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War, Inflation, Policy, And SCHP

Lance Brofman profile picture
Lance Brofman


  • Inflation has mostly been the result of wars. Possibly the combination of Covid and the war in Ukraine is having a similar result.
  • The Federal Reserve is tightening credit to combat inflation and will keep doing so until it causes a recession.
  • Buying Treasury Inflation-Protected Securities at the right moment can result if the investor gaining both from the adjustment in principal from prior inflation and higher bond prices.
  • When the time comes SCHP is a better choice because of its very low expense ratio of 0.05% vs 0.19% for TIP.
  • The 1920 recession, caused by the WWI spike in inflation and the flu pandemic, may have some things in common with the present situation.



JLGutierrez/E+ via Getty Images

Inflation has become a major concern in all corners of the economy and in the financial markets. After a decade of relative price stability, the past year has shown an eruption to the highest rate since

This article was written by

Lance Brofman profile picture
Note: In 1996 Fundamental Portfolio Advisors and myself were subject to civil litigation by the SEC which resulted in deregistration and a permanent bar from the securities industry. - Ph.D. economics and Finance MBA finance NYU) Colorado Technical University Professor – courses: Applied Managerial Finance (Graduate Level), Microeconomics, Macroeconomics., Previous: Globe Institute of Technology Professor – Economics and Finance, Head of Business Department International Finance European School Of Economics (New York) Professor – Economics (Graduate Level) Courses taught: Microeconomics Metropolitan College of New York Professor – Economics, Banking and Finance Courses taught: History of Economic Thought, Macroeconomics, Money and Financial Institutions World Gold Council Consultant Economist New York, NY • Constructed econometrics relating to gold's role as a portfolio diversifier primarily aimed at institutional investors. • Focused on the embedded optionality of gold in terms of its relation to other investment assets and economic fundamentals such as inflation and business conditions. Freenet, Inc. Founder Internet Startup company with investment advice websites. Fundamental Portfolio Advisors, Inc. Chief Portfolio Strategist – Founder • At the predecessor company I started the New York Muni Fund, the first single state triple tax-free municipal bond fund. • I took the fund from a one-employee start-up where I performed every function to a family of mutual funds which had five funds with total assets above $300 million and which did all of its distribution and transfer in-house. • I wrote the initial prospectus and was responsible for managing the portfolios of what eventually grew to be a family of 5 mutual funds. • Was chief economist for parent company’s brokerage firm. • Involved on the buy-side in the development and monitoring of various structured municipal finance products. Worked with major issuers such as New York City and major investment banks such as Merrill Lynch and Goldman Sachs. • Submitted a U.S. Patent for a portfolio management system for mutual funds involving derivatives. A. Gary Shilling & Co. Senior Economist – Economic consulting and forecasting. Both macro and micro. • Clients included: Emerson, Castle & Cooke, Cooper Industries I was the author of the 1979 study commissioned by the U.S. Government Interstate Commerce Commission, which calculated the expected economic impact of trucking deregulation. White, Weld & Co, Inc. Economic analyst • White, Weld was the sixth largest investment banking and brokerage firm when Merrill Lynch bought it. • Extensive work was done on the All-American Pipeline Proposal to tap the Alaskan Gas Reserves. • The economics department of White, Weld formed A. Gary Shilling & Co. at the time of the Merrill Lynch merger. American Stock Exchange Economic analyst Degrees: New York University June 1978 Ph.D. Economics/Finance • Ph.D. dual field, economics and finance. • Doctoral dissertation was in contingency claims (options) theory June 1973 MBA with concentration in economics and finance NYU Engineering School June 1971 Bachelor of Science - Nuclear Engineering Published works Analysis of the Embedded Inflation Optionality in Gold Prices. World Gold Council, 2000. New York, N.Y. The Economic Impact of Trucking Deregulation. Interstate Commerce Commission, 1979, Washington D.C. I was an author of the textbook: 'Global Financial Management' Words of Wisdom, Schaumburg, IL. Dec.2015 ISBN 978-1-934920-46-6,

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, but may initiate a beneficial Long position through a purchase of the stock, or the purchase of call options or similar derivatives in SCHP over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Please note that this article was written by Dr. Vincent J. Malanga and Dr. Lance Brofman with sponsorship by BEACH INVESTMENT COUNSEL, INC. and is used with the permission of both.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (24)

Lamane profile picture
I’m looking at investing now. Good time?
In at $56. Not sure what to expect. forward yield is like 14%- better than i-bonds and more liquid.
If rates keep going up- I assume a principal loss?
Yearly payout of $7.26 now. Time to start buying?
@Lance Brofman, thank you for the article.
bullmoose62 profile picture
Well now, it appears that Lance only writes brief articles for SA but does not answer any questions or explains the basis for his articles.
I also bought SCHP at about $63 because I thought if the fund goes down 3-4% the dividend would keep me above water. Boy, was I wrong. When do you think the dividend will start increasing or will it?
WW Burgess profile picture
@Bnads Large distribution incoming for June
bullmoose62 profile picture
@WW Burgess Where did you get this information?
Lance Brofman profile picture
@Bnads The large current inflation rates will not be reflected in higher distributions but mostly in higher NAV as the principle of the underlying TIPs is adjusted upward.
Mac Timred profile picture
Insightful article. The info about the Fed's actions in early 1920s make me wonder if that was the model used by fmr Fed Chair Volcker in the early 1980s.
PaFromFL profile picture
Most of the current inflation was not caused by excessive borrowing as a result of low interest rates. It was mostly caused by the Democrats’ suppression and intimidation of US oil production, excessive handouts during the pandemic, and sanctions that punish the US but are easily sidestepped by the Russians. The supply chain issues were caused by the pointless (other than tilting the election) economic shutdowns.

Inflation rages when oil prices exceed $70/barrel, and if oil prices remain high, recessions often occur a year later. Raising rates now will only make the future recession worse. Encouraging oil production, stopping handouts, and dropping sanctions is the correct solution. The problem is that increasing oil production takes time we probably don’t have.
@PaFromFL The domestic energy industry is short 100k workers. The ongoing labor shortage is partly responsible for the lack of increased domestic oil production. The solution is convincing big oil to pay workers more and entice new people to enter the industry.
PaFromFL profile picture
@Puppychow The Democrats have said many times they want to shut down the fossil fuel industry and one of the first things Biden did was to advance that agenda. Why would anyone want to start a career in the fossil fuel industry when it is targeted for destruction?

The trucking industry also is not a good bet for a new career because automation is coming soon.
@PaFromFL the current inflation was predetermined by 1. The unnecessary and deficit exploding personal income tax cuts of 2016-17, 2. The crazy flooding of the market with trillions of dollars via stimulus spending and poorly overseen no payback loans to businesses, 3. Shutting down the economy, rent controls, and special entitlement payments during the pandemic, and 4. The Fed's zero interest rates+bond purchases+stock purchases. All of which occurred during the last Republican administration. How could pumping all of that liquidity and currency dilution into the economy not cause inflation?
bullmoose62 profile picture
The recession has not started, yet. My SCHP has gone down in value since I bought it 9/14/2021, with dividends reinvested. I bought at $63.28 and before market open today it is $58.73 which is a 7.19% loss or 6.57% loss after dividends re-invested. After reading your analysis of SCHP I realize that I did not buy at the sweet spot that you describe. It appears we may already be in the first quarter leading to recession. Would you sell SCHP now at a 6.57% loss and wait until the recession has gone on long enough that interest rates start to go down to re-buy?
@bullmoose62 I have the same question as well, and I am down on TIP. As I type this, it is down 2% just today! Some protection - sheesh :)
@bullmoose62 I actually bought SCHP in Oct '21 (around $63) because it had it right in the name - 'treasury inflation protection'. My ASSUMPTION was that what I put in would somehow adjust with the inflation I saw coming. I guess I just didn't read the fine print. Buy more now? Umm...
William Prather profile picture
@bullmoose62 I have the same question. What do you recommend to us that have a position in SCHP that is currently under water.
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