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
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).
ReplyDeleteWill 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.
Mark -
ReplyDeleteVery 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
Why median instead of mean?
ReplyDeleteJzB
Never mind. It's a mess.
ReplyDeleteJzB
"by administration" is something of a red-herring.
ReplyDeleteThe 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.
"...Clinton for GWB, and GWB for Obama..."
ReplyDeleteUp 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."
Jazzbumpa,
ReplyDeleteWhy 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.
Troy,
ReplyDeleteI'm with you on this. I didn't turn bearish based on which party was in power.
Fritz_O,
ReplyDeleteSince 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. ;)
"I may reuse that the next time I eat bad shrimp..."
ReplyDeleteOr immediately after your first colonoscopy!
LOL!
ReplyDelete(I laugh nervously.)
Indeed, the injection of truth into the alimentary channel is, in some cases, no laughing matter.
ReplyDeleteJust ask Andy Dufresne.
ReplyDeleteI did. He said this.
ReplyDeleteI had a colonoscopy and there was an anesthetic malfunction, so I was awake through the whole thing.
ReplyDeleteIt'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
Jazzbumpa,
ReplyDeleteI'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.