6 Responses to “November 26, 2018”

1. skeptical says:

   November 26, 2018 at 7:44 pm

   Quick question:
   Most of the preferreds are long term money i.e. perpetuals, especially those with thin spreads.
   Why are they then tied to 5 year GOC or 3 month treasury rates?
   Shouldn’t these be tied to the 30 year bonds?

2. jiHymas says:

   November 26, 2018 at 9:31 pm

   Why are they then tied to 5 year GOC or 3 month treasury rates?
   Shouldn’t these be tied to the 30 year bonds?

   It’s marketing. Canadians have the idea, carefully inoculated inculated via mortgages and GICs, that 5 years is a long time. Back in the ’90’s I used to see dealer commentary carefully comparing Straight Perpetuals with five-year Canadas, straight up.

   n.b.: edited for literacy

3. prefQC says:

   November 26, 2018 at 9:53 pm

   James, I notice that your explosions are getting progressively wimpier. Is that a subliminal message that you are trying to tell us, or have you just run out of pictures of explosions?

4. malcolmm says:

   November 26, 2018 at 10:54 pm

   After careful consideration I have come to the conclusion that prefs keep on going down because prefs keep on going down. In other words, people sell because the price is going down.

   I remember during that last major correction (was it 2015?), close to when the pref market bottom, listening to a radio show featuring a well know local money manager. This “expert” proudly explained how a client had recently come to her with a portfolio containing a significant number of prefs. Fortunately the money manager was able to rectify this dire situation by getting her client out of all the prefs.

5. jiHymas says:

   November 27, 2018 at 2:41 am

   I notice that your explosions are getting progressively wimpier.

   Yeah, that’s what she said.

   Is that a subliminal message that you are trying to tell us, or have you just run out of pictures of explosions?

   What this world needs is more pictures of explosions. Mushroom clouds are dramatic, but can only be used so many times.

   Perhaps I should create a defined scale, with downward moves being mapped to a series of explosion pictures. Then the cognoscenti could just glance at the illustration of the day and say ‘Ah – market’s down 75bp today,’ or whatever, which would probably save a lot of time.

   After careful consideration I have come to the conclusion that prefs keep on going down because prefs keep on going down. In other words, people sell because the price is going down.

   I think you’re quite right. This has all the feel of a classic bank run.

   I remember during that last major correction (was it 2015?), close to when the pref market bottom, listening to a radio show featuring a well know local money manager. This “expert” proudly explained how a client had recently come to her with a portfolio containing a significant number of prefs. Fortunately the money manager was able to rectify this dire situation by getting her client out of all the prefs.

   Yes, that is the usual level of retail portfolio management. When a broker gets a new client, the first order of business is to gasp in horror at the previous broker’s awful mistakes and energetically fix them.

   As I noted at the end of my favourite post:

   There was one interesting snippet in the query that hadn’t been in the extract I saw: I have spoken to a new financial adviser at the the National Bank and he implies that I am indeed in trouble with the preferreds, especially the Perpetuals. He is implying that I will have to sell at least some at a loss.

   Well, of course that’s what the new guy said. It’s plain from the tone of the query that that’s what the client wanted to hear and by some kind of amazing coincidence, that’s what he was told.

   But my question is: on what grounds does the client believe the new guy is better than the old one? Does either advisor publish an audited track record?

6. skeptical says:

   November 27, 2018 at 11:51 am

   Looking at the carnage on both sides- floating rates and perpetuals-it seems the people really want short term money. The approach seems to, “Just give me 5 or 3 year money. I am afraid of inflation and deflation aka rising and falling rates at the same time. GOC 5 year has fallen a whole 25 bps since reaching the top. Sell, Sell, Sell.”