Category: Market Action

BCE is reducing its interest expense:

Bell Canada today announced that it will redeem on February 11, 2013, prior to maturity, all of its outstanding $149,641,000 principal amount of 10% Debentures, Series EA, due June 15, 2014 (“Series EA Debentures”).

The Series EA Debentures will be redeemed at a price equal to $1,113.389 per $1,000 of principal amount of debentures plus $15.890 for accrued and unpaid interest up to, but excluding, the date of redemption.

It may be that my worst fears regarding Greece are getting closer to being realized:

A spate of violent attacks against the homes and offices of public figures has hit Greece as the economy goes into its sixth year of deep recession, apparently nurturing extremist groups on both sides of the political spectrum.

Early Monday morning, a gunman with a Kalashnikov assault rifle sprayed bullets into the Athens headquarters of Greece’s ruling, centre-right New Democracy party. At least one of the bullets went through the window of the office occasionally used by Prime Minister Antonis Samaras, who is implementing harsh austerity in exchange for bailout loans.

…and…:

A group of illegal immigrants was justified in escaping from a police lockup last year because of the miserable conditions in their overcrowded cell, which was filthy, ridden with disease and had no running water, a Greek court has ruled.

The court in the northwestern city of Igoumenitsa said the 15 adults – from Afghanistan, Iraq, Syria, Egypt and Morocco – had been held for up to six weeks in “wretched and highly dangerous” conditions.

There’s a story about a Saudi farmer who, we are told, should serve as an inspiration to us all:

The herd is one of hundreds owned by Almarai Co. (ALMARAI), the biggest food producer in the Persian Gulf, which processed about 235 million gallons of milk in 2012. The Riyadh-based company’s revenue has almost tripled in the past five years to 7.95 billion riyals ($2.12 billion) as demand for its products — milk, cheese, processed chicken, baked goods and juices — has surged with the nation’s population. Its shares are up 125 percent since its 2005 initial public offering.

The gain has made Prince Sultan bin Mohammed bin Saud Al Kabeer, Almarai’s 59-year-old founder and largest individual shareholder, a billionaire. His 28.6 percent stake in the operation, plus other investments, has helped him amass a fortune of at least $2.8 billion, according to the Bloomberg Billionaires Index. He has never appeared on an international wealth ranking.

“Establishing a dairy farm in the middle of the desert is not that easy,” said Alaa Ghanem, a senior equity analyst at Audi Saradar Investment Bank in a phone interview from his office in Beirut. Almarai, he said, “is an example for anyone who wants to succeed.”

What are the secrets of his success? He used Canadian business techniques! Here’s one:

The subsidy for baby milk will go from SR2 to SR12 per kilogram as part of efforts to reduce the financial burden on public caused by soaring consumer prices.
…
Dr. Mansour Al-Kredes, deputy chairman of the agricultural committee at the Riyadh Chamber of Commerce and Industry, proposed the government subsidize agricultural and food products in order to stabilize the market. “We should have a strategic plan in order to ensure enough food supply, by providing necessary support to farmers,” he explained. “Subsidizing consumer goods will have a positive impact on farmers and will stabilize market prices,” he pointed out.

Here’s another:

Critics warn that the high yield of Almarai and other Saudi agricultural ventures carries a hidden cost. Government energy subsidies made possible by Saudi Arabia’s oil profits provide cheap electricity for the kingdom’s industry and agriculture but contribute to soaring domestic energy consumption. Saudi agriculture also draws on the kingdom’s natural aquifers, which are fast running dry.

I hope all the young people reading this blog take this to heart and become risk-taking entrepreneurs like Prince Sultan bin Mohammed bin Saud Al Kabeer.

It was a most interesting day for the Canadian preferred share market with a trading programme at RBC (and, possibly related, at Goldman) roiling the market. When the dust settled, PerpetualPremiums dropped 6bp, FixedResets leapt upward by 24bp and DeemedRetractibles got whacked for 55bp. Volatility was enormous and volume was extremely high.

It turned out to be an interesting day today, with RBC executing some frenetic trading (with an assist from Goldman Sachs Canada) that had a major impact on price volatility and volumes.

TXPR was up a miniscule 0.08% on the day, while TXPL gained +0.40%, so it would appear that all these trades were (probably!) more or less cash neutral and constituted a rejigging of somebody’s (or several somebodies’) portfolio.

The following table is a souped-up version of the regular performance highlights table, which displays all those members of the HIMIPref™ subindices that had a change in their bid price in excess of 1% (up or down) from the close Friday to the close Monday.

I have attempted to differentiate “real” from “unreal” movements based on where trades were executed, rather than where the bid price closed the day; I have also attempted to isolate those issues which were actually involved in the trading programme from those that were volatile simply because they felt like it.

The performance table has been souped up with data collected manually, with immense labour, from the TMX Money website (and therefore ignores potentially valuable information regarding trading at other exchanges): I have used the time of the last 25 trades to help differentiate between “trading programme” and “random” price movements.

It looks like all the excitement was generated by trades executed through RBC, with an assist from Goldman.

The huge number of executions leads me to believe that the trades were executed algorithmicly, and I must give a tip of the hat to the algorithms authors. In at least one of the big movers, it became clear that a pounce algorithm was being used, but it was a relatively smart pounce algorithm. When a counter-flow order was entered inside the market, it didn’t get filled instantly, as is the case with a regular pounce; there was a delay of a some time (up to about a minute, by my estimate) before the order got filled … nice way to catch predatory traders who may assume that not getting filled within 50ms (maybe 20ms?) means that a pounce is not operating at that level.

Analysis of the above table allows us to construct the following summary (using only those large changes considered to be “real”):

As this table makes clear, whatever was going on was basically selling Straight Perpetuals and buying FixedResets, although there were a couple exceptions to these rules.

Looking more closely at the FixedResets involved, we see that the two losers, BMO.PR.Q and TRP.PR.C, have Issue Reset Spreads of 115bp and 154bp, respectively, leading one to suspect that this is another outbreak of aversion towards the low-spread FixedResets. However, three of the nine winning FixedResets have spreads of less than 200bp (BMO.PR.M, RY.PR.I and BNS.PR.Q) and only one has a spread in excess of 300bp (TD.PR.K at +433). So while I think it’s fair to say an overall trend has been identified, it is clear that the selection process has details within it that are currently unknown.

We’ll see what tomorrow brings, but my first reaction is that this is simply a piece of incompetent trading, for all that I admire the sophistication of the algorithmic tool used. Based on the information currently available, it seems like somebody rebalanced his portfolio – or several portfolios – in such a manner as to attract enormous transaction costs. This conclusion must remain tentative pending more data – or the lack of it! – tomorrow.

Update, 2013-1-15: Assiduous Reader PL writes in and says:

Your comment ” Based on the information currently available, it seems like somebody rebalanced his portfolio – or several portfolios – in such a manner as to attract enormous transaction costs. “. I assume you do NOT mean RBC was trying to generate transaction cost revenue for themselves. ?

No – despite what the regulators want you to believe, commission expense is a negligible part of transaction costs, vastly outweighed by the bid-ask spread and – particularly in this case – market impact costs.

The fact that this was done after 3PM is interesting. Was it to keep retail buyers/sellers out of what is going on. Or to force what retail buyers were watching to make a fast decision before 4PM. Eg. did someone find out something that may be announced after 4PM so I better sell what has gone down and buy what has gone up? I do not think retail investors were the target. There are not enough of us active enough to make it worth while as can be seen from the volumes. So probably trying to see what other ALGOS would do when some volatility kicked in to our sleepy preferred market.

Never ascribe to cunning what can be described as stupidity. I have no idea why this was done so late in the day, and with such insistence on getting such large (for this market) trades done before the close. Maybe the portfolio management company had their weekly meeting just after lunch on Monday and decided to press the button. A possible aggravating factor is the presence of ‘operational silos’ in most portfolio management companies – where portfolio management decisions are distinct from trading decisions: the PM writes a ticket, gives it to his trading desk and immediately loses all control over the order; it is executed by individuals who have completely different priorities and are evaluated by completely different metrics.

The fact that on many issuers the buyers and sellers were RBC definitely needs some investigating. It will be interesting to see if the regulators who you often criticize respond to yesterday.

I don’t see why the regulators should get involved. Whoever initiated these trades clearly has the resources to make a Great Big Stink if he feels that execution was negligent.

Here’s another fascinating unintended consequence:

China’s one-child policy has produced adults that tend to have personality traits unsuited for starting businesses or managing companies, according to a study that adds to economic concerns surrounding the rule.

Using surveys of 421 men and women in Beijing and testing their skills in economic games, researchers in Australia found those born after the 1979 policy were more pessimistic, nervous, less conscientious, less competitive and more risk averse. They also found them to be 23 percent less prone to choose an occupation that entails business risk, such as becoming a stockbroker, entrepreneur or private firm manager.

Of course, criticizing the government is a form of risk – especially in China! – so perhaps the consequence was actually intended!

Penson Worldwide has filed for bankruptcy:

Penson Worldwide Inc. (PNSN), a provider of financial clearing services and related operational and technology products, filed for bankruptcy in Delaware with a plan to liquidate its business.

The Plano, Texas-based company listed both assets and debt of $100 million to $500 million in Chapter 11 documents filed today in U.S. Bankruptcy Court in Wilmington, Delaware. Chapter 11 is the section of the U.S. Bankruptcy Code used by companies to reorganize. In 2011, Penson had revenue of $217.3 million, court papers show.

“Average daily trading volume in equities fell by 5 percent in 2010 and 8 percent in 2011, and short selling continued to fall in each of the years from 2009 through 2011,” Bryce B. Engel, chief operating officer of Penson Worldwide, said in court papers.

The fall of Penson had implications for Northern Securities’ retail operations as discussed on December 14:

A subsidiary of Northern Financial Corp. is assigning client accounts to two unnamed brokerage firms under a consent order with IIROC.

The move by the subsidiary, Northern Investment Securities, will see investment advisers responsible for the accounts transferred to the new firms as well, Northern said in a release Monday.

The order was issued as a result of NSI being unable to obtain an alternative carrying broker or other alternative arrangement to replace Penson Financial Services Canada Inc., which is discontinuing its carrying broker business as of Dec. 31.

During a question-and-answer session at the KPMG 21st Annual Insurance Issues Conference, Julie Dickson of OSFI made an oblique defence of the 2008 Manulife Rule Change:

Well, in terms of capital, it’s a reality because all risk-based capital rules are, to some extent, pro-cyclical. And when risk goes up, required capital goes up. So it is part and parcel of the pro-cyclicality phenomenon. 2008 I think was a good example, where we noticed that capital was spiking. It’s OK for capital to rise as you enter a recession, but it was spiking with the decline in equity markets. And when we looked at how the rules worked, we realized that that was inappropriate because the formulas were requiring a lot of extra capital for obligations which were many, many years off. And that was felt to be, too risk sensitive. We didn’t think it appropriately reflected the risk, and made a change.

Bombardier – proud issuer of BBD.PR.B, BBD.PR.C and BBD.PR.D – has issued ten year notes at 6.125%.

Meanwhile, I see that HSBC Bank Canada – proud issuer of HSB.PR.C, HSB.PR.D and HSB.PR.E – has issued eight year deposit notes at 2.938%.

It was another mixed day for the Canadian preferred share market, with PerpetualPremiums gaining 2bp, FixedResets up 15bp and DeemedRetractibles off 6bp. Volatility was low. Volume was well above average.

Work sharing is becoming more common in the US:

Instead of dismissal notices, employees get a shortened work week, with unemployment benefits partially compensating for lost wages. Popularly known as work sharing, the program holds out the promise of fewer layoffs and less painful economic downturns.
…
While work share can be useful, policymakers and businesses need to proceed with caution, said Douglas Holmes, president of UWC-Strategic Services on Unemployment & Workers’ Compensation, a Washington-based business group that lobbies on unemployment insurance issues. The programs could drain already stressed unemployment insurance funds and, if used inappropriately, could delay inevitable economic disruptions, he said.

One reason Blue Crown cites for the drop in orders, for example, is that more dentists are sending work to China.

“If an individual continues to do the same job because this policy permits them to, when they would be better off spending time improving their skills doing the next job, that’s a factor that has to be taken into consideration,” Holmes said. “That turns the program from being a temporary measure to address a fluctuation in demand into one that becomes a long- term wage subsidy.”

At Blue Crown, where the least-experienced dental technician makes $17.50 an hour, orders still haven’t bounced back and co-owner Roberts is applying for her third year of work share.

Liquidity is becoming more important in US corporate bond pricing:

Investors’ preference for the most- liquid corporate debt is running higher than any time since the credit crisis, a signal they’re preparing for the four-year rally to end.

The expense incurred by credit traders to complete bond transactions was the lowest last year relative to costs implied by the market’s average bid-ask spread since 2009, according to Barclays Plc. The shift, a sign that buyers are favoring securities that are easiest to trade, has helped financial bonds beat industrial debt by the biggest margin on record, Bank of America Merrill Lynch index data show.
…
Buyers are seeking flexibility as a 6 percent increase in trading volumes fails to keep up with a 13 percent rise in the size of the dollar-denominated market, data from Bloomberg and Bank of America Merrill Lynch show.

The average daily volume of bonds changing hands last year accounted for 0.29 percent of outstanding debt, the lowest proportion since at least 2005, according to data compiled by Bloomberg and Trace.

The 21 primary dealers with the Federal Reserve, which traditionally used their own money to facilitate trading, have reduced their corporate-bond inventories 76 percent since October 2007 to $57.49 billion, Bloomberg data show.

US housing horror stories never seem to end:

Six years in, thousands of homeowners are finding themselves legally liable for houses they didn’t know they still owned after banks decided it wasn’t worth their while to complete foreclosures on them. With impunity, banks have been walking away from foreclosures much the way some homeowners walked away from their mortgages when the housing market first crashed.

“The banks are just deciding not to foreclose, even though the homeowners never caught up with their payments,” says Daren Blomquist, vice-president at RealtyTrac, a real-estate information company in Irvine, California.

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

Over the past year, the performance of the Portfolio experienced some volatility, with the month-end NAV of the Company fluctuating between $18.07 and $19.02 per unit. The current dividend coverage ratio is around 0.66, but the Company has also written covered call options in order to generate additional income for distributions. The rating of Pfd-4 (high) is sufficient based on the current level of downside protection available to the Preferred Shares. As a result, the rating has been confirmed at Pfd-4 (high).

It was a mixed day for the Canadian preferred share market, with PerpetualPremiums up 8bp, FixedResets off 1bp and DeemedRetractibles gaining 3bp. Volatility was low. Volume was significantly above average.

A Bank of Canada Working Paper by Katya Kartashova, Ben Tomlin examines House Prices, Consumption and the Role of Non-Mortgage Debt:

This paper examines the relationship between house prices and consumption, through the use of debt. Using unique Canadian household-level data that reports the uses of debt, we begin by looking at the relationship between house prices and debt. Using quantile regression, we find a positive and significant relationship between regional house prices and total household debt all along the conditional debt distribution. This suggests that the household-level relationship between house prices and debt goes beyond the purchase of real estate. We then find a positive relationship between house prices and non-mortgage debt (the sum of secured lines of credit, unsecured lines of credit, leases and other consumer loans, except for credit cards) for homeowners. Combining these results with the reported uses of non-mortgage debt allows us to connect house prices and nonhousing consumption – this connection is new to the literature on house prices and consumption. We conclude that the increases in house prices over the 1999-2007 period were, indeed, associated with an increase in non-mortgage debt and non-housing consumption. Our results can be thought of as the establishment of a conservative lower bound for the overall relationship between house prices and aggregate consumption.

It was a positive day for the Canadian preferred share market, with PerpetualPremiums gaining 2bp, FixedResets up 3bp and DeemedRetractibles winning 11bp. Volume was average.

PerpetualDiscounts (all four of them! from both issuers!) now yield 4.82%, the equivalent of 6.27% interest at the standard conversion factor of 1.3x. Long corporates now yield about 4.3%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 195bp, a significant decline from the 210bp reported January 2.

Interesting take on chaotic theories of markets:

Dr Tobias Galla from The University of Manchester and Professor Doyne Farmer from Oxford University and the Santa Fe Institute, ran thousands of simulations of two-player games to see how human behaviour affects their decision-making.

In simple games with a small number of moves, such as Noughts and Crosses the optimal strategy is easy to guess, and the game quickly becomes uninteresting.

However, when games became more complex and when there are a lot of moves, such as in chess, the board game Go or complex card games, the academics argue that players’ actions become less rational and that it is hard to find optimal strategies.

This research could also have implications for the financial markets. Many economists base financial predictions of the stock market on equilibrium theory – assuming that traders are infinitely intelligent and rational.

This, the academics argue, is rarely the case and could lead to predictions of how markets react being wildly inaccurate.

I wouldn’t call the subjects of the following story “quants”. I’d call them technical analysts. A technical analyst with a computer is simply a technical analyst, and is still going to lose money:

Hedge funds that use computers to follow trends lost money for a second straight year in 2012 as political debates over the U.S. fiscal cliff and Europe’s sovereign-debt crisis roiled markets.

The Newedge CTA Trend Sub-Index, which tracks the performance of the largest computer-driven, or quant funds, fell 3.4 percent last year after a 7.9 percent decline in 2011. David Harding’s $10 billion Winton Futures Fund Ltd. slid 3.5 percent in 2012, its second annual decline since opening in 1997, investors in the pool said. Man Group Plc (EMG)’s $17 billion AHL Diversified fund fell 2.1 percent, while BlueCrest Capital Management’s $14 billion trend-following fund gained 0.02 percent, said the investors, who asked not to be identified because the figures are private.

The performance of the funds belies their popularity with investors, who’ve poured $108.2 billion into the pools since the end of 2008, according to Fairfield, Iowa-based BarclayHedge Ltd.
…
Trend-followers try to profit by tracking momentum in prices, whether rising or falling. They often use technical indicators, such as moving averages or Bollinger bands, to predict movements for stocks, bonds and commodities. Quants use mathematical algorithms to decide when to buy or sell and rely on computers to respond to price signals in fractions of seconds.

Not only that, but quants do not necessarily engage in High Frequency Trading, either.

OSFI’s Mark Zelmer gave a speech at the 2013 RBC Capital Markets Canadian Bank CEO Conference:

An important New Year’s resolution for OSFI will be to assess which banks in Canada should be designated as domestically systemically-important (D-SIBs). We expect to announce our decision within a few months. Any bank receiving a D-SIB designation can also expect some additional prudential requirements, including having to carry more common equity. The extra capital requirements will take effect in January 2016; the start date for those that will be imposed internationally on globally systemically-important banks. This provides plenty of time for the designated banks to plan accordingly.
…
Another important resolution for us this year is contingent capital. As of January 1, Canadian deposit-taking institutions are no longer able to include new issues of preferred shares and subordinated debt in their Tier 1 and Total Capital ratios unless those instruments carry Non-Viability Contingent Capital (NVCC) conversion triggers. Existing instruments are being phased out of regulatory capital at a rate of ten per cent per year. Like living wills and other resolution measures, these new instruments are an important ingredient in making sure that all deposit-taking institutions can be resolved in an orderly fashion in times of stress without taxpayers being the first port of call for new capital. OSFI is looking forward to the emergence of a market in Canada for NVCC preferred shares and subordinated debt instruments in 2013.

It was another mixed day for the Canadian preferred share market, with PerpetualPremiums up 7bp, FixedResets off 1bp and DeemedRetractibles down 5bp. Volatility was negligible. Volume was a little below average.

We have more welfare payments to dinosaurs:

The federal government announced a five-year extension of its $250-million Automotive Innovation Fund Friday that was immediately deemed by some industry observers as the ongoing cost of Canada’s continued participating in the North American auto industry.

Why do we subsidize them? Because they’re good jobs. Why are they good jobs? Because they’re subsidized.

The Basel III liquidity rules have been modified:

Global central bank chiefs agreed to water down and delay a planned bank liquidity rule to counter warnings that the proposal would strangle lending and stifle the economic recovery.

Lenders will be allowed to use an expanded range of assets including some equities and securitized mortgage debt to meet the so-called liquidity coverage ratio, or LCR, following a deal struck by regulatory chiefs meeting today in Basel, Switzerland. Banks will also have an extra four years to fully comply with the measure.
…
A sample of 209 banks assessed by the Basel committee had a collective shortfall of 1.8 trillion euros ($2.3 trillion) at the end of 2011 in the assets needed to meet the 2010 version of the LCR, according to figures published by the Basel group.

Banks had warned that the initial LCR proposal would force them to buy additional sovereign debt, more closely tying their fate to governments’ solvency. The 2010 rule was drafted before the EU was fully confronted by a sovereign debt crisis that challenged traditional assumptions about the credit worthiness of government bonds.

Forcing banks to buy government debt is a form of financial repression.

Bloomberg’s editors are upset about this:

Not for the first time, the panel has retreated from its initial demands, and the final liquidity rule is far less rigorous than the committee had said it wanted and financial markets had been expecting.
…
The committee issued its draft liquidity rules in 2010. The idea was to lay down the quantity and quality of liquid assets (in theory, assets that can be sold quickly without driving down prices) that banks must hold to cover a run on deposits or some other interruption in short-term funding. Under pressure from banks, especially those in the U.S., most aspects of the draft proposal have been weakened in the final document.

For instance, the new rule says liquidity must be enough to cover a 30-day run on insured retail deposits of 3 percent, instead of 5 percent as proposed. It also expands the range of corporate debt securities that qualify as liquid to BBB- (the lower boundary of “investment grade”); previously, the committee said nothing less than AA- should be eligible. High-quality mortgage-backed securities will also count.

This broadening of qualifying assets means that almost all banks already satisfy the rule — a point that was acknowledged by Bank of England Governor Mervyn King, the chairman of the rule-setting committee.
…
As guttings go, this is pretty thorough. It confirms the committee’s reputation for delay, backsliding and willingness to accommodate the preferences of banks — the industry it’s supposed to be supervising. If the panel had been mindful of its credibility, it would have issued a draft it was willing to defend in the face of expected pressure from the industry.

William Cohan on Bloomberg has a nice piece on the realities of regulation:

Instead of taking a job at a big Wall Street investment bank, he [“Dock2” Treece] returned home to Toledo, Ohio, and joined, as a partner, his father’s tiny investment-advisory firm, Treece Investment Advisory Corp., and the family broker-dealer, Treece Financial Services Corp. The two companies have five employees: Dock2 Treece, his father, his younger brother and two administrators.
…
The Treeces’ 2010 Finra exam, however, went on for eight months, as the regulators kept asking for more and more documents to try to discover a minor technical point about what kind of mutual funds the firm sold to its customers.

Treece said Finra kept telling him to sell a kind of mutual fund that he knew he wasn’t supposed to sell, but the examiners seemed to not understand the rules. To fulfill one Finra request required 4,000 pages of documents to be copied and sent off.

“It had taken my staff two weeks to get together, literally, just standing in front of a copy machine for 12 hours a day, pull a file out, take the documents out that they wanted, copy them, put them in a box, put the originals back in the file, and put the file back,” Treece said. “I mean, talk about useless.”

He said he spent more than $30,000 in legal fees — chicken feed on Wall Street but a big deal at a tiny firm — trying to convince the examiners of something they should have known about all along.

Here’s an idea for Toronto – Subway Savings Bonds!

Malaysia, Southeast Asia’s biggest local-currency bond market, will let retail investors fund Kuala Lumpur’s new subway when it starts marketing its first exchange- traded notes to individuals.
…
DanaInfra will offer 300 million ringgit ($99 million) of government-guaranteed Islamic securities to individuals, Ashraf Radzi, associate director of Prokhas Sdn., a financial adviser to the company, said in Jan. 3 interview. He declined to give specific details such as yields or maturity.

The bonds, which pay returns on assets to comply with the Koran’s ban on interest, will be sold in increments of 100 ringgit, or the equivalent of $33, with a minimum order value of 1,000 ringgit, Bursa Malaysia’s Tajuddin said.

Rob Carrick of the Globe has weighed in on trailers:

What regulators should do is order the replacement of trailing commissions with a fee that is set by the adviser as a percentage of the client’s assets, to be withdrawn quarterly from cash holdings in the client’s account. The investment industry should introduce the phrase “advice fee” and create standards under which this fee would cover not only investment management, but financial planning.

He means, fees should be charged in the way an actual portfolio manager charges fees, forgetting that there’s one problem with this model: a huge segment of the investing public doesn’t want it. ‘There was no trading!’ says Joe Blow. ‘Why should I pay if there was no trading?’.

I also see that Mr. Carrick wants to force me to offer financial planning, despite the fact that I do not want to offer financial planning. It’s a ludicrous idea … any single person can be good at only so many things; I have chosen to be good at quantitative investment strategies, fixed income in general and preferred shares in particular. Now I’m going to be forced to offer financial planning? What’s next, I have to offer golf games and hockey tickets to big clients and hire a pretty receptionist?

Still another hurdle is you, the investor. You can be half to two-thirds excused for your fee ignorance because of the way you’ve been manipulated by the investing industry.

Totally wrong. There is full disclosure all over the place. Anybody who doesn’t know about fees hasn’t done any work at all. Is that another job Mr. Carrick wants to give me? Reading aloud the prospectus to prospective clients?

It was a mixed day for the Canadian preferred share market, with PerpetualPremiums up 8bp, FixedResets down 3bp and DeemedRetractibles off 2bp. Volatility was average. Volume recovered, to average levels.

There was a decent, but by no means stellar, US jobs number:

Employers added workers in December at about the same pace as the prior month, and the unemployment rate matched a four-year low, showing sustained gains in the U.S. labor market even as lawmakers were struggling to reach a budget deal.

Payrolls rose by 155,000 workers last month following a revised 161,000 advance in November that was more than initially estimated, Labor Department figures showed today in Washington. The median estimate of 82 economists surveyed by Bloomberg called for a increase of 152,000. The unemployment rate held at 7.8 percent after the November figure was revised up from a previously reported 7.7 percent.

The S&P 500 reached a milestone of sorts:U.S. stocks rose, sending the Standard & Poor’s 500 Index above the highest closing level since December 2007, after data showed employers added workers in December at about the same pace as the prior month.

Mark Whitehouse of Bloomberg writes an interesting review of an IMF paper by two IMF officials, chief economist Olivier Blanchard and economist Daniel Leigh, titled Growth Forecast Errors and Fiscal Multipliers:

This paper investigates the relation between growth forecast errors and planned fiscalconsolidation during the crisis. We find that, in advanced economies, stronger planned fiscal consolidation has been associated with lower growth than expected, with the relation being particularly strong, both statistically and economically, early in the crisis. A natural interpretation is that fiscal multipliers were substantially higher than implicitly assumed by forecasters. The weaker relation in more recent years may reflect in part learning by forecasters and in part smaller multipliers than in the early years of the crisis.
…
First, because of the binding zero lower bound on nominal interest rates, central banks could not cut interest rates to offset the negative short-term effects of a fiscal consolidation on economic activity. Christiano, Eichenbaum, and Rebelo (2011) have shown, using a dynamic stochastic general equilibrium (DSGE) model, that under such conditions, fiscal multipliers can exceed 3. Since episodes characterized by a binding zero lower bound (also referred to as “liquidity trap” episodes) have been rare, only a few empirical studies investigate fiscal multipliers under such conditions. Based on data for 27 economies during the 1930s—a period during which interest rates were at or near the zero lower bound—Almunia and others (2010) have concluded that fiscal multipliers were about 1.6.

Second, lower output and lower income, together with a poorly functioning financial system, imply that consumption may have depended more on current than on future income, and that investment may have depended more on current than on future profits, with both effects leading to larger multipliers (Eggertsson and Krugman, 2012).

Third, and consistent with some of the above mechanisms, a number of empirical studies have found that fiscal multipliers are likely to be larger when there is a great deal of slack in the economy. Based on U.S. data, Auerbach and Gorodnichenko (2012b) have found that fiscal multipliers associated with government spending can fluctuate from being near zero in normal times to about 2.5 during recessions.5 If fiscal multipliers were larger than normal and growth projections implicitly assumed multipliers more consistent with normal times, then growth forecast errors should be systematically correlated with fiscal consolidation forecasts.

Perhaps Keynesian economics will make a comeback! I’ve often remarked that I don’t mind large deficits in hard times … as long as there is a credible plan, with accompanying legislation, for paying off the new debt within 20-30 years.

America is a country in which rights are paramount. Unless you’re a bank:

“This dispute does not go to the merits of the matter but it does raise an important issue of principle: Whether we and other banks, large and small alike, have the fundamental right long recognized in this country to communicate freely with and seek confidential guidance from their lawyers,” Zuccarelli said in an interview.

Bryan Hubbard, an OCC spokesman, declined to comment on the agency’s inquiry.

In the letter sent to JPMorgan general counsel Stephen Cutler, the inspector general — the Treasury’s internal watchdog — dismissed JPMorgan’s arguments on attorney-client privilege, saying the OCC “could not do its work” if banks were allowed to withhold information on that basis. The OCC, an independent bureau of Treasury, asked the IG office to review the situation, Thorson said in the letter.

Failure to produce the records “will have to be seen as a continuing purposeful impediment to the authority of the OCC,” Thorson said in the letter, and would require “further action by our office.”

Coming up next: hand over your Facebook password or be charged with obstructing justice.

DBRS has a new methodology for rating life insurers, but there were no major changes and it did not result in any ratings actions. They did not opine on the result of OSFI’s consideration of the definition of capital.

It was a good day for the Canadian preferred share market, with PerpetualPremiums gaining 11bp, FixedResets winning 13bp and DeemedRetractibles up 12bp. Volatility was average, but all on the upside. Volume continued to be very low.

Suncor has a corporate policy of ineffective supervision:

Last June, Suncor told its workers it would introduce a sweeping random drug-and-alcohol testing policy for all employees in “safety-sensitive” roles, meaning they could be tested at any time.

Workers in safety-sensitive jobs aren’t supervised? What kind of company is this?

It was a mixed day for the Canadian preferred share market, with PerpetualPremiums gaining 6bp, FixedResets down 5bp and DeemedRetractibles up 14bp. Volatility was low. Volume picked up, and is now merely very low.

Good news on pensions – but not for the sponsors:

The solvency of Canadian defined benefit pension plans improved in 2012, a new Mercer study says.

The consultant said Wednesday that its Pension Health Index stood at 82 per cent on Dec. 31, up two percentage points for the fourth quarter and up six percentage points for the year.

However, the global pension, health and investment consultancy said economic factors were largely a non-factor.

Most of the improvement was due to increased employer contributions to fund deficits.

It was a mixed day for the Canadian preferred share market, with PerpetualPremiums gaining 10bp, FixedResets up 23bp and DeemedRetractibles off 7bp – seemingly unaffected by excitement in the equity market. Volatility was higher than average, comprised of losing DeemedRetractibles and winning FixedResets. However, volume continued its recent stretch of extremely low number, so all this could just be a puff of smoke.

PerpetualDiscounts now yield 4.88%, equivalent to 6.34% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 4.25%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 210bp, unchanged from the figure reported December 27.