Yesterday the Treasury initiated a negative yield bond. That means that interest rates are headed down further. Therefore, this fund should have gone up in price.
It did the opposite.
I am amazed.
""In 1980, everyone was absolutely convinced that serious inflation was a permanent condition. I would have been convinced and I would have been wrong.
"It should not take rocket science to decide on this one."
There are no sure things. Gold has risen over 400% in the last decade. It is not the value it once was, especially compared to things we use and need (like aluminum).""
True enough, but gold has over time grown in value. Fiat money has not grown, but surely, steadily declined in value through inflation - that's the sure thing it will always be worth less and less with no time horizon to ever pull it out of its death spiral.
Deflation will never happen in this century, there are too many people living too close to one another to tolerate deflation. Those in power simply cannot let it happen when the alternative is inflation.
John Tempelton once said that inflation is always the way out.
Here's one more attempt. I put the chart on my blog.
Apologies for posting so many times in a row. I just wanted you to see it.
"You're right, cash is being intentionally devalued..."
As a saver, it does hurt. The era of making money off of money does appear to be coming to an end. I've been buying I-Bonds every year since 2000. I bought 0.3% I-Bonds this year. I may be buying 0.0% I-Bonds next year. It stinks.
However, things could be much, much worse (and may become so).
Please consider the following chart of the CPI. I've placed it on a log chart so that constant exponential growth is seen as a straight line.
If you look close at the last few years you will see that it is slowing its rate of climb. This is not like the 1970s (also shown on the chart). At least not yet. We've been fighting deflation, much like Japan has.
Also keep in mind that I am very sympathetic to your arguments. I've been bearish since 2004. I created an "Illusion of Prosperity" blog back in 2007. I post under the name "Stagflationary Mark". I keep bracing for the stagflation that never seems to appear though.
THIS is what the Fed has made me do. It clearly hasn't helped our economy much.
And lastly, I do not think commodities are a sure thing right now. Many (such as copper) have climbed back to pre-crash levels. Jim Chanos (the guy who made his fortune shorting Enron) has said China is on a "treadmill to hell". If China falters, commodities would no doubt crash again.
I don't think anything is safe right now.
Just opinions of course.
"Yesterday the Treasury initiated a negative yield bond."
The Treasury reoffered a 0.5% yield bond and the market bid it up to the point that its overall yield turned negative.
"That means that interest rates are headed down further."
Even Japan's lost decade(s) had positive real yields. Further, knowing where we are says nothing about where we are headed.
"Therefore, this fund should have gone up in price."
One might argue that it was not only already priced in to TIPS, but that it was "overpriced" in to TIPS.
That's not to say that you won't ultimately be right. The 1970s often had negative real yields.
However, if one was to believe that negative real yields were permanent, then one would start to believe hyperinflation theories. As I have stated here before, hyperinflation would not be good to holders of TIPS (if only due to the extreme taxation on the inflationary gains).
In other words, if you were to tell me that negative real yields were a permanent condition then I would be dumping all US dollar denominated assets (TIPS included).
That's how markets work. We're going down to at least 110 I suspect. It was ridiculously overbought.
I'm not scared in the least. If I were buying negative yield TIPS, I'd be somewhat scared that a few years out my investment would not look that good. Buy TIPS at this point as a momentum play, not an stable income-producng investment.
We've got room to run, but the returns now might soon be accompanied by nosebleeds.