PrefBlog

Hurray! The S&P 500 is even on the year!

The Standard & Poor’s 500 Index rallied a second day, wiping out its losses for the year, on speculation central banks will support growth even as the American economy shows signs of strength.

The S&P 500 added 1.8 percent to 2,062.14 at 4 p.m. in New York, after rallying 1.2 percent yesterday to halt a five-day selloff. The Dow Jones Industrial Average jumped 323.35 points, or 1.8 percent, to 17,907.87, also erasing its loss for 2015. The Nasdaq 100 Index soared 1.9 percent and the Dow Jones Transportation Average climbed the most since October. More than 7.3 billion shares changed hands on U.S. exchanges, 4.8 percent above the three-month average.
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Stocks extended gains after European Central Bank President Mario Draghi said in a letter published today that central bank stimulus measures may include sovereign-bond buying. Producer prices slid more than analysts anticipated in the euro area and German factory orders fell more than forecast in November, underlining the fragile state of Europe’s economy and strengthened the case for more stimulus.

The next interest-rate decision by the ECB is scheduled for Jan. 22 when officials will consider a quantitative-easing package that will probably include buying government bonds. Policy makers disagree about whether action is required, with some arguing deflation risks have increased and others pointing to the stimulating effects of lower prices on the economy.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts down 11bp, FixedResets off 4bp and DeemedRetractibles gaining 6bp. The Performance Highlights table is surprisingly short and dominated by TRP issues. Volume was low.

For as long as the FixedReset market is so violently unsettled, I’ll keep publishing updates of the more interesting and meaningful series of FixedResets’ Implied Volatilities. This doesn’t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.

Remember that all rich /cheap assessments are:

• based on Implied Volatility Theory only
• are relative only to other FixedResets from the same issuer
• assume constant GOC-5 yield
• assume constant Implied Volatility
• assume constant spread

Here’s TRP:

Click for Big

So according to this, TRP.PR.A, bid at 21.60, is $0.92 cheap, but it has already reset (at +192). TRP.PR.C, bid at 21.02 and resetting at +154bp on 2016-1-30 is $1.13 rich.

Click for Big

MFC.PR.F continues to be on the line defined by its peers. Implied Volatility continues to be a conundrum. It is far too high if we consider that NVCC rules will never apply to these issues; it is still too low if we consider them to be NVCC non-compliant issues (and therefore with Deemed Maturities in the call schedule).

Click for Big

There continues to be cheapness in the lowest-spread issue, BAM.PR.X, resetting at +180bp on 2017-6-30, which is bid at 21.41 and appears to be $0.90 cheap, while BAM.PR.R, resetting at +230bp 2016-6-30 is bid at 25.17 and appears to be $0.95 rich.

It seems clear that the higher-spread issues define a curve with significantly more Implied Volatility than is calculated when the low-spread outlier is included.

Click for Big

This is just weird because the middle is expensive and the ends are cheap but anyway … FTS.PR.H, with a spread of +145bp, and bid at 18.77, looks $1.04 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp, and bid at 25.16, looks $1.11 expensive and resets 2019-3-1

Click for Big

Pairs equivalence is all over the map.

Buy on dips? Not if you’re a central banker!

The total amount of reserves held in euros fell 8.1 percent in the third quarter, more than the currency’s 7.8 percent decline in the period against the dollar, according to the most recent figures from the International Monetary Fund. The last two times the euro depreciated 7 percent or more in a quarter, 2011 and 2010, holdings declined much less.

The data suggest reserve managers are passing up the chance to buy euros while they’re cheap, removing a key pillar of support. In August, European Central Bank President Mario Draghi cited the drop in central banks’ euro holdings as a factor that would help weaken the exchange rate and ultimately boost the region’s faltering economy.
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The ECB has experimented with negative interest rates on deposits in an attempt to draw money out of safe government debt and into the broader economy. Yields on two-year notes in Germany, the Netherlands and France are all below zero on speculation the ECB is losing the battle against deflation.

Negative yields on twos? Well … consider inflation:

The inflation rate in the euro area fell below zero for the first time in more than five years, bolstering the case for more European Central Bank stimulus.

Prices dropped 0.2 percent in December, the European Union’s statistics office in Luxembourg said today. That’s the lowest rate since September 2009. Economists in a Bloomberg survey predicted a decline of 0.1 percent. Unemployment held at 11.5 percent in November, Eurostat said in a separate report.
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Joblessness in Italy rose to a record 13.4 percent in November, separate data showed. German unemployment, calculated under a national measure, fell to 6.5 percent in December, the lowest in more than two decades.

Here’s another idiotic regulation story:

Each year a bank wins the mandate to convert about 3.4 billion euros ($4.1 billion) of subsidies to sterling. The rate they use has less to do with free-market economics than self-interest, according to four traders and salespeople interviewed by Bloomberg News who said their goal was to make the most money they could for their firms to the detriment of their clients.
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The EU requires the U.K. government to exchange the currency at the European Central Bank benchmark rate on the last trading day of September. The price, set at 1:15 p.m. in London, is derived from a snapshot of trades and is supposed to be an independent measure of the value of currencies. It’s anything but, the traders said.

When London-based Barclays Plc (BARC) won the job for 2011, the first thing its foreign-exchange desk did was to place bets with its own money that the euro would fall against the pound, knowing that the transaction would move the market lower, said one trader with direct knowledge of the deal who asked not to be identified because he still works in banking.
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Salespeople at Barclays, the world’s third-biggest currency dealer, also told their best customers, including some of the largest hedge funds, that the bank would be selling euros in the expectation the clients would adopt the same trading strategy, turbocharging efforts to push the exchange rate lower, the former employees said.

Well, of course they did. What would anybody with half a brain do? Just think of it … all these high-frequency trading firms spend millions to extract very short-term market movement predictions from the order book, so in order to avoid HFT, the European Union basically announces that Euros will be sold for Sterling in big size at the price determined in a specific way at a specific time.

I haven’t yet been able to figure out a more brain-dead method of trading. Just why the EU insists on conversion at all is a mystery to me, but if they do insist on conversion, surely it could be handled better … ‘exchange it however you like between this time on this date and that time on that date. Open market operations, an auction, whatever. A single auction will still experience disadvantageous price moves in the market during the run up to it … JUST LIKE BONDS. JUST LIKE STOCKS. JUST LIKE EVERY OTHER DAMN THING ON THE MARKET. You really don’t need to be very sophisticated to be able to work this out and observe it for yourself. Are strawberries cheaper in December or June?

But even when aware that they’re being (quite rightfully) penalized for telegraphing their trades, the bureaucrats still insist on using arbitrary quotations:

The U.K. now has the option of exchanging currency using an average of all ECB fixes in September, which will make it harder for banks to rig the rate.

It all fits in with the “Prevention” self-regulatory focus discussed yesterday. If a trader was given the job of conversion, he might underperform some benchmark, whatever it was … so the bureaucrats conclude that paying a fee to convert at that benchmark is a better idea. Then they cannot be criticized for allowing underperformance – even though a large conversion at a small benchmark is a really, really stupid and expensive way to trade, the costs are invisible.

It was a good day for the Canadian preferred share market, with PerpetualDiscounts winning 57bp, FixedResets up 13bp and DeemedRetractibles gaining 3bp. The Performance Highlights table is again quite lengthy, this time heavily skewed towards winners. Volume was very low.

PerpetualDiscounts now yield 5.02%, equivalent to 6.53% interest at the standard equivalency factor of 1.3x. Long Corporates now yield about 3.9% so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 265bp, a significant widening from the 245bp reported December 24.

For as long as the FixedReset market is so violently unsettled, I’ll keep publishing updates of the more interesting and meaningful series of FixedResets’ Implied Volatilities. This doesn’t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.

Remember that all rich /cheap assessments are:

• based on Implied Volatility Theory only
• are relative only to other FixedResets from the same issuer
• assume constant GOC-5 yield
• assume constant Implied Volatility
• assume constant spread

Here’s TRP:

Click for Big

So according to this, TRP.PR.A, bid at 21.31, is $1.26 cheap, but it has already reset (at +192). TRP.PR.C, bid at 21.02 and resetting at +154bp on 2016-1-30 is $0.98 rich.

Click for Big

MFC.PR.F continues to be on the line defined by its peers. Implied Volatility continues to be a conundrum. It is far too high if we consider that NVCC rules will never apply to these issues; it is still too low if we consider them to be NVCC non-compliant issues (and therefore with Deemed Maturities in the call schedule).

Click for Big

There continues to be cheapness in the lowest-spread issue, BAM.PR.X, resetting at +180bp on 2017-6-30, which is bid at 21.42 and appears to be $0.84 cheap, while BAM.PR.R, resetting at +230bp 2016-6-30 is bid at 25.11 and appears to be $0.88 rich.

It seems clear that the higher-spread issues define a curve with significantly more Implied Volatility than is calculated when the low-spread outlier is included.

Click for Big

This is just weird because the middle is expensive and the ends are cheap but anyway … FTS.PR.H, with a spread of +145bp, and bid at 18.81, looks $1.06 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp, and bid at 25.23, looks $1.07 expensive and resets 2019-3-1

Click for Big

Pairs equivalence is all over the map.

Nothing happened today except for the the usual decline in equities and related decline in government bond yields, so instead I will devote this post to the Dalhouse Dental Disaster.

For those of you unfamiliar with the news, the basic story is that a group of male Dalhousie dental students started a private group on Facebook, in which they made a lot of juvenile remarks about sex and women, and some that crossed the line into offensive territory, with a poll on which of their female peers should be ‘hate-fucked’. An informer took 70+ screenshots of this stuff and distributed it and it has now become a major talking point – to the point at which dental regulators are opining on the topic:

Also Tuesday, the Alberta Dental Association and College joined Ontario’s dental regulatory body to call on Dalhousie’s dentistry faculty to release the names of the 13 students who posted misogynist comments, “if and when they graduate.”

In a statement, the college said it is “profoundly disturbed about the alleged inappropriate behaviour of some dental students” at Dalhousie and expects dentists who want to practise in Alberta to supply evidence of their good character.

On Monday, the Royal College of Dental Surgeons of Ontario, which regulates 9,000 dentists, said it had asked Dalhousie for the names of the 13 men.

In a statement Tuesday, Dalhousie said “it will not be releasing the names of the individuals involved. The university has an obligation to protect the privacy and confidentiality of our students.”

Irwin Fefergrad, the college’s registrar, had warned that if Dalhousie does not provide the names, the College will ask each Dal graduate if they have been the subject of a university complaint or inquiry. “My members have been appalled and disgusted by the students. I’ve had more e-mails on this issue than I can remember on anything else,” he said.

The Provincial Dental Board of Nova Scotia has also said in a statement it will consider the outcome of the inquiries at Dalhousie in any decision to allow the students to practise.

The men have been suspended from clinical activities while an academic committee considers further penalties, such as academic suspension or expulsion.

Now, by me this is just craziness. The stuff was definitely puerile, but the fact that it’s gotten to the point that it’s career threatening is indicative of a hysterical over-reaction. Regrettably, I’ve seen only one column in the media that agrees with my view but even that went too far in advocating “serious consequences”.

I mean, really, why should the university – or any other authority – be involved at all? It strikes me as much more rational and natural that the women involved should tell the men what goofs they are, receive shamefaced apologies, and then everybody gets on with their lives.

But it is the regulatory involvement that fascinates me, because if juvenile sexual remarks made in supposed privacy are career threatening then basically everybody in the securities industry is about to get fired. So it occurred to me that all of this nonsense about rules and official involvement might be related to the increasing number of women in the workforce in general and in the regulatory industry in particular. My rationale for this is not dependent upon ‘women sticking up for each other’, but on my perception that women in general like process, rules and consequences. But does this perception make me a sexist pig?

I am relieved to state that as far as I can tell it does not. I discovered something called Regulatory Focus Theory:

Regulatory focus theory (RFT) is a goal pursuit theory[1] formulated by Columbia University psychology professor and researcher E. Tory Higgins regarding peoples’ perceptions in the decision making process. RFT examines the relationship between the motivation of a person and the way in which they go about achieving their goal.[2] RFT posits two separate and independent self-regulatory orientations: prevention and promotion (Higgins, 1997).

This psychological theory, like many others, is applied in communication, specifically in the subfields of nonverbal communication and persuasion.Chronic regulatory focus is measured using the Regulatory Focus Questionnaire (Higgins et al., 2001) or the Regulatory Strength measure. Momentary regulatory focus can be primed or induced.

To understand RFT, it is important to understand another of E. Tory Higgins’ theories, Regulatory Fit Theory. When a person believes that there is “fit”, they will involve themselves more in what they are doing and “feel right” about it.[3] Regulatory fit should not directly affect the hedonic occurrence of a thing or occasion, but should influence a person’s assurance in their reaction to the object or event.

Regulatory fit theory suggests that a match between orientation to a goal and the means used to approach that goal produces a state of regulatory fit that both creates a feeling of rightness about the goal pursuit and increases task engagement (Higgins, 2001, 2005). Regulatory fit intensifies responses, such as the value of a chosen object, persuasion, and job satisfaction (Kruglanski, Pierro, & Higgins, 2007).

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And in confirmation of my bias, there’s an interesting paper by Sassenberg, Brazy, Jonas and Shah titled When gender fits self-regulatory preferences: The impact of regulatory fit on gender-based ingroup favoritism, which is available here in full. It interests me more for the introductory literature review than for the specifics of the study:

Females are perceived to have less power than males. These differences in perceived power might render different self-regulatory strategies appropriate: women should (as member of other low power groups) care about security, whereas men should (as members of other high power groups) strive for accomplishment. These regulatory implications of gender provide the basis for regulatory fit between individuals’ gender and their regulatory focus. Higher fit should lead to stronger gender-based in group favoritism: Prevention focused females and promotion focused males were expected to show more ingroup favoritism than both genders in the respective other regulatory focus. According to the regulatory fit hypothesis this effect should occur for evaluative but not stereotype based ingroup favoritism. Three studies supported these hypotheses.
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Regulatory focus theory (Higgins, 1997, 1998) distinguishes two motivational systems: promotion and prevention focus. These foci differ in their underlying needs(achievement in a promotion focus vs. security in a prevention focus) and in turn imply the pursuit of differing types of goals (ideals, wishes, and aspirations in a promotion focus vs. oughts, duties, and responsibilities in a prevention focus). Individuals in a promotion focus tend to think global and are primarily concerned with the absence and presence of positive outcomes. Individuals in a prevention focus strive to avoid errors, follow rules and are primarily concerned with the absence and presence of negative outcomes. Regulatory focus may vary between situations and between persons.
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Nonetheless, we assume that the impact of regulatory focus and power on ingroup favoritism generalizes to gender, as females and males share the features of high and low power groups which provide the opportunity for experiencing regulatory fit. Sassenberg et al. (2007) argued that the crucial difference between high and low power groups is that high power groups are perceived to provide the opportunity to apply promotion strategies whereas low power groups are perceived to come with the necessity to apply prevention strategies. Such perceptions also exist for females and males. Gender roles and gender stereotypes indicate that females are(among other things) sensitive, caring, dependent, and submissive, which indicates that a security-oriented strategy is perceived as appropriate for them. Male roles and stereotypes include (among other things) the characteristics daring, competitive, ambitious, and persistent(Bem, 1974; Deaux & Lewis, 1983; Oswald & Lindstedt, 2006; Williams & Best, 1982),suggesting that an achievement-oriented strategy is perceived as appropriate for males. Hence, the roles, stereotypes, and the implied behavioral strategies ascribed to the genders suggest a regulatory fit between females and a prevention focus as well as males and a promotion focus. Therefore, we assume that the fit between regulatory focus and group power also occurs for the genders.

So my interpretation of all this is:

• Women are disproportionately drawn towards regulatory work because it involves rulemaking and process
• Therefore the culture of the regulatory bodies becomes more feminine – i.e., is more strongly tilted towards the ‘prevention focus’
• Therefore more rules get invented and the power of the regulatory body increases

Let’s just hope that broader public regulation does not become as intrusive and vindictive as that exemplified by the Dalhousie dentist fiasco!

It was another poor day for the Canadian preferred share market, with PerpetualDiscounts off 5bp, FixedResets losing 28bp and DeemedRetractibles down 19bp. FixedResets and insurance DeemedRetractibles were prominent on the bad side of the lengthy Performance Highlights table. Volume was low.

For as long as the FixedReset market is so violently unsettled, I’ll keep publishing updates of the more interesting and meaningful series of FixedResets’ Implied Volatilities. This doesn’t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.

Remember that all rich /cheap assessments are:

• based on Implied Volatility Theory only
• are relative only to other FixedResets from the same issuer
• assume constant GOC-5 yield
• assume constant Implied Volatility
• assume constant spread

Here’s TRP:

Click for Big

So according to this, TRP.PR.A, bid at 21.36, is $1.06 cheap, but it has already reset (at +192). TRP.PR.C, bid at 21.02 and resetting at +154bp on 2016-1-30 is $1.26 rich.

Click for Big

MFC.PR.F continues to be on the line defined by its peers. Implied Volatility continues to be a conundrum. It is far too high if we consider that NVCC rules will never apply to these issues; it is still too low if we consider them to be NVCC non-compliant issues (and therefore with Deemed Maturities in the call schedule).

Click for Big

There continues to be cheapness in the lowest-spread issue, BAM.PR.X, resetting at +180bp on 2017-6-30, which is bid at 21.24 and appears to be $0.80 cheap, while BAM.PR.R, resetting at +230bp 2016-6-30 is bid at 25.01 and appears to be $0.86 rich.

It seems clear that the higher-spread issues define a curve with significantly more Implied Volatility than is calculated when the low-spread outlier is included.

Click for Big

This is just weird because the middle is expensive and the ends are cheap but anyway … FTS.PR.H, with a spread of +145bp, and bid at 18.81, looks $1.04 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp, and bid at 25.26, looks $1.10 expensive and resets 2019-3-1

Click for Big

Pairs equivalence is all over the map.

Kerr-rrash! Equities got hammered today and the damage is spreading:

Crude oil’s slide below $50 sent the Standard & Poor’s 500 Index (SPX) to its biggest drop since October, as selling spread from the energy industry amid concern that cuts in capital spending will hurt earnings.

Energy shares in the S&P 500 plunged 4 percent as West Texas Intermediate sank to the lowest since April 2009. Exxon Mobil Corp. lost 2.7 percent and Chevron Corp. retreated 4 percent. Caterpillar (CAT) Inc. declined 5.3 percent and an index of railroad stocks lost 3.2 percent on concern that the energy slump may hurt spending on capital equipment and crude transportation.

The S&P 500 dropped 1.8 percent to 2,020.58 for its first four-day losing streak since 2013. The gauge fell below its average price for the last 50 days. The Dow Jones Industrial Average retreated 331.34 points, or 1.9 percent, to 17,501.65. More than 7.1 billion shares changed hands on U.S. exchanges, 2.9 percent above the three-month average.

Canada, too:

Canadian stocks posted the steepest plunge since 2013, joining a global selloff, as banks and energy producers tumbled after oil prices slumped below $50 a barrel for the first time in five years amid concern over Greece.

MEG Energy Corp. and Legacy Oil & Gas (LEG) Inc. sank at least 19 percent as energy stocks fell 5.5 percent as a group. Toronto-Dominion Bank and National Bank of Canada slumped more than 2.3 percent as bank shares declined a fourth day. First Quantum Minerals Ltd. lost 8.3 percent with copper at a four-year low.

The Standard & Poor’s/TSX Composite Index (SPTSX) fell 360.95 points, or 2.5 percent, to 14,392.70 at 4 p.m. in Toronto, the biggest decline since June 2013. The benchmark equity gauge rose 7.4 percent in 2014.

Oil prices? Yes, oil prices:

Benchmark U.S. oil prices dropped below $50 a barrel for the first time since April 2009 as surging supply signaled that the global glut that drove crude into a bear market will persist.

West Texas Intermediate slid 5 percent in New York while Brent fell below $55 in London for the first time since May 2009. Russia’s output rose to a post-Soviet high while Iraq, the second-largest producer in OPEC, plans to boost crude exports to a record this month. The price drop accelerated as the dollar climbed against the euro amid investor concern Greece might leave the currency union

Oil is in a race with the Euro, the Loonie and the Ruble:

The euro weakened to an almost nine-year low versus the dollar amid investor concern Greece might leave the currency union and on speculation the European Central Bank has moved closer to large-scale sovereign-bond purchases.

A gauge of the dollar reached the strongest in nine years with the Federal Reserve moving toward raising interest rates. The yen gained to an eight-week high against the euro as a slide in Asian stocks boosted haven demand. The Russian ruble and Canadian dollar slipped as oil fell. Brazil’s real dropped after economists boosted inflation forecasts and cut growth estimates. Volatility jumped to the highest in more than a year.
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The euro dropped 0.6 percent to $1.1933 as of 5 p.m. in New York after sliding to $1.1864, the least since March 2006. The shared currency fell 1.3 percent to 142.76 yen and earlier reached 142.30, lowest since Nov. 10. The dollar depreciated 0.7 percent to 119.64 yen.

The Bloomberg Dollar Spot Index (BCOM), which tracks the U.S. currency against 10 major peers, rose 0.2 percent to 1,143.40 and touched 1,146.49, the highest in data going back to 2005.

The Canadian preferred share market was also hit on the day, with PerpetualDiscounts off 12bp, FixedResets down 22bp and DeemedRetractibles losing 37bp. The performance highlights table is suitably lengthy, with insurance DeemedRetractibles prominent on the downside. Volume was extremely low.

For as long as the FixedReset market is so violently unsettled, I’ll keep publishing updates of the more interesting and meaningful series of FixedResets’ Implied Volatilities. This doesn’t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.

Remember that all rich /cheap assessments are:

• based on Implied Volatility Theory only
• are relative only to other FixedResets from the same issuer
• assume constant GOC-5 yield
• assume constant Implied Volatility
• assume constant spread

Here’s TRP:

Click for Big

So according to this, TRP.PR.A, bid at 21.23, is $1.35 cheap, but it has already reset (at +192). TRP.PR.C, bid at 21.25 and resetting at +154bp on 2016-1-30 is $1.31 rich.

Click for Big

MFC.PR.F continues to be on the line defined by its peers. Implied Volatility continues to be a conundrum. It is far too high if we consider that NVCC rules will never apply to these issues; it is still too low if we consider them to be NVCC non-compliant issues (and therefore with Deemed Maturities in the call schedule).

Click for Big

There continues to be cheapness in the lowest-spread issue, BAM.PR.X, resetting at +180bp on 2017-6-30, which is bid at 21.35 and appears to be $0.87 cheap, while BAM.PR.R, resetting at +230bp 2016-6-30 is bid at 25.16 and appears to be $0.98 rich.

It seems clear that the higher-spread issues define a curve with significantly more Implied Volatility than is calculated when the low-spread outlier is included.

Click for Big

This is just weird because the middle is expensive and the ends are cheap but anyway … FTS.PR.H, with a spread of +145bp, and bid at 19.06, looks $0.98 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp, and bid at 25.32, looks $1.04 expensive and resets 2019-3-1

Click for Big

Pairs equivalence is all over the map.

The loonie got out of the wrong side of bed this year:

The loonie plunged to a level not seen in more than five years Friday amid a strengthening U.S. greenback and weaker crude oil prices.

The Canadian dollar ended the day down 1.18 cents at 85.02 cents (U.S.), The last time it closed below this level was on May 15, 2009.

The currency finished 2014 down about 8 per cent or 7.8 cents against the American currency compared with where it began the year.

It’s in a race with oil:

Oil dropped to the lowest in more than five and a half years amid growing supply from Russia and Iraq and signs of manufacturing weakness in Europe and China.

Futures capped a sixth weekly loss in New York and London. Oil output in Russia and Iraq surged to the highest levels in decades in December, according to data from both countries’ governments. Euro-area factory output expanded less than initially estimated in December. A manufacturing gauge in China, the world’s second-largest oil consumer, fell to the weakest level in 18 months, government data showed yesterday.

Prices slumped 46 percent in New York in 2014, the steepest drop in six years and second-worst since trading began in 1983, as U.S. producers and the Organization of Petroleum Exporting Countries ceded no ground in their battle for market share. OPEC pumped above its quota for a seventh month in December even as U.S. output expanded to the highest in more than three decades, according to data compiled by Bloomberg.

What I need is a gimmick:

So-called “smart beta” funds, the fastest-growing segment of the exchange-traded fund market, are sold as index funds but are actively – sometimes frenetically – traded portfolios that can whipsaw investors and often fail to deliver the outsized returns their issuers promote.

Over the last one- and three-year periods, they have on average lagged their plain-vanilla counterparts in almost every highly competitive category, according to an analysis performed for Reuters by ETF.com, a research firm. Along the way, many have turned over their portfolios two and three times a year and undershot their own specialized benchmarks by significant margins.

Yet they have become a magnet for investor dollars, pulling in 60 cents of every dollar flowing to ETFs over the last two years, according to Morningstar.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts gaining 8bp, FixedResets down 10bp and DeemedRetractibles off 2bp. The modest numbers masked an impressive amount of volatility, but volume was virtually non-existent.

For as long as the FixedReset market is so violently unsettled, I’ll keep publishing updates of the more interesting and meaningful series of FixedResets’ Implied Volatilities. This doesn’t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.

Remember that all rich /cheap assessments are:

• based on Implied Volatility Theory only
• are relative only to other FixedResets from the same issuer
• assume constant GOC-5 yield
• assume constant Implied Volatility
• assume constant spread

Here’s TRP:

Click for Big

So according to this, TRP.PR.A, bid at 21.20, is $1.17 cheap (despite today’s impressive performance), but it has already reset (at +192). TRP.PR.C, bid at 21.11 and resetting at +154bp on 2016-1-30 is $1.37 rich.

Click for Big

MFC.PR.F continues to be on the line defined by its peers. Implied Volatility continues to be a conundrum. It is far too high if we consider that NVCC rules will never apply to these issues; it is still too low if we consider them to be NVCC non-compliant issues (and therefore with Deemed Maturities in the call schedule).

Click for Big

There continues to be cheapness in the lowest-spread issue, BAM.PR.X, resetting at +180bp on 2017-6-30, which is bid at 21.21 and appears to be $0.87 cheap, while BAM.PR.R, resetting at +230bp 2016-6-30 is bid at 25.10 and appears to be $0.98 rich.

It seems clear that the higher-spread issues define a curve with significantly more Implied Volatility than is calculated when the low-spread outlier is included.

Click for Big

This is just weird because the middle is expensive and the ends are cheap but anyway … FTS.PR.H, with a spread of +145bp, and bid at 19.30, looks $0.93 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp, and bid at 25.29, looks $0.89 expensive and resets 2019-3-1

Click for Big

Pairs equivalence is all over the map, but is better than yesterday and will probably converge as volumes increase in the new year.