TIP's

We have talked a lot on this forum about the flawed inflation adjustment used by TIPs.  PIMCO has kind of picked up on it lately HERE .

The above article kind of says that TIPs are poorly priced, but you ought to have some.  I struggle with that... If I were to buy TIPs, I think that I would want to buy them right... namely, when they are under- or fairly-valued at least in the intermediate term.  When I look at the chart HERE , I kind of want to cry.  Look at the short term trend at the top of the page... it shows it best.  You see a long trend of oscillation where the highs are getting lower and the lows are getting lower.  That's called a bear... if you buy it now at the top of its trading band, the outcome is not likely to be good.  Then scroll down to the long term chart.  You see a stable region at about 100 at the beginning of the chart... you see a big runup beginning last fall when the credit crunch hit that peaked in March of this year (stocks hit a bottom there so we might assume that people were the most frightened then)... now, you see TIPs in a classic downtrend... to where?  my guess is a 100.

Sooooo, why would I buy government bonds yielding maybe 3 or 4% at a price that is about 7% more than where they are headed... or at least that is what I think.  I can't bring myself to buy TIP funds right now...

PIMCO says: "As such, TIPS should represent a core holding within a fixed income allocation, helping to enhance purchasing power, reduce total portfolio volatility and diversify the disinflationary/deflationary bias inherent in traditional fixed rate bonds."

erryl can't bring himself to buy at these prices... if I were to buy, and I probably should, it would be individual bonds auctioned by the Treasury with the intent to hold to maturity.  Don't buy a TIP fund right now...

erryl