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iShares TIPS Bond Message Board

  • darth_nihilist22 darth_nihilist22 May 30, 2009 12:12 PM Flag

    Treasury Bubble

    Keep hearing people like Warren Buffet discussing the bubble in treasuries. Don't at all disagree, especially when the quantitative easing is finished running it's course. TBT seems like a good buy.

    My question is around TIPS. So if you want to own treasuries, wouldn't this be the place to park your money, especially with the specter of high inflation looming on the horizon? How does a treasury bubble impact this ETF?

    TIA for any insight.

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    • Great Question.treasury bubble and the impact to this etf.
      I'm looking for the same answer.
      Anyone have insight,

    • Buffett recommended TIPS in 2005, for those worried about inflation.

      He's also admitted many times that he was overly worried about inflation. I've read his shareholder letters from the 1970s and it is easy to see why. He compared high inflation to a tapeworm. It eats regardless of how healthy the host is.

      I am torn when it comes to a treasury bubble.

      On the one hand, we seem to be doing all we can to turn this country into an inflationary banana republic. Eventually I think we will succeed. Sigh.

      On the other hand, there are a lot of deflationary forces out there. There's overcapacity almost everywhere you look, from excess housing inventory, to excess global manufacturing capacity, to a global college graduate glut. It is possible that we simply follow Japan into an ongoing deflationary mess.

      So, that being said, I like TIPS (and this TIP fund which holds TIPS). TIPS have some deflation protection. At maturity, you get at least face value. They also offer some inflation protection. They don't offer much hyperinflation protection, but that's something I'm willing to risk. I figure that as long as there can be a rational deflation vs. inflation debate, then hyperinflation isn't all that likely.

      And lastly, TBT would take courage. First, I shy away from leverage. Leverage is what got us into this mess. Our society is seriously overleveraged. Second, what if there isn't a bubble? I lean that way but I'm not 100% convinced. What if oil is the bubble? It's up five fold from its 1990s low. Third, and most importantly, even if treasuries are in a bubble, the markets can stay irrational longer than you can stay solvent. I'm reminded of the dotcom and housing bubbles. I would have shorted both of them WAY too early, had I been inclined to bet against bubbles.

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