Yes, I know. He just confirmed what I have believed for a while, though, which I do find somewhat comforting. I just don't see deflation or more importantly, deflationary expectations except in the housing market, where it clearly exists. I don't think that many consumers really think prices are going to be cheaper across the board tomorrow than they are today. Commodities are clearly roaring right now.
I've been looking to enter TIP with some cash. Right now, there is some strange under currents in the markets. Corporates do not support the latest rally in equities. Spreads are still very wide.
No doubt defaults will rise this year, but to what levels. I really believe Europe has troubles yet to be determined. So what does all this really mean?
We are still in a deflationary environment. I am seeing houses being sold at price points you would not believe. Out of that price point (135 - 165K) nothing is moving and now houses for sale are slipping down to these levels.
Prices are still in decline and people with cash are being paid to wait. This is not good for TIP at all.
Housing prices are in decline yes but that's not affecting the inflation/deflation picture (in my opinion).
And yes, deflation may be with us for a while. However I hold TIP (and IPE) with the expectation that inflation will return as a result of current, misguided in my opinion, efforts to avert recession. When inflation does return I may not be fast enough to get into TIP in time to catch the upswing. I prefer to be too early rather than too late.
Houses may stay in a deflationary spiral for some time, but that will have little effect on TIPS in my opinion. Food and energy are a far bigger driver, and with oil having spiked from 33 to 53, there is some good evidence that market has bottomed and is going higher. Food has also been rising of late.
Even if inflation does not spike in the near term, TIP has been benefitting from the flight to quality trade on the days when that is the theme. The dumping of TIPS for fear of real long term deflation that occurred in the fall is definitely over. TIP double bottomed in November.
With the FED buying treasuries now and committed to re-flation, TIP is about the safest bet there is which is why it was up 6% in the first quarter while most other asset classes were down.