November 25, 2014

The OECD has released its OECD Economic Outlook, November 2014:

25/11/2014-Modest global economic forecasts, continuing high unemployment, and downshifts in potential output should spur governments with a greater sense of urgency to fully employ monetary, fiscal and structural policy levers to support growth, notably in Europe, according to the Economic Outlook.

The Economic Outlook draws attention to a global economy stuck in low gear, with growth in trade and investment under-performing historic averages and diverging demand patterns across countries and regions, both in advanced and emerging economies.

Global GDP growth is projected to reach a 3.3% rate in 2014 before accelerating to 3.7% in 2015 and 3.9% in 2016, according to the Outlook. This pace is modest compared with the pre-crisis period and somewhat below the long-term average

I must say, I don’t understand their pricing strategy at all. They want $105 (presumably USD) for an electronic version while posting an electronic version that can’t be copy-pasted. Given that this is a taxpayer-funded organization, this is ridiculous. So I’ll report on the Globe & Mail stories instead.

They’re anticipating policy hikes sooner than most:

In the OECD’s twice-annual Economic Outlook, released early Tuesday, the international economic policy and research body argued that Canada’s low and economically stimulative 1.0-per-cent central bank rate “will need to be gradually withdrawn to counter inflationary pressures,” as its economy grows toward reaching its full output capacity.

“It is assumed in this projection that the first policy rate increase occurs in late May of 2015, and that rates rise steadily thereafter,” the outlook report said.

At the time [November 2013], the OECD’s concern looked misplaced, given that inflation was below 1 per cent. And, indeed, its call for rate increase to begin before the end of 2014 was, in retrospect, premature.

But 12 months later, Canada’s inflation picture may make the OECD’s argument more compelling. Last week, Statistics Canada reported that the country’s total Consumer Price Index inflation rate in October was 2.4 per cent, its highest since early 2012. The so-called “core” inflation rate, which excludes the most volatile components of CPI and is the Bank of Canada’s key guide to underlying inflation trends, was 2.3 per cent last month, its highest since the end of 2008.

The OECD said Canada’s improving growth next year will be driven by rising export demand, particularly from the United States, which accounts for three-quarters of Canada’s exports. The OECD expects the U.S. economy will grow 3.1 per cent next year, its strongest in a decade and the highest among major advanced countries.

US mortgage rules are getting very strict:

The Consumer Financial Protection Bureau introduced the Ability to Repay rule, or ATR, in January to prevent borrowers from getting mortgages they can’t afford. Part-time wages can be included by banks in determining the ability to repay a mortgage if an employer verifies that the borrower has worked at the job for two years and will continue to do so. Lenders may consider a period of less than two years if they have a reasonable explanation.

The issue isn’t the rule — it’s how lenders interpret it, said Pete Mills, senior vice president for residential policy for the Mortgage Bankers Association in Washington. Banks are concerned about “potentially draconian” penalties for violating ATR, so they are being conservative when evaluating applications, he said.

“We don’t have a long enough track record to see how ATR is going to be enforced, so lenders are staying well inside the credit lines,” Mills said. “When you have an application based on multiple jobs — those are hard to evaluate from a stability of income standpoint.”

Sam Gilford, a CFPB spokesman, declined to comment.

Without part-time income, some borrowers no longer meet the debt-to-income ratio used to measure the ability to repay, disqualifying them for a mortgage. Fannie Mae and Freddie Mac, the government-run companies that buy and back most U.S. mortgages, cap the ratio at 45 percent. For loans insured by the Federal Housing Administration, the maximum is 43 percent.

Clever regulation – allow exceptions on the basis of “reasonable explanations” so the regulators can’t be criticized, but refuse to give a reasonable explanation of just what exactly a reasonable explanation is, to make use of the loophole extraordinarily risky.

Note that because regulation writers are morons, the term Debt-To-Income (as defined by Fannie Mae) is a misnomer. It’s actually Debt-Service-To-Income:

The DTI ratio consists of two components:
  • •total monthly obligations, which includes the qualifying payment for the subject mortgage loan and other long-term and significant short-term monthly debts (see Calculating Total Monthly Obligation below); and
  • •total monthly income (see Chapter B3–3, Income Assessment).

The question of bankers’ pay is getting more entertaining by the minute:

Osborne said on Nov. 20 that he would consider ways to put bankers’ salaries at risk to ensure employees pay the price for misconduct and failure. At the same time, he dropped a court challenge against EU rules that cap bankers’ bonuses at twice fixed pay.

The U.K. maintains that the EU bonus rule gives banks a perverse incentive to boost fixed pay, breaking the link between compensation and performance. To restore that link through salaries, Osborne must resolve the problem that if fixed pay can be taken back, EU rules could classify it as a bonus that would be subject to the limit — and banks would still be able to raise salaries.

Meanwhile, universities are the new sweatshops:

Vandita Sharma writes code for a company that turns old radiators into high-tech heating devices. Gaurav Chhabra develops software that lets computers identify objects on camera. Paul Dariye is designing an app for a startup that helps nonprofits raise money.

The three engineers are paid $11 an hour or less by New York University’s Polytechnic School of Engineering, which has placed them in internships at small companies. Their work is at the center of a battle between NYU’s administration and the graduate student union, which is demanding higher wages for interns at the university’s startup incubators.

Engineers who do jobs comparable to those of Polytechnic’s interns make roughly $43 per hour, according to Glassdoor, a website that tracks salaries.

There’s no conflict of interest there. Nope, not one bit. Not with all the administrators employed by universities to watch over the incubation programme to make sure they’re run fairly.

It was an off day for the Canadian preferred share market, with PerpetualDiscounts off 7bp, FixedResets losing 15bp and DeemedRetractibles down 11bp. Volatility was average, but comprised entirely of losers. Volume was high.

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 0.3542 % 2,542.6
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.3542 % 4,025.4
Floater 2.96 % 3.07 % 64,996 19.50 4 0.3542 % 2,702.9
OpRet 4.03 % -6.76 % 94,172 0.08 1 0.1182 % 2,766.6
SplitShare 4.26 % 4.04 % 48,857 3.77 5 0.1404 % 3,201.5
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.1182 % 2,529.8
Perpetual-Premium 5.44 % -9.53 % 69,892 0.08 19 -0.0677 % 2,485.0
Perpetual-Discount 5.11 % 5.01 % 110,725 15.40 16 -0.0710 % 2,681.7
FixedReset 4.15 % 3.51 % 183,394 4.60 73 -0.1462 % 2,594.0
Deemed-Retractible 4.95 % -0.73 % 100,502 0.10 40 -0.1094 % 2,612.1
FloatingReset 2.55 % -6.56 % 58,434 0.08 6 0.0717 % 2,558.1
Performance Highlights
Issue Index Change Notes
ENB.PR.H FixedReset -1.30 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-25
Maturity Price : 22.27
Evaluated at bid price : 22.85
Bid-YTW : 4.00 %
MFC.PR.F FixedReset -1.16 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.16
Bid-YTW : 4.50 %
GWO.PR.S Deemed-Retractible -1.14 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.95
Bid-YTW : 4.90 %
Volume Highlights
Issue Index Shares
Traded
Notes
FTS.PR.M FixedReset 121,530 Nesbitt crossed 49,700 at 25.52. RBC crossed 49,900 at 25.54.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-12-01
Maturity Price : 25.00
Evaluated at bid price : 25.43
Bid-YTW : 3.73 %
TRP.PR.A FixedReset 103,600 Scotia crossed 58,900 at 22.01.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-25
Maturity Price : 21.67
Evaluated at bid price : 22.05
Bid-YTW : 3.89 %
NA.PR.S FixedReset 97,520 Nesbitt crossed 29,000 at 25.70 and 65,000 at 25.66.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-05-15
Maturity Price : 25.00
Evaluated at bid price : 25.65
Bid-YTW : 3.51 %
BNS.PR.Z FixedReset 95,956 Desjardins sold 50,000 to National at 24.75 and 40,000 to anonymous at the same price.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.71
Bid-YTW : 3.21 %
BAM.PR.C Floater 92,921 RBC crossed 91,400 at 17.20.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-25
Maturity Price : 17.22
Evaluated at bid price : 17.22
Bid-YTW : 3.07 %
FTS.PR.H FixedReset 84,653 Nesbitt crossed 75,000 at 20.45.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-25
Maturity Price : 20.39
Evaluated at bid price : 20.39
Bid-YTW : 3.65 %
There were 40 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BAM.PR.X FixedReset Quote: 22.03 – 22.33
Spot Rate : 0.3000
Average : 0.1834

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-25
Maturity Price : 21.61
Evaluated at bid price : 22.03
Bid-YTW : 3.96 %

BNS.PR.N Deemed-Retractible Quote: 26.00 – 26.30
Spot Rate : 0.3000
Average : 0.1851

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-01-28
Maturity Price : 25.50
Evaluated at bid price : 26.00
Bid-YTW : -3.93 %

BAM.PF.B FixedReset Quote: 25.17 – 25.39
Spot Rate : 0.2200
Average : 0.1501

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-25
Maturity Price : 23.27
Evaluated at bid price : 25.17
Bid-YTW : 4.04 %

PWF.PR.F Perpetual-Premium Quote: 25.28 – 25.52
Spot Rate : 0.2400
Average : 0.1802

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-12-25
Maturity Price : 25.00
Evaluated at bid price : 25.28
Bid-YTW : -3.93 %

SLF.PR.C Deemed-Retractible Quote: 23.02 – 23.19
Spot Rate : 0.1700
Average : 0.1128

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.02
Bid-YTW : 5.45 %

BNS.PR.P FixedReset Quote: 25.56 – 25.72
Spot Rate : 0.1600
Average : 0.1043

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-04-25
Maturity Price : 25.00
Evaluated at bid price : 25.56
Bid-YTW : 2.74 %

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