Posts
Wednesday, November 25, 2009
5 Year TIPS Yield Drops to 0.16%
Bloomberg: Government Bonds
0.00% is the absolute floor. There's just 0.16% left to go.
The maximum possible upside reward is now just 0.80% (0.16% x 5 years).
In my opinion, that's one of the wimpiest maximum possible upside rewards (adjusted for inflation) in the history of investing, especially considering that the maximum possible downside loss is much, much higher.
It will be interesting to see what happens if indeed the rate does hit 0.00% again. I find it hard to believe it will just permanently hover there. It didn't last time. Take a look back in time to 2007-2008.
I would also point out that a 0.00% floor is a momentum trade killer. You can see it in the chart above. It's just like hitting a brick wall. I can't think of a single other investment where momentum trading can be killed off that easily. Can you? That's no coincidence that it bounced at 0.00% in my opinion.
That said, I'm certainly taking some risk being out of TIP. It's up nearly 1% since I took profits last week. Investors continue to flood in. On the other hand, my gut says I should probably be selling the TIP in my IRA too at this point. I'm certainly thinking about it.
It isn't just deflation that can hurt TIP. It could be that there's more supply of US Debt than demand at some point. It could be a hint that the government may default on its Debt at some point. It could be that the stock market euphoria continues to the point that everyone wants stocks again. There are lots of reasons real yields could rise again, and any one of them would be bad for TIP.
Just opinions. Please don't think of this as investment advice. It isn't.
0.00% is the absolute floor. There's just 0.16% left to go.
The maximum possible upside reward is now just 0.80% (0.16% x 5 years).
In my opinion, that's one of the wimpiest maximum possible upside rewards (adjusted for inflation) in the history of investing, especially considering that the maximum possible downside loss is much, much higher.
It will be interesting to see what happens if indeed the rate does hit 0.00% again. I find it hard to believe it will just permanently hover there. It didn't last time. Take a look back in time to 2007-2008.
I would also point out that a 0.00% floor is a momentum trade killer. You can see it in the chart above. It's just like hitting a brick wall. I can't think of a single other investment where momentum trading can be killed off that easily. Can you? That's no coincidence that it bounced at 0.00% in my opinion.
That said, I'm certainly taking some risk being out of TIP. It's up nearly 1% since I took profits last week. Investors continue to flood in. On the other hand, my gut says I should probably be selling the TIP in my IRA too at this point. I'm certainly thinking about it.
It isn't just deflation that can hurt TIP. It could be that there's more supply of US Debt than demand at some point. It could be a hint that the government may default on its Debt at some point. It could be that the stock market euphoria continues to the point that everyone wants stocks again. There are lots of reasons real yields could rise again, and any one of them would be bad for TIP.
Just opinions. Please don't think of this as investment advice. It isn't.
Tuesday, November 24, 2009
Household Reformation
Trend of the Recession: More Adult Children Moving Back Home
A New Report Shows Largest Ever Jump in Adults Moving in Back in with Parents
This does wonders for the housing market.
Also according to the AP, less than half of 16 to 24 year olds (46.1%) are currently employed which is the lowest number ever recorded since the statistic began to be analyzed in 1948. Also, a record 11.5 million Americans are currently attending college.
Too bad many of the jobs of the future don't require a college degree, and the ones that do often require very specific training.
Education and Debt
Note the occupations with the largest numerical increases in employment, projected 2006-2016 (as seen in Chart 8).
A New Report Shows Largest Ever Jump in Adults Moving in Back in with Parents
This does wonders for the housing market.
Also according to the AP, less than half of 16 to 24 year olds (46.1%) are currently employed which is the lowest number ever recorded since the statistic began to be analyzed in 1948. Also, a record 11.5 million Americans are currently attending college.
Too bad many of the jobs of the future don't require a college degree, and the ones that do often require very specific training.
Education and Debt
Note the occupations with the largest numerical increases in employment, projected 2006-2016 (as seen in Chart 8).
Deflation Pressures
Oil futures drop ahead of petroleum supplies report
NEW YORK (MarketWatch) -- Oil futures fell nearly 2% on Tuesday, as traders reacted to concerns about the health of the economy in China...
Best Buy adds $197 HP laptop to Black Friday lineup
Available in-store beginning Friday, Nov. 27, the HP laptop features an Intel Celeron 900 processor, 2GB memory and a 160GB hard drive.
Holiday Shopping: This Year It's a Game of Chicken
"Being frugal is in, and being lavish is out," says Beth Strobel, director of marketing at PayPal. So shoppers are programmed to wait for huge bargains.
Black Friday is just 3 days away.
NEW YORK (MarketWatch) -- Oil futures fell nearly 2% on Tuesday, as traders reacted to concerns about the health of the economy in China...
Best Buy adds $197 HP laptop to Black Friday lineup
Available in-store beginning Friday, Nov. 27, the HP laptop features an Intel Celeron 900 processor, 2GB memory and a 160GB hard drive.
Holiday Shopping: This Year It's a Game of Chicken
"Being frugal is in, and being lavish is out," says Beth Strobel, director of marketing at PayPal. So shoppers are programmed to wait for huge bargains.
Black Friday is just 3 days away.
Monday, November 23, 2009
Hussman's Thoughts on TIPS
Alert for Tanks, John P. Hussman, Ph.D.
The Fund made a very distinct move away from TIPS on the strength of recent weeks, as real yields on many issues moved to negative levels.
As usual, we tend to be opportunistic in establishing investment positions, so to the extent that we observe decided weakness in foreign currencies, precious metals or TIPS (all of which would most probably be driven by a shift toward risk-aversion in response to fresh credit concerns), I would expect that we would re-establish exposure in these areas.
I draw some comfort that I am in the same boat that he is in. If history is any indicator, it might be an actual lifeboat.
The Fund made a very distinct move away from TIPS on the strength of recent weeks, as real yields on many issues moved to negative levels.
As usual, we tend to be opportunistic in establishing investment positions, so to the extent that we observe decided weakness in foreign currencies, precious metals or TIPS (all of which would most probably be driven by a shift toward risk-aversion in response to fresh credit concerns), I would expect that we would re-establish exposure in these areas.
I draw some comfort that I am in the same boat that he is in. If history is any indicator, it might be an actual lifeboat.
China's Real Estate (Musical Tribute)
`No risk' of China property bubble
Despite a surge in real estate prices, there is no risk...
August 19, 2009
You are probably wondering what the video has to do with China's real estate. Wonder no more!
August 19, 2009
Bikinis' big draw at property launch
WOULD you buy a piece of property because of 100 bikini-clad babes?
Update: I want to sneak in this bonus video from our friends at versusplus!
Despite a surge in real estate prices, there is no risk...
August 19, 2009
You are probably wondering what the video has to do with China's real estate. Wonder no more!
August 19, 2009
Bikinis' big draw at property launch
WOULD you buy a piece of property because of 100 bikini-clad babes?
Update: I want to sneak in this bonus video from our friends at versusplus!
Blackrock's Take on TIPS
Long-Term TIPS May Prove Attractive
Given the tame inflation outlook near term, Mr. Weinstein said he wouldn't own Treasury inflation-protected securities, or TIPS, due January and April 2011 because they don't provide much upside in prices. But long-term TIPS provide attractive value, especially in the 20-year sector, he said.
Mr. Weinstein said there is a dichotomy between inflation expectations, which have been rising this year, and data that show little inflation pressure.
For what it is worth, that's what I've been saying. The real yield on the 5-Year TIPS is just 0.25% (over CPI) right now. 0% is the floor. There is almost no upside left even if inflation becomes a persistent problem. At best you have an investment that tracks inflation that you also have to pay tax on. Further, there is plenty of downside risk if deflation hits again. Plenty.
The last time deflation struck with a vengeance the real yield on the 5-Year rose to over 4% as people scurried to bury cash in their backyards. It was the day just before Thanksgiving of last year. I'm not counting on that day being special though. I'm simply saying that I don't think short-term TIP bond fund investors of today fully realize the risks involved.
Inflation expectations drove the price of my TIP fund higher. I'm not paid interest based on inflation expectations though. I'm paid on based on actual inflation. If the market is wrong about inflation rising in the near term, watch out below.
My last big purchase was the 20-Year TIPS several years ago. I thought the economy would be very slow to recover at best. For a while it was underwater, but it isn't any longer. Investors today can now buy it for the same price I did. It pays 1.8% right now. I think it is clearly the better bargain for long-term semi-bearish and/or cautious investors, at least when compared to 5-Year TIPS held to maturity and potentially reinvested three times.
It's just an opinion though. Time will tell.
Given the tame inflation outlook near term, Mr. Weinstein said he wouldn't own Treasury inflation-protected securities, or TIPS, due January and April 2011 because they don't provide much upside in prices. But long-term TIPS provide attractive value, especially in the 20-year sector, he said.
Mr. Weinstein said there is a dichotomy between inflation expectations, which have been rising this year, and data that show little inflation pressure.
For what it is worth, that's what I've been saying. The real yield on the 5-Year TIPS is just 0.25% (over CPI) right now. 0% is the floor. There is almost no upside left even if inflation becomes a persistent problem. At best you have an investment that tracks inflation that you also have to pay tax on. Further, there is plenty of downside risk if deflation hits again. Plenty.
The last time deflation struck with a vengeance the real yield on the 5-Year rose to over 4% as people scurried to bury cash in their backyards. It was the day just before Thanksgiving of last year. I'm not counting on that day being special though. I'm simply saying that I don't think short-term TIP bond fund investors of today fully realize the risks involved.
Inflation expectations drove the price of my TIP fund higher. I'm not paid interest based on inflation expectations though. I'm paid on based on actual inflation. If the market is wrong about inflation rising in the near term, watch out below.
My last big purchase was the 20-Year TIPS several years ago. I thought the economy would be very slow to recover at best. For a while it was underwater, but it isn't any longer. Investors today can now buy it for the same price I did. It pays 1.8% right now. I think it is clearly the better bargain for long-term semi-bearish and/or cautious investors, at least when compared to 5-Year TIPS held to maturity and potentially reinvested three times.
It's just an opinion though. Time will tell.
Honey's Popularity Rises!
Illusion of Prosperity?
Note the picture of the dog laying on the couch with the words "Illusion of Prosperity" under it. That's my dog. :)
Note the picture of the dog laying on the couch with the words "Illusion of Prosperity" under it. That's my dog. :)
Subscribe to:
Posts (Atom)
