractibles gaining 3bp. Volatility was minimal. Volume was well below average.

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 0.0560 % 2,477.0
FixedFloater 4.69 % 4.30 % 35,505 17.71 1 0.0000 % 3,615.6
Floater 2.94 % 3.06 % 50,329 19.62 4 0.0560 % 2,674.5
OpRet 4.64 % -0.97 % 99,042 0.21 3 0.0000 % 2,691.1
SplitShare 4.81 % 4.31 % 64,519 4.27 5 0.0000 % 3,086.1
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0000 % 2,460.7
Perpetual-Premium 5.54 % -2.83 % 103,554 0.09 13 0.0876 % 2,376.7
Perpetual-Discount 5.44 % 5.47 % 123,069 14.62 23 0.0545 % 2,470.9
FixedReset 4.69 % 3.64 % 208,005 4.31 79 0.0959 % 2,523.5
Deemed-Retractible 5.04 % 0.97 % 150,064 0.24 42 0.0347 % 2,481.6
FloatingReset 2.63 % 2.48 % 186,626 4.30 5 0.1666 % 2,464.0
Performance Highlights
Issue Index Change Notes
CIU.PR.C FixedReset -1.79 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-04-04
Maturity Price : 20.88
Evaluated at bid price : 20.88
Bid-YTW : 3.81 %
BAM.PF.B FixedReset 1.30 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-04-04
Maturity Price : 23.14
Evaluated at bid price : 24.94
Bid-YTW : 4.22 %
Volume Highlights
Issue Index Shares
Traded
Notes
W.PR.J Perpetual-Discount 201,980 TD crossed two blocks of 100,000 each, both at 24.70.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-04-04
Maturity Price : 24.46
Evaluated at bid price : 24.70
Bid-YTW : 5.68 %
BMO.PR.J Deemed-Retractible 190,010 RBC crossed three blocks; 100,000 and 30,000 at 25.74 and 25,000 at 25.75. Desjardins crossed 31,700 at 25.75.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-05-04
Maturity Price : 25.50
Evaluated at bid price : 25.77
Bid-YTW : -2.84 %
FTS.PR.K FixedReset 107,802 RBC crossed 100,000 at 25.04.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-04-04
Maturity Price : 23.17
Evaluated at bid price : 25.00
Bid-YTW : 3.72 %
TD.PR.Q Deemed-Retractible 57,261 RBC crossed 47,500 at 26.30.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-05-04
Maturity Price : 25.75
Evaluated at bid price : 26.24
Bid-YTW : -21.04 %
BNS.PR.X FixedReset 43,404 CIBC bought blocks of 10,000 and 10,700 from Nesbitt, both at 24.99.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-05-25
Maturity Price : 25.00
Evaluated at bid price : 24.98
Bid-YTW : 3.66 %
ENB.PR.D FixedReset 32,296 TD crossed 25,000 at 24.35.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-04-04
Maturity Price : 22.99
Evaluated at bid price : 24.30
Bid-YTW : 4.13 %
There were 23 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
VNR.PR.A FixedReset Quote: 25.36 – 25.69
Spot Rate : 0.3300
Average : 0.2502

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-10-15
Maturity Price : 25.00
Evaluated at bid price : 25.36
Bid-YTW : 4.22 %

IFC.PR.C FixedReset Quote: 25.59 – 25.83
Spot Rate : 0.2400
Average : 0.1803

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-09-30
Maturity Price : 25.00
Evaluated at bid price : 25.59
Bid-YTW : 3.24 %

BAM.PR.X FixedReset Quote: 21.23 – 21.47
Spot Rate : 0.2400
Average : 0.1840

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-04-04
Maturity Price : 21.23
Evaluated at bid price : 21.23
Bid-YTW : 4.37 %

HSB.PR.D Deemed-Retractible Quote: 25.27 – 25.54
Spot Rate : 0.2700
Average : 0.2149

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-12-31
Maturity Price : 25.00
Evaluated at bid price : 25.27
Bid-YTW : 3.58 %

CIU.PR.C FixedReset Quote: 20.88 – 21.24
Spot Rate : 0.3600
Average : 0.3057

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-04-04
Maturity Price : 20.88
Evaluated at bid price : 20.88
Bid-YTW : 3.81 %

RY.PR.C Deemed-Retractible Quote: 25.65 – 25.82
Spot Rate : 0.1700
Average : 0.1163

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-11-24
Maturity Price : 25.25
Evaluated at bid price : 25.65
Bid-YTW : 2.86 %

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