Category: Market Action

US inflation news is pretty good:

The cost of living in the U.S. climbed in July at the slowest pace in five months, indicating price pressures remain limited even as the economy picks up.

The consumer price index increased 0.1 percent, matching the median forecast of 80 economists surveyed by Bloomberg, after rising 0.3 percent the prior month, a Labor Department report showed today in Washington. Stripping out volatile food and fuel, the so-called core measure also climbed 0.1 percent, less than projected.
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Overall consumer prices rose 2 percent in the 12 months ended July, following a 2.1 percent year-over-year advance the prior month. The core measure increased 1.9 percent from July 2013, the same as in the prior 12-month period.

The Fed’s 2-percent inflation goal is based on the Commerce Department’s price gauge that is tied to consumer spending. That measure climbed 1.6 percent in the 12 months through June.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts down 3bp, FixedResets gaining 3bp and DeemedRetractibles off 2bp. Volatility was non-existent. Volume was very low.

Nothing happened today.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts off 3bp, FixedResets up 10bp and DeemedRetractibles gaining 1bp. Volatility was nil. Volume was very low.

The OSC is taking an interest in high-MERs:

Recently, staff completed a review of investment funds with high management expense ratios (MERs). In selecting our sample, we focussed on investment funds domiciled in Ontario, excluding labour sponsored investment funds due to their different fee structure. We sent letters to seven fund managers, asking questions relating to 11 of their investment funds which, in aggregate, had a net asset value (NAV) of $43.2 million.

Approximately half of the investment funds in our sample were selected because they disclosed MERs in excess of 5%. In our comment letters, we asked the fund managers of these funds to explain the nature and appropriateness of expenses charged to their funds. The average NAV for funds in this category was $3.4 million. These fund managers consistently commented that most fund expenses are fixed and the small size of the investment funds contributed to high MERs. The fund managers are planning to make their funds grow by focussing on marketing and distribution channels going forward, in an effort to increase the fund size and reduce MER. While fixed expenses are higher in proportion to the NAV of new funds, if such funds are not able to demonstrate that they are viable after a reasonable period of time, we would expect fund managers to consider all options available to them in order to improve performance, increase fund size, manage fund costs, achieve efficiencies of scale and, ultimately, reduce MER.

For the other half of our sample, fund managers had absorbed a significant level of expenses in order to present MERs after absorptions consistent with the industry average. We asked the fund managers whether this level of absorption was sustainable and what their plan was to reduce MERs in the future. Consistently, we heard that funds in this category were new funds and each fund manager intended to absorb expenses until their NAV grew to a size associated with an MER that investors would feel is reasonable. While waiving fund expenses is within the rights of fund managers, a pattern of absorbing expenses for many years may set investor expectations. Fund managers should make sure that those expectations are managed appropriately so that investors understand that waivers or absorptions could cease in the future, potentially resulting in a higher MER.

I don’t know which funds they looked at, but did dig out one fund – subsequently closed – with a Management Expense Ratio in excess of 5%:

That was an MER of 5.23%

In 2010, the MER increased to 5.44%:

“Holy Smokes”, I can hear you guys thinking. “The Independent Review Committee made almost as much as the manager! They must have done a lot of work!”.

You silly, gullible people. The IRC report for 2010 states:

Recommendations and Approvals

The Committee made no recommendations or approvals during the Reporting Period.

It’s a regulatory requirement to have an Independent Review Committee; this rule, introduced in mid-2000’s, was enthusiastically supported by Investor Advocates because people who describe themselves as Investor Advocates are basically brain-dead.

As far as I am aware, there has never been a review of the concept to determine whether these things have actually accomplished anything since inception and, if by odd chance they have, whether these things could have been accomplished more cheaply. It would also be interesting to perform a detailed analysis of the other expenses to determine how much of these expenses are incurred simply because of regulation and whether those regulated expenses served any useful purpose. Then, of course, there’s the whole question of inflated prices being charged for simple services by effective monopolies … owned by the banks, but that’s OK because they charge the bank funds the exact same amount! Also, of course, banks get forbearance with respect to the Competition act because they pay a kickback to the regulators. To hire more staff, you know.

But we’ll never see the regulators examining themselves to see if they and their friends should be laid off. And no pressure from the politicians, either.

In other news, the previously announced recession has been cancelled:

The Canadian economy created 42,000 jobs in July – not 200 as mistakenly reported last week by Statistics Canada – as revised numbers beat market expectations.

The unemployment rate declined 0.1 percentage points to 7 per cent.

The release of a revised Labour Force Survey comes after the federal agency took the unprecedented move Tuesday of pulling its monthly Labour Force Survey that had been released last Friday. The agency had said it uncovered an error but had declined to quantify the mistake or offer much of an explanation until Friday morning.

It was a mildly negative day for the Canadian preferred share market, with PerpetualDiscounts down 3bp, FixedResets off 1bp and DeemedRetractibles losing 7bp. Volatility was minimal. Volume was pathetically low.

Cheap houses in the US are requiring more money down on the mortgage, although it still looks pretty low:

Already beset by stagnant wages, growing student debt and competition from investors who are snapping up listings, those looking to purchase moderately priced houses must also provide more cash up front. The median down payment for the cheapest 25 percent of properties sold in 2013 was $9,480 compared with $6,037 in 2007, the last year of the previous economic expansion, according to data from 25 of the largest metro areas compiled by brokerage firm Redfin Corp.
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The median down payment for the cheapest 25 percent of homes was 7.5 percent of the sales price last year, up from a low of 3.1 percent in 2006 and compared with an average 4.2 percent from 2001 through 2007, according to Seattle-based Redfin. For properties in the middle 50 percent, the share rose to 8.8 percent in 2013 from an average 8.2 percent in the seven years leading to the last recession, and for the top quarter it climbed to 20.9 percent from 19 percent.

… while in Canada, forecasters are jostling to see who can predict higher prices:

The Conference Board of Canada on Wednesday boosted its forecast for condo resales and prices in Toronto. It now anticipates that 20,083 condos will sell over MLS in the city this year (a year ago, the Conference Board expected that number to be 19,080) at a median price of $316,744 (it previously expected that to be $310,242).

The Conference Board also raised its forecasts for resale condo prices in Calgary, Edmonton, Vancouver and Victoria, but ratcheted down its expectations slightly for condos prices in Quebec City, Montreal and Ottawa.

Europe’s in a bad way and the Bloomberg editors want pump-priming:

Since the global financial crisis of 2008, the U.S. and the U.K. have seen output grow more slowly than in previous recoveries. That’s nothing to boast about. Still, six years on, gross domestic product is higher in both countries than it was at the pre-crisis peak. Europe’s output remains 2.4 percent below that benchmark. And the gap isn’t closing.

All three of the euro area’s biggest economies — Germany, France and Italy — are failing. Germany’s output actually fell in the second quarter. So did Italy’s, for the second consecutive quarter. (Whether this is a new recession for Italy or a continuation of the old one is debatable.) The European Central Bank currently forecasts a rise in euro-area output of 1 percent this year. Expect that to be revised down next month.
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German policy makers have resisted proposals to loosen the euro area’s agreed fiscal targets. The European Commission has echoed the same line, insisting that supply-side reforms are the key to recovery. This is short-sighted. Europe needs both demand-side and supply-side stimulus — but the first is both more urgent and can be delivered more promptly.

But at least the Canada Pension Plan is making money!

The Canada Pension Plan fund earned a 1.6-per-cent return on its investments in its latest quarter as returns slowed from last year’s stellar gains.

The Canada Pension Plan Investment Board, Canada’s largest pension fund manager, said Thursday its assets grew by $7.7-billion in the fiscal first quarter ended June 30, boosting total assets to $226.8-billion from $219.1-billion at the end of March. CPPIB said the gain consisted of $3.4-billion in gains from investments and $4.3-billion from new contributions.
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The fund said Thursday it has a five-year rate of return of 8.5 per cent after inflation is taken into account, and a 10-year return of 5.4 per cent, which is well above the rate of return required to ensure the fund is sustainable at the current contribution rate. The Chief Actuary of Canada has projected the fund must earn 4 per cent after inflation on a long-term basis to meet funding projections over a 75-year period.

It was a modestly negative day for the Canadian preferred share market, with PerpetualDiscounts down 6bp and FixedResets and DeemedRetractibles both down 4bp. Volatility was completely non-existent. Volume was below average.

In the wake of the August jobs number fiasco, it has been suggested that timeliness of delivery of other data should be improved:

It should be noted that the United States doesn’t rely on a household survey to estimate its monthly job numbers. Oh, it conducts one, as a secondary measure; but its primary labour market numbers come from payroll data gathered from employers and government agencies. As such, they are a more accurate measure of actual payroll employment – they reflect things like paycheques issued and taxes paid.

Actually, Statscan does this, too – it’s called the Survey of Employment, Payrolls and Hours (SEPH), and it, too, is published monthly. It relies even more heavily on government payroll-deduction data than the U.S. report, and is considered a highly reliable measure of the labour market.

Notably, the SEPH has diverged considerably from the LFS in recent months. For the first five months of this year, the SEPH shows that employment rose by just 33,600 jobs, or an average of 6,700 a month. But according to the LFS, employment, the gains were almost double that – 62,200, or an average 12,400 a month.

The SEPH’s big drawback is its lack of timeliness. SEPH data lag behind the LFS release by nearly two months; Statscan won’t publish the SEPH for June until Aug. 28. Markets don’t want to wait that long for such a key measure of economic health.

David Watt, chief economist at HSBC Bank Canada, suggests that Statscan should deliver the SEPH at the same time as the LFS, as the U.S. does in its employment report.

The CMHC is crossing its fingers for a soft landing for housing prices:

According to CMHC’s third quarter 2014 Housing Market Outlook, Canada Edition1, housing activity will continue to be supported by economic and demographic fundamentals for the rest of 2014 and into 2015.
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Multiple Listing Service® (MLS®2) sales are expected to range between 450,800 and 482,700 units in 2014, with a point forecast of 463,600 units. In 2015, sales are expected to range from 455,800 to 502,900 units, with an increase in the point forecast to 474,300 units.

The average MLS® price is forecast to be between $394,700 and $405,700 in 2014 and between $396,500 and $416,900 in 2015. CMHC’s point forecast for the average MLS® price calls for a 4.5 per cent gain to $399,800 in 2014 and a further 1.8 per cent gain to $406,800 in 2015.

And, surprisingly, bank holdings of insured mortgages are declining:

Canada’s largest banks, as a whole, have seen almost no growth in their insured mortgage portfolios recently, Macquarie Capital Markets analyst Asim Imran discovered.

He found this out by digging through some data that the banking regulator – the Office of the Superintendent of Financial Institutions – gathers.

The growth that banks have shown in their mortgage portfolios of late has come from a strong uptick in uninsured mortgages, he concluded. Chartered banks saw uninsured mortgages rise 13.5 per cent year over year in May (for the Big Six banks it was 12 per cent). Insured mortgages, in contrast, were down 0.8 per cent month over month, and up just 0.1 per cent year over year.

Economic sanctions against naughty countries are having their intended effect:

Deutsche Bank AG plans to hire about 500 compliance, risk and technology employees in the U.S. by year-end, Jacques Brand, its North American chief executive, said in an interview last month. The bank is under investigation for potential violations of U.S. sanctions.

The hiring spree for compliance executives who understand U.S. sanctions laws comes in part from the trend toward appointing outside monitors as a condition of some settlements.
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“Having someone who has come directly from those regulatory bodies or otherwise understands the evolving rules and regulations gives firms a significant advantage,” said Justin Mandel, co-founder of JW Michaels & Co., a New York-based recruitment firm that places compliance staff at banks and asset managers. “OFAC is one of those areas where it’s relevant.”

That’s led banks to pay up for top talent. Compensation is often the main reason many leave government jobs.
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Recent Treasury job openings on the federal government’s employment website, www.usajobs.gov, have included an OFAC sanctions compliance officer whose salary range is listed as $63,091 to $116,901 a year, according to the website.

At a bank, someone with a similar level of experience as the compliance officer may receive a $170,000 salary, said Stuart Rosenthal, who’s based in Montclair, New Jersey, and runs a recruiting firm focused on placing compliance and regulatory staff.

It was a good day for the Canadian preferred share market, with PerpetualDiscounts gaining 11bp, FixedResets winning 16bp and DeemedRetractibles up 13bp. Volatility was minimal. Volume was below average.

PerpetualDiscounts now yield 5.18%, equivalent to 6.73% interest at the standard conversion factor of 1.3x. Long corporates now yield about 4.2%, so the pre-tax interest-equivalent spread is now about 255bp, unchanged from August 6.

Remember that Canadian jobs number I gleefully reported on August 8, thrilled to have my prejudices reinforced? Well, it’s been cancelled:

Statistics Canada has pulled Friday’s disappointing jobs report after discovering an error and officials are working to release new estimates by the end of the week.
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Those July numbers are wrong but the federal agency is not giving any indication of the size of the mistake.
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Ms. [Sylvie] Michaud [Statistics Canada’s Director General of Education, Labour and Income statistics] said that to her knowledge, this is the first time Statistics Canada has ever pulled its Labour Force Survey.

Speaking of numbers, Kevin Carmichael of the Globe highlights two:

At least Fed chair Janet Yellen has been good about telling everyone about the many gauges she’s watching. Two of them, the rate at which companies are hiring and the rate at which workers are quitting, were updated by the Labor Department Tuesday. Unlike the broader unemployment rate, which is returning to a level at which the Fed typically would equate with full employment, these more granular measures of labour market dynamics suggest the U.S. economy is less than fully healed. The data reinforce Ms. Yellen’s argument that higher borrowing costs can wait.
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If Ms. Yellen perceived the quit rate as low in March, she remains disappointed today. Adjusted for inflation, the quit rate was 1.8 per cent in June, unchanged from the start of the year. The rate was 1.6 per cent in June, 2013.

Similarly, employers hired 4.83 million people in June, compared with 4.74 million in May, lifting the hiring rate to 3.5 per cent from 3.4 per cent. The quit and hiring rates sunk during the recession and have steadily climbed from those lows. Yet they still are below pre-recession levels. In the years ahead of the Great Recession, the quit rate floated above 2 per cent and the hiring rate was closer to 4 per cent than 3.5 per cent.

Bloomberg has squared its rot for a big boo-hoo-hoo about competition:

John Turner suspected that brokers were encouraging federal workers to ditch their top-flight retirement plan. So he went under cover.

The former U.S. Labor Department economist called representatives at companies such as Bank of America Corp., Charles Schwab Corp. and Wells Fargo & Co. He identified himself as a potential client grappling with what to do with his own nest egg.

Turner thought he knew the right answer: Leave it alone. As a legacy of his government service, he kept his money in the Thrift Savings Plan, considered the gold standard of 401(k)-type programs for its rock-bottom fees. Yet all but one company told him to roll over all his money into individual retirement accounts. On average, stock funds charge almost 50 times more than the government plan.

“It’s a scandal,” said Turner, director of the Pension Policy Center in Washington. “They are trying to sell me an IRA clearly not in my interest. It’s in their interest. They want to get the fees.”

The pitches are persuasive. Workers who leave jobs with the federal government transferred $10 billion last year out of the Thrift Savings Plan. Forty-five percent of participants who left federal service in 2012 removed all of their funds from the plan and closed their accounts by the end of 2013. To investigate this exodus, the government expects to survey departing workers later this year.

The funds offered by the Thrift Savings Plan look pretty good – index funds with rock-bottom fees; definitely a leading option for the core of a portfolio. And I will certainly not risk evisceration in the comments section by suggesting that the external brokers are all altruistic financial geniuses (genii?) whom I would be happy to trust blindly with the Hymas Fortune.

However, it is well known that many, if not most, employees enrolled in sponsored 401(k)’s are idiots. Two very popular strategies are putting the entire amount into the option labelled as having the lowest risk or, my favourite, the “1/N” strategy where, confronted by N choices, the investor puts an equal amount into each of them.

I see that the Thrift Savings Plan offers ‘Lifecycle’ funds, which ” use professionally determined investment mixes that are tailored to meet investment objectives based on various time horizons”. I’m willing to accept that these represent a decent enough investment strategy, but as someone who has produced various elaborations of the Retirement Calculator from Hell, I know that a lot of estimates and approximations go into doing a good job on this kind of stuff, it’s not easy and it’s not particularly generic, given individual’s circumstances, expectations and foibles.

In many cases, I am sure, gullible federal employees have made a dumb move by transferring their money. But I am equally sure that in just as many cases they’ve been smart to transfer, given their own attitudes towards financial markets. What’s better? Cheap, plain-vanilla financial advice that you ignore, or expensive, plain-vanilla financial advice that you follow?

It was another mixed day for the Canadian preferred share market, with PerpetualDiscounts rocketing up 40bp, FixedResets off 1bp and DeemedRetractibles ahead 14bp. Volatility was minimal – surprisingly, I’d say, the PerpetualDiscount win is broadly based. Volume was low.

Nothing happened today.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts down 17bp, FixedResets flat and DeemedRetractibles up 13bp. Volatility was minimal. Volume was low.

The economy is still in the pits:

Canadian employers created barely any jobs in July, surprising forecasters and reinforcing the Bank of Canada’s decision to keep interest rates low.

Statistics Canada’s monthly tally of hiring and firing produced a net gain of 200 positions last month, as a 60,000 increase in part-time jobs marginally outweighed a 59,700 plunge in full-time positions.
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StatsCan estimates there were 17,820,900 people working in July, only 0.7 per cent more than a year ago. The labour participation rate, which measures the percentage of the population either working or seeking work, dropped to 65.9 per cent, the lowest since October 2001. Employment in goods-producing industries has shrunk by 56,000 positions this year, reducing the headcount to its lowest since January 2012, according National Bank Financial.
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Canada’s businesses are wary of using their profits to expand, as demand at home and abroad remains lacklustre.

The result is an economy that has plateaued. Construction led the decline in goods-producing industries, as builders cut their payrolls by 42,200 in July from June. Factories added 11,500 workers last month, but there still were 14,200 fewer people working in manufacturing than there were a year earlier. There are now almost two Canadians working in the services industry for every one worker in goods-producing sectors. Employment in health care and social assistance increased by 87,100 positions from July 2013, although health jobs declined by 28,500 last month. Finance and real estate declined by 22,400 in July from a year earlier.

Dan Hallett wrote a piece on the Alterna Bank Market Tracer GIC the other day:

While the issuer – Alterna Bank – doesn’t make an offering document available on its website, it provides a fact sheet and other information with sufficient details to test the product using actual historical data. Using the formulas contained in the fact sheet, I was able to model the S&P/TSX 60 Index to see how often and by how much the GIC would have beaten the pure index investment over both 3 and 5 year terms.
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From September 1999 through June 2014 there were 141 rolling 3-year periods based on monthly data. … 77 per cent of the time Market Tracer loses. During the little time during which Market Tracer would have done better, its margin of outperformance would have been much smaller than the margin of underperformance.
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From September 1999 through June 2014 there were 123 rolling 5 year periods based on monthly data. … •In other words, the time Market Tracer would have lost during virtually every five year period by a large margin. And in the few instances where it was successful, it just squeaked by the index.

It’s always good to check things with a simulation, but there is an easier way to understand why this product is no good.

According to the linked fact sheet,

Click for Big

OK, so the total return to maturity on the instrument is dependent upon the average of the index level at every interim month-end. So the return will be path dependent.

What kind of path is best? Well, given a monotonic return function, it is clear that for any given end-value of the index in excess of the initial level, it is best if the market jumps up to that level instantly and remains there for the full term (if the return function is not monotonic, then we want the index level to go arbitrarily high in the first month and remain there until it dives to the end-value at maturity).

OK … from this preliminary insight, we can generalize that we want the good months to come at the beginning of the term and the bad months to come later. What does that remind us of?

Any Reader who didn’t immediately say “Sequence of Returns Risk with Negative Cash Flows” is not sufficiently Assiduous and should read more of my publications. But this insight helps us to determine how this vehicle could be replicated.

If the term is N months, then divide your initial investment into N equal sub-portfolios and invest each one in the index. At the end of every month, liquidate one of the sub-portfolios and keep the proceeds in cash earning no interest; zip, zero, zilch interest. The big Nada.

Then – ignoring the principal protection of the note and assuming that the “Participation Factor” is 100%, the end-value of this investment strategy will be equal to the end-value of the Alterna GIC.

So basically, then, half your investment is in cash earning zero. Is it any wonder the note underperforms the index? The only surprise is that it outperforms sometimes … but I attribute this to the time period Mr. Hallett chose for his simulations. The period 1999-2014 is notable for times at which having a put option on an equity index was a Good Thing.

My attention was brought to an attempt at flim-flam recently:

Canada’s biggest banks accepted tens of billions in government funds during the recession, according to a report released today by the Canadian Centre for Policy Alternatives.

Canada’s banking system is often lauded for being one of the world’s safest. But an analysis by CCPA senior economist David Macdonald concluded that Canada’s major lenders were in a far worse position during the downturn than previously believed.

Macdonald examined data provided by the Canada Mortgage and Housing Corporation, the Office of the Superintendent of Financial Institutions and the big banks themselves for his report published Monday.

It says support for Canadian banks from various agencies reached $114 billion at its peak. That works out to $3,400 for every man, woman and child in Canada, and also to seven per cent of Canada’s gross domestic product in 2009.

The figure is also 10 times the amount Canadian taxpayers spent on the auto industry in 2009.

“At some point during the crisis, three of Canada’s banks — CIBC, BMO, and Scotiabank — were completely under water, with government support exceeding the market value of the company,” Macdonald said.
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The federal government claims it was offering the banks ‘liquidity support,’ but it looks an awful lot like a bailout to me,” says Macdonald.
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“It would have been cheaper to buy every single share in these companies,” Macdonald said.

One would hope that somebody commenting on the banking system – any banking system – would understand the difference between solvency and liquidity; but it is apparent from the last three quoted paragraphs that Mr. Macdonald either doesn’t know or doesn’t care. So, the Canadian Centre for Policy Alternatives has merely cemented its reputation for pig-ignorance; but maybe they were able to reinforce the prejudices of their donors sufficiently to stay afloat for a little while longer.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts up 29bp, FixedResets off 5bp and DeemedRetractibles gaining 3bp. Volatility was minimal. Volume was very awfully extremely low.

And now it’s time to do PrefLetter. I’ve got my supplies … two boxes of doughnuts, three packages of Nibs (cherry), three large bags of potato chips, eight packages of cookies and a large container of salted roast peanuts. Let’s eat right to keep fit, that’s what I say!

Call the papers! A cabinet minister said something intelligent:

Federal Employment Minister Jason Kenney says he wants to exploit a “dysfunctional” American immigration system to lure high-tech workers to Canada when they can’t get permanent residency in the United States.

The minister said Wednesday the U.S. failure to reform its immigration system is keeping an opportunity open for Canada and there are plans to make it easier for prospects to come to Canada with program changes this January. Mr. Kenney did not provide details of the specific changes.
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“If you’ve got a degree in something like computer science from Stanford or the Massachusetts Institute of Technology and the Americans won’t give you a green card, you’re welcome to Canada. We have a functioning immigration system that will become even faster-moving under express entry in January of next year.”

Fortunately for our prejudices, however, they had to admit:

Mr. Kenney noted that Canada previously posted a billboard in Silicon Valley, promoting low taxes and visas for those having trouble with their U.S. visas.

Mr. Kenney’s office was asked about numbers on the program, but a spokesperson said they were not available.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts off 8bp, FixedResets up 14bp and DeemedRetractibles gaining 3bp. Volatility was minimal. Volume was extremely low.

There is perplexity about the recent fall of junk:

There’s no obvious explanation for the 1.5 percent decline in U.S. high-yield securities in the past month, or the $9.9 billion of cash pulled from mutual funds that buy the debt. The most likely reason is that investors are increasingly uncomfortable hanging onto bonds that are expensive by historical measures.

Chalk this one up to a collective bout of angst that looks quite different from the 3.2 percent drop in speculative-grade bonds in May and June of last year. That rout was triggered by the prospect of less Federal Reserve stimulus and, while a withdrawal of easy-money policies still weighs on investors’ minds, that’s not the full story now.
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Some evidence that high-yield bonds aren’t falling because of rising-rate concerns can be found in investment-grade debt. Investors plowed $10.4 billion into funds focused on those securities, which are more sensitive to moves in benchmark yields, according to an Aug. 4 Wells Fargo & Co. (WFC) report.
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Yields on junk bonds are still close to the lowest ever, and some investors are getting out while they can relatively easily — before everyone exiting at once tests a market where Wall Street is using less capital to facilitate trading.

The 6.2 percent yield on junk bonds is 2.7 percentage points below their decade-long average, yet 3.2 percentage points more than investment-grade securities, about the most since October, according to Bank of America Merrill Lynch index data.

I suggest that limits on dealer capital are key; and we’d better get used to increased volatility on everything until a new class of hedge fund – one that acts as a bond dealer – pops up.

Geez, banks are irritating. I toddled off to the bank today, complete with voided cheque to do a wire transfer. Disaster. They don’t just need the information on the cheque, they need all kinds of other things as well. So … there’s enough information on a cheque to take money out of an account. But there is insufficient information to put money in. I don’t know whether it’s bank policy or regulations – and there’s no point in trying to find out, because nobody who knows will talk to me and nobody who talks to me will have a clue, so they’ll just make something up, I’ve been down that road before – but it makes no sense to me. Judging by what they charge for a wire transfer, maybe it’s just that they don’t want to do the business; I learnt about twenty years ago that their internal bookkeeping and exception reporting in real time for wire transfers was virtually non-existent; I learnt about ten years ago that the same applies on an end-of-day basis.

It was a lacklustre day for the Canadian preferred share market, with PerpetualDiscounts and DeemedRetractibles both gaining 1bp and FixedResets off 3bp. Volatility was minimal. Volume was extremely low.

PerpetualDiscounts now yield 5.20%, equivalent to 6.76% interest at the standard equivalency factor of 1.3x. Long corporates now yield a little under 4.2%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 255bp, a slight (and perhaps spurious) widening from the 250bp reported July 30.