May 25, 2016

Today’s news is that the BOC Policy Rate remains unchanged:

The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1/2 per cent. The Bank Rate is correspondingly 3/4 per cent and the deposit rate is 1/4 per cent.

The global economy is evolving largely as the Bank projected in its April Monetary Policy Report (MPR). In the United States, despite weakness in the first quarter, a number of indicators, including employment, point to a return to solid growth in 2016. Financial conditions remain accommodative, with ongoing geopolitical factors contributing to fragile market sentiment. Oil prices are higher, in part because of short-term supply disruptions.

In Canada, the economy’s structural adjustment to the oil price shock continues, but is proving to be uneven. Growth in the first quarter of 2016 appears to be in line with the Bank’s April projection, although business investment and intentions remain disappointing. The second quarter will be much weaker than predicted because of the devastating Alberta wildfires. The Bank’s preliminary assessment is that fire-related destruction and the associated halt to oil production will cut about 1 1/4 percentage points off real GDP growth in the second quarter. The economy is expected to rebound in the third quarter, as oil production resumes and reconstruction begins. While the Canadian dollar has been fluctuating in response to shifting expectations of US monetary policy and higher oil prices, it is now close to the level assumed in April.

Inflation is roughly in line with the Bank’s expectations. Total CPI inflation has risen recently, largely due to movements in gasoline prices, but remains slightly below the 2 per cent target. Measures of core inflation remain close to 2 per cent, reflecting the offsetting influences of past exchange rate depreciation and excess capacity.

Canada’s housing market continues to display strong regional divergences, reinforced by the complex adjustment underway in the economy. In this context, household vulnerabilities have moved higher. Meanwhile, the risks to the Bank’s inflation projection remain roughly balanced. Therefore, the Bank’s Governing Council judges that the current stance of monetary policy is still appropriate, and the target for the overnight rate remains at 1/2 per cent.

The Globe’s David Parkinson longs for more detail:

Beyond that, though, the Bank of Canada had surprisingly little to say. Even by the typically parsimonious standards of Bank of Canada rate statements, this one was on the short side. The bank squeezed in a very brief description of the current state of the country’s economy, without clarifying many of the most burning questions.

Most crucially, while the bank said it expects that the economy will “rebound” from the wildfire-related second-quarter slump, it stopped short of discussing the likelihood that this rebound will be enough to keep overall 2016 growth on track for the 1.7 per cent it forecast in April.

Does this delay the economy’s return to full capacity, the most critical variable in charting the Bank of Canada’s interest-rate path? Is that a significant risk that has emerged to the central bank’s outlook? If it is, the bank isn’t saying so.

One thing I really like to see when wandering around and looking at things is evidence that somebody has actually thought about something. There are so many details in life we do most of our activities on auto-pilot, but it is in business that I really like to see a bit of attention to detail. For instance, there’s a restaurant on Yonge Street that has chairs with racks underneath them. It makes all kinds of sense – the restaurant is close to Ryerson, popular with the kids there and one can well imagine that, particularly in winter, the floor’s going to get somewhat wet and dirty and the kids would really like to put their books and backpacks somewhere else. So the owner put in chairs with racks underneath, so this could be accommodated without losing a chair that could be used by another customer.

Yes, it’s a small thing. By itself it’s not going to make or break the business. But it indicates to me that when the owner went out on his chair-buying expedition, he thought about what would be useful and maybe even spent a little extra money addressing the issue. A small thing, but how often do you see it?

Which brings me to Personal Capital Corporation, which I mentioned on May 20 when news broke that IGM had put a chunk of money into the robo-advisor. It was just a short mention, but it did attract some attention … from Personal Capital Corporation, via eMail:

Good morning,

I’m [redacted] with Personal Capital, and I just wanted to thank you for writing that informative article covering IGM Financial’s investment in us!

For something like this where you mention us, would you be able to add a wealth management page link for “wealth management” in the paragraph over the Preferred Indices table? Here’s the URL to make things easier: https://www.personalcapital.com/wealth-management

Thanks so much for your time!

How about that, eh? Clearly, PCC has some kind of web-search robot that sends a list of mentions to somebody and that somebody tries to keep the buzz going in a useful manner … even when the mention is on an obscure specialist blog like this one. I’ve mentioned thousands of companies on this blog over the years and this is the very first time I’ve received an eMail like this. Good for PCC! I have no idea about the quality of their product or much else about them apart from what I’ve said … but if I was looking for a robo-advisor, either for myself or to recommend to friends or clients, Personal Capital Corporation would be on the long-list, for this reason alone.

So, new reader MA, “Content and Social Media” contact at PCC … this one’s for you: Personal Capital Corporation Wealth Management.

Speaking of robo-advisors, PWF’s venture, WealthSimple, is attempting to enter partnerships with advisors:

Toronto-based robo-advisor Wealthsimple Financial Inc. officially launched its platform specifically for financial advisors, dubbed Wealthsimple for Advisors, on Tuesday.

The platform, originally offered earlier this year as a pilot project for 50 advisors, is mainly intended for advisors who have clients with small accounts that don’t meet minimum account requirements, but that advisors don’t want to sever that relationship. Such an example would be a client’s child.

This platform allows advisors to maintain a relationship with those smaller account clients without spending time on the day-to-day management of the account, says Jason Goldlist, chief marketing officer with Wealthsimple. Instead, advisors can focus on accounts that better fit their business and minimum requirements.

Advisors interested in working with the robo-advisor can invite clients via email to sign up for a Wealthsimple account. Wealthsimple then handles the investment management of those accounts. Advisors cannot create their own investment portfolios for clients on the platform or recommend their own products.

And I mentioned the automaker and mobility provider jostling yesterday – this also caught the attention of Bloomberg’s Justin Fox:

During a visit to Bloomberg last year, Renault and Nissan Chief Executive Officer Carlos Ghosn grumbled that Alphabet’s (at that point it was still Google’s) self-driving car was a “box” devoid of “seduction and attractiveness,” and said “the car industry will do everything it can to make sure that the product does not become a commodity.”

But auto executives are also familiar with Harvard Business School professor Clayton M. Christensen’s argument that if an innovation comes along that disrupts your way of doing business, there’s often not a whole lot you can do to stop it. The automakers cutting deals with ride-hailing companies are hoping that they can figure out an on-demand business model if it turns out they need to.

Can they? Tom Bartman, a senior researcher at Christensen’s Forum for Growth and Innovation at HBS, is dubious. “Business models can’t change,” he says. Once a business learns how to make money one way, it’s almost impossible to shift gears. Still, there is one slender reed of hope: “While businesses can’t change, corporations can.”

Assiduous Reader BarleyandHops provides two very good links in the comments to May 24. The first of these discusses massive factory automation in China:

One factory has “reduced employee strength from 110,000 to 50,000 thanks to the introduction of robots”, a government official told the South China Morning Post.

Xu Yulian, head of publicity for the Kunshan region, added: “More companies are likely to follow suit.”

China is investing heavily in a robot workforce.

In a statement to the BBC, Foxconn Technology Group confirmed that it was automating “many of the manufacturing tasks associated with our operations” but denied that it meant long-term job losses.

Former McDonald’s chief executive Ed Rensi recently told the US’s Fox Business programme a minimum-wage increase to $15 an hour would make companies consider robot workers.

“It’s cheaper to buy a $35,000 robotic arm than it is to hire an employee who is inefficient, making $15 an hour bagging French fries,” he said.

And fast-food is indeed being robotically served up in innovation-crazy Japan:

But Pizza Hut in Japan will be the first major chain to utilize robots to actually serve customers in its pilot program later this year.

According to the Wall Street Journal, the company has ordered several models of Pepper, a humanoid robot that is also being tested in the cruise and airline industries, to take orders and accept payment. The program will be tested in select Japanese franchise locations by the end of the year. It’s powered by MasterPass, MasterCard’s digital wallet and mobile payment platform.

To place an order, customers can simply say hello to Pepper to begin the process. They can either tap an icon within the MasterPass digital wallet app through their phone or scan a QR code on a tablet the robot holds. As the customer orders, the robot responds by lighting up and using hand gestures– just like a real human.

An article in the Globe unabashedly discloses the actual reason for Proportional Representation’s popularity amongst certain members of the elite: backroom deals can be cut allowing the top end of the parties’ lists to be populated by those who are otherwise unelectable. They seem quite proud of this end-run around democracy. So … start hob-nobbing and donating now!

“We definitely want any reform that will increase our ability to affect who is being [elected] and to make sure we choose people who will actually promote women’s rights and other oppressed groups’ rights,” said Hilla Kerner, spokeswoman for the Vancouver Rape Relief and Women’s Shelter.

Some European countries with proportional representation systems, for example, have more women in their legislatures than Canada. Ms. Blomme, a political scientist with the Broadbent Institute, said academic studies have shown that the system increases by up to 8 per cent the proportion of women in legislatures.

8%? In Canada, that’s about 27 seats … get those chequebooks ready!

PerpetualDiscounts now yield 5.56%, equivalent to 7.23% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 4.00% – OK, maybe just a smidge over – so the pre-tax interest-equivalent spread is now about 320bp, a slight (and perhaps spurious) narrowing from the 325bp reported May 18.

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 4.69 % 5.71 % 11,226 17.00 1 1.0526 % 1,682.0
FixedFloater 6.67 % 5.79 % 17,998 16.71 1 0.0000 % 3,031.5
Floater 4.43 % 4.61 % 43,592 16.15 4 2.1287 % 1,754.2
OpRet 0.00 % 0.00 % 0 0.00 0 0.2202 % 2,830.6
SplitShare 4.94 % 5.14 % 83,039 3.93 7 0.2202 % 3,312.3
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.2202 % 2,584.4
Perpetual-Premium 5.75 % -12.62 % 85,249 0.09 6 -0.0327 % 2,602.5
Perpetual-Discount 5.47 % 5.56 % 104,733 14.51 33 0.0380 % 2,683.9
FixedReset 5.19 % 4.65 % 163,096 13.77 88 0.1143 % 1,970.4
Deemed-Retractible 5.12 % 5.56 % 129,910 5.00 33 0.1009 % 2,684.8
FloatingReset 3.19 % 5.05 % 25,836 5.26 17 -0.0385 % 2,095.5
Performance Highlights
Issue Index Change Notes
FTS.PR.I FloatingReset -1.71 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-05-25
Maturity Price : 11.47
Evaluated at bid price : 11.47
Bid-YTW : 4.36 %
BAM.PR.X FixedReset -1.37 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-05-25
Maturity Price : 13.70
Evaluated at bid price : 13.70
Bid-YTW : 5.01 %
BAM.PR.E Ratchet 1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-05-25
Maturity Price : 25.00
Evaluated at bid price : 14.40
Bid-YTW : 5.71 %
MFC.PR.B Deemed-Retractible 1.08 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.48
Bid-YTW : 6.15 %
FTS.PR.K FixedReset 1.12 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-05-25
Maturity Price : 17.10
Evaluated at bid price : 17.10
Bid-YTW : 4.39 %
PWF.PR.A Floater 1.29 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-05-25
Maturity Price : 11.75
Evaluated at bid price : 11.75
Bid-YTW : 4.05 %
TD.PF.B FixedReset 1.33 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-05-25
Maturity Price : 18.27
Evaluated at bid price : 18.27
Bid-YTW : 4.39 %
NA.PR.S FixedReset 1.38 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-05-25
Maturity Price : 18.35
Evaluated at bid price : 18.35
Bid-YTW : 4.55 %
VNR.PR.A FixedReset 1.65 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-05-25
Maturity Price : 18.45
Evaluated at bid price : 18.45
Bid-YTW : 5.00 %
PWF.PR.T FixedReset 1.67 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-05-25
Maturity Price : 21.35
Evaluated at bid price : 21.35
Bid-YTW : 3.89 %
BNS.PR.R FixedReset 1.87 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.43
Bid-YTW : 4.53 %
TRP.PR.B FixedReset 2.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-05-25
Maturity Price : 11.65
Evaluated at bid price : 11.65
Bid-YTW : 4.51 %
GWO.PR.N FixedReset 2.11 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 14.05
Bid-YTW : 9.83 %
BAM.PR.K Floater 2.18 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-05-25
Maturity Price : 10.30
Evaluated at bid price : 10.30
Bid-YTW : 4.65 %
BAM.PR.C Floater 2.39 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-05-25
Maturity Price : 10.27
Evaluated at bid price : 10.27
Bid-YTW : 4.66 %
BAM.PR.B Floater 2.77 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-05-25
Maturity Price : 10.38
Evaluated at bid price : 10.38
Bid-YTW : 4.61 %
Volume Highlights
Issue Index Shares
Traded
Notes
BAM.PR.K Floater 154,476 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-05-25
Maturity Price : 10.30
Evaluated at bid price : 10.30
Bid-YTW : 4.65 %
PWF.PR.E Perpetual-Discount 150,869 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-05-25
Maturity Price : 24.55
Evaluated at bid price : 24.80
Bid-YTW : 5.60 %
PWF.PR.L Perpetual-Discount 128,169 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-05-25
Maturity Price : 22.93
Evaluated at bid price : 23.20
Bid-YTW : 5.54 %
TD.PF.C FixedReset 113,877 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-05-25
Maturity Price : 18.02
Evaluated at bid price : 18.02
Bid-YTW : 4.44 %
MFC.PR.M FixedReset 95,379 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.35
Bid-YTW : 6.99 %
RY.PR.R FixedReset 66,192 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-08-24
Maturity Price : 25.00
Evaluated at bid price : 26.25
Bid-YTW : 4.70 %
There were 62 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
CIU.PR.C FixedReset Quote: 11.72 – 12.44
Spot Rate : 0.7200
Average : 0.5454

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-05-25
Maturity Price : 11.72
Evaluated at bid price : 11.72
Bid-YTW : 4.58 %

MFC.PR.H FixedReset Quote: 21.50 – 21.92
Spot Rate : 0.4200
Average : 0.2565

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.50
Bid-YTW : 6.04 %

GWO.PR.F Deemed-Retractible Quote: 25.70 – 26.12
Spot Rate : 0.4200
Average : 0.2734

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-06-24
Maturity Price : 25.00
Evaluated at bid price : 25.70
Bid-YTW : -16.50 %

MFC.PR.K FixedReset Quote: 18.20 – 18.59
Spot Rate : 0.3900
Average : 0.2615

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.20
Bid-YTW : 7.56 %

GWO.PR.O FloatingReset Quote: 13.01 – 13.79
Spot Rate : 0.7800
Average : 0.6515

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 13.01
Bid-YTW : 10.44 %

BAM.PF.E FixedReset Quote: 18.05 – 18.40
Spot Rate : 0.3500
Average : 0.2323

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-05-25
Maturity Price : 18.05
Evaluated at bid price : 18.05
Bid-YTW : 5.01 %

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