A Saver's Nightmare

Click to enlarge.

The black 10-Year TIPS data points show the results of every 10-Year TIPS auction (does not include reopenings). The blue 10-Year TIPS data point is today's rate, as seen at Bloomberg.

We've seen I-Bond rates fall to 0% (currently 0.2%).
We've seen 5-Year TIPS rates fall to 0% (currently 0.13%).
Are 10-Year TIPS rates next?

January 8, 2008
TIPS Traders Say Forget It

As long-term holders of TIPS, we need only suspect that the long-term direction of future real yields is down (that's the most important thing that determines what TIPS are worth). I not only strongly suspect that real yields will fall, but I'm actively betting on it. Real yields were actually negative in the 1970s. Few seem to know/remember that.

Death of Real Yields Perfect Storm

1. Guns AND Butter Governmental Policies
2. Forever War
3. Banana Republic Trade Deficit
4. Banana Republic Rising Income Inequality
5. Banks "Too Big to Fail"
6. Credit Crisis Flight to Quality
7. Slowing Economic Growth Flight to Quality
8. Retiring Baby Boomer Flight to Quality

The 1970s have nothing on us, in my opinion. I don't have to be right on the entire list. Just a few from the list should be good enough.

I underestimated the deflationary forces of the credit crisis. It temporarily provided much higher real yields. The overall premise still holds true though. Real yields are lower now than when I wrote that back in 2008.

January 2, 2008
Stagnation Hits My Blog

So here's my 2008 list of general predictions and observations for the New Year (and quite possibly for many, many years into the future).

1. There are too many houses.
2. There are too many banks.
3. There are too many restaurants.
4. There are too many shopping malls.
5. There are too many airlines.
6. The era of cheap food is over.
7. The era of cheap energy is over.
8. Unemployment will continue to climb.
9. The stock market will stagnate (inflation adjusted).
10. Real (inflation adjusted) yields will continue to drop.
11. China will not decouple from us, nor will the rest of the world.
12. Stagflation (slowing growth with above normal inflation) will continue.

I also believe that these trends will continue far longer than most (those who have only been investing in the 1980s and 1990s anyway) think is even remotely possible.

In hindsight, above normal inflation did not continue. The stock market did much worse than simply stagnate. From what I can see, cheap food still exists. Although I am currently of a deflationary mindset, I do stand by all of those predictions over the long-term though. It does not paint a pretty picture for the future.

Has the government done anything to address any of my concerns from the list? Extend and pretend does not count.

September 2, 2010
Reuters: Housing double-dip threatens banks

Here is the real risk: if banks do require another rescue the political consensus to do it quickly and effectively will not be there. The United States has squandered its opportunity to address the fundamental problems, choosing to extend and pretend and to prop up asset values.

It will be interesting to see what Plan B is.

Plan A was a saver's nightmare. I expect Plan B to ultimately be more of the same.

Source Data:
I-Bond Rates
TreasuryDirect: Auction Results
Bloomberg: Government Bonds