PrefBlog

Jobs, jobs, jobs!

Employers added more jobs than forecast in November, underscoring Federal Reserve Chair Janet Yellen’s confidence that the U.S. economy is strong enough to withstand higher borrowing costs.

The 211,000 increase in payrolls followed a 298,000 gain in October that was bigger than previously estimated, a Labor Department report showed Friday. The median forecast called for a 200,000 advance. The jobless rate held at a more than seven-year low of 5 percent.
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Employee pay increased at a steady pace last month. Average hourly earnings at private employers rose 0.2 percent in November after a 0.4 percent gain. Year-over-year hourly pay rose 2.3 percent after a 2.5 percent gain a month earlier.

Employment in November was spurred by the biggest increase in construction hiring since January 2014. Retailers, health-care providers and leisure and hospitality companies added jobs at a healthy, but slower pace than in October.

Meanwhile in Canada:

Canada’s trade deficit unexpectedly jumped to $2.76-billion in October as exports to the crucial U.S. market dropped by the most in almost two-and-a-half years, Statistics Canada data showed on Friday.

October marked the 14th consecutive monthly trade deficit, reflecting Canadian exporters’ continuing struggles amid a sharp fall in oil prices. Analysts polled by Reuters had forecast a shortfall of $1.70-billion.

… and nothing good is forecast for oil:

OPEC’s refusal to rein in production spells extended pain for Canada’s oil patch, setting the stage for deeper cutbacks as a worldwide glut of crude keeps pressure on U.S. and global prices.

West Texas intermediate oil sank below $40 (U.S.) a barrel on Friday after the Organization of the Petroleum Exporting Countries failed to agree on production limits, effectively maintaining a Saudi Arabia-led policy of pumping record volumes to defend market share.
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The Bank of Canada has estimated that overall capital spending in the industry will fall by 20 per cent in 2016 following a 40-per-cent drop this year.

Remember the Enbridge dropdown that was viewed so unfavourably by S&P, Moody’s and DBRS? It’s an ill wind that blows nobody any good:

Enbridge Inc. (“Enbridge” or “the Company”) (TSX:ENB) (NYSE:ENB) today announced that its Board of Directors has declared a quarterly dividend of $0.53 per common share, payable on March 1, 2016 to shareholders of record on February 16, 2016. The dividend reflects a 14 percent increase from the prior quarterly rate, marking the twenty-first consecutive year of increased dividends for the Company.

“The core of our shareholder value proposition is our reliable business model, which continues to deliver strong and predictable results and dividend growth,” said Al Monaco, President and Chief Executive Officer. “The 14 percent dividend increase reflects the confidence we have in our outlook, underpinned by the strength of our businesses, an industry leading growth program and our sound financial position. Over the last two years, we have increased our dividend by over 50 percent while maintaining strong available cash flow coverage.”

Enbridge also announced a guidance range for 2016 available cash flow from operations (“ACFFO”) per share of $3.80 to $4.50. The growth in the Company’s ACFFO per share guidance range for 2016 reflects growth from its existing businesses and the successful execution of its capital program.

Assiduous Readers will remember my post of June 26,2014, in which I advocated paying cash – always! Now we have more reason to use cash in Canada:

Users beware: The banks are spying on you! It recently emerged that deep inside a TD Canada Trust Visa cardholders agreement are embedded a couple of troubling lines giving the bank the legal right to collect data on everything a person does online.

The scope of these provisions, revealed last week by the CBC, is expansive. They basically give the bank the right to view the content of Google searches, the sort of online videos a cardholder watches, their social media activity and much, much more.

The bank can learn a lot from this information. Are you searching for legal advice on defaulting from a loan? Are you thinking of moving or getting married? Are you straight or gay? Do you prefer cats or dogs?

It was another crummy day for the Canadian preferred share market, with PerpetualDiscounts down 53bp, FixedResets off 44bp, and DeemedRetractibles losing 54bp. The Performance Highlights table is, of course, ridiculous, but at least there were a few winners today! Volume was extremely high.

For as long as the FixedReset market is so violently unsettled, I’ll keep publishing updates of the more interesting and meaningful series of FixedResets’ Implied Volatilities. This doesn’t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.

Remember that all rich /cheap assessments are:
» based on Implied Volatility Theory only
» are relative only to other FixedResets from the same issuer
» assume constant GOC-5 yield
» assume constant Implied Volatility
» assume constant spread

Here’s TRP:

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TRP.PR.E, which resets 2019-10-30 at +235, is bid at 18.45 to be $1.20 rich, while TRP.PR.C, resetting 2016-1-30 at +154, is $1.08 cheap at its bid price of 12.00.

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Most expensive is MFC.PR.N, resetting at +230bp on 2020-3-19, bid at 19.30 to be 0.62 rich, while MFC.PR.K, resetting at +222bp on 2018-9-19, is bid at 17.32 to be 1.11 cheap.

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The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 15.02 to be $1.26 cheap. BAM.PF.E, resetting at +255bp on 2020-3-31 is bid at 18.54 and appears to be $0.99 rich.

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FTS.PR.K, with a spread of +205bp, and bid at 17.30, looks $0.70 expensive and resets 2019-3-1. FTS.PR.G, with a spread of +213bp and resetting 2018-9-1, is bid at 15.95 and is $1.05 cheap.

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Investment-grade pairs predict an average three-month bill yield over the next five-odd years of -0.69%, with no outliers. There is one junk outlier below -1.50% and one above +0.50%.

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Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?

Good news! Europe’s not considered to be in as much trouble as was previously feared! Let’s celebrate!

Equities tumbled around the world and government bonds sank, while the euro rallied the most in six years after the scale of additional stimulus from the European Central Bank disappointed investors just as the Federal Reserve signaled interest-rate increases are imminent.

The Standard & Poor’s 500 Index fell the most in two months and European equities had their worst day since the height of the summer selloff. The euro climbed against all its major peers, stinging traders who had piled on wagers against the currency amid expectations of aggressive easing from the ECB. Yields on 10-year German notes jumped 20 basis points, while rates on similar-maturity Treasuries posted their biggest advance since February. Brent crude rallied from a six-year low before Friday’s OPEC meeting.
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Yields on two-year notes from Germany to Spain had touched record lows before the ECB’s decision. They had been tumbling since Draghi stoked expectations of further easing at his Oct. 22 press conference, pledging that policy makers would re-examine the scope of the central bank’s existing quantitative-easing plan this month.

Treasuries suffered their biggest rout since February, with 10-year yields climbing 14 basis points, or 0.14 percentage point, to 2.32 percent.

And junk bond illiquidity is attracting notice:

Sinkholes are popping up in the credit market.

Specific junk bonds are simply plummeting in value on little trading. For example, nothing all that obvious triggered a plunge in Syniverse Holdings, whose bonds fell to 39 cents on the dollar Monday, from 84.25 cents less than a month earlier. Debt of Intelsat, United States Steel, SandRidge Energy and Ultra Petroleum all lost about 30 percent last month.

Yet looking broadly, there isn’t a financial crisis in developed markets. U.S. stocks are still eking out gains. Companies are still issuing bonds.

So why the precipitous drops without warning?

The explanation is that asset managers are being forced to exit their riskiest positions, either because of withdrawals or to placate increasingly nervous investors, and they’re finding no buyers on the other side. When these fund managers finally get an offer to shed their unwanted holdings, they’re just taking it, even if it means taking a huge loss.

Greater love hath no man than this, that a man lay down his friends for cash.:

Three years ago, the National Whistleblowers Center in Washington dismissed Ms. Williams and Mr. Renner, who are both lawyers, citing mandatory layoffs that stemmed from funding woes and a staff reorganization.
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Now, previously unreleased documents show that the layoffs coincided with an effort by Ms. Williams and Mr. Renner to unionize the whistle-blower center’s small work force. That effort, Ms. Williams and Mr. Renner contend, touched a nerve with the center’s leadership, including Stephen M. Kohn, a prominent lawyer who was a co-founder of the center and has become a national expert on whistle-blower cases.

After their dismissals, Ms. Williams and Mr. Renner took their concerns to the National Labor Relations Board, the documents show. After initially balking at the case, the agency ultimately filed a complaint of unfair labor practices against the whistle-blower center, blaming it for “interfering with, restraining and coercing employees” not to assemble a union.

In effect, Ms. Williams and Mr. Renner became whistle-blowers on their own boss.

Canadian preferred share investors today expressed their appreciation for European monetary policy:

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It was a horrible day for the Canadian preferred share market, with PerpetualDiscounts off 76bp, FixedResets losing 192bp and DeemedRetractibles down 102bp. The Performance Highlights table is extraordinarily lengthy, dominated by FixedResets and devoid of even a single winner. Volume was extremely heavy.

For as long as the FixedReset market is so violently unsettled, I’ll keep publishing updates of the more interesting and meaningful series of FixedResets’ Implied Volatilities. This doesn’t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.

Remember that all rich /cheap assessments are:
» based on Implied Volatility Theory only
» are relative only to other FixedResets from the same issuer
» assume constant GOC-5 yield
» assume constant Implied Volatility
» assume constant spread

Here’s TRP:

Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 18.51 to be $1.12 rich, while TRP.PR.C, resetting 2016-1-30 at +154, is $1.12 cheap at its bid price of 12.12.

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Most expensive is MFC.PR.M, resetting at +236bp on 2019-12-19, bid at 19.65 to be 0.33 rich, while MFC.PR.K, resetting at +222bp on 2018-9-19, is bid at 18.10 to be 0.64 cheap.

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As discussed in the Performance Highlights table, the official bid for BAM.PF.G is ridiculous, so for the purposes of this calculation I have adjusted the bid to 19.50, about 1% below the last price.

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 15.16 to be $1.19 cheap. BAM.PF.E, resetting at +255bp on 2020-3-31 is bid at 18.40 and appears to be $0.80 rich.

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FTS.PR.K, with a spread of +205bp, and bid at 17.79, looks $0.82 expensive and resets 2019-3-1. FTS.PR.G, with a spread of +213bp and resetting 2018-9-1, is bid at 16.50 and is $0.87 cheap.

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Investment-grade pairs predict an average three-month bill yield over the next five-odd years of -0.56%, with no outliers. There is one junk outlier below -1.50% and one above +0.50%.

Click for Big

Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?

The hot news of the day is that the BoC did not move policy rates (emphasis added):

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

Global economic growth is evolving essentially as the Bank had anticipated in its October Monetary Policy Report (MPR). The US economy continues to grow at a solid pace, although private domestic demand has proven slightly less robust than expected. Meanwhile, commodity prices have declined further. The ongoing terms-of-trade adjustments and shifting growth prospects across different regions are contributing to exchange rate movements. In this context, policy divergence is expected to remain a prominent theme.

In Canada, the dynamics of growth have been broadly in line with the Bank’s MPR outlook. The economy continues to undergo a complex and lengthy adjustment to the decline in Canada’s terms of trade. This adjustment is being aided by the ongoing US recovery, a lower Canadian dollar and the Bank’s monetary policy easing this year. The resource sector is still contending with lower prices for commodities. In non-resource sectors, exports are picking up, particularly in exchange rate-sensitive categories. However, business investment continues to be weighed down by cuts in resource-sector spending. The labour market has been resilient at the national level, although with significant job losses in resource-producing regions. The Bank expects GDP growth to moderate in the fourth quarter of 2015 before moving to a rate above potential in 2016. While bond yields are slightly higher, financial conditions remain accommodative in Canada.

In the midst of all of these adjustments, inflation is in line with the Bank’s October outlook. Total CPI inflation remains near the bottom of the Bank’s target range, owing to declines in consumer energy prices. Core inflation is close to 2 per cent as the effects of the lower dollar and the output gap continue to offset each other.

The Bank judges that the risks around the inflation profile remain roughly balanced over the projection horizon. Vulnerabilities in the household sector continue to edge higher while overall risks to financial stability are evolving as expected. Taking all of these developments into consideration, the Bank judges that the risks to the outlook for inflation remain within the zone for which the current stance of monetary policy is appropriate. Therefore, the target for the overnight rate remains at 1/2 per cent.

The GDP expectations look more optimistic than has been the case since oil started to drop; in the October rate announcement:

Given this judgment about potential output, the Canadian economy can be expected to return to full capacity, and inflation sustainably to target, around mid-2017.

Mind you, the two releases are not speaking to precisely the same issue: GDP growth will have to be “above potential” for quite some time before all the slack in the economy is taken up. But it certainly sounds more optimistic!

Barrie McKenna in the Globe comments:

Many economists don’t expect Canada’s central bank to hike rates until late next year or even 2017. A few say the bank could even cut again.

“Governor [Stephen] Poloz is making it clear that even as the Fed hikes, Canadian rates will be steady,” Bank of Montreal senior economist Benjamin Reitzes said a in a research note.

Royal Bank of Canada deputy chief economist Dawn Desjardins said she expects the central bank to keep monetary policy “very stimulative” at least until the investment activity in the oil patch stops shrinking.

Of course, one big drag on the Canadian economy is electricity prices in Ontario:

Ontarians have paid $37-billion more than market price for electricity over eight years and will pay another $133-billion by 2032, after the provincial government’s process for planning the system “broke down.” Electricity prices have ballooned by 70 per cent.

What’s more, Hydro One is in rough shape, with ever-increasing power outages and aging equipment “at very high risk of failing” that needs $4.472-billion worth of repairs – even as the province is in the process of selling 60 per cent of the company to the private sector.

Auditor-General Bonnie Lysyk made these blockbuster revelations about Ontario’s expensive and aging electricity system in her annual report Wednesday, which also put several other provincial policies under the microscrope.
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“We found that the planning process had essentially broken down over the past decade,” Ms. Lysyk wrote in her report. “In the absence of a technical plan, the Ministry has made a number of decisions about power generation that went against the OPA’s technical advice and did not fully consider the state of the electricity market or the long-term effects.”

“Ontario electricity ratepayers have had to pay billions for these decisions,” Ms. Lysyk added.
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For instance, Ontarians are paying double for wind power and more than triple for solar power what U.S. consumers pay. The problem, Ms. Lysyk found, was that the 2010 Green Energy Act failed to take advantage of low electricity prices and instead mandated higher prices for wind and solar power companies than they had received previously. This all added up to $9.2-billion more in renewables costs under the current system than the previous one.

In another case in 2013, the government decided to convert a coal-fired plant in Thunder Bay to biomass in order to keep the plant going after the province stopped burning coal for electricity. Energy experts at the OPA told the government the conversion was not cost-effective, but the government told them to do it anyway. As a result, power from the plant costs $1,600/megawatts per hour, which is 25 times more than the cost at other Ontario biomass plants, Ms. Lysyk found. What’s more, some of the biomass burned at the plant is actually imported, which undercuts part of the rationale to keep the plant going to help Ontario’s forestry industry.

Craziness. The Auditor General’s highlights are listed in her press release and masochists will enjoy reading the full report.

Meanwhile, the US took delivery of a good solid beige book:

The economy expanded modestly across most of the U.S. in October and November amid rising consumer spending, while a stronger dollar helped keep inflation in check, a Federal Reserve report showed.

Eight of the 12 Fed districts called the expansion “modest,” while the Minneapolis region reported moderate growth, according to the Beige Book released Wednesday in Washington. Conditions were “steady” in the Kansas City district and “leveled off” in New York, while growth reported by the Boston Fed was “somewhat slower.”

“Consumer spending increased in nearly all districts,” with robust car sales and lower gasoline prices boosting purchases of trucks and larger vehicles, the report said. While “labor markets continued to tighten modestly,” prices were “generally steady.”

Pay gains were described as “generally stable to increasing,” with most districts saying wage pressures were only building for skilled workers and employees in short supply.

The report coincides with Fed Chair Janet Yellen’s comments in a speech earlier Wednesday that she is increasingly confident the economy is growing sufficiently to achieve labor-market improvement and higher inflation.

Nevertheless, the Fed appears to be dampening expectations of substantial rate increases:

Federal Reserve policy makers may need to have more than just confidence that inflation will pick up to raise interest rates again after liftoff.

Chair Janet Yellen on Wednesday suggested that the pace of future rate increases could depend on “actual progress” in price gains toward the central bank’s target. That’s a shift from the requirement the Federal Open Market Committee set for an initial move, to be “reasonably confident” that inflation would move back to its goal over the medium term.

The language adds to reasons to expect that rates will rise gradually after a widely-anticipated liftoff later this month. As measured by the personal consumption expenditures price index, the Fed’s favorite gauge, headline inflation climbed just 0.2 percent in the year through October. So-called core prices, which strip out volatile food and energy costs, rose 1.3 percent.

“Given the persistent shortfall in inflation from our 2 percent objective, the Committee will, of course, carefully monitor actual progress toward our inflation goal as we make decisions over time on the appropriate path for the federal funds rate,” Yellen told the Economic Club of Washington on Wednesday.

… while at the same time Lockhart is pressing hard for a December hike:

Federal Reserve Bank of Atlanta President Dennis Lockhart said he favors raising interest rates this month, adding to signs that the central bank will proceed with its first increase since 2006.

“Absent information that drastically changes the economic picture and outlook, I feel the case for liftoff is compelling,” Lockhart said Wednesday in Fort Lauderdale, Florida.

The Federal Open Market Committee is considering tightening policy at its next meeting Dec. 15-16 as the economy expands and the labor market shows signs of continued progress. Payrolls are estimated to have increased by 200,000 last month and the unemployment rate stayed at 5 percent, according to economists surveyed prior to the government report on Friday.

The Atlanta Fed official, a voting member of the FOMC this year, said employment gains have clearly met the committee’s desire for further improvement as a criterion for liftoff.
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Lockhart has never dissented from an FOMC decision.

Meanwhile, Assiduous Readers with good memories will remember that on April 9 I highlighted Power Financial’s investment in WealthSimple, which led on June 22 to astonished indignation that they might not be entirely altruistic in their goals. Whatever – WealthSimple is now flexing its newly gained muscles:

Online portfolio manager Wealthsimple is gaining ground among competitors as it acquires online brokerage Canadian ShareOwner Investments Inc.

It is the first acquisition in Canada between two online advice platforms, also known as robo-advisers, and the deal reveals that Wealthsimple will now manage 10,000 clients and $400-million in client assets – financial details that have been widely anticipated in the wealth-management industry.

Currently, there are 10 Canadian online portfolio manager platforms, including one in development with BMO Nesbitt Burns Inc., which is set to launch its offering in early 2016.

Wealthsimple entered the market in September, 2014, and quickly grabbed the attention of investment giant Power Financial Corp., which invested $10-million in the company this year and has an option to invest an additional $20-million. At the time, Wealthsimple had only 1,000 clients on its platform, with an unknown amount of assets under management (AUM), but founder and chief executive officer Michael Katchen has said he is aiming to reach AUM of $2-billion over the next two years.

… and Sun Life is reinforcing its global ambitions:

Canada’s Sun Life Financial Inc signalled the significance of the fast growing Indian insurance market by revealing plans on Wednesday to increase its stake in life insurance joint venture Birla Sun Life Insurance, to 49 per cent.

Toronto-based Sun Life, which currently owns 26 per cent of Birla Sun Life, is buying an additional 23 per cent in the venture from partner Aditya Birla Nuvo Ltd, which will keep the remaining stake. Sun Life will spend 16.64-billion rupees ($250-million) on the purchase.

The deal, which is expected to close by March 2016, comes months after Sun Life Chief Executive Dean Connor told Reuters the company was interested in raising its stake in the venture.

Birla Sun Life Insurance is among the top five private insurers in India and aims to crack the top 3 at some point.

S Split Corp., proud issuer of SBN.PR.A, was confirmed at Pfd-3 by DBRS:

DBRS Limited (DBRS) has today confirmed the rating of Preferred Shares (the Preferred Shares) issued by S Split Corp. (the Company) at Pfd-3.
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The net proceeds from the initial offering were used to purchase a portfolio of common shares of the Bank of Nova Scotia (the BNS Shares). Dividends received from the BNS Shares are used to pay a fixed cumulative monthly dividend to the holders of the Preferred Shares equal to 5.25% per annum. Based on the most recent dividend paid on the BNS Shares, the dividend income net of management fees and other expenses is expected to cover approximately 44% of the Preferred Share distributions. As of November 26, 2015, the Portfolio provides downside protection of approximately 39% to the Preferred Shares.
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The Company aims to provide the holders of the Class A Shares with regular monthly cash distributions in an amount targeted to be 6% per annum on the net asset value (NAV) of the Class A Shares. These distributions result in an average annual grind on the NAV of approximately 2.3% for the next five years. No distributions will be paid to the Class A Shares if the asset coverage available to the Preferred Shares drops below 1.65 times. Furthermore, no special distributions will be paid to the Class A Shares if the payment would drop the Company NAV to less than $25; however, special distributions may be made to mitigate any potential tax liabilities to the Company. The combination of the asset coverage test and the Class A Share distributions being based on the Company NAV provides capital preservation for holders of the Preferred Shares.

It appears that preferred share investors are taking inspiration from old WW2 stories:

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It was another awful day for the Canadian preferred share market, with PerpetualDiscounts down 49bp, FixedResets losing 92bp and DeemedRetractibles off 16bp. The Performance Highlights table is comprised entirely of losers, almost all FixedResets. Volume was quite high.

PerpetualDiscounts now yield 5.63%, equivalent to 7.32% interest at the standard equivalency factor of 1.3x. Long corporates now yield a little over 4.2%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 310bp, a widening from the 300bp reported November 26.

For as long as the FixedReset market is so violently unsettled, I’ll keep publishing updates of the more interesting and meaningful series of FixedResets’ Implied Volatilities. This doesn’t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.

Remember that all rich /cheap assessments are:
» based on Implied Volatility Theory only
» are relative only to other FixedResets from the same issuer
» assume constant GOC-5 yield
» assume constant Implied Volatility
» assume constant spread

Here’s TRP:

Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 18.85 to be $1.18 rich, while TRP.PR.C, resetting 2016-1-30 at +154, is $1.22 cheap at its bid price of 12.10.

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Most expensive is MFC.PR.H, resetting at +313bp on 2017-3-19, bid at 23.40 to be 0.42 rich, while MFC.PR.K, resetting at +222bp on 2018-9-19, is bid at 18.65 to be 0.57 cheap.

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The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 15.40 to be $1.44 cheap. BAM.PF.G, resetting at +284bp on 2020-6-30 is bid at 20.60 and appears to be $0.92 rich.

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FTS.PR.K, with a spread of +205bp, and bid at 18.25, looks $0.75 expensive and resets 2019-3-1. FTS.PR.G, with a spread of +213bp and resetting 2018-9-1, is bid at 17.10 and is $0.82 cheap.

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Investment-grade pairs predict an average three-month bill yield over the next five-odd years of -0.58%, with no outliers. There is one junk outlier below -1.50%.

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Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?

Advanced students of economics, confidently exploring the most arcane niches of their field, will be fascinated to learn that after an extensive investigation, a US Senate committee has learned that private companies seek to maximize revenue:

The makers of a breakthrough drug for hepatitis C put profits before patients in pricing the $1,000 pill that cures the liver-wasting disease, U.S. Senate investigators said Tuesday.

A bipartisan report from the Senate Finance Committee concluded that California-based Gilead Sciences was focused on maximizing revenue even as the company’s own analysis showed a lower price would allow more patients to be treated.

Although the report focused on just one drug that has made headlines in the last few years, the lawmakers who led the investigation said their findings are a warning about what’s to come with other high-priced treatments for cancer, diabetes, Alzheimer’s and HIV.
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“Gilead responsibly and thoughtfully priced Sovaldi and Harvoni,” said the company’s statement, noting that more than 600,000 patients have been treated worldwide since the introduction of Sovaldi two years ago.

But Wyden and Sen. Chuck Grassley, a Republican, said their 18-month investigation found that the high price tag significantly limited patient access and heaped huge costs on federal and state health care programs.
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Other conclusions from the report:

— Gilead priced its first hepatitis C drug — Sovaldi — with an eye toward maximizing future returns from its follow-on medication, Harvoni.

— Gilead offered only meagre supplemental discounts to state Medicaid programs, and conditioned those on the states’ dropping any restrictions on patient access. The supplemental discounts of around 10 per cent would have been on top off other discounts that Medicaid programs get by law.

“The evidence shows the company pursued a calculated scheme for pricing and marketing its hepatitis C drug based on one primary goal – maximizing revenue – regardless of the human consequences,” said Wyden.

This startling conclusion will have the economics field abuzz for years – it’s revolutionary!

There will, of course, be the usual grousers who don’t like this idea; PrefBlog humbly suggests that they fund development of their own damn drugs:

A global coalition of charities and funding bodies has been formed to invest up to £30 million into restarting the development of promising drug candidates for neurodegenerative conditions such as dementia, motor neurone disease and Parkinson’s disease. The Neurodegeneration Medicines Acceleration Programme (Neuro-MAP), led by medical research charity MRC Technology, will identify promising drug projects that are no longer in development by the industry and help scientists to take them forward to the next stage, before returning them to pharmaceutical companies for further development into marketable treatments.
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As a coalition of 9 charities and funders, Neuro-MAP will help ensure that the potential of fundamental early stage research into neurodegenerative disease is realised, taking promising drug candidates forward towards clinical testing. It will also look to repurpose existing drugs and compounds for other conditions, for example, the use of hypertension drugs for the treatment of vascular dementia. The programme protects both charities’ and pharma’s investment and allows charities to maximise their impact on patient’s quality of life.

Partners in the Neuro–MAP are: Alzheimer’s Association US, Alzheimer Research UK, Alzheimer’s Society UK, ALS Association, Michael J Fox Foundation, MND Association, MRC Technology, Northern Health Science Alliance and Parkinson’s UK.

Some pioneering cranks have been doing this for some time:

The Cystic Fibrosis (CF) Foundation has sold royalty rights to treatments developed with support from its ‘venture philantrophy’ model. Royalty pharma – which accumulates royalty payments from established drugs – paid $3.3 billion for royalties on Vertex pharmaceuticals’ Kalydeco (ivacaftor).

The venture philanthropy model, adopted in the late 1990s, sees the foundation provide upfront funding for pharmaceutical companies to help reduce the financial risk of developing drugs to treat CF. It gave a total of $150 million to Vertex to support the company’s CF drug development program.
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The funding provided by the CF Foundation is exclusively for the use of specific, negotiated CF research projects with a biotech or pharmaceutical company. ‘We negotiate legal agreements with strict parameters to ensure that every dollar invested is in the best interest of advancing [our] mission,’ a foundation spokesperson explained. ‘Virtually every CF drug available to patients in the US was made possible because of Foundation support.’

In an exclusive interview, a PrefBlog spokesman stated “I don’t expect anything much to come of it in Canada. People aren’t too bright and would rather pay crackheads to sleep on the streets.”

I am happy to report that the Sprott Silver battle continues, with a press release yesterday from Sprott:

Desperate Attempt by the Spicers to Preserve Fees

Proposed Transaction Betrays the Principles of Physical Bullion Investing and Subjects Unitholders to Increased Risks, Including Risk of Significant Redemptions

Previous Bullion Fund to ETF Conversion by Purpose’s Predecessor Resulted in Immediate and Massive Redemptions

Purpose Investments Can Walk Away With no Penalty After April 30, 2016, and GTU and SBT’s Paid Financial Advisor Hasn’t Provided a Fairness Opinion on the Transaction

No Credible Reason to Believe That the Proposed ETF Conversions Can be Completed – the Transaction May be Nothing More Than a Defensive Tactic
…
John Wilson, CEO of Sprott Asset Management, said, “The Purpose Investments transaction is an illogical proposition for GTU and SBT unitholders who made the choice to invest in a security fully backed by physical bullion. Unitholders should feel betrayed by the Trustees. After suffering from significant underperformance, gross mismanagement and questionable side payments to the Trustees and other friends of the Spicer family, unitholders are now faced with a Spicer-negotiated transaction that protects their fees and hypocritically tries to promote liquidity, marketing support and enhanced asset scale. These qualities are just a few of the benefits that Sprott is offering GTU and SBT unitholders, but at a premium and with certainty. Most importantly, through the Sprott offers, unitholders do not lose the distinct investment quality of holding bullion directly.”

Silver Bullion Trust has fired back:

Bruce Heagle, Chair of the Special Committee of Independent Trustees, stated: “It is regrettable but not surprising that Sprott’s latest press commentary delivers alarmist criticism and confusion in order to forward their own agenda. Sprott is the desperate party in this debate – they are seeking to draw attention away from the obvious deficiencies of their offer relative to the proposed ETF conversion. Your Independent Trustees recommend that unitholders ignore Sprott’s fear-mongering accusations, as Sprott is seeking to prevent unitholders from considering a better alternative to their inadequate, self-serving offer, which has yet to garner sufficient unitholder support despite seven extensions. All of the pertinent information regarding the proposed ETF conversion and its benefits to unitholders relative to Sprott’s offer will be in the Information Circular, which will be sent to unitholders shortly. Upon review of the forthcoming Information Circular and the benefits of the ETF conversion, I am confident that you will reach the same conclusion as your Independent Trustees: that the proposed ETF conversion in partnership with Purpose Investments is clearly a superior alternative to Sprott’s deficient offer. We thank unitholders for their patience and continued support of Silver Bullion Trust.”

There were two issues of bank NVCC-compliant sub-debt today – one from BMO:

Bank of Montreal (TSX:BMO)(NYSE:BMO) today announced a domestic public offering of $1 billion of subordinated notes (Non-Viability Contingent Capital (NVCC)) (the “Notes”) through its Canadian Medium-Term Note Program. The net proceeds from this offering will be used for general corporate purposes.

The Notes bear interest at a fixed rate of 3.34 per cent per annum (paid semi-annually) until December 8, 2020, and at the three-month Bankers’ Acceptance Rate plus 2.18 per cent thereafter (paid quarterly) until their maturity on December 8, 2025. The expected closing date is December 8, 2015. BMO Capital Markets is acting as lead agent on the issue.

… and one from Scotia:

The Bank of Nova Scotia (“Scotiabank”) (TSX:BNS) (NYSE:BNS) today announced a Basel III-compliant offering of $750 million of 3.367% Subordinated Debentures due 2025 (the “Debentures”) pursuant to its June 27, 2014 base shelf prospectus.

The Debentures, to be sold through an agency syndicate led by Scotiabank Global Banking and Markets, are expected to be issued on December 8, 2015. Interest will be payable semi-annually from the date of issue until December 8, 2020 at 3.367% per annum. From December 8, 2020 to maturity on December 8, 2025, the Debentures will pay a quarterly coupon at a rate of the 90 day bankers’ acceptance plus 2.19%, beginning March 8, 2021.

The mechanics of NVCC-compliant sub-debt were discussed in the post Royal Bank Issues NVCC-Compliant Sub-Debt. It’s interesting to see that that issue, from July 2014, was issued at 3.04%, resetting ha-ha to BAs+108 after their pretend-maturity. That was at a time when:

[July, 2014] The Canada 10-year is trading at around 2.20%, the five year around 1.55% and three-month BAs a little above 1.20%.

Great-West Lifeco was supposed to have supposed to have advised bank-owned CDS of the reset rate on GWO.PR.N today, but neither the company, nor bank-owned CDS, nor regulatorally run SEDAR has any news for you, you disgusting retail scum. Phone your broker and ask this simple question if you can get through the voice-menu, and while you’re at it, be sure to ask if he has any new issues he can sell you; if not, mail him a cheque anyway. This will help build a stronger Canada.

It was another mixed, mostly negative day for the Canadian preferred share market, with PerpetualDiscounts off 12bp, FixedResets down 33bp and DeemedRetractibles gaining 5bp. The Performance Highlights table is dominated by losers. Volume continued to be extremely high.

For as long as the FixedReset market is so violently unsettled, I’ll keep publishing updates of the more interesting and meaningful series of FixedResets’ Implied Volatilities. This doesn’t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.

Remember that all rich /cheap assessments are:
» based on Implied Volatility Theory only
» are relative only to other FixedResets from the same issuer
» assume constant GOC-5 yield
» assume constant Implied Volatility
» assume constant spread

Here’s TRP:

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TRP.PR.E, which resets 2019-10-30 at +235, is bid at 18.85 to be $0.96 rich, while TRP.PR.C, resetting 2016-1-30 at +154, is $1.12 cheap at its bid price of 12.31.

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Most expensive is MFC.PR.H, resetting at +313bp on 2017-3-19, bid at 23.92 to be 0.54 rich, while MFC.PR.G, resetting at +290bp on 2018-3-19, is bid at 22.13 to be 0.43 cheap.

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The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 15.79 to be $1.25 cheap. BAM.PF.G, resetting at +284bp on 2020-6-30 is bid at 20.65 and appears to be $0.72 rich.

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FTS.PR.K, with a spread of +205bp, and bid at 18.59, looks $0.77 expensive and resets 2019-3-1. FTS.PR.G, with a spread of +213bp and resetting 2018-9-1, is bid at 17.66 and is $0.57 cheap.

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Investment-grade pairs predict an average three-month bill yield over the next five-odd years of -0.60%, with no outliers. There is one junk outlier below -1.50%.

Click for Big

Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?