Category: Market Action

The times, they are a-changing:

More than half of the asset managers polled that use ETFs have fixed income funds in their portfolios now, and the category has seen major growth in the last two years. That compares to more than 80 per cent who use international and domestic equity funds in their investing.
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Mr. Walker attributes this to regulatory changes making traditional markets more expensive, as well as the maturity and size of the ETF market with secondary markets now available on larger funds.

The WSJ points out:

While it’s important to look at how ETF shares are trading, the fund’s underlying holdings are really the heart of the liquidity issue, experts say.

One reason: Big investors known as “authorized participants” can swap a basket of the fund’s underlying holdings for ETF shares—or vice versa. This process helps arbitrage away significant gaps between the ETF’s share price and its NAV, the value of its underlying holdings. But when the underlying holdings are costly to trade and tough to obtain, authorized participants are less willing to round up that basket of securities. That means big gaps can develop between an ETF’s share price and its NAV.

One place to watch out for these premiums and discounts is in bond ETFs, especially those focused on areas like corporate investment-grade and high-yield, or “junk,” bonds. The iShares iBoxx $ High Yield Corporate Bond Fund closed within 0.5% of NAV on only four days in the fourth quarter, iShares says, and traded at a premium as large as 2.1% in that period.
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When underlying holdings are traded less frequently, or not at all, an ETF’s returns also may diverge from the benchmark it is designed to track. That became an issue for some bond ETFs recently as the Federal Reserve bought up large quantities of agency bonds and mortgage-backed securities, essentially removing them from the market. Vanguard Group recently changed some of its bond index funds and ETFs to benchmarks that exclude these securities purchased by the Fed.

The biggest test of bond-ETF liquidity may be yet to come. So far investors have poured money into these products, and many bond ETFs are trading at significant premiums to NAV. But if investors reverse course and stampede out, the trading could get ugly, experts say. Given the relative illiquidity of many of the underlying bonds, the ETFs could start trading at significant discounts to NAV.

“When everybody tries to get out, it’s going to be a debacle,” says Scott Freeze, president of Street One Financial.

Yellen’s speech at Jackson Hole dealt with the labour market:

Labor force participation peaked in early 2000, so its decline began well before the Great Recession. A portion of that decline clearly relates to the aging of the baby boom generation. But the pace of decline accelerated with the recession. As an accounting matter, the drop in the participation rate since 2008 can be attributed to increases in four factors: retirement, disability, school enrollment, and other reasons, including worker discouragement. Of these, greater worker discouragement is most directly the result of a weak labor market, so we could reasonably expect further increases in labor demand to pull a sizable share of discouraged workers back into the workforce. Indeed, the flattening out of the labor force participation rate since late last year could partly reflect discouraged workers rejoining the labor force in response to the significant improvements that we have seen in labor market conditions. If so, the cyclical shortfall in labor force participation may have diminished.
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One convenient way to summarize the information contained in a large number of indicators is through the use of so-called factor models. Following this methodology, Federal Reserve Board staff developed a labor market conditions index from 19 labor market indicators, including four I just discussed.14 This broadly based metric supports the conclusion that the labor market has improved significantly over the past year, but it also suggests that the decline in the unemployment rate over this period somewhat overstates the improvement in overall labor market conditions.

Finally, changes in labor compensation may also help shed light on the degree of labor market slack, although here, too, there are significant challenges in distinguishing between cyclical and structural influences. Over the past several years, wage inflation, as measured by several different indexes, has averaged about 2 percent, and there has been little evidence of any broad-based acceleration in either wages or compensation. Indeed, in real terms, wages have been about flat, growing less than labor productivity. This pattern of subdued real wage gains suggests that nominal compensation could rise more quickly without exerting any meaningful upward pressure on inflation. And, since wage movements have historically been sensitive to tightness in the labor market, the recent behavior of both nominal and real wages point to weaker labor market conditions than would be indicated by the current unemployment rate.
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Overall, I suspect that many of the labor market issues you will be discussing at this conference will be at the center of FOMC discussions for some time to come. I thank you in advance for the insights you will offer and encourage you to continue the important research that advances our understanding of cyclical and structural labor market issues.

On a more practical note, the Fed will have to implement monetary policy in a more complicated than usual way when the tightening eventually comes:

The Federal Reserve will probably borrow “several hundred billion” dollars from money-market mutual funds and others to anchor the federal funds rate when it begins tightening policy, according to St. Louis Fed President James Bullard.

“I don’t think it would have to be that large of a program. Possibly several hundred billion would be enough,” Bullard said, referring to the Fed’s overnight reverse repurchase facility, which it has been testing since September.
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The Fed’s need for a tool to influence repo rates directly arose after almost six years of bond buying to stimulate faster economic growth flooded the banking system with $2.79 trillion of excess reserves. Banks no longer need to borrow reserves in the once-vibrant fed funds market, so the fed funds rate no longer represents the true cost of overnight credit.

The fed funds market is “a mere shadow of its former self, but I think we can maintain some of the focus on the federal funds rate on the grounds that that’s the usual rate that we’ve used to communicate to people,” Bullard said.

What a day for central bankers! Even Parakeet Poloz was handed a script:

Bank of Canada Governor Stephen Poloz said the economy has “lots of room to grow,” suggesting a spate of stronger data points won’t sway the central bank from its plan to leave interest rates unchanged at least until well into next year.

Mr. Poloz made the comments in an interview Friday, after Statistics Canada reported milder inflation and stronger-than- expected retail sales. At the same time, the vast majority of jobs created this year in Canada are part-time positions, a phenomenon that Mr. Poloz said is a “symptom of slack” in the labour market. That argues in favour of maintaining a policy of low borrowing costs, as the economy is a long way from putting pressure on inflation.

There is a thought-provoking piece on The Dish:

As the indispensable Valleywag tells us this morning, people within the app economy are catching on to the fact that it’s not, actually, an industry in which they can achieve long-term economic security, let alone riches. The bottom 47% of developers make less than $100 a month. Studies have shown that the vast majority of revenues goes to a tiny fraction of developers. The numbers are even more stark when it comes to in-app revenue. Less than .01% of all apps will be considered a financial success, according to some estimates. It turns out that, as in so many other things in the American economy, the app industry is a winner-take-all field, a lottery ticket economy where a tiny number make out like bandits and most people can’t get ahead. And as usual, it’s only the biggest firms– Apple, Google, Microsoft– which are getting ahead.

So all the kids who heard the clarion call and rushed out to get CS degrees, or to drop out under the advice of Peter Thiel, and start coding in their basements– are they all chumps? Do they deserve scorn? Do they deserve to be unable to scratch out a living? Of course not. Like so many others, most of them did what their society told them to do to pursue the good life: work hard, go to school, and try to provide value for people so that you can earn a living. They were sold on a social contract that is failing them. No one can be reasonably expected to predict what skills the economy will value five, ten, twenty years in advance. The urge to call out others for what you perceive as their bad choices is destructive in a labor economy where, despite gains in overall unemployment rate, workers still have remarkably little bargaining power, thanks to underemployment, lack of benefits, low pay, and poor hours. Rather than succumbing to our petty insecurities by blaming others for their economic conditions, we need to look at the macroeconomic factors that are hurting our labor markets. We need to recognize that automation and artificial intelligence are pushing us towards a new era of work– one with tremendous potential productivity gains, but also tremendous uncertainty for labor, even educated labor. It’s time to stop calling people chumps and start building the kind of social system that can guarantee basic material security for all of our people, so that we can all share in the staggering gains of efficiency and productivity that technology is bringing about.

deBoer is too pessimistic. While apps are clearly the sexy part of the coding world, they’re not the total of it. A skilled coder can make good money working for … just about any company big enough to write its own code. Of more interest is the emphasis on macro-economic factors … I believe that we are heading towards an era of increased personal service in a polarized economy; personal service up to and including a return of full-time servants. That’s a shift that will take some getting used to!

Tim Kiladze of the Globe writes a good piece on private equity valuation:

The issue is a hot one at the University of Toronto’s Rotman International Centre for Pension Management, which is run by renowned pension expert Keith Ambachtsheer. At this very moment the ICPM is doing research to find better ways to come up with mid-point valuations for illiquid, private assets.
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When pressed about their private equity exposures, Canada’s pension funds often point out that their private asset portfolios are largely comprised of infrastructure investments, such as toll roads or water utilities. Because these assets are government regulated and are often essential to daily life, they are widely viewed as extremely safe alternatives that are bound to see their values rise in the long run.

Not everyone is convinced. Jim Keohane, chief executive officer of HOOPP, the pension plan for Ontario health care workers, stresses that these assets are still illiquid. “Liquidity can have tremendous value at certain points in time,” he said, adding that the risk premiums embedded in the values for these rarely traded assets often aren’t high enough. “From what we can see in pricing, it’s just not there.”
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“I go to meeting after meeting, and I hear over and over again, ‘I just made this investment last year and the regulator came in and changed the rules on me.’ That happens all the time,” he said.

The Canada Pension Plan Investment Board, for one, recently invested in Gassled, Norway’s offshore gas pipeline system, and shortly after, the country announced major cuts to gas transportation tariffs, prompting the Canadian fund and its investment partners to sue, tying them – and their capital – to a lawsuit that could drag on for years.

Speaking of government regulation, maybe we’ll get more interference from the feds in the rail system, to deal with this year’s projected bumper harvest:

The ripening corn and soybean fields stretch for miles in every direction from Dennis Wentworth’s farm in Downs, Illinois. As he marveled at his best-yielding crops ever, he wondered aloud where the heck he’ll put it all.

“Logistics are going to be a huge problem for everyone,” the 62-year-old grower said, adding that he has invested in boosting output rather than grain bins. When harvesting starts in a few weeks, Wentworth expects his 150-year-old family farm to produce 10 percent more than last year’s record. “There are going to be some big piles of grain on the ground this fall.”
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Surging crop supplies may exacerbate the squeeze on grain storage and shipping. BNSF Railway Co., owned by Warren Buffett’s Berkshire Hathaway Inc. (BRK/B), and Canadian Pacific Railway Ltd. struggled with “greater-than normal” demand from shippers of coal, oil and Midwest crops, the USDA said this month in a report.

Combined with inventories left from the 2013 harvest, production of all grains and oilseeds will boost 2014 supply to 26.97 billion bushels, USDA data show. That’s more than the 23.4 billion of storage on farms and grain-company silos as of Dec. 1, the government estimated in a Jan. 10 report.

“I don’t know where it will all go this year,” said Richard Guse, a 54-year-old farmer from Waseca, Minnesota, who owns a 1 million-bushel grain elevator that he expanded in the past year by 275,000 bushels. “We need better roads and faster train shipping to keep the grain moving,” Guse said this week while inspecting fields as part of the Pro Farmer crop tour.

As a concerned citizen, I have finally been brave enough to buy some early corn for dinner and will work night and day to reduce the surplus to the best of my ability.

It was a good day for the Canadian preferred share market, with PerpetualDiscounts winning 19bp, FixedResets up 12bp and DeemedRetractibles gaining 8bp. Volatility was nil. Volume was low.

Nothing happened again today. Dull week.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts off 6bp, FixedResets up 10bp and DeemedRetractibles gaining 4bp. Volatility was nil. Volume was very low.

Nothing happened today, either.

It was another mixed day for the Canadian preferred share market, with PerpetualDiscounts flat, FixedResets gaining 1bp and DeemedRetractibles off 8bp. Volatility was minimal. Volume was on the low side of average.

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.