Well, I am on record stating that it probably wouldn't get to 110 as that would require 7--year TIP real yields to get to roughly 0.35%. Well, they got there, and we got (roughly) 110 in TIP.
115 is simply unrealistic given current holdings of TIP. 115 would require 10-year TIP real yields to go to 0.2 or 0.1%. While I am kind of amazed that 5-year TIP real yields continue to be negative, do we really expect 7-year yields to go negative (and 10-year TIPS to go to around 0.15 or so)? I guess in a real panic, it could happen.
I'm very slightly bearish on TIP right now. I'd be more bearish, except I don't know any better alternatives to invest in. The things that are likelky to crush TIP will also crush equities and nominal bonds.
"The things that are likelky to crush TIP will also crush equities and nominal bonds."
I see two scenarios. The first is as you describe. If stocks get crushed then deflationary concerns would probably crush TIP too.
The second is that investors fall in love with stocks again. I mean really love them. We saw 3.5% real yields on TIPS at the height of the dotcom bubble and we saw 2.7% real yields when the DJIA was 13,500+ in 2007.
So on that note...
Go stock market go!!
I think by the end of this run in TIPS, as I said earlier, people will be doing crazy things with TIPS and saying crazy things about TIPS and I dont think we're there yet. Instead, the boldest things being said are to the effect TIPS can't do this or can't do that-- such as prof. Siegel's remarks. I think we'll eclipse the all-time high and then some before this is over, but we might see prolonged sideways action now for a while as 110 might be the most significant resistance we've seen in a while. Only my opinion though.
But if you step back and think about it, why is it so crazy people would accept a negative yield on the 5 year and not the 7 year? Or 2% for a 30 year TIP and not 1%? All these rates suck from my standpoint frankly, but these are not normal times.
I'm always a bit worried.
"This is a period of great uncertainty, so nothing is very safe." - George Soros, September 15, 2010
I don't own gold but did once. I'm thankful that Soros doesn't think gold is safe now. I'd be even more worried if he did. I'm reminded of his words heading into the dotcom bubble.
"Maybe I don't understand the market. Maybe the music has stopped but people are still dancing." - George Soros, April 2000
Meanwhile here's what Suze Orman was saying that very month.
I do love a good hindsight heckle. ;)
I'm getting a little worried. Not much, but a little. I guess similar to the situation you have expressed, markm, I would prefer to just be long the TIPS in my portfolio and, personally, let them mature and then, for me at least, leave this market. I bought a lot by my standards in the fall of '08 and they are yielding 2.5-3% on average, which is very nice in this environment. They mature for the most part b/w 2016-2018, so I'm hoping I can let them mature so as to not make any tough decisions- and selling I find always harder emotionally than buying- and then this market can crash and burn for all I care. I just wonder if the crazies start coming in before 5-7 years out and make us make a decision. We'll see I guess.
Very, very interesting stuff. Siegel has largely been rendered a counter-indicator. He's opting to double down and triple down on his original, wrong predictions I guess b/c he figures that's what's best for his franchise, and if he lives to be 100, he might be able to regain his credibility with anyone who doesn't distinguish b/w nominal and real returns.
Who knows, based on yesterday's fed comments they are clearly determined to drive inflation no matter how much money they need to print. They think they can control it but I believe once it gets going it will be like trying to stop a boulder going down hill.
Looks like it hit 109.90 today and pulled back. We'll see if 110 proves to be long-term resistance or not. I'm not really sure personally what to expect. We've got about 7.5% so far this year, I think, so I wouldn't be surprised if most of the rest of the return comes in the form of monthly distributions.
As a side note, the 5-Year TIPS I bought in April directly in the government auction with a real inflation adjusted yield of just 0.5% have appreciated over 2% with almost no inflation to speak of. Go frickin' figure.
I also find it interesting that the stock market shot up on the FOMC news and then promptly shot back down.
And lastly, you might get a kick out of this.
You can pretty much guess what I think about how effective the Fed is at solving our economic problems.
Put me down as $120 being virtually impossible, if only because there's very little left to fall.
The 5-Year TIPS just turned negative. That's not likely to hold. TIP's price can't be driven higher by all of the bonds with that duration or lower (although its distributions can if inflation picks up).
The 10-Year TIPS is down to 0.74%. It could go to zero of course. I wouldn't entirely rule it out.