U.S. Election Spikes MMT Interest

The recent spike in interest Modern Monetary Theory (MMT) is largely the result of a handful of prominent Democratic politicians – including presidential candidate Bernie Sanders – flirting with the idea in the lead up to the 2020 U.S. presidential election, says Eric Lascelles, chief economist for RBC Global Asset Management in an economic update. A challenge in critiquing the theory is that it continues to reside more in the qualitative realm than in the form of equations and so means something slightly different depending on the advocate. The central idea behind MMT is that the fiscal wing of the government should control the money supply. By doing this, governments could print money as desired and put it directly toward economic and social policy goals, rather than the present approach of allowing the money to trickle through the financial system before reaching the real economy. Unfortunately, there are several problems with this idea, he says. Unlimited money printing eventually creates serious problems in the form of more inflation, higher borrowing costs, and a weaker currency. Realistically, despite claims to the contrary, unlimited funding would encourage governments to expand without cease. Furthermore, the idea that the government would print money until full employment is achieved is not so different than the current approach. Today’s central banks already effectively pursues that aim, either explicitly (as in the case of the U.S. dual mandate) or indirectly (via inflation targeting, but with an eye on eliminating economic slack). The bottom line is that MMT probably wouldn’t work as intended in a real world setting, especially if meant to be used as a permanent policy tool.

Two-step Approach Used For Opioids

Manulife has developed a two-step opioid management program focused on prevention and early intervention in use of the drug. There is an opioid crisis in Canada and 11 people in Canada die from an opioid overdose every day. Step one ensures patients start opioid treatment with a short-term supply; step two encourages the use of short-acting opioids first. Working together, these steps ensure side effects, risk tolerance, and dependence get monitored earlier, helping reduce the risk of chronic use. “We believe in promoting the safe and smart use of opioids, especially for people who are using them for the first time, or who haven’t used opioids regularly,” says Donna Carbell, head of group benefits at Manulife (Canada). “Through a much more holistic approach, we hope people will be better able to recover sooner, and with less chance of addiction or additional health issues caused by overuse. When fewer plan members need ongoing, long-term treatment, their plan’s drug costs and addiction management costs are lower.”

Credit ETFs Show Signs Of Declining Liquidity

The markets underpinning credit exchange traded funds are showing signs of declining liquidity that could spell trouble in the next downturn, says research from Moody’s Investor Service. “Unexpected market liquidity shortfalls could be most pronounced within ETFs tracking inherently illiquid markets, such as high-yield credit,” it says. “These ETF-specific risks, when coupled with an exogenous systemwide shock, could, in turn, amplify systemic risk.” The $3.4 trillion ETF market has grown rapidly during a period of “relative calm,” meaning it has yet to be tested by a period of high market distress. But the funds sometimes invest in instruments that become hard to sell in times of market stress, it says. ETF market makers and authorized participants looking for arbitrage opportunities trade dynamically to balance the supply and demand for ETF shares and their underlying assets, the report says. But if liquidity in underlying markets suddenly dried up, market makers would likely price that risk into their ETF quotes. This means investors may be in for a nasty surprise if and when their ETF’s liquidity profile starts to mirror that of its underlying assets, particularly in the less liquid fixed income markets. 

DC Participation Climbs

Defined contribution plan participation in the U.S. continues to climb, says Fidelity Investments. Its ‘Building Financial Futures’ report shows in 2008, the average participation rate was 65.8 per cent. By 2018, it was 73.5 per cent. Among plans with automatic enrollment, those percentages went from 79.9 per cent to 88.3 per cent, while participation rates in plans without automatic enrolment ticked downward from 56.6 per cent to 52.3 per cent. It found 91 per cent of employees who are automatically enrolled do not opt out and that participation among Millennials has increased by 82 per cent in the past 10 years, due in part to automatic enrollment.

Industrial Real Estate Goes To ‘More Strength’

The global industrial real estate market continues to go from “strength to even more strength,” says Mark E. Rose, chair and CEO of Avison Young. Its ‘Spring 2019 Global Industrial Market Report’ shows that eCommerce logistics, distribution, and warehousing requirements continue to drive the market and are increasing in line with online retail sales. While this demand has driven down supply, developers are increasingly becoming more innovative in regard to maximizing value through the repurposing of obsolete assets such as vacant big box retail stores and aged office buildings, as well as exploring multi-storey facilities which is a growing trend that caters to demand for close-in warehousing and distribution. The development pipeline remains robust, in terms of both product deliveries and new space under construction. The significant level of development has seen vacancy increase in some markets. Despite this situation, nearly all industrial markets remain significantly supply-constrained. All markets it monitors reported single-digit vacancy rates, while vacancy rates fell or remained flat year-over-year in more than half of the industrial markets surveyed. The strong demand and tight supply continue to put upward pressure on rental rates.

Private Fixed Income Team Boosted

Elaad Keren is senior managing director and head of mid-markets lending and Jeff Mayer is managing director, head of private securitization finance, for the Canadian private fixed income business at Sun Life Investment Management. Keren will be responsible for sourcing and approving investment opportunities within North America, as well as driving innovation and differentiation supporting the mid-market portfolio. He brings 15 years of experience to the role and was previously with CWB Maxium Financial where he was a member of the senior management team. Mayer is responsible for oversight of the origination, structuring, funding, and monitoring of the North American private securitization assets, as well as business development to grow the asset class through North America. He has 16 years of progressive experience within its private fixed income business.

Asian Debt Examined

Robert Petty, co-CEO and co-founder of Clearwater Capital, an Asian debt specialist asset management firm, will discuss when ‘East meets West: Investing in Asian Debt’ at a CFA Society Toronto session. He will discuss investing in Asia, distressed debt and private credit, fixed income investing, and portfolio management It takes place May 28 in Toronto, ON. For information, visit Asian Debt