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Warning: This post includes heavy sarcasm!
I have a "sure thing" plan that will make you 45% more money!
It only requires one thing. You must have absolute faith in the long-term budget outlook of the Congressional Budget Office. Seriously. That's it.
CBO: The 2012 Long-Term Budget Outlook
Here's the idea and it is based on TIPS yields.
If you lock in today's 0.46% real yield on the 30-year TIPS, then you will have 15% more money in 30 years (not counting taxes).
1.0046^30 = 1.15
If you lock in today's -0.50% real yield on the 10-year TIPS, then you will have 5% less money in 10 years (not counting taxes).
Normally, that would be bad. However, the CBO predicts that the real interest rate will be 2.7% on the 10-year TIPS in 2022 and 3.0% on the 10-year TIPS in 2032. We will therefore make up that 5% loss when we reinvest at higher interest rates!
Here's the math.
0.995^10 * 1.027^10 * 1.03^10 = 1.67
Here's how much more money we'll have.
1.67 / 1.15 = 1.45
45% more money! Woohoo!
CBO: our processes
Historically, the accuracy of CBO’s economic forecasts has been very similar to the accuracy of those by the Blue Chip consensus (an average of private-sector forecasters) and the Administration.
If you can't trust the Blue Chip consensus, the Administration, or the CBO, then who can you trust? 45% more money! All it requires is undying faith!
This post inspired by Troy who brought this report to my attention.
See Also:
Sarcasm Disclaimer
12 comments:
I'm in.
I just moved my entire account into 10-yr TIPS. In 10 years , I'll roll it over ( well , the 95% that's left , anyway ). Ten years after that , the administrator of my estate will roll it over again. Ten years later I'll be making fun of those suckers who bought the 30-yr TIPS.
I come here for the investment advice , as you can tell.
BTW , if you're looking for ideas on new exponential trend failures , you might get some by reading this piece by David Graeber:
http://www.thebaffler.com/past/of_flying_cars/print
Publication rates of scientific papers and speed of human travel are a couple trend failures he mentions , but I'm sure you'd think of more.
CBO predicts that the real interest rate will be 2.7% on the 10-year TIPS in 2022
Add in the 2.3% in inflation they're hoping for, and that's 5% yields.
Assuming we can cut the deficit down to $1T/yr starting now, we'll be looking at a $26T national debt by 2022.
5% on that is . . . $1.3T/yr in interest costs. Thanks to the CBO, we know that PAYEMS will be 180M in 2022, so that's $7000/worker in interest costs alone, 6% of their ~future $110,000/yr productivity.
Anonymous,
This post was intended as sarcasm.
I could very well be wrong, but I don't think the real yield on 10-year TIPS will rise to 3% and stay there. I've been predicting the death of real yields since 2004. They are fairly dead now. Could stay that way for a very long time (or even get worse).
That said, if you did move your account into 10-year TIPS it might work out well for you. I am relatively indifferent. I just don't think you'll earn the extra 45% more money that the CBO predicts. That's all.
I come here for the investment advice , as you can tell.
Please note the disclaimer at the bottom of the blog.
I am not offering investment advice.
I'm really not. All I am offering are opinions and none of them are with certainty.
That said, I do post what I personally do. It's been a long time since I've done anything. My last trades were back in January. I bought savings bonds again.
If all I did was post my investment activities, this blog would be mostly silent. I trade very infrequently (as it is almost always just buying a bond and holding to maturity).
Ten years later I'll be making fun of those suckers who bought the 30-yr TIPS.
I bought the 30-year TIPS last year. I continue to hold it. You could very well be laughing at me someday and I wouldn't mind. I'm holding to maturity anyway. As a saver, I always root for higher interest rates. Hopefully we can laugh together at my expense. I mean that. If the economy is doing well and interest rates rise because of it, then at least I won't be financially ruined.
As for your article...
And if we’re going to invent robots that will do our laundry and tidy up the kitchen, then we’re going to have to make sure that whatever replaces capitalism is based on a far more egalitarian distribution of wealth and power—one that no longer contains either the super-rich or the desperately poor willing to do their housework.
Yes!! I too have pondered the Jetsons here.
Troy,
Thanks to the CBO, we know that PAYEMS will be 180M in 2022...
What a relief!
I was thinking 2014, but then we had that massive exponential trend failure. D'oh!
2.7% & 3% real yields! I'm wondering if the CBO CONsulted with Jeremy Siegel?
I really don't know way anyone would bother with Treasuries when the stock market is sure to deliver 6% real returns in the long run.
Anonymous,
Publication rates of scientific papers and speed of human travel are a couple trend failures he mentions , but I'm sure you'd think of more.
Let's see. I covered the Concord's speed in the comments here.
In 1969 you could fly to Europe in under four hours. 35 years later (an enormous amount of time in this fast-paced technological era supposedly) we actually lost that ability/technology.
Let me think.
That still leaves the exponential growth of reality based TV shows! Prosperity here we come! ;)
mab,
Here's what I don't get. Why do real yields slowly rise to 3.0% and then stop?
What's slowing us down? I want to see more exponential growth of the interest rates!
Sorry , I was kidding about the investment advice. I thought the bit about my estate administrator would have been a "sarcasm giveaway". I can see why you'd want to be safe by issuing disclaimers , however.
Anonymous,
Sorry , I was kidding about the investment advice.
Hahaha! Thank you for coming clean. Honestly, it felt like I was being Punk'd. Live by the sarcasm, die by the sarcasm!
The thought certainly did cross my mind that you were being sarcastic (and you can see that when I said "if you did move your account") but I couldn't actually ask you. If I did ask you and you weren't being sarcastic, then I'd feel even worse.
In any event, I'm really glad you did it. I generally put a sarcasm disclaimer at the top of posts like this one in case someone just wanders in and starts taking the fake advice.
And lastly, by posting as anonymous I couldn't use your past posting history as a guide. There are quite a few people who could post what you did and I would have known for sure it was sarcasm.
Ahem, hum, huh, someone say my name? Yawn. Sorry. Been busy lately so mostly lurking. I haven't been keeping up with every comment thread, but this one I was going to comment upon anyway, so I was delightfully surprised to see it going my way already. :-)
FWIW, I spotted the sarcasm immediately. Sheesh, it couldn't have been any thicker and retained its charm. :-)
Anyway, what I was going to say was Mark, are you finally coming around to shorting the 10 yr TIPS against your 20's or 30's or whatever it was you loaded up on in Feb? I'm not so good on the exponential math, but I reckon you'll boost your return some 50% holding to maturity, 5% better than the CBO is offering!
Actually if yields are low enough you could short the regular 10yr against your TIPS, yes? Those are 2% plus inflation. The 10yr looks to be a flat 1.66. Should have done it last week when it was a flat 1.47. If MoM's fears come true, you'll get a second chance this summer. I guess that only works if we do get inflation though, eh. No matter, this isn't investment advice. ;-) Stick with the sure thing, short 10 yr TIPS against your 20's.
AllanF,
Things are really going your way. This should delightfully surprise you too more than likely.
A Statistics Puzzle Revisited
P.S. I have no great desire to join the ranks of the investment banks as they leverage up the sure things based on the steepness of the yield curve.
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