PrefBlog

In the wake of the August jobs number fiasco, it has been suggested that timeliness of delivery of other data should be improved:

It should be noted that the United States doesn’t rely on a household survey to estimate its monthly job numbers. Oh, it conducts one, as a secondary measure; but its primary labour market numbers come from payroll data gathered from employers and government agencies. As such, they are a more accurate measure of actual payroll employment – they reflect things like paycheques issued and taxes paid.

Actually, Statscan does this, too – it’s called the Survey of Employment, Payrolls and Hours (SEPH), and it, too, is published monthly. It relies even more heavily on government payroll-deduction data than the U.S. report, and is considered a highly reliable measure of the labour market.

Notably, the SEPH has diverged considerably from the LFS in recent months. For the first five months of this year, the SEPH shows that employment rose by just 33,600 jobs, or an average of 6,700 a month. But according to the LFS, employment, the gains were almost double that – 62,200, or an average 12,400 a month.

The SEPH’s big drawback is its lack of timeliness. SEPH data lag behind the LFS release by nearly two months; Statscan won’t publish the SEPH for June until Aug. 28. Markets don’t want to wait that long for such a key measure of economic health.

David Watt, chief economist at HSBC Bank Canada, suggests that Statscan should deliver the SEPH at the same time as the LFS, as the U.S. does in its employment report.

The CMHC is crossing its fingers for a soft landing for housing prices:

According to CMHC’s third quarter 2014 Housing Market Outlook, Canada Edition1, housing activity will continue to be supported by economic and demographic fundamentals for the rest of 2014 and into 2015.
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Multiple Listing Service® (MLS®2) sales are expected to range between 450,800 and 482,700 units in 2014, with a point forecast of 463,600 units. In 2015, sales are expected to range from 455,800 to 502,900 units, with an increase in the point forecast to 474,300 units.

The average MLS® price is forecast to be between $394,700 and $405,700 in 2014 and between $396,500 and $416,900 in 2015. CMHC’s point forecast for the average MLS® price calls for a 4.5 per cent gain to $399,800 in 2014 and a further 1.8 per cent gain to $406,800 in 2015.

And, surprisingly, bank holdings of insured mortgages are declining:

Canada’s largest banks, as a whole, have seen almost no growth in their insured mortgage portfolios recently, Macquarie Capital Markets analyst Asim Imran discovered.

He found this out by digging through some data that the banking regulator – the Office of the Superintendent of Financial Institutions – gathers.

The growth that banks have shown in their mortgage portfolios of late has come from a strong uptick in uninsured mortgages, he concluded. Chartered banks saw uninsured mortgages rise 13.5 per cent year over year in May (for the Big Six banks it was 12 per cent). Insured mortgages, in contrast, were down 0.8 per cent month over month, and up just 0.1 per cent year over year.

Economic sanctions against naughty countries are having their intended effect:

Deutsche Bank AG plans to hire about 500 compliance, risk and technology employees in the U.S. by year-end, Jacques Brand, its North American chief executive, said in an interview last month. The bank is under investigation for potential violations of U.S. sanctions.

The hiring spree for compliance executives who understand U.S. sanctions laws comes in part from the trend toward appointing outside monitors as a condition of some settlements.
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“Having someone who has come directly from those regulatory bodies or otherwise understands the evolving rules and regulations gives firms a significant advantage,” said Justin Mandel, co-founder of JW Michaels & Co., a New York-based recruitment firm that places compliance staff at banks and asset managers. “OFAC is one of those areas where it’s relevant.”

That’s led banks to pay up for top talent. Compensation is often the main reason many leave government jobs.
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Recent Treasury job openings on the federal government’s employment website, www.usajobs.gov, have included an OFAC sanctions compliance officer whose salary range is listed as $63,091 to $116,901 a year, according to the website.

At a bank, someone with a similar level of experience as the compliance officer may receive a $170,000 salary, said Stuart Rosenthal, who’s based in Montclair, New Jersey, and runs a recruiting firm focused on placing compliance and regulatory staff.

It was a good day for the Canadian preferred share market, with PerpetualDiscounts gaining 11bp, FixedResets winning 16bp and DeemedRetractibles up 13bp. Volatility was minimal. Volume was below average.

PerpetualDiscounts now yield 5.18%, equivalent to 6.73% interest at the standard conversion factor of 1.3x. Long corporates now yield about 4.2%, so the pre-tax interest-equivalent spread is now about 255bp, unchanged from August 6.

Remember that Canadian jobs number I gleefully reported on August 8, thrilled to have my prejudices reinforced? Well, it’s been cancelled:

Statistics Canada has pulled Friday’s disappointing jobs report after discovering an error and officials are working to release new estimates by the end of the week.
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Those July numbers are wrong but the federal agency is not giving any indication of the size of the mistake.
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Ms. [Sylvie] Michaud [Statistics Canada’s Director General of Education, Labour and Income statistics] said that to her knowledge, this is the first time Statistics Canada has ever pulled its Labour Force Survey.

Speaking of numbers, Kevin Carmichael of the Globe highlights two:

At least Fed chair Janet Yellen has been good about telling everyone about the many gauges she’s watching. Two of them, the rate at which companies are hiring and the rate at which workers are quitting, were updated by the Labor Department Tuesday. Unlike the broader unemployment rate, which is returning to a level at which the Fed typically would equate with full employment, these more granular measures of labour market dynamics suggest the U.S. economy is less than fully healed. The data reinforce Ms. Yellen’s argument that higher borrowing costs can wait.
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If Ms. Yellen perceived the quit rate as low in March, she remains disappointed today. Adjusted for inflation, the quit rate was 1.8 per cent in June, unchanged from the start of the year. The rate was 1.6 per cent in June, 2013.

Similarly, employers hired 4.83 million people in June, compared with 4.74 million in May, lifting the hiring rate to 3.5 per cent from 3.4 per cent. The quit and hiring rates sunk during the recession and have steadily climbed from those lows. Yet they still are below pre-recession levels. In the years ahead of the Great Recession, the quit rate floated above 2 per cent and the hiring rate was closer to 4 per cent than 3.5 per cent.

Bloomberg has squared its rot for a big boo-hoo-hoo about competition:

John Turner suspected that brokers were encouraging federal workers to ditch their top-flight retirement plan. So he went under cover.

The former U.S. Labor Department economist called representatives at companies such as Bank of America Corp., Charles Schwab Corp. and Wells Fargo & Co. He identified himself as a potential client grappling with what to do with his own nest egg.

Turner thought he knew the right answer: Leave it alone. As a legacy of his government service, he kept his money in the Thrift Savings Plan, considered the gold standard of 401(k)-type programs for its rock-bottom fees. Yet all but one company told him to roll over all his money into individual retirement accounts. On average, stock funds charge almost 50 times more than the government plan.

“It’s a scandal,” said Turner, director of the Pension Policy Center in Washington. “They are trying to sell me an IRA clearly not in my interest. It’s in their interest. They want to get the fees.”

The pitches are persuasive. Workers who leave jobs with the federal government transferred $10 billion last year out of the Thrift Savings Plan. Forty-five percent of participants who left federal service in 2012 removed all of their funds from the plan and closed their accounts by the end of 2013. To investigate this exodus, the government expects to survey departing workers later this year.

The funds offered by the Thrift Savings Plan look pretty good – index funds with rock-bottom fees; definitely a leading option for the core of a portfolio. And I will certainly not risk evisceration in the comments section by suggesting that the external brokers are all altruistic financial geniuses (genii?) whom I would be happy to trust blindly with the Hymas Fortune.

However, it is well known that many, if not most, employees enrolled in sponsored 401(k)’s are idiots. Two very popular strategies are putting the entire amount into the option labelled as having the lowest risk or, my favourite, the “1/N” strategy where, confronted by N choices, the investor puts an equal amount into each of them.

I see that the Thrift Savings Plan offers ‘Lifecycle’ funds, which ” use professionally determined investment mixes that are tailored to meet investment objectives based on various time horizons”. I’m willing to accept that these represent a decent enough investment strategy, but as someone who has produced various elaborations of the Retirement Calculator from Hell, I know that a lot of estimates and approximations go into doing a good job on this kind of stuff, it’s not easy and it’s not particularly generic, given individual’s circumstances, expectations and foibles.

In many cases, I am sure, gullible federal employees have made a dumb move by transferring their money. But I am equally sure that in just as many cases they’ve been smart to transfer, given their own attitudes towards financial markets. What’s better? Cheap, plain-vanilla financial advice that you ignore, or expensive, plain-vanilla financial advice that you follow?

It was another mixed day for the Canadian preferred share market, with PerpetualDiscounts rocketing up 40bp, FixedResets off 1bp and DeemedRetractibles ahead 14bp. Volatility was minimal – surprisingly, I’d say, the PerpetualDiscount win is broadly based. Volume was low.

Nothing happened today.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts down 17bp, FixedResets flat and DeemedRetractibles up 13bp. Volatility was minimal. Volume was low.