Whipsawing happens sometimes. I think the drop on Monday was a panic drop, but we'll see. TIP seems like a reasonable investment to me considering the current climate. It returned 11% in '09 and is on pace for a similar return this year, or was until Monday.
I think yields are backing up, in part, b/c 2011 will be a better year than most currently expect for the economy. I may be wrong. I do not personally expect TIP to outperform equities in 2011, but I think it will have a plus year and make a new all-time high.
1. On Wednesday the margin rules for silver were changed. Silver got spanked in response. That's very reminiscent of the early 1980s and the Hunts brothers.
2. China can't handle the inflation we've been sending them in the form of higher commodity prices. Investors are growing concerned they will raise interest rates to fight it. I think those concerns are justified.
3. We're taking serious global public relations damage over our QE2 policy (both inside and outside the country). That "sure thing" isn't quite as sure long-term as it once was.
For what it is worth, I continue to sit in cash within my IRA. I'm comfortable waiting until the 30-Year TIPS auction next year.
The bulk of my nest egg continues to sit within TIPS and I-Bonds though.
This is certainly the opposing view, and you outline it well.
I'm not saying I'd bet my life on TIP at 115 or that your view is wrong. I lean in the direction of this rally continuing, but flexibility remains imperative in my judgment.
I do think one thing may be important to keep in mind w/re to China-- it seems to me typically in a property bust, the central bank becomes painfully aware that they have tightened too much and moves to lower rates drastically, which usually represents an opportunity to get out. In our 2007 property bust, hedge funds started imploding and the Fed moved drastically in August to the downside, and that represented the very best opportunity to dump everything into a short-lived relief rally. The Fed hasn't raised rates since. I believe my chronology is correct.
China moved to lower rates in 2008, and they lowered those rates in the midst of a property market that had already appreciated signficantly over the previous several years. Predictably, the property market is even more expensive now than then, but they are now raising rates again, which our Fed has not done in three years.
I expect to see China's Central Bank at some point have that moment of awareness that the real estate market is imploding and to move drastically as our Fed did in August of '07. I'm not saying that can't happen as soon as Monday, but the odds in my opinion are that we are a ways from it and that 2011 will be a very good year for China.
We'll see I guess. The ice is getting thinner for all of us, that's for sure.