PrefBlog

The latest news on the High Frequency Trading media frenzy is amusing:

Brad Katsuyama, a young Canadian working at RBC Capital Markets in New York, is the hero of [Michael] Lewis’s book [Flash Boys: A Wall Street Revolt]. He creates a tool called Thor, which is designed to protect investors from the rest of Wall Street.

When RBC, a smaller player in the U.S. market, couldn’t get traction with the tool, Katsuyama left to set up his own stock exchange IEX Group.

As it happens, I discussed Thor in the market report of December 13, 2012:

And look what passes for brilliant innovation among the old-money crowd! As mentioned on 2012-2-8, RBC received a good dose of breathless adoration for it’s THOR execution product. And what does THOR do, one might ask? According to the product sheet:

Latency normalization is an important factor in securing liquidity and obtaining best execution.
• THOR’s synchronization logic compensates for timing differentials across North America, minimizing cancellation windows for high-frequency trading algorithms; this significantly reduces information leakage, leading to higher fill rates.

So the programme staggers the sending times to minimize the difference in the exchange’s receiving times, thereby minimizing the window in which the Evil HFT Layerer can cancel his misdirecting order. May I be excused for thinking that this idea is a teensy-weeny little bit obvious? As well as resulting from a simple reverse-engineering investigation, rather than breaking new ground?

Is there anything quite so revealing of the intellectual bankruptcy of HFT opponents and their hangers-on as this? OK, so Katsuyama – or his team, whatever – developed an approach to compensate for differential latency. OK, fine, sounds like it’s probably a good thing (although we now learn that RBC ‘couldn’t get traction’ with the tool), but honestly, is this really all that impressive? It’s nothing original, just reverse-engineering a trading strategy that is eating your lunch in a very, very simple manner and coming up with compensation. Just another day at the office … but very impressive to the old money club, enough to make him a “hero”.

There was an interesting letter circulated by the FDIC today:

Highlights:

• DDoS attacks are continuing against financial institutions’ public-facing Web sites.
• Financial institutions that experience DDoS attacks may face a variety of risks, including operational and reputation risks.
• DDoS attacks may be a diversionary tactic by criminals attempting to commit fraud.
• Financial institutions are expected to address DDoS readiness as part of their ongoing business continuity and disaster recovery plans and to take certain specific steps, as appropriate, to detect and mitigate such attacks.
• The attached statement includes references to guidance and publications to assist institutions in mitigating the risks from DDoS attacks.

Suggested Distribution:

• FDIC-Supervised Banks (Commercial and Savings)

The attached statement states:

In the latter half of 2012, an increased number of DDoS attacks were launched against financial institutions by politically motivated groups. These DDoS attacks continued periodically and increased in sophistication and intensity. These attacks caused slow website response times, intermittently prevented customers from accessing institutions’ public websites, and adversely affected back-office operations. In other cases, DDoS attacks served as a diversionary tactic by criminals attempting to commit fraud using stolen customer or bank employee credentials to initiate fraudulent wire or automated clearinghouse transfers.
…
In addition to the FFIEC guidance, several other publications are available to help organizations mitigate the risks from DDoS attacks. The Department of Homeland Security’s National Cybersecurity and Communications Integration Center published a DDoS Quick Guide on January 29, 2014. This Quick Guide provides useful information on attack possibilities and traffic types and should be shared with an institution’s IT department and the institution’s online banking service provider, if applicable. The Quick Guide is available at www.uscert.
gov/sites/default/files/publications/DDoS%20Quick%20Guide.pdf

Ooh! That looks interesting! A guide on DDos issued by Homeland Security! I bet that’s rigorous!

References
http://www.prolexic.com/knowledge-center-dos-and-ddos-glossary.html
http://www.cso.com.au/article/443802/ssl_ddos_attacks_-_growing_trend/
http://jncie.files.wordpress.com/2008/09/801003_protecting-the-network-from-denial-of-service-floods.pdf
http://en.wikipedia.org/wiki/MAC_flooding
http://www.ibrahimhasan.com/content/understanding-and-protecting-against-mac-address-flooding
https://www.owasp.org/images/4/43/Layer_7_DDOS.pdf
http://softwareandnetworks.wordpress.com/
https://www.kb.cert.org/CERT_WEB/services/vul-notes-cert.nsf/b38c0892d481f5d385256d4b005d34ea/e0bf4978a23a358385257179006cb1d8?OpenDocument
http://class10e.com/Microsoft/what-layer-in-the-osi-model-is-responsible-for-logging-on-and-off/
www.books.google.com/books?isbn=1118141350
http://www.wisegeek.com what-is-mac-flooding.htm
http://quizlet.com/14023507/lesson-2-defining-networks-with-the-osi-model-flash-cards/
http://www.cisco.edu.mn/CCNA_R&S_%28Switched_Networks%29/course/module2/2.2.2.3/2.2.2.3.html
http://www.linuxforu.com/2011/11/cyber-attacks-explained-dos-and-ddos/
http://www.prolexic.com/knowledge-center-dos-and-ddos-glossary.html
http://learnfromtheleader.com/Downloads/SRS/TSFADP.pdf
http://zuhairmirza-informative.blogspot.com/2013/04/dos-and-ddos-glossary-of-terms-part-2.html
http://webcyber.co.uk/?p=128
https://www.cisco.com/web/ME/exposaudi2009/assets/docs/layer2_attacks_and_mitigation_t.pdf
http://www.prolexic.com/knowledge-center-dos-and-ddos-glossary.html
http://www.ddosattacks.biz/ddos-101/glossary/proxy/
http://www.prolexic.com/news-events-pr-end-of-quarter-ddos-attacks-itsok.html
http://www.us-cert.gov/ncas/alerts/TA13-088A

Blogs? Wikipedia? Gimme a break, please. This is a high-school essay. I’m all in favour of government instruction books containing links to authoritative sources, but not … blogs. Not … Wikipedia. Couldn’t they have got somebody who really knew his stuff to write something with real references?

We might have an entertaining turf battle in the States:

Recently, however, the Commission’s authority in the mutual fund industry—an industry in which the SEC has capably served as the primary regulator for almost 75 years—has been undercut by the activities of the Financial Stability Oversight Council (“FSOC”) and its research arm, the Treasury Department’s Office of Financial Research (“OFR”).
…
However, rather than continuing to discuss the merits of the research and analysis—or lack thereof—in OFR’s report, I would simply note that there needs to be a mechanism by which the full Commission, not just the Chair and SEC staff, provide meaningful input and coordinate with the leadership of FSOC and OFR. The Dodd-Frank Act envisions such coordination; for instance, the Dodd-Frank Act contemplates that federal agencies, including the Commission, would assist OFR on its work upon request. I do not think that assistance should be limited to one representative of the Commission, or limited to the SEC’s staff. Clearly, the expertise and judgment that the securities laws imbues in the presidentially appointed, Senate-confirmed Commissioners is undercut when there is an end-run around the Commissioners tasked with running the SEC.

Let me be clear, the work of FSOC and OFR to identify and mitigate systemic risk is important. However, there is real danger in that work being compromised if the full five-member Commission is cut out of the process. The SEC and our fellow regulators should assist FSOC’s efforts in a thorough and objective manner. My interest is in making sure that the full expertise and judgment of the Commission—and all the Commissioners—is being utilized, and that our authority and expertise are not being undercut. For the protection of our economy, financial regulators across the U.S. federal government have to work together to address risks and threats to the stability of our financial markets.

Before leaving the subject of the OFR report, I note that just last Friday, the Department of the Treasury announced that FSOC will hold a conference in May on the asset management industry and its activities. While I welcome the effort to better understand the asset management industry, this does not address the issues arising from the criticisms of the OFR report’s quality, research, and analysis, or the issues that arise when the SEC’s decision makers are excluded from the process. FSOC and OFR should acknowledge the Commission’s—and, in particular, the Commissioners’—role as the primary regulator of the asset management industry.

There are two lunar eclipses this year – April 15 and October 8. Mark your calendars!

It was a fine day for the Canadian preferred share market, with PerpetualDiscounts winning 23bp, FixedResets up 11bp and DeemedRetractibles gaining 7bp. Volatility was minimal. Volume was below average.

PerpetualDiscounts now yield 5.48%, equivalent to 7.12% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 4.5%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 260bp, unchanged from March 26.

The Old Boys Club is making good progress in the war against innovation:

Federal agents are investigating whether high-frequency trading firms break U.S. laws by acting on nonpublic information to gain an edge over competitors.

The Federal Bureau of Investigation’s inquiry stems from a multiyear crackdown on insider trading, which has led to at least 79 convictions of hedge-fund traders and others. Agents are examining, for example, whether traders abuse information to act ahead of orders by institutional investors, according to an FBI spokesman. Even trades based on computer algorithms could amount to wire fraud, securities fraud or insider trading.

It is, of course, simply a politically motivated fishing expedition:

Federal agents are making an unusual public plea for the financial industry to bare its secrets.

The Federal Bureau of Investigation has openly solicited traders and stock-exchange workers to blow the whistle on possible front-running and manipulation via high-speed computers.

Even so, they’re losing the war:

Goldman Sachs Group Inc. (GS) is seeking a buyer for its New York Stock Exchange designated market-making business acquired through the 2000 purchase of Spear, Leeds & Kellogg, a person briefed on the matter said.
…
The NYSE, purchased in November by Atlanta-based IntercontinentalExchange Group Inc., relies on traders known as designated market markers, or DMMs, to facilitate buying and selling. The firms help run the opening and closing auctions of NYSE-listed stocks.

They used to be known as specialists, and there were dozens of them. Reduced profits from equity trading dwindled their ranks during the past decade. London-based Barclays Plc (BARC) and Jersey City, New Jersey-based KCG Holdings Inc. are the biggest DMMs, followed by Goldman Sachs, according to a person with direct knowledge of the matter.
…
Even if Goldman Sachs gives up its spot on the NYSE floor in Manhattan, that doesn’t mean it will stop making markets in U.S. stocks. Almost all American equity trading is done electronically, and banks are among those that provide liquidity on computerized platforms such as NYSE Arca, the Nasdaq Stock Market and the four exchanges owned by Bats Global Markets Inc. Goldman Sachs is among the owners of Bats.

It’s always nice to see market timers get their comeuppance:

Lenders from JPMorgan Chase & Co. to Bank of America Corp. warned that corporate-bond buyers were in for another year of rising yields that would erode returns. China, the polar vortex and Vladimir Putin are upending those forecasts.

Bonds of companies worldwide tracked by Bank of America Merrill Lynch indexes returned 2.7 percent in the first quarter through March 31, compared with a 1.42 percent gain for the MSCI World Index of stocks, the first time the debt beat equities since the second quarter of 2012. The gain follows a 1.45 percent loss for debt investors last year as shareholders reaped a 27 percent windfall.

“It wasn’t perhaps the one-way bet that people thought it was,” said Andrew Chorlton, a New York-based money manager for a Schroders Plc unit that oversees more than $90 billion. Bonds beating stocks is “contrary to what virtually every investment bank you care to mention had on their outlooks for 2014.”

The Ontario Legislature’s Standing Committee on Social Policy has released its report titled DILUTED CHEMOTHERAPY DRUGS, regarding the screw-up with cancer drug concentrations discussed on PrefBlog on August 8, 2013:

The Standing Committee notes that it was also the [Medbuy] pharmacy committee that failed to notice the contract’s lack of clarity with respect to the need for concentration-specific formats for gemcitabine and cyclophosphamide.
…
Although appreciative of what was provided, the Committee remains concerned about the lack of transparency with respect to the receipt of rebates and how they are used, by hospitals and by Medbuy alike. Large amounts of public money are involved in these transactions, all of which are conducted without public oversight.
…
Contrary to what the Committee had heard, value-adds were included in Medbuy’s 2011 RFP. They were not a mandatory requirement but were encouraged and included in the score. Like Marchese, Baxter chose to participate in Schedule B; Gentès & Bolduc did not.
…
The Committee believes the above responses were inappropriate and are evidence of a lack of due diligence on the part of health care professionals. It sees these communications as more missed opportunities to catch the need for concentration-specific admixtures and avoid the circumstances of March 20, 2013 and their negative impact on 1,202 patients.

But all of this is simply the lead-up to what I’ve been saying all along:

Committee members are perplexed by the fact that pharmacists and pharmacy assistants/technicians at WRH, LHSC, and Lakeridge Health failed to notice the inconsistencies discovered by the staff at PRHC when preparing for the initial use of MHS gemcitabine.
The Committee is concerned about the professional conduct of pharmacists connected to this incident, including those employed by Medbuy and sitting on its pharmacy committee. This concern is so significant that the Committee has written to the Registrar of the Ontario College of Pharmacists (OCP) requesting an investigation. Copies of letters sent by the Committee to the OCP are found in Appendix D.
…
[extract from Appendix D] During the hearings the Committee heard testimony from a number of Pharmacists from Marchese Health Care, Medbuy Corporation and the purchasing hospitals involved. The Committee is concerned that the diluted chemotherapy treatments went unnoticed by all of the pharmacists directly involved, for an extended period of time (February 2012-March 2013) without one of them bringing the matter forward.
The Committee has asked me to bring this to the attention of the Ontario College of Pharmacists and for you to launch an investigation.

The more I learn about health care in Ontari-ari-ari-o, the more amazed I am that so many of us remain alive.

The Canadian preferred share market opened the new quarter with mixed performance, with PerpetualDiscounts gaining 12bp, FixedResets off 2bp and DeemedRetractibles up 14bp. There was a full contingent of Floaters but not much else in the Performance Highlights table, which is notable for being comprised entirely of winners. Volume was slightly below average.

Looks like the public bond market in Russia is sending a message … so turn it off!

Russia is selling notes directly to pension funds and banks for the first time in 1 1/2 years, sidestepping the bond market after four failed auctions since President Vladimir Putin’s incursion into Crimea.

The Finance Ministry is offering 100 billion rubles ($2.8 billion) of non-tradeable securities today, with half due March 2015 at a 7.73 percent yield and the rest maturing in February 2016 at 8.25 percent, it said on its website on March 26. The yield on government ruble bonds due January 2016 rose 190 basis points since the start of the year and was at 8.25 percent the day before the sale was announced.

By offering almost three times the amount auctioned this year in one day, Russia may be signaling it doesn’t foresee investor sentiment being restored anytime soon, according to BCS Financial Group and GHP Group. Russian borrowing costs rose to a record after Putin’s annexation of Ukraine’s Crimea peninsula sparked the worst standoff with the U.S. since the Cold War.

Yellen is showing her dovish side:

Federal Reserve Chair Janet Yellen said “considerable slack” in the labor market is evidence that the central bank’s unprecedented accommodation will still be needed for “some time” to put Americans back to work.

Large numbers of partly unemployed workers, stagnant wages, lower labor-force participation and longer periods of joblessness show that Fed officials must continue their easing, Yellen said today in remarks prepared for a speech in Chicago.

“This extraordinary commitment is still needed and will be for some time, and I believe that view is widely shared by my fellow policymakers at the Fed,” Yellen said in her remarks to a Fed community development conference. “The scars from the Great Recession remain, and reaching our goals will take time.”

I knew that mobile eMoney transactions were catching on in Africa … but I didn’t realize it was this big:

All the talk of bitcoin in recent years has overshadowed the real e-finance revolution: In Africa, India and now Eastern Europe, a service called M-Pesa has replaced banking for millions of people who don’t have or, in fact, even need a bank account.

Safaricom, Kenya’s leading mobile operator, majority-owned by a subsidiary of France’s Orange and operated by the U.K.’s Vodafone, introduced M-Pesa — mobile money in Swahili — in 2007. Soon the system had an agent in just about every village and every corner of Nairobi’s vast Kibera slum. Locals came to the agents with their phones — just plain old Nokias, not fancy smartphones — signed up and received a new menu from the operator, allowing one to transfer money to another mobile number. M-Pesa could be cashed at an agent’s — by sending a text message and receiving money then and there — and, eventually, at automated-teller machines, without the need for a debit card. Sending money to family in a remote part of the country or paying at a market stall was suddenly as easy as texting. Nobody was sending wads of Kenyan shillings on buses, hoping they would make it to relatives in Mombasa or Kitale, or carrying much cash around. M-Pesa was cheaper then a bank, and it was everywhere, with hand-painted signs for agents popping into view in the unlikeliest places.
…
About 43 percent of Kenya’s $40 billion gross domestic product flows through the system. And, speaking of Bitcoin, M-Pesa is far, far ahead of the fashionable digital currency in transaction numbers.

Brookfield Renewable Energy Partners L.P. had its outlook raised to ‘Positive’ by S&P:

• •We are revising our outlook on Brookfield Renewable Energy Partners L.P. (BREP) to positive from stable.
• •The outlook revision reflects the increasing amount of parent-only cash flow that the partnership is generating combined with a relatively modest level of parent only recourse debt.
• •We are also affirming our ratings on BREP and subsidiaries Brookfield Renewable Power Equity Inc. and BRP Finance ULC, including our ‘BBB’ long-term corporate credit rating on BREP.

Standard & Poor’s Ratings Services today said it revised its outlook on Brookfield Renewable Energy Partners L.P. (BREP) to positive from stable. At the same time Standard & Poor’s affirmed its ratings on BREP and subsidiaries Brookfield Renewable Power Equity Inc. and BRP Finance ULC, including its ‘BBB’ long-term corporate credit rating on BREP.

Brookfield Renewable Power Pref Eqty Inc is the proud issuer of BRF.PR.A, BRF.PR.C, BRF.PR.E and BRF.PR.F. S&P does not go so far as to say there is 100% correspondence between the parent company and its preferred issuer subsidiary, but I’d call it a pretty good bet.

The Canadian preferred share market closed the month on a happy note, with PerpetualDiscounts winning 10bp, FixedResets gaining 3bp and DeemedRetractibles up 4bp. Volatility was minimal. Volume was below average.

And that’s it for another quarter!

Placeholder won’t interfere with mortgage rates:

In contrast, when Mr. Oliver spoke to [BMO CEO] Mr. [Bill] Downe this week, he told the bank CEO that the government wants to be less involved in the mortgage market, and gave him the tacit go-ahead to cut rates.

Mr. Oliver went so far as to tell reporters in Ottawa Thursday that he would not be concerned if other banks followed suit, suggesting it was a private sector decision.

“There’s a market, and the bank made its decision,” he said.

“The chief executive officer of the Bank of Montreal informed me about it. I listened to his explanation, his reasons. I reiterated what I just stated, which is the government is gradually reducing its involvement in the mortgage market.”

Assiduous Readers will be used to, and perhaps even tired of, my complaints about SEDAR – a bank-owned (via the Canadian Depository for Securities) outfit that has been granted a monopoly on the publication of public documents that issuers are required to file, and which abuses that monopoly to an appalling extent with the smiling approval of the Canadian Securities Administrators.

But I don’t care if you’re tired of my complaints! I recently had occasion to require some information on CI Income Fund … and turned to SEDAR. So, the first thing on the document list found after a preliminary search is:

Jan 3 2014 16:06:24 ET Amended and restated final fund facts – English

So, let’s look at the precious Fund Facts, shall we? The wise securities administrators keep chanting about how vital and important Fund Facts are, so let’s start off by taking a peek at them.

Open the file and what do we find? There are actually quite a few:

• CI Canadian Dividend Growth Fund (Class A units): Fund Facts
• CI Canadian Dividend Growth Fund (Class D units): Fund Facts
• CI Canadian Dividend Growth Fund (Class F units): Fund Facts
• CI Canadian Dividend Growth Fund (Class I units): Fund Facts
• CI Canadian Dividend Growth Fund (Class O units): Fund Facts
• CI U.S. Dividend Growth Fund (Class A units): Fund Facts
• CI U.S. Dividend Growth Fund (Class AT6 units): Fund Facts
• CI U.S. Dividend Growth Fund (Class D units): Fund Facts
• CI U.S. Dividend Growth Fund (Class F units): Fund Facts
• CI U.S. Dividend Growth Fund (Class I units): Fund Facts
• CI U.S. Dividend Growth Fund (Class O units): Fund Facts

Nothing – not a single damned thing – about CI Income Fund. Well done!

It was a good, if mixed, day for the Canadian preferred share market, which some might consider surprising because TMXMoney reports that TXPR was off 12bp and TXPL was down 17bp. A lot of issues went ex-dividend today … maybe somebody forgot to accrue? Anyway, PerpetualDiscounts were up 21bp, FixedResets were off 1bp and DeemedRetractibles gained 7bp. The Performance Highlights table is of average length, but notable for the inclusion of both Westcoast issues, which went ex-dividend but didn’t lose much bid. Volume was low, but block trading held up well.

The world is about to end – banks are competing on price:

Just one week after Jim Flaherty stepped down, Bank of Montreal is shaking up the mortgage market, aggressively cutting its five-year rate to levels that caused the former finance minister to intervene last year.

BMO is now offering five-year fixed mortgages at 2.99 per cent, slashing its rate from 3.49 per cent. While that’s not the lowest rate in the market, BMO is the first big bank to move below the sensitive 3-per-cent threshold.

The last time a Canadian bank’s mortgage rates fell this low, in March of 2013, Mr. Flaherty stepped in and publicly called for “responsible lending” because he worried about an overheated housing market.

BMO’s rate cut comes after Toronto-Dominion Bank lowered its four-year rate to 2.97 per cent earlier in March. Last week, shortly after Mr. Flaherty stepped down, Bank of Nova Scotia also slashed its mortgage rates, and instituted a special 2.94-per-cent four-year rate.

At least one credit union also moved its five-year rate to 2.99 per cent in February.

Meanwhile, the Feds are defending their data:

Federal Employment Minister Jason Kenney defended his government’s use of Kijiji, but acknowledged there are technical concerns with the data including the need to weed out repeated postings for the same position.

“People are laughing at Kijiji, but it’s the new classified ads,” he told CTV’s Power Play. “I would just invite some of these economists – who sit in front of their spreadsheets of inadequate data trying to figure out the world – I wish they would actually go out into the real world and talk to employers like I do all the time.”

Mr. Kenney said critics should recognize the challenge of producing reliable labour data in a world of online job boards.

Let’s all square our rots for a good boo-hoo-hoo about how analysis is hard. It’s easier than reviewing the strengths and weaknesses of our analysis.

David Parkinson of the Globe points out:

Finance’s dramatic numbers don’t pass a basic sniff test. Specifically, if Canada really was suffering from acute skills shortages across a broad swath of the economy, it would manifest in significant upward pressure on wages. Those wage pressures, in general, simply aren’t there.

Year-over-year increases in Canadians’ average weekly wages have trended downward over much of the past two years, even as the country added more than 400,000 jobs. Average year-over-year wage growth last year was just 2 per cent, well below the 10-year average of 2.9 per cent and the five-year average of 2.5 per cent.

That said, there is certainly evidence of pockets where wage pressures are significant, indicative of possible skills shortages.

In Alberta, average weekly wages were up 4.6 per cent year over year in December. Two other oil-industry-heavy provinces, Newfoundland and Saskatchewan, posted increases of 3.8 per cent and 3.6 per cent, respectively. Skills- and education-heavy segments of the economy – such as business management; professional, scientific and technical services; mining and oil and gas extraction; and construction – have, indeed, shown some of the biggest year-over year wage gains.

It was a soft day for the Canadian preferred share market, with PerpetualDiscounts down 4bp, FixedResets off 1bp and DeemedRetractibles flat. Given the overall move, the Performance Highlights table is surprisingly lengthy, with a fair number of losers. Volume was average, but with some very nice block trades.

Some civil servant claims that we need more civil servants:

Accordingly, in January, OSFI announced that, consistent with its mandate and expertise, it will supervise the effectiveness of governance and risk controls surrounding banks’ CDOR submission processes. Subsequently, in its recent budget, the federal government announced its intention to include a regulation-making authority in the Bank Act covering bank submissions to financial benchmarks.

Furthermore, the banks on the CDOR panel should, fairly soon, release a submitters’ code of conduct that they have developed in consultation with IIROC and the Bank of Canada. In addition to providing a formal definition of CDOR and requirements for being a submitter, the code will specify minimum standards for submission methodology, internal oversight and records retention.

Work continues to strengthen other aspects of the governance of CDOR to meet the principles established by IOSCO. For instance, we have discussed with industry the need for it to establish more formal administrative arrangements for CDOR, and the industry has begun work to take this forward.

Yeah, right. This guy works for the Bank of Canada, which reports 5-year GICs at 1.63%, and 5-year mortgages at 4.99%, in addition to problems with the housing price/rent ratio.

But there’s no shortage of questionable statistics:

Economists have been scratching their heads for weeks as to how the Conservative government could claim on budget day that Canada’s job vacancy rate was on the rise when Statistics Canada said it was declining.

The answer, it appears, is that Finance Canada’s numbers were thrown off by data from a surprising place: questionable job postings on Kijiji, a popular classified site used by Canadians to buy and sell everything from rarely used exercise bikes to old electronics.

Officials with the Parliamentary Budget Office say Kijiji is so unreliable as a job site that it can single-handedly explain away the government’s claims. With the simple removal of that one site from the search, the steep rise Ottawa flagged becomes much closer to a flat line.

The Fed’s regulators have determined that Citigroup doesn’t employ enough ex-regulators:

Citigroup Inc.’s capital plan was among five that failed Federal Reserve stress tests, while Goldman Sachs Group Inc. and Bank of America Corp. passed only after reducing their requests for buybacks and dividends.

Citigroup, as well as U.S. units of Royal Bank of Scotland Group Plc, HSBC Holdings Plc and Banco Santander SA, failed because of qualitative concerns about their processes, the Fed said today in a statement. Zions Bancorporation was rejected as its capital fell below the minimum required. The central bank approved plans for 25 banks.
…
The central bank identified multiple deficiencies in Citigroup’s planning practices, including areas the Fed had flagged previously. The regulator expressed concern with the New York-based company’s ability to project losses in “material parts of its global operations” and to reflect all business exposures in its internal stress test.

“Taken in isolation, each of the deficiencies would not have been deemed critical enough to warrant an objection, but when viewed together, they raise sufficient concerns regarding the overall reliability of Citigroup’s capital planning process,” the Fed said.

Mike Corbat, the bank’s chief executive officer, said in a statement that Citigroup is “deeply disappointed” by the rejection and said the company will “work closely with the Fed to better understand their concerns so that we can bring our capital planning process in line with their expectations.” The timing of any resubmission hasn’t been decided, he said.

Osler has a chapter in their Capital Markets 2013 report titled Canada’s Technology Renaissance. It seems a successful entrepreneurs are mainly successful at sucking the public tit:

In addition, the Business Development Bank of Canada provides further funding to each successful accelerator graduate in the form a $150,000 convertible note.

The federal government has demonstrated its strong commitment to the sector by announcing (as part of the 2012 budget) that it would set aside $400 million for investment in Canadian venture capital funds. The Ontario government demonstrated a similar commitment by announcing in March 2013 that it would set aside $50 million for a new Ontario venture capital fund. In addition, the Ontario government continues to be an active direct investor through initiatives such as the Ontario Capital Growth Corporation (which matches investments made by qualified investors) and MaRS Innovation Accelerator Fund (which provides seed investments of up to $500,000 to promising Ontario-based start-ups).

The other point, in the chapter The Leading Role of Canadian Pension Funds at Home and Abroad is that returns look better when you mark to make-believe:

Pension funds have increased their direct investments in private equity, infrastructure and real estate as they continue to seek to align fund investment horizons with their long-term liability profile and reap the rewards of higher returns. Preliminary results from an ongoing survey by global consultant Mercer LLC reveal that the percentage of Canadian pension funds investing in alternative investments climbed to 38% from 25% over the past three years and that the average allocation to alternatives has increased to 18% from 15% in 2010.1 As their allocations to these areas have increased, Canadian pension funds have become highly visible in these markets. Smaller Canadian pension funds have also demonstrated an inclination towards alternative asset investing, guided by the expertise of Canadian pension consultants.

Yes, sir, if you want good investment advice, you really can rely on the expertise of Canadian pension consultants, all right! This isn’t going to turn out well.

Hedge funds are helping the US housing market renormalize. Of course, it helps when somebody else takes the first loss:

Louis Ragusa, who hasn’t paid his mortgage in two years, says he now has a chance to save his Blackwood, New Jersey, home from foreclosure after a hedge fund bought the loan.

American Homeowner Preservation, a Chicago-based investment firm, purchased the mortgage for less than half of what Ragusa owed. Chief Executive Officer Jorge Newbery called the father of three in August with an offer: Pay $5,000 and the company will drop the foreclosure case and erase the more than $100,000 of unpaid principal and penalties amassed.
…
The firms are making deep cuts to loan balances so borrowers can afford to pay again and the mortgages can be sold as more valuable “performing” notes. Another strategy is to offer thousands of dollars to those who agree to hand over keys without a fight. While borrowers seeking foreclosure alternatives from large banks have complained of lengthy processes and lost paperwork, Newbery says his company requires little or no documentation to approve a sale or loan workout.
…
Lenders are selling pools of soured mortgages as they face new regulations that make bad debt more expensive to hold. Banks sold $34.7 billion in nonperforming loans last year, up from $13.1 billion in 2012, according to Mission Capital Advisors, a New York-based real estate loan broker.
…
A delinquent mortgage in [judicial] New Jersey [where foreclosures need court approval] will cost about 60 percent of the property’s current value, compared with as much as 80 percent for a similar loan in California, a nonjudicial state, according to Derek Katz, managing director of Denver-based MountainView Capital Holdings, a residential whole-loan investor and sale adviser.

It is interesting to note that Enbridge has issued 50-year paper at 4.56%. This may be contrasted with their recent issue of ENB.PF.A, a FixedReset, 4.40%+266. I like the preferred better – and I didn’t like the preferred much!

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts up 14bp, FixedResets gaining 3bp and DeemedRetractibles off 2bp. Volatility was nothing special. Volume was slightly below average, but there were some nicely sized block trades.

PerpetualDiscounts now yield 5.47%, equivalent to 7.11% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 4.5%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 260bp, a significant tightening from the 275bp reported March 19 … although that figure is now suspect, given that the March 12 calculation resulted in an estimate of 265bp.

Geez, much more of this and I’ll have to go work for the Bank of Canada.