Wednesday Smashup

What a week it is shaping up to be. Lets take a look at some things that are going on:

Scotiabank has changed their slogan. We are all familiar with ” You’re richer than you think”, but now they have changed it to ” There is more to life than more”. Apparently, they couldn’t say the truth – ” You’re poorer than you realize”. Personally I think it is the dumbest slogan. It is like they are telling you to stop trying to achieve things. Stop going for “more”. In keeping with that theme, Scotia did not raise their dividend to stock holders. Canadian banks raising dividends is basically sacrosanct, so the fact Scotia did not raise the dividend means something is amiss. Maybe they are just really showing investors that there is more to life than more??? Lets see if investors dump Scotia stock and look for a bank that understands that while money may not be everything, it certainly helps out a lot.

Tax This!!

Anyone that speaks with me knows I am always on a rant about something. For a long time it has been about property taxes. I have warned and warned people that once property values start to reflect actual market prices, and municipalities start raising mill rates to cover their out of control spending – property taxes are gonna go up more than most think. Well, after many months of sounding like a tinfoil hate wearing deranged lunatic, it is finally starting to happen. Calgary has sent out their property tax bills, and in the case of a couple people I was speaking with, the tax bills have almost DOUBLED. Fuck me!!!! In one year, they have received an almost 100% tax increase. This is due to assessed values going up at the same time as mill rates. Now, I don’t think a double is normal, nor going to happen everywhere, but with the consumer under as much stress and pressure as they are, can they even afford 25% or 50%? I think not. So, to my brokers friends – watch out on the mortgage apps. Don’t just assume the taxes went up 3% or 4%, only to have a deal die at the lawyers because the tax bill was up far more than you thought, and it throws ratios out of line.

Can I buy a P, Pat?

Yesterday saw the release of Canadian PPI prices, and they were scorching hot. Month over month PPI was forecast at .85%, and came in at 1.50% month over month!!! Almost doubling seems to be the theme of the week. Most people are familiar with CPI ( consumer price index ) but very few are familiar with PPI ( producer price index ). PPI is basically a way to measure the growth of prices at the producer level, instead of at the retail level. So, PPI is a bit of a foreshadowing index. If producer prices go up a lot, those increases must be either A ) passed along to the final consumer ( inflation ), or B ) the producer eats the increase and makes less profit. I think we know how this goes. PPI prices going up 1.50% in a single month is a big jump. People smarter than me will argue that it is due to things like petroleum, gold, silver and commodities increasing dramatically, and isn’t anything to worry about. However, I think this could be a little more than a simple commodity increase in a month. Time will tell.

Friday Funday

Normally it is Sunday Funday, but this week Sunday will be replaced by Friday. Friday morning at 8:30 am EST there will be no less than 11 reports out of both Canada and the USA in regards to GDP, PCE, Income and spending. Friday will be one of the best looks that Tiff and Co. will get at the economy prior to their June 5th interest rate decision. Look for yields, currencies, and stocks to be all over the map and highly volatile throughout the day as traders hedge, trim, buy, sell and hold their positions going into next week. The coming weekend will be a great time to see all the breakdowns, analysis, and expert opinions going into next weeks announcement. Since Sunday is no longer Funday, why not take Sunday, reserve an hour, and read up on all the reports, impacts, and expert opinions? It will make you better informed, and will give you a huge leg up on your competitors. Going into the summer your clients will have a lot of questions, so be the trust source they can get answers from.

Bond Burst

Apparently 5 year yields got tired of hanging out on the 3.60% range, and have decided to turn higher. Today is the 3rd day in a row where the yield is marching higher, now well clear of 3.80%, and heading towards the resistance point of 3.87%. Apparently the bond market didn’t watch all the realtor’s Tik Tok’s to know rates are supposed to be dropping!! If you have some clients on the fence, get the pre approvals in now, and lock in the current rates. 3 year rates are following their 5 year brother and also marching higher, up a little over 17 bps in a few days. If we see Tiff and Co. hold rates, or raise rates on June 5th ( yes I said raise ) then look for the 5 year yield to potentially clear the 4.00% range, and have almost zero resistance until we get to 4.34%. I don’t think it happens, but anything is possible. You will be some pissed off if you can lock in a client now for 4.89% on a 5 year, and 30 days from now you are looking at 5.49%. Again, I really don’t think he raises rates, but even a hold of rates with very hawkish sentiment could send rates marching higher. On the flip side, if Tiff holds rates, and has very dovish sentiment, then look for rates to fall back to right about where they were a week ago. No harm in getting those pre apps in.

Mind the spread

Finally, I am really watching spreads right now. Spreads can mean a lot of things: Sometimes you may spread something on toast – like say a jam or some peanut butter. Growing up on the farm, we always had to spread the manure, and of course politicians are always spreading their lies. Today though the spread I am watching is credit spreads. Generally credit spreads can relate to a lot of things, but the main one is usually referred to as the difference between good bonds and bad bonds. The difference in rates charged between a AAA company like Microsoft, and a BBB company like, well, any crappy company. As we all know the better the company and the credit, the lower the rate should be. And conversely, the worse off you are, the higher the rate should be. In bond land, the difference between these rates is generally referred to as the ‘ spread’. Trillions of global money is invested in the difference, or the spread of the different corporate bonds. One thing that has me a little paranoid right now is the spread is very very tight. By tight, I mean that the difference between good companies borrowing and bad companies borrowing is very little, and certainly not enough to compensate for risk correctly. This means that the market is not pricing risk appropriately, and for the record – it never ends well. Spreads have only ever been this tight 2 times in recent memory: 2000 and 2007. I think we all know what happened after those 2 years? Unless we see spreads start to blow out or reverse course and widen, it means there could be some black storm clouds on the horizon.