The bond market

In case you missed it, trouble’s back. Devastating earthquake overnight in Japan. Gas at the station near the bunker is now $1.21 for regular. China’s exports slowed. Spain had its credit rating cut. The number of unemployed Americans shot up. Oil’s a hundred a barrel – now plunging. Libya’s at war. The US real estate market’s in free fall. There are riots in Wisconsin. German exports tumbled. The American trade deficit swelled. And the Toronto stock market laid an egg Thursday, with more eggs to come, as the tsunamis wash ashore.

But while all this happened, bonds jumped. If you happened to own marketable corporate or government bonds, you made some money while other people lost lots. The reason was simple: investors fleeing volatility and bailing out of stock-term positions in stocks piled into the security of fixed income. Demand trumped supply. Bond prices were up, which forced yields down.

If this confuses you, you’re normal. Most people don’t have the foggiest. Even those who think they understand bonds and sagely warn on this blog not to buy them because interest rates will rise, don’t get it. But investors with a balanced portfolio – fixed income plus growth assets – are sure relieved right now.

I think it’s time for a little refresher on the bond market. So lay down your weapons, and go to your seats.

The bond market is humongous, about 14 times fatter than the stock market. Here trillions of dollars change hands as debt is bought and sold. Bonds are obligations to pay investors back the money they lend to governments or companies, on a certain day in the future. In the meantime, they pay interest.

When interest rates rise, bond prices fall and yields rise. That’s because existing bonds become less valuable when new money can be invested at higher rates. So to compensate, you get to buy old bonds at a discount (lower prices). That’s why many people think you should not own bonds at a time like this, when rates have nowhere to go but up.

True, bonds prices are determined by rates. And when interest rates fall, old bonds are coveted because they pay a premium, so investors might pay $1,100 to buy a bond that will be worth only $1,000 on the day it matures. But this is not the only factor, as this week proves.

Bonds are also like stocks or condos or guys with hair, in that when people really want them they’re willing to pay more to get them. Like now. So bond prices rise because of demand, which means the effective yield paid to those investors falls. But they don’t care – they bought to get a safe haven, not a big return. And when bond prices go up because trouble’s back, the investors who own those bonds – and have been quietly collecting their interest – suddenly have assets which are worth a premium. They can sell them and pocket a capital gain, just like scoring on a stock trade.

This is why every investor should have bonds. And preferreds. And trusts. As well as ETFs.

In the months, and possibly years, which lie ahead of us there will be nothing more predictable than unpredictability. Markets will be volatile and surprising. Commodity prices could spike wildly, then plunge. Real estate will be vulnerable, of course, but so will most of your mutual funds and almost all of your individual equities. Cash will be no strategy, raped by taxes and relentless inflation. And all of this churning turmoil will be some exceptional opportunities.

The key to making and keeping gains, while protecting your principal, will be balance. I cannot stress this enough. Fixed income for stability, income and the potential of capital gains, along with growth assets to reap each market advance and harness the relentless, if uneven, recovery.

Bonds are essential to achieving this balance. Government bonds, corporate bonds, high-yield bonds, inflation-indexed bonds, even strip bonds. Convertible, retractable or extendable. Short or long. There are literally thousands to choose from, as well as hundreds of derivative bond funds.

Remember, these bear no similarity to Canada Savings Bonds. Nor do you need to buy a bond and hold it until it matures. The bonds I’m talking about are marketable – in other words, you can buy them any time and sell for cash within three days, regardless of whether it matures next month or in 23 years. You can buy them in denominations of $1,000 to $10,000, and they all come with credit ratings telling you the relative quality of the issuer (the rate you earn rises with risk).

If you know what a bond issue is priced at and the coupon rate it pays, you can determine the effective yield while you own it. For example, if a corporate bond with five years left to maturity is selling for $93 and comes with an obligation to pay you 6% interest, the yield is determined by dividing the income (.06) by the price (.93). In this case, the effective return would be 6.45%. The yield to maturity can also be calculated.

This is a complex subject. But it’s vital. Especially now. The days ahead will show you why.

If there is interest on this blog, I will post a few articles on how to buy bonds, as well as the other major component of fixed income, preferred shares. I’m happy to do so.

How I will work in pictures of sexy people in underwear is another issue. My cross to bear.


#1 KingBubbles on 03.10.11 at 11:23 pm

First ?

#2 LH on 03.10.11 at 11:23 pm

As I’ve said time and time again, prepaying fixed mortgages is EVER BETTER (and in fact dominates) buying Canadian Government Bonds, and similar low-yielding corporate bonds. The rate/coupon is higher, the return is tax-free (assuming you are not claiming tax deduction on mortgage interest) and since mortgages in Canada are full-recourse, the return is effectively risk-free as well (I am assuming that your loan-to-value is low enough that the option value of bankruptcy is nil).

For those who choose to lever up their investments through borrowing against their home, low-yielding bonds (anything yielding lower than the mortgage rate for a similar maturity) is to be avoided!!

There are bonds with all kinds of yields that blow your argument out of the water. In addition, bonds are not obligations attached to a potentially tumbling asset like houses. And, of course, you can’t make a capital gain on a mortgage, or convert a home loan into cash in three days. You were more impressive when bragging about your little rental properties. — Garth

#3 Just a Tech on 03.10.11 at 11:25 pm

Yeah a few insightful articles into the how-to of buying these things would be greatly appreciated!

#4 CoB on 03.10.11 at 11:26 pm

Yes yes yes to more posts on bonds, preferred shares and fixed income!

#5 Spazmogen on 03.10.11 at 11:27 pm

Bring forth the Bond knowledge Garth.

I recommend ” Bonds for Canadians: How to Build Wealth and Lower Risk in Your Portfolio” by Andrew Allentuck.

I got my copy at my local library. It’s an easy read.

#6 Morpheus on 03.10.11 at 11:27 pm

I’m curious about what you think of Bill Gross of PIMCO pulling out of U.S. bonds completely. He’s been warning about doing it and finally has. I know you think he likes to create a lot of public posturing or his own gain. But this is a talk the talk and walk the walk move.

#7 LH on 03.10.11 at 11:28 pm

To put it another way, when I take on a fixed rate mortgage, I am basically selling the bank a fixed-rate bond, secured by my house and backed by the full faith and credit of ME. Guess what happens when interest rates fall? The aforesaid bond owned by the bank INCREASES IN VALUE!!

So what do I do? I stick it to the bank by PREPAYING as much as I can. This is not equivalent at all to putting more money into my overvalued downtown Toronto house; I did that when I signed on the dotted line on the CREA form years ago.

#8 Mean Gene on 03.10.11 at 11:29 pm

Hey is the Elvis impersonator actually James Bond under cover??

#9 unbalanced on 03.10.11 at 11:31 pm

An excellent post !. Thanks for all your hard work trying to teach some of us who have no clue.

#10 Soylent Green is People on 03.10.11 at 11:34 pm


Please note Canada is to be referenced as “Harper’s Government” from this point on. Ignore at your peril; he has the rubber bullets.


Mr. Ignatieff was mystified. Or at least incredulous. “Mr. Speaker, I can barely believe it,” he said.

“Harper’s Government seems to believe Canadian democracy is a distraction.”

In fairness to Mr. Baird, there is much to distract the Conservatives these days.

In addition to those two rulings of the Speaker, there are the four officials of theirs, including two sitting senators, presently facing charges of violating election laws.

There is the government’s recent defeat at the Federal Court of Appeal.

There are those questions about how the Immigration Minister conducts his office and why the former integrity commissioner was paid half a million to go away.

There are those ninnies whining that the Government of Canada should not be renamed in Mr. Harper’s image and that, whatever we are to call it, the government should not be spending millions in public funds to promote its own cause.

And that’s just the last two weeks.

Now, today, there is the Parliamentary Budget Officer claiming the government’s $16-billion commitment to new fighter jets is something closer to a $30-billion commitment.


#11 Cyrus on 03.10.11 at 11:35 pm

#12 Pity The Fool on 03.10.11 at 11:38 pm

More info on bonds and preferreds please Garth!

#13 Walt on 03.10.11 at 11:38 pm

Hi Garth

I’d be interested in those articles on how to buy bonds, as well as the other major component of fixed income, preferred shares.



#14 LH on 03.10.11 at 11:40 pm

“There are bonds with all kinds of yields that blow your argument out of the water. In addition, bonds are not obligations attached to a potentially tumbling asset like houses. And, of course, you can’t make a capital gain on a mortgage, or convert a home loan into cash in three days. You were more impressive when bragging about your little rental properties. — Garth”

For the sake of argument, let’s just assume that I’m a house-horny 26 year old Chinese-Canadian whose religion is real estate. God save me!

Now, since I can’t possibly divest myself of my tabernacles, what is the second best thing I can do? I should buy lots of dividend generating equities, and high yielding bonds (also known as “junk”) would be advisible as well. I should even buy equities, corporates, preferreds, converts, REITs from all around the world. No argument there.

However, I cavil against the idea that all bonds are better than mortgage prepayment. They are not. Most Canadian house debt slaves can get a better return by prepaying their mortgage than they can get from Govt and similar top-rated (low yielding) corporate bonds. And even better, if you have readvancable loans like me, I retain on-demand liquidity, no worse than the bond market (trust me, that’s where I work for my day job)

#15 Canada's housing crash on 03.10.11 at 11:43 pm

A cautionary tale: How to go from billionaire to broke
Just because a bank will lend you the money, it doesn t mean you should take it
Damn those credit cards are easy. You just wave one in front of the cashier and poof! The thigh-high Sigerson Morrison boots are yours, hon! Just like that. And then one day you open your statement, expecting the worst, only to find, poof! They’ve increased your credit limit! Just like that….

#16 Gene on 03.10.11 at 11:43 pm

Thought you hypochondriacs would be interested in this thread from a poker forum I’m on. Guy is flipping 4 houses in the next year in Edmonton.

#17 Ayn Rand on 03.10.11 at 11:45 pm

Not fair giving us ladies all the fatso and wrinkly old guys and you give the guys lots of nice pictures.

Why even Garth is looking pretty hot lately.

Great post BTW.

#18 Cellar Dwellar on 03.10.11 at 11:46 pm

“Bond. Garth Bond.”

bring on the info O wise Oracle of Oshawa

Oshawa? — Garth

#19 Cellar Dwellar on 03.10.11 at 11:47 pm

11th !

#20 cendrine on 03.10.11 at 11:47 pm

Count me in re: purchasing bonds.

People in sexy underwear? Make sure they’re male and buff. Waxed and polished.

And no more Borat.


Got that?

#21 bah on 03.10.11 at 11:48 pm

Yes, please, would like to learn more about bonds and other investments.

#22 radio free OJ on 03.10.11 at 11:49 pm

great post. keep it coming! thanks

#23 mikef on 03.10.11 at 11:49 pm

Prudent,flexible,and balanced.

Gee,you don’t say?

#24 Nearlyready on 03.10.11 at 11:51 pm

This year, my 31st, I will have at long last escaped my debt. It was the result of student loans, unemployed credit card survival and bad decisions.

I will very soon be able to pump about $1500 a month into investments and have no idea ho to go about buying bonds. Everything I’ve read is discouraging; web sites say that it is very difficult for small timers or individuals to buy bonds.

I would love to see a small how-to.

#25 Todd on 03.10.11 at 11:53 pm

I’d love to hear more about purchasing bonds and preferreds. I just don’t know a lot about bonds. More about preferreds, but I seriously doubt I’ve scratched more than the surface there.

#26 Weeping in Windsor on 03.10.11 at 11:55 pm

Thanks ^ for that photo Garth.

#27 levelzero on 03.10.11 at 11:56 pm

I would greatly appreciate more information on bonds.

#28 nonplused on 03.10.11 at 11:57 pm

A bond primer would be helpful. I think I know how they work generally but have to crack out the calculator to figure out effective yields and stuff like that. Also if you have some tips for bond funds like the divide trick above that would be more helpful to me, as I don’t, or at least haven’t, purchased individual issues.

#29 Scalgary on 03.10.11 at 11:58 pm


I’m very curious to hear more from you about fixed income/growth opportunities…

Could you please include how an investor’s first 50,000 to be invested (either through TFSA or RRSP) as I am in that category?

I am currently holding my savings in savings account just because i am not comfortable doing anything due to peak at Stock Markets…

Thanks in advance…

#30 Sash North York on 03.11.11 at 12:00 am

I would love more info on the subject. I would prefer to walk into your office and pay for the service but I am capable on clicking on a few buttons especially if you make it very specific as to what exact product to purchase. Any info greatly appreciated. You are a great person for sharing all your information over the years, I have learned an invaluable amount of knowledge from you. Thanks for keeping us up to date.

#31 SpaceMonkey on 03.11.11 at 12:01 am

I too would be interested in reading a how to about bond buying. Not only how to buy them, but how to select good bonds to buy, and when/if to sell them.

#32 Zarathustra on 03.11.11 at 12:01 am

Garth – Please dedicate one blog to “investing for dummies”. The nice lady at the bank has all my condo money. How much should be bonds, how much in stocks, and what the hell is an ETF?

#33 torontorocks on 03.11.11 at 12:02 am

Garth, do it. I was watching that goddamn city/ctv news whatever with Ann Roehmer talking it up with some dude about Toronto real estate. She asked if the global events had anything to..”nothing” he interjected. And jumped in saying that when 9/11 happened, people flocked to real estate…they go to land. I think he’s the Monster Mortgage pimp. anyways. educate us. b/c right now, I’m priced out of this market though I make enough to jump in. I just can’t yet. I can’t do this b/c I think its bullshit.
Do something up on the prefs and thank you for the bond lesson. you’d be surprised who you audience is.
Irregardless of the books you sell, you’re now responsible for us all, you bearded stud.

#34 paulb. on 03.11.11 at 12:05 am

Great post! Thank you, and I am very interested in hearing more.

#35 Utopia on 03.11.11 at 12:05 am

Great idea Garth. You know there are some types of Bonds I just hate and I have made no secret of it. Your audience seems pretty keen though. Bring it on.

#36 InvestorsFriend (Shawn Allen) on 03.11.11 at 12:06 am

LH, I agree good idea for many people to just pay down the mortgage.

Then again if you are talking RESP and RRSP money here, it’s not easy to use that for the mortgage. (Yeah I know it is possible for RRSP but it is complex)

And lots of people especially the 50 plus set have already paid off the mortgage. So bonds are a good idea for them.

I would tend to stick to corporate bonds of 5 years or less maturity or a short to medium term bond fund or ETF.

For the ETF see XSB on the TSX. Perhaps better to buy indivdual bonds but that takes a larger portfolio.

No way would I buy a 30 year government bond at today’s low interest rates, too much inflation risk. Even the 10 year I would not buy.

Real return bonds are a possibility. They protect against inflation. Not well known is the fact that they do not protect against an increase in the real return yield. Right now these yield a paltry 1.30% plus inflation. Near a record low. So maybe these are okay if you need to protect against inflation over 10 to 30 years. But if you are looking short term I don’t like these due to the risk of a rise in the real yield.

Nobody buys 30-year government bonds to hold them. Stick to slinging stocks. — Garth

#37 [email protected] on 03.11.11 at 12:06 am

More Bond-Info please…Thanks G

#38 comfortably numb on 03.11.11 at 12:09 am happy gas is only $1.21 where the bunker is. It’s $1.33 in parts of the BPOE. Thank God I drive a diesel VW…1000km’s to the tank.

Yes, please, regarding the bond & preferreds teachings

#39 RM on 03.11.11 at 12:12 am

You put it well in simple words. More information on bonds, prefered shares and fixed income will be wonderful. Thanks.

#40 Andy In Vancouver on 03.11.11 at 12:16 am

Yes, please.
Bond advice would be awesome.
If they go up when the stock market takes a dump, they’re better than cash in your portfolio.

I vote for bond advice … and thanks!

#41 Makes Cents on 03.11.11 at 12:16 am

Would greatly appreciate your willingness to share your knowledge, thank you. Very much looking forward to future posts.(Pray that pics improve)

#42 tell us about bonds on 03.11.11 at 12:19 am

We have read daily that real estate will go down and we’re all waiting for that day as we like you understand this asset has nothing to do but devalue.

So help us make money until that day arrives. Teach us about bonds and other assets for this day and time.

#43 moremiles on 03.11.11 at 12:20 am

Please point out the line to sign up for the short course on bonds.

#44 Bankrupt in Brampton on 03.11.11 at 12:23 am

Prices always go up? Hurry or you will be priced out forever? What a load of garbage and in the end lost everything ( downpayment $10K , wife , pride , sleepless nights and much more) . That [email protected] should of never approved a mortgage and maybe I would still be married. Maybe it just my fault for dreaming to own something I will never have. When you only make $12 an hour a $350K mortgage is more then one can handle. Maybe in 2009 this blog could of helped but now it’s to late. Don’t be fooled by scumtlors and bankers because RE does go down. If RE always goes up why have others lost their homes like me? Wouldn’t we all just sell for more money before we lost it all… I want to cry but now there is no more tears. Don’t believe the hype and lies. Maybe now you will be happy with what you have cause what I have is nothing.

#45 TaxHaven on 03.11.11 at 12:23 am

You open with “Gas at the station near the bunker is now $1.21 for regular.”

And, “Oil’s a hundred a barrel.” And you didn’t even mention food prices, just beginning to take off…or college tuition. Or medical care. Or heating costs. Or, in fact, the costs of just about everything which relies somewhere on OIL…

In the same breath you advise us to flee to fixed income? How are we to keep ahead of price inflation? Quibbling about 2% returns or 4% returns obscures the fact that living standards are FALLING anyway.

What happens to bond returns (denominated in any currency) when the prices of REAL goods are taking wing? Bonds are a slow way to penury…

Marc Faber and Jim Rogers call SHORTING bonds “the trade of the century”, and with good reason.

All roads lead back, I’m afraidto repeat again, to physical gold bullion. Not because the world will end, but because having your money in the form of that asset class in shortest supply is the best guarantee we can find that you will keep up with inflation in other, less scarce, areas…

I did not tell anyone to flee into bonds, but rather to get educated and then pursue a balanced portfolio. Stop being a drama queen. — Garth

#46 Bankrupt in Brampton on 03.11.11 at 12:24 am

Prices always go up? Hurry or you will be priced out forever? What a load of garbage and in the end lost everything ( downpayment $10K , wife , pride , sleepless nights and much more) . That [email protected] should of never approved a mortgage and maybe I would still be married. Maybe it just my fault for dreaming to own something I will never have. When you only make $12 an hour a $350K mortgage is more then one can handle. Maybe in 2009 this blog could of helped but now it’s to late. Don’t be fooled by scumtlors and bankers because RE does go down. If RE always goes up why have others lost their homes like me? Wouldn’t we all just sell for more money before we lost it all… I want to cry but now there is no more tears. Don’t believe the hype and lies. Maybe now you will be happy with what you have cause what I have is nothing.

#47 moremiles on 03.11.11 at 12:26 am

Please point out the line to sign up for the short course on bonds. I look at the offerings on the RBC direct investing site & I am less than impressed. Or maybe I just don’t understand what I am seeing.

#48 MarcFromOttawa on 03.11.11 at 1:00 am


#49 Tre on 03.11.11 at 1:01 am

Hey Elvis is still alive he sure gained weight! He looks like Canadian house prices ready to croak!

#50 Jason on 03.11.11 at 1:09 am

Yes am very interesed in your thoughts on how to buy bonds, as well as preferred shares. That would be a great post(s). Thank you!

#51 Kitchener1 on 03.11.11 at 1:15 am

I dont know man, i would stay away from bond tutorials if I were you.

There not all that complicated if you understand the mechanisms but they are kind of the opposite of the stock market in terms of yields but in terms of market and ability to trade/sell they are the exact same.

I like what you are doing here– giving financial advice etc.. but the people that are interested in it have to take the initative and research it themselves.

Most people cant do simple ammort math when it comes to mortgages. This blog seems to be well educated but I think it will do more harm then good.

People still cant grasp index funds and ETF’s vs housing as is evident by some of the dumb posts on here.

I forsee a long a few days for you if you do go ahead and post, lots of monitoring the blog and correcting peoples mis guided assumptions.

#52 Fiendish Thingy on 03.11.11 at 1:18 am

Here’s one more vote on specific how-to’s for bonds, preferreds, ETF’s, fixed income, etc.

In addition, any I’d welcome any advice on the best (best rate/lowest fees) way to convert the $USD proceeds from the sale of my California residence to $CDN for investing/waiting for BC RE to bottom out (we hope to relocate to BC this summer once we find jobs).

#53 Bigboy on 03.11.11 at 1:18 am

Does that “Elvis” in the picture realize the bottom half of his body is backwards! Yuk, double Yuk! Yes please, more info on bonds, pref’ds and ETF’s. Maybe with a more palatible photo! How about a cute puppy or kitten so I can get this one out of my brain.

#54 citizenman on 03.11.11 at 1:18 am

I would like more info on bond buying. I have a TFSA account with QTrade but the smallest denomination seems to be 10000. Are there other ways to invest in bonds with smaller amounts?

#55 Paul on 03.11.11 at 1:22 am

How about the VIX?

#56 Kate on 03.11.11 at 2:32 am

I’d love to know more about bonds, so please proceed. Thanks!

#57 Timing is Everything on 03.11.11 at 2:32 am

#16 Gene

Thanks…Read it all…so far.

Very interesting.

#58 Don on 03.11.11 at 2:40 am

More on Bonds Please

Much appreciated.

#59 BBC on 03.11.11 at 2:48 am

You rock!

#60 freedom 55r on 03.11.11 at 2:55 am

The more info, the better, so I vote yes for more on bonds but I’d also appreciate an article some time on the various types of ETFs.

#61 April on 03.11.11 at 3:16 am

The American #231 – So Much for That – Mar 8.

Love reading your posts on what you folks think of the Canadian R.E., banking etc situation. Keep it coming.
Canadians seem to be completely brainwashed by the media. I find it most irritating.

#62 debtified on 03.11.11 at 3:25 am

Headline: S&P 500 Drops to Lowest Level Since January Amid Concern Economy Will Slow

Behind the story: “China’s unexpected $7.3 billion trade deficit, the biggest in seven years”

#63 JB on 03.11.11 at 3:27 am

Bonds hmm, I understand them yet I was caught with my pants down (without bonds) today.

I jumped into the stock market last April, have really done well but I think the fun machine has taken a (u know what) and died. Too much turmoil going on as mentioned by Garth above, to that list add tomorrow’s “Day of Rage” in Saudi Arabia and an 8.8 earthquake off the coast of Japan and it all leads to a nasty Friday.

If things get ugly in Saudi, maybe it wont be higher interest rates and lower amortizations that triggers the major correction in Canadian housing, it could be another global downturn via high priced oil. I think we had all better learn a lot about secure investments in a hurry.

#64 Tim on 03.11.11 at 3:27 am

Bill Gross Sells All US Bonds

Yes, the biggest bond fund guy?
Pimco Total Return in December expanded its mandate to invest as much as 10 percent of its assets in preferred stocks and convertible debt, a hybrid security that can be converted into stock at a predetermined price, according to a regulatory filing.

Gross, who has overseen the expansion of Pimco into a $1.2 trillion bond shop over four decades, predicted a year ago that “bonds have seen their best days.” Last month, he said Treasuries may have to be “exorcised” from model portfolios.

#65 Tim on 03.11.11 at 3:33 am

Conservatives, John Baird will not be distracted by your Democracy

Budget Watchdog Doubles Price Estimate for F 35 Fighter Jets–budget-watchdog-doubles-price-estimate-for-f-35-jets?bn=1

Thanks Harper for giving Canadians so much help. Instead of feeding the poor and funding the arts and education, you spend billions on fighter jets. Just what Canada needs, hell, we may be invaded by a Spanish fishing vessel trawling for Cod, glad we’re gettin’ those fighter jets. Hell, what else could Canadians do with $30 billion?

#66 hobbygirl on 03.11.11 at 3:34 am

Yes more info on bonds please…

Sexy pics of men too please. I would suggest Matt Damon.

#67 Hosehead on 03.11.11 at 3:38 am

Yes please for more info on bonds. What makes this blog so great is that it’s not just about real estate.

#68 Emma on 03.11.11 at 4:07 am

A free Garthonomics bond series? Who in their right mind could refuse?

#69 confused and a little crazed on 03.11.11 at 4:16 am

to reinterate the others
yes to more bond and preferred info..

thank you
by the way gas is $1.29/ litre in lower mainland. we should get used paying more for everything but have one of the lower salaries in all of canada

#70 ALE on 03.11.11 at 4:20 am

“….reap each market advance and harness the relentless, if uneven, recovery.”

The only event that will be relentless is the decimation of western standards of living over the next decade.

#71 Rick in Japan on 03.11.11 at 4:30 am

Yesterday: #42 Nostradamus Le Mad Vlad
I was on a train leaving Osaka 2 hours ago when a big earthquake hit Northern Japan. I went back to yesterdays post where you mentioned the moon on the 21st of March. More to this blog than meets the eye. . .

#72 Yes on 03.11.11 at 4:49 am

“If there is interest on this blog, I will post a few articles on how to buy bonds, as well as the other major component of fixed income, preferred shares. I’m happy to do so.”

– Yes, please.

#73 tiedattutu on 03.11.11 at 4:56 am

Wow Garth,

Now I know why you think your derriere is so fetching. Your ersatz Elvis makes even me look like an aerobics instructor.

The Permanent Portfolio is becoming pretty popular here in the US. I would surmise you don’t recommend it.

Cedrine-at least it covers his harum, thank God.

#74 tiedattutu on 03.11.11 at 4:59 am

How would you like to be that guy’s urologist? Would you get a finder’s fee?

#75 VanLarry on 03.11.11 at 5:07 am

Glad that people on this blog are interested in bonds. I’ve been hoping you’d share more knowledge about them, a bit more then what you’ve covered in your book.

Hopefully less people would get intimidated, they are after all bigger then the stock market and market is decentralized. Of course, some debentures are listed in TSX.

#76 Brian1 on 03.11.11 at 5:10 am

Bonds are a difficult subject. I understand that if we enter a period of deflation then bonds are destined to appreciate, but they are quite individual and do not mix well in an ETF. It may be likened to the derivatives within a CDO.

#77 Rob now in Nova Scotia on 03.11.11 at 6:33 am

Count me in regarding investing in the bond market but on one condition: you have to mention how and why Bill Gross of Pimco sold his entire load of US Treasury Bonds.


#78 SAD on 03.11.11 at 6:57 am

Bond advice would be great.

#79 House on 03.11.11 at 7:32 am

Bonds are rated. Yes. By Moodys and S & P and we know how expert they are in determining risk!

#80 somecatchphrase on 03.11.11 at 7:40 am

It would be great to see a future post on how the bond market influences mortgage rates, with a focus on the limits of the central bank’s control over rates.

One of the most annoying misconceptions observed on this blog is the belief that the government and/or banks have absolute control over mortgage rates.

#81 JoeThePlumber on 03.11.11 at 7:42 am

You are saying two things: buy bonds and interest rates are guarantied to go up real soon. So does that mean that you are also suggesting that we’ll be stuck holding the bonds to maturity while better gains can be made elsewhere? Wouldn’t it better instead to buy defensive stocks at this time and be ready to cash out when the stock market rebounds? I am no expert. Just humbly asking.

#82 Hamilton guy on 03.11.11 at 8:12 am

yes please do expand on this topic – the stock market and ping pong are starting to resemble each other
thank you

#83 Victor on 03.11.11 at 8:16 am

#36 InvestorsFriend (Shawn Allen)

Real return bonds are a possibility. They protect against inflation. Not well known is the fact that they do not protect against an increase in the real return yield. Right now these yield a paltry 1.30% plus inflation. Near a record low. So maybe these are okay if you need to protect against inflation over 10 to 30 years. But if you are looking short term I don’t like these due to the risk of a rise in the real yield.


Just last month in February I picked up 3000 shares of XRB at ~$21 for my wife’s RRSP account. Yesterday it closed at $21.89.

It’s not just the yield that matters with these funds. As Garth has pointed out numerous times the opportunity to enjoy yields *AND* capital gains is what makes these kinds of ETFs so attractive.

#84 Gord In Vancouver on 03.11.11 at 8:20 am

Thanks for putting it in terms we can understand, Garth.

#85 bigrider on 03.11.11 at 8:23 am

February Canadian Employment numbers( as disappointing as they were) should stall any interest rate increases by the Bank of Canada for at least end of year. F&^k

That means more B*&^sh(t mania for real estate market.

Nobody wants this RE market to tank worse than I

#86 T.O. Bubble Boy on 03.11.11 at 8:32 am

@ 51 Paul:

how about the VIX?

The VIX(VXX) will definitely spike again today with the earthquakes/tsunamis/jobless claims/etc. going on.

However, I’ve found that the bext opportunity with the VIX is actually to short it after a big spike… the nature of the leveraged ETF is that it will always head towards zero long-term because of the need to buy/turn-over options every month.

So, the VXX can provide a great hedge short-term, but is incredibly hard to time — did you predict earthquakes in Japan when the market closed yesterday???

#87 Bill in Nobleton on 03.11.11 at 8:41 am

I’ve been hedging my Stocks,Etf’s & Preferreds all against ca:HVU (Horizons BetPro S&P500 VIX Short Term Futr Bul ETF

As the market has fallen, the VIX has risen.
Is this a solid Strategy?

#88 maxx on 03.11.11 at 9:02 am

Dear Garth,

Definitely some interest here with respect to bonds.


#89 Junius on 03.11.11 at 9:10 am


Anything you can do to help educate people on bonds is a good thing.

The other thing you might want to remind people is the relationship between the bond market and interest rates. Specifically, the differences between the B of C overnight rate and the long term rates set in the bond market. If I have one more person tell me rates are never going up because the gov’t won’t let them I am going to explode.

Thanks, as always.

#90 Luc on 03.11.11 at 9:19 am

Yes I need the Dummies for Bond Buyers’ book. In your example is 6.45% rate per year for 5 years?

#91 T.O. Bubble Boy on 03.11.11 at 9:21 am

Talk about “spin” in the job numbers!

Canada Employment Rises by Less-Than-Forecast 15,100 Jobs

Actual Details:

– Part-time employment rose by 38,900, but full-time jobs fell by 23,800

– Private companies cut their payrolls by 20,000, but public-sector employment increased by 9,600

– Self-employment rose by 25,500, but paid employment decreased by 10,400

So, apparently we can “gain” 15,100 jobs, even if there are 60,000 less full-time vs. part-time jobs, 30,000 less private sector vs. public sector jobs, and 35,000 less salaried jobs vs. self-employed?

At this rate, the entire “job market” will be made up of part-time, self-employed and/or government workers?

This is NOT a good sign.

#92 McSteve on 03.11.11 at 9:25 am

A bond primer would be great. It seems the there is no access for new releases unless you a huge fund. Regular Joes have to pick through the secondary market and that can be daunting.

Thanks, GT!!!

#93 T.O. Bubble Boy on 03.11.11 at 9:26 am

@ #87 Bill in Nobleton:

VIX should not be a long-term holding… it is best as a short-term hedge.

In the short-term, the VIX tends to move about 2-to-1 or 3-to-1 inverse to the S&P, but the inefficiency of the various VIX-related ETFs creates an overall “decay” of value… which is why it should not be a long-term holding (in my opinion).

#94 AM on 03.11.11 at 9:27 am

For those in BC, particularly Richmond, are you thinking there is a possibilty of a “big one” in your lifetime? Does Tsunami mean anything? If in doubt, turn on the news immediately to see what happens when the earth shakes…or continue to deny it could happen and continue to outbid the next guy for that million plus crackshack.

Sadly, most of BC is still sleeping as I type this and have no idea what’s happened on the other side of the Pacific.

I wonder if today is going to be a game-changer?

#95 X on 03.11.11 at 9:29 am

If there is interest on this blog, I will post a few articles on how to buy bonds, as well as the other major component of fixed income, preferred shares. I’m happy to do so.

Yes, Please. I think most people are aware or can figure out of how to buy stocks, the little ticker symbols flash across the screen on BBN, and their banking websites are fairly straightforward when it comes to stocks. But a little more info on bonds and preferreds would be great.

#96 Seen this in the States and now its in Canada...time to sell. on 03.11.11 at 9:31 am

It’s sad to see so many Canadians follow the footsteps of Americans that have basically screwed themselves financially in the housing sector. I’m down here in the US right now to purchase a house and realize there is so much distressed housing inventory it’s hard to grasp the reality. I’m about to purchase a house 2,600 sq/ft for $140,000 US (~ 135800) that sold in 2006 for over $600,000. The house is beautiful with access to the Gulf of Mexico, it needs some minor repairs, but that’s just because of my tastes. If you are going to buy in the US, now is the time!

Add to this knowledge that Canadian building permits are down for this month by 7.7% from what was forecasted by the Canadian federal government, which is a clear indication that developers no longer have confidence to build; anyone with sound judgment realizes that the housing boom in Canada is over. That declining Canadian building permit number is massive, which means the developers are throwing in the towel and are not building anymore.

The housing crash in Canada is here; the slow grind down has begun. Housing in Canada can’t fight both the Bank of Canada and the Canadian Minister of Finance. The Canadian banks cannot subvert the intent nor the spirit of what the Federal Government implemented without some political or financial repercussions. This Canadian real estate bubble is a catastrophe quickly unfolding; it’s going to be very interesting to watch what unfolds after March 18th.

It’ll be watching to see how the Government of Canada responds to RBC directly circumventing there power over mortgage rules, perhaps they’ll raise the down payment to 10% and lower the amortization period to 25 years immediately, which would be a responsible reply. Let the banks take the risk. But don’t worry its different here in Canada…not.

Hey what happened to that no-mind Devil’s Advocate, did he leave Kelowna to buy in the US like the rest of his realtor colleagues?

#97 Will on 03.11.11 at 9:47 am

Aftershock warningfor BC. from Japan earthquake 8.8 in scale.
Wonder if this will dampen RE sentiment especially Richmond,which has long been known to be under sea level and a big risk to earthquake.
Naaaaah…..the Chinese rescue planes are on their way.

#98 BM on 03.11.11 at 9:54 am

Yes , Please do post and educate us more on bonds, preferreds. I have read your book Money road, where you do explain it … But will really appreciate more of it, If you can add on trusts and REITS that will be great.

#99 Diana on 03.11.11 at 10:05 am

Count me in for the bond experience! This post was very helpful to me as I’m a complete tyro when it comes to what to DO with the slowly accumulating bills under my mattress. (aka savings account) I know enough not to leave it in there, but finding a comfortable place between security and profit is baffling with the doublespeak so many places use when discussing investments, bonds, stocks, GICs, WTFs…
So please, allow us to study at your feet great master. There may even be grapes in it for you.

#100 Paul on 03.11.11 at 10:08 am

Garth – there will always be a place for some fixed income in a portfolio.

However, I have been scared off from making a big foray into fixed income because:

1) As you mention, there is an inverse relationship between bond prices and interest rates. I don’t want to be looking at significant capital losses in the next 2-5 years, once this reactionary demand is gone.

2) With the exception of real return bonds, Government bonds of all stripes are barely offering inflation level returns (real inflation, not Statcan crap).

3) Corporate equities are more protected by inflation than a corporate, non-real return bond. Equity values will keep pace with inflation whereas a long term corporate bond will be wiped out over the medium term in a rising interest rate environment.

I understand the stability argument, but the downside risks are still significant IMHO….

Are we having reading problems today? The watchword is ‘balanced.’ which means both growth assets and fixed income. Sheesh. — Garth

#101 P on 03.11.11 at 10:08 am

Very interested in learning more about bonds. Thank you. Great insight.

#102 ttyl on 03.11.11 at 10:09 am

For example. Why would anyone buy this bond?
Sask Prov., matures Sept 2016, 8.125%coupon, 3.076% semi annual yield, and the cost per 100 is $125.450.
I don’t understand but it seems to me the premium you’d pay for the bond would be more than the yield.
So is this bond really liquid?
So more info on bonds would be helpful, with some real examples.

#103 Gord In Vancouver on 03.11.11 at 10:09 am

#85 bigrider

February Canadian Employment numbers( as disappointing as they were)

That means more B*&^sh(t mania for real estate market.

Nobody wants this RE market to tank worse than I

You win either way:

– Unemployed homeowners will have a tougher time finding work.
– If interest rates stay low, the bubble will continue to expand and implode more violently.

#104 Richard on 03.11.11 at 10:20 am

do a post on bonds and preferred shares – how to purchase.

Thanks Garth.

#105 Don't Believe The Hype on 03.11.11 at 10:21 am

And today’s missive is yet another fine example of why thousands of us keep coming to this blog on a daily basis

#106 Ray on 03.11.11 at 10:21 am

Yes please! School us in the way of bonds.

#107 expat on 03.11.11 at 10:23 am

Yes please, Garth! My husband and I sold our house last year and are now sitting on the proceeds of the sale, looking for good ways to invest. We’ve bought a few ETFs, a couple of individual stocks, but definitely would appreciate some info on fixed-income investments, bonds and preferreds.

Thank you! And thank you for an always informative (and entertaining) daily read. I don’t know where you get your post photos from, but they are brilliant.

#108 Bill in Nobleton on 03.11.11 at 10:27 am

93 T.O. Bubble Boy on 03.11.11 at 9:26 am

You know something, that’s a great answer.
I think I will consider that for my future trading.


#109 John on 03.11.11 at 10:29 am

I don’t think you want to buy American municipal bonds at this time. Correct? Or Greece or Spain.

Here’s a good link on how the bond market is affecting the NHL, Gary Bettman, and the Phoenix Coyotes.

Gary Bettman sweating the bond market:

I’m guessing Garth would say steer clear.

#110 KelWalts on 03.11.11 at 10:54 am

Yay! Bondage pics next!
Oh – and educational information about the bond market for us little fish, please.

#111 robert in london on 03.11.11 at 10:59 am

Wow. By the number of respondents seeking information on the bond market I can only conclude that this is one hugely under owned/under appreciated asset class.

My two cents worth – long dated Canadian Government and US Treasury yields have probably not peaked for this cycle.

There might be some real fireworks ahead in yields if Mr. Gross is correct in his views. This will be accompanied by all sorts of angst that the 30+ year secular bull market in bonds is over. It could provide an excellent point of entry in longer dated maturities for the bond investor who is willing to ‘rent’ when there is blood in the streets. Rest assured Mr. Gross will be there with his dry powder. Especially if the economy starts turning Japanese again.

#112 Saggy Bottom Boomer on 03.11.11 at 11:06 am

I was initially interested in an explanation of the bond market, but then I chanced upon this awesome financial team. Check out the guy third from the left. Kinda left me speechless.

#113 SAD on 03.11.11 at 11:07 am

Yes, look at those rising gasoline prices. Check out this picture of a gas station on a reserve in Hazelton B.C. They have described prices well.

#114 Joe on 03.11.11 at 11:11 am

Thanks for the great post, Garth. Little depressing, but that’s okay. Looking forward to more about bonds. Bring on the learning!

To state the obvious, a picture of Bond, James Bond, would be fitting and please us ladies…as long as it’s not Sean Connery. I’m thinking more along the lines of Pierce Brosnan. :)

#115 Someguy on 03.11.11 at 11:16 am

I would also appreciate your points of view and strategies on the buying of these instruments.

#116 bigrider on 03.11.11 at 11:19 am

In an inflationary world bonds are nothing more than certificates of confiscation however,

They will allow you to sleep better, in a volatile world, in a balanced portfolio especially if that portfolio is of considerable size.

#117 Rich Renter on 03.11.11 at 11:23 am

Bond, James Bond

#118 fiendish Thingy on 03.11.11 at 11:23 am

Here’s one more vote on specific how-to’s for bonds, preferreds, ETF’s, fixed income, etc.

In addition, any I’d welcome any advice on the best (best rate/lowest fees) way to convert the $USD proceeds from the sale of my California residence to $CDN for investing/waiting for BC RE to bottom out (we hope to relocate to BC this summer once we find jobs).

Speaking of earthquakes, that could definitely be a catalyst for a RE correction. The 1989 Loma Prieta earthquake in the SF Bay Area, with relatively limited damage to residences, nevertheless helped trigger a 3+ year decline in housing prices.

#119 The American on 03.11.11 at 11:30 am

Interesting phenomenon happening here in Seattle/Bellevue area… For those who do not know, Bellevue is consistently referred to as having one of THE highest qualities of life in North America. The past two months have demonstrated a significant jump in foreign-born buyers. I’ll give everyone one guess which country these buyers were born and from what city they’re coming… Anyone???

Well, the huge spike of lookers and buyers are Chinese!!! But, they’re heading South from Vancouver BC. I walked into a new development, Bellevue Towers, to see if it is true. In two words, IT IS. Basically, it is nothing more than a sea of Chinese and their children. Heck, even their website (I will not post it) has hyper links in Chinese, Russian, and Japanese!!! I was curious, so I HAD to ask where they were streaming. I asked several people. Not just a few, but EVERY LAST ONE said they were moving from Vancouver. I asked why, of course. In a nutshell (several reasons actually) one stood out from the rest – most stated prices were beyond peak and they were unhappy living there. This I found incredibly interesting and a testament to the reality of the situation.

Aren’t these the very same “rich Chinese” supposed to save Canada? Yet, they’re leaving in droves for a “better deal” as many stated.

#120 Shoggy on 03.11.11 at 11:38 am

Hi Garth, Good primer on bonds and it would be interesting to see more on the subject from you. Especially for those who do not have a huge net worth to buy the bonds themselves (which can be a very expensive proposition). The subject of calculating the fees, MERs on bond funds?ETFs and how these can influence the rate of return on the bonds. Nice to see the blog expanding from the usual mania about house prices. And for those who say that a blog in not a place to educate, well there is a lot I have learnt from the various links on various subjects that have been posted on this blog. Cheers

#121 Cognizant on 03.11.11 at 11:40 am

Looks like everyone wants to pile into bonds. No different than any other asset class driven by risk and reward. The caution on bonds at this time is determining how trustworthy the rating agencies are. They seem to take a black box approach in determining risk and we saw with MBS in the US just how wrong (and in many cases fraudulent) those ratings really were. Also, do bond raters properly take into account potential black swans and event risk (ie huge earthquakes). As a small investor I don’t know how you really protect yourself against fraud risk.
I think bonds have a role in a diversified portfolio but they are not risk free and investors need to do their own research and understand those risks.
Also bond risk is not unrelated to RE especially for muni binds where the budgets of cities and towns and the bonds they issue are highly dependent on RE values.
Proceed with caution.

#122 joe on 03.11.11 at 11:41 am

Garth your brief on bonds was real refresher. LOL! You were joking of course. ;o))

#123 bill on 03.11.11 at 11:50 am

a blog or two on bonds and preferred’s [?] would be cool.

#124 The Original Dave on 03.11.11 at 11:51 am

I miss the FYI articals :(

#125 David B on 03.11.11 at 11:51 am

For those who have tuned in here often, know that to-days sad news from Japan is not good, there housing crisis has not recovered and their economy was on thin ice. As mentioned this is coupled to other world events …. and guess what? 2011 is just over 2 months old!

Lucky Canada we have King Steve and his Canadian Shield to keep our economy strong.

#126 Matthew on 03.11.11 at 11:52 am


Bonds are great and all but for any Canadian with a job, the after-tax return is pitiful, especially if you are in the highest tax bracket. A TFSA can help with this but its limited size effectively prevents purchasing bonds in any real quantity. Still, safe income is better than a sharp stick in the eye…

I know you are a big proponent of pref. shares as they benefit from the dividend tax credit.

Which sectors do you “prefer”? What sort of target yield would be reasonable to you in these sectors?


If you tell me that it is “all in your book” I will be sad as my local library does not have it in stock yet :)

#127 bill on 03.11.11 at 11:53 am

with regards to the recent earthquakes in new zealand,china ,and japan ,it would seem that it would be wise to be liquid in richmond bc but liquifaction would be not so good…….

#128 viewwest on 03.11.11 at 11:54 am

GOod morning Garth…yes, please do tell us more about bonds-especially how to buy them. I’ve tried, in past, to find someone to sell me bonds but the minimums the bond specialists demand to invest have always been very high ($500K or more). Those minimums have been in Canada and the US. We even tried through wealth management firms and were told the same thing. Therefore, our only bond exposure is in bond FUNDS which I don’t feel comfortable with. So that could be another helpful topic from you as well which would be to discuss the pros/cons of bond funds vs bonds. Thanks!

#129 mid-Ontario on 03.11.11 at 11:54 am

I am very interested learning more about bonds.

I would like to know about the extent of volatility in bonds.

Is there a big investment bank that controls bond prices without impunity from any jurisdictional authority?

If one knocks on the bunker door with bonds, will one be turned away?
On other matters:

It will take weeks to feel the full impact on how the tragedy in Japan will impact our world. My heart is with them.

I guess that we will find out more on Libya, Bahrain and the “day of rage” in the Middle East from MSM after Charlie Sheen has entered re-hab again.

#130 Daisy Mae on 03.11.11 at 11:58 am

You said: “How I will work in pictures of sexy people in underwear is another issue. My cross to bear.”

Gawd, life is tough….. LOL

#131 Nemesis on 03.11.11 at 12:06 pm

“…and they all come with credit ratings telling you the relative quality of the issuer…” – Hon. GT


Forgive me, FatherGT – for I have sinned… ;)

PS to TheAmerican… Cheers for Seattle insights…

#132 Montrealer on 03.11.11 at 12:06 pm

I’ll add a vote to do a post about how to START investing.

What to do when you are finally out of debt and are looking to start investing ~$2k per month. Or, what to invest in when you have $50k accumulated.

Many of your readers do not have mortgages, no debt and a cashdown and monthly $ to invest. Maybe not enough to diversify everywhere.

#133 Abitibidoug on 03.11.11 at 12:15 pm

Yes, I would also like to see more postings about everything you wanted to know about bonds (or bond funds?) but were afraid to ask. Keep the good, informative posts coming!

#134 bill on 03.11.11 at 12:25 pm

“Bond. Garth Bond.”
THATS why he has a Harley… to shake the martini’s
clever lad.

#135 zimmerp on 03.11.11 at 12:26 pm

If you are going to purchase bonds – do not chase yield as this point in time.

Chase quality.

Ladder the maturity dates – stay under 5 years or so. And buy Government of Canada or Provincial Bonds.

Doing so lessens the chance of your bonds defaulting.

Of course that is unless all hell really breaks out.

With all the prining of money and bad debt that is out there – expect interests to move up – regardless of what the U.S. fed wants or says.

As the U.S. dollar continues to lose valve, the U.S. will have no choice but to raise rates. That of course won’t help the U.S. ecomony.

Last point, as Garth mentions – look at ETF’s.

#136 zimmerp on 03.11.11 at 12:27 pm

sorry about the spelling – not enough coffee

#137 Jamaican_Gal on 03.11.11 at 12:28 pm

Would love to learn more about bonds. And could you possibly find a picture of the late Honorable Robert Nesta Marley wearing briefs? How I would bond to that!

#138 Lettuce on 03.11.11 at 12:30 pm

Or Daniel Craig

#139 T.O. Bubble Boy on 03.11.11 at 12:30 pm

@ #108 Bill in Nobleton:

You know something, that’s a great answer.
I think I will consider that for my future trading.

Here’s my own personal experience with VXX and other similar VIX-related trading instruments:

>> I bought last year, and got a 50%+ spike when the Greek debt fears happened (and cashed out).

>> I re-bought at a much lower level, but still watched month after month as the value decayed (because of the inherent flaw in leveraged ETFs)… I eventually gave up on VIX as a holding when it hit about $15-$16 (which would be $60-$64 now after the 4-to-1 reverse split)

>> I’ve shorted the VIX once or twice since then, making an easy 3%-5%, usually in only a day or two (i.e. wait for a spike of 5% after seemingly short-term bad news, and then short the VIX and wait for it to fall again)

Because I am not a day trader, I’ve more of less given up on VXX / VXZ / other VIX trades… because I don’t feel it is realistic that anyone can perfectly time when the next spike will happen (or if the spike will be big enough to gain back the losses you get by holding a VIX-related ETF and watching it decay over time)

#140 tran, Calgary on 03.11.11 at 12:35 pm

After NZ, now Japan. Next?

Richmond, and a greater part of Lower Mainland, will look similar when the BIG ONE hit.

#141 Dodged-A-Bullit-in Alberta on 03.11.11 at 12:36 pm

Greetings: There is a reason todays’ photo has special meaning. If you are one who has overleveraged yourself into debt, you are invited to bend over and kiss your arse goodbye!!!!

#142 reality guy on 03.11.11 at 12:42 pm

Ahh I like the smell of kelp early in the morning

Japan Earthquake send the nikeii down down down.

More people homeless and tons of farm land gone. gone gone.

Watching the market closely waiting for a good time to buy in.

China has lost another big customer to their cheap goods.

Just how much longer can China cook its books until they are completed well done!

#143 GregW, Oakville on 03.11.11 at 12:47 pm

Just imagine if Garth’s fascination with posting ‘pictures of sexy people in underwear’ was the worst thing we need to worry about in this world.

#144 jimsum on 03.11.11 at 12:48 pm

Garth, since you are offering, I’d like to read a discussion of whether it is better or cheaper to own individual bonds or bond ETFs. Is it ever worth it to buy a bond mutual fund (if I have very little money and the MER is really low)?

With ETFs, I don’t have to worry about replacing bonds that mature, but I don’t know how much I pay for that convenience compared to buying individual bonds. Is this like stocks, where only wealthy investors should bother with individual bonds?

#145 Esther on 03.11.11 at 12:49 pm

Lookin good buddy. When did you shave off the beard?

#146 Steven Rowlandson on 03.11.11 at 12:55 pm

Hi Garth.
What is the lesson regarding the quake and tsunami in Japan?
Answer: Don’t waste alot of money on real estate!
A few shakes, a few flames and alot of water and all the money put into property is gone.
Not a great investment of income especially ocean side property near earth quake zones.
Vancouver and Victoria beware !


#147 Jeannie on 03.11.11 at 1:00 pm

Some lessons on Bonds, yes please.
The only experience I have with bonds, was a strip-bond that my ‘advisor’ at the now defunct Midland Walwyn sold before it matured.
Lost a pile on that one, and haven’t ventured back since.
Thanks for your advice, no thanks for my dear departed
Elvis’ ‘lookalike’

#148 alex awesome on 03.11.11 at 1:11 pm

yesterday i had a TD financial advisor calling and offering me to buy some bonds, he was super charming but really insistent of me setting up and appointment; like that he could explain more because my answer was that i gotta get informed first. Anyone that knows which kind of bonds do they offer, how they work, etc??? thank you!! i really need advice (not from banks of course)

#149 Cranky Dad on 03.11.11 at 1:14 pm

I have gone to my online brokerage account to buy bonds in the past, unsuccessfully. I’ve opened the correct page and been confronted by a list, but then have just been overwhelmed and retreated to a bond ETF that I think I have a chance of understanding. Same with preferred shares. I would need guidance on the mechanics of buying bonds, not just the theory. Almost to the level of what keys do I press.

If you don’t know what you’re doing, why are you doing it? Do you also repair your brakes? — Garth

#150 Chaos on 03.11.11 at 1:27 pm

John Keene penned this little song in the 60’s…

And it seems so appropriate for this aging tsunami of boomers about to wash ashore on the Canadian social services and benefits landscape like so many spawning salmon on their way to one last orgasm before a certain…(oh whatever)

As Uranus moves with certainty into the first house of Aries for the next 8 years today at 7:52 PST, 10:52 EST, 03:52 zulu…

As we weep for the humanity of the Japanese nation, and the Black Swan that took a little swim there…

Let’s remember, that we should always be careful what we wish for…

Because we may just have our wishes granted.

And so, I will provide you memory impaired people with the first verse…

“Call out the instigator
Because there’s something in the air
We’ve got to get together sooner or later
Because the revolution’s here

And you know it’s right…”

You better attach your Depends to some suspenders…

Cause it’s gonna be a riot.

#151 Jamie Groulx on 03.11.11 at 1:27 pm

Some clarification/information on purchasing bonds, preferreds, trusts & ETFs would be a great help.

Could you also leave a little advice on how to make the TFSA-RRSP-TFSA magic trick really sing please? I am of the thought that TFSA sheltering $5K-$10K into something high yielding would be best, but the temptation to get something with a semi/quartered dividend is also pretty strong. This leads me into the question of when to move the interest it has gained into the RRSP for the tax benefit? I’ve got a $1,000 more questions concerning TFSA’s, but I digress.

Anyone have further info/blogs/sites for a beginner to read through? Is it better, as a beginner, to jump into groups such as Scotia McLeod/Standard life, before trying to strike out on our own? My wife has left this squarely in my hands with the caveat that we stay out of the markets while we’re still swaddled in ignorance. I tend to agree, so anything, at this point would be a great help.

About us: This month my wife and I will pay off our wedding credit card, the interest is absolutely criminal. While our savings will be wiped clean doing this, the 20%, even in the short term, has been leaving us feeling violated. The $1k we’ll be stashing into our savings starting next month is earmarked for our TFSA’s, come March of 2012 the wife will be back at work so we should be able to double our monthly deposits in order to take full advantage of TFSA’s. We have two different RRSP’s in both of those groups (Scotia & Standard Life). One is completely diversified 60%Growth, 5% Cash and 35% Fixed income (my age is showing) while the other is hugging Oil stocks(Pace & Provident) with a smattering of AGF Assets, Bonds and Canadian stocks( semi diversified). Is this a good idea, or should we consolidate the two?

Guess that’s enough for now. Shout out to Andy for passing off his copy of your latest to spark an interest of taking charge.

Thanks for everything so far.

#152 AKatz-Oaville on 03.11.11 at 1:48 pm

Two charts you need to see about commodities and the housing market ->

#153 Cattle Country on 03.11.11 at 1:48 pm

Please put as much information as you can about bonds. I agree 99% of us ( myself included ) do not know enough about bonds. I have searced several sites over the years looking for some basic examples of bonds and how they work / operate. I have never found a site that actually gives an example of how a basic transaction would work. Keep it simple with some real examples and we will all be better off. Thank you for your continued efforts to help us sheeple.

#154 MoneyThrower on 03.11.11 at 1:52 pm

Re: Bill Gross

Nota bene: He is not out of US bonds, he’s out of US Treasuries, bonds issued by the US Gov’t. He still has all 1.2 trillion in bonds, just different ones: US corporates, emerging markets, foreign bonds etc.

He plays a relative game – He currently thinks his alternative bonds will do better than Treasuries, not that bonds are a bad place to be.

As for those of you against owning bonds, Garth’s point is that is a risky game. If you’re long term weighting in bonds should be 40%, and you have a short term view bonds are overvalued, it may make sense to go to 30%, but going to 0% is taking a huge risk.

Remember, the current yield on longer term bonds is the best guess of all the participants, smart and dumb alike; do you really think you’re smarter/better informed than the market? Or is it just the opinion of some guy whose column you read last? For every Bill Gross, there’s a David Rosenberg, calling for a huge rally in bonds.

Many supposedly smart pension fund managers are in huge trouble today because they have been expecting interest rates to go up for years, and been dead wrong.

#155 Bzllz on 03.11.11 at 1:59 pm

More on bonds, more on bonds

Also, “my cross to bear”- really funny.

#156 Mitch on 03.11.11 at 2:08 pm

Thanks for the post, I enjoyed it, and your re-wording of price / yield adjustments w/ regards to interest made sense, that I (think) I get it. I need to put it all into practice, now! Keep ’em coming.

#157 Apsalar on 03.11.11 at 2:19 pm

“If there is interest on this blog, I will post a few articles on how to buy bonds, as well as the other major component of fixed income, preferred shares. I’m happy to do so.”

I am SO there! This stuff makes my brain sore; I’d be happy to learn enough to make the headache go away :)

#158 Dave in Victoria on 03.11.11 at 2:38 pm

I’m interested garth, re; tutorials on bonds and preferreds. i enjoy the financial and economic posts. very helpful. thanks.

#159 Debtfree on 03.11.11 at 2:55 pm

so you think you’ve got high fuel prices.
this is not photo shopped .

#160 Nemesis on 03.11.11 at 2:57 pm

[BloombergBusinessWeek] -The Makings of a Bond Debacle – Economists pick up early signs of a 1994-style bond rout in the actions of central banks. If they’re right, watch out…

“As with a delicate soufflé, timing really matters. If it’s off, the whole thing can collapse into an unappetizing mess.”

#161 Debtfree on 03.11.11 at 3:01 pm

Elvis must have been in a hell of a hurry . He put his ass on backwards .

#162 Edmonton Guy in Alberta... on 03.11.11 at 3:27 pm

Anyone heard anything about the CAYMEN ISLANDS going Bankrupt? The four main banks have locked the doors & frozen all the locals assets!

#163 Nostradamus Le Mad Vlad on 03.11.11 at 3:27 pm

#142 Dodged-A-Bullit-in Alberta — Nicely said!

#71 Rick in Japan, #119 fiendish Thingy and #150 Chaos — “As Uranus moves with certainty into the first house of Aries for the next 8 years today at 7:52 PST, 10:52 EST, 03:52 zulu…” Plus the huge moon next week and the change of cycles in humanity.

Good morning, gentlepeople. You may recall that prior to the last ‘quake in China a few months back, there was a multi-colored cloud just prior to when it hit.

That cloud has been over SoCal and the SAF for a couple of weeks now. NZ, Japan and Hawaii are both on the Ring of Fire. The SAF runs down west of Vancouver Island, so when the SAF shifts, VI will be hit first; also look for this to start a chain of events thruout.

Yellowstone and the New Madrid Fault, the fault line under the Atlantic — all of these may continue at various times.

As said earlier, HAARP does not necessarily cause ‘quakes, it merely sets things in motion by nudging different parts of lines, all of which lead to greater changes.

So changes are afoot big time, more than we fleas on the planet can comprehend! Keep well!
“Bonds are obligations to pay investors back the money they lend to governments or companies, . . .” — Hypopathetically, just suppose that a country defaults on its’ obligations. Not declare bankruptcy, default. Would those individuals, like the ones who bought in at the top in Enron, Nortel, Bre-X, etc., be left with nothing?

If so, where did all that money go? As DSP used to say, there is a contraction of fiat money (deflation), while at the same time, there is inflation (rising gas costs, electricity, etc.) while wages / earnings have either levelled off or taken a hit.

Who is in charge of the money? Yet, Money Confusion.

“. . . will be some exceptional opportunities.” — That’s where non-registered plans and TFSAs come in so useful. It may be worth it to pay a chunk in capital gains, because the gains in a portfolio would far outweigh the amount paid to CRA.

Bring on the lessons, as many as possible!
Five Years of housing supply and New Subprimes?

Numbers 66,666. The Sao Paulo Stock Exchange yesterday (briefly).

Japan’s Population is getting older with no replacements, and Hush Money.

Dump Looks like #167 eddy may be on to something, and Disaster In The Making.

WTSHTF “We live in an exciting, scary time. But then collapsing empires, much like imploding skyscrapers, are visually compelling events, . . .” and Oil US$140 / brl. = Possible double dip recess-depression.

Fun With Silver Unless JPM is present, and Gas Price Six pounds ($10 / L Cdn. or thereabouts).

4:12 clip ‘Quakes generate music. Sounds strange, but then again, so are we . . .

Grow Ops in BC are also floundering.

Monsanto may be upset over this.

Re: #10 Soylent Green is People — you may like this. Our PM “Stephen Harper is defending the $500,000 tax dollars paid as “hush money” to the woman who apparently swept roughly 50 fraud allegations against his government, under the rug.”

Wheat Russia and Canada are both in the northern hemisphere, and both are seeing crops disappear. Weather control? Plus Dust In The Wind. Resources of all kinds (such as Libya’s sweet crude), food crops and similar may be some of the reasons to kickstart WW3.

#164 City Slicker on 03.11.11 at 3:40 pm

Biggest Bond fund in the world dumps all US treasuries. Not good people:

The bond fund’s mission is to make money on speculative moves in the US bond market. There is a marginal impact, at best, on retail investors here. Stop reading idiot web sites like that. — Garth

#165 Morry on 03.11.11 at 3:47 pm

Illuminating post on Bonds. Looking forward to more.

#166 new_era on 03.11.11 at 4:05 pm

#120 the american

Mabey global new should do a report on that

Paid by the American Real estate dealers.

#167 jess on 03.11.11 at 4:38 pm

rent a name -seems more lucrative than bonds

..woman appears as the director of 338 New Zealand companies, all registered at 369 Queen Street, Auckland.

A Wellington accountant, Robert Walker has complained that it was too easy to form companies, and resulting problems could damage overseas perceptions of other New Zealand companies.

Mr Walker — who is also a liquidator — said the company registration system had allowed the leaky building crisis to blow out to billions of dollars. Each home was built under a separate limited liability company registration. This meant homeowners with problems were left to sue companies with a registered capital of $100.

Shells, Shams and Corporate Scams The Komisar Scoop & The American Interest
Jan-Feb 2011 Issue – Lucy Komisar explaining how, within the U.S, the corporate secrecy system works to enable fraudsters all over the world to carry out scams, launder illicit profits, stash stolen loot and hide money from tax authorities.

Delaware is an acronym. It stands for Dollars, Euros Laundered And Washed At Reasonable Expense.”1

#168 tran, Calgary on 03.11.11 at 4:49 pm

Bill Gross is one step ahead of China.

#169 CowTown Cowboy on 03.11.11 at 5:17 pm

Would appreciate if you could tell how to buy stocks and where for a guy who doesn’t have a lot of money.

Then you shouldn’t be. — Garth

#170 CowTown Cowboy on 03.11.11 at 5:18 pm

I actually ment bonds, sorry!

#171 Throwstone on 03.11.11 at 5:21 pm

Bonds 101-Please!

#172 doctore on 03.11.11 at 5:31 pm

Why are some people on here inept about the overall message, to diversify your liquid investments? There seems to be a disconnect on the idea that you can spread risk around in your portfolio. If one area of the market can go down, then another might go up, you have balance. You won’t loose everything. I don’t understand also how people don’t consider capital preservation as a thought either. I guess most uninformed just go with the herd and in some cases dump everything into one asset, such as real estate. This is very risky, the chance of loosing is great, and it is non liquid (ie. you won’t be getting your cash out in 3 days). The message is lost on quite a few.

#173 Ag on 03.11.11 at 6:21 pm

YES to more posts on buying bonds, preferreds and fixed income!

#174 Chris on 03.11.11 at 6:35 pm

Garth I need bond help and have tended to buy GICs in our RSPs for fixed income. Can you tell me why bonds are better and can I just buy bond ETFs to make it easy? What should I buy in my TFSA?

#175 Alex on 03.11.11 at 6:40 pm

Langley, BC update for anyone who’s interested. My realtor hot list says there have been five new listings today and five price reductions too. That makes a couple dozen or so of each just this week alone, and only within the paramenters I’ve stipulated ($350,000 – $500,000 SFHs only). This does not include townhouses or condos. So anyone who says all of greater Vancouver is being bought up by Asian hordes (cough…Global BC) is sadly mistaken.

#176 mf on 03.11.11 at 6:59 pm

Bonds, preferreds, and etf preferreds and bonds, is an area I do need to learn more. Bonds seem more complicated than ordinary etfs and stock.

#177 Bottoms_Up on 03.11.11 at 7:05 pm

#52 Fiendish Thingy on 03.11.11 at 1:18 am
The cheapest way to convert CAN USD:

Saw it on Dragon’s Den.

#178 Markey on 03.11.11 at 7:14 pm

Coincidentally, Preet Banerjee’s article in today’s G&M was also about bonds, however, his message was one of warning:

A shallow article written by a guy who’s a senior executive of a mutual fund company. Be careful. — Garth

#179 Kits on 03.11.11 at 7:15 pm


Making bond investment decisions is VERY complicated. My wife manages a large institutional fixed income portfolio. You would be very surprised what gets buried in the indentures …. all of which affects price, etc. It is not as simple as looking at the spread. Find a good and trust worthy adviser or READ an awful lot about this type of investing. Garth is absolutely correct that you can suffer a CAPITAL LOSS if you are not diligent.

#180 eddy on 03.11.11 at 7:16 pm

Adrian Salbuchi video:

sounds like Freudian slip- the fed is controlled by ‘pirate interests’, correction to ‘private interest’

#181 mf on 03.11.11 at 7:18 pm

Oops. I forgot to say thanks.

#182 super dave on 03.11.11 at 7:18 pm

keep a balanced portfolio …. if you don’t know how, hire someone who does, and sleep at night.

Read the Wealthy Barber to get started.

#183 HouseBuster on 03.11.11 at 7:31 pm

Canadian housing is going to crash just like bonds.

Bonds don’t crash. — Garth

#184 Hoof-Hearted on 03.11.11 at 7:48 pm

When you have a global clusterf*ck going…..what is safe ?

#185 Dazed and confused on 03.11.11 at 7:58 pm

Having an argument in the hot tub last weekend about mortgage renewal when the value of the mortgage is greater than that of the house.

I was told the following:
1 – You don’t have to re-qualify at the time of renewal
2 – As long as payments are current, no top up is required to cover the gap (I’m sure I’ve read on this blog several times that this is incorrect).
3 – Because I rent, that’s why I hope it goes down. It has nothing to do with fundamentals.
4 – Housing always goes up (this coming from a guy who had his house on the market in October and pulled it to put it back on the market last week).

Any clarification or reference material regarding renewal requirements would be greatly appreciated.


There are no rules. The lender is under no obligation to renew. — Garth

#186 poco on 03.11.11 at 8:08 pm

#176 Alex–know what you mean–price reductions are nearing 100 for the week in the tri-cities–all downward–many 20k to 30k down
many of the so called new listings are old listings with a new mls# and reduced price
condo market is screwed –downward pressure now seeping into the TH market and more and more into SFH

#187 ontheshoreline on 03.11.11 at 8:16 pm

Any interest earned comes at a cost.We all know this deep down.The price is obvious if you look around.
Exponential growth on a finite planet is not a good long term plan.
What can’t go on for ever won’t.

#188 Macrath on 03.11.11 at 8:22 pm

Hank Cunningham says the average mark-up on bonds is 1%, and points out that this fee is payable only once.

How does an investor find out what markup he is paying ? They say the fee is less if you purchase larger amounts as in 50k or more. Is this true ? Can the commission even be calculated when there is no transparency in the market ?

I try to buy bonds at par when issued to the dismay of the bond desk. I mostly invest in bond index funds, bond ETFs, and managed foreign bond CEFs. I`m certain they get a much better price than we little guys roaming in the dark.

#189 Nostradamus Le Mad Vlad on 03.11.11 at 8:26 pm

Curious if yesterday’s volatility on the bond market led to today’s events.
Nuke Emergency in Japan with updates. 1:37 clip Radiation rising, and 0:45 clip Tokyo’s skyscrapers swaying during the ‘quake and ‘Quake swarm on Hawaii “The collapse of the Kilauea vent seems to be spreading. It looks like a new vent may be opening up at Kalapana, where a local village was buried by a previous eruption in 1990.”

When the ‘quake hit. California Damage not limited to Japan, but it has been upgraded to 9.0.

Bullet Train, cruise ship, 88K missing. Prior to the ‘quake, giant jellyfish arrived.

Will Japan be the modern-day Atlantis? Plus Plus Volcano. “VOLCANO ERUPTS IN JAPAN — SAKURAJIMA on top of 8.9 quake video is straight from the Japan volcanism cams. A HUGE ERUPTION TODAY along with the quake!

“THIS MAKES FOUR VOLCANOES TODAY! 2 in Russia, 1 in Indonesia, and now a huge eruption in Japan itself.” Remember Yellowstone and Toba, two super volcanoes. 128 Pix of ‘quake’s aftermath. Tsunami creates ocean whirlpool. Short clip.

14:59 clip The influence of the moon on earth. Supermoon next week or so.

Obama would rather be in charge of China than the US. Maybe this is one of the reasons — Corporate Coup d’Etat “This attempted destruction of the middle class in America is no accident; it is an absolutely deliberate set of actions.”

China tests new anti-satellite missile. Evidently, China is making great strides militarily (another reason Obama wants to be boss there?).

Japan ‘Quake Could this be the straw that breaks the Eurozone’s back?

Any one remember the Saudi Day of Rage? It was a bust. Interesting how different events collide and have different outcomes.

Vaccines Avoid at all costs, and Vaccines Two.

#190 S.B. on 03.11.11 at 8:34 pm

Hi Garth. FYI, still moving Mortgages into RRSPs? ;)
This poor fellow lost to the banking cartel.

Alberta court dismisses RRSP mortgage claim against Royal Bank
Client ought to have know about mistake, court rules

Monday, March 7, 2011

By James Langton

An Alberta court has thrown out a claim against Royal Bank of Canada for failing to forward interest payments to a client for five years, ruling that the client should have discovered the error.

The Court of Queen’s Bench of Alberta has thrown out a suit from an RBC customer alleging that the bank acted in breach of trust when it failed to properly configure a RRSP mortgage on his home, resulting in a failure to forward interest payments to him for approximately five years.

According to the court’s decision, the client approached RBC in 2002 to set up a RRSP mortgage on a home he was purchasing, that would allow him, through his RRSP, charge himself a 7.5% interest rate. He transferred approximately $181,000 in RRSP funds to set up the mortgage, and was required to open a self-directed RRSP account. While the account was properly created, his RRSP funds were not used to fund his mortgage. Instead, Royal Trust funded the mortgage and the client paid monthly mortgage payments, configured with an inordinately high 7.5% interest rate, for nearly five years.

Neither side realized that the RRSP mortgage was improperly configured until June 2007, when the client contacted RBC regarding the portability of the mortgage to a new home. At that point, RBC discovered that no RRSP mortgage had ever existed. The court noted that the bank couldn’t establish how this happened.

“As to how this error had gone unnoticed by the RBC for so long, it is a combination of the nature of self-directed RRSP accounts at the RBC, a communication failure by the RBC mortgage professionals, and a group of corporate bodies not communicating with each other,” the court noted in its decision.

#191 jess on 03.11.11 at 8:36 pm

nature’s casino bonds = Catastrophe Bonds
MARCH 11, 2011, 3:42 P.M. ET.UPDATE: Japan Quake Affects $1.5 Bln Of ‘Catastrophe Bonds’

The industry arrives at loss estimates using a series of seismic stations across Japan, and weighting those stations by how close they are to the event and what zones are covered. That information is then fed into a complex formula, which spits out an index value that can determine whether investors’ principal is at risk.

In Nature’s Casino
By Michael Lewis
Published: August 26, 2007
new york times magazine

#192 bob on 03.11.11 at 8:37 pm

Sure we’re interested in learning more about bonds. You just keep telling us the things that no-one else will and we’ll be better off.keep -up the good work

#193 Brian1 on 03.11.11 at 9:28 pm

The easy thing about bonds is you can remember that bond prices are inversley proportional to interest rates. One goes up and the other goes down.I always get hung up on the yield. It seems to do always what interest rates do but they are not the same thing.

Not true. Rates are just one determinant of price. — Garth

#194 DARLENE on 03.11.11 at 9:32 pm

I would like some more posts on any type of investments but what I’d really love is book covering all the stuff. Specific weighting depending on age, money available, etc. Written in crayon so even someone with absolutely no understanding would come away with enough information to to confidently question a financial advisor.

Yes I do own Money road, but it never went into enough depth for me. I want more detail, from an author that I trust.

#195 RE Bear on 03.11.11 at 9:39 pm

Garth, you didn’t mention you had moved to Oshawa… lol, how’s that going? Anyway, I’ll say it once and you heard it here first… the bonds you want to own are in the Emerging Market universe… safest place to be…

#196 Jim on 03.11.11 at 9:41 pm

I would love to gain more knowledge about investing in bonds. I would also like to know how come you pay less tax on bonds than on GIC’s when you are earning interest on bonds as well.

Can one invest in bonds and preferred shares if you have no capital but do invest a few hundred dollars a month (pre-auhorized payments) towards investments? Are bond and preferred ETF’s, index funds a good idea and investment? How risky are corporate bonds?

#197 Z on 03.11.11 at 9:42 pm

Hi Garth,
Just wondering about that photo of the sinking homes on
Fire…. very very ironic in more ways than one… houses sinking while on fire. Was that pic posted yesterday or is it from the recent Japan quake? Please respond as I am VERY VERY curious. Thanks a ton, Zara

Japan. — Garth

#198 Macrath on 03.11.11 at 10:07 pm

#190 Nostradamus Le Mad Vlad
Any one remember the Saudi Day of Rage? It was a bust.
They weren`t interested in getting mowed down by the helicopter gun ships.They have been used in the past to quell descent. Very effective on an unarmed crowd.

#199 wes_coast on 03.11.11 at 10:25 pm

I vote yes for more info on how to play the bond market.

#200 on 03.11.11 at 10:57 pm


#201 Daisee on 03.12.11 at 12:27 am

Bonds! Yes!

#202 tf on 03.12.11 at 1:47 am

Please post some info on bond purchase. Thank you.

#203 DCOg on 03.12.11 at 11:31 am

Excellent as always! More please.

#204 Young Old Fart on 03.12.11 at 4:17 pm

#113 Saggy Bottom Boomer on 03.11.11 at 11:06 am

I was initially interested in an explanation of the bond market, but then I chanced upon this awesome financial team. Check out the guy third from the left. Kinda left me speechless.


Anyone who hasn’t figured out yet that Gene Simmons is a financial genius has been on too much of the herb…
TV, Record companies, movies, reality ect ect…

I wish I had his know how….

Mind you…. I’m 48 and retired in Mexico so I haven’t done too poorly…

As to bonds…can’t figure them out so I let the guys running my Premium Bond fund take care of that. Oh, and look at that, as Garth said….big jump! ;o)

#205 Daija on 03.12.11 at 7:30 pm

YES this subject is one I want to understand more about.