Thursday, April 19, 2012

Real GDP vs. CPI

Summer 2005
GE Asset Management: The “Real” Story About Treasury Inflation-Protected Securities (TIPS)

Please see "Figure 5 - When to Buy TIPS" from within the link. I'm attempting to recreate the theoretical table with actual historical data.


Click to enlarge.

Growth rates are year over year.

This is not a sales pitch for TIPS. I'm simply trying to show why both TIPS and nominal treasuries have done well over the past decade. We've been toggling back and forth between Stagflation: BUY and Recession Disinflation: Monetary Policy Drives Call. What happens in the future will depend on where new blue diamonds appear within the chart.

Based on my blog's name, you might guess that I'm not betting on the "miracle" quadrant.


Source Data:
St. Louis Fed: Real GDP
St. Louis Fed: CPI

16 comments:

Stagflationary Mark said...

As a side note, if we slip back down deep into the lower left quadrant (again) then I would expect TIPS real rates to spike up (again).

Will it happen? Perhaps.

The stock market was down today. TIPS sold off. Nominal treasuries didn't.

Cash might not be trash. I have money sitting in cash to cover my expenses over the next few years. It is money that I don't wish to risk.

Jazzbumpa said...

Mark -

Very interesting graph. Would you be willing to repost it, color coded by presidential administration?

Actually, my curiosity is piqued enough that I might do it myself.

Cheers!
JzB

Jazzbumpa said...

Why median instead of mean?

JzB

Jazzbumpa said...

Never mind. It's a mess.

JzB

Troy said...

"by administration" is something of a red-herring.

The story of 1970-2011 has been the story of the baby boom.

Getting a job, moving out, putting away money in pension funds or IRAs.

Then the policies of the 1990s -- opening trade with China, the continued oil glut through 1999 or so, and the increasing commercialization of the internet.

The dynamics that are driving this thing go beyond party and ideology for the most part.

Carter certainly set the table for Reagan, Clinton for GWB, and GWB for Obama, but the policy control rudder has ranged from center-right to center-right the whole time.

Fritz_O said...

"...Clinton for GWB, and GWB for Obama..."

Up until about 10 years ago, if I was going through something of a slump, I'd say something like "Things aren't going well right now".

Since then, I'm more likely to remark "Things aren't going well, at an accelerated pace."

Stagflationary Mark said...

Jazzbumpa,

Why median instead of mean?

I generally prefer the median because it better represents the typical value. Bubbles tend to get stripped out.

Take this chart for instance.

By using the median, the 1970s bubble was completely stripped out.

That's not to say that median is better than mean. Beauty is in the eye of the beholder.

Stagflationary Mark said...

Troy,

I'm with you on this. I didn't turn bearish based on which party was in power.

Stagflationary Mark said...

Fritz_O,

Since then, I'm more likely to remark "Things aren't going well, at an accelerated pace."

That's awesome.

I may reuse that the next time I eat bad shrimp, lol. ;)

Fritz_O said...

"I may reuse that the next time I eat bad shrimp..."

Or immediately after your first colonoscopy!

Stagflationary Mark said...

LOL!

(I laugh nervously.)

Fritz_O said...

Indeed, the injection of truth into the alimentary channel is, in some cases, no laughing matter.

Fritz_O said...

Just ask Andy Dufresne.

Stagflationary Mark said...

I did. He said this.

Jazzbumpa said...

I had a colonoscopy and there was an anesthetic malfunction, so I was awake through the whole thing.

It's actually pretty harmless.

It's the day before that is gruesome.

Troy -

No, the policy rudder has gone from center right to far right, and that makes a big difference.

The great constant arc is in foreign policy, not domestic policy or economics.

Mark -

I'm putting graphs together based on mean, and they don't look a lot different.

I want to see if separating by admin illustrates anything in this context. Maybe, maybe not.

Cheers!
JzB

Stagflationary Mark said...

Jazzbumpa,

I'm putting graphs together based on mean, and they don't look a lot different.

Doesn't surprise me. In a normal distribution of data (which this is no doubt close to being), mean and median are pretty much interchangeable.