Robert Zingale

Why You Need TIPS in Your Retirement Account

Old Trader, your point is well taken. However, the most gaming by the government is done in the housing category. They like to use renters equivalent in the CPI index instead of a broad housing price index like the Case-Shiller Index. I do not think that the excess money will be pumped back into housing this time, so I think the effects of inflation will be felt in the CPI index. You are exactly right about the gaming. If you replace the renters equivalent measurement with the Case-Shiller index, inflation would have averaged around 1% more each year since 2003. I had the exact number and graph, but my other computer crashed. The calculation can easily been done if you are interested in doing it yourself. I do think the government does game CPI with the renters equivalent and hedonic pricing measures that they use. At the same time, TIPS are an efficient way of protecting your money. You don't have to put all of your money in them of course.


On Sep 21 08:24 PM Old Trader wrote:

> Given all of the reasons that its in the government's interest to
> "game the system", when it comes to computing the rate of inflation,
> I wouldn't be terribly comfortable pinning all of my inflation "protection"
> on a slug of TIPs in my portfolio.

Why You Need TIPS in Your Retirement Account

That is what everyone thought Greenspan would do when he sent the Fed Funds rate to 1%, but in hindsight, it seems that he left rates too low for too long. I lean toward a monetarist view of the economic cycle. I do not believe that the Federal Reserve has perfect foresight into how to set interest rates and the monetary base. Your idea that it is that easy to unwind that much money is too simplistic. If unemployment and the general economy remain sluggish, they will not have an incentive to sell back the Treasuries that they previously bought. Maybe they will time it exactly right, and inflation will not be that bad. However, if you are wrong about your beliefs about the abilities of the Federal Reserve, then you stand the possibility of losing much more than I do if I am wrong.


On Sep 21 07:20 AM VennData wrote:

> You claim that you do not believe the Fed can buy in a bunch of cash
> with all the bonds they have? Why not?
>
> They just go and buy the bonds. It's simple, really. They sold
> all the cash into the market. They are independent, why not buy
> it all back in?
>
> The fact there there's more money is a simple problem of scale.
> But they have the bonds and the banks have most of this cash in reserves
> AT THE FED.
>
> TIPs are an excellent counter weight to equities in your asset allocation,
> but the Fed can adjust the monetary base at will.

Arbitrage Opportunity in Ultra ETFs

Luck-O-Irish I see what you are saying about the exposure. I was originally just looking at the asset allocations within the ETF to construct the portfolio and forgot how the returns on SSO are actually not completely covered under my article. It would be better to replace the $100 with only $75. This would still leave the strategy at a 28.15% return when I wrote the article.

As for what you are saying about the cash not being free, you may be completely right. I have not attempted to complete this transaction yet.

DJP: An Alternative Investment in Commodities

Some of the images seemed to have gotten messed up. Here is a link that can take you to the fund's prospectus and info sheet. www.ipathetn.com/DJP-o... There you can look at the historical returns of DJAIGTR and the composition of the index.

Oil/Gold Arbitrage Opportunity

Yea I am not seeing that either. When I refer to demand and supply this can mean futures contracts as well. This can also incorporate speculation and whatever else you would like to call it. All this means is that it is not entirely monetary influenced.

As for my strategy it has worked out extremely well since I've enacted it at the start of trading of Monday. I am up 6.64% in about two days. The relationship between gold and oil has closed down to (138.75/978.700) or .141770.

What has happened is that the demand and supply portion of oil's price has fallen simultaneously with a further future dilution of the dollar created by the moral hazard of the government willingness to bail out failing companies. Their role is going to be to loan large amounts of capital to failing companies at artificially low interest rates. This further fear has supported gold's price. This is exactly what I expected to happen in my ideal situation.

The other situation that I thought would cause this ratio to come further together would be a price spiral in oil which would cause such a sudden economic downturn and further financial instability that it would continue to dilute the dollar as a result of the Fed continuing to print money in order to combat these issues. This would likely cause gold to be revalued to historical levels to oil as the dollar would weaken and demand and supply of oil would be severely comprised.

I hope someone took this position and thought my reasoning presented them with a healthy risk adjusted return during a market where that is scarce.

Oil/Gold Arbitrage Opportunity

I understand the problem with using a long time series like I did to show correlation. However, I originally used percentages like you advised. These did not yield desirables results either. It actually did not prove an inverse relationship between CPI and Unemployment. I downloaded all of these time series from the Fed as well so I know that they are sound. What other suggestions might you have to get a more accurate reading? I am eager to learn.

However, the main assumption drawn between the Gold and Oil parity was from comparing their prices. If loose monetary influence is the only influence in driving these commodities, then this ratio would not be up to .15.

Also, to be financially correct this is probably more close to a cross hedge on the U.S. dollar. True arbitrage opportunities only exist for a short while until it is traded away. This is not an arbitrage opportunity. You are correct.