tag:blogger.com,1999:blog-6616959642391988608.post8875754675172091942..comments2024-03-18T13:22:06.536-07:00Comments on Calafia Beach Pundit: TIPS updateScott Grannishttp://www.blogger.com/profile/14028519647946868684noreply@blogger.comBlogger14125tag:blogger.com,1999:blog-6616959642391988608.post-84308733797003903732009-05-29T11:03:55.571-07:002009-05-29T11:03:55.571-07:00Andre: I'm afraid I don't know of anyone I could r...Andre: I'm afraid I don't know of anyone I could recommend. I dealt mostly with large institutional accounts and the consultants that service them.Scott Grannishttps://www.blogger.com/profile/14028519647946868684noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-1594131193325378302009-05-28T06:47:33.163-07:002009-05-28T06:47:33.163-07:00Introduced to your blog by Across the Curve and en...Introduced to your blog by Across the Curve and enjoy reading your economic insights. I note from your profile that you worked at a fixed income firm. I help manage fixed income accounts for a small family office and we are looking for a fee based financial advisor who can assist with US/International fixed income advice, with particular emphasis on corporate fixed income. Might you have any Anonymoushttps://www.blogger.com/profile/12612122945605441569noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-47482795649807292882009-05-26T08:37:18.375-07:002009-05-26T08:37:18.375-07:00If I had to choose, I'd go with the 10-year.If I had to choose, I'd go with the 10-year.Scott Grannishttps://www.blogger.com/profile/14028519647946868684noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-24423477609643899962009-05-24T13:43:37.177-07:002009-05-24T13:43:37.177-07:00I think we agree, but are evaluating TIPS from the...I think we agree, but are evaluating TIPS from the standpoint of different objectives. My day job is working in a family office where our performance benchmark is after-tax inflation-adjusted absolute return focused, measured on long horizons. TIPS were an overweight for us when real interest rates were higher and the deficit scenario less dire. However, late last year we looked at a manager pwm76https://www.blogger.com/profile/06360404038525306119noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-36966351083922552142009-05-24T09:31:47.878-07:002009-05-24T09:31:47.878-07:00If you buy TIPS bonds in a taxable account then yo...If you buy TIPS bonds in a taxable account then you do have a negative cash flow situation, because the inflation part of the yield on TIPS is paid via accrual (the principal is adjusted upwards), and this is taxed like OID. But if held in a tax exempt account (IRA, etc) you don't have this problem. The total yield will be the real yield plus inflation minus tax, just like any other bond.<br /><Scott Grannishttps://www.blogger.com/profile/14028519647946868684noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-61867900243313027292009-05-23T12:12:46.704-07:002009-05-23T12:12:46.704-07:00Thanks for the clarification. I will read your oth...Thanks for the clarification. I will read your other posts.<br /><br />Now that you are retired and investing for your own accounts, do you find TIPS less compelling because of their tax features? Given the "phantom tax", they will become a negative cash flow asset in a high inflation environment if not tax sheltered. Even if held in your IRA(non-ROTH), TIPS would not necessarily preserve pwm76https://www.blogger.com/profile/06360404038525306119noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-62395704951944327782009-05-22T14:02:05.963-07:002009-05-22T14:02:05.963-07:00Scott: I've discussed this issue in earlier posts....Scott: I've discussed this issue in earlier posts. The short answer is that I think the odds, and the political realities of today, favor the Fed erring on the side of ease, and thus staying too easy for too long. We've been on a monetary roller coaster for over a decade, and the ride hasn't finished yet.Scott Grannishttps://www.blogger.com/profile/14028519647946868684noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-69345676866145688602009-05-22T14:00:01.632-07:002009-05-22T14:00:01.632-07:00Paul W: if you go back to earlier posts, you'll se...Paul W: if you go back to earlier posts, you'll see I have often addressed this issue. The theory that economic slack causes inflation to fall is not something I believe in. I think inflation is a purely monetary phenomenon. (If lots of slack were deflationary, why then did Argentina have triple digit inflation during an extended and deep recession in the 1980s?) Those who believe that slack is Scott Grannishttps://www.blogger.com/profile/14028519647946868684noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-91172422887480225722009-05-22T13:56:16.369-07:002009-05-22T13:56:16.369-07:00twostepp: I think there are only two things that w...twostepp: I think there are only two things that would push real yields higher: a significant Fed tightening and/or a significant pickup in growth. The Fed tightening would probably occur after the pickup in growth.<br /><br />The valuation bands are something I came up with many years ago at Wamco. The reasoning is rather long, and probably requires its own post. The short answer is that when Scott Grannishttps://www.blogger.com/profile/14028519647946868684noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-70273463536369861672009-05-22T13:15:29.042-07:002009-05-22T13:15:29.042-07:00I can't argue that inflationary risks are very lar...I can't argue that inflationary risks are very large. But for now, there is huge slack in capacity utilization, nearly double digit unemployment, a housing market that has a considerable way to fall, and a substantial balance sheet recession still in the early stages. This is all deflationary. I would argue that the rise in inflation expectations, if they raise interest rates significantlly, canpwm76https://www.blogger.com/profile/06360404038525306119noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-6021826264055280162009-05-22T11:14:48.158-07:002009-05-22T11:14:48.158-07:00I think the evidence you present is fairly compell...I think the evidence you present is fairly compelling. The question then is will the Fed have the nerve to reverse its stimulative policies in time to avoid high inflation.Scotthttps://www.blogger.com/profile/12392288826388903607noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-63783128706198564902009-05-22T06:38:28.652-07:002009-05-22T06:38:28.652-07:00Great timing on the post given the big selloff ove...Great timing on the post given the big selloff over the past couple days. <br /><br />I don't think it is that hard to envision a new, low growth future though, thus partially justifiying today's low level of yields. <br /><br />I'm curious as to how you arrive at your rich/cheap TIPS valuation? <br /><br />Great blog BTW.Unknownhttps://www.blogger.com/profile/07293422319061541817noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-87619483951431514632009-05-20T18:08:05.360-07:002009-05-20T18:08:05.360-07:00No argument here--Treasury yields are too low. The...No argument here--Treasury yields are too low. They only make sense if you really believe that growth will be miserably low going forward, and/or inflation will be very low forever.Scott Grannishttps://www.blogger.com/profile/14028519647946868684noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-47147005662988137602009-05-20T16:50:17.164-07:002009-05-20T16:50:17.164-07:00A great set of charts. I prefer to use the Real GD...A great set of charts. I prefer to use the Real GDP long term trend + the 12mo trimmed mean PCE to arrive at the rate that the 10yr should trade. This value today is ~5.5%. The 10yr Tr. yield is still too low.seekingtraceevidencehttps://www.blogger.com/profile/02479493983076211876noreply@blogger.com