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.