Category: Market Action

Looks like there’s some support for my view that public dissent is good policy:

The central bank’s governing council was created to reassure the public that setting interest rates in Canada wasn’t a one-man show. Yet the bank kept on speaking with one man’s voice: the governor’s. The institution likes it this way. Too much loose talk only creates confusion. The best way for the central bank’s junior players to stay on message is to limit their public appearances. Timothy Lane, a former IMF official who has been on the governing council since 2009, gave three speeches last year, according to the Bank of Canada’s website. Agathe Côté, a 30-year veteran of the Bank of Canada, has given seven speeches in three years as the governing council’s only woman. The public has heard from Lawrence Schembri once in the 11 months that he’s been a member of the policy committee.
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In Wrong: Nine Economic Policy Disasters and What We Can Learn from Them, economics professor Richard Grossman chronicles the human cost of ideological blindness. There is no cure for the affliction, but Prof. Grossman argues forcefully that the kind of debate that goes on at the Fed is the best way to avoid mistakes that result in stubborn, arrogant and ill-informed thinking. Prof. Grossman actually uses Canada’s central bank as a counterpoint. He shares a conversation he had with a Fed economist, who, after visiting Canada to present new research, complained of a “Bank of Canada view,” rather than a free-flowing exchange of ideas.

It won’t happen. The feds have gotten far too fond of having the BoC as just another department of the Ministry of Finance. It will take another disaster – on the scale (domestically speaking) of Nixon / Burns – before the public pressures the politicians towards the view that Central Bank independence isn’t just a feel-good catchphrase. And right now, the trend is in the other direction; What Debt made public his most recent instructions:

“So look, it’s not a reason to panic; in fact, we’ve actually seen Canadian debt beginning to level off. But we would obviously encourage people to look at their debt levels carefully. Eventually, it may not be for two, three years, but eventually interest rates will start to rise. And Canadians should ask themselves serious questions about if interest rates came up significantly, would I still be able to afford my debt payments?”

In more ways than one! Inflation is not the problem:

Central banks in the U.S., Japan and the euro area face inflation levels under their targets while trying to accelerate growth with policies including benchmark interest rates near zero and bond-buying programs. Lagarde said that while “the deep freeze is behind,” world growth remains “too low, too fragile and too uneven,” with some 200 million people needing employment.

“The world could create more jobs before we would need to worry about the global inflation genie coming out of its bottle,” [International Monetary Fund Managing Director Christine] Lagarde said in a speech at the National Press Club in Washington today. “With inflation running below many central banks’ targets, we see rising risks of deflation, which could prove disastrous for the recovery.”

Speaking of ethics, we are now increasing our reliance on paid informants:

The federal Conservatives are following through on a budget promise to set up the snitch hotline.
People who report major international tax evasion over $100,000 can get a share of the money recovered.

Be the first kid on your block to denounce his parents!

And in today’s mixed-up world, nobody knows or cares about the difference between trading as principal or agent:

Front running occurs when someone with advance knowledge of another market participant’s plan to make a sizable transaction puts an order in first, often profiting from a market move that can occur once the big trade has gone through.

Wrong. For it to be front running, you need to have obtained the information while acting as a fiduciary. And guess what? Institutional desks trade as principals. The current fashion for turning them into order-takers will have a severely negative influence on the market. But who cares, as long as it happens after the next election?
It was a poor day for the Canadian preferred share market, with PerpetualDiscounts losing 22bp, FixedResets off 2bp and DeemedRetractibles down 9bp. Volatility was muted. Volume was on the high side of average.

PerpetualDiscounts now yield 5.67%, equivalent to 7.37% interest at the standard 1.3x equivalency factor. Long corporates now yield about 4.7%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 265bp, a significant widening from the 255bp reported January 8.

Nothing happened today, either.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts up 20bp, FixedResets gaining 2bp and DeemedRetractibles off 4bp. The Performance Highlights table is notable for a fine complement of winning BAM PerpetualDiscounts. Volume was high, with many issues trading over 100,000 shares.

Nothing happened today. Bloomberg has a nice piece on Chinese MMFs, but it’s not written in such a way that I can convey the gist by extracting a few paragraphs. It will be most interesting to see what, if any, mechanisms are introduced to forestall disruptive panic after a major default.

It was a negative day for the Canadian preferred share market, with PerpetualDiscounts off 3bp, FixedResets flat and DeemedRetractibles down 16bp. The Performance Highlights table is heavily skewed to the downside and notable for the presence of two TRP issues, hit with fallout from the new issue. Volume was high.

Today’s big news was a lousy US jobs number:

The 74,000 gain in payrolls, less than the most pessimistic projection in a Bloomberg survey, followed a revised 241,000 advance the prior month, Labor Department figures showed today in Washington. The median forecast of 90 economists called for an increase of 197,000. The unemployment rate dropped to 6.7 percent, the lowest since October 2008, as more people left the labor force.

It was even worse in Canada:

The Canadian economy unexpectedly shed 45,900 jobs in December, the steepest decline in nine months, led by a drop in full-time positions.

The country’s jobless rate rose to 7.2 per cent in December from 6.9 per cent, Statistics Canada said Friday, putting it at a five-month high.

Canada’s job growth slowed by year’s end as a string of companies, from Sears Canada Inc. to Potash Corp. of Saskatchewan Inc. and BlackBerry Ltd., announced job cuts while a wave of manufacturers, particularly in Central Canada, said they plan to close plants. Through 2013, job gains in Canada averaged 8,500 a month, a sharp drop from the average of 25,900 new positions per month in 2012.

December’s weak reading, which sent the Canadian dollar to a new four-year low, was far below expectations as the number of full-time positions tumbled by 60,000. Economists had forecast about 14,000 new jobs and an unchanged rate.

And Fischer got the White House nod for Fed vice-chair:

Stanley Fischer, former head of the Bank of Israel, will be nominated to serve as vice chairman of the Federal Reserve, the Obama administration said.

Fischer, 70, would replace Janet Yellen, who was approved by the Senate this week for the chairmanship of the U.S. central bank. Lael Brainard, formerly the U.S. Treasury Department’s top international official, will fill an empty seat on the board, and Jerome Powell is being nominated for a second term, according to a statement today from the White House.

DBRS confirmed DF.PR.A at Pfd-3(low):

Since the last rating confirmation in September 2013, the net asset value (NAV) of the Company has been increasing. As of December 31, 2013, the downside protection available to the Preferred Shares is approximately 40.2%, and the dividend coverage ratio is 0.82 times. The Pfd-3 (low) rating of the Preferred Shares is based primarily on the downside protection available and the additional protection provided by an asset coverage test, which does not permit any distributions to holders of the Class A Shares if the NAV of the Company falls below $15.

DBRS confirmed FTN.PR.A at Pfd-4(high):

Since the last rating confirmation in January 2013, the NAV of the Company has improved as U.S. and Canadian financial institutions outperformed the broader North American equity indices. Downside protection available to holders of the Preferred Shares rose to 41.6% as of December 31, 2013, from 32.8% on December 31, 2012. Despite the increased downside protection, the current dividend coverage ratio of around 0.65 and the reinstatement of Class A Share distributions result in an average grind of approximately 10% over the next two years. As a result, the rating has been confirmed at Pfd-4 (high).

And it was mostly good for the Canadian preferred share market today, although not as good as one might have thought, given an astonishing 13bp decline in the Ten-Year Canada yield, with PerpetualDiscounts off 1bp, FixedResets gaining 13bp and DeemedRetractibles up 15bp. The Performance Highlights table isn’t particularly lengthy but is uniformly positive and dominated by FixedResets. Volume was a little below average.

There’s a disturbing trend in the States:

New Jersey Governor Chris Christie called a news conference today after disclosures that an aide triggered a days-long traffic jam as political revenge, a revelation that threatens his national image and possible 2016 presidential run.
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Christie aides ordered the shutdown of the Fort Lee approach lanes to the bridge during four days in September to punish a Democratic mayor, according to e-mails obtained yesterday.
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An outline of the Christie administration’s link to the jams was contained in a cache of e-mails and text messages obtained yesterday by Bloomberg News.

“Time for some traffic problems in Fort Lee,” Bridget Anne Kelly, a deputy chief of staff for legislative and intergovernmental affairs, wrote to David Wildstein, a high school friend of Christie’s whom the governor appointed to the Port Authority.

“Got it,” Wildstein replied.

From Sept. 9 to 12, delays in crossing the George Washington Bridge that typically last about 30 minutes stretched to 4 hours or more. On the fifth day, officials on the New York side re-opened lanes on what the Port Authority calls the busiest bridge in the world, a key link for U.S. East Coast traffic on Interstate 95.

“We are appropriately going nuts,” Wildstein wrote to Kelly on Sept. 13, as traffic flowed. David Samson, Christie’s appointee as Port Authority chairman, was “helping us to retaliate” for the easing of the vehicular snarls.

This happened slightly prior to deliberate unnecessary inconvenience during the federal shut-down:

President Obama is not a bad poker player, but the man with all the chips always starts with the advantage (and he gets all the aces). He has closed Washington down as tight as he dares, emphasizing the trivial and the petty in making life as inconvenient as he can for the greatest number. It’s all in a noble cause, of course. Access to most of the memorials is limited, and often in curious ways. The Lincoln Memorial is easy to reach, with the streets around it remaining open. But the Martin Luther King Memorial is made difficult to reach, relegating it, you might say, to the back of the bus. Not very nice.

The Park Service appears to be closing streets on mere whim and caprice. The rangers even closed the parking lot at Mount Vernon, where the plantation home of George Washington is a favorite tourist destination. That was after they barred the new World War II Memorial on the Mall to veterans of World War II. But the government does not own Mount Vernon; it is privately owned by the Mount Vernon Ladies’ Association. The ladies bought it years ago to preserve it as a national memorial. The feds closed access to the parking lots this week, even though the lots are jointly owned with the Mount Vernon ladies. The rangers are from the government, and they’re only here to help.

This willingness to use government services as a political weapon has always been around, of course. But these examples are egregious.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts up 14bp, FixedResets down 6bp and DeemedRetractibles off 3bp. Volatility was average. Volume was average.

Nothing happened today.

It was another mixed day for the Canadian preferred share market, with PerpetualDiscounts gaining 1bp, FixedResets up 11bp and DeemedRetractibles down 12bp. The Performance Highlights table is short by standards of the past year. Volume was on the low side of average.

PerpetualDiscounts now yield 5.66%, equivalent to 7.36% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 4.8%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread” is now about 255bp, a slight (and perhaps spurious) narrowing from the 260bp reported December 27.

Bloomberg’s Matt Levine pens a good review of JPMorgan’s $1.7-billion Madoff fine:

If you think of JPMorgan’s businesses as operating more or less independently, but occasionally making each other money by cross-selling, then this mess makes more sense. A London investment bank that considered and rejected a derivative-linked investment in Madoff would have no obligations to report its suspicions to U.S. regulators. A boring custody bank that ran Madoff’s checking accounts but had no derivatives traders to get suspicious about him also probably wouldn’t be in trouble for missing the Madoff red flags. Combine the two businesses and the same behavior gets you in trouble. In that sense, JPMorgan’s $1.7 billion forfeiture here looks a bit like a tax on bigness and integration: You can grow huge, offer a loosely integrated set of every conceivable financial product, and bask in the cross-selling opportunities, but every now and then it’ll cost you a couple of billion dollars. So far that trade-off still seems to be worth it for JPMorgan.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts gaining 8bp, FixedResets up 16bp and DeemedRetractibles off 11bp. The Performance Highlights table is heavily skewed towards winners. Volume was well above average.

Today’s new issue from PPL is the second this week (too bad they’re both junk), so I win the nickel I bet last Friday. Now let’s go for #3!

Eric Rosengrun of the Boston Fed urges a restrained approach to tapering:

Federal Reserve Bank of Boston President Eric Rosengren, who cast the lone dissent last month against a Fed decision to taper bond buying, said policy makers shouldn’t rush to cut stimulus with inflation below 2 percent.

“With the inflation rate below target and the unemployment rate significantly above target, we believe strongly that monetary policy makers have the opportunity to be patient in removing accommodation,” Rosengren said today on a panel discussion at the American Economic Association’s annual meeting in Philadelphia. “This was one of the motivations for my dissenting vote.”

Consumer prices rose 0.9 percent in November from a year earlier, according to an inflation measure watched by the Fed. The central bank aims for inflation of about 2 percent.

That should get him into the good books of the new chairman!

Yellen, 67, was confirmed today by a 56-26 vote, with 11 Republicans supporting her. She’ll replace Ben S. Bernanke, whose second term as chairman expires Jan. 31, as the Fed trims monthly bond purchases in a first step toward lessening the unprecedented stimulus.

Spend-Every-Penny commented directly on interest rates, rather than getting his puppet to do it:

Finance Minister Jim Flaherty says Canada will be under pressure to raise interest rates in 2014, something Bank of Canada Governor Stephen Poloz has signaled won’t happen soon.

In an interview with CTV aired Sunday, Mr. Flaherty said clawed-back stimulus spending by United States’ Federal Reserve will, along with calls by the Organisation for Economic Co-operation and Development (OECD) and International Monetary Fund (IMF), leave Canada under pressure to raise its rates.

“I think the pressure will be there, because the Fed in the U.S. should stop printing money, and taper off as they say. And that should help,” he said, referring to the dialing back of U.S. bond-buying, or quantitative easing. “The OECD and the IMF have both said to Canada we ought to let our interest rates go up a bit. So there’ll be some pressure there for that to happen.”

There’s some interesting commentary on tenure on Bloomberg:

The proximate cause of the most recent explosion is a letter that University of California at Riverside sent to applicants for tenure-track positions in the English department, informing them that five days hence, they would have the opportunity to interview at the annual meeting of the Modern Languages Association. Rebecca Schulman reasonably, if somewhat intemperately, pointed out that for people living on the paltry wages of a grad student, a last-minute plane ticket is a pretty expensive entry fee for a slim chance of a tenure-track job.

Karen at The Professor Is In blog followed up with a long, angry post about the blind eye that tenured faculty turn to the travails of adjuncts and grad students. The title, “How the Tenured are to the Job Market as White People are to Racism” drew more than a little anger, understandably. But her broader point is sound: academia is now one of the most exploitative labor markets in the world. It’s not quite up there with Hollywood and Broadway in taking kids with a dream and encouraging them to waste the formative decade(s) of their work life chasing after a brass ring that they’re vanishingly unlikely to get, then dumping them on the job market with fewer employment prospects than they had at 22. But it certainly seems to be trying to catch up.
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Professional sports also runs on the tournament model, but with one key difference: athletes find out pretty early that they’re not going to make it — early enough to still have a basically normal life doing something else. As the time it takes to get a PhD has stretched out, academia is looking less and less like athletics, and more and more like the theater. The students would be much better off if they were weeded out earlier, in the application process for PhD programs. A substantial fraction — maybe the majority — of PhD programs really shouldn’t exist.

One thing that’s interesting is the assertion that job prospects for the losers of the tenure competition are worse than they would have been had they not done a PhD. That does not speak well for the concept of a liberal arts education, if true. But all in all, my worry is research standards: there’s a lot of dumb research done and a certain amount of it is fabricated.

It was another good day for the Canadian preferred share market, with PerpetualDiscounts winning 17bp, FixedResets gaining 5bp and DeemedRetractibles up 14bp. A good-sized Performance Highlights table is heavily skewed towards winning Straight Perpetuals. Volume was low.

There was a new issue announced today, so the dime I bet on Friday is safe. Now let’s look for #2!

Bernanke gave himself a little pat on the back:

“The combination of financial healing, greater balance in the housing market, less fiscal restraint, and, of course, continued monetary policy accommodation bodes well for U.S. economic growth in coming quarters,” Bernanke said today in remarks prepared for a speech in Philadelphia. “Of course, if the experience of the past few years teaches us anything, it is that we should be cautious in our forecasts.”
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He said the decision to taper bond purchases “did not indicate any diminution of its commitment to maintain a highly accommodative monetary policy for as long as needed.”

Bernanke cited payroll employment rising by 7.5 million since 2010 and the economy growing in 16 of the 17 quarters after the recession ended as evidence the Fed’s policies, which also included providing more information on the likely future path of interest rates, have succeeded.

“The economy has made considerable progress since the recovery officially began some four and a half years ago,” the 60-year-old former Princeton University professor said to the annual meeting of the American Economic Association. His tenure ends Jan. 31.

“When the economy was in free fall in late 2008 and early 2009, such improvement was far from certain, as indicated at the time by stock prices that were nearly 60 percent below current levels and very wide credit spreads,” Bernanke said.

Could it be that even Spain and Italy are on the mend?

Spain’s government bonds advanced, pushing 10-year yields to the lowest since May 2010, as a report showing unemployment fell the most in six months in December added to signs the region’s economy is gaining momentum.

The extra yield investors demand to hold Spanish 10-year debt instead of similar-maturity German bonds shrank below 2 percentage points for the first time since May 2011. Spanish unemployment fell 107,570 last month, the biggest decline since June, the Ministry of Labor said. Italy’s bonds also rallied, with 10-year yields dropping to the lowest since May. Germany’s benchmark 10-year bund yield was about three basis points from the highest level since September.

But bank crises take a long time to heal:

It takes eight years on average for economies to regain the level of income lost in a banking crisis, and the U.S. and Germany are alone among 12 in having already done so since the 2008 turmoil, according to Harvard University professors Carmen Reinhart and Kenneth Rogoff.

Their study of 100 banking crises over two centuries, scheduled to be presented today at the conference of the American Economic Association in Philadelphia, found part of the costs of banking difficulties relate to how long it takes economies to recover.

Of the 12 economies examined since 2008, the per-capita gross domestic product of Greece, Italy, Netherlands, Portugal and Spain kept contracting through 2013, according to a draft of the paper. Other than the U.S. or Germany, the rest either didn’t grow or didn’t grow enough to attain their previous income peaks.

In 43 percent of the historical cases studied, economies double-dipped back into recession. The paper covered 63 crises in advanced economies and 37 in larger emerging markets.

The recent rally in the Canadian preferred share continued, with PerpetualDiscounts up 13bp, FixedResets gaining 12bp and DeemedRetractibles winning 30bp. The Performance Highlights table is heavily skewed towards winners, with insurance DeemedRetractibles notable among the winners. Volume picked up a little from its seasonal depths, but remains very low; but as a change of pace, two SplitShare issues made the list.

We can now look forward to next week: I’ll bet a dime that at least one new issue is announced, and a full nickel that there’s at least two.

Nothing happened today, either.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts up 27bp, FixedResets off 1bp and DeemedRetractibles gaining 12bp. The Performance Highlights table is heavily skewed towards winners, with Floating Rate issues notable on the plus side. Volume was abysmally low – will the current rally in Straight Perpetuals survive the return of trading activity?