Trading Update

<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiGncxcnEvhjsdROU6JR13c9LGmVyP7Ok6ZjlMGYCPVin6WhCdN6CeDqJ0UBXnwTMBYWGrGNmBp-BEIhfh9b5AA2bnklPJZFQKggQlGjcrPtOnbHvLPYZ1MaGgS4diG7gfTbfpIKnfwkyM/s1600/20+Year+TIPS.jpg" imageanchor="1"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiGncxcnEvhjsdROU6JR13c9LGmVyP7Ok6ZjlMGYCPVin6WhCdN6CeDqJ0UBXnwTMBYWGrGNmBp-BEIhfh9b5AA2bnklPJZFQKggQlGjcrPtOnbHvLPYZ1MaGgS4diG7gfTbfpIKnfwkyM/s320/20+Year+TIPS.jpg" /></a><br /><br />I <a href="http://news-these-days.blogspot.com/2013/06/trading-update.html">bought a 19-year TIPS last June</a>. It was actually a bit less than 19 years. It will mature on April 15, 2032. That means it is now an 18-year TIPS. I locked in a 1.06% real yield with intent to hold to maturity.<br /><br /><a href="http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyield">As of today:</a><br /><br />The 20-year TIPS yields 1.07%.<br />The 10-year TIPS yields 0.53%.<br /><br />Using interpolation, those purchasing the 18-year TIPS now are now only getting 0.96% (1.07% x 0.8 + 0.53% x 0.2 = 0.96%).<br /><br />I therefore cannot complain about my most recent purchase (or any previous TIPS purchase for that matter).<br /><br /><a href="http://news-these-days.blogspot.com/2013/08/the-long-term-death-of-real-yields.html">Real yields have been falling rather consistently since the early 1980s.</a> It has rarely paid to procrastinate when a real yield became acceptable. For what it is worth (as a permabear), I feel today's long-term real yield is acceptable. If I had more money to deploy (beyond emergency savings), I would buy more long-term TIPS at these levels.<br /><br />1. There is a whopping <a href="http://research.stlouisfed.org/fred2/series/MZM">$12.2 trillion</a> still willing to earn a nominal yield of just <a href="http://research.stlouisfed.org/fred2/series/MZMOWN">0.084%</a>. Talk about a slow painful death (of inflation adjusted savings).<br /><br />2. I think the direction of this economy over the long-term is directly tied to the direction of real yields over the long-term. Waiting around for better real yields is a bit like waiting around for a better economy (temporary bubbles notwithstanding). Good luck on that one.<br /><br />3. I don't think the global economy can tolerate higher real yields (our economy in particular). I would point to what these "low rates" have done to recent stock market activity, recent emerging market activity, and holiday sales.<br /><br />4. Where's the hyperinflation? If anything, <a href="http://research.stlouisfed.org/fred2/graph/?g=rzR">the CPI is trending down again</a> even though <a href="http://research.stlouisfed.org/fred2/graph/?g=rzU">we've been in ZIRP for 5 full years</a>. You may wonder why I like long-term inflation protected bonds when seen in that light. Well, I am a relative inflation agnostic over the long-term. My investments are a pure play on falling real growth instead, and <a href="http://research.stlouisfed.org/fred2/graph/?g=rzS">real growth has been falling</a>. Big shocker.<br /><br />This is not investment advice. As always, just opinions. Maybe I am wrong to be a permabear. You know what? I sure hope I am! It would only help me if real yields rose because the economy was doing better. I'd be able to reinvest the proceeds at higher rates when my bonds mature. I really don't think I will be that lucky though (not by any stretch of my imagination). Sigh.<br /><br /><b>Source Data:</b><br /><a href="http://research.stlouisfed.org/fred2/graph/?g=rzP">St. Louis Fed: Custom Chart</a>

Trading Update

I bought a 19-year TIPS last June . It was actually a bit less than 19 years. It will mature on April 15, 2032. That means it is now an 18-y...

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