PrefBlog

Walmart’s run into a little labour trouble after raising their in-house minimum wage because the tier above wants to keep their increment:

When Wal-Mart Stores Inc. chief Doug McMillon announced plans to boost store workers’ minimum wage earlier this year, he said the move was intended to improve morale and retain employees.

Yet for some of the hundreds of thousands of workers getting no raise, the policy is having the opposite effect.

In interviews and in hundreds of comments on Facebook, Wal-Mart employees are calling the move unfair to senior workers who got no increase and now make the same or close to what newer, less experienced colleagues earn. New workers started making a minimum of $9 an hour in April and will get at least $10 an hour in February.

“It is pitting people against each other,” said Charmaine Givens-Thomas, a 10-year veteran who makes $12 an hour at a store near Chicago and belongs to OUR Walmart, a union-backed group that has lobbied for better working conditions. “It hurts morale when people feel like they aren’t being appreciated. I hear people every day talking about looking for other jobs and wanting to remove themselves from Wal-Mart and a job that will make them feel like that.”

And, perhaps not very coincidentally, there are murmurings of disquiet about a US national $15 minimum wage:

As the proposed federal minimum wage goes up and up, economists support it less and less. In January 2014, seven Nobel laureates and eight ex-presidents of the American Economic Association signed a letter backing a federal minimum wage of $10.10 an hour by 2016, up from $7.25. They said it would “provide a much-needed boost” to low-income workers while causing “little or no” job loss. Fifteen dollars an hour is another story. None of those luminaries signed the letter in July that endorsed a Senate bill introduced by presidential candidate Bernie Sanders (D-Vt.) to raise the federal minimum to $15 an hour by 2020.

Regional economic differences are one reason a lot of economists are nervous about jumping to $15: A wage floor that’s right for New York or San Francisco could be too high for Brownsville, Texas; Gadsden, Ala.; or Ponce, Puerto Rico. In such places, $15 an hour “may have large negative employment effects,” Ronald Ehrenberg, a Cornell University labor economist, wrote in an e-mail. He was one of about 600 economists who signed the $10.10 letter last year. He says he wasn’t approached to sign the $15 letter but would have said no if asked.
…
A $15 minimum is just 67 percent of the median wage in high-cost Alaska, so it would have a modest effect if implemented today, lifting pay of people at the bottom but not affecting the middle rungs of the income ladder. In Puerto Rico, though, $15 is 155 percent of the median wage. If the federal minimum were raised to $15 today (rather than in 2020, as Sanders proposes), it would be 55 percent higher than the midpoint of what all Puerto Ricans earn. That would cause severe stress in a financially struggling territory already squeezed by the $7.25 minimum. Even within a single state, it’s hard to come up with a minimum that works everywhere. In California, the median wage varies from more than $28 an hour in Silicon Valley (technically San Benito and Santa Clara counties) to less than $14 in Visalia-Porterville, a farm town 190 miles away by car.

A portion of the justification cited in the Bernie Saunders endorsement letter is the 50-year trend in productivity:

The real, inflation-adjusted, value of the federal minimum wage has fallen dramatically over time. The real value of the federal minimum wage peaked in 1968 at 10.85 an hour, 50 percent above the current level. Moreover, since 1968, average U.S. labor productivity has risen by roughly 140 percent. This means that, if the federal minimum wage had risen in step with both inflation and average labor productivity since 1968, the federal minimum wage today would be $26.00 an hour. (References for all data cited in this petition can be found here: LINK)

So we can take a look at the link and see how their productivity increase was derived:

Labor productivity over time is measured by the BLS Labor Productivity and Costs program (LPC). The specific index used here is for the Business Sector. The index value (base year=2009) in 1968 is 43.503 and 105.998 for 2014, indicating a 143 percent increase in productivity (105.998 /43.503).

They didn’t go into any more detail than that, so we’ll ask FRED and see what the inflation-adjusted minimum wage looks like:

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So the real minimum wage in the States is currently at its 1950 value and has been for the last twenty-five years. There was a significant peak in 1968, as the endorsement letter writers state; I assume this is because all the kids were hippies then (LAZY, SMELLY hippies) or were in Vietnam. But I will leave that to historians and content myself with pointing out that the selection of a starting point for their claim is not representative of long-term conditions.

It’s much the same in Ontario Livio Di Matteo on the Worthwhile Canadian Initiative blog:

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But the other thing they’re doing is sticking productivity into the mix as well. Now, according to the Pew Research Center:

According to the Bureau of Labor Statistics, last year 1.532 million hourly workers earned the federal minimum of $7.25 an hour; nearly 1.8 million more earned less than that because they fell under one of several exemptions (tipped employees, full-time students, certain disabled workers and others), for a total of 3.3 million hourly workers at or below the federal minimum.

That group represents 4.3% of the nation’s 75.9 million hourly-paid workers and 2.6% of all wage and salary workers. In 1979, when the BLS began regularly studying minimum-wage workers, they represented 13.4% of hourly workers and 7.9% of all wage and salary workers. (Bear in mind that the 3.3 million figure doesn’t include salaried workers, although BLS says relatively few salaried workers are paid at what would translate into below-minimum hourly rates. Also, 23 states, as well as the District of Columbia, have higher minimum wages than the federal standard; people who earned the state minimum wage in those jurisdictions aren’t included in the 3.3 million total.)

… and …

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So – freely interpreting here – minimum wage earners are potato peelers, pizza makers, waitresses, store cashiers, manicurists, office cleaners and gardeners.

And my point is: how has the productivity of employees in these occupations increased over the last fifty years? There may have been some marginal improvement – gardeners can now use leaf-blowers and make far louder noises than they used to – but I’ll suggest that, by and large, the productivity in these occupations has not moved much and certainly has not increased by the 143% figure used to derive the justification for the $26.00 figure given in the Sanders endorsement letter.

In fact, I’ll go further and suggest that the uneven distribution of productivity gains over the past fifty years is what is causing income inequality in the first place. Or at least a chunk of it, the chunk that you see when you work at McDonalds and the guy across the street is a systems administrator for a medium sized company.

Now don’t get me wrong! I support an increased minimum wage and I would even like it to be indexed not to inflation, but to inflation +50bp (say), so that we can increase the incentive to modernize all these marginal jobs. If we want to redistribute the fruits of productivity gains – and I will not dismiss the idea outright – that is something we should be doing through the tax system, in what is usually referred to as a guaranteed annual income:

According to several Queen’s University professors, the cost of replacing social assistance (which includes welfare and disability support) and Old Age Security (which includes a top-up for low-income seniors), plus providing every adult with an annual income of $20,000 and children with an income guarantee of $6,000, would be $40-billion. The Fraser Institute calculates the total cost of Canada’s current income support system (payout plus administrative costs) at $185-billion in 2013.

Our own estimates, which build on existing social programs, range from a gross annual cost of $17-billion for a program that (in today’s dollars) is slightly more generous than was offered in Dauphin, to a “Cadillac” version costing $58-billion that would guarantee everyone a minimum income equal to the low-income cutoff and pay at least some benefits to people earning well above the low-income cutoff.

The cost of a GAI depends on how generous it is, how quickly benefits are phased out with additional income and how existing social programs are affected.

Sadly, however, the political trend is in the other direction – with some idiots touting narrowly targeted tax credits in order to create jobs for tax lawyers and CRA auditors, while other idiots tout means-tested benefits in order to impose ludicrous effective marginal tax rates on recipients to ensure they remain dependent and don’t get uppity. I’m sure I’ve discussed means-testing of benefits and marginal tax rates on PrefBlog, and referred to a Congressional Budget Office study on the matter, but can’t find the reference! [Update: try Illustrative Examples of Effective Marginal Tax Rates Faced by Married and Single Taxpayers: Supplemental Material for Effective Marginal Tax Rates for Low- and Moderate-Income Workers, which isn’t exactly the one I remember, but it’s close!]

Meanwhile, cord-cutters are cutting prices:

Cord-cutting millennials who shun cable TV have long plagued the entertainment industry. Now they’re wreaking havoc on Wall Street.

Media companies led by Walt Disney Co. lost more than $60 billion in market capitalization in two days on mounting evidence of shrinking demand for cable TV and networks like ESPN that make money from ads. So-called cord cutters, who quit paying for pay-TV packages of hundreds of channels and favor online streaming services like Netflix Inc., are undermining a business model that has sustained the TV industry for decades.

It took Disney, a company with a stellar record of sales and profit, to deliver the wake-up call and end Wall Street’s 6 1/2 year love affair with traditional media. Disney’s disappointing results Tuesday night led to what long-time cable analyst Craig Moffett called swift and unprecedented carnage. The S&P 500 Media Index has since dropped 11 percent — on pace to be the worst two-day slump since 2008.

… and Treasuries are jumpy:

For the past six years, a Federal Reserve rate interest-rate hike wasn’t on anyone’s radar screen. Now, even minor data points are provoking outsized reactions given a real possibility the central bank may raise rates next month for the first time in almost a decade.

The weak employment cost index report on July 31 sent Treasury 10-year yields tumbling four basis points in five minutes, more than six times the average move after the past year’s reports. On Wednesday, yields slid three basis points in 10 minutes on disappointing data on private-sector job creation, reversed course, then continued to climb after a strong reading on service-sector growth.

There was an interesting piece in the Globe regarding the potential for corporate ownership of law firms:

Australia’s Slater & Gordon Ltd. became the first law firm in the world to be listed on a stock exchange in 2007. And despite its critics, it has since been busy growing revenue at a rapid clip, gobbling up rivals at home and in Britain. It now has its eyes on Canada.
…
The concept was an issue in Law Society of Upper Canada elections earlier this year. The Ontario Trial Lawyers Association (OTLA), which represents personal injury lawyers likely to face competitive pressure if Slater & Gordon enters Canada, endorsed a list of candidates opposed to the idea. Twenty-seven of the 40 lawyers who won what are known as “bencher” seats on the law society’s governing body were OTLA-approved. A follow-up report on the idea is expected to come before the law society this fall.

Proponents say allowing law firms to attract capital from non-lawyers means they can use it to expand and provide innovative new legal services, such as those offered in kiosks in department stores or via the Web. They say these new services will help deal with the “access to justice” problem, which sees many Canadians unable to afford a lawyer.

But naysayers warn the reforms would force lawyers to answer to bottom-line-focused shareholders, instead of just to their clients and the greater good. They say this would create new ethical and conflict-of-interest land mines, if the interests of a law firm’s owners and its clients clash. Critics also charge that there is no evidence these new structures help those who cannot afford a lawyer to hire one.

Of the naysayer’s points, only the second, regarding ethics and conflict-of-interest, carries much weight with me. To suggest that practitioner-owned firms think only of their clients and the greater good is to put these firms on rather a higher pedestal than I think is warranted; the third point is irrelevant because the onus is on the regulators to prove that harm is likely, rather than on innovators to prove that improvement is likely.

The Law Society of Upper Canada has published Alternative Business Structures and the Legal Profession in Ontario: A Discussion Paper in which is stated:

Legal service regulation ensures that clients have competent, independent legal representation provided with candour and confidentiality. It also protects society by ensuring that legal services are provided with fidelity to the cause of justice, the rule of law and the administration of justice. These professional values would have to be safeguarded in any move to liberalize ownership or structure including ABS.

Many of those who are sceptical of ABS express particular concern about protection of these professional values.[22] On the other hand, ABS proponents do not dismiss the importance of these professional values, but rather believe that these values can be properly protected in an ABS model.[23]

Footnote 22 refers to a paper by Nick Robinson of Harvard Law School titled When Lawyers Don’t Get All the Profits: Non-Lawyer Ownership of Legal Services, Access, and Professionalism:

With multiple countries now allowing for non-lawyer ownership of legal services, and other jurisdictions considering a similar shift, the legal profession is in the midst of a global regulatory moment. Where non-lawyer ownership has been allowed, personal injury firms have listed on stock exchanges, major insurance companies have bought law firms, and brands best known for their grocery stores have started offering legal services. Proponents argue that these developments will spur investment and innovation, promoting access to justice by making legal services more affordable and reliable. However, there has been little empirical research to test this proposition.

This article draws on case studies and quantitative data from the United Kingdom and Australia, where non-lawyer ownership has been allowed, as well as the United States – where parallels to such ownership have emerged in online and administrative law legal services. Based on this evidence, it argues that the benefits of non-lawyer ownership have been oversold with respect to access to civil legal services for poor and moderate-income populations and it identifies serious new professionalism challenges such ownership can create. While some form of non-lawyer ownership is likely to continue to spread, these conclusions cast doubt on the ability of non-lawyer ownership to substantially improve access to legal services, suggesting that alternative access strategies should be prioritized. They also point towards the need to carefully regulate non-lawyer ownership in some contexts.

Traditionally, academics have been wary that lawyers will capture the regulation of legal services, but non-lawyer ownership, which allows for others to profit from legal services as well, raises the likelihood that new actors may also capture the profession’s regulation. Given this environment, the article recommends that going forward a diverse set of stakeholders, drawing on as much empirical data as possible, develop a tailored approach to the regulation of non-lawyer ownership.

It’s an interesting debate and not much different, as far as I can tell, from the question of whether corporations should be allowed to own Portfolio Management companies. I think the disputing lawyers would be well advised to look at some of the bank-owned asset managers as a case study; I suspect that corporate ownership of law firms will lead to:

• increased access to
• plain vanilla, cookie-cutter legal advice

It was another poor day for the Canadian preferred share market, with PerpetualDiscounts down 38bp, FixedResets losing 46bp and DeemedRetractibles off 2bp. Enbridge issues were particularly notable on the unfortunate side of the lengthy Performance Highlights table. 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:

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TRP.PR.A, which resets 2019-12-31 at +192, is bid at 18.55 to be $0.71 rich, while TRP.PR.C, resetting 2016-1-30 at +154, is $1.17 cheap at its bid price of 14.10.

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Another good fit today!

Most expensive is MFC.PR.F, resetting at +141bp on 2016-6-19, bid at 17.13 to be 0.44 rich, while MFC.PR.M, resetting at +236bp on 2019-122-19, is bid at 21.85 to be $0.46 cheap.

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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 18.00 to be $1.22 cheap. BAM.PF.X, resetting at +180bp on 2017-6-30 is bid at 17.25 and appears to be $1.19 rich.

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FTS.PR.K, with a spread of +205bp, and bid at 20.63, looks $0.42 expensive and resets 2019-3-1. FTS.PR.G, with a spread of +213bp and resetting 2018-9-1, is bid at 19.75 and is $0.99 cheap.

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Investment-grade pairs predict an average three-month bill yield over the next five-odd years of -0.04%, with one outlier above 1.00%. There is one junk outlier above +1.00%.

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

There is more muttering about a September Fed hike:

Traders have never been more convinced of a September rate hike by the Federal Reserve.

The chances of an interest-rate increase next month reached 52 percent Wednesday, up from just 38 percent just two days earlier. What’s fueled the change of heart? Hawkish comments from Fed Bank of Atlanta President Dennis Lockhart on Tuesday, and a surprisingly strong report on U.S. service-sector growth Wednesday morning.
…
Yields on Treasury one-month bills rose Wednesday to the highest since November, while those on two-year notes touched the highest since 2011. Longer maturities slumped as well. Benchmark 10-year yields added five basis points to 2.27 percent.

But historical rules may not apply in this peculiar world:

Treasury two-year yields of just 0.73 percent are low historically, yet they’re looking better and better compared with the alternatives.

The U.S. yield is almost 1 percentage point more than its German counterpart, which is negative 0.25 percent. The premium reached the most this week since 2007. Against Canada, the spread was as much as 33 basis points on Aug. 4, also the most in eight years.
…
While the Fed is getting ready to raise rates, the European Central Bank is buying government bonds to support the economy by putting downward pressure on borrowing costs. The Bank of Canada cut interest rates twice this year.

Yesterday I reported on SEC Commissioner Daniel M. Gallagher’s harsh words reporting Dodd-Frank. Today there’s some more Dodd-Frank idiocy:

The Securities and Exchange Commission today adopted a final rule that requires a public company to disclose the ratio of the compensation of its chief executive officer (CEO) to the median compensation of its employees. The new rule, mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act, provides companies with flexibility in calculating this pay ratio, and helps inform shareholders when voting on “say on pay.”

This social engineering was endorsed by Commissioner Kara M. Stein, Commissioner Luis A. Aguilar and Chair Mary Jo White, who noted:

To say that the views on the pay ratio disclosure requirement are divided is an obvious understatement. Since it was mandated by Congress, the pay ratio rule has been controversial, spurring a contentious and, at times, heated dialogue. The Commission has received more than 287,400 comment letters, including over 1,500 unique letters, with some asserting the importance of the rule to shareholders as they consider the issue of appropriate CEO compensation and investment decisions, and others asserting that the rule has no benefits and will needlessly cause issuers to incur significant costs.

These differences in views were evident at the time the Commission voted to propose the pay ratio rule. That the Commission was even considering the rule proposal was, for example, criticized as contrary to our mission. We may hear similar thoughts today.

So the three Democrats supported the measure, but the two Republicans opposed it; our friend Commissioner Daniel M. Gallagher stated:

The release does an impressive job of creating out of whole cloth a rationale for this rule: that it could help inform investors in their oversight of executive compensation, including say-on-pay votes.[1] But, to steal a line from Justice Scalia, this is pure applesauce.[2] The purpose of this rule is not to inform a reasonable investor’s voting or investment decision.[3] The AFL-CIO, which lobbied for the rule’s inclusion in Dodd-Frank, has explained for us its true purpose: “Disclosing this pay ratio will shame companies into lowering C.E.O. pay.”[4] And, “They will be embarrassed, and that’s the whole point.”[5] But addressing perceived income inequality is not the province of the securities laws or the Commission. And yet here we are, on the cusp of adopting a nakedly political rule that hijacks the SEC’s disclosure regime to once again effect social change desired by ideologues and special interest groups.

* * *

As an initial matter, we did not have to take up this rule today. Section 953(b) of Dodd-Frank does not have a statutory deadline. There are other, more pressing matters for the Commission, including policymaking with respect to matters actually involving the SEC’s core mission. On the occasion of Dodd-Frank’s fifth anniversary, many have spoken about the law as a fait accompli. But that is far from the truth at the SEC.[6] For example, we have not completed our implementation of Title VII,[7] and we are way past the statutory deadline for adopting mandated rules on stock lending transparency. This rulemaking may well be the most useless of all our Dodd-Frank mandates — that really says something — and it warranted the “caboose” treatment.

and Commissioner Michael S. Piwowar said:

Today’s rulemaking implements a provision of the highly partisan Dodd-Frank Act[2] that pandered to politically-connected special interest groups and, independent of the Act, could not stand on its own merits.[3] I am incredibly disappointed the Commission is stepping into that fray.

Section 953(b) of Dodd-Frank simply has nothing to do with protecting investors, ensuring fair, orderly, and efficient markets, or facilitating capital formation. The proposing release is candid about the fact that “neither the statute nor the related legislative history directly states the objectives or intended benefits of the provision or of a specific market failure, if any, that is intended to be remedied.”[4]
…
The timing of this vote is quite peculiar given the recent moves by Congress to repeal the pay-ratio provision. Last week, six more co-sponsors signed on to a bill introduced in the House by Representative Bill Huizenga of Michigan to repeal Section 953(b), bringing the total number of co-sponsors to 23 members.[32] Less than a month ago, Senator Mike Rounds of South Dakota introduced a pay-ratio repeal bill in the Senate, which added a co-sponsor two days ago.[33] It does not seem coincidental that our open meeting was scheduled for the week after the House of Representatives adjourned for August recess and one day before the Senate is expected to do the same.[34]

But it ain’t over ’til it’s over … and that might be a while:

Even so, Republicans and business groups still oppose the requirement and said the SEC ignored some of their recommendations to improve it. Groups such as the U.S. Chamber of Commerce or the Business Roundtable are expected to sue the agency over the rule.

“We will continue to review the rule and explore our options for how best to clean up the mess it has created,” the chamber’s David Hirschmann said in a statement Wednesday.

The whole thing is as crazy as it would be to get the securities regulators to encourage greater representation by women on boards and in positions of senior management … oh, wait … we’ve done that … it was a request of the Ontario government. Well, at least it reassures us that everything is perfect in InvestmentLand!

Wonder of wonders, it was a good day for the Canadian preferred share market, something I haven’t had much opportunity to say in he past three months! PerpetualDiscounts gained 29bp, FixedResets won 62bp and DeemedRetractibles were up 32bp. The Performance Highlights table is lengthy and very heavily tilted towards winners. Volume was below average.

PerpetualDiscounts now yield 5.43%, equivalent to 7.06% 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 305bp, a significant increase from the 295bp reported July 29.

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.B, which resets 2020-6-30 at +128, is bid at 14.06 to be $0.46 rich, while TRP.PR.C, resetting 2016-1-30 at +154, is $0.81 cheap at its bid price of 14.36.

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Another good fit today!

Most expensive is MFC.PR.I, resetting at +286bp on 2017-9-19, bid at 24.85 to be 0.59 rich, while MFC.PR.K, resetting at +222bp on 2018-9-19, is bid at 21.20 to be $0.42 cheap.

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The fit on the BAM issues continues to be horrible.

The cheapest issue relative to its peers is BAM.PR.Z, resetting at +296bp on 2017-12-31, bid at 21.83 to be $1.04 cheap. BAM.PF.G, resetting at +284bp on 2020-6-30 is bid at 23.40 and appears to be $1.17 rich.

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FTS.PR.K, with a spread of +205bp, and bid at 21.18, looks $0.70 expensive and resets 2019-3-1. FTS.PR.G, with a spread of +213bp and resetting 2018-9-1, is bid at 19.96 and is $1.03 cheap.

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Investment-grade pairs predict an average three-month bill yield over the next five-odd years of -0.03%, with one outlier above 1.00%. There is one junk outlier above +1.00%.

Click for Big

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

There are new indications of a September Fed hike:

Traders are seeing virtually even odds on a September interest-rate increase in the U.S., pushing a gauge of the dollar to a four-month high.

The greenback rallied versus most major peers Tuesday as Federal Reserve Bank of Atlanta President Dennis Lockhart said in an interview with the Wall Street Journal that the central bank is close to raising rates next month for the first time since 2006. A report Friday is forecast to show U.S. employers added more than 200,000 jobs again in July.
…
Traders are pricing in a 48 percent probability that the Fed will raise borrowing costs in September, based on the assumption that the effective fed funds rate will average 0.375 percent after the first increase.

So I don’t know how this fits in:

Investor demand for longer-maturity Treasuries means they’re willing to accept a smaller yield premium to get the securities. Fidelity Investments says the trend has further to go.

The extra yield on 10-year notes over two-year securities shrank to 147 basis points Tuesday, the narrowest spread in three months. Traders in the world’s biggest bond market call this a flattening of the yield curve. The figure is less than the average of almost 2 percentage points for the past five years.
…
The difference between one-year U.S. yields and those for similar-maturity Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt, was negative 0.67 percent. It has been below zero for two weeks.

SEC Commissioner Daniel M. Gallagher gave an entertaining speech on Dodd-Frank:

Last month marked the fifth anniversary of the Dodd-Frank Act,[1] meaning that my entire tenure as a Commissioner has occurred in the midst of the first Five-Year Plan for our national economy. And, as is always the case with grandiose central plans, Dodd-Frank has backfired, strangling our economy, increasing the fragility of the financial system, and politicizing our independent financial regulators.
…
Prudential regulation is an important tool for bank regulators to use in supervising banks’ risk-taking activities, so as to ensure that risks are limited to an acceptable level and avoid posing an undue strain on the government insurance backstop — despite the moral hazard and expectations of “no losses” that the insurance itself creates. But in practice, “prudential” regulation can and has evolved into an opaque regulatory system in which the government’s invisible hand replaces the market’s, transcending rule enforcement and becoming the decision maker for ostensibly private enterprises.

The attempts by our prudential regulators and their international counterparts to de-risk the U.S. capital markets and make them look like the banking markets are not just philosophically wrong — they are an attack on U.S. competitiveness. As I have stated before, piling more regulatory burdens on our capital markets will only cause more activity to move overseas, where up-and-coming jurisdictions in Asia and elsewhere would be more than happy to gain market share.[7] And it will stifle domestic economic activity, as companies will be forced to line up for bank loans made scarce by new bank regulations rather than pursuing capital formation opportunities in the market.

It was another rotten day for the Canadian preferred share market, with PerpetualDiscounts and FixedResets both down 27bp and DeemedRetractibles losing 39bp. TRP, ENB and SLF issues are notable on the bad side of the Performance Highlights table. 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.B, which resets 2020-6-30 at +128, is bid at 14.15 to be $0.84 rich, while TRP.PR.C, resetting 2016-1-30 at +154, is $0.85 cheap at its bid price of 14.30.

Click for Big

Another good fit today!

Most expensive is MFC.PR.F, resetting at +141bp on 2016-6-19, bid at 16.78 to be 0.36 rich, while MFC.PR.K, resetting at +222bp on 2018-9-19, is bid at 21.12 to be $0.44 cheap.

Click for Big

The fit on the BAM issues continues to be horrible.

The cheapest issue relative to its peers is BAM.PR.Z, resetting at +296bp on 2017-12-31, bid at 21.78 to be $1.21 cheap. BAM.PF.G, resetting at +284bp on 2020-6-30 is bid at 23.25 and appears to be $0.95 rich.

Click for Big

FTS.PR.K, with a spread of +205bp, and bid at 21.40, looks $0.91 expensive and resets 2019-3-1. FTS.PR.G, with a spread of +213bp and resetting 2018-9-1, is bid at 20.14 and is $0.88 cheap.

Click for Big

Investment-grade pairs predict an average three-month bill yield over the next five-odd years of +0.03%, with one outlier above 1.00% and one below -1.00%. There is one junk outlier above +1.00%.

Click for Big

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