Answering Readers Questions on HISA cash deposits

Responding to my HISA Rates page, a reader recently asked me about three interest bearing investments:

Purpose ETF

The Purpose High Interest Savings ETF is an Exchange Traded Fund listed on the TSX which is composed of deposits held at various Canadian deposit taking banks, trust companies, and credit unions. According to their website, the fund currently holds deposits with the following institutions: National Bank of Canada, Manulife Bank of Canada, First West Credit Union, First Calgary Credit Union, Coast Capital SavingsProspera Credit UnionVancouver City Savings Credit Union, BlueShore Credit Union, Westminster Savings.

Any Canadian investor with a brokerage account able to trade on the TSX can invest in this ETF. Your rate of return will be linked to the interest received by the fund from these deposit taking institutions. Their rates will be similar (and sometimes higher) to the rates offered by the large(er) institutions offering High Interest Savings Account mutual funds. Investors can buy and sell the Purpose High Interest Savings ETF just like they would shares of stocks on the TSX, and I assume there is also a market maker working to ensure liquidity of this ETF.  I’m not sure about the advantages of using this ETF other than potentially receiving a modestly higher interest rate, but with today’s low interest rates, we’re talking about fractions of a percent.

For most individual investors, since they are usually under the insured limit ($100,000 for CDIC deposits) it doesn’t help to diversify their cash deposits. As long as your cash deposits are less than $100,000, my recommendation is to use a single HISA with the highest rate and switch only when a better rate becomes available.

The two USD money market funds

The CIBC and RBC US$ money market funds mentioned by a reader are US dollar Canadian money market mutual funds. Each of these funds invests in US dollar denominated money market investments such as commercial paper and various types of trusts and asset backed notes. These mutual funds should be considered low risk, but are not risk free. These mutual funds also are slightly higher risk than High Interest Savings Accounts because the creditworthiness of the securities in these mutual funds is slightly lower than the CDIC insured deposits found of HISAs. In the grand scheme of risk though, these two US dollar money market mutual funds are still low risk. If you are a Canadian based investor with a US dollar cash portion of your portfolio, these two mutual funds are probably a good place to park your cash, if you are willing to understand the risks, you will receive a higher rate of interest compared to straight insured cash deposits, and you’ll also receive a higher rate of interest compared to what you’ll get if you just leave the US dollars sitting in your account.

Lending Loop

Investing in P2P lending sites such as Lending Loop is probably on the higher risk side of the risk spectrum. As an investor, participating in a P2P site like Lending Loop means you will be making syndicated business loans. A small business might use Lending Loop to get a loan at a rate and terms that are better than what they could get from their bank, and your loan to them will make up a portion of the total amount they borrow. A common strategy for P2P lending is to take your investment and build a portfolio of loans to various borrowers over a range of credits and timeframes that suit your investment objectives. Since the market for P2P loans is still a lot less developed than other forms of lending in Canada, as an investor, you should understand that you’re taking more risk and accepting a potentially higher reward.

P2P lending is not a substitute for a cash deposit, but it can make up a portion of fixed income portfolio, with a risk profile closer to high yield bonds than to cash.

What is PokerShares?

PokerShares is a website where users can bet on poker players. The site also offers odds on poker related events and poker props. I noticed recently PokerShares being mentioned by a bunch of people in the poker community including Daniel Negreanu, so below is an initial review of the PokerShares.

It seems like PokerShares offers users the ability to bet using fixed odds on a large variety of poker players in a number of tournaments. It also seems like this is not a marketplace of odds, so users are betting against the house (in this case PokerShares) instead of each other.

I signed up for the site, and new users are required to submit a bunch of personal information such as their name, address, phone number, and e-mail address. This seems like a lot of information to give to some site I’m just learning about, but I submitted the signup forms, and received a confirmation e-mail. After I confirmed my e-mail and logged into the site, a message was displayed asking me to confirm my identity by sending PokerShares a copy of my passport. They warn that if I do not confirm my identity in 14 days, that my account will become inactive.

After logging in, I scroll over to the 2018 WSOP main event page and I can see a long list of players offered. I notice some big names such as Phil Ivey are listed, but they don’t have other players such as Justin Bonomo listed for the WSOP main event.  There are four columns listed in the table of players that users can bet on: their name, markup, price/1%, and % available. Using the price of Adrian Mateos as a guide, he is priced at a markup of 4.3 so his price per 1% is $430, and the book seems to be taking up to $20,000 worth of bets on him. A $10 bet on Adrian Mateos will pay $1,895.35 if he wins. This makes his implied odds = 10 / 1,895.35 = 189.50.  These odds are implying an 0.527% chance that Adrian Mateos wins the main event.

If we assume the 2018 WSOP main event gets 7,000 entrants, then the raw likelihood of Adrian Mateos winning is 7,000. So with odds of 190, it seems pretty expensive to bet on Adrian Mateos?  Is Adrian Mateos that much better than the average player in the field?  Maybe, I don’t know enough about WSOP main event odds to say.

At first glance, the way prices are set on PokerShares seems a bit convoluted, but I can see what they are going for. In poker, its common to invest and trade shares in players (and yourself) as a way to spread risk and raising money, so by presenting the betting as a way of “investing” in shares of poker players builds off this culture. On the other hand, the pricing format kinda obscures the information and makes it a bit more difficult to determine the odds.

If anyone has further comments on PokerShares, please post your comments below in the comments section, I would love to learn more about how this market works.

Microsoft Buying GitHub?

Microsoft may announce this week they are purchasing GitHub for $2 billion. This seems like a good deal for Microsoft. The financial problems for GitHub are related to expense control, but their service is becoming increasingly indispensable for developers. I think Microsoft could also find revenue synergies as well.

Toronto Short Term Rentals Airbnb New Rules

Residents and property owners are renting out rooms or entire units for short periods (less than 28 days) in growing numbers across the city, facilitated by the rise of online platforms such as AirBnB, VRBO, etc. Currently, short-term rentals are not permitted in Toronto.

On December 7, 2017, and January 31, 2018, City Council approved the regulation of short-term rentals in Toronto. The new rules, which require short-term rental companies to obtain a licence and short-term rental operators to register with the City and pay a Municipal Accommodation Tax of 4% were set to come into effect on June 1, 2018.

However, the City’s zoning bylaw amendments to permit short-term rentals as a use have been appealed to the Ontario Municipal Board (OMB). They are therefore not in force. The OMB has scheduled a two-day hearing on August 30 and 31, 2018.  The City does not expect to receive a decision from the OMB for at least eight weeks after the hearing.

Therefore, the regulations for short-term rentals will not come into force on June 1, 2018.

If the City receives a positive decision at the OMB, the short-term rental regulations will come into effect. Individuals will be given a period of time to submit applications for a licence or registration and the 4% tax will be implemented. More information on what is required to collect and remit the tax will be available at that time.

If you would like to receive updates about the short-term rental registry and licensing program, contact mlsfeedback@toronto.ca to be added the mailing list.

For more information, see the decisions made by City Council to adopt a new zoning bylaw permitting short-term rentals and a registration and licensing program for short-term rentals.

CME Ethereum Price Index

CME Group and Crypto Facilities (CF) have reteamed to bring enhanced pricing information to one of the top five global cryptocurrencies.

Introducing CME CF Ether-Dollar Reference Rate and CME CF Ether-Dollar Real-Time Index, both available on the CME Group website.

The new pricing indicators are designed to: 

  • Offer price transparency, real-time replicability and reliable benchmark sources for price discovery
  • Accelerate the professionalization of Ether trading
  • Complement our Bitcoin Reference Rate (BRR) and Bitcoin Real-Time Index (BRTI)
  • Draw on our experience developing global pricing benchmarks

Three Ways to Access Streaming and Historical Data: 

  • CME Group website
  • CME DataMine
  • Market Data Platform (MDP)

Deribit vs Bitmex UP contracts

Deribit users received an e-mail outlining the difference between their options contracts and the Bitmex UP contracts recently released. Here is the text of their e-mail:

Last week, Bitmex introduced a new contract named UP (Upside Profit) Contract. This contract is basically an option on BTC, exactly like the options traded on Deribit.

 

The prices of Deribit options are established by buyers and sellers in the market. Anybody can participate at any time in the bidding process, provided enough margin in the user account.

 

The Bitmex UP contracts can only be bought. There is only one party that can short the contract, which is only one market maker designated by Bitmex. This market maker seems to be doing quite well, as the price at which the contracts have been issued are around 10 times higher than the contracts with the same specifications on Deribit (the only difference being that Deribit options expire a couple of hours earlier than the UP contracts on Bitmex).

 

The buyers of the UP contracts on Bitmex must have been unaware of the fact that they could have gotten an almost 10 times better deal on Deribit. We will explain this below with an example.

 

Looking at the Bitmex UP contract with expiry date 4 May 2018 and strike price of 10250, the current ask price for this contract is 0.0033 BTC. This contract would give a payout of the difference between the settlement price and the strike price whenever the price of BTC is higher than 10250 on the 4th of May. The contract size is 0.1 BTC, meaning that a trader would have to buy 10 of the contracts to get the full difference between strike price and settlement price (if settlement price is higher than 10250).

 

Looking at the 4 May 2018 contract on Deribit with strike price 10250, the current ask price is 0.0039 BTC. At first sight, the market on Deribit and Bitmex seem somewhat in line, but the contracts on Deribit are options on 1 BTC, while the contracts on Bitmex are options on 0.1 BTC.

 

This means that a trader on Bitmex would have to spend 0.0033*10=0.033 BTC to get the same exposure as buying on Deribit a single 4 May 2018 contract for 0.0039 BTC. Thus, in this case, a buyer is 8 times better off on Deribit than on Bitmex. In other words, traders could have saved almost 90% of their investments in Bitmex UP contracts by buying similar contracts on Deribit.

 

We hope the huge discrepancy between options prices on Deribit and Bitmex cannot only be explained by the fact that there is a single party who is allowed to short sell those contracts. We believe a mistake has been made as for the issuing price of the contracts. Let’s see if the UP contracts will get more reasonable prices in the coming weeks.

Toronto Rent Control Restricting Supply

As a Toronto property owner, I guess its good for me when my competitors won’t add to the supply of residential rental apartments (“smart”/current landlords are getting rich(er)), but as a Torontonian, I think rent control is hurting our city (and extending our commute times) since limiting the rent residential landlords can charge decreases the incentives for developers to add supply, thereby just making it more expensive for tenants in the long run. But if few Torontonians understand the dynamics of supply and demand, will rent control still sound appealing to voters? Probably 🙁 Rent control is making it harder for young people to own property, so keep investing in Toronto based REITs.

Allied Eyes 10-Year Bond to Fund Office Push for Toronto Tech

Allied Properties Real Estate Investment Trust is planning to spend about C$1 billion ($790 million) over the next five years to meet the frenzied demand for offices by tech workers in Canada’s biggest city.