Money in a sock drawer

A friend of mine sent me a link to a CBC story about CIBC selling negative-rate bonds for the first time in Canadian history. Negative-rate bonds means they are guaranteed to lose money, and people are buying a lot of them – CIBC raised almost $1.8 billion. Crazy, eh?

Here’s how a negative-rate bond works. When you buy a bond, you’re basically loaning money to the business or government, and they promise to pay you the full value at a certain time in the future. To make you more interested in giving them your money, they give you interest payments along the way. Really, it’s a big IOU and you’re the loan shark.

When the bond has a negative rate, you’re giving say $100 to the business/government and they promise to pay you $95 back. Why would you do it? Because you think the world is going to hell in a hurry and this may be your best bet. At least you’ll have $95.

Like the loan shark you are, if you’re not paid back in time you can take the assets they put up as collateral, they can raise cash by charging their customers more or they can call in their own debts to help them pay you back (after you break their knees, of course). What assets do Canadian banks have? Mortgages. Ah, the plot thickens!

Canadian banks are strong and strongly regulated. The government wouldn’t let them get into the pissing contest between the US and the UK when those countries were deregulating themselves into a tizzy trying to create new ways of making money that eventually led to the 2008 economic collapse. So we trust our banks. When you’re scared, you turn to people and institutions you trust.

That’s why people are handing money over knowing they’ll get less back in the future. They’re scared.

Emotions are running high right now. Here in Canada business investment is slow and the Fort McMurray wildfires took a chunk out of our economic growth when oil production stopped, according to the Conference Board of Canada. Horrible things are happening all over (another attack in France; failed coup in Turkey; race relations in the US; the UK second-guessing its Brexit vote). C’mon, Donald Trump is a presidential candidate fer cryin’ out loud.

Fear, greed and hope. That’s what runs the economy.

My friend wants to keep his money tucked away in his sock drawer. Can’t say I blame him. (Of course there’s inflation, but that’s a post for another day.)

Hitting the regulations wall

I hit the wall in Chapter 3: the Canadian Regulatory Environment. Twenty-eight pages of tedium, plus online exercises. I’m telling myself, you gotta get through this to get to the fun stuff in Chapter 4: Economic Principles. (Yes, by comparison, it is the fun stuff. At least we’ll get back to talking about money.)

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Chapter 1: The Capital Market managed to make money seem like a force for good. Of course it can be, but it’s really just a thing. The people behind it are what matter.

Chapter 2: The Canadian Securities Industry was a little easier, despite multiple definitions of underwriting. (Anyone else think of underwire bras? No? Just me then.)

Ok, one more push to finish. I’m trying to convince myself this is sexy stuff. Arbitration sounds fancy. Examples of unethical practices should be juicy. Trying really hard not to think of Paul Giamatti in his Billions bondage gear. I may need to watch Richard Gere in Pretty Woman instead.

Highlights of what I’ve learned so far:

  • Capital is just money that’s available so you can do stuff with it, like invest.
    Having more capital (money) means people can invest, businesses can increase productivity and governments can get more stuff done. So capital is good.
  • Lots of foreign countries invest in Canada because we’re seen as safe and secure. (Peace, order and good government baby!)
  • There are seven different stock exchanges in Canada, not just the TSX.
  • The big six banks run >90% of the country’s banking assets but there are oodles more banks (yes, oodles. Hey you’re not the one being quizzed. Believe me, I’m saving you.).
  • There are entirely too many definitions of underwriting.

Credit is like Spandex

Yesterday was tax day for me and I have mixed feelings. Usually I’m happy about paying taxes. I know, I know, I’m weird — but I’ve benefited from what my taxes pay for and I’m grateful. It’s also a great indication of how much money I’ve made.

Thanks to installment payments and lower income, I didn’t have to pay much for 2015. I’m trying to remember how stressed I was in 2014 when I was working seven days a week and a Big Personal Event happened that left me scrambling to find the time. Sure I made a lot more money, but it left me thinking about the whole work/life balance thing.

Oh, I’m self-employed, by the way. A lot of people think you have more free time when you work for yourself (as though you’re retired), but most self-employed people I know actually have less, because you’re working all the time.

I went to the bank to make the tax payments (I’m rather fond of the big PAID stamp they have) and while I was there I spoke to an advisor. I mentioned my next big project is saving up for an investment/income property. He told me that with my equity and good credit I wouldn’t need to save up, I could finance the whole thing through the bank. All I have to do is go in when I’m ready and they’ll pre-approve me.

Fully financing a second mortgage through a bank? Too Big to Fail started flashing through my brain. Credit is good, when used appropriately. But sometimes credit is like Spandex.

Just because you can get it, doesn’t mean you should use it.