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.)

Advertisements

Faces behind the figures

There’s been a lot going on lately, both in the world at large and my own personal life (Bluesfest is on, when I participate in my favourite sport – concerting). As a result I’ve been neglecting this blog, and to be honest, my studying. With a full-time contract & contracts on the side, plus an active social life and a fitness routine (yes, I actually have one), it’s hard to find the time for something I’m doing just for me.

I’m up to Chapter 6 now, on bonds. Bonds, just bonds. The entire chapter is full of terminology and I finally realized why it’s so boring.

The people are missing.

Bluesfest 2014

(At Bluesfest 2014)

Sure, there are things that I can make interesting, like strip bonds and convertible bonds. Now don’t they sound sexy? Strip bonds are bonds that have been stripped of their regular interest payments and resold for just the face-value amount. So if you have a bond worth $100 that pays you 5% interest annually until it matures in five years, and you sell it to me, I can sell the bond but keep the interest payments. Convertible bonds are bonds that can be converted into shares. It’s a way companies can raise money, by first borrowing (via bonds) then selling (via shares).

But I have to work at it. I have to imaging someone on a pole stripping (not me) and someone in a convertible (hopefully me). Maybe that’s just how my mind works, but what makes life interesting is the people.

That’s why the events in the US (Orlando, Florida; Baton Rouge, Louisiana; St. Paul, Minnesota; Dallas, Texas) and the UK (Brexit) are so riveting – we’re relating to the people involved and how they’re affected.

So I’ll keep going, slowly but surely, and try to find a connection. Money and the economy affects every single person and they’re just too important to be this boring. (I have to find the characters in the text. Get it? Tee hee!)

I’ll start by imagining James Bond stripping after picking me up in a convertible.