PrefBlog

TXPR closed at 632.49, up 0.52% on the day. Volume today was 2.39-million, about the median of the past 21 trading days. Today’s performance, the fifth consecutive gaining day, regains lost ground all the way back to April 25.

CPD closed at 12.54, up 0.53% on the day. Volume was 124,810, near the median of the past 21 trading days.

ZPR closed at 10.485 down 0.10% on the day. Volume of 163,920 was a little below the median of the past 21 trading days.

Five-year Canada yields were down to 2.78% today.

It is interesting to note that the three month bill yield has declined to 1.44%; I suspect it’s a flight to quality, but still indicates a strong conviction that we will see a 50bp hike at the beginning of June, with probably more to come in mid-July.

The FOMC hiked its policy rate 50bp:

Although overall economic activity edged down in the first quarter, household spending and business fixed investment remained strong. Job gains have been robust in recent months, and the unemployment rate has declined substantially. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures.

The invasion of Ukraine by Russia is causing tremendous human and economic hardship. The implications for the U.S. economy are highly uncertain. The invasion and related events are creating additional upward pressure on inflation and are likely to weigh on economic activity. In addition, COVID-related lockdowns in China are likely to exacerbate supply chain disruptions. The Committee is highly attentive to inflation risks.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With appropriate firming in the stance of monetary policy, the Committee expects inflation to return to its 2 percent objective and the labor market to remain strong. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 3/4 to 1 percent and anticipates that ongoing increases in the target range will be appropriate. In addition, the Committee decided to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities on June 1, as described in the Plans for Reducing the Size of the Federal Reserve’s Balance Sheet that were issued in conjunction with this statement.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; James Bullard; Esther L. George; Patrick Harker; Loretta J. Mester; and Christopher J. Waller. Patrick Harker voted as an alternate member at this meeting.

This move has been so thoroughly discounted that the announcement was actually good for equities:

Stocks on Wall Street had their best day since 2020 on Wednesday, after Jerome H. Powell, the Federal Reserve chair, said that central bankers weren’t considering exceptionally large increases in interest rates, calming investors who had begun to worry that the fight against inflation might push the economy into a recession.

The S&P 500 rose 3 percent, the biggest jump since May 2020, spiking after Mr. Powell’s comment. Earlier on Wednesday, the Fed said it would lift interest rates by half a percentage point, an increase that was widely expected, and that it plans to shrink its bond holdings.

Bond yields, a proxy for investor expectations about interest rates, ticked lower. The yield on 10-year Treasury notes fell eight basis points, or 0.08 percentage points, to 2.92 percent.

PerpetualDiscounts now yield 5.83%, equivalent to 7.58% interest at the standard equivalency factor of 1.3x. Long corporates now yield 4.85%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has reverted to 275bp from the 320bp reported April 27.

Some landlords are learning the risks of investing with a negative carry:

In recent years, many mom-and-pop real estate investors in the two cities have been quietly paying more in mortgage and other ownership costs than they receive in rent, trusting they’d eventually sell at a profit thanks to rapidly rising home values, experts say.

But as interest rates shoot up and price growth slows, some highly indebted landlords are beginning to feel the squeeze more acutely. That financial pain could eventually push rents even higher, some experts warn.
…
It’s not uncommon for homeowners who’ve seen the value of their first home soar in recent years to borrow against their home equity with a HELOC to fund the down payment on an investment property, [Toronto-based mortgage broker] Mr. [Ron] Butler said, speaking about the Ontario market. Borrowers often don’t disclose to their bank they intend to use the HELOC to acquire a second home, he added.

Once they’ve drawn the cash for a down payment from the HELOC, borrowers typically apply for a mortgage to finance the rest of the real estate purchase, Mr. Butler said.

With HELOC rates climbing, many of those highly leveraged investors are now scrambling to convert their line of credit balance into mortgage debt that comes with fixed payments, according to Mr. Butler. The risk is that some may not be able to do so.

That may be because the additional debt they’ve taken on from the investment property means they don’t meet lenders’ requirements. Another obstacle is the fact that climbing interest rates have raised the bar borrowers must clear to pass the federal mortgage stress test, Mr. Butler said. Yet another hitch is that mortgages, unlike HELOCs, require payments of both principal and interest, resulting in bigger monthly outlays for borrowers, he added.

Well, rising rents is one way the situation might be resolved. Another way is for the investors to eat the negative carry for an indefinite period; and the third is for the investors to sell at a loss. As the rental market seems to be priced at all the market can bear, I’ll suggest that the third is the most likely option with the timing set for the deals to close around the time the mortgage (if any) renews. That’s what happened in 1980 and again in 1991.

But amid all this talk of rising prices, some may simply wish to relax:

Prices for recreational and medicinal cannabis have dropped by 8.3 per cent and 10.2 per cent, respectively, over the past year, and by roughly 25 per cent in both categories since the end of 2018, according to Statistics Canada. The annual inflation rate hit 6.7 per cent in March, the highest since 1991.

TXPR closed at 624.82, up 0.80% on the day. Volume today was 1.51-million, well below the median of the past 21 trading days. Today’s fine performance, following yesterday‘s bounce, regains lost ground all the way back to, um, late Monday afternoon.

CPD closed at 12.40, up 0.08% on the day. Volume was 147,220, well above the median of the past 21 trading days.

ZPR closed at 10.35 down 0.10% on the day. Volume of 444,010 was second-highest of the past 21 trading days, behind only April 7.

Five-year Canada yields were up 9bp to 2.77% today.

The furor in the comments regarding politics on PrefBlog got me interested in learning more about the National Legal and Policy Center, which is making quite a fuss at many annual meetings this year. They have a fair sized Wikipedia entry that has not attracted much controversy (according to the rate of edits), but which concentrates on their activities with political ethics.

It looks like something has changed, though, since their website homepage is dominated by notices of their annual meeting challenges to corporations, which tells you something about where their donations are coming from (or ‘what they are being paid to say’. Take your pick).

I find this explicit political targetting of corporations to be really scary, given that Florida Republicans feel that there is some hay to be made in attacking them. I like to look at the Instagram political pages to get an idea of what the lunatic fringes are talking about and the loony right is absolutely thrilled with the assault on Disney.

So anyway, I posted about their remarks at the Wells Fargo meeting because I thought it was (i) interesting enough and (ii) obscure enough and (iii) funny enough to justify the minor digression. I mean, how can one read a statement like:

At Wells Fargo, the top arranger of loans to fossil-fuel companies last year, an activist chided the bank for donating to groups fighting climate change, “which is just Marxism dressed up as environmentalism.”

without snickering?

Or maybe people were just upset I mentioned the incredibly loose fiscal policy embodied in the Progressive Conservative’s election budget. It wasn’t really all that clear.

But anyway, April’s over, after delivering a 7.9% hit (as of the close yesterday; maybe 7.2% for the month but the TXPR TRIV is not yet available) [Update: The TXPR TRIV was 1765.52 at month-end, indicating a total return of -7.04% on the month]. Very strange, considering the abundance of FixedReset (Discount) issues and the 30-odd bp increase in the Five-Year Canada rate through the period. But then, if the preferred share market wasn’t strange, it would be boring!

TXPR closed at 619.88, hitting a new 52-week low on the day, but up 1.54% on the day. Volume today was 1.86-million, a bit below the median of the past 21 trading days.

CPD closed at 12.39, hitting a new 52-week low on the day, but up 2.48% on the day. Volume was 339,580, highest of the past 21 trading days.

ZPR closed at 10.36, hitting a new 52-week low on the day, but up 2.57% on the day. Volume of 305,910 was above the median of the past 21 trading days.

Five-year Canada yields were unchanged at 2.68% today.

MAGA wars are coming to a bank near you!:

As three of the nation’s largest banks kicked off the U.S. financial industry’s annual gatherings this week, conservative speakers showed up with questions, proposals and ultimatums. They’re not matching the size of the liberal-leaning crowd — their proposals garnered the least amount of supporting votes from shareholders — but they’re trying to steer the agenda nonetheless.

At Citigroup and Bank of America, the activists argued that vows to improve diversity or pay more equitably may hurt groups of people who aren’t underrepresented. At Wells Fargo, the top arranger of loans to fossil-fuel companies last year, an activist chided the bank for donating to groups fighting climate change, “which is just Marxism dressed up as environmentalism.” He also warned it not to follow Walt Disney Co. in the sort of “woke” LGBTQ advocacy that drew a backlash from “Make America Great Again” activists and Republican politicians in Florida.

“Wells Fargo needs to take a hard look at the fix that Disney finds itself in,” the speaker, Paul Chesser, director of the conservative National Legal and Policy Center’s Corporate Integrity Project, warned the bank leaders. “Stay out of politics and properly serve all its customers and shareholders.”

There are no shortages of idiots on any side of this issue, but the MAGA clowns are most entertaining, albeit the most dangerous. The targetting of Disney by Florida’s state government due to Disney’s views on legislation, while very popular with the lunatic fringe, should send chills down anybody’s spine.

Meanwhile, in Ontario, we’re going to spend like hell and put it on the tab:

Ontario Finance Minister Peter Bethlenfalvy unveiled a pre-election budget on Thursday that pledges billions more in spending for long-term plans to expand hospitals and build highways and puts off eliminating the province’s deficit for another six years.
…
The document promises an additional $10-billion for hospital expansion, and would increase spending on highways and roads by $4-billion, both over 10 years.

But it contains few other major new policies or projects, as the government has spent months announcing many of its key provisions, including an end to licence-plate fees for cars, and a pledge to cut the gas tax temporarily.
…
For this fiscal year, 2022-23, the budget projects a deficit of $19.9-billion (including $1-billion in reserve funds, which would reduce the red ink if not spent). This year’s number is up from last year’s $13.5-billion deficit, which included billions the province spent battling the continuing pandemic.