PrefBlog

“It doesn’t matter whether a cat is white or black, as long as it throws financial guys in jail after a crash“:

China’s brokerages tumbled after Citic Securities Co. executives were detained and people familiar with the matter said the industry was told to contribute another 100 billion yuan ($15.7 billion) to a market rescue fund.

Four executives of Citic including managing directors Xu Gang and Liu Wei, admitted alleged insider trading, the state-run Xinhua News Agency said. The nation’s largest brokerage fell as much as 8.6 percent in Shanghai and slid to the lowest since May 2014 in Hong Kong. A Citic press officer declined to comment.

The China Securities Regulatory Commission ordered the rescue-fund contributions at a meeting with 50 brokerages on Saturday that was attended by CSRC Chairman Xiao Gang, said the people, who asked not to be identified because the meeting hasn’t been made public. The regulator encouraged listed brokerages to buy back shares worth as much as 10 percent of their total market value, the people said.

Central bankers are feeling some angst:

Mario Draghi may have skipped the Federal Reserve’s Jackson Hole symposium this year, but he can’t dodge its conclusion: central banks can’t steer inflation as well as they thought.

Less than six months into a stimulus program that the European Central Bank president promised would revive consumer-price growth, the euro area is facing renewed disinflationary pressure as China’s economy slows and commodity prices slump. Inflation failed to pick up this month, data showed on Monday, and Draghi may have to downgrade the institution’s forecasts on Thursday.

The newest risk to prices highlights how in the 19-nation currency bloc — as in the U.S., the U.K. and other industrialized nations — headline inflation is still far below target even as the economy recovers.
…
At Jackson Hole, academics effectively delivered a beating to central banks’ confidence in their ability to predict and manage their key variable, by pointing out wide gaps in knowledge about how inflation works.

Harvard University’s Gita Gopinath argued that the relationship between prices and exchange rates isn’t well understood. Boston University’s Simon Gilchrist said that strict inflation targeting can worsen economic outcomes.

Worse still, trying to influence inflation while not understanding it is a “recipe for disaster,” according to MIT Sloan School of Management professor Athanasios Orphanides, himself a former ECB Governing Council member.

I knew American universities were venal, but I didn’t know just how venal they could be:

Bank of America’s relationship with the university extends well beyond marketing at sports events. The bank has an $8.4 million, seven-year contract with Michigan State giving it access to students’ names and addresses and use of the university’s logo. The more students who take the banks’ credit cards, the more money the university gets. Under certain circumstances, Michigan State even stands to receive more money if students carry a balance on these cards.
…
The relationships are reminiscent of those uncovered two years ago between student loan companies and universities. In those, some lenders offered universities an incentive to steer potential borrowers their way.

In Friday’s post I mentioned some interesting things that are happening with barcodes and smartphones … these were interesting enough that I did some poking around.

The Global Food Safety Resource published an interesting article titled Food Regulatory Trends in 2015, which included the interesting note:

In December 2014, Guangdong province piloted an e-traceability system for baby formula. Consumers can use a mobile app and scan a barcode to get information about the product including it’s provenance. But it’s unique to Guangdong and doesn’t translate nationally.

The Grower, a specialty newsletter billing itself as ‘Canada’s Premier Horticultural Publication’, published an article titled How a celery swizzle stick meets its bar code in the field, which contains a bit of insight into Canada’s laws regarding food traceability and how this is implemented at the farm level.

GS1 Canada (the worldwide GS1 organization is mentioned in the Reuters article that got me interested) issued a statement titled Update On Loblaw And Wal-Mart GS1 DataBar™ Pilots (the GS1 Databar was used in one of the examples in the article) that stated:

In June 2006, Loblaw Companies Limited (Loblaw) and Wal-Mart Stores inc. (Wal-Mart) selected several suppliers to pilot the GS1 DataBar™ … on apples and bananas …

To date, Loblaw and Wal-Mart have attributed the following business benefits to their DataBar pilots:
•Decreased out-of-stocks
•Improved shrink control
•Enhanced product replenishment
•Increased customer satisfaction at self-checkouts

So on Saturday evening I visited my local Loblaws and looked at the apples and bananas and lo and behold! They all had GS1 Databars on them!

So it may be concluded that all the data is in place for consumer access to provenance information for apples and bananas at Loblaws. All that is needed is a smartphone App that will read and interpret the information and possibly access to Loblaw’s database – I’m not sure how much, if any, of the data is proprietary.

So you can bet that as soon as Loblaws thinks they can make a dollar out the proposition this traceability will be available – at least as far as Loblaw’s apples and bananas are concerned.

However, I’m not holding my breath waiting for the roll-out. As the comments to the Globe’s republished article so convincingly demonstrate, Canadians as a group are both mentally deficient and terrified of anything developed after 1973. But maybe there’s an App Developer out there who might like to steal a march on the big boys …

I was hoping for some definitive news today on the all-but-certain extensions of NPI.PR.A, FFH.PR.G and ALA.PR.A, which reset 2015-9-30, but there’s nothing.

The Canadian preferred share market closed the month with a good strong day, with PerpetualDiscounts gaining 13bp, FixedResets winning 56bp and DeemedRetractibles up 21bp. There is still a lot of churn in the market, as is demonstrated by yet another lengthy Performance Highlights table. 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

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 19.46 to be $0.82 rich, while TRP.PR.C, resetting 2016-1-30 at +164, is $1.00 cheap at its bid price of 12.85.

Click for Big

Another good fit today for MFC, with Implied Volatility dropping a bit again today.

Most expensive is MFC.PR.N, resetting at +230bp on 2020-3-19, bid at 20.55 to be 0.48 rich, while MFC.PR.K, resetting at +222bp on 2018-9-19, is bid at 19.37 to be 0.42 cheap.

Click for Big

The fit on the BAM issues continues to be horrible.

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 16.27 to be $2.00 cheap. BAM.PF.F, resetting at +286bp on 2019-9-30 is bid at 23.15 and appears to be $1.54 rich.

Click for Big

Implied Volatility declined precipitously today, illustrating the perils of relying too heavily on a four-point curve.

FTS.PR.H, with a spread of +145bp, and bid at 14.95, looks $0.50 expensive and resets 2020-6-1. FTS.PR.G, with a spread of +213bp and resetting 2018-9-1, is bid at 18.28 and is $0.60 cheap.

Click for Big

Investment-grade pairs predict an average three-month bill yield over the next five-odd years of -0.68%, with no outliers. Note that the distribution is bimodal, with NVCC non-compliant bank issues averaging -0.82% and the unregulated issues averaging -0.49%. There are two junk outliers below -1.60% and one two above +0.40%..

Click for Big

Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?

Strange goings-on in FundLand:

Since July, American households — which account for almost all mutual fund investors — have pulled money both from mutual funds that invest in stocks and those that invest in bonds. It’s the first time since 2008 that both asset classes have recorded back-to-back monthly withdrawals, according to a report by Credit Suisse.

Credit Suisse estimates $6.5 billion left equity funds in July as $8.4 billion was pulled from bond funds, citing weekly data from the Investment Company Institute as of Aug. 19. Those outflows were followed up in the first three weeks of August, when investors withdrew $1.6 billion from stocks and $8.1 billion from bonds, said economist Dana Saporta.

Meanwhile, US incomes are ticking up:

Consumer purchases climbed in July as incomes grew, showing the biggest part of the U.S. economy was off to a good start to the quarter.

The 0.3 percent advance matched the prior month’s gain, a Commerce Department report showed Friday in Washington. The median forecast in a Bloomberg survey of 77 economists called for a 0.4 percent increase. Wages rose by the most this year.
…
Total incomes rose 0.4 percent in July for a fourth month, matching the median forecast in the Bloomberg survey. Wages and salaries increased 0.5 percent, the biggest gain since November.

Because spending increased less than incomes, the saving rate rose to 4.9 percent from 4.7 percent.
…
The report showed inflation remained tame. The price gauge based on the personal consumption expenditures index increased 0.1 percent from the prior month and was up 0.3 percent from a year earlier.

The core price measure, which excludes food and fuel, also rose 0.1 percent from the prior month and was up 1.2 percent from July 2014, the smallest year-to-year gain in four years.

If it doesn’t continue, they’ll blame Canada:

“When Canada hurts, U.S. exporters do, too,” Bricklin Dwyer, an economist at BNP Paribas in New York, wrote in an Aug. 27 note to clients titled “Canada (not China) matters more.”

Economy-watchers and investors have been spooked by fears of a worse-than-expected Chinese slowdown after the nation devalued its currency Aug. 11 in a surprise move. Yet the direct effects on U.S. trade from slowing Chinese growth and the yuan move are probably fairly contained — far more so than the potential fallout from faltering Canadian demand.

Canada counts for 19 percent of total U.S. exports, followed by Mexico at 16 percent, each more than double China’s 7 percent share. And the Canadian dollar is sliding much faster: It has fallen about 12 percent against the U.S. dollar since the start of the year, while China’s yuan has dropped just about 3 percent.

And, too bad for Canada, we have a high domestic sensitivity to FX rate changes:

The central banker’s task of keeping inflation just right has become a permanent tussle with the global currency markets. Too weak a currency equals too rapid price gains. Too strong, and disinflation looms.

That’s the well-worn argument under the microscope Friday at the Jackson Hole Symposium, the U.S. Federal Reserve’s annual policy getaway. Gita Gopinath, a scholar at Harvard University, says that it just isn’t that simple.

“The greater the fraction of a country’s imports invoiced in a foreign currency, the greater its inflation sensitivity to exchange rate fluctuations at both short and long horizons,” she says. Because the dollar is by far the dominant currency in world trade, “U.S. inflation is consequently more insulated from exchange rate shocks, while other countries are highly sensitive to it.”

Click for Big

The Ukraine has issued GDP warrants:

The warrants included in a debt deal reached between Ukraine and its biggest creditors on Thursday offer bondholders annual payments for 20 years if economic growth crosses certain thresholds, Finance Minister Natalie Jaresko said at a briefing with journalists late on Thursday.

How are payments determined?

• •No payment will be made if growth is less than 3 percent
• •For growth between 3-4 percent, the payment will be 15 percent of the real GDP growth exceeding 3 percent
• •For growth faster than 4 percent, Ukraine will pay holders 40 percent of the expansion beyond 4 percent, in addition to amount for 3-4 percent growth

And today’s technology news is a pending revolution in bar codes:

The most ubiquitous barcodes allow an eight to 14 digit number to be read by a laser scanner. For example, barcode 4-003994-111000 identifies a box as being a 375 gram pack of Kellogg’s Corn Flakes.

However, that number does not directly capture any other information that might interest a shopper – such as ingredients, allergens or country of origin – nor does it provide a retailer with useful details such as the batch number or sell-by date.

That data is usually printed on the pack, but consumers increasingly want to read it online, or with a smartphone app such as one that measures calories. Retailers want data that can be scanned for tasks such as quickly locating faulty goods for recall or about-to-expire products for mark downs.

GS1, the non-profit organization that assigns the unique numbers in barcodes, has developed a double-layered barcode it calls the “data bar” which can carry some extra details such as expiry date, quantity, batch or lot number.

That has allowed German retailer Metro MEOG.DE to launch PRO Trace, a smartphone app that shows, for example, that a filet of salmon on sale at a store in Berlin on Aug. 25 was caught at the Bremnes Seashore fish farm off the coast of Norway on Aug. 17 and processed in Germany on Aug. 21.

The app also displays a map highlighting the fishing area of the catch and a detailed description of the Atlantic salmon.

Metro says the app helps customers at its cash-and-carry stores such as professional chefs from hotels and restaurants, as they can now embellish their menus with information about the exact origin of pricey delicacies such as wagyu beef.

It was a very strong day for the Canadian preferred share market, with PerpetualDiscounts gaining 12bp, FixedResets winning 81bp and DeemedRetractibles up 50bp. The Performance Highlights table is again very lengthy, but this time there are only a handful of losers. Volume was below average.

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

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 19.40 to be $1.01 rich, while TRP.PR.C, resetting 2016-1-30 at +164, is $1.02 cheap at its bid price of 12.65.

Click for Big

Another good fit today for MFC, with Implied Volatility dropping a bit again today.

Most expensive is MFC.PR.H, resetting at +313bp on 2017-3-19, bid at 23.01 to be 0.36 rich, while MFC.PR.G, resetting at +290bp on 2016-12-19, is bid at 21.76 to be 0.26 cheap.

Click for Big

The fit on the BAM issues continues to be horrible.

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 16.30 to be $1.75 cheap. BAM.PF.G, resetting at +284bp on 2020-6-30 is bid at 22.50 and appears to be $1.24 rich.

Click for Big

Implied Volatility increased a bit today and remains unreasonably high.

FTS.PR.K, with a spread of +205bp, and bid at 18.55, looks $0.14 expensive and resets 2019-3-1. FTS.PR.G, with a spread of +213bp and resetting 2018-9-1, is bid at 18.50 and is $0.34 cheap.

Click for Big

Investment-grade pairs predict an average three-month bill yield over the next five-odd years of -0.63%, with no outliers. Note that the distribution is bimodal, with NVCC non-compliant bank issues averaging -0.84% and the unregulated issues averaging -0.35%. There is one junk outlier below -1.60%.

Click for Big

Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?

Remember all that gloomy stuff posted for the past week? Well, don’t. We’re rich!

What you need to know about Thursday’s [US] economic data:

GROSS DOMESTIC PRODUCT (2Q REVISED)

• •Climbed at a revised 3.7 percent annualized rate, exceeding all forecasts in a Bloomberg survey and up from an initial estimate of 2.3 percent
• •All four components — consumer spending, business investment, trade and government outlays — contributed more to growth than first estimated
• •Inventories showed biggest back-to-back quarterly increases on record
• •Gross domestic income grew at a 0.6 percent pace in second quarter

…
JOBLESS CLAIMS (WEEK ENDED AUG. 22)

• •Applications fell by 6,000 to 271,000 with Michigan and Kansas posting biggest drops
• •Claims hovering close to mid-July level of 255,000 that was fewest since 1973

Just ignore the inevitable carpers:

The federal government today released two very different estimates of the U.S. economy’s growth rate in the second quarter. The one that got all the attention was the robust 3.7 percent annual rate of increase in gross domestic product. Not many people noticed that gross domestic income increased at an annual rate of just 0.6 percent.

That’s a big discrepancy for two numbers that should theoretically be the same, since they’re two ways of measuring the same thing: the size of the economy. If you believe the GDP number, you’re happy. If you believe the GDI number, you’re thinking the U.S. is skating close to a recession.

The Bureau of Economic Analysis always gives more prominence to the GDP number in its quarterly press release. But today, for the second time in a quarterly report, it released an average of GDP and GDI growth rates. That average came in at 2.1 percent after rounding—and in this case, that’s probably closer to the truth than either number alone.

So oil popped:

Oil jumped the most in more than six years, caught up in a relief rally that swept the globe as the U.S. economy grew more than predicted.

West Texas Intermediate futures rose 10 percent, the biggest gain since March 2009. U.S. gross domestic product grew at a 3.7 percent annualized rate in the second quarter, exceeding all estimates of economists surveyed by Bloomberg. The Standard & Poor’s 500 Index headed for its biggest two-day gain since 2009 as Chinese shares snapped a five-day losing streak.

Prices extended gains after Royal Dutch Shell Plc issued a force majeure on Bonny Light exports from Nigeria as it worked to repair two crude pipelines shut because of thefts and a leak.

And everybody was happy, happy, happy:

A relief rally swept around the globe, with the Dow Jones Industrial Average capping its biggest two-day gain since 2008 and Chinese shares snapping a five-day tumble. Oil jumped the most in more than six years after data showed the U.S. economy grew more than forecast in the second quarter.

American stocks briefly spiked lower in late afternoon trading, as the Standard & Poor’s 500 Index cut an advance of as much as 2.5 percent to less than 0.5 percent before reversing course and rallying again, indicating markets are still vulnerable to sudden swings.

Shares surged from Asia to the U.S. after the biggest advance in the S&P 500 in four years on Wednesday helped restore some appetite for riskier assets. The rally halted the selloff that’s engulfed markets since China devalued its currency on Aug. 11, an unexpected move that ignited concern that the slowdown in the world’s second largest economy may threaten global growth.

… except maybe bond investors:

Treasury notes fell for a third straight day on a report showing U.S. economic growth exceeded forecasts last quarter and as global stocks rallied.
…
The benchmark two-year yield rose two basis points, or 0.02 percentage point, to 0.69 percent as of 5 p.m. in New York, according to Bloomberg Bond Trader data. The 0.625 percent security due in August 2017 fell 1/32, or 31 cents per $1,000 face amount, to 99 7/8.

The 30-year bond advanced, halting a three-day decline. The prospect of the Fed’s first interest-rate increase in nearly a decade damped expectations for inflation, and can erode longer-maturity bonds’ fixed payments.
…
Traders are pricing in a 53 percent chance of a Fed boost before the end of this year, up from 46 percent two days ago, assuming the benchmark will average 0.375 percent after the first rise.

Here’s a story a like for a lot of reasons. First, the little gal sticks it to the big boys. Second, it’s an illustration of a trend I predict towards customization and personal services (since “things” are so easy to make in a mechanical way nowadays). And, of course, pictures of women in underwear, which is always pleasant. Indie lingerie in Canada:

Uncomfortable watching intimates being developed cheaply and in a rush, and fatigued by taking direction from “men talking about what’s really hot on a woman and what women want… and then [asking me] to cut the ass out of a panty,” Russell broke out on her own in 2010. After careful planning and with strong connections in her pocket, she decided to make underwear on her own terms – and to make it better.

As it turns out, Russell is one of several young indie entrepreneurs in Canada who are applying a slow-living, small-batch ethic to underwear and, in the process, overturning established ideas about what lingerie is, how it should fit and who it’s really for.

Alesha Frederickson started March & August Underthings on January 1, 2014, with a resolution to shift the panty paradigm. She believed the lingerie available in her hometown, Winnipeg, left a lot to be desired: It was off-the-rack, unflattering and there wasn’t much variety between babydoll-style teen-focused items and the offerings from fast-fashion brands. Both, according to Frederickson, were “designed to be like a present to unwrap, like a gift to the person who was viewing, not wearing, it.”
…
In 2011, [former La Senza technical designer Sofia Sokoloff] started Sokoloff Lingerie for the middle market. She was 23 years old at the time and studying industrial management at the École supérieur de mode de Montréal. In the past four years, her brand has grown quickly: She now has two seamstresses and her own production floor that regularly makes more than 1,000 units per month. She went from two points of sale in 2011 to nearly 30 today, and most recently found a distributor in Dubai to sell her collections come fall.
…
Sokoloff was recently recognized as an industry leader when she was named the Les Offices jeunesse internationaux du Québec 2015 prizewinner – a provincial award for young entrepreneurs who are helping to make a name for Quebec on the international market. She also represented Canada earlier this month at the Curve Expo lingerie and swimwear showcase in New York City.

It was a fine day for the Canadian preferred share market, with PerpetualDiscounts up 41bp, FixedResets winning 63bp and DeemedRetractibles gaining 21bp. Yet another very lengthy Performance Highlights table is dominated by FixedReset winners with ENB issues at the top of the pile. Volume was average.

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

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 19.21 to be $1.04 rich, while TRP.PR.C, resetting 2016-1-30 at +164, is $0.82 cheap at its bid price of 12.75.

Click for Big

Another good fit today for MFC, with Implied Volatility dropping a bit today.

Most expensive is MFC.PR.H, resetting at +313bp on 2017-3-19, bid at 23.22 to be 0.78 rich, while MFC.PR.K, resetting at +222bp on 2018-9-19, bid at 18.92 to be 0.65 cheap.

Click for Big

The fit on the BAM issues continues to be horrible.

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 16.40 to be $1.61 cheap. BAM.PF.G, resetting at +284bp on 2020-6-30 is bid at 22.41 and appears to be $1.20 rich.

Click for Big

Implied Volatility fell substantially today but remains unreasonably high.

FTS.PR.M, with a spread of +248bp, and bid at 20.65, looks $0.16 expensive and resets 2019-12-1. FTS.PR.G, with a spread of +213bp and resetting 2018-9-1, is bid at 18.45 and is $0.25 cheap.

Click for Big

Investment-grade pairs predict an average three-month bill yield over the next five-odd years of -0.65%, with no outliers. Note that the distribution is bimodal, with NVCC non-compliant bank issues averaging -1.00% and the unregulated issues averaging -0.15%. There are no junk outliers.

Click for Big

Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?

Well, it was another day-and-a-half for equities:

Two things that have supported U.S. stocks in the past, dovish words from the Federal Reserve and improving economic data, triggered the biggest rally since 2011 and halted a plunge that erased $2.2 trillion from share values.

Technology companies led the gains with Apple Inc., Google Inc. and Intel Inc. rising at least 5.5 percent. Amazon.com Inc. surged 7.4 percent, and Netflix Inc. posted a two-day gain of 14 percent. JPMorgan Chase & Co. and Citigroup Inc. increased more than 4.8 percent. Cameron International Corp. soared 41 percent after agreeing to be bought by Schlumberger Ltd. in a $14.8 billion deal.

Gains in equities accelerated in the final hour as the Standard & Poor’s 500 Index climbed 3.9 percent to 1,940.51 at 4 p.m. in New York, halting a six-day slide that was its steepest in four years. The Dow Jones Industrial Average added 619.07 points, or 4 percent, to 16,285.51. The Nasdaq Composite Index rose 4.2 percent for its strongest increase since August 2011. About 10.7 billion shares traded hands on U.S. exchanges, 55 percent above the three-month average.

Dovish words from the Fed? Dudley pointed out that financial markets are important:

Global stock-market turmoil has weakened the case for raising interest rates in September, Federal Reserve Bank of New York President William C. Dudley said, cautioning it’s important not to overreact to short-term developments.

“From my perspective, at this moment, the decision to begin the normalization process at the September FOMC meeting seems less compelling to me than it was a few weeks ago,” Dudley told a news conference Wednesday at the New York Fed.

“Normalization could become more compelling by the time of the meeting as we get additional information on how the U.S. economy is performing, and more information on international and financial market developments.”

Treasuries got whacked:

Treasuries suffered their biggest two-day tumble in six weeks as an unexpected jump in durable-goods orders and a recovery in stocks suppressed demand.

Losses deepened after an auction of five-year Treasuries drew the least interest since 2009, signaling that investors’ safe-haven appetite may have waned.

Debt found only temporary support after Federal Reserve Bank of New York President William Dudley said the case for increasing interest rates in September is less compelling because of worldwide market turmoil. Buyers demurred without evidence that the turbulence will slow the U.S. economy.

Real world effects of financial markets? There are fears that oil prices and currency turmoil are favouring ISIS:

Any currency crisis usually comes with dire consequences for a country, and the threat of one in Iraq shows how the impact can go beyond the economy and markets.

A foreign-exchange crunch because of a drop in oil prices could force a devaluation of the dinar and risk making the fight against Islamic State militants even tougher. The nation, currently OPEC’s biggest producer after Saudi Arabia, is dependent on oil revenue to fund its operations on the battlefield and quell growing unrest over the economy.

Dollar reserves tumbled about 20 percent to $59 billion as of July 23 since the fighting escalated a year before, and the losses are accelerating. In the first 25 days of August, the central bank sold $4.6 billion of currency to keep the dinar at a pegged rate, a daily outflow of about $184 million, data compiled by Bloomberg show.
…
Saudi Arabia’s central bank this week said it’s committed to the riyal’s dollar peg, the Saudi-owned Al Arabiya television reported, amid speculation the country would devalue its currency after the plunge in oil prices.

Canadian Utilities Limited, proud issuer of CU.PR.C, CU.PR.D, CU.PR.E, CU.PR.F, CU.PR.G and CU.PR.H, has been confirmed at Pfd-2(high) by DBRS:

DBRS Limited (DBRS) has today confirmed the Issuer Rating and Unsecured Debentures rating of Canadian Utilities Limited (CU or the Company) at “A,” the Commercial Paper rating at R-1 (low), and the Cum. Preferred Shares rating at Pfd-2 (high). All trends are Stable. The ratings of CU are supported by predictable earnings from its regulated subsidiaries, which are expected to account for approximately 80% of consolidated earnings over the next several years. However, the ratings assume that earnings contribution from the regulated business will gradually decrease to around 70% (but still higher than its historical weighting of 60%) of consolidated earnings over the long term with (1) the downshifting of Alberta’s economy and expected completion of the “big build” associated with electric transmission infrastructure over the next two years and (2) the Company’s focus on contracted, non-regulated business opportunities in Canada, Mexico and Australia. Although CU’s non-regulated segment provides a source of earnings growth and diversification benefits, it also entails higher business risk than that of the regulated utility business. CU’s non-regulated business is challenged by lower long-term earnings visibility and recontracting risk.

The Canadian preferred share market had a bit of rebound today, with both PerpetualDiscounts and FixedResets gaining 10bp and DeemedRetractibles up 28bp. Floaters got hammered again though, so at least something is familiar! The Performance Highlights table continues to show a lot of churning, with 21 losers and 22 winners. Volume was on the low side of average.

PerpetualDiscounts now yield 5.57%, equivalent to 7.24% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 4.0%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 325bp, a sharp rise from the 310bp reported August 12.

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

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 19.20 to be $0.82 rich, while TRP.PR.C, resetting 2016-1-30 at +164, is $0.81 cheap at its bid price of 12.84.

Click for Big

Another good fit today for MFC, while the series maintains its high level of Implied Volatility.

Most expensive is MFC.PR.H, resetting at +313bp on 2017-3-19, bid at 23.31 to be 1.07 rich, while MFC.PR.N, resetting at +230bp on 2020-3-19, bid at 19.00 to be 0.81 cheap.

Click for Big

The fit on the BAM issues continues to be horrible.

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 16.45 to be $1.51 cheap. BAM.PF.G, resetting at +284bp on 2020-6-30 is bid at 22.23 and appears to be $1.05 rich.

Click for Big

Implied Volatility jumped today and is unreasonably high.

FTS.PR.K, with a spread of +205bp, and bid at 18.26, looks $0.26 expensive and resets 2019-3-1. FTS.PR.G, with a spread of +213bp and resetting 2018-9-1, is bid at 18.01 and is $0.37 cheap.

Click for Big

Investment-grade pairs predict an average three-month bill yield over the next five-odd years of -0.60%, with no outliers. Note that the distribution is bimodal, with NVCC non-compliant bank issues averaging -0.88% and the unregulated issues averaging -0.22%. There is one junk outlier below -1.60%.

Click for Big

Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?

David Parkinson of the Globe offers up some threads of hope for the Canadian economy:

Statistics Canada reported that, month-over-month, retail sales rose 0.6 per cent in June, adding to May’s 0.9-per-cent rise. While the gain was entirely a result of price increases – on a volume basis, sales were flat in the month – the solid retail performance caps a run of impressive growth from several key components of the Canadian economy. Together, they add up to a rebound in gross domestic product in June, after the first-quarter GDP contraction of 0.6 per cent annualized was followed by further negative readings in April and May.

Forecasters are now pegging June’s month-over-month GDP growth in a range of 0.2 to 0.4 per cent, which would make it the first month of positive GDP since the end of 2014.
…
The impressive run of June growth indicators started with the merchandise trade report released early this month, which showed a stellar 6.3-per-cent surge in exports over May – a gain so big it wiped out all the declines from the first five months of the year. Since then, the prospects for a strong June GDP number were bolstered by last week’s report of a 1.2-per-cent month-over-month rise in manufacturing sales, and news this week that wholesale sales gained 1.3 per cent.

Equity markets were very nervous today:

Stock bulls looking for a respite from the worst declines since 2011 instead had to watch as a 442-point rally in the Dow Jones Industrial Average vanished in the final hour. The tumble, stretching to 4 percent from the day’s highest level, dashed hopes that China’s interest-rate cut would put a floor under U.S. equities.

Concern bubbled over as the day progressed that fresh stimulus in China wouldn’t be enough to prop up its stock market, where the Shanghai Composite Index has lost 22 percent in four days. Exchange-traded funds tracking China’s A-shares pared gains of as much as 5.2 percent in U.S. trading, halting a rally earlier in the day spurred by policy makers cutting interest rates for a fifth time since November.
…
At the same time, the rout is occurring at a time of deteriorating market sentiment and stagnant earnings. Owners of mutual and exchange-traded funds yanked $78.8 billion from U.S. shares in the first seven months of 2015, more than in any full year since at least 1993. Profits reported by S&P 500 companies in the second quarter fell 2 percent from a year ago and are projected to slip 5.5 percent in the current period.

Never mind US equity funds, look at how much has been taken off the table in China!

China’s margin debt has plunged by 1 trillion yuan ($156 billion) from its June peak as stock traders close out bets using borrowed money amid a $5 trillion rout.

Outstanding margin loans on the Shanghai and Shenzhen exchanges fell to about 1.25 trillion yuan on Monday from a record high of 2.27 trillion yuan on June 18. The Shanghai Composite Index has plunged 45 percent from its June peak amid concern that the highest valuations among major world markets are unjustified given the outlook for slowing economic growth.

Chinese authorities have taken a page from the western political response and are desperately seeking scapegoats:

Authorities announced a probe of allegations of market malpractice involving the stocks regulator on Tuesday, while the official Xinhua News Agency called for efforts to “purify” the capital markets. The news service also carried remarks by a central bank researcher attributing the global rout to an expected Federal Reserve rate increase.

The Shanghai Composite Index has plunged more than 40 percent from its peak, after concerns over the Chinese economy helped snap a months-long rally encouraged by state-run media. Authorities have repeatedly blamed market manipulators and foreign forces since the sell off began in June and led officials to launch an unprecedented stocks-support program.

Now, after suspending that program, the administration has embarked on a new round of allegations and fault-finding.

And all this is affecting speculation regarding the timing of ‘lift-off’:

Traders see a 28 percent probability that the Fed will raise its target next month, according to data compiled by Bloomberg. That probability rises to 34 percent by the end of October, and jumps to 51 percent by the December gathering.

Yellen holds press conferences after every other Federal Open Market Committee meeting.

Some traders see the lack of an October press conference as a dealbreaker. Yet Yellen has indicated that rate decisions wouldn’t depend on when press conferences are scheduled.

So the September probability, charted on August 19 continues to gyrate.

Liberty Street Economics, a vehicle of the New York Fed, has released a series of posts on market liquidity.

The first is titled Has U.S. Treasury Market Liquidity Deteriorated? which emphasizes that there are many ways to define and measure liquidity and that definitions matter:

As shown in the chart below, bid-ask spreads widened markedly during the crisis, but have been relatively narrow and stable since.
…
The chart below plots order book depth, measured as the average quantity of securities available for sale or purchase at the best bid and offer prices. Depth rebounded healthily after the crisis, but declined markedly during the 2013 taper tantrum and around the October 15, 2014 flash rally. It is not unusually low at present by recent historical standards.

Click for Big

The next chart plots the estimated price impact per $100 million net order flow as calculated weekly over five-minute intervals; higher impacts suggest reduced liquidity. Price impact rose sharply during the crisis, declined markedly after, and then increased some during the taper tantrum and in the week including October 15, 2014. The measure remained somewhat elevated after October 15, but is not now especially high by recent historical standards.

Click for Big

The decline in trade size compared with the precrisis period may merely reflect the increasing prevalence of high frequency trading in the interdealer market, so may be a less reliable indicator of reduced liquidity than the preceding measures.

Click for Big

While the high-frequency liquidity measures provide a mixed message regarding the state of Treasury liquidity, the daily measures we consider next are more consistent. We first look at the dispersion of yields around a smoothed yield curve as estimated by the average absolute difference between actual yields and predicted yields (Hu, Pan, and Wang [2013] construct a similar measure).

Click for Big

If average liquidity is generally good by historical standards, then why all the liquidity concerns? One possibility is that the unease is not so much about on-the-run Treasury securities, but about less liquid Treasury securities or other fixed-income securities such as corporate debt securities, which we have not examined here (and for which there is less detailed data to assess liquidity).

Or perhaps the concerns are not so much about average liquidity levels, as we examined, but about liquidity risk. Indeed the events of October 15 and similar episodes of sharp, seemingly unexplained price changes in the dollar-euro and German Bund markets have heightened worry about tail events in which liquidity suddenly evaporates. Liquidity risk, or really illiquidity risk, is harder to measure than liquidity itself, but we attempt to do so in a future post.

Finally, it might be that liquidity concerns reflect anxiety about future liquidity conditions, with a possible imbalance between liquidity supply and demand. On the demand side, the share of Treasuries owned by mutual funds, which may demand daily liquidity, has increased. On the supply side, the primary dealers have pared their financing activities sharply since the crisis and shown no growth in their gross positions despite the sharp increase in Treasury debt outstanding. Market commentators point to these factors and the current environment of low volatility and worry about what will happen when monetary policy is normalized and volatility rises.

The second post, titled Liquidity during Flash Events, concludes:

In particular, all three events exhibited strained liquidity conditions during periods of extreme price volatility but the Treasury market event arguably exhibited a greater degree of price continuity, consistent with descriptions of the flash rally as “slow-moving.”

The third post, High-Frequency Cross-Market Trading in U.S. Treasury Markets, states:

The cash market platform (in Secaucus, New Jersey) and the futures market exchange (in Aurora, Illinois) exhibit very pronounced cross-market trading activity at an offset of +/-5 milliseconds, strikingly consistent with the time it takes to transmit information between the two trading venues using current microwave tower technology. Spikes occur at both negative and positive offsets, suggesting that sometimes Treasury futures lead cash Treasuries (+5 millisecond offset) and other times the cash market leads futures (-5 millisecond offset), a remarkable fact since it indicates that price discovery takes place in both markets as they can both lead each other.
…
Cross-market trading by now accounts for a significant portion of trading in Treasury instruments in both the cash and futures markets. This reflects improvements in trading technology that allow for high-frequency trading within and across platforms. In particular, nearly simultaneous trading between the cash and futures platforms now accounts for up to 20 percent of cash market activity on many days.

Market participants often presume that price discovery happens in Treasury futures. However, our findings show that this is not always the case: Although futures usually lead cash, the reverse is also often true. Therefore, from a price discovery point of view, the two markets can effectively be seen as one.

The fourth post is a highly technical piece titled The Evolution of Workups in the U.S. Treasury Securities Market. It’s really only comprehensible if you read the associated staff report on Workups, Order Flow Segmentation and the Role of Dark Pool Trading in the Price Discovery of U.S. Treasury Securities.

The last post, What’s Driving Dealer Balance Sheet Stagnation? investigates the issue of the reason for relatively small dealer balance sheets:

The growing role of electronic trading has likely narrowed bid-ask spreads and reduced dealers’ profits from intermediating customer order flow, causing dealers to step back from making markets and reducing their need for large balance sheets. The changing competitive landscape of market making, as manifested by the entry of nondealer firms since the early 2000s, may therefore also play a role in the post-crisis dealer balance sheet dynamics.

The picture that emerges is that post-crisis dealer asset growth represents the confluence of several issues. Our findings suggest that business-cycle factors (the hangover from the housing boom and bust and subsequent risk aversion) and secular trends (electronification and competitive entry) should be considered alongside tighter regulation in explaining stagnating dealer balance sheets.

Meanwhile, it was a positive day for the Canadian preferred share market with PerpetualDiscounts winning 92bp (due largely to a reversal of yesterday‘s nonsense with ELF.PR.G), FixedResets up 16bp and DeemedRetractibles gaining 10bp. The Performance Highlights table is enormous; there is a huge pool of losers (25 issues) balancing a slightly larger pool of winners (33 issues). Volume was average.

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

Implied volatility dropped sharply to more normal, but still elevated, levels aided by a more rational quotation for TRP.PR.G (see discussion in the Performance Highlights table).

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 19.26 to be $0.84 rich, while TRP.PR.C, resetting 2016-1-30 at +164, is $0.79 cheap at its bid price of 12.77.

Click for Big

Another good fit today, while the series maintains its high level of Implied Volatility.

Most expensive is MFC.PR.H, resetting at +313bp on 2017-3-19, bid at 23.40 to be 0.91 rich, while MFC.PR.G, resetting at +290bp on 2016-12-19, bid at 21.30 to be 0.67 cheap.

Click for Big

The fit on the BAM issues continues to be horrible.

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 16.10 to be $1.72 cheap. BAM.PF.E, resetting at +255bp on 2020-3-31 is bid at 20.55 and appears to be $1.21 rich.

Click for Big

Implied Volatility dropped today, but remains unreasonably high.

FTS.PR.K, with a spread of +205bp, and bid at 18.25, looks $0.47 expensive and resets 2019-3-1. FTS.PR.G, with a spread of +213bp and resetting 2018-9-1, is bid at 18.00 and is $0.21 cheap.

Click for Big

Investment-grade pairs predict an average three-month bill yield over the next five-odd years of -0.45%, with one outlier above +0.80%. Note that the distribution is bimodal, with NVCC non-compliant bank issues averaging -0.91% and the unregulated issues averaging +0.18%. There are three junk outliers below -1.20%.

Click for Big

Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?

It was a day and a half for the equities markets:

The Standard & Poor’s 500 Index fell into a correction for the first time since 2011 in one of the most volatile trading days ever, as a rout in global equity markets deepened.

It was a day of wild swings as equities plunged at the open before staging a sharp rebound, with the Nasdaq 100 Index by midday nearly erasing a 9.8 percent drop. The Dow Jones Industrial Average dropped 1,000 points in the opening minutes of trading, while the S&P 500 tumbled 5.3 percent and then pared declines before an afternoon wave of renewed selling.

The S&P 500 dropped 3.9 percent to 1,893.21 at 4 p.m. in New York, and closed 11 percent below its May record. The Dow lost 588.40 points, or 3.6 percent, to 15,871.35, after sliding as much as 6.6 percent. The Nasdaq Composite Index retreated 3.8 percent to its lowest level since Oct. 27, trimming an early 8.8 percent skid.

Oil got clobbered:

West Texas intermediate oil (WTI) on Monday crashed below $40 (U.S.) a barrel in its biggest one-day drop in almost two months, extending losses as concerns over the health of China’s economy triggered a broad selloff in everything from metals to health and finance.
…
On Monday, WTI oil posted another loss, tumbling more than 5 per cent to $38.24 a barrel. Brent, the global benchmark, fell 6.1 per cent to $42.69 a barrel.

So Canadian equities and the loonie got smacked:

The S&P/TSX index dropped more than 420.9 points or 3.12 per cent to 13,052.74, the worst in almost plunge in almost four years. All 10 main groups fell at least 1 per cent, with the energy sector off 4.3 per cent as WTI crude oil prices slumped near the $38 (U.S.) level. The benchmark Canadian equity gauge has fallen 9.8 per cent this month, headed for a fourth straight monthly decline, the longest such streak since September, 2011.

The Canadian dollar was down nearly half a cent at 75.40 cents (U.S.).

And the news was being talked about even by those with no interest in economics:

The Prime Minister’s Office announced that Stephen Harper spoke with Bank of Canada Governor Stephen Poloz Monday about the latest upheaval in financial markets.
…
The notice made no mention of Finance Minister Joe Oliver, who would normally be the government’s main point of contact with the Bank of Canada.

And so there was an unwelcome guest in the preferred share market today:

Click for Big

At press time, a Bloomberg story timestamped 2:21am reported:

U.S. and European equity-index futures advanced after Monday’s $2.7 trillion global equity wipeout, while the yen retreated with government bonds. Chinese shares headed for the biggest four-day drop in almost 19 years.

Futures on the Standard & Poor’s 500 Index rose 1.2 percent after the U.S. benchmark entered a correction for the first time since 2011. The Shanghai Composite Index took its loss since Wendnesday beyond 20 percent as investors question the government’s ability to stem losses. The dollar strengthened versus major peers as 10-year Treasury yields rose for the first time in five days. Oil climbed 1.4 percent in New York after falling to $38.24 a barrel.

It was a thoroughly appalling day for the Canadian preferred share market; there may have been worse ones during the depths of the Credit Crunch nearly seven years ago, but I can’t think of any offhand. PerpetualDiscounts were down 217bp, FixedResets lost 274bp and DeemedRetractibles were off 94bp. Huge losses in Floaters and SplitShares that would normally be worth special mention are today mere bagatelles. With all that, it may come as a surprise that there was one winner in today’s extraordinarily lengthy Performance Highlights table; but this table also contains fourteen issues losing more than 5%, a level that is usually indicative of a grievous error. Volume was very high, but block action was subdued.

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

A big jump in Implied Volatility today, but whether it’s meaningful in the light of such poorly fitting data is another question!

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 19.20 to be $1.58 rich, while TRP.PR.G, resetting 2020-11-30 at +296, is $1.60 cheap at its nonsensical bid price of 18.81 (see discussion in the Performance Highlights table).

Click for Big

Another good fit today! There was another massive increase in Implied Volatility today. Two MFC issues had sufficiently poor bid/bid performances over the day to be discussed further in the Performance Highlights table, but those bids were deemed to be reasonable.

Most expensive is MFC.PR.H, resetting at +313bp on 2017-3-19, bid at 23.27 to be 0.63 rich, while MFC.PR.J, resetting at +261bp on 2018-3-19, bid at 20.41 to be 0.81 cheap.

Click for Big

The fit on the BAM issues continues to be horrible.

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 15.62 to be $2.16 cheap. BAM.PF.G, resetting at +284bp on 2020-6-30 is bid at 22.60 and appears to be $1.49 rich.

Click for Big

A big jump in Implied Volatility to an unreasonably high level today.

FTS.PR.K, with a spread of +205bp, and bid at 18.20, looks $0.35 expensive and resets 2019-3-1. FTS.PR.G, with a spread of +213bp and resetting 2018-9-1, is bid at 17.80 and is $0.43 cheap.

Click for Big

Investment-grade pairs predict an average three-month bill yield over the next five-odd years of -0.52%, with no outliers. Note that the distribution is bimodal, with NVCC non-compliant bank issues averaging -0.87% and the unregulated issues averaging -0.02%. There is one junk outlier above +0.80% and three below -1.20%.

Click for Big

Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?

It was a kind of interesting day:

Volatility surged as Standard & Poor’s 500 Index capped the worst week in three years while Europe entered a correction and stocks from Hong Kong to Indonesia tumbled into bear markets. Junk bond yields rose to the highest since October 2012 and U.S. Treasuries had the largest weekly gain in five months. Oil sank below $40 a barrel for the first time since 2009 and was set for its longest losing streak since 1986.

The S&P 500 dropped 3.2 percent, the most since November 2011, to below 2,000. The index is down more than 7 percent from a record after sinking below a trading range that has supported it for most of the year. The Dow Jones Industrial Average fell more than 500 points, as is down 10 percent from its record high in May.
…
Hong Kong’s Hang Seng Index dropped 1.3 percent, taking declines since an April high beyond 20 percent. The Shanghai Composite Index slumped 4.3 percent, bringing the week’s loss to more than 10 percent and coming within one point of erasing all gains since the government began efforts to prop up the market in July.
…
The Stoxx Europe 600 Index lost 3.3 percent, as the selloff engulfed all western European markets and industries in the benchmark gauge. The index had its worst weekly loss since 2011, down 6.5 percent. It is down 13 percent from an April high, entering a correction.
…
U.S. Treasuries had their biggest weekly gain in five months as demand for fixed income soared. Ten-year notes drew support from signs the Federal Reserve will keep interest rates close to zero for longer, and from a decline in oil prices that helped push a gauge of inflation expectations toward its lowest since 2010.

Futures show that traders see a 34 percent chance the Fed will raise interest rates at its September meeting, down from a 48 percent probability at the end of last week.

Bloomberg has an interesting story on US lawyers, which also sheds some light on the source of student debt:

Since 2008 partner earnings at firms of all sizes have decreased 9 percent in constant dollars, according to federal tax filings. Solo practitioners have been struggling for much longer. Since 1988 earnings for standalone attorneys, of which there are about 354,000 nationally, have declined 31 percent. The legal industry has shed more than 50,000 jobs in the past eight years. The decline began decades ago. Solo practitioners began floundering in the late 1980s. Their average income, adjusted for inflation, was $71,000 in 1988; it was $49,000 in 2012.

Even as business was tanking for a lot of lawyers, American law schools happily welcomed more students. In 1987 there were 175 accredited American law schools. By 2010 there were 200, and after steadily increasing for years, enrollment peaked at 52,000 that year.

And as far as today’s preferred share market is concerned …

Click for Big

It was a horrible, horrible day for the Canadian preferred share market, with PerpetualDiscounts off 61bp, FixedResets losing 104bp and DeemedRetractibles down 70bp. Floaters got slaughtered. The Performance Highlights table … well, let’s just not talk about it, shall we? Volume was high.

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

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 19.20 to be $0.96 rich, while TRP.PR.C, resetting 2016-1-30 at +154, is $0.75 cheap at its bid price of 13.77.

Click for Big

Another good fit today! There was a massive increase in Implied Volatility today.

Most expensive is MFC.PR.N, resetting at +230bp on 2020-3-19, bid at 21.33 to be 0.53 rich, while MFC.PR.J, resetting at +261bp on 2018-3-19, bid at 21.39 to be 0.58 cheap.

Click for Big

The fit on the BAM issues continues to be horrible.

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 16.21 to be $2.02 cheap. BAM.PF.G, resetting at +284bp on 2020-6-30 is bid at 22.75 and appears to be $1.13 rich.

Click for Big

FTS.PR.K, with a spread of +205bp, and bid at 19.50, looks $0.41 expensive and resets 2019-3-1. FTS.PR.G, with a spread of +213bp and resetting 2018-9-1, is bid at 18.80 and is $0.75 cheap.

Click for Big

Investment-grade pairs predict an average three-month bill yield over the next five-odd years of -0.29%, with one outlier above +0.80%. Note that the distribution is bimodal, with NVCC non-compliant bank issues averaging -0.96% and the unregulated issues averaging +0.16%. There are three junk outliers below -1.20%.

Click for Big

Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?