Holy Tipping Point Batman!

I saw that the stock market was up again today.

The real shocker was what happened to my "super-safe" Treasury Inflation Protected Securities fund though. I have never seen anything like it. Up 3.7%? In just one day? Super-safe funds should not move like this.

Holy tipping point batman!

TIP

That's when I looked to see how its non-inflation protected counterpart was doing.

Up 3.43%?

IEF

Holy death of real yields batman!

Bonds skyrocket on Fed's $300B pledge

NEW YORK (CNNMoney.com) -- Treasury prices surged Wednesday, after the Federal Reserve said it would buy up to $300 billion in long-term Treasurys - a move the central bank has hinted at for months.

The Illusion of Prosperity's ever popular Death of Real Yields series will soon be back in action it seems. The Fed is targeting savers in a major way. What took them so long? The time for saving long-term was yesterday it seems. For those still waiting on the sidelines in 0.2% Treasury Bills, I feel for you. Today's long-term savers just got a 3 1/2% haircut.

May 9, 2008
The Death of Real Yields Revisited Yet Again

I have added red arrows to help us know when the worst is over. Contrary to popular opinion, the third time was not the charm. Nor were the fourth or the fifth times apparently.

So what does this mean? I-Bond rates reset on May 1st. I'm buying this year's batch before that point. 0.7% over inflation, although lousy, is good enough. At least it is tax-deferred. I don't feel the need to be a hero. 0.0% is a distinct possibility, again.

May 1, 2008
The Death of I-Bond Rates

Seriously. You can now lock in a 0.0% rate for up to 30 years. Get out the party hats. *heavy sarcasm*

Well, I have been saying that 1.2% wasn't all that bad in comparison to what I thought was coming next. I never dreamt of 0.0% though. Wow. That makes it absolutely impossible for the I-Bonds you buy today to keep up with inflation unless you can find a way to pay zero taxes once you cash them. Good luck on that one!

So what else could this mean?

April 29, 2008
Commodity Booms

This picture is worth at least a thousand words.

When real yields fall, some savers will hoard hard assets instead of cash. Hoarding hard assets during a period of economic weakness is consistent with my long-term stagflationary outlook.