So what happens to US banks if skyrocketting interest rates cause another housing collapse? The Fed wants to know:
The Federal Reserve said it will examine how the biggest banks might react to a jump in long-term interest rates and another housing crash as it released the next round of stress-test scenarios designed to monitor the ability of the U.S. financial system to withstand economic shocks.
The central bank mentioned that as part of two adverse scenarios it will gauge bank resilience against declines in the prices of high-risk, high-yield loans and debt and some high-priced real estate markets around the country, according to a statement released in Washington today. The central bank also inserted a test for large trading and clearing banks on counterparty default.
There’s an interesting piece on Bloomberg about local government in the rural US:
Monroe is hemorrhaging residents, like rural jurisdictions across the U.S. Yet these communities operate with the same layers of government as when horse-and-buggy travel helped determine the boundaries of the nation’s more than 3,000 counties. As population drops and infrastructure decays, officials and residents concerned about the loss of jobs and identity resist shrinking their government.
“People like that eye-to-eye contact,” said Monroe County Judge Larry Taylor, the top elected official in the county of 7,800. It has lost 44 percent of its population since 1980 as its main budget grew 9 percent, even when adjusted for inflation.
…
In North Dakota, public costs would have fallen 2.5 percent annually by combining general government, road maintenance, public safety, and health and welfare, according to a 1996 North Dakota State University analysis of a failed proposal to merge 53 counties into 15.
Rob Carrick of the Globe writes an interesting piece on BMO’s generic advisor, titled Investing advice: How adviceDirect stakes out middle ground:
In the investing business, there’s no surer validation of a new initiative than having your competitors copy you. AdviceDirect has struck out on that count. After a full year in operation, no one else has introduced a service where clients invest online while receiving a combination of Web-based and person-to-person advice.
But adviceDirect is on to something in targeting people who gravitate to DIY investing, but need help. “The discipline adviceDirect gives a do-it-yourself investor can be very attractive for people who don’t have the time, the experience or the confidence,” says Viki Lazaris, president and CEO of BMO InvestorLine.
…
BMO won’t say how many people have signed up for adviceDirect, but you get an idea of how busy things are in the fact that the advice team there comprises just eight people right now. If adviceDirect manages to build its franchise, it will be a result of the work done by these investment specialists (that’s BMO’s title for them).
I’ll suggest that a good business case for adviceDirect can be made solely on the basis of insurance … insuring BMO against the risk that mutual fund trailers will be banned (see various posts and comments commencing on December 17, 2012). In such a case, they’ll be up and running with a working model of access to small investors and that head start could be quite an advantage.
Incidentally, there was a bit of an update on that situation in June:
Indeed, according to the OSC’s transcript of the event, Greg Pollock, president and CEO of Advocis, cautioned that “financial advice would become unaffordable, and therefore
inaccessible, to the average Canadian.”There also are fears that any move away from embedded commissions could ultimately drive many advisors out of the business. Indeed, defenders of the current system point to the U.K., which introduced new rules outlawing embedded commissions, among other reforms, on Jan. 1. It was suggested at the OSC meeting that the U.K. has lost 25% of its advisory sales force due to its ban on commissions, with several large financial services institutions dropping out of the retail investment advice business altogether.
…
According to data from London-based Matrix Solutions Inc., since the RDR took effect on Jan. 1, the number of authorized investment intermediary firms is down by about 6% as of May; the total number of registered individuals in this sector is off by 9.5%; and the ranks of so-called “customer-facing staff” is down by 12.3%.Those figures are much lower than was suggested at the OSC’s January meeting, and it appears that the immediate effects now are being reversed a bit. In fact, the data show that the number of registered reps rose in May month-over-month, and the number of customer-facing reps rose for the second straight month.
Ontario has a message for business – Spend, spend, spend!
In a speech at Toronto’s Empire Club Monday, Finance Minister Charles Sousa took aim at so-called “dead money” – capital that corporations have been holding onto since the global recession. The federal government has already pressed companies to invest that money in the economy, and Mr. Sousa said his government would use the tax system to encourage them to do it.
These would include a tax credit for research and development spending, and an incentive for companies that buy new equipment or technology, or spend money to train employees.
Mr. Sousa said he understands why companies have been hoarding cash, but warned that doing so is holding back Canada’s economy.
Me, I’d say that what is holding back Canada’s economy is government distortion of the free markets, but I’m not the treasurer of Ontario.
Robert Shiller is warning of another housing bubble – but this one’s in Brazil:
The government increased the price limit of houses people can buy using the unemployment insurance fund on Sept. 30 after public lending for homes increased more than four times as much as private banks in the two years through June, to 202 billion reais ($90 billion), according to central bank data.
Rousseff’s homebuilding program has propelled demand as she seeks to stimulate the economy before next year’s presidential election. Robert Shiller, six weeks before winning the Nobel Prize for economics, cautioned that such demand may be fueling a bubble as home prices grow twice as fast as rent. Mortgage debt as a percentage of disposable household income has climbed to a record 15 percent, almost double the level at the start of Rousseff’s term.
It was a strong day for the Canadian preferred share market, with PerpetualDiscounts winning 27bp, FixedResets up 26bp and DeemedRetractibles gaining 16bp. FixedResets with a low Issue Reset Spread dominated the winning side of the Performance Highlights table. Volume was average.
| HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly |
|||||||
| Index | Mean Current Yield (at bid) |
Median YTW |
Median Average Trading Value |
Median Mod Dur (YTW) |
Issues | Day’s Perf. | Index Value |
| Ratchet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.9935 % | 2,490.4 |
| FixedFloater | 4.26 % | 3.53 % | 27,848 | 18.32 | 1 | -1.7173 % | 3,943.6 |
| Floater | 2.98 % | 3.00 % | 64,920 | 19.70 | 3 | 0.9935 % | 2,689.0 |
| OpRet | 4.63 % | 3.36 % | 67,876 | 0.61 | 3 | -0.0900 % | 2,633.7 |
| SplitShare | 4.75 % | 5.15 % | 64,445 | 3.66 | 6 | -0.0269 % | 2,956.6 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.0900 % | 2,408.3 |
| Perpetual-Premium | 5.57 % | 3.90 % | 124,703 | 0.30 | 11 | 0.3410 % | 2,305.8 |
| Perpetual-Discount | 5.52 % | 5.52 % | 181,505 | 14.56 | 27 | 0.2687 % | 2,379.0 |
| FixedReset | 5.00 % | 3.63 % | 226,319 | 3.53 | 82 | 0.2576 % | 2,460.5 |
| Deemed-Retractible | 5.08 % | 4.07 % | 192,795 | 1.50 | 42 | 0.0958 % | 2,411.8 |
| FloatingReset | 2.62 % | 2.39 % | 298,417 | 4.52 | 5 | 0.1588 % | 2,457.9 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| BAM.PR.G | FixedFloater | -1.72 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-11-04 Maturity Price : 22.63 Evaluated at bid price : 22.32 Bid-YTW : 3.53 % |
| TRP.PR.C | FixedReset | -1.37 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-11-04 Maturity Price : 22.05 Evaluated at bid price : 22.30 Bid-YTW : 3.83 % |
| IFC.PR.A | FixedReset | -1.30 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.55 Bid-YTW : 4.52 % |
| TRP.PR.B | FixedReset | 1.00 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-11-04 Maturity Price : 20.20 Evaluated at bid price : 20.20 Bid-YTW : 3.90 % |
| CU.PR.G | Perpetual-Discount | 1.04 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-11-04 Maturity Price : 21.44 Evaluated at bid price : 21.44 Bid-YTW : 5.34 % |
| CU.PR.D | Perpetual-Discount | 1.07 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-11-04 Maturity Price : 23.38 Evaluated at bid price : 23.72 Bid-YTW : 5.24 % |
| BAM.PR.B | Floater | 1.14 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-11-04 Maturity Price : 17.70 Evaluated at bid price : 17.70 Bid-YTW : 2.99 % |
| BAM.PR.K | Floater | 1.15 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-11-04 Maturity Price : 17.60 Evaluated at bid price : 17.60 Bid-YTW : 3.00 % |
| VNR.PR.A | FixedReset | 1.20 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2017-10-15 Maturity Price : 25.00 Evaluated at bid price : 25.35 Bid-YTW : 4.05 % |
| FTS.PR.G | FixedReset | 1.26 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-11-04 Maturity Price : 22.83 Evaluated at bid price : 24.10 Bid-YTW : 4.00 % |
| W.PR.J | Perpetual-Discount | 1.27 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-11-04 Maturity Price : 24.51 Evaluated at bid price : 24.76 Bid-YTW : 5.70 % |
| ENB.PR.H | FixedReset | 1.29 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-11-04 Maturity Price : 22.58 Evaluated at bid price : 23.55 Bid-YTW : 4.14 % |
| MFC.PR.F | FixedReset | 1.44 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.52 Bid-YTW : 4.67 % |
| BAM.PF.B | FixedReset | 1.49 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-11-04 Maturity Price : 22.71 Evaluated at bid price : 23.90 Bid-YTW : 4.51 % |
| ENB.PR.T | FixedReset | 1.53 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-11-04 Maturity Price : 22.71 Evaluated at bid price : 23.91 Bid-YTW : 4.36 % |
| SLF.PR.G | FixedReset | 1.78 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.88 Bid-YTW : 4.39 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| RY.PR.I | FixedReset | 128,500 | TD crossed 125,000 at 25.09. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-02-24 Maturity Price : 25.00 Evaluated at bid price : 25.07 Bid-YTW : 3.20 % |
| BNS.PR.R | FixedReset | 101,510 | TD crossed 100,000 at 25.11. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.09 Bid-YTW : 3.65 % |
| TRP.PR.B | FixedReset | 69,605 | Scotia crossed 40,000 at 20.15; RBC crossed 10,000 at 20.20. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-11-04 Maturity Price : 20.20 Evaluated at bid price : 20.20 Bid-YTW : 3.90 % |
| CGI.PR.D | SplitShare | 52,200 | Desjardins crossed 51,400 at 23.90. YTW SCENARIO Maturity Type : Soft Maturity Maturity Date : 2023-06-14 Maturity Price : 25.00 Evaluated at bid price : 23.90 Bid-YTW : 4.40 % |
| W.PR.H | Perpetual-Discount | 50,676 | TD crossed 50,000 at 24.45. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-11-04 Maturity Price : 24.15 Evaluated at bid price : 24.40 Bid-YTW : 5.68 % |
| HSE.PR.A | FixedReset | 47,318 | RBC crossed 34,500 at 22.75. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-11-04 Maturity Price : 22.37 Evaluated at bid price : 22.77 Bid-YTW : 3.99 % |
| There were 30 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| BAM.PR.G | FixedFloater | Quote: 22.32 – 22.91 Spot Rate : 0.5900 Average : 0.4174 YTW SCENARIO |
| GWO.PR.J | FixedReset | Quote: 25.23 – 25.59 Spot Rate : 0.3600 Average : 0.2188 YTW SCENARIO |
| TRP.PR.C | FixedReset | Quote: 22.30 – 22.78 Spot Rate : 0.4800 Average : 0.3464 YTW SCENARIO |
| TD.PR.R | Deemed-Retractible | Quote: 26.17 – 26.49 Spot Rate : 0.3200 Average : 0.1972 YTW SCENARIO |
| ELF.PR.F | Perpetual-Discount | Quote: 23.56 – 23.90 Spot Rate : 0.3400 Average : 0.2350 YTW SCENARIO |
| BNS.PR.N | Deemed-Retractible | Quote: 25.91 – 26.24 Spot Rate : 0.3300 Average : 0.2260 YTW SCENARIO |