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Strategies & Market Trends : Graham and Doddsville -- Value Investing In The New Era -- Ignore unavailable to you. Want to Upgrade?

To: porcupine --''''> who wrote (1481)	3/21/1999 5:36:00 PM
From: Freedom Fighter	Read Replies (1) \| Respond to of 1722

Porc, >>Some finance economists look at the difference between the yields on regular 10-year Treasury Bonds with "TIPS" (Treasury Inflation-Protected Securities), as a purely market determined measure of inflationary expectations. Indeed, that TIPS would make such a comparison possible was one of the "selling points" used to get them created in the first place. << That's a great point. I'm glad you brought this up because I use them for that very reason. I didn't know that you did too. Alan Greenspan made an interesting point about them though. It's a point that I did not come up with and I think it's worth mentioning. (see I think Alan is good for something) The difference between the two securities does not necessarily tell us what "true" inflation expectations are because the inflation protection component is determined by the government calculated CPI. One could therefore think that the TIPS were a good or bad investment not based on the rate of return they offer relative to regular treasuries, but because you think the inflation component as calculated by the government is either too generous or not generous enough. ex. If regular treasuries were offering 5% and the government's CPI figures were off by 2.5% of market expectations of 1.5%, the spread between the two would be 4%. 4% would not be the inflation expectation. It would be the CPI expectation. Just one word on Alan Greenspan. I have been wildly critical of him over the last few years because of my view on the market in general and because he hasn't helped matters at critical points with continued easy credit. But I think the guy would be super brilliant as an investor based on numerous tidbits I've picked up from him over the years. Wayne