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Regulators facing challenges dealing with Reddit-based market manipulation

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This article was published in The Globe And Mail and authored by Greg McArthur

Canadian regulators that police equity markets are wrestling with how to respond to a torrent of social-media commentary that appears to be behind wild swings in stock prices of companies such as Blackberry Ltd.

This week, a handful of companies, many considered to have dwindling growth prospects, saw their stock prices surge before a precipitous drop on Thursday. The frenzied trading activity is being attributed to a group of users of the social-media forum Reddit who urged fellow retail traders to drive up the price of select stocks that many professional investors on Bay Street and Wall Street had long ago dismissed.

Although it’s not clear if the online stoking of such stocks is illegal, regulators say they are closely watching the situation. Provincial securities laws forbid anyone from disseminating false information that has a significant effect on the price or value of a stock. However, it’s not clear whether that prohibition would capture the prognosticating on Reddit by users who identify themselves with names such as samuraiscramble and contrarian_gambler. The posts contain little financial analysis, and emphasize a need to increase the price of the stocks, not so much for sound investing reasons, but to prove the professionals wrong.

“It’s safe to say that this is pretty unprecedented,” said Peter Brady, executive director of British Columbia’s Securities Commission. “I think it will cause securities regulators everywhere to consider if a different approach is needed once they understand what’s happened.”

The Investment Industry Regulatory Organization of Canada (IIROC), the self-regulatory organization that surveils, in real time, all trading activity on Canada’s five stock exchanges, said in a statement that it was concerned about the impact of such activity on investors. Dramatic price changes in Blackberry triggered three temporary trading halts in the stock on Thursday. IIROC also said two companies issued statements saying their businesses had no material changes to justify the increased trading activity. One was Blackberry, and IIROC declined to identify the other, citing the confidentiality of its discussions with share issuers.

“We are actively using all of our tools to monitor market activity, and ensure market integrity in order to protect Canadian investors,” IIROC said in its statement.

The Ontario Securities Commission said in a statement that it encourages investors “to first do research and consider getting advice from a registered individual.”

Although the campaign has been framed by many of its supporters as a sort of populist and organic movement to punish short sellers, who have suffered heavy losses because of the unexpected spikes, the truth about its origins is largely unknown. Only authorities that have access to trading activity and can subpoena Reddit and other social-media companies for identifying information about their users will be able to determine whether a possible criminal conspiracy was behind the price increases, said Joe Groia, a Toronto securities lawyer.

Mr. Groia, who headed enforcement for the Ontario Securities Commission in the late 1980s, said he was skeptical the movement is as loosely organized as it has portrayed itself.

“Regulators need to make sure at the core of this there aren’t some criminals who are engaged in a pump-and-dump scheme,” he said, using the term for distributing false information to inflate a stock’s price, and then selling the shares after attracting unsuspecting investors.

“What you have is almost a form of panic buying going on here, and I don’t think it’s good for the markets, and ultimately I don’t think it’s good for those investors in Blackberry who are buying in at a stock that’s now four times the price it’s been at forever,” he said.

Last week, an Ontario government task force called on the province to introduce a law that would forbid making a false or misleading statement about a publicly traded company – regardless of the effect on a stock’s price. The proposed law, which is similar to one passed in British Columbia last year, is designed to better equip regulators to prosecute those who manipulate stock prices in a pump-and-dump scheme, or in what is known as short-and-distort campaign. The latter involves short sellers, those who have bet that a stock will decline in price, releasing false and negative information about companies they target.

Cindy Tripp, a former managing director at GMP Securities and a member of the task force, said she believes some of the commentary that gave rise to this week’s trading frenzy would likely fall under the proposed ban – but acknowledged the task force never envisioned such a scenario.

As to whether this week’s phenomenon was scripted, or unspooled much more innocently, Ms. Tripp said: “I guess our regulators will have to get to work.”

Michael GoodmanRegulators facing challenges dealing with Reddit-based market manipulation
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Canadians piling on mortgage debt as hot housing market continues

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This article was published in The Financial Post and authored by Geoff Zochodn. Image sourced from The Globe And Mail

Canadians have been taking on more and more mortgage debt despite the ongoing COVID-19 pandemic, as borrowers try to keep up with a housing market that took off in the latter half of 2020 and has yet to slow down.

Statistics Canada said Tuesday that household mortgage debt increased 7.4 per cent in November compared to a year earlier, pushing the total up to nearly $1.66 trillion.

The year-over-year pace of mortgage growth for November surpassed that of October (6.9 per cent), September (6.5 per cent) and August (6.1 per cent). It was also greater than that of any other month in 2020, as well as the 4.3-per-cent growth seen in the pre-pandemic month of Nov. 2019.

“It’s not surprising,” said Dan Eisner, chief executive of Calgary-headquartered brokerage True North Mortgage Inc. “The last six months of the year were some of the busiest months we’ve ever had in the mortgage industry.”

Indeed, 2020 ended up being a historic year for Canada’s housing market.

Despite the pandemic, national home sales hit 551,392, a new annual record, according to the Canadian Real Estate Association. The actual national average sale price was up 17.1 per cent year-over-year in December, CREA said, rising to a record $607,280.

There are likely a few factors behind rising home prices and levels of mortgage debt. Historically low interest rates, a limited amount of housing supply and a COVID-19-driven desire for more space among homeowners are just a few.

“The gains have been concentrated in single-detached and more expensive homes,” Deloitte Canada chief economist Craig Alexander wrote in a note on December’s housing numbers.

There is a relatively high level of disposable income as well, as people aren’t necessarily able to spend money the same way they could pre-pandemic, said Cory Renner, economist at the Conference Board of Canada.

“So what you’re probably also seeing is an increased ability to make a down payment on a house,” which can translate into increased prices and debt levels, Renner said in an interview.

Borrowers are trying to take advantage of cheaper borrowing costs. StatsCan said in December that demand for mortgage loans in the third quarter had risen to a new high of $28.7 billion.

MNP Ltd.’s latest consumer-debt survey also found that 61 per cent of those polled “feel now is a good time to buy things they otherwise might not be able to afford,” the insolvency firm said.

“I’ve never seen the intent to buy as high as it is right now,” True North’s Eisner said. “There are a lot of Canadians who are looking to upgrade their house or just looking to buy a home for the first time.”

The debt that comes with such home purchases has been a source of concern for policymakers, but historically low interest rates brought on by COVID-19 have been keeping borrowing costs low for consumers. The household debt-service ratio, which is total debt payments as a share of disposable income, was 13.22 per cent in the third quarter, below pre-pandemic levels.

But if borrowing costs start ticking up, household budgets could start really getting squeezed. MNP found that 47 per cent of those surveyed were worried about landing in financial trouble if interest rates rise.

However, Renner said the Conference Board does not see interest rates rising again until 2023. In the meantime, Canada’s housing market is expected to stay strong, even in the midst of a second wave of COVID-19, which could continue to drive up prices and inflate the amount of mortgage debt being built up.

“We see little that will stop activity or prices from reaching new highs in 2021,” Royal Bank of Canada economist Robert Hogue wrote in a Jan. 15 report on the housing market. “Historically low interest rates, changing housing needs, high household savings and improving consumer confidence will keep demand supercharged. A dearth of supply will maintain the heat on prices.”

Michael GoodmanCanadians piling on mortgage debt as hot housing market continues
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Daphne Bramham: The solution to homelessness, DTES chaos and disorder has been known for years

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This article was published in The Vancouver Sun and authored by Daphne Bramham

Housing First was the big idea in the late-2000s when it came to solving the problems of homelessness, addictions and mental illness sparked by the closures early in the decade of mental institutions like Riverview.

In 2008 — the same year that Vancouver Mayor Gregor Robertson pledged to end homelessness by 2015 — a five-year, $110 million, federally funded trial called At Home/Chez Soi began in Vancouver, Winnipeg, Montreal and Moncton, N.B.

For the trial, 300 participants were identified in Vancouver, which was described as “distinct” from the other cities because of the geographic concentration in the Downtown Eastside and the high rates of substance use.

Of those, 200 were the control group left to lead their usual chaotic lives for the lucky 100 who were given homes.

“The trial was doing what we knew was the most effective intervention,” said Julian Somers, now a distinguished professor at Simon Fraser University. “It was proof of the concept that to a large extent long-term homelessness was the result of neglected mental-health and addictions issues.

“And there was a possibility that we would be able to achieve an alternative that eventually the provinces and territories would take on.”

In spring 2014, the results were released with much fanfare. The At Home/Chez Soi report provided evidence that not only is it more humane and compassionate to move people off the streets and into housing, their lives also become measurably better and — better still — it costs taxpayers measurably less.

On average, the study found that it cost $28,282 annually to support high-needs participants. In Vancouver, these were 100 people who had been homeless for most of the previous 10 years, had addictions, mental illnesses and multiple contacts with police. Once their lives were stabilized, those lucky 100 used an average of $24,190 less per year in services such as hospitals, shelters and jails.

It meant that for every $10 invested, there was an average savings of $8.55 in avoided use of social services. (Because inflation is low, the 2020 dollar figures are only about 10 per cent higher than the numbers in the report.)

It was a revelation that echoes what had already been done in Portugal but largely gone unnoticed because most media coverage focused on that country’s decision to decriminalize personal possession of drugs at the same time as it massively invested in social services for the homeless and addicted.

Somers said other experts told them it wouldn’t work that “people weren’t ready to go from the street to housing, they needed to go through a kind of car wash — detox, sobering, transitioning through shelters until they ‘graduated’ to independent housing.”

But in the trial, the homeless, addicted, mentally ill and traumatized people weren’t left to find their own way to those ‘car-washing’ services and work their way up. There were people assigned to help them get what they needed close to their new homes.

Those lucky 100 were given choices from the moment they were identified. Among them was which neighbourhood they wanted to live in. Some chose the DTES, but others chose Marpole and the West End. They lived in rental apartments where no more than 20 per cent of the residents were in the trial.

They were asked what help they needed or wanted. Their lists included food, dental care, bank accounts, addictions treatment, counselling and, yes, friends.

Housing First was never just roofs over heads, Somers said. Just as he insists that the other big idea embedded in the trial — distilled to the catchphrase harm reduction — was always intended to be more than needle exchanges, supervised consumption sites and substituting pharmaceuticals for street drugs.

“The language in the At Home report was for recovery-oriented housing,” he said.

“What has emerged from the outcomes of the trials bears no resemblance to what we did in the trials. None.”

Meantime, we have an ever-worsening crisis despite more money than ever before being spent in response to the global COVID-19 pandemic and as opioid overdose deaths hit a new high. It’s a crisis that Somers has offered to help out with by sharing research. But he said his overtures are almost always rebuffed.

He’s a psychologist in the sea of public health officials, medical doctors, former HIV/AIDs researchers, grieving families and drug-users who are driving most of the policy direction and don’t share his views about addiction.

If people’s experience with addiction has mainly been in the DTES and whose training is steeped in pharmaceutical solutions, Somers said it may be understandable that they see its treatment as a kind of palliative care or maintenance.

“Many (of them) are actually of the view that you can’t treat it, that it’s like diabetes,” he said “That’s really crazy. People can’t quit diabetes, but people quit addictions all the time.”

In 2014, my colleagues Pete McMartin and Lori Culbert did the last tally of spending in the DTES. They catalogued the service-providers and then looked at their budgets. They determined that providing services for an estimated 6,500 people in 2013 cost at least $360 million — a million dollars a day.

Nobody in government seems to know exactly how much money is now being spent. But whatever it is, it’s a lot more than in 2013.

And, it’s hard not to think that our governments are throwing good money after bad when policy-makers ignore both the evidence and the experts whose views don’t fully align with theirs.

Michael GoodmanDaphne Bramham: The solution to homelessness, DTES chaos and disorder has been known for years
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Silver, precious metal mining shares the latest hit by Reddit-fuelled volatility

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This article was published in The Globe And Mail and authored by Niall Mcgee

The silver market is the latest to experience incredible volatility after retail investors incited by promotional posts on social-media site Reddit bid up the prices of the precious metal and silver miners.

One post on the Reddit group WallStreetBets implored investors to inflict “THE BIGGEST SHORT SQUEEZE IN THE WORLD” on the silver market and suggested investors could bid up the price of the precious metal to US$1,000 an ounce from US$25.

“Silver Bullion Market is one of the most manipulated on earth,” the user who went by the name u/jjalaj30 posted. “Any short squeeze in silver paper shorts would be EPIC.”

On Thursday, shares in Canadian silver miner First Majestic Silver Corp. surged by as much as 50 per cent in early trading while the prices of exchange-traded funds that track physical silver bullion increased by up to 7 per cent.

In a release on Thursday morning, Vancouver-based First Majestic said there was no material news that would account for a surge in price and trading volume in its shares.

Other silver companies also rose swiftly after trading began, with Endeavour Silver Corp., Pan American Silver Corp. and silver streaming company Wheaton Precious Metals up 22 per cent, 14 per cent and 12 per cent, respectively. But after surging early on, all of the stocks lost a big chunk of their gains.

The silver market is volatile after days of similar dislocation in companies such as BlackBerry Ltd., GameStop Corp. and AMC Entertainment Holdings Inc., whose shares earlier in the week were driven up by wildly speculative bullish chatroom posts. Many of those same stocks plummeted on Thursday after some trading platforms limited trading in the companies.

“Some poor idiot, probably sitting at home in his basement, in his sweatpants, paid $482 a share for GameStop and maybe that was his rent money,” said David Baskin, president of Toronto-based high-net-worth money manager firm Baskin Wealth management.

“Now he’s lost half his money in one day.”

In the volatility over the past few days, some Wall Street hedge-fund managers lost huge amounts of money as they scrambled to “cover” short positions on the targeted stocks.

When a stock is shorted, one investor borrows shares from another and sells it right away hoping the price will plummet. If the trade goes well, the hedge fund later buys the stock back at a much lower price and returns it to the original investor, thus making a substantial capital gain. But if the price of the company being shorted rises, hedge funds can lose massive amounts of money quickly. Furthermore, when investors buy back shares to close out the trade, it can cause the price of the stock to accelerate even more.

The silver post on Reddit that ignited the market on Thursday generated thousands of comments and many were giddy at the thought of inflicting financial pain on Wall Street investors.

One participant in the chatroom called pizdets17 wrote “Crash JPMorgan, buy $SLV,” suggesting that bidding up the price of silver would inflict losses on Wall Street investment banks such as JPMorgan Chase & Co..

“Frankly I don’t know why this is legal,” Mr. Baskin said. “How this differs from a mining stock pump and dump I’m not really sure.”

While blatant manipulation of the share price or a company is illegal under securities laws, it is unclear whether there are firm legal grounds to take action against individuals making anonymous posts on internet chatrooms.

Lawrence Ritchie, partner with Osler, Hoskin & Harcourt LLP, and former vice-chair with the Ontario Securities Commission, said regulators weighing taking action would have to consider whether the participants are exercising their free speech rights by expressing an opinion on a stock or, instead, colluding in order to expressly manipulate the share price of a company.

“A lot of it will depend on what the intent of the parties are,” he said.
Michael GoodmanSilver, precious metal mining shares the latest hit by Reddit-fuelled volatility
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How did the Reddit stock market rally happen and why did it start to fizzle on Thursday?

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This article was published in The Globe And Mail and authored by Tim Kiladze

It’s been a dizzying week. The roller coaster for stocks such as GameStop and BlackBerry has moved so quickly that it’s tricky to follow what’s going on – especially for those who don’t have financial backgrounds. What follows is an explainer:

Last summer, Ryan Cohen, who grew and then sold online pet-food retailer Chewy, bought 13 per cent of GameStop and hoped to help management pivot into e-commerce. The stock quadrupled in four months, and that attracted short-sellers.


Plain and simple, they are investors who bet against a stock, hoping the price will fall.

To do this, they borrow shares from someone who plans to stay invested for a long time, and then they sell the shares. After the stock price falls, they repurchase the shares at a lower price and return them to the lender. In doing so, they pocket the difference between the money made from selling the shares at, say, $50 each, and the price paid to repurchase them, perhaps $25 each.

This is common behaviour, which is why some hedge funds decided they would “short” GameStop’s stock – that is, bet that its price would fall.


Money managers with a fancy name, that’s all. Back in the day, hedge funds deployed a specific investing strategy designed to hedge their trading risks. But over time, these funds attracted so much money, and the broader industry evolved so much, that they are now little more than ordinary money managers that charge very expensive fees.

Yet they stand out because they tend to market themselves to the ultra-rich, who can pay the exorbitant fees. A number of hedge-fund managers also have a history of flashy lifestyles.

Which made them prime targets for Wall Street Bets.


A portal on Reddit, which is an internet forum where people anonymously discuss everything and anything imaginable. Wall Street Bets – written as r/wallstreetbets – is normally where people discuss their investing ideas, but last week some users decided to come together and stick it to the hedge funds who had bet against GameStop by starting a short squeeze.


A fancy name for buying shares. To make money, short-sellers need the price to fall. If it rises, they have to repurchase the shares they borrowed and then sold for a higher price, which will make them lose money.

This squeeze happens often, which is why short-selling can be risky. What made GameStop’s situation stand out was the use of stock options.


A bet on the price of a stock by a certain date. So if GameStop is trading at $10 per share, you can pay a small sum, maybe $1 per share, to be able to purchase shares for $15 each until March 31. If it doesn’t hit that price, you lose the small sum. If it trades to $30, you buy the stock for $15 each and sell at the market price.

In recent years, options have exploded in popularity on day-trading platforms provided by companies such as Charles Schwab, Interactive Brokers and Robinhood. And they were heavily purchased to send GameStop’s share price higher.


Because everyone piled in. GameStop wasn’t a popular stock before all of this, and options can be much more volatile than stocks themselves, so the sudden attention from the growing mob of retail investors made its price go haywire. The early gains then attracted more people who read about the phenomenon and wanted to gamble for fun.

After GameStop’s shares started to soar, the early investors who wanted to stick it to hedge funds decided to squeeze short-sellers betting against other stocks, and BlackBerry Ltd. happened to be one of them.


When mob mentality takes over, it’s tough to determine the exact reasons for trading swings. Sometimes, traders who made big profits riding the wave simply decide to cash out, prompting others to do the same, and then the selling sends the share price spiralling.

However, there was also a major development Thursday: Two trading platforms, Interactive Brokers and Robinhood, changed their rules to prevent customers from buying shares in a number of companies, including GameStop and BlackBerry (anyone who owned the stocks already would still be able to sell).


We don’t have a final answer yet, but trading platforms often allow their users to borrow money to invest. When share prices swing so wildly, the loans can become worthless in minutes. So they probably want to protect themselves in the event that many of the loans aren’t paid back.


Not necessarily. Some of the Wall Street Bets crowd like to say they are taking on the establishment, but for all we know, the establishment has already smartened up and offset their original investments that are being attacked.

And with so much disinformation on the internet, it’s even possible hedge funds are now posing as Reddit users to pump additional stocks they’ve invested in.


It’s possible. Market integrity, as it’s known, is something regulators have to take seriously. If too many people lose faith in the market, they could stop investing, and that would prevent companies from selling shares to fund their growth.

But we’re far from that. So far, these are pockets of volatility. GameStop and BlackBerry both lost more than 40 per cent Thursday, yet the S&P 500 gained 1 per cent.


Michael GoodmanHow did the Reddit stock market rally happen and why did it start to fizzle on Thursday?
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Money is pouring into bond ETFs despite painfully low interest rates – here’s why

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This article was published in The Globe And Mail and authored by Rob Carrick

It’s a testament to the usefulness of bond ETFs that they’re selling briskly in a year when the outlook for fixed income has rarely looked less appealing.

Introduced to the world 20 years ago right here in Canada, bond ETFs simplified life for investors who want to build their own diversified portfolios. They provide cheap, transparent, liquid and infinitely adaptable access to bonds, which otherwise must be purchased through investment dealers who have an excessive amount of power to dictate prices to clients.

If your portfolio needs bonds, then you have to at least consider bond ETFs. Even in a low-rate world, these funds can be shaped to suit almost any investor’s needs.

A quick illustration of low rates can be found in the decline in the yield on the five-year Government of Canada bonds to 0.45 percent from 1.47 percent one year ago. Despite near-zero yields, and some momentary drama in the March stock market crash, bond ETFs have taken in a net $11.4-billion in the first 10 months of 2020. That’s one-third of the total amount that went into TSX-listed ETFs.

A total of almost $82-billion was invested in the 251 bond ETFs listed on the TSX as of the third quarter of the year, according to National Bank Financial. All of this flows from the two bond ETFs introduced back in November, 2000, the iG5 (designed as a proxy for a five-year Canada bond) and the iG10 (acting like a 10-year Canada bond).

I might be the only financial journalist writing today who covered the debut of those ETFs (read that column here). . Just a few ETFs were listed on the TSX back then, compared with 977 as of the third quarter. The five-year Canada bond yield in late 2000 was around 5.3 percent, which seems otherworldly in today’s financial market conditions.

Bond ETFs as we know them today really date back to late 2004, when the iG10 was converted into what’s now called the iShares Core Canadian Universe Bond Index ETF (XBB-TSX). A year later, the iG5 became what is today known as the iShares Core Canadian Short Term Bond Index ETF (XSB). Both new funds offered access to a broadly diversified package of government and corporate bonds in a single purchase.

“These ETFs were really a game-changer,” said Pat Chiefalo, head of the iShares Canada ETF family at BlackRock. “They were launched to provide simple, cost-efficient access to fixed income securities, which are a cornerstone of any portfolio.”

A big debate in investing these days is what low bond yields mean to portfolio-building. Should investors shift the default 60-40 mix of stocks and bonds to 70-30, or should they keep their current portfolio mix and simply change their mix of bonds?

Note that the extent and content of your bond exposure is in question, not whether bonds are necessary. “You have a fixed income allocation for risk mitigation, as ballast to your overall portfolio,” Mr. Chiefalo said. “It serves a vital purpose there.”

It can’t be overstated how important low costs are for bond funds in today’s low-rate world. While not quite as cheap to own as ETFs holding stocks, XBB and competitors like the BMO Aggregate Bond Index ETF (ZAG), the Vanguard Canadian Aggregate Bond Index ETF (VAB) and the Horizons Canadian Select Universe Bond ETF (HBB) have management expense ratios in the 0.08- to 0.1-per-cent range.

ETFs are without doubt the most price-competitive investments in the market today and bond funds offer proof. When they were introduced, the iG5 and iG10 had MERs of about 0.25 percent, and XBB began with an MER of 0.3 percent. “As we’ve applied more and more technology, we’ve been able to pass down some of the cost savings that we have in managing our products onto the investor,” Mr. Chiefalo said.

Buying and selling ETFs through an online broker also has become more cost-effective. Most brokers charge a commission to trade ETFs, like they do with stocks. Online brokers charged between $24 and $33 a trade back in the days of the iG5 and iG10, compared with between $5 and $10 today, and sometimes zero.

Bond ETFs offer real value in the context of what they do and how they compare with buying individual bonds. XBB holds 1,359 federal government, provincial and corporate bonds. Further diversification is provided by mixing bonds issued by companies at varying levels of credit quality (all meet the threshold of being investment grade, or financially solid) and bonds maturing in the short, medium and long term.

Someone investing for 10 years or more could buy a broad-based bond ETF like XBB, ZAG or VAB and be confident they have sensibly covered off their portfolio’s bond allocation with a single product.

Or, you could build your own portfolio of bonds through your online broker. Good luck with that. Brokers are notoriously uncompetitive in pricing bonds – they tell you what they’ll charge if you buy and what they’ll pay if you sell. Unlike with stocks, there is no open auction system where investors of all types bid against each other to set market prices.

ETF companies pay wholesale prices for bonds, not marked-up retail prices. The price paid for bonds is crucial because of the effect it has on yield. The more you pay for a bond, the lower your yield.

Investors buying XBB now should expect a yield of 1.2 percent, which is calculated by taking the weighted average yield to maturity (YTM) and subtracting the MER. After-fee YTM is the best measure of bond ETF yields, not the higher distribution yield you often find when looking up quotes for bond ETFs. YTM is definitive because it factors in both the amount of interest income paid by the ETF and the changing prices of bonds in its portfolio.

One of the big online brokerages offered the following yields on bonds sold at mid-week: 0.04 percent for a Canada bond maturing in a year, 0.7 percent for a five-year provincial bond and 1.5 percent for an investment-grade corporate bond maturing in a little over seven years. You see by this comparison how competitive the yield on a broad market bond ETF can be.

A compensating advantage for individual bonds is that they eventually mature. No matter how much a bond fluctuates in price, you can expect it to be redeemed on a set date at its issue price. Bond ETFs are designed to keep rolling along, never maturing and thus subject to price declines when interest rates rise and price gains when rates fall.

Some investors find that guaranteed investment certificates are actually the best bond ETF alternative thanks to competitive yields when the issuer is an alternative bank or credit union. GICs don’t bounce around in price like bonds and bond ETFs, but they cannot be sold before maturity without severe penalty. Cashable GICs are available, but there’s a cost in the form of a lower yield.

While they’re primarily meant to be a stabilizing force in portfolios, bond ETFs did have a brief moment of drama when financial markets crashed in March. Disruptions in the bond market resulted in the price of bond ETFs temporarily falling below the net value of their assets. This problem worked itself out as central banks took steps to calm the markets.

Don’t overthink bond ETFs if you’re adding them to a portfolio. A simple but sensible approach is to buy a broad-based fund like XBB, VAB or ZAG and be done with it. An alternative is to blend other ETFs into a portfolio to add yield.

Mr. Chiefalo said some higher-yield options include long-term bonds, investment-grade corporate bonds, high-yield corporate bonds and emerging market government bonds. High-yield bond ETFs offer yields around 4.25 percent, while long-term bond ETFs blending government and corporate debt are in the 1.9-per-cent range.

You’ll need to adjust riskier bond ETF holdings to reflect changing market conditions, but the broad-based funds have proven over the past two decades that they can be hold-forever investments.

“Bond ETFs are an all-weather solution,” Mr. Chiefalo said. “We’ve gone through the ’08-’09 credit crisis and we’ve gone through the March madness of this year.”

Michael GoodmanMoney is pouring into bond ETFs despite painfully low interest rates – here’s why
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Douglas Todd: Hidden foreign ownership helps explain Metro Vancouver’s ‘decoupling’ of house prices, incomes

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This article was published in the Vancouver Sun and authored by Douglas Todd

The lack of connection between soaring housing prices and tepid local wages in Metro Vancouver is caused in large part by hidden foreign ownership, says a peer-reviewed study from Simon Fraser University that is being welcomed by the B.C. minister responsible for housing.

Based on data Statistics Canada has been collecting only recently, SFU public policy specialist Joshua Gordon’s paper shows the “decoupling” of housing prices from incomes in Metro Vancouver has been caused by “significant sums of foreign capital that have been excluded from official statistics.”

Gordon’s research set out to solve a puzzle in Greater Vancouver and, to a lesser extent, Toronto. How can tens of thousands of owners who tell Revenue Canada they are low income (earning less than $44,000 a year) consistently afford homes valued in the $2- to $10-million range?

The new data revealed Richmond, West Vancouver, the city of Vancouver and Burnaby were epicentres of the foreign-ownership phenomenon: They have the highest housing prices, low average declared incomes and the largest proportions of non-resident owners.

“This is a powerful corroboration of the idea that substantial amounts of income are not being declared in satellite family situations,” said Gordon, whose paper defines foreign ownership as “housing purchased primarily with income or wealth earned abroad and not taxed as income in Canada.”

The strange decoupling of housing prices from local wages is peculiar to Metro Vancouver and Greater Toronto. It does not show up in most Canadian cities or in the U.S., Gordon says, where high housing prices invariably correspond with high wages.

Gordon’s study is the first to be based on crucial new data from the Canadian Housing Statistics Program, which for the first time began two years ago to track the extent to which non-residents were buying housing.

“This study provides evidence of widespread tax avoidance in certain urban areas,” Gordon says in his paper, titled Solving puzzles in the Canadian housing market: foreign ownership and de-coupling in Toronto and Vancouver, published last month in Housing Studies.

“The evidence suggests that considerable tax avoidance is occurring in satellite family situations,” says Gordon, who appreciates B.C.’s unique speculation and vacancy tax for monitoring such satellite ownership.


Attorney General David Eby, the minister responsible for housing, welcomed Gordon’s research. “It’s helpful to have work like this, using independent data sets, that positively correlates some of the activity we know is happening in the market.”

The B.C. NDP government “didn’t wait for the smoking gun” before it brought in its 2019 speculation tax, the first of its kind anywhere, Eby said. Even while many denied the property market was being distorted, Eby said, “we saw enough to realize foreign capital was a factor. So we took action.”

B.C.’s speculation tax applies a two percent annual surcharge on homes owned by either foreign citizens or satellite families, which it defines as households where over 50 percent of income is earned abroad.

While Gordon generally endorsed B.C.’s speculation and vacancy tax, he stressed it must be rigorously enforced — and also suggested it could be strengthened.

Gordon questioned whether it’s wise to exempt homeowners from the speculation tax if they rent out even part of their dwelling. “This rental exemption for single-detached properties might be eliminated entirely … pressuring foreign-sourced owners to either sell into the local market or to pay an annual property surtax.”

Eby, calling the speculation tax “an experiment,” acknowledged it needs ongoing evaluation. “This phenomenon of Vancouver being an international city and people being resident here but not earning their income here is one that our tax system is still working to come to terms with.”

The cohort of more than 200,000 people who were approved entry to Metro Vancouver through Canada’s business immigrant programs, Gordon said, provide one of the most striking illustrations of satellite families who declare almost no income in Canada yet own costly houses.

“Migrants arriving with substantial wealth can have a pronounced effect on housing prices” by creating “powerful downstream effects,” says Gordon’s paper, citing the research of Markus Moos and Andrejs Skaburskis, who found almost two out of three investor immigrants to Canada, mostly from Asia, choose to buy property in Metro Vancouver.

An earlier Statistics Canada study found the median value of a detached Vancouver home bought by immigrants who arrived via the investor program was $2.55 million, but the same group “declared an average of only around $20,000 in income in the first 10 years after landing.”

Gordon’s paper captures how Vancouver condo marketer Bob Rennie, former chief fundraiser for the B.C. Liberal Party, acknowledged the decoupling when he joked in a 2012 speech to the Urban Development Institute that “the Vancouver market never went up on fundamentals, so why would we go down on fundamentals.”

Two of the first public figures to try to flag Metro’s decoupling situation were former Richmond mayor Greg Halsey-Brandt and the one-time head of the Canadian Race Relations Foundation, Albert Lo. They expressed concern in 2015 that the homeowners in Richmond most likely to declare poverty-level incomes (and thus pay low taxes) resided in expensive neighbourhoods. The late housing analyst Richard Wozny also tried to bring attention to how housing “fundamentals” were askew in Metro, with no meaningful link between prices and wages.

Michael GoodmanDouglas Todd: Hidden foreign ownership helps explain Metro Vancouver’s ‘decoupling’ of house prices, incomes
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An inflection point reached? Record low five-year fixed mortgage rates suddenly in danger of rising

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This article was published in The Globe and Mail and authored by Robert Mclister

For months, we’ve watched lenders slash five-year fixed mortgage rates to levels never seen before. But, we may have come to an inflection point.

Optimism has seized the day and interest rates in the bond market have rocketed higher, with Canada’s five-year government yield reaching 0.5 percent on Tuesday, up about 10 basis points from last week. The catalysts: less U.S. election uncertainty and new hope for a COVID-19 vaccinethanks to positive trial results from Pfizer Inc. and German partner BioNTech SE.

As rate watchers know, fixed mortgage rates are benchmarked against bond yields. The move in five-year yields, if there’s follow-through, could propel five-year fixed rates. Lenders were quick to point that out this week, with several sending notes to mortgage brokers warning of potential rate increases.

As of Tuesday afternoon, five-year fixed rates still sit at historic lows – 1.59 percent or lower if you buy default insurance and 1.84 percent or lower on uninsured mortgages. This week’s flare-up in yields, however, increases the probability that current rates are, or are near, the lowest we’ll see in this interest rate cycle.


Waiting hours are over. It no longer makes sense to stall for lower fixed mortgage rates, just to save 10 or 20 basis points.

Could rates still drop? Absolutely. Could it be 20 C on Christmas Day in Toronto? Absolutely. But I wouldn’t bet on either.

Heroes make zero. If you need a fixed mortgage in the next 120 days, and a fixed term is right for you, forget any desire for a better deal than what you can find today.

Lenders’ profit margins are tight and rising yields are tightening them further. If yields climb higher, banks may not delay in taking fixed rates with them.

My crystal ball is far from infallible, but this much seems clear. Despite all the economic gloom right now, we will see brighter days economically; 2021 will be a year of recovery. The bond market believes this. It prices in good news one to two years in advance.

In other words, by the time we know the economy is back to prepandemic levels, fixed rates will have already shot up.

Even if the rate market continues pricing in only a modicum of optimism, that could be enough to take five-year fixed rates 25 to 50-plus basis points higher. I’m in no way guaranteeing that will happen. But it’s fair to say the risk-reward no longer favours variable mortgage rates.

Every quarter-point hike on today’s average mortgage amount is more than $3,000 of extra interest over five years.

Anyone who’s riding out a variable at prime minus 1 percent or better will have a tough call to make in coming days. Hold on to a variable rate like 1.45 percent or less, or pay to lock in under 2 percent.

The right answer depends on several factors, among others: one’s risk tolerance/psychology, overall qualifications (employment stability, financial resources, credit, and so on) and the rates available to you. But, despite the chance of rates simply flatlining for months or years, no one can blame a borrower for locking in today.

At this point, rate watchers all want to know what the Bank of Canada will do to curb rising bond yields. After all, it’s pledged to keep rates low until 2023.

“While the basis of the news today is unequivocally growth and inflation positive, there are limitations that must be respected,” said Ian Pollick, Canadian Imperial Bank of Commerce’s global head of fixed income, currency and commodity strategy, in a note Monday. Among other things, ” … Let us not forget the limited tolerance of central banks to allow higher real-yields entering the market on a sustained basis.”

Indeed, the Bank of Canada has promised that its bond purchases, which could slow the ascent of fixed mortgage pricing, will “continue until the recovery is well underway.”

In any case, despite Monday’s good news on the vaccine front, there’s a long road ahead before good news helps struggling businesses and unemployed Canadians on the ground. That, and Bank of Canada bond-buying, will continue to exert drag on mortgage rates. But as any pilot knows, you can still have lift with drag.

Michael GoodmanAn inflection point reached? Record low five-year fixed mortgage rates suddenly in danger of rising
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Home sales in Toronto and Vancouver surge in October

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This article was published in The Globe and Mail and authored by Shane Dingman

Rising sales of detached homes pushed Toronto-area real estate to new highs in October, even as sales and prices were down in some parts of the high-rise condominium market.

The latest Vancouver data also show softening in the condo market and increasing competition for detached homes.

The Toronto region had its fourth consecutive month of record sales volumes, with 10,563 homes sold, up 25 per cent from October, 2019, according to the Toronto Regional Real Estate Board, or TRREB. Detached homes led the way with sales up 33.9 per cent and an average sale price of $1,204,844, an increase of 14.8 per cent.

Davelle Morrison, an agent with Bosley Real Estate Ltd. in Toronto, said the temperature in the detached segment tends to be blazing hot in some areas of the city and tepid in others.

In west-end neighbourhoods such as the Junction and Roncesvalles Village, for example, some properties are not selling on the night set aside for reviewing offers. In the family-oriented neighbourhood of Leaside, meanwhile, buyers are willing to compete for luxury properties. This week a house listed with an asking price of $3.49-million drew three offers and sold for $3.65-million. “The divide between the haves and have-nots is absolutely growing,” Ms. Morrison said.

Bidding contests are still the norm in east-end neighbourhoods such as Leslieville and on the streets near Danforth Avenue, she said. Ms. Morrison said access to the subway and streetcar is still key for many buyers, and those areas have good links to transit.

New listings for all categories of homes rose to 17,802 across the Greater Toronto Area, but TRREB’s data showed detached home listings fell 11 per cent from September to 6,797, and in Toronto they fell 8 per cent to 1,812. That highlights a years-long trend that has accelerated throughout the pandemic, as fewer owners of detached homes listed their houses and buyer demand continued to outstrip available supply, which in turn has boosted home prices.

“I wouldn’t call this market strong, I’d call it massively imbalanced,” said Shaun Cathcart, a senior economist for the Canadian Real Estate Association. “For all of Canada, the number of listings in February were at a 13-year low, now it’s a 16-year low. … But sales are setting records month after month. Across all of Canada we’re [at] 2.6 months of inventory, that’s the lowest we’ve ever reported. Everywhere is tightening up.”

The only exception to the tightening trend is in condo apartments, particularly in most dense areas of the big cities, the increasing supply of which is turning downtown high-rises into a buyer’s market.

TRREB’s October data showed a difference in the condo market between downtown and the inner and outer suburbs: Sales of condominium apartments fell 8.5 per cent in the City of Toronto compared with the same month in 2019, with prices up just 0.8 per cent to $668,161. In the 905 area code, the picture was a little rosier, as condo sales were up 28 per cent and prices rose 6.8 per cent to an average of $541,582. Active listings are up 158 per cent in Toronto to 5,719, accounting for more than three-quarters of all TRREB condo listings.

October sales data from the Real Estate Board of Greater Vancouver, or REBGV, showed detached homes and attached homes (townhouses and semis) also led a growth in sales, with benchmark prices rising 8.5 per cent year over year to an average of $1,523,800.

There were almost 400 more detached homes sold during the month compared with a year earlier (1,335, up from 938, a 42-per-cent increase). The number of listings fell 14.6 per cent from September, while sales were up 1.6 per cent month over month.

“With demand on the rise, homes priced right for today’s market are receiving attention and, at times, garnering multiple offers,” REBGV chair Colette Gerber said in a release.

Condominium sales were up 13.4 per cent from 2019 (1,570 compared with 1,384), but new listings in condominiums were also up 53 per cent from a year earlier, with 2,891 for sale compared with 1,887. The benchmark price was $683,500, flat from the previous month but still up 4.4 per cent year over year. Listings were down 11 per cent from September, and sales also fell 1.6 per cent.
Michael GoodmanHome sales in Toronto and Vancouver surge in October
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Home Capital seeing strong mortgage repayment rates as pandemic-related deferrals end

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This article was published in The Globe and Mail and authored by James Bradshaw

Home Capital Group Inc. has ended 97 per cent of the payment deferrals on mortgages that it granted to clients amid the coronavirus pandemic without a spike in write-offs or delinquent loans.

The alternative mortgage lender, which is based in Toronto, had 335 loans worth $146-million still deferring payments at the end of October, down from a peak of 9,903 mortgages with a total balance of more than $3.9-billion on April 30. And the company is no longer granting new payment deferrals related to the pandemic.

The remaining mortgages under deferral make up less than 1 per cent of the company’s loan portfolio, and more than 99 per cent of borrowers whose deferrals expired either resumed making payments or discharged their mortgages, according to third-quarter financial results released Wednesday. Net write-offs on residential mortgages amounted to $878,000, or 0.02 per cent of all mortgage loans – the same ratio of losses the company booked in the same quarter a year earlier, before the pandemic.

Home Capital’s results offer an early barometer for the unwinding of massive payment deferral programs put in place by major banks and other lenders to support customers struggling in the early phases of a global health crisis. Although some investors and regulators fretted that the bulge of loans with payments put on pause could create a “cliff” of defaults when relief programs expired, Home Capital appears to have engineered a soft landing for most clients – an encouraging sign for other lenders that will report earnings over the next month.

Yet there are still risks of further losses as a second wave of COVID-19 cases sweeps across major cities, where Home Capital does the bulk of its lending, putting pressure on spending and employment rates.

“When someone buys a home, they generally do whatever they can to keep it. Our experience with deferrals during this year makes that clear,” chief executive Yousry Bissada said on a conference call with analysts. “There is a small number [of loans] that have gone into arrears. It’s less than maybe I would have imagined back in April.”

Home Capital also reclaimed $7-million in the quarter that had been set aside to cover potential losses, partly because of an improvement in the company’s economic forecasts for unemployment and other key indicators.

For the three months that ended Sept. 30, Home Capital reported profit of $58.5-million or $1.12 a share, compared with $39-million or 67 cents in the same quarter a year ago.

After adjusting for certain items, Home Capital said it earned $1.18 a share, far outperforming analysts’ expected adjusted-earnings-per share of 78 cents, according to Refinitiv.

A strong housing market has helped bolster Home Capital’s business through the crisis. The company issued $1.96-billion in new residential mortgages in the third quarter, compared with $1.55-billion a year earlier. Total deposits held steady at $14-billion, and the company’s net interest margin – the spread between what it earns from loans and pays to borrow money – improved to 2.51 per cent from 2.2 per cent a year ago.

Mr. Bissada said the pandemic makes it hard to predict how housing markets will fare but that low interest rates, high savings rates and increased demand for homes amid a shift to remote work are all positive signs. “I don’t know exactly what’s going to happen, but it looks like the momentum will continue for a little while yet,” he said.

Michael GoodmanHome Capital seeing strong mortgage repayment rates as pandemic-related deferrals end
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