May 31, 2016

Weakness in the Canadian economy late in first quarter is stoking fears of contraction:

Despite the solid growth, the first-quarter result was well below the 2.8 per cent average estimate of economists, and a far cry from forecasts of more than 3 per cent from just a few weeks ago, testament to the disappointingly weak finish to the quarter. March’s real GDP was down 0.2 per cent month over month, even worse than the 0.1-per-cent decline economists had anticipated, marking the second straight month of contraction after a booming start to the year.

In March, the big drag on growth was from the beleaguered energy sector, which slumped 1.5 per cent month over month. A sharp drop in drilling activity sent oil and gas support services down 14 per cent in the month, while oil and gas extraction fell 0.8 per cent. The manufacturing sector dipped 0.2 per cent in March, adding to its 0.9-per-cent slowdown in February. And retail sales fell 1.3 per cent, reversing course after two straight months of gains.

Overall, output from goods-producing industries slumped 0.8 per cent in March, their worst performance in six months. Services-producing industries were flat for the second straight month.

I confess that I’m surprised to see EU boffins say something sensible about the new economy:

European Union governments should not ban services like home-rental site Airbnb or ride-hailing app Uber except as a last resort, the EU says in new guidelines, seeking to rein in a crackdown on the “sharing economy”.

In guidelines seen by Reuters, the European Commission said any restrictions by EU member states on these new online services should be justified and proportionate to the public interest at stake.

“Total bans of an activity constitute a measure of last resort that should be applied only if and where no less restrictive requirements to attain a public interest can be used,” the draft document says.

In the case of room-renting sites like Airbnb, the Commission said banning short-term lets of apartments “appears difficult to justify” when limits on the maximum number of days apartments can be rented out would be more appropriate.

The guidelines will come as good news for the likes of Uber and Airbnb, which have faced outright bans or restrictions in some cities as established industry players complain of unfair competition.

There is fierce competition in the drones market to make the transition from toys to tools:

So Shenzhen-based DJI is pouring money into its development kit, which allows software developers to write their own applications for specific tasks, similar to the way Apple Inc. does for its iPhones.

Up for grabs is a market for aerial mining surveys, pipeline inspection, search and rescue, crop spraying and hundreds of other commercial tasks that’s expected to reach $127 billion by 2020.

Farmers were some of the earliest civil adopters, using drones to identify differences in crop conditions. Yamaha Motor Co. has been dusting crops in Japan with UAVs for more than two decades. With the cost dropping for cargo-carrying drones, DJI and others are building crop-spraying and remote sensing vehicles that can help reduce chemical use and improve yields. It has been estimated that precision agriculture will account for about 80 percent of the U.S. market for commercial UAVs.

The Rwandan government partnered with San Francisco-based Zipline to fly blood bags at 100 kilometers per hour to remote hospitals. Other to watch are Matternet in Menlo Park, California, and startup Flirtey, which said it made the first FAA-approved urban drone delivery of an emergency kit in the U.S. this year.

Steve Denning of Forbes comes up with a provocative but plausible explanation of US malaise:

• A study published in December 2015 by the National Bureau of Economic Research (NBER) shows that start-up activity has been slowing down in the United States for about three decades, dropping sharply over the past 10 years. New firms accounted for about 13% of all companies in the late 1980s, but only about 8% two decades later. In the 1980s and 1990s, small number of young, innovative, and dynamic companies grew at very high rates. But in the post-2000 period, startups contributed less to U.S. job creation than they did in earlier decades.

• The Kauffman Foundation reports that the percentage of adults owning a business has been declining since the 1990s, when the foundation first began to track that number.

• A study by the Brookings Institution found that the start-up rate (the number of new companies as a percentage of all firms) has fallen by nearly half since 1978.

A rather more obvious suspect [for the cause of declining entrepreneurship] is the burden of Americans’ $1.2 trillion in student loan debt.

A 2013 report by the think tank Demos found that student debt has a negative effect on income, by making borrowers more risk-averse and discouraging them from moving to another city or taking gambles on new jobs or launching a new business. Even more seriously, student loan borrowers save less early on in their lives, and they tend to be more conservative with their investments, due to constraints on income and credit. When even investing in a home seems too risky, launching a new business is even less likely.

The student debt crisis is transforming the saving, spending and investment behavior of an entire generation, and is transforming the economy along with it. The trend is not a good one.

Through a set of collective missteps, America has opted to put a crushing debt burden on the segment of society that can least afford it and the group that has the most to contribute the future. This is not just a question of social justice: it is nothing less than an issue of national economic survival.

Unless lawmakers across the country take radical action to address the skyrocketing cost of college, and attendant student debt burden, we can expect U.S. entrepreneurship to continue its frightening decline.

Assiduous Readers who are amused at the emergence of Donald Trump and the Angry White Boys in the US should take a look at the Globe & Mail comments section any time there is a story on Vancouver real-estate. There is a huge population of old-stock Canadians who are entitled to a good career and a detached house in Vancouver. Now that the former is getting more elusive and the latter has roared out of reach for most, they are incensed at the crooks from China who have taken it all away from them; I wouldn’t be surprised to see a fringe party emerge in British Columbia in the next little while.

And finally, for your month-end interest and delectation, is the Official TSX Quote for HSE.PR.B:

HSEPRBquote_160531
Click for Big

Yes, you read that right, 10.55-22.00, 1×5. I have not checked whether this lamentable state of affairs is due to inadequate Toronto Stock Exchange reporting or inadequate Toronto Stock Exchange supervision of market-makers.

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 4.66 % 5.65 % 10,803 17.12 1 1.7544 % 1,700.2
FixedFloater 6.51 % 5.65 % 17,398 16.88 1 1.7422 % 3,106.0
Floater 4.34 % 4.49 % 44,162 16.37 4 -0.6838 % 1,790.0
OpRet 0.00 % 0.00 % 0 0.00 0 0.0346 % 2,836.1
SplitShare 4.93 % 5.00 % 81,673 3.91 7 0.0346 % 3,318.8
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0346 % 2,589.4
Perpetual-Premium 5.73 % -15.97 % 84,703 0.09 6 0.1895 % 2,613.4
Perpetual-Discount 5.42 % 5.45 % 104,971 14.57 33 0.0364 % 2,705.6
FixedReset 5.13 % 4.64 % 159,555 7.43 88 0.0614 % 1,997.3
Deemed-Retractible 5.13 % 5.31 % 132,378 4.98 33 -0.0237 % 2,696.9
FloatingReset 3.15 % 5.01 % 23,896 5.25 17 0.2960 % 2,112.1
Performance Highlights
Issue Index Change Notes
TRP.PR.H FloatingReset -3.77 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-05-31
Maturity Price : 10.20
Evaluated at bid price : 10.20
Bid-YTW : 4.45 %
BAM.PR.T FixedReset -2.45 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-05-31
Maturity Price : 15.51
Evaluated at bid price : 15.51
Bid-YTW : 5.20 %
BAM.PR.R FixedReset -1.68 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-05-31
Maturity Price : 15.20
Evaluated at bid price : 15.20
Bid-YTW : 5.18 %
BMO.PR.Y FixedReset -1.45 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-05-31
Maturity Price : 20.40
Evaluated at bid price : 20.40
Bid-YTW : 4.40 %
BAM.PR.C Floater -1.41 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-05-31
Maturity Price : 10.50
Evaluated at bid price : 10.50
Bid-YTW : 4.56 %
TRP.PR.G FixedReset -1.34 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-05-31
Maturity Price : 19.14
Evaluated at bid price : 19.14
Bid-YTW : 4.94 %
MFC.PR.F FixedReset -1.30 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 13.68
Bid-YTW : 10.22 %
BMO.PR.M FixedReset -1.27 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.30
Bid-YTW : 4.21 %
BAM.PR.B Floater -1.11 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-05-31
Maturity Price : 10.67
Evaluated at bid price : 10.67
Bid-YTW : 4.49 %
W.PR.J Perpetual-Discount -1.03 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-05-31
Maturity Price : 23.88
Evaluated at bid price : 24.13
Bid-YTW : 5.88 %
BAM.PF.A FixedReset 1.03 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-05-31
Maturity Price : 19.61
Evaluated at bid price : 19.61
Bid-YTW : 4.93 %
BAM.PR.X FixedReset 1.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-05-31
Maturity Price : 14.10
Evaluated at bid price : 14.10
Bid-YTW : 4.90 %
BIP.PR.A FixedReset 1.16 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-05-31
Maturity Price : 19.26
Evaluated at bid price : 19.26
Bid-YTW : 5.70 %
MFC.PR.N FixedReset 1.27 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.00
Bid-YTW : 6.49 %
FTS.PR.K FixedReset 1.28 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-05-31
Maturity Price : 17.38
Evaluated at bid price : 17.38
Bid-YTW : 4.35 %
TRP.PR.C FixedReset 1.29 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-05-31
Maturity Price : 12.54
Evaluated at bid price : 12.54
Bid-YTW : 4.66 %
SLF.PR.G FixedReset 1.40 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 14.50
Bid-YTW : 9.44 %
GWO.PR.O FloatingReset 1.60 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 13.10
Bid-YTW : 10.24 %
BAM.PR.G FixedFloater 1.74 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-05-31
Maturity Price : 25.00
Evaluated at bid price : 14.60
Bid-YTW : 5.65 %
BAM.PR.E Ratchet 1.75 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-05-31
Maturity Price : 25.00
Evaluated at bid price : 14.50
Bid-YTW : 5.65 %
TRP.PR.F FloatingReset 1.84 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-05-31
Maturity Price : 13.85
Evaluated at bid price : 13.85
Bid-YTW : 4.43 %
CIU.PR.C FixedReset 2.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-05-31
Maturity Price : 12.25
Evaluated at bid price : 12.25
Bid-YTW : 4.42 %
BMO.PR.Q FixedReset 2.23 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.60
Bid-YTW : 5.69 %
PWF.PR.Q FloatingReset 3.12 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-05-31
Maturity Price : 12.90
Evaluated at bid price : 12.90
Bid-YTW : 4.18 %
FTS.PR.I FloatingReset 4.17 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-05-31
Maturity Price : 11.98
Evaluated at bid price : 11.98
Bid-YTW : 4.16 %
Volume Highlights
Issue Index Shares
Traded
Notes
TRP.PR.J FixedReset 114,764 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-05-31
Maturity Price : 25.00
Evaluated at bid price : 25.70
Bid-YTW : 4.89 %
IFC.PR.A FixedReset 72,625 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 15.85
Bid-YTW : 9.26 %
TD.PF.G FixedReset 63,670 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-04-30
Maturity Price : 25.00
Evaluated at bid price : 26.13
Bid-YTW : 4.60 %
BNS.PR.G FixedReset 53,485 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-07-25
Maturity Price : 25.00
Evaluated at bid price : 26.18
Bid-YTW : 4.75 %
TD.PR.Y FixedReset 39,900 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.25
Bid-YTW : 4.46 %
RY.PR.H FixedReset 38,232 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-05-31
Maturity Price : 18.40
Evaluated at bid price : 18.40
Bid-YTW : 4.37 %
There were 30 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
HSE.PR.B FloatingReset Quote: 10.55 – 12.55
Spot Rate : 2.0000
Average : 1.3418

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-05-31
Maturity Price : 10.55
Evaluated at bid price : 10.55
Bid-YTW : 5.46 %

TRP.PR.B FixedReset Quote: 11.95 – 12.55
Spot Rate : 0.6000
Average : 0.3769

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-05-31
Maturity Price : 11.95
Evaluated at bid price : 11.95
Bid-YTW : 4.37 %

RY.PR.M FixedReset Quote: 19.30 – 19.77
Spot Rate : 0.4700
Average : 0.2957

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-05-31
Maturity Price : 19.30
Evaluated at bid price : 19.30
Bid-YTW : 4.50 %

TD.PF.F Perpetual-Discount Quote: 24.40 – 24.78
Spot Rate : 0.3800
Average : 0.2370

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-05-31
Maturity Price : 24.03
Evaluated at bid price : 24.40
Bid-YTW : 5.06 %

GWO.PR.F Deemed-Retractible Quote: 25.55 – 25.99
Spot Rate : 0.4400
Average : 0.2992

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-06-30
Maturity Price : 25.00
Evaluated at bid price : 25.55
Bid-YTW : -24.81 %

PWF.PR.P FixedReset Quote: 13.32 – 13.76
Spot Rate : 0.4400
Average : 0.3099

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-05-31
Maturity Price : 13.32
Evaluated at bid price : 13.32
Bid-YTW : 4.49 %

4 Responses to “May 31, 2016”

  1. malcolmm says:

    People in Vancouver aren’t only complaining because they can’t afford to buy a house, many people can’t afford a small town house or even a one bedroom apartment. You have to go far out of Vancouver to be able to buy a house for less than one million, and it is hard to find an apartment in Vancouver for much less than 400k.

    I do believe that no one has a right to expect to be able to afford to buy real estate. Unfortunately renting isn’t much more affordable in Vancouver. With a less than 1% vacancy rate in many parts of Vancouver, and with many older rental buildings being torn down to be replaced with unaffordable towers, there isn’t an alternative. I guess there is, people can move.

    I expect is will end badly. As an investor, I can’t imagine why anyone would buy a house in Vancouver and consider it an investment. Even with escalating rents, your ROI will be minuscule. To buy real estate in Vancouver for investment, you must believe in the “great fool” investment theory. But eventually, we will run out of fools, even in Vancouver.

  2. BarleyandHops says:

    Copied: the EU says in new guidelines, seeking to rein in a crackdown on the “sharing economy”

    I read this as tag and tax. Identify a specific item and tax it, all in the public good. Why not tax the mother in law that shares grandchild babysitting time, the driver who rides in the HOV lane w/ others, or a head tax for family style dining at restaurants.

    I have used airBNB many times. Never a bad experience.

    I sense the EU wants a greater say what folks might do w/ their private property.

  3. jiHymas says:

    I guess there is, people can move.

    Yes, they can move. And that’s exactly what the winners are doing:

    Rising costs are putting Vancouver’s vaunted growth engine at risk as the city hemorrhages people employed in tech and new media for more affordable locales, including Victoria and Kelowna.

    Vancouver was ranked the third-least-affordable housing market in the world this year, after Sydney and Hong Kong, by consulting firm Demographia.

    It was the eighth straight year the city occupied a top-three spot.

    One of the main recipients of the brain drain is Victoria, or “Tectoria” as it’s sometimes known.

    The city of about 80,000 — on Vancouver Island some 70 miles south of Vancouver — opened a tech incubator in 2014 to accommodate the growth of what’s now a $4 billion industry in Victoria employing about 23,000 people.

    Billionaire investor Terry Matthews has injected capital into startups on the island, once known as the home of “newlyweds and nearly deads.” More than 340,000 people live in the greater Victoria area.

    Kelowna is another city seeing a recent flow of millennial housing refugees from British Columbia’s biggest city. The town of about 120,000 is in the midst of building a six-story innovation center for startups and Accelerate Okanagan, an organization that supports local tech companies.

    Karen Olsson, chief operating officer for Kelowna-based software company Community Sift, says it’s getting easier to recruit people from bigger cities because they’re drawn to the lifestyle that includes farm-to-table dining, hand-roasted organic coffee and local beer.

    “Kelowna is much more affordable — it’s a big piece of the sell for sure,” Olsson said. When she and her husband moved to Kelowna in September, they traded a 2,700-square-foot, $800,000 house (about $600,000 U.S.) in Squamish, a suburb 45 minutes north of Vancouver, for a 5-acre farm in Kelowna that was $200,000 less and closer to a downtown.

    Honestly, what kind of start-up would choose one of the three most expensive cities in the world as its base? The article mentions the Digital Finance Institute and its “2,000-square-foot open-concept office for startups”, so we can visit their website for a clue:

    We also advocate and work towards the establishment of FinTech hubs that are government-supported in Toronto and Vancouver to encourage new start-ups to engage in FinTech.

    Right. Good old government and the usual parasites. That sorts that out.

    Don’t get me wrong – I’m not gloating over the fate of those who are being forced to move. It’s unpleasant and disruptive. But it’s a better solution than endless whimpering over competition, with calls for freezing immigration and outlawing foreign investment in Canadian real estate in hopes that the God-given right to a detached home in Vancouver will make a comeback.

    I expect is will end badly.

    I agree. While I acknowledge the fact that Chinese investment is accelerating the bubble, it is also apparent that Canadians are pumping the bubble full of borrowed money:

    Not surprisingly, high-debt postal codes tended to be in areas with the highest home prices. In Vancouver, that includes much of the west side of the city, neighbourhoods such as Kitsilano, West Point Grey and Kerrisdale, where average home prices can top $3-million. High-debt neighbourhoods also clustered in affluent suburbs such as West and North Vancouver, as well as pockets of White Rock and Richmond.

    Metro Vancouver’s most highly indebted postal code was a collection of homes along Braeside Drive, where properties sell for $1.5-million to $3.5-million and debt averaged nearly $740,000. By comparison, in the most-indebted neighbourhood in Vancouver itself, a postal code in Shaughnessy, debt averaged $685,000 while homes typically sell for more than $10-million.

    It looks pretty bubbly to me! Once all the excitement’s over, it will be most interesting to see what’s left – it would be good for Canada, I think, if we had a version of ‘Monaco on the Pacific’.

  4. jiHymas says:

    I read this as tag and tax.

    I agree – but I think these sources of income should be taxed. It will be hard to implement, though!

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