My IRA sits entirely in cash right now. It is earning a whopping 0.1% annual interest in an FDIC insured bank account.
I expect it to be a losing trade. However...
It's not whether you're right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong. - George Soros
I don't think there is much upside left for TIP. The 5-Year TIPS are hovering just above 0% and inflationary pressures have been very tame since I turned deflationary in November.
There's a lot of downside in TIP though, as seen in 2008. TIP's median price since inception is $102.99. Since it pays out all inflationary gains and interest in distributions, all things being equal it should hover around that value over the long-term. All things aren't equal though so who really knows?
There are at least two ways real yields could revert to the mean. There's the bullish case that the economy improves and money flows back out of bonds and into stocks. There's the bearish case that the economy deteriorates into a deflationary mess. This really isn't a bullish or a bearish call to me.
That said, I do not think TIP is in a bubble. I just think that the upside reward is not worth the downside risk. I already own plenty of TIPS and I-Bonds outside of my retirement account. I do not feel the need to be "all in" right now. Reducing my TIPS exposure within my retirement account was the easiest way to do it.
Chances of Double Dip Now Over 40%: Roubini
ReplyDelete"In the short run we may end up like Japan," he said.
You'd never guess those odds looking at the TIPS market.
Here's the amusing part to me.
Jeremy Siegel thinks TIPS are a bubble as investors pour in. One way he could be right to some degree is if his precious stock market collapses. Wouldn't that be ironic.
Even then, TIP would do better than stocks though. So which would really be the bubble?
TIP vs. S&P
Note that both dropped in 2008 and also note which one did worse.
Inflation fears are indeed well anchored. Based on your post and interest rate data, I'd say deflation fears are becoming well anchored too.
ReplyDeleteThe Fed clearly needs to push on that rope much harder, lol.
mab,
ReplyDeleteNothing makes me more nervous holding an investment than seeing fellow bulls misunderstand the risks.
TIPS misconceptions are also well anchored.
Long-term perspective on the stock market
Check out the comments and my rebuttal.
That is not correct. The only deflation protection TIPS offer is that you are guaranteed to get your original principal at maturity. That's it.
Mild deflation would pull their inflation adjusted value down below their original value and the inflation to come later would then push it back up.
Oh, and let's not forget CPI misconceptions. They are so well anchored that you'd think the ocean going supertankers were docked in Kansas, lol.
Apparently Dick Cheney and George Bush were not entirely believers in the theories though. Maybe they don't read Shadowstats.
May 17, 2006
Are Dick Cheney's Money Managers Betting on Bad News?
Cheney: And the couple had between $2 million and $10 million in Vanguard Inflation-Protected Securities fund.
Bush: Beyond the trust, the First Family's investable assets are largely in super-safe Treasury notes, money-market funds and bank certificates of deposit.
Stag,
ReplyDeleteI think it's time to un-anchor the S&P 500 rubicon line.
1200 is just way to high. Seriously, we hardly get to heckle at all.
mab,
ReplyDeleteLOL!
That is too funny. I was actually thinking about that today. We're not even close!!
For those just tuning in...
Crossing the S&P 500's Rubicon v.23
And let's not forget the Rubikahn tribute back in June.
Today's Stock Market Tribute
Hmmm, I will look at selling TIP too. Last time I checked it was at 103. 107.9 is a lot up from that.
ReplyDeleteI am slowly converting my dividend play back to cash as I think the SHTF is starting.
coba
Coba,
ReplyDeleteI had a bird in the hand moment today.
TLT spiking higher heading into Christmas is not necessarily TIP's best friend. It feels just a bit like 2008.
I don't expect anywhere near that level of fireworks, but we might see a mini-event. Who knows?