PrefBlog

Boom! The Canadian preferred share market took a whacking today; perhaps due to renewed NAFTA fears:

President Donald Trump reiterated his threat to withdraw the U.S. from Nafta while saying that gains from a new deal could be used to pay for a wall at the Mexican border.

A day after Canadian officials said they viewed the odds of withdrawal as rising, Trump repeated his threat to pull out of the North American Free Trade Agreement if it can’t be reworked in his favor, the Wall Street Journal reported Thursday, citing an interview with the president. However, Trump said he was willing to be “a little bit flexible” about the deal until after Mexico’s presidential election in July. He didn’t elaborate on what that means.

The Bay Street Boys have got all the mileage they could out of the ‘everything is rosy’ story, so now they’re shaking the other tree:

Mexico’s peso and Canada’s dollar dropped after reports the U.S. may pull out of the trillion-dollar trade pact that President Donald Trump has threatened to dump if it doesn’t favor his nation.

Both currencies pared losses after a White House official said there hasn’t been any change in Trump’s position on Nafta. The peso fell 0.5 percent to 19.3398 per dollar as of 3:33 p.m. in New York, after falling as much as 0.9 percent. The Canadian dollar slipped 0.6 percent to 1.2543 per dollar. Yields on Canadian government 2-year notes fell six basis points to 1.74 percent.

The Five-Year Canada yield declined to 1.95%.

PerpetualDiscounts now yield 5.25%, equivalent to 6.83% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 3.90%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 295bp, a slight (and perhaps spurious) narrowing from the 300bp reported January 3.

TD continues to provide cruddy service:

Been trying 5 days straight to get through to an advisor without any success. Totally, gun shy to make any risky trades after last week system issues. Why does anyone still trade with TD?.

Will TD update its customers on the outages last week? About future up trades to prevent any further issues? Compensation to investors for loses? When customers will have phone access to advisors again?

Probably no to all my questions. They don’t seem to care. I did notice their stock is the only Canadian bank stock that is trading down today.

Click for Big

The pathetic excuses for poor performance provided by Canada’s pathetic excuses for brokerage houses has really started to bother me, so I looked up the Toronto Stock Exchange Daily Trading Reports. The 2018-01-02 Report states that the TSX experienced 829,930 trades on the day (number of trades will be a better indication of retail volume than trading value), while the 2017-11-15 Report (date chosen to be reasonable recent and reasonably typical) reports 889,332 trades.

Obviously this is the smallest of all possible samples using an imperfect proxy, but this doesn’t look like an unprecedented explosion of retail activity to me! I might put a chart together at some point, or perhaps some Industrious and Assiduous Reader could do it for me. But it does seem that perhaps a few more details are required before we can understand the horrible service Canadian retail investors are getting from their beloved banks. Until we get both a convincing explanation of the problem and a reasonably well-detailed exposition of what is being done to address the problem, I suggest that retail investors not count on being able to trade during an actual market break.

However, the market was up again today, presumably due to the five-year Canada yield continuing to rise … now at 2.00%! So I’m all right, Jack.

TD continues to have problems:

Clearly TD Canada has sent a message to us that customer service is not a priority and is STILL not prepared to handle the growing volume of Traders out there. And so, I have begun the transfer of my funds from my Webbroker to another platform. This should be completed within the week. I have decided on Qtrade. And I will in the next while prepare for a complete withdraw of all of my money into another bank or credit union. This will need some thoughtful consideration.

I understand that Banks, like any other business, want to keep their shareholders happy. However, a complete disregard of us, the customer, this past week is quite remarkable. With the billions that this company made in its last quarter, my loss of business will not affect them at all. But I know that I am going to feel much better knowing that TD Canada will never again disrespect me this way again. Shame!

Qtrade…you’re up.

Click for Big

The preferred share market continued to show good strength today, probably in response to continued chatter about a policy hike:

On Monday, Bank of Montreal became the last major Canadian bank to change its forecast for next week to a rate hike. That followed the release of the central bank’s latest quarterly survey, which showed a generally robust outlook for the country’s sales and businesses investment.

… and five-year Canadas now yield 1.97%!

Jobs, jobs, jobs! Not so much in the US…:

U.S. payroll gains slowed by more than forecast in December, wages picked up slightly and the jobless rate held at the lowest level since 2000, adding to signs of a full-employment economy.

Employers added 148,000 workers, compared with the 190,000 median estimate of economists surveyed by Bloomberg, held back by a drop in retail positions, a Labor Department report showed Friday. The jobless rate was at 4.1 percent for a third month, while average hourly earnings increased by 2.5 percent from a year earlier, after a 2.4 percent gain in November that was revised downward.

US markets were mildly impressed (insofar as one can assign cause and effect to market moves, which you generally can’t, but impresses the hoi polloi):

Treasuries slumped and the dollar was flat after a report showed U.S. payroll gains slowed by more than forecast in December, wages picked up slightly and the jobless rate held at the lowest level since 2000. The S&P 500 Index powered to a fresh record and registered its best week since December 2016 as investors looked past the jobs miss, speculating that Republican tax cuts will lead to higher corporate earnings. The Dow Jones Industrial Average and Nasdaq Composite Index also hit all-time highs.
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The yield on 10-year Treasuries rose two basis points to 2.47 percent.

Meanwhile, in the frozen north:

Canada’s unemployment rate plunged to the lowest in more than 40 years, suddenly raising the odds of a Bank of Canada rate hike this month.

The jobless rate fell to 5.7 percent in December, Statistics Canada said Friday in Ottawa, the lowest in the current data series that begins in 1976. The number of jobs rose by 78,600, beating expectations and bringing the full-year employment gain to 422,500. That’s the best annual increase since 2002.

The economy showed unexpected resiliency as the year came to an end, with the figures indicating rapidly diminishing slack in the labor market that may quicken the expected pace of interest-rate increases by the Bank of Canada. Since September, Canada added 193,400 jobs — the biggest three-month gain since at least 1976.
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Canadian bond yields and the currency soared on the surprisingly strong jobs data. The loonie strengthened to C$1.2376 per U.S. dollar, the strongest since September. The dollar buys 80.79 U.S. cents.

Bond prices plunged on expectations the jobs report may prompt the central to raise rates as early as this month. The yield on the two-year government of Canada bond jumped six basis points to 1.77 percent, close to a seven-year high. The odds of a rate hike at the Bank of Canada’s next meeting on Jan. 17 soared to 70 percent, from 40 percent yesterday, based on trading in the swaps market.

… and the banks – renowned for their forecasting prowess, provided you ignore completely random events like call volumes going up at the beginning of the year – are in a tizzy:

All but one of Canada’s six biggest commercial lenders now say the central bank will raise interest rates this month after the jobless rate dropped to its lowest in modern records.

Toronto-Dominion Bank, Bank of Nova Scotia, Royal Bank of Canada and the Canadian Imperial Bank of Commerce changed their forecasts after a Statistics Canada report Friday showed the unemployment rate unexpectedly fell to 5.7 percent in December, from 5.9 percent the previous month, on the strength of 78,600 new jobs.

At the end of the day, Perimeter reports three-month bills at 1.12% and five-year bonds at 1.96 – well above their Monday levels of 1.07% and 1.89%, respectively.

The Globe has a good story today highlighting the excellent planning and accurate forecasting of the banks’ investment industry hegemony:

But officials in the brokerage industry say the outages mostly boil down to a simple – but crucial – problem: server space. Retail demand is so unexpectedly high, particularly for stocks in the marijuana industry, that it has become overwhelming.

The brokerages won’t provide usage statistics, but according to the Investment Industry Regulatory Organization of Canada, which oversees trading activity, the volume of trades between Dec. 22 and Jan. 3 jumped 107 per cent from a year earlier. And of that surge, retail trading volumes jumped to 34 per cent of the total from 23 per cent.
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And even when clients are not transacting, they keep logging in to watch the markets and do research. This type of activity can create just as many bandwidth problems for the servers as trading does. Demand from retail investors tends to spike at particular times – such as when the market opens and again around lunch. One day recently, one brokerage’s user activity was already near full capacity before the market even opened at 9:30 a.m.

Theoretically, banks that make a billion dollars or more every quarter should not have trouble buying servers – but the situation is more complicated than that. For one, these institutions have been cutting costs for the past few years as they got leaner, in part to take on nimble fintech startups.

Servers are also expensive assets in a world where so many firms need them, because data is a critical commodity. Until now, it didn’t seem economical for discount brokerages to have servers sitting around just in case.

This is good reporting by Kiladze and Bradshaw, but they’re too impressed by the statistic cited regarding the Dec. 22 – Jan. 3 period. This is the lightest period of the year. If volume doubles … well, nothing doubled is still nothing.

TD has some awfully angry customers:

have been trying to talk to a person at Webbroker since 7 am on Tuesday. I can only do this transaction with a person as online transaction is not allowed. (From rif to other accounts) I have called at Webbroker all hours of day and night and stayed on line for hours at a time. Last evening from 7pm until midnight and again at 4am today no response.

My local branch of TD gave me another number to call and they admitted to also knowing that it would not work, and it did not.

No one and especially an 83 year old should not have to go through a terrible experience that many or going through. It is costing many of us thousands of dollars

Some person or persons should be held accountable and they should be dismissed, and if that is the CEO great.

Seems to me that a business as rife with volume peaks as retail brokerage would design their server system so extra servers could be snapped in overnight … ‘Bob, take a truck to Future Shop and buy 1000 PCs. Fred, you and your guys don’t go home until they’re wired in.’ But what do I know?

Well, I suppose I know that when we get our next market break along the lines of late 1987, early 2001 or late 2008, retail is fucked. Let us all give thanks to the regulators for their continual efforts to place the entire industry in such good hands.

Canadian banks take full advantage of the protection from competition they enjoy and aren’t in the business of making good products. They’re in the business of making plain-vanilla, marginally acceptable products, slapping a brand-name on them and charging a premium price.

Two of our glorious banks continued to screw up retail trading today:

Traders using at least two major online discount brokerage platforms are complaining of sporadic outages and expressing frustration that the latest glitch has tied their hands amidst a broad plunge in marijuana stocks.
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A TD spokesman says “unprecedented” trading volume continues to drive some intermittent delays for its online and mobile WebBroker clients, and the bank rolled out a broad update on Tuesday night to increase the platform’s capacity.
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RBC spokesman AJ Goodman had a similar message, saying “heavy trading volumes” were to blame for service issues, and that a fix was in the works.
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CIBC spokesman Jason Wesley says it is “experiencing record high trading volumes” but clients can continue to trade on its online platform.

BMO spokesman Ralph Marranca says that other than a brief website outage on Dec. 27, when clients could still trade via its call centre, its brokerage remains functional.

It’s a good thing we’re not experiencing an actual broad market break right now. Then these guys would find out what heavy trading volume looks like.

Update, 2018-01-05: The following table has been updated to incorporate TSX-reported volume figures.

Another good day, although volume remains low – perhaps because of problems with brokerage accounts! I’m not sure whose fault it is: the clients who refuse to do anything until the actual change of year, or the banks who are astonished by the volume every single year.

PerpetualDiscounts now yield 5.25%, equivalent to 6.82% interest at the standard equivalency factor of 1.3x. Long corporates now yield a little under 3.85%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 300bp, a sharp narrowing from the 320bp reported December 27.