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iShares TIPS Bond Message Board

  • kayneari kayneari Mar 22, 2010 2:13 PM Flag

    All is calm in TIP land

    It has been 2 weeks since a blog has been written in the Headlines section of Yahoo's Page of TIP. I don't ever recall seeing such silence before.

    I would interpret that ther is no change in inflation expectation - a littl immediate inflationary concerns

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    • Got a good laugh out of this one. Yup, some people lost a lot of money betting against this upswing this past year. Glad I wasn't one of them because this has been one great year.

      Starting to buy TIP again when the cost drops. Inflation's got to be coming before long. But also trading this market like a mad man and going long with some good telecom dividends.

    • "...people have been quoting experts the whole past year..."

      Wow. A whole year huh? That is something.

      I bought my first I-Bond in April 2000. That's one "whole" decade ago. It continues to grow at 3.4% over inflation. It does not mature until April 2030. It is up 83% and will continue to grow tax-deferred for two more "whole" decades.

      Meanwhile, the S&P 500 closed at 1,452.43 on April 28, 2000. It has lost roughly 20% since that point. Any dividends paid were completely offset by the inflation over the period. The loss is therefore real.

      I bought my first TIPS bond nearly one "whole" decade ago. It was July 16, 2001. It has paid 3.5% over inflation and will continue to do so until January 15, 2011. In addition to that ongoing interest, thanks to inflation it is now worth roughly 25% more than I paid.

      The S&P 500 closed that day at 1,202.45. It now sits at the SAME level. Ouch.

      There's been TWO stock market crashes and ONE housing market crash in the last decade alone.

      On August 31, 2007 I started an Illusion of Prosperity blog. The S&P 500 closed that day at 1,473.99. As of this moment, it sits 20% below that level.

      So yeah, I would say that TIPS were a fairly decent "bastion" for the troubles our country has faced and should continue to be a fairly decent "bastion" for the troubles our country should continue to face.

    • Okay, so the sky is falling. Concrete bunker time all the way around. You might enjoy the SH (inverse of the S&P) msg board where people have been quoting experts the whole past year that the S&P is going to make DOW 6500 look like the good old days. Talk about some people looking to delay retirement.

      So is your point TIP is a bastion now, or concrete hideaway on this too?

    • After getting skewered on GM notes, I'm not interested in increasing the velocity of my limited funds. The last administration had a "pay me later" philosophy; this one has that attitude on steroids. The current crowd is intent on stretching deficit spending beyond its limit of elasticity; our country will inevitably be permanently deformed. It's not a question of whether but when. No where to hide.

      Here's somebody else's thoughts:

      "Son of Texas and financial seer, John Mauldin, believes the stock market could shed 40% in the near future (SPX). John is the president of Millennium Wave Advisors, LLC, a Dallas, Texas based investment advisor, with $600 million in assets under management. John worries that the velocity of money, an indicator of how many times a dollar is reused in the economy, is collapsing. This ratio, which is defined by the GDP divided by the money supply, bottomed at 1.15 in 1946. It peaked at a breathtaking 2.2 times in 1997, near the top of the Dotcom bubble. The ratio has been retreating ever since, has recently accelerated down to the 100 year mean, but still has much farther to fall to get to the bottom of the 100 year range. The collapse of velocity signals the end of a 50 year super cycle in lending. For you and I, this means lower economic growth for perhaps another decade. It is partly the result of banks getting generous funding from the Treasury, and then sitting on it. The bucks simply stop there. It suggests that no matter how much money the government pumps into the economy, it might as well be pushing on a wet noodle. The gold bugs have got it all wrong, simply focusing on money supply growth and expecting hyperinflation. A lot of money can sit and go nowhere. The inflation will come back with a vengeance when the economy revives and banks finally resume lending. With so much new money being created in the last two years, the chances of the Fed being able to head this off are close to nil. Similarly, the bond vigilantes may have to wait a couple of years for their big move down in the 30 year Treasury bond (TBT). When the bond markets call “times up,” the US will be forced to embark on some highly deflationary spending cuts. If this happens during a recession, it could be a disaster. John thinks there will be a substantial slowdown in growth in Q3 and Q4. With anticipated federal tax increases of 2% of GDP in 2011 added to a further 1% in state tax hikes, the recovery will be strangled in its crib. That’s when the risk of a double dip recession explodes. Over 3-4 years higher taxes could add up to a burdensome 9% drag on GDP. John says that emerging markets (EEM) will decouple from the US and keep powering up, as this is where the real economic growth is (EEM). He has been a gold bull since 2002 (GLD), when it was below $300/ounce, and isn’t backing off from that position, but prefers to own it against Euros at this point. He thinks the entire premise for the existence of the European currency (XEU) is questionable, and sees it eventually moving to parity against the dollar."

    • "Treasuries and stock market are going in opposite directions ---

      Irrational ?

      The storm continues to brew........"

      I'd say you nailed that one. The stock market started off so well today and then utterly fizzled heading into the closing bell.

      "WASHINGTON (AP) -- Record-low interest rates are still needed to rev up the economic recovery, Federal Reserve Chairman Ben Bernanke told Congress on Thursday."

      I guess the stock market finally understood what he meant, lol.

    • not any more

    • The price of oil has been similarly calm over the last few weeks. I don't think that's a coincidence.

      Cushing, OK WTI Spot Price FOB (Dollars per Barrel)

      2/22/10 to 3/16/10 (as seen at EIA)


      It currently trades at 81.25 (as seen on Bloomberg).

      I doubt this is a permanent condition. It feels a bit like the eye of the hurricane to me. I suspect down might be coming next, but that's just a hunch.

      I sold TIP on November 16, 2009. Oil was $78.91 on that day. Since then, it has risen 3.6%. It's exponential rise from the bottom has clearly slowed.

      It hit bottom at $30.28 on December 23, 2008. It's up 168% from that point and I would argue that it is starting to lose its "sure thing" status again. Could be wrong though.

      • 2 Replies to markm0722
      • I don't know much about oil

        I do know that world demand is expected to go up 1.5 % this year.

        I expect it will be a calm year for oil.

      • At the risk of offering even more endless banter... ;)

        I have argued that oil would not reach $145 per barrel in this cycle. I am basing the prediction on human nature.

        The last time it reached that point, it crashed all the way down to $30.

        The closer it gets to $145 the more nervous trigger fingers will be hovering over the sell button. Investors now know that $145 oil can break a global economy.

        Here are some more things to think about.

        1. The global economy is now weaker than it was in mid-2008. It therefore probably won't take anywhere near $145 oil to break it again.

        2. For every person who thinks $144 is a great exit point, there is an even smarter investor who thinks $143 is a great exit point, and so on. It's all just a great big game of chicken now.

        3. Oil has risen 168% in the last year. That's roughly 400 years worth of 1-Year Treasury Bill interest at today's rates. Bulls make money. Bears make money. At some point pigs always seem to get slaughtered though.

        4. Oil was such a "sure thing" bet that you can believe massive leverage was applied. More than a few people made far more than 168% since the bottom. With massive leverage comes massive risk though. In fact, it is the unwinding of massive leverage that crippled Long Term Capital Management and our current economy.

        My personal prediction is, and has been, that $80 is roughly the top this time. It's just a hunch, mostly from the gut.

        I'm not really putting much of my money where my mouth is though. I do have more cash than normal but the majority of my nest egg sits in TIPS and I-Bonds. It will more than likely be sitting in TIPS and I-Bonds from here on out. That's my long-term plan.

        As a saver, even in TIPS, deflation does not scare me. All I care about is maintaining my purchasing power. TIPS do best during deflation when it comes to that. Unlike most, if I lose 2% of my nest egg but prices overall are down 4%, then I'm completely fine with that. I wouldn't even have to pay income tax in that environment. What's not to like?

        That said, I think it is better to buy TIPS directly from the government and hold until maturity. If we did experience ongoing deflationary problems, then you'd still get all your money back at maturity.

        Assuming the government doesn't actually default, 10-Year TIPS bought and held until maturity will outperform cash buried for 10 years. That's actually great deflation protection. Unfortunately, the same cannot be said of TIP. Investors buying today can lose the inflationary gains that have accumulated.

        In theory, cash can outperform TIP over any fixed period. Since I sold TIP in November, cash has done ever so slightly better. The jury is still out on what happens next though.

        Just opinions of course.

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