# Buying Provincial Bonds



## willow1044 (Jan 30, 2012)

I just sold off my junk bond funds as i've been hearing uncomfortable things about the amount of covenant lite loans being issued. 

Now i'd like to buy provincials thru TD Waterhouse. Is there anything to consider? For example, there are multiple issue from each province, each with different ask yields. Can i just choose the higher yield? 

I have a 40 year time horizon so am not worried about duration. Also not worried about inflation either. 

Thanks,


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## OptsyEagle (Nov 29, 2009)

willow1044 said:


> Now i'd like to buy provincials thru TD Waterhouse. Is there anything to consider? For example, there are multiple issue from each province, each with different ask yields. Can i just choose the higher yield?


Well, since I doubt you were the first person to think of that, I would imagine there are some reasons why one bond is yielding higher then the another. I am not a bond expert, so I am not the person to advise, but I would stay away from Quebec bonds. Some day they may become foreign bonds and I doubt they would trade at attractive values while the uncertainty around that was going on.

Also, if you are buying more then one bond, I might diversify the purchases across multiple provinces.


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## wendi1 (Oct 2, 2013)

Well, willow, allow me to suggest that you should worry about both duration and inflation. If you can get a 1-5 year GIC (guaranteed!) for a better rate, please go with that.

The difference in duration will account for most of the difference in yield - remember that a 2% bond that seems like such a good deal today will seem very different in a high interest rate or high inflation environment. Also, unlike GICs, bonds can accrue both capital gains and capital losses. And there is a cost to purchase (and to sell) that is built into the price you pay. GICs have none of that hazard.

Over 40 years, inflation will suck quite a bit out of your yield - so I would go short term now, GICs if I can't do better. For slightly higher yield, you might consider airport (GTA) or hydro bonds - these are still pretty solid.


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## Lephturn (Aug 31, 2009)

Remember that with bonds you are not trading on a listed exchange. This is an over-the-counter market where the other side of your trade is mostly likely the bank itself - and they are the ones feeding you quotes. Be careful - take some time to learn the market for these bonds before you buy. Also start small. There are other folks here who have experience with this and will give you better advice than I can, so wait for more advice before you do anything.


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## tygrus (Mar 13, 2012)

Whats the point of investing at all if you are going to get 2.5% yeild and lose 3% to inflation and tie your money up to where you can't get to it. Its a waste of time and resources and you should spend it elsewhere. Upgrade your skills or something. Just about anything has a better return.


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## cainvest (May 1, 2013)

tygrus said:


> Whats the point of investing at all if you are going to get 2.5% yeild and lose 3% to inflation and tie your money up to where you can't get to it. Its a waste of time and resources and you should spend it elsewhere. Upgrade your skills or something. Just about anything has a better return.


Considering the average inflation over the past 20 years has been less than 2% you're still making money against inflation with a 2.5% return. Also, saving money is better than wasting it, even it you stick it in your mattress. Upgrading your skills can be a an investment, sometimes a very good one, providing those new skills will yield you more income.


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## HaroldCrump (Jun 10, 2009)

cainvest said:


> Considering the average inflation over the past 20 years has been less than 2% you're still making money against inflation with a 2.5% return.


That is hilarious.
You must be like 14 years old.

The BOC reported this morning that "inflation" is only 1.5%.
So why don't you go ahead and buy a GIC yielding 2% now?
You will be making money hand over fist and beating inflation for the next 20 years.


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## cainvest (May 1, 2013)

HaroldCrump said:


> That is hilarious.
> You must be like 14 years old.
> 
> The BOC reported this morning that "inflation" is only 1.5%.
> ...


Huh???


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## james4beach (Nov 15, 2012)

I'd caution against most provincial bonds. The yields don't make them worthwhile (imo)

There is an implicit assumption many people have that provinces would be bailed out by federal in case of default. Maybe, but what kind of hassle will you face along the way?

GICs beat out provincials in just about every way. They have a federal guarantee, superior to provincial guarantees. I mean what good is the "promise" from a cash-strapped province like Ontario or Quebec? Why not just take the federal guarantee from CDIC instead? What is the difference in yields between these two ways?


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## fatcat (Nov 11, 2009)

james4beach said:


> I'd caution against most provincial bonds. The yields don't make them worthwhile (imo)
> 
> There is an implicit assumption many people have that provinces would be bailed out by federal in case of default. Maybe, but what kind of hassle will you face along the way?
> 
> GICs beat out provincials in just about every way. They have a federal guarantee, superior to provincial guarantees. I mean what good is the "promise" from a cash-strapped province like Ontario or Quebec? Why not just take the federal guarantee from CDIC instead? What is the difference in yields between these two ways?


oh goodness james, i hear you recommending (and buying i believe) gic's from manitoba credit unions ... but say no to provincial bonds ? .... really ?


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## james4beach (Nov 15, 2012)

fatcat said:


> oh goodness james, i hear you recommending (and buying i believe) gic's from manitoba credit unions ... but say no to provincial bonds ? .... really ?


Yes I have deposits with Manitoba credit unions. That's because I've analyzed their financial statements and believe my credit union is sound and the Manitoba credit union guarantee corp has sufficient funds to insure the credit unions.

But I have far more money in CDIC insured GICs and government bonds. So if you want a measure of my faith in federal/CDIC versus Manitoba credit unions just look at my ratio

8:1

These aren't black and white things. But I've put 8x more money into federal bonds & CDIC insured deposits than into credit unions


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## HaroldCrump (Jun 10, 2009)

cainvest said:


> Huh???


Huh, what?
Which part did you not get?


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## cainvest (May 1, 2013)

HaroldCrump said:


> Huh, what?
> Which part did you not get?


I don't get why you even made that previous post, guess you misinterpreted my post.
Oh well, it happens.


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## HaroldCrump (Jun 10, 2009)

cainvest said:


> I don't get why you even made that previous post, guess you misinterpreted my post.


I didn't misinterpret.
You were recommending a GIC @ 2.5% as a way to beat "inflation" because "inflation" is 2%.
I am saying that strategy won't work out well.

Trying to beat "inflation" using GICs will lead to a significant erosion of wealth and purchasing power over the long run (20 years in your example).


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## OnlyMyOpinion (Sep 1, 2013)

For example, $100,000 invested for 20yrs at a 0.5% real rate of return (2.5% - 2.0% inflation) compounded annually, will earn you $10,490 of interest, and if it's unsheltered, you've earned maybe $7,100 of interest after tax at the end of 20yrs. So you really have to be satisfied - for whatever reason - with having your money "doing nothing".


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## james4beach (Nov 15, 2012)

I guess there's no reason for the bond market to exist then, lol


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## cainvest (May 1, 2013)

HaroldCrump said:


> I didn't misinterpret.
> You were recommending a GIC @ 2.5% as a way to beat "inflation" because "inflation" is 2%.
> I am saying that strategy won't work out well.
> 
> Trying to beat "inflation" using GICs will lead to a significant erosion of wealth and purchasing power over the long run (20 years in your example).


So what do you recommend for the fixed income portion of your portfolio that has no (or very little) risk?


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## fatcat (Nov 11, 2009)

cainvest said:


> So what do you recommend for the fixed income portion of your portfolio that has no (or very little) risk?


it's a bi##h ... what do you do ? ... 

i have a mix of gic's which i am rolling into short term bond funds, emerging market bonds, a small amount of high yield and some short term gic's ... as a retail investor i never see decent bond issues available to me ... 

a gic ladder will kill you at the moment (except maybe a really short one) ... 

harold will tell you what real inflation is at the moment .. i see it all around me ... 

i think a mix of hisa's, corporate bond funds, high yields, emerging markets and some gic's is maybe the best way to try to pop yield ... keep the money spread around, buy a little bit of everything but not a lot of anything ... the last thing i would buy are government bonds



> Yes I have deposits with Manitoba credit unions. That's because I've analyzed their financial statements and believe my credit union is sound and the Manitoba credit union guarantee corp has sufficient funds to insure the credit unions.
> 
> But I have far more money in CDIC insured GICs and government bonds. So if you want a measure of my faith in federal/CDIC versus Manitoba credit unions just look at my ratio
> 
> ...


 except you didn't say "keep your allocation to provincials small" (diversification is good and an allocation to provincial bonds or gic's is perfectly ok), you just blew the trumpet and said stay away from provincials when you are placing money with the deposit guarantee corporation of manitoba (as am i since i have a gic at maxa) which has nothing remotely like the federal guarantee that you recommend ... you are doubletalking


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## tygrus (Mar 13, 2012)

The simple truth is that if you are too scared to put your money out there to earn a real dividend in the 5-6% range, then just keep it in your pants. 

Tying up your money long term to just barely keep up with inflation is nuts. Yes that includes the bond market as well. Its amazing that there is a segment of the population that will lend their money to the govt for such miniscule returns while the same govt pumps stimulus into the economy that increases inflation beyond that yeild.

And inflation is NOT 2.5%, its more like double that when you account home prices, taxes, food fuel.


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## andrewf (Mar 1, 2010)

What about when you account for all the goods that have fallen in price, like clothing, electronics, furniture, etc?

Even food. If food is inflating at 5% per year, why oh why are the Canadian grocers not seeing 5% revenue growth? Are Canadians just on a diet or something? I know, I know, AC Neilson, Loblaws, Metro, Sobeys, Walmart, Target, etc, are all participating in the Statcan conspiracy to hide the true level of inflation to rob seniors.


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## cainvest (May 1, 2013)

tygrus said:


> The simple truth is that if you are too scared to put your money out there to earn a real dividend in the 5-6% range, then just keep it in your pants.


Why not earn 2%-2.5% on the money instead of 0%?


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## tygrus (Mar 13, 2012)

Because 2.5% is the value of being able to get to your money at any time and its not worth it to give up that freedom and flexibility even if its not earning a return. Think of it as a peace of mind premium.


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## james4beach (Nov 15, 2012)

I'm positioned more for deflation than inflation, personally.


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## fatcat (Nov 11, 2009)

james4beach said:


> I'm positioned more for deflation than inflation, personally.


what if you are wrong ? ... i am trying as best i can to position for both



> What about when you account for all the goods that have fallen in price, like clothing, electronics, furniture, etc?
> 
> Even food. If food is inflating at 5% per year, why oh why are the Canadian grocers not seeing 5% revenue growth? Are Canadians just on a diet or something? I know, I know, AC Neilson, Loblaws, Metro, Sobeys, Walmart, Target, etc, are all participating in the Statcan conspiracy to hide the true level of inflation to rob seniors.


good point, i see some inflation in food like meat and produce but not so much in the the other stuff on the shelves

i am seeing very large increases in gasoline, maintenance and insurance for my car and very large increases for condo costs like strata fees and insurance .. clothing, electronics and furniture are not increasing but these are necessities ... in most of the basic necessities i am seeing large increases ... we all live differently and are impacted by different categories of products


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## james4beach (Nov 15, 2012)

fatcat said:


> what if you are wrong ? ... i am trying as best i can to position for both


It's certainly a danger I face. I just try to look at the data and go with what my analysis leads me to


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## HaroldCrump (Jun 10, 2009)

james4beach said:


> I'm positioned more for deflation than inflation, personally.


Deflation is a reduction in the supply of money, leading to a fall in nominal asset prices.
Where & how do you see deflation?
I see no evidence of deflation whatsoever.
All the major asset classes are at historical highs.

Perhaps the phenomenon you are trying to describe is *biflation*.


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## HaroldCrump (Jun 10, 2009)

fatcat said:


> i am seeing very large increases in gasoline, maintenance and insurance for my car and very large increases for condo costs like strata fees and insurance .. clothing, electronics and furniture are not increasing but these are necessities ... in most of the basic necessities i am seeing large increases ... we all live differently and are impacted by different categories of products


There is rampant, widespread inflation all around us.

Heating costs in Ontario just went up by 40% after both Enbridge and Union Gas lobbied the regulators.
Hydro rates are going up (again), starting 1st May by about 4.2%
Cost of meat is apparently up 56% since 2010.

Service fees and taxes are also going up faster than so-called inflation.
Manitoba increased their PST by 1% this last summer.
There are plans afoot to do the same in Taxtario to support the various boondoggles of the provincial govt.
The provincial gas tax will most likely go up sometime this year to support the City of Toronto's public transit wet dreams.

I could go on and on

To believe that the true inflation effective for a household is 1.2% or whatever bulls*t number the BOC/Fed throw around is worse than believing in the Tooth Fairy.
If you buy that, I have some oceanfront property in Arizona that I'd like to sell you.


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## fatcat (Nov 11, 2009)

HaroldCrump said:


> There is rampant, widespread inflation all around us.
> 
> Heating costs in Ontario just went up by 40% after both Enbridge and Union Gas lobbied the regulators.
> Hydro rates are going up (again), starting 1st May by about 4.2%
> ...


not to mention that housings resilience may well be a sign of stealth inflation .. i do think that andrew is right also, there are some areas where we are seeing price stability or declines but usually in items for which demand is elastic



> It's certainly a danger I face. I just try to look at the data and go with what my analysis leads me to


 i admire your honesty if not your hubris ... in the end you are trying to predict the future and nobody does that well ... i take refuge in the old standby of 50% bonds and 50% equities and hope i will eek it out


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## andrewf (Mar 1, 2010)

Harold, home heating costs rose 40% off a very low base. Natural gas is still cheaper than it was 7-8 years ago.

You can cherry pick stats, but it doesn't prove your point.

If we had rapid inflation, we'd be seeing it in revenue growth. We're not, in most cases. Baseline revenue growth for grocers should be about 1% for population growth, then inflation at perhaps 2% for 3% total. We haven't seen the grocers' revenues rise that much or much more than that. Where is the inflation hiding?


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## james4beach (Nov 15, 2012)

And if there's inflation going on, how do you explain commodities declining for about 3 years now? Commodities, broadly, are about 15% below their 2011 peak


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## HaroldCrump (Jun 10, 2009)

james4beach said:


> And if there's inflation going on, how do you explain commodities declining for about 3 years now? Commodities, broadly, are about 15% below their 2011 peak


There has been rampant inflation since the mid 2000s.
Inflating their way out of the post 9/11 recession was the plan adopted by Greenspan & Co, continued by Helicopter Ben. post 2008.

Speaking of commodities...been to the gas pump lately, have ya? 
Commodity prices mean squat for households...what matters for households is what they are paying for "stuff" at the end of the day.
Who cares what the price of WTI or Brent Crude is, if people are paying $1.40 per litre for gas.

You say commodity prices are 15% below the 2011 level.
May I ask you which product you are paying for 15% less since 2011?


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## HaroldCrump (Jun 10, 2009)

andrewf said:


> If we had rapid inflation, we'd be seeing it in revenue growth. We're not, in most cases. Baseline revenue growth for grocers should be about 1% for population growth, then inflation at perhaps 2% for 3% total. We haven't seen the grocers' revenues rise that much or much more than that. Where is the inflation hiding?


Inflation is hiding in plain sight.

You keep talking about grocers...what grocers? There are no real grocers left anymore.
Every single supermarket chain you talk about are selling a lot more than groceries.

Loblaws sells clothes...clothes, BTW, made by slave labor in third-world countries, living in worse than medieval conditions.

Their quarterly report states the following:
_CPI does not necessarily reflect the effect of inflation on the specific mix of goods sold in Loblaw stores_.

Loblaws does not sell the CPI.
There is also significant substitution effect going on, as households are very amenable these days in replacing branded and higher priced products with cheaper, no name equivalents.

The prices of regular consumption goods and services are inflating like a helium balloon.
The only products whose prices are going down are products made by slave labor in wretched conditions, like clothes, furniture, electronics, etc.
However, those are not products a household consumes on a weekly/monthly basis.
When was the last time you bought a significant amount of furniture?
How often do you refresh your wardrobe?
How often do you buy a new 52" LED TV?

I know what the official stats. say, and I know how they calculate it.
I am saying that it does not reflect the true, effective inflation for the vast majority of households on a monthly basis.


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## cainvest (May 1, 2013)

HaroldCrump said:


> _CPI does not necessarily reflect the effect of inflation on the specific mix of goods sold in Loblaw stores_.


So why doesn't CPI give a fairly good estimate of inflation?
Doesn't CPI cover most (all?) the items you've mentioned in your posts?


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## willow1044 (Jan 30, 2012)

Provincial bonds thru TDW pay upwards of 4% and i plan to put them in my tax sheltered accounts. It's certainly much better than GICs which pay ~1.75%

Essentially there are two risks: solvency and inflation. I have more faith in provincial governments ability to pay their debts as they have the power to tax and corps don't. 

As for inflation, outright deflation is less likely than disinflation. Inflation has been declining for 40 years and our future is more likely to resemble Japan than 1970s america.


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## willow1044 (Jan 30, 2012)

Inflation discussions really belong in their own thread but it is relevant to this discussion so I'll make one comment. Both the US BLS inflation measure and MIT's billion prices project report inflation around ~2%

The last report on the EU had EU wide inflation at .5% with greece and 7 others in outright deflation. 

http://www.telegraph.co.uk/finance/economics/10774013/Eight-EU-states-in-deflation-as-calls-grow-for-QE-in-Sweden.html

2% real return is much better than nothing IMHO.


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## HaroldCrump (Jun 10, 2009)

I don't live in the EU so I don't keep track of their day-to-day cost of living.
I know that in the UK, inflation parameters are probably similar to here because their housing is flying high as well as there are increases in energy, heating, and gasoline costs.

All I am saying is that CPI is entirely academic...it's got no bearing or what ordinary people experience on a daily basis.
It is a metric entirely irrelevant to how we live our lives.
It may have some bearing for institutions, governments, and pension funds, etc. that index their products based on CPI.

If you design your asset allocation and investment strategy based on the govt. reported CPI, you will lose significant purchasing power year-over-year.
As far as I am concerned, it is about as useful as the rate of reproduction of the Amazonian Horned Frog.


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## andrewf (Mar 1, 2010)

willow, there's no convincing harold that inflation is not high. No amount of empirical analysis by various independent organizations will persuade him.


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## HaroldCrump (Jun 10, 2009)

The original idea a few posts back up is whether buying provincial bonds or GICs paying 2.5% are sufficient enough to beat inflation.
I take that to mean "preserve your purchasing power".

That is simply not true.
If you believe keeping your money in GICs paying 50 bps above official CPI is enough to preserve your purchasing power YoY, go right ahead, and enjoy those cans of cat food.


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## humble_pie (Jun 7, 2009)

there's a video on globe & mail saying how canadian food prices have increased dramatically this year & they are going to continue increasing.

in march/14 alone prices of fresh fruit & veg rose 8.8%, meat over 4%.

small news item from california recently said drought has hugely reduced herds of livestock; the livestock aren't dying from drought but ranchers are sending them to slaughter early because they, the ranchers, can't afford to buy the feed that the animals need. Hay, said one farmer, was priced in the $100 range last year, now hay is north of $300 due to the drought, farmer said he can't pay that price because he won't be compensated for feeding the animal beyond a few months ...

as for gas, think back to what u paid as recently as 2010 or 2005 & weep.

what gets me is places with zero increases in costs are now billing 10-15% higher than last year just because they know consumers will likely pay without noticing or complaining. At least, not so far. However i think that, in time, consumers will complain or switch or eliminate ...


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## andrewf (Mar 1, 2010)

I don't disagree that 0.5% real return is underwhelming for a 10 year bond. I don't really see the point in taking on high duration bonds when yields are so low.


Natural gas is just around the price in 2005... 9 years later. 

http://www.eia.gov/dnav/ng/hist/rngwhhdm.htm

And that is only after a very cold winter in North America. I would not expect gas prices to stay relatively elevated. And the headline increase in Ontario is due to an adjustment to compensate for selling gas too cheaply this winter.

The only conclusion you should draw is that commodity prices are volatile and cyclical. Cherrypicking the commodities that have risen in price recently does not necessarily demonstrate wider inflation.


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## HaroldCrump (Jun 10, 2009)

andrewf, low(er) nat. gas rates were the only thing offsetting the punitive rise in hydro rates in the last 4 - 5 years.
Now that nat. gas rates have been pushed back up higher, _both_ heating as well as hydro rates are substantially higher for households.

It is alright for you to cherry pick base years for comparison, but not alright for me to cherry pick?

If you want to talk about household energy costs w.r.t. inflation, you could not have picked a worse topic.
This has been one of the highest sources of inflation since 2007/8.

You can plead _volatile and cyclical_ argument if prices were going up and down YoY.
I don't see any household energy cost going down - be that hydro, nat. gas, or gasoline.

Now that home heating costs have been reset upwards by 40%, many households in Taxtario will be paying substantially more in energy costs using 2005 as base year.
This includes the effects of the TOU and HST as well.

I think there are two separate concepts being mixed up here - the purpose of fixed income products such as GICs and bonds in a portfolio vs. inflation-protection.
GICs and bonds reduce volatility in a portfolio and bonds are supposed to be uncorrelated to equities.
However, as inflation protection, they fail miserably.


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## Beaver101 (Nov 14, 2011)

HaroldCrump said:


> ...
> *All I am saying is that CPI is entirely academic...it's got no bearing or what ordinary people experience on a daily basis.* *It is a metric entirely irrelevant to how we live our lives.* It may have some bearing for institutions, governments, and pension funds, etc. that index their products based on CPI.
> ...


 ... +100%! ... in the real-world of Ontario. :grumpy:


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## andrewf (Mar 1, 2010)

My cherrypicking was to demonstrate that cherrypicking will give you any conclusion you ask for. 

It's true that energy has been inflating faster than other areas. But other things do come down in price. Like coffee, which, after spiking in 2010, has come off and just recently spiked. 

HST is a one-time only effect on inflation, and has no effect on inflation going forward. TOU is a separate issue from rate rises. TOU pricing itself does not raise prices/inflation. You and I are not going to disagree on the stupidity of the FIT program in Ontario.

You're fixated on energy costs, despite the fact it only accounts for <10% of consumer prices. The picture is bigger than energy and food.

http://www.statcan.gc.ca/daily-quotidien/130920/t130920a001-eng.htm


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## willow1044 (Jan 30, 2012)

HaroldCrump said:


> The original idea a few posts back up is whether buying provincial bonds or GICs paying 2.5% are sufficient enough to beat inflation.


Actually, as the OP, i can say that the original post is regarding any concerns about buying one provincial bond over another. It was another poster who mentioned bonds at 2.5%. The bonds I'm looking at pay ~4%. The difference in a bond paying 3.6 vs 3.9% appears to be duration. In which inflation is a concern. 

For example, is it better to buy a bond at 3.9% for 20 years vs one at say 3.6% for 14?


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## HaroldCrump (Jun 10, 2009)

willow1044 said:


> For example, is it better to buy a bond at 3.9% for 20 years vs one at say 3.6% for 14?


I would buy neither.
IMHO, it is nuts to go that far out in duration for a 3.6/9% return.

If you want fixed income asset allocation, buy a 5 yr. GIC for 2.85% or so.
Try shopping around, and use a GIC brokers, esp. if the amount in question is large (> $10K), you might be able to eke out an extra 10 bps or so in return and manage to score 3% for a 5 yr. GIC.


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## andrewf (Mar 1, 2010)

That's a judgement call. I don't think I'd go for such a long duration bond at the moment. I, too, would be somewhat cautious about Quebec debt.


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## OnlyMyOpinion (Sep 1, 2013)

We agree with Harold that 14-20 yrs is too long to lock up your money, at rates that presently are too low, with the likelihood that rates will move up over that period (and we assume you are planning to buy and hold).

We're out to 8 yrs on a few strips that had over 4% ytm but can't see anything further out worth buying. 

From our perspective, if you are buying any individual fixed income product (bond, GIC, strip, etc) it should be as part of a pre-determined portfolio or 'ladder' of maturities, and it should be a pre-determined percentage of your overall investments (others being stocks, etfs, etc). You should also have decided the minimum credit rating or maximum $ per institution (thinking of CDIC limits) that you are comfortable with. And 'everyone' will agree that in this low interest environment you should keep you maturities on the low end (i.e. not out 14-20yrs). 

The only exception to the above might be if you have a single lump sum that you want to invest for a particular future date. But you can do that by buying for 5yrs, and 'rolling' it over every 5yrs upon maturity, rather than locking it up for so long today.


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## willow1044 (Jan 30, 2012)

I agree that 20 years is a long time but it's the best that there is from what i can find. 

The trouble with rolling GICs every five years is that this barely beats inflation, barely. For example, $100k in bonds @ 3.9% for twenty years is $217k vs $166k in GICs. 

If anyone knows where i can find 4% with shorter maturities please let know.


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## HaroldCrump (Jun 10, 2009)

willow1044 said:


> For example, $100k in bonds @ 3.9% for twenty years is $217k vs $166k in GICs.


You are comparing returns of two different maturities...not fair.
The 3.9% bond has 20 year remaining term, whereas current GIC rates are about 2.85% for 5 year terms.
You will be rolling the GIC every 5 years at prevailing best rates, whereas, with the bond you are stuck with 3.9% return.

In a rising rate environment, the rolling GIC strategy will easily out-perform the 3.9% bond hands-down.

Also, do not forget that you are comparing the yield on a Quebec bond vis-à-vis a CDIC insured GIC.

That you are willing to take on a 20 year risk on a Quebec bond (among all provinces) is classic yield-chasing.



> If anyone knows where i can find 4% with shorter maturities please let know.


You can't.


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## OnlyMyOpinion (Sep 1, 2013)

*Willow - re/ $217k vs $166k of interest:* Your $217k seems to be a compounded 3.9% ? But I believe your 20yr bond will pay out semiannually - the interest is not kept and compounded at the bond's purchase yield until maturity. So you are left with 'small' annual amounts that need to be reinvested effectively. You would only see $217k if you were able to reinvest these annual payments into something with the same yield & maturity.


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## willow1044 (Jan 30, 2012)

OnlyMyOpinion said:


> *Willow - re/ $217k vs $166k of interest:* But I believe your 20yr bond will pay out semiannually - the interest is not kept and compounded at the bond's purchase yield until maturity. So you are left with 'small' annual amounts that need to be reinvested effectively. You would only see $217k if you were able to reinvest these annual payments into something with the same yield & maturity.


Good point onlyMyOpinion, there is a 5,000 min quantity limit so those little bits of money would prove bothersome. To get around this I purchased Prov of BC strip bonds at a yield of 4.02% with a maturity date of 2031.

For my timeline ~4% is sufficient and I'm not afraid of rising rates or inflation since I think Japan is the best model for our future. I did some quick googling and it looks like 20 years after their 'lost decade' you can still get 10Y JGB for 0.62%. 

I'm not enthusiastically promoting this as a great purchase but it seems to be the best of a bad lot IMHO.


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## OnlyMyOpinion (Sep 1, 2013)

Well we're in good company then. Its where we've been putting our fixed income for some time now. We're getting about the same rate but on shorter maturities because we're comfortable going 'down' to tripleB corporates.
Those in our un-registered account are easy to track by spreasheet for reporting annual accrued interest (its not on T5 tax slips from TD Direct Investing).
Cheers


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## rossco12 (Dec 4, 2013)

andrewf said:


> Even food. If food is inflating at 5% per year, why oh why are the Canadian grocers not seeing 5% revenue growth? Are Canadians just on a diet or something? I know, I know, AC Neilson, Loblaws, Metro, Sobeys, Walmart, Target, etc, are all participating in the Statcan conspiracy to hide the true level of inflation to rob seniors.


Do you really believe 5% inflation of the price of food should equate to 5% revenue increase for grocers? Seriously?? 

Increased transportation costs, increased cost of production on the food, increased costs of keeping the lights and heat on at safeway, increased wages to employees to keep up with INFLATION. 

Does it make sense yet?


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## SkyFall (Jun 19, 2012)

that was quite an entertaining read!


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## andrewf (Mar 1, 2010)

rossco12 said:


> Do you really believe 5% inflation of the price of food should equate to 5% revenue increase for grocers? Seriously??
> 
> Increased transportation costs, increased cost of production on the food, increased costs of keeping the lights and heat on at safeway, increased wages to employees to keep up with INFLATION.
> 
> Does it make sense yet?


No, it doesn't. Revenue is all the sales a store makes. If a store sells the same amount of product at 5% higher prices, their revenue will rise by 5%. As you say, their operating costs may also rise, but that would reflect in lower profit growth. Revenues would still be rising.


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## off.by.10 (Mar 16, 2014)

andrewf said:


> No, it doesn't. Revenue is all the sales a store makes. If a store sells the same amount of product at 5% higher prices, their revenue will rise by 5%. As you say, their operating costs may also rise, but that would reflect in lower profit growth. Revenues would still be rising.


Indeed, but demand elasticity means they will likely not sell the same amount of product (or of the same product). So grocer revenue is not a reliable indicator of food price inflation.


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## andrewf (Mar 1, 2010)

Demand for food is pretty inelastic. There may be some substitution of more expensive products for less expensive ones, but this effect is not large, and is offset by substituting home meals in place of restaurant meals. More to the point, it is exceedingly difficult to believe that food is inflating at >5% and grocer revenues are pretty well flat. Don't forget that Canadian population growth (and thus demand for food) makes revenue growth per capita even lower.


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## rossco12 (Dec 4, 2013)

andrewf said:


> No, it doesn't. Revenue is all the sales a store makes. If a store sells the same amount of product at 5% higher prices, their revenue will rise by 5%. As you say, their operating costs may also rise, but that would reflect in lower profit growth. Revenues would still be rising.


Gross revenue, I stand corrected. 

When you visit any grocery store, it's evident when you first walk in that not many items are getting cheaper. I'm 21 years old, and I remember in my preteens, eggs were 2.50-3.50/doz, now they're 3.50-5.00. The chocolate bars at the checkout were 1.20, now they're 2.00 Dairy, junk food, meat...it's all getting pricier every year. The only way producers have beat inflation is by way of cheap offshore production.

Now head over to the local shoppers drug mart, to find an ever increasing selection of the 'Simply Food' Brand, made in China. Dirt cheap, of course, and tailored to a shrinking middle class.


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## HaroldCrump (Jun 10, 2009)

Food is just one of the products these big box stores like Loblaws sells.
Their annual report clearly states that the product mix in their stores does not reflect the CPI basket.
I copied and pasted the relevant statement further up in the thread.

There is rampant food (and energy) inflation all around, apparent to anyone that shops for fresh food and dairy on a regular basis.


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## andrewf (Mar 1, 2010)

So their sales in other categories have been shrinking to hide the rapid growth in food revenue? If you look at their commentary, they consistently have been referring to low overall food price inflation except in certain commodities like vegetables and meat (which are driven to a greater extent by currency changes).

There's also the AC Nielson industry sales data (which breaks out sales by category). It doesn't support the conclusion that food prices have been rising in excess of 5%. I think you'd see analysts referring to the rapid sales growth in the food category if it existed, as that is a 'good news' story for retailers.

Relatively few private label products are made in China. The overwhelming majority are made in Canada, with some made in the US. For the simple reason that moving heavy, low value goods is expensive. The main things that come from China (outside of imported Chinese consumer goods) are frozen seafood, and some canned vegetables.


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## HaroldCrump (Jun 10, 2009)

andrewf said:


> So their sales in other categories have been shrinking to hide the rapid growth in food revenue? If you look at their commentary, they consistently have been referring to low overall food price inflation except in certain commodities like vegetables and meat (which are driven to a greater extent by currency changes).


There are three main types of unpackaged (perishable) food products - fruits, vegetables, dairy, and meat.
We can consider fruits & vegetables to be the same since their supply chains are very similar (although fruit production is more volatile, esp. oranges, strawberries, bananas).
Dairy is supply managed in Canada, but even then, prices have risen faster than CPI.
Meat prices are through the roof.



> The main things that come from China (outside of imported Chinese consumer goods) are frozen seafood, and some canned vegetables.


A lot of processed cheese is now being imported from China.
Don't be fooled by the "Made in Canada" labels.
Dehydrated milk solids are a key ingredient in processed cheeses like Mozzarella.
Those are imported from China and re-constituted here.
Almost the entire Kraft cheese stock is reconstituted from imported ingredients.

We can feel the food price inflation in our daily budget, even with so-called "substitution effect".
Even the US spot foodstuff index is up something like 20% YTD.


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## andrewf (Mar 1, 2010)

So then sales $ must be way up, even though volumes are down due to substitution, right? It's odd that we don't see it on retailer toplines, I'm sure you agree.


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## SkyFall (Jun 19, 2012)

Disclaimer: by no mean I am an expert or close to be.

I know that gas price isn't in the CPI and home price either.... but if my investment produce 0.5% return over the long-run..... I will not feel that I have more money than atm. I mean as a student I am driving over 400-500km/week for work and school. I am sorry but when I started driving back in the days a $20 bill was giving me more mileage than now.... I recall I know that gas price isn't in the CPI but it's still something I have to pay every week and it is affecting my lifestyle.... and even worst for home prices..... if your trying to buy a house in lets say 10 years and your 0.5% return will be devourer by the rate of increase in home prices (i know its the market)

p.s. how come gas price and home price isn't part of CPI?


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## andrewf (Mar 1, 2010)

They are included in total CPI, just not core CPI. They aren't included in core CPI because they are volatile and just add noise for policy setting (such as Bank of Canada setting interest rates).


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