PrefBlog

This sounds like a good programme:

Unemployed (USURTOT) and pregnant with her second child in late 2013, Shantel Burris knew she needed to make a change. In a year, the 24-year-old went from jobless benefits to earning double the New York minimum wage.

Her first step was getting a high school diploma, and a chat with a counselor sparked a “nonstop” process of preparation centered on 11 weeks of free job training and a battery of mock interviews at Career Network: Healthcare. The New York initiative trained and matched her with a position in August at Montefiore Medical Center, where she prepares patient meal trays for $16.08 an hour.

Programs like Career Network seek to alleviate a shortage of workers in jobs that require less than a bachelor’s degree though more than a high school diploma. For the 146.2 million Americans who are 18 and older without an associate’s or higher degree, such opportunities offer a pathway to higher pay and job stability that would be difficult to find on their own.

Success hinges on identifying openings at local employers and equipping a spectrum of Americans — from the jobless to the underemployed — with needed skills. Such programs might also help hiring catch up with job vacancies, which are near a record high.
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The need for a demand-driven approach became apparent when JPMorgan Chase & Co., as part of its philanthropic efforts, explored ways to reduce the so-called skills gap. The New York-based company in December announced New Skills at Work, a five-year $250 million global project to tailor training to available jobs.
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JPMorgan will examine labor demand in nine U.S. metro areas, identifying fast-growing industries with middle-skill openings and better pay. The data and funding will be shared with community organizations serving youth and long-term unemployed.

I think someone at CDHowe reads PrefBlog:

Canada’s central bank should start publishing minutes of interest-rate meetings including any dissenting views, to meet the standards of counterparts in the U.S. and U.K., a research group said.

Such a move would improve the Ottawa-based Bank of Canada’s transparency and improve public understanding of the process used to determine interest rates, the Toronto-based C.D. Howe Institute said in a report due to be published today.

The central bank has resisted disclosing minutes, saying the rate-setting panel works by consensus and the distilled views of policy makers are represented in the statements that accompany the eight-yearly rate decisions.
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“Withholding dissenting opinions has the potential to limit public understanding of important monetary policy questions,” Pierre Siklos, an economics professor at Wilfrid Laurier University in Waterloo, Ontario, said in a summary of the report, co-authored with Matthias Neuenkirch at the University of Trier in Germany.

I said the same thing on October 10, 2014 and December 10, 2013 … and probably earlier, since I’ve thought this forever, but I won’t bother looking up more dates.

Ben Steverman of Bloomberg points out that that even US banks are still in the pre-PC mainframe era:

Behind every check written, card swiped and paycheck delivered is an antiquated payment system that isn’t real time. About $80 trillion a year flows by fits and starts through a Rube Goldberg-like set of interlocking payment networks. The most prominent is the Automated Clearing House, or ACH, now celebrating its 40th birthday. These networks carry funds electronically, yes. But they often only sync up with banks once a day. In other words, if you miss today’s only flight off Kiribati, then you have to wait for tomorrow’s.

It can take a customer of a U.S. bank more than three days to transfer funds to another U.S. bank. Banks haven’t seen an advantage in speeding that up, even though the lag is painful for businesses and families. Purchases don’t always clear before a store owner has to pony up for more inventory. Families get hit with overdraft fees when checks really are in the mail.
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What the U.S. needs, the Federal Reserve said last month, is an entirely “new infrastructure” to keep banks connected day, night and through the weekend. Then last week, the Clearing House, a group owned by the largest banks, said it would build a real-time payment network. It didn’t specify a time frame or release cost estimates. It did say your bank would credit your account immediately and settle up with the payer’s bank later. The Fed estimates businesses could save $10 to $40 billion with a more efficient network.
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Banks have been procrastinating on an upgrade. They worry changing over 1970s-era networks will be a big hassle. A 24/7 system will need to sync with bank’s old batch systems, which are designed to need maintenance on Sundays. And, if popular enough, real-time payments could threaten banks’ annual collection of $30 billion in overdraft fees and more than $12 billion in card fees.

That’s NUTHIN’! For a bachelor’s degree in Banking Contempt, transfer money across the Canada-US border. For a master’s, transfer it abroad. And for a Ph.D., see what happens when one of the clerks along the way makes a trivial data-input error. That’s happened to me … the money just disappears for a few days. Completely. They can’t even guess what happened.

IIROC – a regulatory organization notable for funnelling slush-funds to well-connected, friendly enterprises – has stepped up its interference in the bond market:

The Investment Industry Regulatory Organization of Canada said Thursday that it will change the reporting system for debt securities dealers. They will soon be required to report every trade on a daily basis, rather than weekly.
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The new rules officially come into effect in two phases starting in November 2015, and they are meant to tighten up the current market trade reporting system (MTRS), which is based on weekly statistics that IIROC has said are not dependable enough, since methodologies differ among the firms.

Under the current reporting system, dealers issue a weekly aggregate transaction report to the Bank of Canada through MTRS. In the new system, called MTRS 2.0, IIROC dealer members will swiftly report to IIROC all of their over the counter debt security transactions, as well as those of their affiliates that are government securities distributors (GSDs). IIROC will then share the data with the Bank of Canada.

Enbridge was confirmed at Pfd-2(low) by DBRS:

DBRS has confirmed the Issuer Rating of Enbridge Inc. (ENB or the Company) at A (low) and ratings on ENB’s Medium-Term Notes & Unsecured Debentures, Commercial Paper and Cumulative Redeemable Preferred Shares ratings at A (low), R-1 (low) and Pfd-2 (low), respectively, all with Stable trends. The ratings reflect (1) a relatively strong business risk profile, (2) pressure on ENB’s near-to-medium-term credit metrics and (3) results under the ten-year Competitive Tolling Settlement (CTS), effective July 1, 2011.
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(2) DBRS expects ENB’s credit metrics, on fully consolidated and modified consolidated bases, to be pressured during the early years of its planned $37 billion capex program (excluding Sponsored Investments) from 2014 to 2018, due to a significant debt financing component related to large free cash flow deficits. DBRS expects improvement in the later years (as the longer-dated projects come onstream and begin to generate cash flow).

Enbridge has a lot of issues outstanding – roughly 10% of the universe. ENB.PF.A, ENB.PF.C, ENB.PF.E, ENB.PF.G, ENB.PR.A, ENB.PR.B, ENB.PR.D, ENB.PR.F, ENB.PR.H, ENB.PR.J, ENB.PR.N, ENB.PR.P, ENB.PR.T and ENB.PR.Y.

It was a mildly positive day for the Canadian preferred share market, with PerpetualDiscounts, FixedResets and DeemedRetractibles all gaining 3bp. Volatility was average. Volume was very low.

The TMXMoney screen for BAM.PR.E is worth a picture:

Click for Big

The FOMC is feeling a little more cheerful:

Information received since the Federal Open Market Committee met in September suggests that economic activity is expanding at a moderate pace. Labor market conditions improved somewhat further, with solid job gains and a lower unemployment rate. On balance, a range of labor market indicators suggests that underutilization of labor resources is gradually diminishing.
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Although inflation in the near term will likely be held down by lower energy prices and other factors, the Committee judges that the likelihood of inflation running persistently below 2 percent has diminished somewhat since early this year.

The Committee judges that there has been a substantial improvement in the outlook for the labor market since the inception of its current asset purchase program. Moreover, the Committee continues to see sufficient underlying strength in the broader economy to support ongoing progress toward maximum employment in a context of price stability. Accordingly, the Committee decided to conclude its asset purchase program this month.
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To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2 percent inflation.
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Voting against the action was Narayana Kocherlakota, who believed that, in light of continued sluggishness in the inflation outlook and the recent slide in market-based measures of longer-term inflation expectations, the Committee should commit to keeping the current target range for the federal funds rate at least until the one-to-two-year ahead inflation outlook has returned to 2 percent and should continue the asset purchase program at its current level.

As the Fed is a competently run central bank, one of the many statistics it publishes is the Ten-Year Breakeven Inflation Rate:

Click for Big

After a brief wail, equities decided it wasn’t really news:

U.S. stocks pared declines, Treasuries retreated and the dollar rallied after the Federal Reserve confirmed it will end its asset-purchase program amid signs of a strengthening economy.

The Standard & Poor’s 500 Index (SPX) slid 0.1 percent at 4 p.m. in New York. The index fell as much as 0.8 percent after the Fed’s policy statement before trimming the slide. The 10-year Treasury note yield rose three basis points to 2.32 percent. The Bloomberg Dollar Spot Index jumped 0.6 percent, erasing earlier losses. Gold prices headed for the biggest drop in three weeks.

Moody’s downgraded Talisman to Baa3:

The Baa3 senior unsecured rating reflects Talisman’s sizable reserves, production and valuable other assets, tempered by the execution risks of an ongoing major shift in strategy and capital spending and dividends that outstrip internal cash flow generation. While production has declined due largely to asset sales, we expect modest production growth in 2015 from existing assets given the use of development capital in Southeast Asia, the Eagle Ford and Columbia. However, we expect an overall decline in reserves and production, cash flow, debt and negative free cash flow over the next 12 to 18 months as asset sales take place. When the strategic re-positioning is complete, we believe that Talisman will be positioned as a Baa3-rated company, with internally generated cash flow that can largely fund its negative free cash flow in the North Sea and an asset base that can provide growth opportunities and improvements in Talisman’s very high finding and development costs and very weak leveraged full-cycle ratio.
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The stable outlook reflects our expectation that Talisman will complete its restructuring and have size, leverage and return metrics supportive of a Baa3 rating. The rating could be downgraded if capital productivity fails to improve with a leveraged full cycle ratio of at least 1.0x or if retained cash flow to debt appears likely to decline below 30%. The rating could also be downgraded if the proceeds of asset sales are used for shareholder returns and not debt reduction.

A rating upgrade is unlikely in the near term, but possible if Talisman displays a clear focus on core assets that have a positive organic growth profile that can be developed at reasonable costs leading to sustainable sequential growth in production and reserves, and sustainable improvements in both the leveraged full-cycle ratio (above 1.5x) and RCF to debt (above 40%).

Talisman is the proud issuer of TLM.PR.A, which was downgraded to P-3 by S&P earlier this month, and downgraded to Pfd-3 by DBRS in September.

The Canadian preferred share market skyrocketted today, with PerpetualDiscounts winning 45bp, FixedResets up 32bp and DeemedRetractibles gaining 22bp. Volatility was high, with BAM issues prominent in the hightlights. Volume was average, but there were quite a few six-figure volumes; on the other hand, most of those high volumes were due to RBC performing matched pairs of crosses … which may be real, or may indicate that they were mostly ‘internal crosses’ (where the same manager manages both accounts and he’s just rebalancing).

PerpetualDiscounts now yield 5.09%, equivalent to 6.62% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 4.2%, so the pre-tax interest-equivalent spread is no about 240bp, a significant narrowing from the 270bp reported October 15.

Nothing happened today.

It was a modestly good day for the Canadian preferred share market, with PerpetualDiscounts and DeemedRetractibles both up 5bp and FixedResets winning 9bp. Volatility was modest. Volume was very low.

There is muttering that increased regulation has not only deliquified the corporate market but that the Treasury market is also suffering:

It was still early in the New York trading day on Oct. 15 and investors were already pouring into U.S. government bonds as global financial markets from Asia to Europe buckled. Because yields were falling so fast, Comiskey, the head Treasury dealer at Bank of Nova Scotia, realized that he ran the risk of being stuck with losses or unwanted inventory if his computers automatically generated quotes to buy and sell with customers.

So for about half an hour, as yields on 10-year Treasuries tumbled below 2 percent in the biggest plummet in five years, he executed client orders individually over the phone.
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Bank of Nova Scotia was hardly alone in taking steps to protect itself in one of the most volatile trading days since the collapse of Lehman Brothers Holdings Inc. in 2008, showing how regulators’ efforts to rein in risk-taking among the world’s biggest banks is causing disruptions in what is supposed to be the deepest, most liquid market in the world — that of U.S. Treasury securities. Because dealers have cut back so much in recent years, concern is deepening that parts of the market have become less efficient in times of turmoil.
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JPMorgan & Chase Co., a primary dealer, estimates the amount of U.S. debt available to trade at one time without moving prices has plunged 48 percent to $150 million since April. The measure is based on the average size of the best three bids and offers that go through the New York-based bank’s trading desks on a weekly basis.
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An unprecedented $946 billion of U.S. government debt changed hands through London-based ICAP Plc on Oct. 15, which suggests that concerns over liquidity may be overblown and were due more to the fact buyers couldn’t get the prices they wanted when everyone else wanted to buy at the same time.

Richard Prager, the head of trading and liquidity strategies at BlackRock Inc., the world’s largest asset manager, says regulations are one of the reasons why bond dealers have less incentive to facilitate trades for clients.

To comply with higher capital requirements from the Basel Committee on Banking Supervision, firms with bond trading desks have responded by reducing inventories. Primary dealers have slashed their U.S. debt holdings 56 percent to $64 billion from a record high in October 2013, data compiled by Bloomberg show.

But dealer holdings of junk have fallen off a cliff:

Wall Street’s biggest debt dealers have been dumping speculative-grade securities at the fastest pace on record ahead of annual stress tests by the Fed. They reduced their holdings by 68 percent in the week ended Oct. 15 as the market posted losses of 1.5 percent that week alone, according to data released by the Fed last week.
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The Fed is homing in on speculative-grade corporate debt in particular because such bonds and loans tend to suffer disproportionately in times of stress.

Under a worst-case scenario being simulated in the latest round of Fed stress tests, “U.S. corporate credit quality deteriorates sharply,” according to an Oct. 23 Fed report. Relative yields on high-yield bonds and loans would “widen to levels the same as the peaks reached in the 2007–2009 recession.”

At 4.38 percentage points, the extra yield investors currently demand to own junk bonds instead of government debt is just a fifth the 21.8-percentage-point spread reached in December 2008, according to Bank of America Merrill Lynch index data.

The ECB is getting serious about deflation:

The European Central Bank said it settled 1.704 billion euros ($2.2 billion) of covered-bond purchases last week as it started its latest effort to revive the euro-area economy.

The Frankfurt-based institution began purchases on Oct. 20, returning to the market for a third time in six years as part of a renewed attempt to stave off deflation and pump life into a moribund recovery.

Investors have been closely watching the ECB’s first week of asset buying to gauge how quickly President Mario Draghi plans to fulfill his pledge of expanding the institution’s balance sheet by as much as 1 trillion euros. Even though the ECB will add asset-backed securities to the purchase plan this year, stimulus may not be enough to revive the region’s economy.
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German opposition to sovereign-bond purchases means officials have chosen covered bonds and ABS as the latest tools to help expand the balance sheet. While policy makers say their plans will spark new issuance, economists at firms including Morgan Stanley and Commerzbank AG say the central bank will probably need to buy other assets to reach the target.

Of the region’s 2.6 trillion-euro covered-bond market, the ECB will only buy assets acceptable under its collateral framework for refinancing loans. Purchases will be announced weekly, starting today, and the pool of bonds eligible is about 600 billion euros, ECB Vice President Vitor Constancio said this month.

ABS buying is scheduled to begin later this quarter and there are about 400 billion euros of such assets eligible to buy, according to Constancio.

Who remembers Osborne Computer Corporation? Not Ford!:

The problem with high-tech hardware, whether it’s a smartphone or a pickup truck, is that everyone wants the newest thing. When Apple (AAPL) has a new iPhone in the works, would-be buyers delay their purchases until the next iteration hits the market. Turns out, that tricky timing dynamic happens with cars, too.

Ford Motor (F), in particular, is facing a bad bit of product whiplash at the moment. It has 16 vehicle launches next year, ranging from facelifts to entirely new models, in the most aggressive schedule to date of what car folks call “product cadence.”
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The so-called “product launch effects” drove Ford’s auto-related sales down 3 percent in the recent quarter. Profit plummeted 34 percent, in part because Ford idled factories to retool assembly lines for making its new vehicles. Sales of the Ford Edge slid 18 percent in North America as buyers awaited an all-new version expected to hit dealers in the spring. And some 11 percent fewer Ford Fiestas zipped off lots, a vehicle that hasn’t been changed drastically since 2008.

Nowhere is the product path more fraught than for the F-150 pickup, the long-time best-selling vehicle in North America and Ford’s big metal enchilada. Not only is Ford making a new F-150; it’s making a drastically new one. Huge plates of steel will be replaced with lighter aluminum in a bid for fuel efficiency. It’s a massive overhaul, and truck buyers definitely took notice.

So, Toronto civic election results are beginning to trickle in and it appears heavy turnout is favouring Tory. So every Councillor elected tonight will stay up late to put together a grab-bag list of little projects that will just cost pennies per taxpayer each, and they’ll all get approved. Inclusiveness, you know. An end to divisiveness.

It was a strong day for the Canadian preferred share market, with PerpetualDiscounts winning 24bp, FixedResets up 14bp and DeemedRetractibles gaining 9bp. Volatility was average. Volume was low.

Amidst all the problems facing the world today, it’s very nice to see that the US National Institute of Health is funding some vital research:

Training minority scientists, improving mentoring, and adjusting university enrollment processes are among the newly funded efforts to increase the diversity of the biomedical workforce. Armed with $31 million from the National Institutes of Health (NIH) Common Fund, a dozen university teams will lead the way in encouraging young students of all racial and ethnic backgrounds to enter a career in scientific research, the agency announced this week (October 22).

On a brighter note, the ECB is getting at least a little more serious about stress tests:

Twenty-five lenders in the European Central Bank’s euro-area bank health check are poised to fail the regulator’s Comprehensive Assessment, according to a draft communique of the final results seen by Bloomberg News.

One-hundred-and-five banks are shown passing the review, according to the draft statement. Of the lenders that failed, about 10 will still face capital shortfalls they need to plug, according to a person with knowledge of the matter, who asked not to be identified because they weren’t authorized to speak publicly. That figure is likely to change as talks continue before the final results are published Oct. 26, said the person.

The two-part review forms one pillar of the ECB’s effort to rekindle confidence in the euro zone after half a decade of financial turmoil. ECB President Mario Draghi has said banks need to fail to prove the losses of the past have been dealt with. After two previous European stress tests didn’t reveal problems at lenders that later failed, the ECB has staked its reputation on getting this exercise right.

“The numbers are consistent with our expectations,” said Alberto Gallo, head of European macro-credit research at Royal Bank of Scotland Group Plc in London. “It’s too early to say the exercise is credible. The key will be to see how much stress the strong banks will take, and how many of them will pass by a narrow margin.” He expects 11 banks will need to plug capital gaps after measures already taken this year.

An interesting sign of the times … Quadravest has published an extra evaluation of LFE.PR.B:

*Oct 17th NAV is being provided to investors in addition to the Oct 15th NAV, due to recent volatility in financial markets.

A pity they didn’t do this during the depths of the Credit Crunch – it would have been helpful.

And, as a parting note, PrefBlog endorses Doug Ford for Mayor of Toronto. He’s the only one who can credibly claim to be concerned about costs; Chow will spend because she has a vision, Tory will spend because it’s so much more inclusive than saying no. As a bonus, it will be great fun to go downtown after Ford is declared winner to watch all they geysers of latte erupt from people’s noses.

It was a positive day for the Canadian preferred share market, with PerpetualDiscounts gaining 3bp, FixedResets up 4bp and DeemedRetractibles winning 13bp. Volatility was minimal. Volume was pathetically, awfully, ridiculously, terribly low.