Category: Market Action

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TXPR closed at 531.65, down 0.54% on the day. Volume today was 738,545, the lowest of the past thirty days and far less than second-lowest June 30.

CPD closed at 10.67, up 0.19% on the day. Volume was 37,317, the lowest of the past 30 trading days and less than second-lowest June 30.

ZPR closed at 8.31, down 0.12% on the day. Volume of 539,852 was very high in the context of the past 30 trading days.

Five-year Canada yields were unchanged at 0.38% today.

Marc Jones notes in the Globe:

Canada’s main stock index gave back a small part of this week’s rally on Friday, as a record surge in COVID-19 cases in the United States raised fears of another round of lockdowns.

The United States reported more than 55,000 new COVID-19 cases on Thursday, a new daily global record for the pandemic.

The Toronto Stock Exchange’s S&P/TSX composite index closed down 0.2% at 15,596.75. With U.S. stock markets closed for a public holiday, trading volumes were lower than usual.

Coronavirus? Well, in Arizona:

As known virus cases reached above 91,000 statewide, [Governor] Mr. Ducey this week activated crisis protocols that could permit overwhelmed hospitals to deny care to patients whose age or health history make them poor candidates for recovery. When Vice President Mike Pence visited Phoenix on Wednesday, Mr. Ducey asked him to send another 500 medical workers to the state to help hospital teams depleted by exhaustion and illness.

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TXPR closed at 534.55, up 0.77% on the day. Volume today was 1.82-million, about the median of the past thirty days.

CPD closed at 10.65, up 0.95% on the day. Volume was 65,080, near the lows of the past 30 trading days.

ZPR closed at 8.32, up 1.09% on the day. Volume of 584,299 was second-highest of the past 30 trading days, behind only June 30.

Five-year Canada yields were up 1bp at 0.38% today.

Jobs, jobs, jobs!

Employers brought back millions more workers in June as businesses began to reopen across the country. But the recent surge in coronavirus cases is threatening to stall the economic recovery long before it has reached most of the people who lost their jobs.

U.S. payrolls grew by 4.8 million in June, the Labor Department said Thursday. It was the second month of strong gains after April’s huge losses, when businesses laid off or furloughed tens of millions of workers as the pandemic put a large swath of economic activity on ice.
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But the thaw is far from complete. There were still nearly 15 million fewer jobs in June than in February, before the pandemic forced businesses to close. The unemployment rate fell to 11.1 percent in June, down from a peak of 14.7 percent in April but still higher than in any previous period since World War II. The rate would have been about one percentage point higher, the Labor Department said, had it not been for persistent data-collection problems.

There was another American figure of interest:

More than 50,000 new coronavirus infections were reported across the United States on Thursday, according to a New York Times database, as the country set a new daily case record for the sixth time in nine days. The alarming new milestone came as some of the country’s most populous states reported major surges, and as public health officials scrambled to limit the damage. At least seven states reported single-day case records on Thursday: Alaska, Arkansas, Florida, Georgia, Montana, South Carolina and Tennessee.

Thursday’s reported total was an 87 percent increase in daily cases from two weeks ago, when states were reopening after extensive lockdowns eased the outbreak, particularly in the hard-hit Northeast.

But the market appeared to consider the former more important than the latter:

Wall Street closed higher and the Nasdaq reached an all-time closing high on Thursday as investors headed into their long holiday weekend buoyed by a record surge in payrolls, which provided assurance that the U.S. economic recovery was well under way.

All three major U.S. stock averages advanced, with the benchmark S&P 500 posting its fourth straight daily gain. The TSX also rose Thursday, for its third straight trading day of gains. U.S. markets are closed Friday for the Fourth of July holiday.
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The Dow Jones Industrial Average rose 92.39 points, or 0.36%, to 25,827.36, the S&P 500 gained 14.15 points, or 0.45%, to 3,130.01 and the Nasdaq Composite added 53.00 points, or 0.52%, to 10,207.63.

The S&P/TSX Composite Index rose 107.18 points, or 0.69%, at 15,622.40. Sector performance was mixed, with the Canadian Real Estate Index gaining 2.84%, and tech rising 3.67% thanks to a 8.36% jump in shares of Shopify to a new record high. Materials and industrials were lower.

Fitch downgraded Alberta:

Alberta’s credit rating was downgraded Tuesday, hours after the province released a multibillion-dollar economic recovery plan in an attempt to climb out of the economic wreckage caused by the COVID-19 pandemic and a collapse in world oil prices.

Fitch Ratings downgraded Alberta to a double-A-minus from double-A, citing higher provincial borrowing during the pandemic-driven economic crisis and a debt burden relative to GDP that is “incompatible” with a double-A rating.

The New York-based agency also pointed to the lack of details from the government about the extent of damage to Alberta’s bottom line, and the fact the province has no planned path toward economic recovery.

Tuesday’s downgrade is the third for Alberta since December, when Moody’s Investors Service changed the province’s rating to Aa2 from Aa1, citing continued weakness in the provincial economy and its reliance on non-renewable resources. In March, DBRS Morningstar downgraded Alberta to double-A (low) from double-A.

GWO is making a major investment in US wealth management:

Canadian insurer Great-West Lifeco Inc. is boosting its presence in the United States and broadening its retail wealth management with the US$1-billion purchase of Personal Capital Corp.

On Monday, Great-West’s subsidiary Empower Retirement agreed to acquire Personal Capital for an initial US$825-million, with the potential to add up to US$175-million if certain growth metrics are met. The upfront payment is expected to be funded with cash on hand and $500-million in debt financing.

Based in Denver, Empower Retirement administers US$656-billion in assets for more than 9.7 million investors enrolled in defined contribution pension plans. Upon closing the deal, Empower will combine its retirement services, which include 401(k) group benefit plans, with Personal Capital’s online financial planning capabilities to expand into the U.S. retail wealth management sector.

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TXPR closed at 528.61, down 0.55% on the day. Volume today was 1.49-million, near the lows of the past thirty days.

CPD closed at 10.525, down 0.43% on the day. Volume was 135,867, a little above the median of the past 30 trading days.

ZPR closed at 8.185, down 1.50% on the day. Volume of 301,200 was near the median the context of the past 30 trading days.

Five-year Canada yields were down 2bp at 0.36% today.

The carnage has been attributed to a familiar villain:

Wall Street’s major indexes tumbled more than 2% on Friday as several U.S. states imposed business restrictions in response to a surge in coronavirus cases. The TSX lost 1.66%, with both energy and financial sectors losing more than 2.5%.

Some U.S. states that were spared the brunt of the initial coronavirus outbreak or moved early to lift restrictions are seeing a resurgence in new infections. On Friday, Texas and Florida ordered bars to close down again.
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A Wall Street Journal report that the Phase 1 U.S.-China trade deal could be at risk placed additional pressure on U.S. stocks. According to that report, Chinese officials warned that “meddling” in Hong Kong and Taiwan could lead Beijing to back away from its commitment to purchase U.S. farm goods.
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Among sectors, financial, communication services and energy shares outpaced the broader S&P 500 in declines. S&P 500 bank shares plummeted 6.1% after the Federal Reserve limited dividend payments and barred share repurchases until at least the fourth quarter following its annual stress test.

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TXPR closed at 533.89, down 0.58% on the day. Volume today was 1.89-million, near the median of the past thirty days.

CPD closed at 10.68, down 0.65% on the day. Volume was 66,270, low in the context of the past 30 trading days.

ZPR closed at 8.37, down 0.48% on the day. Volume of 161,796 was very low in the context of the past 30 trading days.

Five-year Canada yields were down 2bp at 0.38% today.

Markets got whacked today, which was attributed to renewed coronavirus fears:

Wall Street’s three major indexes suffered their biggest daily percentage drop in almost two weeks on Wednesday as a surge in U.S. coronavirus cases intensified fears of another round of government lockdowns and worsening economic damage.

The TSX also closed lower, led by a 3.84% decline in the energy sector, with investors largely shrugging off a downgrade of Canada’s debt rating by Fitch Ratings.
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The United States has recorded the second-largest rise in infections since the health crisis began, with a flare-up of cases in states where restrictions meant to contain the disease were lifted early.

Highlighting the seriousness of the resurgence in cases for many investors, the governors of New York, New Jersey and Connecticut announced that visitors from states with high coronavirus infection rates must self-quarantine for 14 days on arrival.

And, as noted above, Fitch downgraded Canada:

Fitch Ratings has downgraded Canada’s triple-A credit rating to double-A-plus in light of “much expanded” 2020 deficits due to billions in emergency spending during the novel coronavirus pandemic.

The decision reflects growing public debt at both the federal and provincial levels.
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“The rating downgrade reflects the deterioration of Canada’s public finances in 2020 resulting from the coronavirus pandemic,” the agency stated. Wednesday’s announcement says Canada’s rating outlook is stable.

Fitch expects the coronavirus response to raise Canada’s consolidated gross general government debt to 115.1 per cent of GDP, up from 88.3 per cent of GDP in 2019.

“Canada has a track record of fiscal adjustment during the 1990s. However, the structure of Canada’s decentralized fiscal framework increases the complexity of any fiscal adjustment,” the agency said. “The pandemic has caused several provinces to pause deficit-reduction plans, and some premiers have urged greater direct federal financial support to the provinces.”

“Federal borrowing for crown corporations also increases debt,” Fitch said. “The federal minority Liberal government, which was returned to office in October 2019, has already loosened fiscal policy relative to the first term and postponed a pledge to stabilize net federal government debt in order to address the priorities of allied minority parties.”

PerpetualDiscounts now yield 5.71%, equivalent to 7.42% interest at the standard equivalency factor of 1.3x. Long corporates now yield 3.00%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has widened slightly (and perhaps spuriously) to 440bp from the 435bp reported June 17.

I wonder if any of the perpetuals listed today will last as long as this long bond:

YaleNews revealed that a water bond dating as far back as 1648 still contractually binds the obligated parties to pay annual interest today. Upon its discovery and subsequent analysis of its terms and agreements, reports indicate that at the time of its execution, the bond operated as a perpetual bond.

The original clauses of the agreement bound the payer to “5 percent interest in perpetuity,” a rate which was later lowered to 3.5 percent and then 2.5 percent respectively in the 1600s. At the time, physical notations of interest payments were inscribed on the bond as they were made as a means of recording them. Being of Dutch-origin and made out of goatskin, when the bond was issued, it was apparently made out to Mr. Niclaes de Meijer, a man who was ordered to pay the “sum of 1000 Carolus Guilders of 20 Stuivers a piece.”

The manuscript was filed at Yale’s Beinecke Rare Book & Manuscript Library in 2003 after Yale managed to come into possession of it. After Timothy Young, the curator of Modern Books and Manuscripts at the library, conferred with a Dutch water authority named Stichtse Rijnlanden, not only did he discover that this bond was only one of five ever found, all five of them were administered by the Hoogheemraadschap Lekdijk Bovendams.
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In 2015, when Timothy Young returned from meeting with the relevant Dutch authority, he also brought back with him 12 years of back interest which was owed on the bond, a total which amounted to approximately 136.20 euros. Prior to 2015, the last time that the bond payments were collected was in 2003 when Yale first acquired it. At that time, as the reports states, “Geert Rouwenhorst, professor of corporate finance and deputy director of the International Center for Finance, took the bond back to the Netherlands to collect 26 years of back interest.”

Here’s a bit more sleaze from the Pace Credit Union Scandal discussed on June 18, from the extracts from the Pace Financial Offering Memorandum included in the First Report of the Liquidator obtained via the Receiver’s website:

The Issuer expects to pay fees to the Manager at standard rates common in the industry for those services – namely, asset management fees of 0.25% per month (3.0% per annum) calculated on the value of the Portfolio from time to time plus performance fees equal to 50% of profits earned provided that, in the event that the Issuer has a deficit (i.e. no profits or inadequate profits to provide for base dividends on the Preference Shares) for any particular quarter-yearly period, the asset management fees or performance fees will be reduced to the extent necessary to enable the Issuer to meet its dividend obligations, if possible, or, if not possible, waived for such period and, to those extents, will be payable in such reduced amount or will not be payable, as the case may be.

An extortionate (not “standard”!) 3% management fee per annum (the Manager is Pace Securities Corp), plus a 50% cut of profits, plus full ownership at no cost of all the common. It’s nice work, if you can get it.

It is regrettable that the Offering Memorandum is not published in its entirety; page 10 of the OM ends with:

3.1 Compensation and Securities Held
The following table provides specified information about each director, officer and promoter of the Issuer and each person who

… and pages 11 and 12 are missing. What a pity! It would have given me great pleasure to prominently display the names of the officers, directors and promoters of an issue such as this.

And finally, I cannot resist republishing the following comic SMBC Comics:

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A bit more on the PACE Savings and Credit Union preferred share scandal, mentioned yesterday, from the IIROC Notice of Hearing and Statement of Allegations against Joseph Anthony Thomson and Gerald Douglas McRae:

14. By Confidential Offering Memorandum (the “PFL OM”) dated June 27, 2017, PFL offered Series A 5% Cumulative Redeemable Retractable Non-voting Term Preference Shares (the “PFL Preference Shares”) as an exempt distribution without a prospectus. PFL had no capital other than the proceeds of sale from the PFL Preference Shares.
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28. FHHI’s founding capital was $10,001 and its only other assets were the proceeds of sale from the FHHI Preference Shares.
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85. The PFL OM did not disclose the use of leverage or options. McRae signed leverage and options agreements for PFL and was aware it used those strategies, yet he never raised the issue or evidenced any supervision concerning whether their use was consistent with
the PFL OM.

86. The FHHI OMs did not disclose the use of options, other than for hedging purposes, yet McRae signed options agreements for FHHI and was aware of options use in the account. He never raised the issue or evidenced any supervision concerning whether options use was consistent with the FHHI OMs.

So, capped returns on a go-go fund, with (essentially) no junior capital to take a first loss.

Wow, looks like PACE picked some real prizewinners to run their securities subsidiary. I find it very difficult to comprehend how anybody, anywhere, could recommend these securities to anybody.