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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Tommaso who wrote (169120)	12/4/2008 5:26:57 PM
From: patron_anejo_por_favor	Read Replies (1) \| Respond to of 306849

The government has been welching all along, through ginned-up CPI numbers. It will only get worse, on that you can rely.

To: Tommaso who wrote (169120)	12/5/2008 1:01:42 AM
From: energyplay	Respond to of 306849

Consensus view on the government paying off TIPS rests on two items - 1) CPI doesn't really track price changes well, and it lags anyway. 2) Progressive income tax generates tax revenue faster than price increases. So the consensus view is that TIPS don't have too much risk, especially in an account where you don't need to pay taxes on the inflation correction principal increases. James Grant occasionally comments on TIPS. *** This leaves some other risks - 1) CPI definition can be changed. One likely set of changes would have the CPI only track prices tied to the US domestic economy. So maybe the energy component would track coal or heating oil, but not motor gasoline. I expect this wold be more subtle. Gaming CPI also slows Social Security Benefit growth. So the USD could drop to 1/2 the value of a basket of foreign currency, and the TIPS might only gain 20%. 2) In a mutual fund, returns can be diluted by new people buying into the fund. I don't know how to fix this, unless there and multiple small funds at TIAA/CREF. ******** How to hedge this ? Possibly somethings that are a better inflation hedges, like oil or precious metals. That is all the stuff I think you have bought already. TIPS are a real good place to be right now.