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It was a bad day in the stock market so let's look through some of the ishares treasury funds for a clue what people might be thinking in the inflation vs. deflation debate.
TLT was up 0.89% on higher than normal volume. It is a 20-year treasury fund with no inflation protection. The deflationists had guts today. I'll give them that. I welcome their conviction and hope they are right that inflation will remain tame. I did say I was tempted to change my name to Deflationary Mark after Greenspan finally spotted stagflation. I just don't have the courage, nor will I ever more than likely.
TIP was up 0.73% on slightly lower than average volume. It is an intermediate term treasury fund with inflation protection. The paper stagflationists had a good day, but not quite as good as the deflationists. That's hardly a surprise, based on the stock market's deflationary activity.
IEF was up 0.59% on lower than average volume. It is an intermediate term treasury fund without inflation protection. Since IEF has roughly the same effective duration as TIP, stagflation was the preferred bet in this time frame it seems. That is a bit surprising perhaps, since the deflationists acted with such conviction on TLT.
SHY was up 0.29% on lower than average volume. It is a short term treasury fund without inflation protection.
So what's the moral of the story? If you are a bull you can simply buy the stock market. If you are a bear you also have to choose between deflation and stagflation (and possibly hyperinflation, but treasuries can't help you there).
Those betting on deflation were rewarded today. Those betting on stagflation were rewarded today. Perhaps just being a bear is good enough in this environment. It also implies that the Fed is riding the deflation/inflation line fairly well. That's about all we could really ask of them.
It is my belief that the deflationary forces are not the good kind (housing bubble popping) and the inflationary forces (excess fiat paper) are not the good kind. The middle ground, as I interpolate, is therefore not the good kind either. Two wrongs will never make a right.
Friday: No Major Economic Releases
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[image: Mortgage Rates] Note: Mortgage rates are from MortgageNewsDaily.com
and are for top tier scenarios.
Friday:
• At 10:00 AM ET, *University of Michig...
6 hours ago
4 comments:
Stag,
Since I am currently at a loss for good, safe investments (everything is inflated imho), I've been mulling over your TIP idea.
Initially, I didn't think it would work for me as my personal expenses do not remotely match the cost of living measured by the cpi. But this shouldn't matter from an investment point of view.
From a total return perspective, its only future inflation expectations and the actual measured increase or decrease in the cost of the cpi goods which is at issue. My personal views and experiences are moot.
So much is dependent on rents, but I can actually see a scenario where stocks and housing continue deflating while inflation, as measured by the cpi, continues to rise. This could make TIPS a safe harbor in a contracting credit, but rising cpi environment.
TIPS look even better if the recent flight to safety doesn't fade or if inflation expectations remain anchored.
Ouch! I got a brain cramp. Does this make sense?
Initially, I didn't think it would work for me as my personal expenses do not remotely match the cost of living measured by the cpi. But this shouldn't matter from an investment point of view.
From a total return perspective, its only future inflation expectations and the actual measured increase or decrease in the cost of the cpi goods which is at issue. My personal views and experiences are moot.
I think this makes a lot of sense. If the market isn't able to give us what we personally need, that's not the market's problem. That's our problem.
http://ww2.dowtheoryletters.com/
Check out Richard Russell's long-term advice in Rich Man, Poor Man.
Rule 3
But what about the little guy? This fellow always feels pressured to "make money." And in return he's always pressuring the market to "do something" for him. But sadly, the market isn't interested.
When I was younger, I was an early bird gets the worm type.
Now, I'm a second mouse get the cheese type.
Less pressure, less risk. Returns? Who knows. As long as they are positive.
Less pressure, less risk. Returns? Who knows. As long as they are positive.
To give you some idea how bearish I am, I'm planning on negative returns so that I can be pleasantly surprised if I am wrong.
I'm expecting a bear market in inflation adjusted net worth per capita.
http://illusionofprosperity.blogspot.com/2007/11/flow-of-funds-fun-v3.html
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