Note that things started going to hell in a hand basket starting at about the same time the stock market began to crash in September of 2008. The TIPS market, being less liquid, really freaked out (as is seen in the dramatic movements of the 5 Year TIPS).
For what it is worth, I was (and am) in TIPS. I managed to sleep through most of the excitement. Seriously. My TIPS were falling in value as yields were rising but the falling oil prices actually made me feel much better overall. In any event, I just rode out the storm.
There is a warning here. Inflation expectations can clearly turn on a dime. Literally. Let's hope we don't "mint/print" too many of them or our next inflation expectations scare might be to the upside.
I will be one happy saver if inflation only averages the 1.63% over the next 20 years as shown in this chart. I'm not going to be holding my breath though.
It seems like only last year that the treasury market predicted 2.85% inflation over the next 20 years. Oh yeah, it was last year, March 10th to be precise.
Or perhaps I should have taken solace in the predictions of November 26th of last year? 0.67% inflation over the next 20 years would have been even better as a saver.
Expectations change, sometimes rather violently. Unfortunately, my expectations have been rather stable over the past 5 years. I see dead economy. What do you see?
Walking around like regular people. They don't see each other. They only see what they want to see. They don't know they're dead. - Cole Sear, The Sixth Sense (1999)
Source Data:
FRB: Selected Interest Rates
I see dead economy. What do you see?
ReplyDeleteMark here are the choices,
A deflationary depression now or sovereign default and hyperinflationary depression later.
Looks like we are going to shoot for the latter scenario to me.
Kevin
Kevin,
ReplyDeleteI'm apparently betting on a combination play. Toggling deflations and near hyperinflations in an Age of Turbulence sort of way. In other words, recovery soon followed by rising oil price induced double-dip global recession, then repeated doses of deflationary and inflationary chaos. Put another way, maximum pain to all.
If you are right, could we at least string it out a few decades? I'm in TIPS and I-Bonds. I'd like the opportunity to die of old age before I'm financially ruined, lol. Sigh.
Mark,
ReplyDeleteI can't guarantee you'll die of old age before your financially ruined sorry.
Personally I'd like to go from a massive heart attack about 75 which is 20 years off and be flat broke about the same time, something about sitting around slobbering down ones shirt and messing in your Depends doesn't sound appealing at all.
Heck who knows Mark the way things are going we might even get to see a dictator take power in the US and another world war before we go.
Kevin
The Annihiliation Of The Dollar's Purchasing Power
ReplyDeletePosted by Tyler Durden at 11:35 AM
This is the chart they don't want you to see: the purchasing power of the dollar over the past 76 years has declined by 94%. And based on current monetary and fiscal policy, we have at least another 94% to go. The only question is whether this will be achieved in 76 months this time.
http://tinyurl.com/qngtoa
Kevin
Kevin,
ReplyDelete"Personally I'd like to go from a massive heart attack about 75 which is 20 years off and be flat broke about the same time, something about sitting around slobbering down ones shirt and messing in your Depends doesn't sound appealing at all."
I need to hold out about 30 years in theory! It seems your timing has a better chance than mine. ;)
I figure the problems started in the 1970s when we could no longer afford the gold standard. I'm somewhat optimistic that we are roughly half way there.