PrefBlog

TXPR closed at 555.87, down 0.81% on the day. Volume today was 2.00-million, highest of the past 21 trading days.

That’s close to an all-time low for the TXPR price index, barring the depths of the COVID Catastrophe:

… but on 2016-1-18, TXPR closed at 549.26. Well, not much more to go until we sink below that low point!

CPD closed at 11.06, down 0.45% on the day. Volume was 84,920, near the median of the past 21 trading days.

ZPR closed at 9.27, down 0.32% on the day. Volume was 267,320, fourth-highest of the past 21 trading days.

Five-year Canada yields were down to 3.60% today.

PerpetualDiscounts now yield 6.60%, equivalent to 8.58% interest at the standard equivalency factor of 1.3x. Long corporates have been hammered in the past week to yield 5.39% (I’m suspicious about this number, especially since it’s precisely equal to the “Distribution Yield”), so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has eased to 320bp from the 340bp reported October 5.

TXPR closed at 559.28, down 1.87% on the day. Volume today was 1.64-million, highest of the past 21 trading days.

CPD closed at 11.11, down 1.77% on the day. Volume was 256,720, highest of the past 21 trading days.

ZPR closed at 9.30, down 1.69% on the day. Volume was 269,210, third-highest of the past 21 trading days.

Five-year Canada yields were up to 3.65% today.

Markets in general were pretty bad. Pundits had to stretch for a rationale:

The TSX, S&P 500 and Nasdaq ended lower on Tuesday, with indications from the Bank of England that it would support the country’s bond market for just three more days adding to market jitters. Stocks were also volatile ahead of U.S. inflation data and the start of third-quarter earnings later this week.

The Canadian benchmark index fared worse than its U.S. counterparts, as energy stocks fell briskly and cannabis stocks continued to give back gains from last week, when U.S. President Joe Biden revealed he will review how cannabis is classified as a controlled substance. The TSX closed nearly 2% lower to its lowest level since March 2021.

Bank of England Governor Andrew Bailey told pension fund managers to finish rebalancing their positions by Friday when the British central bank is due to end its emergency support program for the country’s bond market.

The September 2022 Survey of Consumer Expectations was released:

Inflation

Median one-year-ahead inflation expectations continued to decline in September, falling by 0.3 percentage point to 5.4%, its lowest reading since September 2021. In contrast, three-year-ahead inflation expectations rose slightly to 2.9% from 2.8% in August. The survey’s measure of disagreement across respondents (the difference between the 75th and 25th percentile of inflation expectations) was unchanged at the one-year horizon and decreased at the three-year horizon.
Median five-year-ahead inflation expectations, which have been elicited in the monthly SCE core survey on an ad-hoc basis since the beginning of this year and were first published in July 2022, increased by 0.2 percentage point to 2.2%. Disagreement across respondents in their five-year-ahead inflation expectations declined in September.
Median inflation uncertainty—or the uncertainty expressed regarding future inflation outcomes—decreased at the short-term horizon and was unchanged at the medium-term horizon.
Median home price growth expectations declined by 0.1 percentage point to 2.0, its lowest reading since June 2020. The decline was most pronounced among respondents with a college education and annual household income over $100k, but was broad based across geographic regions. Home price growth expectations remain subdued relative to their pre-pandemic levels.
Expectations about year-ahead price changes rose by 0.4 percentage points for gas (to 0.5%), 1.0 percentage point for food (to 6.9%), 0.6 percentage point for college education (to 9.0%) and 0.1 percentage point for rent (to 9.7%). The median expected change in the cost of medical care, on the other hand, fell by 0.1 percentage point (to 9.2%).

Jobs, jobs, jobs!

The labor market remained strong in September, showing its resilience. But the persistent strength in hiring also underscored the challenges facing the Federal Reserve as it tries to curtail job growth enough to tame inflation.

Employers added 263,000 jobs last month on a seasonally adjusted basis, the Labor Department said Friday. That was down from 315,000 in August. The unemployment rate fell to 3.5 percent, from 3.7 percent a month earlier.
…
Average hourly earnings climbed 5 percent from a year earlier, the Labor Department reported, roughly matching economists’ expectations but slowing down slightly from the prior annual reading. Wages had climbed 5.2 percent in the year through August.

On a monthly basis, wages rose 0.3 percent, matching both economists’ expectations and the prior month’s gain.

… and in the frozen north:

The Canadian economy posted a modest gain in employment in September, reversing some of the losses seen in previous months and suggesting the labour market remains exceptionally tight.

The unemployment rate for the month fell to 5.2 per cent as fewer people looked for work, down from 5.4 per cent in August, Statistics Canada reported in its labour force survey released on Friday.

Meanwhile, the economy added 21,000 jobs.

The bumpin employment was expected as job losses in the education sector during the summer were reversed with the reopening of schools.

The report said gains in education, health care and social assistance were offset by losses in several other sectors, including manufacturing and information, culture and recreation.

TXPR closed at 568.84, down 0.68% on the day. Volume today was 1.05-million, near the median of the past 21 trading days.

CPD closed at 11.29, down 0.53% on the day. Volume was 47,440, well below the median of the past 21 trading days.

ZPR closed at 9.44, down 0.74% on the day. Volume was 73,340, fourth-lowest of the past 21 trading days.

Five-year Canada yields were up 6bp to 3.52% today.

Today’s market weakness has been attributed to central banks:

Major North American indexes closed lower on Thursday as concerns mounted ahead of closely watched monthly jobs reports Friday that the Federal Reserve’s aggressive interest rate stance will lead to a recession.
…
The Bank of Canada has also been raising rates at a rapid pace. Its governor, Tiff Macklem, made clear in a speech Thursday that the central bank will not yet be pivoting away from its hawkish stance. Macklem said the currency’s recent weakness will offset some easing of inflation pressures that could come from improving global supply chains and lower commodity prices.

Money markets raised bets on a 50-basis-point hike at the BoC’s next policy announcement on Oct. 26, pricing in a 70% chance of such a move versus roughly 50% before the governor’s speech.

Canadian government bond yields rose across a more deeply inverted curve, with the 2-year moving above the 4% threshold for the first time since October 2007. It was up 14.7 basis points at 4.013% by late afternoon.
…
Chicago Fed President Charles Evans was the latest to spell out the central bank’s outlook on Thursday, saying policymakers expect to deliver 125 basis points of rate hikes before year’s end as inflation readings have been disappointing.

There was other reporting on Macklem’s speech:

The labour market remains too tight, he said, putting upward pressure on wages and business costs. Likewise, inflation is increasingly being driven by domestic factors, which is showing up in service-sector prices that aren’t as responsive to higher borrowing costs.

“Domestic inflationary pressures have yet to ease. That doesn’t mean higher interest rates are not working, but it will take time,” Mr. Macklem said.
…
Mr. Macklem pointed to some promising signs for the trajectory of inflation. Oil prices have fallen in recent months as the outlook for global economic growth has darkened. Supply chain bottlenecks are improving and shipping costs have receded.

Municipal balance sheets may become less useful:

The independent body that sets accounting standards for Canada’s public sector is proposing rule changes that would allow municipalities to include the value of wetlands, grasslands and other natural assets on their balance sheets.

The Public Sector Accounting Board (PSAB) has been scrutinizing ways to recognize the value of a wide range of natural settings, from rivers and ponds to fields and marshes. The board is embarking on a complex process that would pave the way for new standards governing what is allowed to appear on financial statements.

Advocates for revamping accounting rules say that during a time of heightened concerns over climate change, it’s crucial to place financial values on natural assets and their environmental benefits. For example, adding the value of a river or marsh to its assets would enhance a city’s credit rating and potentially reduce its borrowing costs.

It’s ridiculous. Natural assets may well be valuable, but that’s not the same thing as ‘convertible into cash’. I strongly agree that municipalities should maintain wetlands, grasslands etc. due to thir valu, but this value should be accounted for separately; for instance, a credit analyst might reduce the normal probability of a very destructive flood due to these features.

On the other hand, of course, there’s the Bloomberg Effect; very few of the careful and extremely well paid financial analysts around bother reading financial statements in all their glory; they’ll go to Bloomberg and get the Recommended Ratios (required for box-ticking purposes) from a standard screen. It’s much faster, leaving more time for lunch with clients.

Canadian Utilities will aquire a portfolio of wind and solar assets and projects in Alberta and Ontario for a purchase price of $730 million:

With respect to CUL’s business risk profile, there would be no material immediate impact following the closing of the Acquisition as most CUL’s consolidated cash flows would still be from its stable, low-risk regulated utilities in Canada and Australia. DBRS Morningstar expects CUL’s regulated utility operations to continue to generate over 90% of CUL’s consolidated cash flow in the medium term post-Acquisition, as the size of the Acquisition is relatively modest compared with CUL’s total assets of approximately $21.4 billion as at June 30, 2022. However, after the Acquisition, should CUL take on an aggressive expansion in renewable generation assets to a degree that future cash flow (or EBITDA) contributed to CUL from its regulated utilities declines to significantly below 90% on a sustained basis, its rating could be affected. DBRS Morningstar is of the view that renewable generation assets, even when fully contracted, would entail higher risk than regulated utility assets.

With respect to CUL’s financial risk profile, DBRS Morningstar thinks the potential financing of the Acquisition would have no immediate material impact on its consolidated credit ratios. Following the closing of the Acquisition, DBRS Morningstar expects CUL to reasonably finance its future renewable generation projects in a manner so that its current credit metrics would remain relatively stable and solid within the required range to maintain its “A” rating, as indicated in DBRS Morningstar’s “Global Methodology for Rating Companies in the Regulated Electric, Natural Gas, and Water Utilities Industry” (September 2022). A material deterioration of CUL’s consolidated credit metrics, notwithstanding its business risk profile, could have a negative impact on CUL’s ratings. DBRS Morningstar believes that CUL has sufficient liquidity to finance the Acquisition.

TXPR closed at 572.75, up 0.53% on the day. Volume today was 1.43-million, fifth-highest of the past 21 trading days.

CPD closed at 11.35, up 0.35% on the day. Volume was 81,670, near the median of the past 21 trading days.

ZPR closed at 9.51, up 0.21% on the day. Volume was 233,840, well above the median of the past 21 trading days.

Five-year Canada yields were up sharply to 3.46% today.

Apparently:

U.S. private employers stepped up hiring in September, the ADP National Employment report on Wednesday showed, suggesting rising rates and tighter financial conditions have yet to curb labor demand as the Fed battles high inflation.

The Institute for Supply Management’s services industry employment gauge shot up in another sign labour remains strong as the overall industry slowed modestly in September.

The Fed is expected to deliver a fourth straight 75-basis-point rate hike when policymakers meet Nov. 1-2, the pricing of fed fund futures shows, according to CME’s FedWatch tool.

San Francisco Fed President Mary Daly told Bloomberg TV in an interview that inflation is problematic and that the U.S. central bank would stay the course.

“The path is clear: we are going to raise rates to restrictive territory, then hold them there for a while,” she said. “We are committed to bringing inflation down, staying course until we are well and truly done.”

PerpetualDiscounts now yield 6.48%, equivalent to 8.42% interest at the standard equivalency factor of 1.3x. Long corporates continue to yield 5.00%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has eased to 340bp from the 355bp reported September 28.

TXPR closed at 569.72, down 0.53% on the day. Volume today was 1.46-million, third-highest of the past 21 trading days.

CPD closed at 11.31, down 0.53% on the day. Volume was 103,020, above the median of the past 21 trading days.

ZPR closed at 9.49, down 0.63% on the day. Volume was 250,400, third-highest of the past 21 trading days.

Five-year Canada yields were up a few beeps to 3.30% today.

I really don’t know how low this market can go. Yields are already phenomenally high due to pending dividend increases and current price declines. I had some vague hopes that the reset of TD.PF.I to 6.301% would spark a little interest, but it appears that the market is sneering at a mere 6.3% preferred dividend yield from a major bank.

I am left with the suspicion that the market is expecting an imminent recession and the return of near-zero yields:

U.S. and Canadian stocks rallied for a second straight day on Tuesday after softer U.S. economic data and a smaller-than-expected interest rate hike by the Australian central bank stirred hope that the Federal Reserve might temper its aggressive raising of rates. After gaining 2.4% on Monday, the Canadian benchmark stock index rose almost another 2.6% for its best gain in two-and-a-half years.

While labour demand remains fairly strong, U.S. job openings fell by the most in nearly 2-1/2 years in August in a sign the Fed’s mission to tame inflation by hiking rates was working to slow the economy.

Earlier, the Reserve Bank of Australia surprised markets with a smaller-than-expected interest rate hike of 25 basis points. Its cash rate rose to a nine-year peak after six rate hikes in as many months in a tightening cycle other central banks are engaged in as well.
…
Still, Fed Governor Philip Jefferson said inflation is the most serious problem facing the U.S. central bank and it “may take some time” to address. San Francisco Fed President Mary Daly said the central bank needs to deliver more rate hikes.

How long will it take before the market decides that a 3.25% yield on five year Canada’s when inflation expectations are 2% is reasonably normal and that 0.5% with the same expectations is grossly abnormal? Will we all be dead by then?

The Delaware Court of Chancery released a trove of Elon Musk’s eMails (Exhibit H, page 82 of the PDF) that are public due to his lawsuit with Twitter. Reading them is, apparently, an emperor has no clothes moment:

What is so illuminating about the Musk messages is just how unimpressive, unimaginative, and sycophantic the powerful men in Musk’s contacts appear to be. Whoever said there are no bad ideas in brainstorming never had access to Elon Musk’s phone.
…
In no time, the texts were the central subject of discussion among tech workers and watchers. “The dominant reaction from all the threads I’m in is Everyone looks fucking dumb,” one former social-media executive, whom I’ve granted anonymity because they have relationships with many of the people in Musk’s texts, told me. “It’s been a general Is this really how business is done? There’s no real strategic thought or analysis. It’s just emotional and done without any real care for consequence.”

I have long taken the view that hard (and smart!) work and good ideas will get you a decent life and a lottery ticket. If your ticket is a winner, you can get unimaginably rich and there’s nothing more to the process than that; but if your ticket doesn’t come up, at least you’ve still got the decent life! Before entering the full-time workforce, I thought that the business world was run by smart, careful individuals who spent a lot of time checking their data and considering arguments. Then I started working and …. nahhhhh.