Category: Market Action

I mentioned coding schools on August 11, 2016. Here’s a cautionary tale:

It was a calamitous job interview two years ago that prompted Jose Contreras to demand his money back from the coding school he attended. His interviewer, the chief technology officer of a startup, watched as Contreras struggled with basics on JavaScript, a coding language he was supposed to be learning during his courses. “Given you can’t answer this question,” Contreras, now 27, recalls the interviewer saying, “You should ask for a refund.” A few months later, jobless and out $14,400 in tuition and fees, Contreras followed his advice.

He’s one of many students who say they felt duped by Coding House, a Silicon Valley school that advertises an average starting salary of $91,000 for its graduates. On Nov. 7, the Bureau for Private Postsecondary Education, the regulator that oversees coding schools in California, assessed Nicholas James, the founder of Coding House, a $50,000 fine and ordered the school to shut down. (The BPPE had previously denied Coding School’s application to operate, in November 2015, June 2016, and again on Nov. 4, 2016.) The regulators have told the school to give refunds to all students who have attended since it opened its doors in 2014. Coding House has filed an appeal. In the meantime it has suspended its programs, students said.
…
Coding House’s spectacular fall is an extreme case, but interviews with more than a dozen coding school graduates reveal that when they do land a job, often their engineering education doesn’t cut it. Many admit they lack the big-picture skills that employers say they want. Training them often requires hours of hand-holding by more experienced staff, employers say. The same holds true for graduates holding computer science degrees, but those employees generally have a better grasp of broader concepts and algorithms, recruiters said.

This is the proper way to be in the landlording business!

Jonathan Gray of Blackstone Group LP went on the biggest homebuying spree in history after the U.S. foreclosure crisis, purchasing repossessed properties from the courthouse steps and through online auctions.

Four years, $10 billion and roughly 50,000 homes later, he will find out if his gambit will pay off. Invitation Homes LP, the Dallas-based company Blackstone formed to maintain and rent those homes, has filed confidentially for an initial public offering that could come as soon as January.

Though Blackstone is unlikely to sell much or even any of its stake in an IPO, the stock market debut will test investors’ interest in the idea that the rental-home business can be institutionalized as apartments, shopping centers and office towers were before.

They’re big enough with holdings concentrated enough to get good tradesmen service – perhaps even hire some full-timers.

When you write cheques worth half your electrician’s revenue … he answers your calls same day!

The Bank of Canada stood pat on rates:

The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1/2 per cent. The Bank Rate is correspondingly 3/4 per cent and the deposit rate is 1/4 per cent.

Economic data suggest that global economic conditions have strengthened, as the Bank anticipated in its October Monetary Policy Report (MPR). However, uncertainty, which has been undermining business confidence and dampening investment in Canada’s major trading partners, remains undiminished. Following the election in the United States, there has been a rapid back-up in global bond yields, partly reflecting market anticipation of fiscal expansion in a US economy that is near full capacity. Canadian yields have risen significantly in this context.

In Canada, the dynamics of growth are largely as the Bank anticipated. Following a very weak first half of 2016, growth in the third quarter rebounded strongly, but more moderate growth is anticipated in the fourth quarter. Consumption growth was robust in the third quarter, supported by the new Canada Child Benefit, while the effects of federal infrastructure spending are not yet evident in the GDP data. Meanwhile, business investment and non-energy goods exports continue to disappoint. There have been ongoing gains in employment, but a significant amount of economic slack remains in Canada, in contrast to the United States. While household imbalances continue to rise, these will be mitigated over time by announced changes to housing finance rules.

Total CPI inflation has picked up in recent months but is slightly below expectations, largely because of lower food prices. Core inflation is close to 2 per cent because the effect of persistent economic slack is still being offset by that of past exchange rate depreciation, although the latter effect is dissipating.

Overall, the Bank’s Governing Council judges that the current stance of monetary policy remains appropriate. Therefore, the target for the overnight rate remains at 1/2 per cent.

It looks like the Banca Monte dei Paschi di Siena bail-out is going to be another brain-dead one, with recoveries based on who you are rather than what you own:

Monte dei Paschi must raise 5 billion euros ($5.4 billion) by the end of this month to avoid being wound down, but private investors are reluctant to provide cash after Renzi lost a referendum on Sunday and announced plans to resign.

The bank is set to raise 1 billion euros from a bond swap with institutional investors and Rome is hoping the 2 billion euros participation from the government could help persuade private investors to fill the 2 billion euros gap.
…
Italy’s treasury would buy the bonds held by around 40,000 retail investors at face value, the sources said.

That way, the government would ensure retail investors do not suffer any losses in the bank’s bailout, making it politically more palatable and staving off the risk of a run on deposits that could trigger a wider banking crisis.

The retail bail-out has been linked to fears of a run, which makes no sense:

Any state intervention to help Monte dei Paschi would entail losses for the bank’s subordinated bondholders in line with European bank crisis rules – something Renzi’s government had desperately sought to avoid to stave off the risk of a run on deposits and a domino effect engulfing other lenders.

It was not immediately clear to what extent retail investors, who hold 2.1 billion euros of Monte dei Paschi junior debt, could be spared in the event of a state rescue.

PerpetualDiscounts now yield 5.50%, equivalent to 7.15% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 4.05%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 310bp, a significant widening from the 300bp reported November 16.

The drone arms race is heating up! Here’s a jammer:

A company called DroneShield has introduced a 13-pound, rifle-shaped jammer that it says can take down drones from a distance as far as 1.2 miles away.

The DroneGun isn’t meant for drone hobbyists or their vengeful neighbors. The company says it could thwart drones carrying explosives intended to carry out a civilian or military attack, or stop those that venture illegally into restricted airspace or onto prohibited property.

The gun’s effect is not exactly obvious. There’s no projectile fired or resulting explosion that would make for great action-movie footage. Instead, the DroneGun jams the radio and/or GPS frequency that tells the drone where to go. The gun operator can then land the drone immediately or signal it to return home.

Well, we’ve talked about self-ordering kiosks at McDonalds. And then we talked about them again. And then Wendy’s installed them. And the future is now:

Earlier this month, McDonald’s announced the nationwide roll-out of touchscreen self-service kiosks. In a video the company released to showcase the new customer experience, it’s striking to see employees who once would have managed a cash register now reduced to monitoring a customer’s choices at an iPad-style kiosk.

It’s not just McDonald’s that has embraced job-replacing technology. Numerous restaurant chains (both quick service and full service) have looked to computer tablets as a solution for rising labor costs that won’t adversely impact the customer’s experience. Eatsa, a fully-automated restaurant concept, now has five locations—all in cities or states that have embraced a $15 minimum wage. And in a scene stolen from The Jetsons, the Starship delivery robot is now navigating the streets of San Francisco with groceries and other consumer goods. The company’s founder pointed to a rising minimum wage as a key factor driving the growth of his automated delivery business.

Here’s a minor milestone for US house prices:

U.S. home prices have climbed back above the record reached more than a decade ago, bringing to a close the worst period for the housing market since the Great Depression and stoking optimism for a more sustainable expansion.

The average home price for September was 0.1% above the July 2006 peak, according to the S&P CoreLogic Case-Shiller U.S. National Home Price index released Tuesday. As of the previous month’s reading of the Case-Shiller index, a widely used benchmark for U.S. housing, prices remained 0.1% below the July 2006 record.

Adjusted for inflation, the index still is about 16% below the 2006 high. Home prices jumped 5.5% over the past year.

Europe has some new refinements to the regulation of banks, including:

The new provision would create a new asset class of “non-preferred” senior debt that can be bailed in in resolution, after other capital instruments, but before other senior liabilities

Well, I suppose I sympathize with them, up to a point, for not wanting to officially call it “bail-in debt”, but “non-preferred senior debt” is not really all that good a name!

DBRS comments:

One version of this instrument is already in the final stages of legislation in France (see “DBRS: Rating the New French Senior Non-preferred Debt Instruments,” published on November 22, 2016). By introducing this instrument across Europe, the EC’s intention is to try to introduce greater harmonisation in the creditor hierarchy in Europe at a time when the regimes of different countries are diverging (e.g. the German subordination of existing traded senior debt which will be in place from January 2017).

In its recent commentary DBRS has already clarified that it intends to rate the French non-preferred senior debt instrument one notch below the bank’s Intrinsic Assessment (IA), based on the DBRS Criteria: Rating Bank Capital Securities – Subordinated, Hybrid, Preferred & Contingent Capital Securities. At the same time, DBRS currently rates existing subordinated debt at European banks generally at one notch below the IA for dated subordinated debt and cumulative junior subordinated debt, but two notches below the IA for non-cumulative junior subordinated debt. However, given the increasing likelihood that all subordinated debt will be used to absorb losses alongside equity as the implementation of BRRD (Bank Recovery and Resolution Directive) evolves, DBRS expects to see negative rating pressure on the subordinated debt that is currently rated only 1 notch below the IA, and which is at the same level as potential future issuance of nonpreferred senior debt. One possible outcome of DBRS’s deliberations is that these instruments would be downgraded to the same level as existing non-cumulative junior debt (i.e. 2 notches below the IA).

These developments are currently restricted to Europe. DBRS does not see similar rating pressure on rated subordinated in the US, Canada or Asia, given the different regulatory regimes in these countries.

In response to overwhelming public demand (SafetyinNumbers asked me), I present a chart of Canada Prime and the interest-equivalent yield of Floaters.

Click for Big

There are problems with this chart:

• Often, Floaters have traded above their contemporary call price. When this has happened I have set the interest-equivalent yield to zero.
• In late years, the Floater index has been dominated by BAM issues, which often trade differently from the market as a whole due to credit worries and investor concentration concerns.
• In later years, PWF.PR.A has drifted in and out of the index, relegated intermittently to Scraps on volume concerns. As PWF.PR.A has a significantly lower yield than the BAM Floaters, this creates inconsistencies when comparing one period to another.
• At the beginning of February, 2011, I abruptly changed the interest-equivalency factor from 1.4x to 1.3x