The chart above shows the price of oil since hitting the bottom on December 23, 2008. I turned deflationary on November 9, 2009. The price of oil was $79.44. According to Bloomberg, it is now $71.20. So far, so good. That's a 10% drop.
Please don't read too much into the trend line. I do not believe that I can predict the future price of something simply by looking into the past. You probably shouldn't either.
I'm just making a silly prediction based on my current deflationary outlook, the "unexpected" success of recent cartoon physics economic models (see link below), and my expectations of a Christmas season as "unexpectedly" weak as today's unexpectedly weak housing report. That's all.
I am making no bets on the price of oil. I continue to sit in inflation protected treasuries and I-Bonds. All I care about is maintaining purchasing power. If deflation does strike, I plan to just ride it out again.
See Also:
I'm Deflationary
Cartoon Physics for the Win!
Trend Line Disclaimer
Source Data:
EIA: Crude Oil Spot Prices
I forgot to supply a "sarcasm" label for this post. That error has been corrected.
ReplyDeleteIt would have been very "unexpected" though! ;)
I kept my TIP in my Roth IRA. I was surprised its now at 107. It was 103 a while back. Sounds like a lot of people are in your camp.
ReplyDeleteThe key for TIPS is that they also protect against deflation, making them an excellent tool for the times.
I wonder if the government could have created TIPS that lost value with deflation and sold those back in the 'good' days?
Coba
Coba,
ReplyDeleteJust keep in mind that TIP doesn't offer much deflation protection. Most of the TIPS within it have inflated over the face value. That inflated part can permanently vanish.
That's one reason I buy TIPS directly in the initial auctions. Only then am I guaranteed to get all my money back.
In other words, buying "used" TIPS from someone else allows them to lock in their inflationary gains and leaves me exposed to extra deflationary risk.
My TIPS bond ladder could deflate similarly of course, but at least the losses I'd be taking just offset the gains I already had.
One more thought.
ReplyDeleteI've yet to have the deflation TIPS offer actually pay off.
The shortest duration TIPS I've bought was 5 years. We've yet to have deflation over a 5 year period though.
We might get close. I'm deflationary. My gut says we probably won't though.
The deflation protection on 30 Year TIPS doesn't stand a chance in my opinion. As deflationary as I am, I still expect the CPI to be much higher in 30 years.
That said, the EE Savings Bond is guaranteed to double in 20 years. I'm actually tempted. I'll be posting my thoughts on that today.
I was careful to mention TIPS rather than TIP, re: deflation, as I know what you said is true.
ReplyDeleteHow do you do an initial buy of a TIPS? I could never quite understand that. Can I buy them in my Roth?
Also, just to wipe a tiny amount of that smug smirk off your face :)....
"Morgan Stanley Says Government Defaults Inevitable
Investors will face defaults on government bonds given the burden of aging populations and the difficulty of securing more tax revenue, according to Morgan Stanley."
http://www.bloomberg.com/news/2010-08-25/morgan-stanley-says-government-bond-default-is-question-of-how-not-if-.html
Coba
Coba,
ReplyDeleteYahoo:TIPS Buying Instructions
I knew I had offered that once before, but it took me about 10 searches to actually find them, lol. Whew!
I wish you could see my face. It isn't smug. It's nervously terrified just like its been since 2004. It's what you'd expect to see looking at a person who has successfully crawled 20% of the way through a minefield. Past performance is not necessarily indicative of future results! Sigh.
I was just kidding about any smugness.
ReplyDeleteHell, I don't think anyone is sitting around happy with their investment options nowadays. Look at hedge fund players leaving the business - I guess cash is what they think will do best.
Coba
Coba,
ReplyDeleteSpeaking of investment "options" and "hedge fund players"....
Everyone seems to be a hedge fund these days. Behold the power of competition to drive prices down.
As an example...
buy BP puts for insurance longs
It took me no more than 20 seconds to find that example too. It was like finding a hay stack in the middle of a few needles, lol.
I am inundated with free option trading seminars from my broker.
I'm going to go way out on the limb here though. If the market demands that the average investor must lose money in what's coming, then the average investor will lose money in what's coming.
It's a casino and the house rarely loses.