PrefBlog

Here’s a sign of the times from Pengrowth:

Pengrowth’s (TSX:PGF)(NYSE:PGH) Board of Directors has approved a change to the Company’s dividend policy, moving to a quarterly payment at a rate of $0.01 per share per quarter ($0.04 per share annually), as a result of the continued weakness in commodity prices. With the macro environment continuing to deteriorate and given the outlook for a prolonged weakness in commodity prices, the Company believes that it is prudent to preserve capital and accelerate its efforts to reduce overall indebtedness.

The new dividend policy will take effect following the payment of the $0.02 per share dividend payable on September 15, 2015 with the first quarterly payment expected to be paid on December 15, 2015.
…
Pengrowth remains committed to taking actions to ensure the Company lives within its cash flow and looking at all options to reduce its overall indebtedness. Today’s dividend reduction is consistent with all of the measures the Company has taken in 2015 to counter the impact of falling prices and preserve its financial liquidity.

These measures include:

• •A 78 percent reduction in anticipated 2015 capital spending compared to 2014.
• •Targeted non-core asset sales of $600 million in 2015.
• •Continued focus on capital cost reductions, resulting in a 20 to 25 percent reduction for most types of services.
• •Ongoing staffing re-alignments with a seven percent reduction in head office full-time staff in the last nine months.
• •Commitment to ongoing hedging efforts to protect future cash flows and capital programs.

In the absence of stronger commodity prices, Pengrowth would expect 2016 capital spending to be under $100 million.

And here’s another sign of the times from Rob Carrick:

If you think the stock market has been nasty lately, you should check out what preferred shares have gone through.

It’s a slaughter, really. These supposedly low-risk widow-and-orphan stocks are in a bear market that looks much worse than what the broader market has been through. The S&P/TSX composite index was down 11.3 per cent for the 12 months to Aug. 31, while the S&P/TSX preferred share index was down 19.5 per cent. The composite has made 15.5 per cent in total for the five years to Aug. 31, while the pref share index is down about 21 per cent.

Regrettably, the piece states:

What will bring the pref market back this time? Possibly the 5.5 per cent yield now being generated by the preferred share index. At a time when five-year Government of Canada bonds yield 0.75 per cent, that’s quite the value proposition.

The 5.5% yield must be Current Yield; while I consider the conclusion reasonable enough, the use of inapplicable data to support it detracts from the article. It should also be noted that Mr. Carrick’s quoted returns are based on price indices, rather than total return, which makes a bit of a difference! The following table by no means changes the conclusion, but is a bit more precise:

The IMF brings happy news and analysis:

Global growth in the first half of 2015 was lower than in the second half of 2014, reflecting a further slowdown in emerging economies and a weaker recovery in advanced economies … Financial conditions for emerging economies have tightened … Risks are tilted to the downside, and a simultaneous realization of some of these risks would imply a much weaker outlook.

So what should we do?

Advanced economies should maintain supportive policies. In most advanced economies substantial output gaps and below-target inflation suggest that the monetary stance must stay accommodative. Fiscal policy should remain growth friendly and be anchored in credible medium-term plans. Managing high public debt in a low-growth and low-inflation environment remains a key challenge.

It was a good day for the Canadian preferred share market, with PerpetualDiscounts winning 47bp, FixedResets up 33bp and DeemedRetractibles gaining 7bp. Floaters did really well! The Performance Highlights table is its usual extremely lengthy self. Volume was on the low side of average.

PerpetualDiscounts now yield 5.49%, equivalent to 7.14% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 4.15%, so the pre-tax interest-equivalent spread is now about 300bp, a sharp narrowing from the 325bp reported August 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 19.75 to be $1.12 rich, while TRP.PR.C, resetting 2016-1-30 at +164, is $1.02 cheap at its bid price of 12.85.

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Another good fit today for MFC, with Implied Volatility dropping a bit again today.

Most expensive is MFC.PR.F, resetting at +141bp on 2016-6-19, bid at 16.00 to be 0.30 rich, while MFC.PR.K, resetting at +222bp on 2018-9-19, is bid at 19.61 to be 0.37 cheap.

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The fit on the BAM issues continues to be horrible.

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 16.89 to be $1.42 cheap. BAM.PF.G, resetting at +284bp on 2020-6-30 is bid at 22.60 and appears to be $1.03 rich.

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Implied Volatility eased a little today, but there are perils in relying too heavily on a four-point curve.

FTS.PR.K, with a spread of +205bp, and bid at 18.91, looks $0.46 expensive and resets 2019-3-1. FTS.PR.G, with a spread of +213bp and resetting 2018-9-1, is bid at 18.39 and is $0.52 cheap.

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Investment-grade pairs predict an average three-month bill yield over the next five-odd years of -0.91%, with no outliers although I had to change the scale of the graph. Note that the distribution is bimodal, with NVCC non-compliant bank issues averaging -1.30% and the unregulated issues averaging -0.37%. There are two junk outliers below -1.80% and one above +0.20%.

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

It was kind of an interesting day, with US equities getting smacked:

U.S. stocks joined a worldwide selloff, after equities’ worst month in more than three years, amid continuing concerns that China’s slowdown will weigh on the global economy.
…
The Standard & Poor’s 500 Index slid 3 percent to 1,913.85 at 4 p.m. in New York, the third-worst drop this year. … The Dow Jones Industrial Average sank 469.68 points, or 2.8 percent, to 16,058.35. The Nasdaq Composite Index lost 2.9 percent.
…
Equities dropped in Asia, with the Shanghai Composite Index slumping as much as 4.8 percent, after manufacturing reports pointed to a deepening Chinese economic slowdown.
…
International Monetary Fund Managing Director Christine Lagarde said Tuesday the global expansion outlook is worse than the lender anticipated less than two months ago. “This reflects two forces: a weaker than expected recovery in advanced economies, and a further slowdown in emerging economies, especially in Latin America,” Lagarde said in a speech in Jakarta.

A report today showed U.S. factories expanded in August at the slowest pace since May 2013 as anemic demand from emerging markets such as China translated into leaner factory order books. A measure of exports matched the weakest reading since April 2009. The weak manufacturing data surface ahead of the Federal Reserve’s September policy meeting in which they will debate whether the economy is strong enough to withstand an increase in interest rates in the face of fragile overseas economies.

In somewhat related news, it looks like the deal with Iran will survive not just US Congress, but a very noticeable surge in sponsored content for pro-Israeli groups in my Facebook feed:

President Barack Obama all but wrapped up enough U.S. Senate votes to protect the Iran nuclear deal in Congress as two more Democratic senators said Tuesday they will support the agreement.

The backing from Senators Chris Coons of Delaware and Bob Casey of Pennsylvania brings the president within one vote of the 34 he needs. Eleven Democrats haven’t declared a position, including West Virginia’s Joe Manchin, who said in July he was leaning toward supporting the agreement. An aide has said Manchin remains undecided.

Which is somewhat related because of the effects on the oil market:

The Americas will take the brunt of any cuts in oil production as Iran increases output once international sanctions are lifted, according to a report by A.T. Kearney Inc.’s oil and gas consulting practice in Dubai.

North, South and Central American oil production could fall 1.1 million barrels a day by 2020 because of higher costs as Iran’s output climbs, starting with an increase of 800,000 barrels a day next year, Chicago-based A.T. Kearney said in a report to be issued this week. Brent crude prices are seen trading at $45 to $65 a barrel next year, according to the report. The international benchmark was about $47 a barrel on Tuesday.

So slow economic growth and subdued pricing for oil add up to one thing:

Treasury market analysts are scaling back their forecasts for a selloff as yields show traders expect almost no inflation for the next two years.

Benchmark 10-year yields will hold below 3 percent through September 2016, based on Bloomberg surveys of economists, with the most recent forecasts given the heaviest weightings. In June, the projection was for 3.15 percent.

A bond-market gauge called the break-even rate shows traders expect the average annual rate of inflation to be 0.3 percent over the coming 24 months. The figure has tumbled from more than 1 percent as recently as July. Federal Reserve Bank of Boston President Eric Rosengren said uncertainty over inflation and global growth justifies a modest pace of interest-rate increases, regardless of when the central bank begins.

‘What’s in it for me’, you ask? How about more vacations in Canada?

Canada’s economy shrank again in the second quarter as plunging oil prices triggered a drop in investment, with fresh debate about a recession dealing a blow to Prime Minister Stephen Harper’s bid for re-election.

Gross domestic product declined at a 0.5 percent annualized pace from April to June, Statistics Canada said Tuesday in Ottawa. The agency revised the first-quarter contraction to 0.8 percent from 0.6 percent.

The Group of Seven’s biggest crude oil exporter is struggling as a global commodity slump guts business spending.
…
Canada’s dollar depreciated 0.3 percent to C$1.3173 per U.S. dollar at 11:55 a.m. Toronto time. The currency is down about 12 percent this year. Swaps trading showed the odds of a rate cut next week fell to about 21 percent after Tuesday’s report, down from 24 percent Monday and 36 percent a week ago.

The consecutive GDP declines are milder than any back-to-back contractions since at least 1981, including the last recession in 2009 which saw drops of 3.6 percent and 8.7 percent. The job market also suggests there’s no broad-based slump in the world’s 11th largest economy. The jobless rate of 6.8 percent for July is down from 7 percent a year ago. August labor data is due Sept. 4.

Fortunately, all this gloom is alleviated by more news from the highly entertaining battle between Sprott and the bullion trusts. Sprott recently announced:

the filing of notices of change (the “Notices of Change”) in connection with the offers (together, the “Sprott offers”) by Sprott Asset Management Gold Bid LP and Sprott Asset Management Silver Bid LP to acquire all of the outstanding units of Central GoldTrust (“GTU”) and Silver Bullion Trust (“SBT”), respectively, for units of Sprott Physical Gold Trust and units of Sprott Physical Silver Trust, in each case on a Net Asset Value (“NAV”) to NAV exchange basis.

We can find, after a bit of difficulty, the document on SEDAR, filed under “Silver Bullion Trust Aug 28 2015 17:49:05 ET Notice of change or variation – English PDF 73 K”, a public document that the regulators consider so critical to the efficient and fair functioning of the public markets that they prohibit investor scum and other interested parties from linking to it directly. After accepting the regulators’ terms of use and offering a little prayer of thanksgiving for our transparent capital markets, we find:

The Offeror has (subject to the next two sentences) agreed to pay to each Soliciting Dealer a fee of U.S.$0.0448 for each SBT Unit deposited through such Soliciting Dealer and either: (i) taken-up and paid for by the Offeror under the Offer; or (ii) provided the Merger Transaction is completed, deemed to be withdrawn from the Offer under the Merger Election, based on, among other things, the claims submitted, CDS and DTC participant deposits and the CDS and DTC participant list as at the Expiry Time. The aggregate amount payable with respect to any single beneficial holder of SBT Units will not be less than U.S.$50.00 and not be more than U.S.$1,500.00, provided that no fee will be payable in respect of deposits of less than 1,000 SBT Units per beneficial holder. When SBT Units deposited are beneficially owned by more than one person, only one minimum and maximum amount will be applied. The Offeror may require the Soliciting Dealers to furnish evidence of beneficial ownership satisfactory to the Offeror before payment of such solicitation fees.

Silver Bullion Trust has a NAVPU of USD 8.38 as of September 1, so this payment comes to a little over 50bp on unit value, which is nice work if you can get it. The target has this to say:

The Trustees note the recent announcement by Sprott that they intend to pay financial advisors and brokers to secure tenders to their Offer, a clear indication that the Sprott Offer has thus far been unable to attract sufficient Unitholder support. The Trustees caution Unitholders regarding any advice or recommendations they may receive from their financial advisors or brokers, which may be biased and based on their desire to collect solicitation fees from Sprott. Sprott is paying your broker to convince you to tender. Don’t be talked into tendering!

I continue to scan the news for mention of solicitation fees and new issue commissions being discussed in connection with potential bans on mutual fund trailer commissions, but there’s nothing. The regulators are too busy coming up with new ways to restrict public access to public documents, while self-proclaimed investor advocates concentrate on trying to get their heads out of their asses.

You know what’s good about the internet? This is what’s good about the internet:

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In other other news (about chess), Lev Aronian won the 2015 Sinquefield Cup (a ridiculously strong tournament), but the highlights reel has to include So – Nakamura in round 6 and Nakamura – Grischuk in round 9. Fighting chess! Those with a taste for it may wish to watch the Thoresen Chess Engine Competition Season 8, which brings the world’s strongest chess programmes together on some rather high-end hardware.

The Canadian preferred share market commenced the new month on a mixed note, with PerpetualDiscounts gaining 12bp, FixedResets down 6bp and DeemedRetractibles off 2bp. Reported yields for the FixedReset subindex dropped significantly from yesterday due to the mass migration of ENB issues from FixedResets into Scraps due to credit concerns. The Performance Highlights table continues to show a lot of churn amongst the FixedResets. Volume was extremely low.

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 19.40 to be $0.88 rich, while TRP.PR.C, resetting 2016-1-30 at +164, is $1.00 cheap at its bid price of 12.75.

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Another good fit today for MFC, with Implied Volatility dropping a bit again today.

Most expensive is MFC.PR.M, resetting at +236bp on 2019-12-19, bid at 20.85 to be 0.39 rich, while MFC.PR.J, resetting at +261bp on 2018-3-19, is bid at 21.00 to be 0.44 cheap.

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The fit on the BAM issues continues to be horrible.

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 16.51 to be $1.68 cheap. BAM.PF.G, resetting at +284bp on 2020-6-30 is bid at 22.60 and appears to be $1.15 rich.

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Implied Volatility reversed yesterday’s precipitous decline, illustrating the perils of relying too heavily on a four-point curve.

FTS.PR.M, with a spread of +248bp, and bid at 20.65, looks $0.26 expensive and resets 2019-12-1. FTS.PR.G, with a spread of +213bp and resetting 2018-9-1, is bid at 18.12 and is $0.60 cheap.

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Investment-grade pairs predict an average three-month bill yield over the next five-odd years of -0.94%, with no outliers. Note that the distribution is bimodal (although less than recently), with NVCC non-compliant bank issues averaging -1.05% and the unregulated issues averaging -0.78%. There are four junk outliers below -1.60% and two above +0.40%.

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

“It doesn’t matter whether a cat is white or black, as long as it throws financial guys in jail after a crash“:

China’s brokerages tumbled after Citic Securities Co. executives were detained and people familiar with the matter said the industry was told to contribute another 100 billion yuan ($15.7 billion) to a market rescue fund.

Four executives of Citic including managing directors Xu Gang and Liu Wei, admitted alleged insider trading, the state-run Xinhua News Agency said. The nation’s largest brokerage fell as much as 8.6 percent in Shanghai and slid to the lowest since May 2014 in Hong Kong. A Citic press officer declined to comment.

The China Securities Regulatory Commission ordered the rescue-fund contributions at a meeting with 50 brokerages on Saturday that was attended by CSRC Chairman Xiao Gang, said the people, who asked not to be identified because the meeting hasn’t been made public. The regulator encouraged listed brokerages to buy back shares worth as much as 10 percent of their total market value, the people said.

Central bankers are feeling some angst:

Mario Draghi may have skipped the Federal Reserve’s Jackson Hole symposium this year, but he can’t dodge its conclusion: central banks can’t steer inflation as well as they thought.

Less than six months into a stimulus program that the European Central Bank president promised would revive consumer-price growth, the euro area is facing renewed disinflationary pressure as China’s economy slows and commodity prices slump. Inflation failed to pick up this month, data showed on Monday, and Draghi may have to downgrade the institution’s forecasts on Thursday.

The newest risk to prices highlights how in the 19-nation currency bloc — as in the U.S., the U.K. and other industrialized nations — headline inflation is still far below target even as the economy recovers.
…
At Jackson Hole, academics effectively delivered a beating to central banks’ confidence in their ability to predict and manage their key variable, by pointing out wide gaps in knowledge about how inflation works.

Harvard University’s Gita Gopinath argued that the relationship between prices and exchange rates isn’t well understood. Boston University’s Simon Gilchrist said that strict inflation targeting can worsen economic outcomes.

Worse still, trying to influence inflation while not understanding it is a “recipe for disaster,” according to MIT Sloan School of Management professor Athanasios Orphanides, himself a former ECB Governing Council member.

I knew American universities were venal, but I didn’t know just how venal they could be:

Bank of America’s relationship with the university extends well beyond marketing at sports events. The bank has an $8.4 million, seven-year contract with Michigan State giving it access to students’ names and addresses and use of the university’s logo. The more students who take the banks’ credit cards, the more money the university gets. Under certain circumstances, Michigan State even stands to receive more money if students carry a balance on these cards.
…
The relationships are reminiscent of those uncovered two years ago between student loan companies and universities. In those, some lenders offered universities an incentive to steer potential borrowers their way.

In Friday’s post I mentioned some interesting things that are happening with barcodes and smartphones … these were interesting enough that I did some poking around.

The Global Food Safety Resource published an interesting article titled Food Regulatory Trends in 2015, which included the interesting note:

In December 2014, Guangdong province piloted an e-traceability system for baby formula. Consumers can use a mobile app and scan a barcode to get information about the product including it’s provenance. But it’s unique to Guangdong and doesn’t translate nationally.

The Grower, a specialty newsletter billing itself as ‘Canada’s Premier Horticultural Publication’, published an article titled How a celery swizzle stick meets its bar code in the field, which contains a bit of insight into Canada’s laws regarding food traceability and how this is implemented at the farm level.

GS1 Canada (the worldwide GS1 organization is mentioned in the Reuters article that got me interested) issued a statement titled Update On Loblaw And Wal-Mart GS1 DataBar™ Pilots (the GS1 Databar was used in one of the examples in the article) that stated:

In June 2006, Loblaw Companies Limited (Loblaw) and Wal-Mart Stores inc. (Wal-Mart) selected several suppliers to pilot the GS1 DataBar™ … on apples and bananas …

To date, Loblaw and Wal-Mart have attributed the following business benefits to their DataBar pilots:
•Decreased out-of-stocks
•Improved shrink control
•Enhanced product replenishment
•Increased customer satisfaction at self-checkouts

So on Saturday evening I visited my local Loblaws and looked at the apples and bananas and lo and behold! They all had GS1 Databars on them!

So it may be concluded that all the data is in place for consumer access to provenance information for apples and bananas at Loblaws. All that is needed is a smartphone App that will read and interpret the information and possibly access to Loblaw’s database – I’m not sure how much, if any, of the data is proprietary.

So you can bet that as soon as Loblaws thinks they can make a dollar out the proposition this traceability will be available – at least as far as Loblaw’s apples and bananas are concerned.

However, I’m not holding my breath waiting for the roll-out. As the comments to the Globe’s republished article so convincingly demonstrate, Canadians as a group are both mentally deficient and terrified of anything developed after 1973. But maybe there’s an App Developer out there who might like to steal a march on the big boys …

I was hoping for some definitive news today on the all-but-certain extensions of NPI.PR.A, FFH.PR.G and ALA.PR.A, which reset 2015-9-30, but there’s nothing.

The Canadian preferred share market closed the month with a good strong day, with PerpetualDiscounts gaining 13bp, FixedResets winning 56bp and DeemedRetractibles up 21bp. There is still a lot of churn in the market, as is demonstrated by yet another lengthy Performance Highlights table. Volume was extremely low.

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 19.46 to be $0.82 rich, while TRP.PR.C, resetting 2016-1-30 at +164, is $1.00 cheap at its bid price of 12.85.

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Another good fit today for MFC, with Implied Volatility dropping a bit again today.

Most expensive is MFC.PR.N, resetting at +230bp on 2020-3-19, bid at 20.55 to be 0.48 rich, while MFC.PR.K, resetting at +222bp on 2018-9-19, is bid at 19.37 to be 0.42 cheap.

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The fit on the BAM issues continues to be horrible.

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 16.27 to be $2.00 cheap. BAM.PF.F, resetting at +286bp on 2019-9-30 is bid at 23.15 and appears to be $1.54 rich.

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Implied Volatility declined precipitously today, illustrating the perils of relying too heavily on a four-point curve.

FTS.PR.H, with a spread of +145bp, and bid at 14.95, looks $0.50 expensive and resets 2020-6-1. FTS.PR.G, with a spread of +213bp and resetting 2018-9-1, is bid at 18.28 and is $0.60 cheap.

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Investment-grade pairs predict an average three-month bill yield over the next five-odd years of -0.68%, with no outliers. Note that the distribution is bimodal, with NVCC non-compliant bank issues averaging -0.82% and the unregulated issues averaging -0.49%. There are two junk outliers below -1.60% and one two above +0.40%..

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

Strange goings-on in FundLand:

Since July, American households — which account for almost all mutual fund investors — have pulled money both from mutual funds that invest in stocks and those that invest in bonds. It’s the first time since 2008 that both asset classes have recorded back-to-back monthly withdrawals, according to a report by Credit Suisse.

Credit Suisse estimates $6.5 billion left equity funds in July as $8.4 billion was pulled from bond funds, citing weekly data from the Investment Company Institute as of Aug. 19. Those outflows were followed up in the first three weeks of August, when investors withdrew $1.6 billion from stocks and $8.1 billion from bonds, said economist Dana Saporta.

Meanwhile, US incomes are ticking up:

Consumer purchases climbed in July as incomes grew, showing the biggest part of the U.S. economy was off to a good start to the quarter.

The 0.3 percent advance matched the prior month’s gain, a Commerce Department report showed Friday in Washington. The median forecast in a Bloomberg survey of 77 economists called for a 0.4 percent increase. Wages rose by the most this year.
…
Total incomes rose 0.4 percent in July for a fourth month, matching the median forecast in the Bloomberg survey. Wages and salaries increased 0.5 percent, the biggest gain since November.

Because spending increased less than incomes, the saving rate rose to 4.9 percent from 4.7 percent.
…
The report showed inflation remained tame. The price gauge based on the personal consumption expenditures index increased 0.1 percent from the prior month and was up 0.3 percent from a year earlier.

The core price measure, which excludes food and fuel, also rose 0.1 percent from the prior month and was up 1.2 percent from July 2014, the smallest year-to-year gain in four years.

If it doesn’t continue, they’ll blame Canada:

“When Canada hurts, U.S. exporters do, too,” Bricklin Dwyer, an economist at BNP Paribas in New York, wrote in an Aug. 27 note to clients titled “Canada (not China) matters more.”

Economy-watchers and investors have been spooked by fears of a worse-than-expected Chinese slowdown after the nation devalued its currency Aug. 11 in a surprise move. Yet the direct effects on U.S. trade from slowing Chinese growth and the yuan move are probably fairly contained — far more so than the potential fallout from faltering Canadian demand.

Canada counts for 19 percent of total U.S. exports, followed by Mexico at 16 percent, each more than double China’s 7 percent share. And the Canadian dollar is sliding much faster: It has fallen about 12 percent against the U.S. dollar since the start of the year, while China’s yuan has dropped just about 3 percent.

And, too bad for Canada, we have a high domestic sensitivity to FX rate changes:

The central banker’s task of keeping inflation just right has become a permanent tussle with the global currency markets. Too weak a currency equals too rapid price gains. Too strong, and disinflation looms.

That’s the well-worn argument under the microscope Friday at the Jackson Hole Symposium, the U.S. Federal Reserve’s annual policy getaway. Gita Gopinath, a scholar at Harvard University, says that it just isn’t that simple.

“The greater the fraction of a country’s imports invoiced in a foreign currency, the greater its inflation sensitivity to exchange rate fluctuations at both short and long horizons,” she says. Because the dollar is by far the dominant currency in world trade, “U.S. inflation is consequently more insulated from exchange rate shocks, while other countries are highly sensitive to it.”

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The Ukraine has issued GDP warrants:

The warrants included in a debt deal reached between Ukraine and its biggest creditors on Thursday offer bondholders annual payments for 20 years if economic growth crosses certain thresholds, Finance Minister Natalie Jaresko said at a briefing with journalists late on Thursday.

How are payments determined?

• •No payment will be made if growth is less than 3 percent
• •For growth between 3-4 percent, the payment will be 15 percent of the real GDP growth exceeding 3 percent
• •For growth faster than 4 percent, Ukraine will pay holders 40 percent of the expansion beyond 4 percent, in addition to amount for 3-4 percent growth

And today’s technology news is a pending revolution in bar codes:

The most ubiquitous barcodes allow an eight to 14 digit number to be read by a laser scanner. For example, barcode 4-003994-111000 identifies a box as being a 375 gram pack of Kellogg’s Corn Flakes.

However, that number does not directly capture any other information that might interest a shopper – such as ingredients, allergens or country of origin – nor does it provide a retailer with useful details such as the batch number or sell-by date.

That data is usually printed on the pack, but consumers increasingly want to read it online, or with a smartphone app such as one that measures calories. Retailers want data that can be scanned for tasks such as quickly locating faulty goods for recall or about-to-expire products for mark downs.

GS1, the non-profit organization that assigns the unique numbers in barcodes, has developed a double-layered barcode it calls the “data bar” which can carry some extra details such as expiry date, quantity, batch or lot number.

That has allowed German retailer Metro MEOG.DE to launch PRO Trace, a smartphone app that shows, for example, that a filet of salmon on sale at a store in Berlin on Aug. 25 was caught at the Bremnes Seashore fish farm off the coast of Norway on Aug. 17 and processed in Germany on Aug. 21.

The app also displays a map highlighting the fishing area of the catch and a detailed description of the Atlantic salmon.

Metro says the app helps customers at its cash-and-carry stores such as professional chefs from hotels and restaurants, as they can now embellish their menus with information about the exact origin of pricey delicacies such as wagyu beef.

It was a very strong day for the Canadian preferred share market, with PerpetualDiscounts gaining 12bp, FixedResets winning 81bp and DeemedRetractibles up 50bp. The Performance Highlights table is again very lengthy, but this time there are only a handful of losers. Volume was below average.

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 19.40 to be $1.01 rich, while TRP.PR.C, resetting 2016-1-30 at +164, is $1.02 cheap at its bid price of 12.65.

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Another good fit today for MFC, with Implied Volatility dropping a bit again today.

Most expensive is MFC.PR.H, resetting at +313bp on 2017-3-19, bid at 23.01 to be 0.36 rich, while MFC.PR.G, resetting at +290bp on 2016-12-19, is bid at 21.76 to be 0.26 cheap.

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The fit on the BAM issues continues to be horrible.

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 16.30 to be $1.75 cheap. BAM.PF.G, resetting at +284bp on 2020-6-30 is bid at 22.50 and appears to be $1.24 rich.

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Implied Volatility increased a bit today and remains unreasonably high.

FTS.PR.K, with a spread of +205bp, and bid at 18.55, looks $0.14 expensive and resets 2019-3-1. FTS.PR.G, with a spread of +213bp and resetting 2018-9-1, is bid at 18.50 and is $0.34 cheap.

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Investment-grade pairs predict an average three-month bill yield over the next five-odd years of -0.63%, with no outliers. Note that the distribution is bimodal, with NVCC non-compliant bank issues averaging -0.84% and the unregulated issues averaging -0.35%. There is one junk outlier below -1.60%.

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

Remember all that gloomy stuff posted for the past week? Well, don’t. We’re rich!

What you need to know about Thursday’s [US] economic data:

GROSS DOMESTIC PRODUCT (2Q REVISED)

• •Climbed at a revised 3.7 percent annualized rate, exceeding all forecasts in a Bloomberg survey and up from an initial estimate of 2.3 percent
• •All four components — consumer spending, business investment, trade and government outlays — contributed more to growth than first estimated
• •Inventories showed biggest back-to-back quarterly increases on record
• •Gross domestic income grew at a 0.6 percent pace in second quarter

…
JOBLESS CLAIMS (WEEK ENDED AUG. 22)

• •Applications fell by 6,000 to 271,000 with Michigan and Kansas posting biggest drops
• •Claims hovering close to mid-July level of 255,000 that was fewest since 1973

Just ignore the inevitable carpers:

The federal government today released two very different estimates of the U.S. economy’s growth rate in the second quarter. The one that got all the attention was the robust 3.7 percent annual rate of increase in gross domestic product. Not many people noticed that gross domestic income increased at an annual rate of just 0.6 percent.

That’s a big discrepancy for two numbers that should theoretically be the same, since they’re two ways of measuring the same thing: the size of the economy. If you believe the GDP number, you’re happy. If you believe the GDI number, you’re thinking the U.S. is skating close to a recession.

The Bureau of Economic Analysis always gives more prominence to the GDP number in its quarterly press release. But today, for the second time in a quarterly report, it released an average of GDP and GDI growth rates. That average came in at 2.1 percent after rounding—and in this case, that’s probably closer to the truth than either number alone.

So oil popped:

Oil jumped the most in more than six years, caught up in a relief rally that swept the globe as the U.S. economy grew more than predicted.

West Texas Intermediate futures rose 10 percent, the biggest gain since March 2009. U.S. gross domestic product grew at a 3.7 percent annualized rate in the second quarter, exceeding all estimates of economists surveyed by Bloomberg. The Standard & Poor’s 500 Index headed for its biggest two-day gain since 2009 as Chinese shares snapped a five-day losing streak.

Prices extended gains after Royal Dutch Shell Plc issued a force majeure on Bonny Light exports from Nigeria as it worked to repair two crude pipelines shut because of thefts and a leak.

And everybody was happy, happy, happy:

A relief rally swept around the globe, with the Dow Jones Industrial Average capping its biggest two-day gain since 2008 and Chinese shares snapping a five-day tumble. Oil jumped the most in more than six years after data showed the U.S. economy grew more than forecast in the second quarter.

American stocks briefly spiked lower in late afternoon trading, as the Standard & Poor’s 500 Index cut an advance of as much as 2.5 percent to less than 0.5 percent before reversing course and rallying again, indicating markets are still vulnerable to sudden swings.

Shares surged from Asia to the U.S. after the biggest advance in the S&P 500 in four years on Wednesday helped restore some appetite for riskier assets. The rally halted the selloff that’s engulfed markets since China devalued its currency on Aug. 11, an unexpected move that ignited concern that the slowdown in the world’s second largest economy may threaten global growth.

… except maybe bond investors:

Treasury notes fell for a third straight day on a report showing U.S. economic growth exceeded forecasts last quarter and as global stocks rallied.
…
The benchmark two-year yield rose two basis points, or 0.02 percentage point, to 0.69 percent as of 5 p.m. in New York, according to Bloomberg Bond Trader data. The 0.625 percent security due in August 2017 fell 1/32, or 31 cents per $1,000 face amount, to 99 7/8.

The 30-year bond advanced, halting a three-day decline. The prospect of the Fed’s first interest-rate increase in nearly a decade damped expectations for inflation, and can erode longer-maturity bonds’ fixed payments.
…
Traders are pricing in a 53 percent chance of a Fed boost before the end of this year, up from 46 percent two days ago, assuming the benchmark will average 0.375 percent after the first rise.

Here’s a story a like for a lot of reasons. First, the little gal sticks it to the big boys. Second, it’s an illustration of a trend I predict towards customization and personal services (since “things” are so easy to make in a mechanical way nowadays). And, of course, pictures of women in underwear, which is always pleasant. Indie lingerie in Canada:

Uncomfortable watching intimates being developed cheaply and in a rush, and fatigued by taking direction from “men talking about what’s really hot on a woman and what women want… and then [asking me] to cut the ass out of a panty,” Russell broke out on her own in 2010. After careful planning and with strong connections in her pocket, she decided to make underwear on her own terms – and to make it better.

As it turns out, Russell is one of several young indie entrepreneurs in Canada who are applying a slow-living, small-batch ethic to underwear and, in the process, overturning established ideas about what lingerie is, how it should fit and who it’s really for.

Alesha Frederickson started March & August Underthings on January 1, 2014, with a resolution to shift the panty paradigm. She believed the lingerie available in her hometown, Winnipeg, left a lot to be desired: It was off-the-rack, unflattering and there wasn’t much variety between babydoll-style teen-focused items and the offerings from fast-fashion brands. Both, according to Frederickson, were “designed to be like a present to unwrap, like a gift to the person who was viewing, not wearing, it.”
…
In 2011, [former La Senza technical designer Sofia Sokoloff] started Sokoloff Lingerie for the middle market. She was 23 years old at the time and studying industrial management at the École supérieur de mode de Montréal. In the past four years, her brand has grown quickly: She now has two seamstresses and her own production floor that regularly makes more than 1,000 units per month. She went from two points of sale in 2011 to nearly 30 today, and most recently found a distributor in Dubai to sell her collections come fall.
…
Sokoloff was recently recognized as an industry leader when she was named the Les Offices jeunesse internationaux du Québec 2015 prizewinner – a provincial award for young entrepreneurs who are helping to make a name for Quebec on the international market. She also represented Canada earlier this month at the Curve Expo lingerie and swimwear showcase in New York City.

It was a fine day for the Canadian preferred share market, with PerpetualDiscounts up 41bp, FixedResets winning 63bp and DeemedRetractibles gaining 21bp. Yet another very lengthy Performance Highlights table is dominated by FixedReset winners with ENB issues at the top of the pile. Volume was average.

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 19.21 to be $1.04 rich, while TRP.PR.C, resetting 2016-1-30 at +164, is $0.82 cheap at its bid price of 12.75.

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Another good fit today for MFC, with Implied Volatility dropping a bit today.

Most expensive is MFC.PR.H, resetting at +313bp on 2017-3-19, bid at 23.22 to be 0.78 rich, while MFC.PR.K, resetting at +222bp on 2018-9-19, bid at 18.92 to be 0.65 cheap.

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The fit on the BAM issues continues to be horrible.

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 16.40 to be $1.61 cheap. BAM.PF.G, resetting at +284bp on 2020-6-30 is bid at 22.41 and appears to be $1.20 rich.

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Implied Volatility fell substantially today but remains unreasonably high.

FTS.PR.M, with a spread of +248bp, and bid at 20.65, looks $0.16 expensive and resets 2019-12-1. FTS.PR.G, with a spread of +213bp and resetting 2018-9-1, is bid at 18.45 and is $0.25 cheap.

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Investment-grade pairs predict an average three-month bill yield over the next five-odd years of -0.65%, with no outliers. Note that the distribution is bimodal, with NVCC non-compliant bank issues averaging -1.00% and the unregulated issues averaging -0.15%. There are no junk outliers.

Click for Big

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