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Old 02-18-2008, 05:13 PM   #101
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Ya had to quote the troll, didnt you? And I'd been doing so well by not clicking on 'view post' :
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Old 02-18-2008, 05:20 PM   #102
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Ya had to quote the troll, didnt you? And I'd been doing so well by not clicking on 'view post' :
Troll? Troll! Where?! Let me at him! Sound the alarms! Call in the antibodies. Troll alert! Ahhhwooooga!

And watch out for the Inflation Monster, too. It'll eat you alive, I tell ya. Buy TIPS, eat dog food. Fuzzy logic tells us so.
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Old 02-18-2008, 05:42 PM   #103
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Fuzzy logic says that understanding your financial relationship with inflation and investing accordingly is a good idea.

Troll logic involves taking two disparate and barely related points and putting them together to provoke a response.

But to answer your question, I made no statements of relation of the CPI-E and TIPS. Those bits came from two separate statements that were not interrelated, so your chart and question are inexplicable.

I do however think its quite boneheaded for an early retiree that owns their own home, pays for their own health care, and who may have a totally different budget structure from the CPI-U to believe that TIPS provides unquestionable or even approximate protection from inflation for their personal finances for 3-4 decades without understanding their budgets correlation with that particular statistic.

Do note that I'm not questioning the value of TIPS as an investment product, just that I think someone who owns it should understand it and their relationship to its "inflation protection".

But you're not really interested in the actual discussion. You're just running around lighting the edges of things on fire to see what happens. Right?
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Old 02-18-2008, 05:49 PM   #104
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Twaddle, Defender of the Trolls, reporting for duty!
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Troll? Troll! Where?! Let me at him! Sound the alarms! Call in the antibodies. Troll alert! Ahhhwooooga!
I think I detect a subtle shift in identity. Off our meds are we?
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Old 02-18-2008, 06:03 PM   #105
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Just practicing the needed skills in case his kid gets over that twitch he gave her.
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Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
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Old 02-18-2008, 06:05 PM   #106
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But you're not really interested in the actual discussion. You're just running around lighting the edges of things on fire to see what happens. Right?
Honestly? I was hoping that you would clarify your argument against TIPS or for a higher CPI.

At least with the CPI-E we have a methodology to check out. That beats the hell out of "because my dad said so." So of all the arguments for a higher inflation index for retirees (like us), I think the CPI-E is probably the best presented so far.

It looks to be consistently about 0.5% higher than the CPI-U. That seems perfectly plausible to me.

I think dory removed TIPS from FIREcalc, but if putting cash under your mattress gives a safe non-inflation-adjusted withdrawal of 3.33% over 30 years, then TIPS with a 0% coupon should give you a CPI-adjusted SWR of 3.33%, right?

If you believe that inflation is CPI+0.5%, then it seems that you'd do OK with TIPS at CPI+2%.

And it looks like you'd be a genius if you stocked up on TIPS at, say, CPI+3.5%, right?

So the TIPS coupon matters a lot. Even if you think that CPI-U underestimates inflation.

But the real comparison should be between nominal bonds and CPI-indexed bonds, don't you think?

If somebody who buys TIPS for inflation protection is a "bonehead," what should we call somebody who buys nominal bonds or a nominal-bond-heavy fund like Wellesley?

Huh? Give us a catchy name for those folks, won't you?
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Old 02-18-2008, 06:15 PM   #107
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Oh Wab, why dont you go outside and play with your kid a little in between forced music lessons? Its nice out.

Way more beneficial than trying to push my buttons and get a fight going to salve your depressed boredom...

I didnt say there was anything wrong with TIPS or the CPI of any flavor. Maybe you can sit in on a few RIF classes?

GOD BLESS!!!
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Old 02-18-2008, 06:17 PM   #108
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It is beautiful out today. I went for a run, and then I sat down with a book on the back porch overlooking the ocean.

Unfortunately, I'm reading "Beyond Oil: The View From Hubbert's Peak," so I need a little light entertainment. You rarely disappoint.
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Old 02-18-2008, 08:33 PM   #109
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But where's the graph for "real" inflation?
If you want to see the chart for the real inflation rate if it were done with the same rules as used in 1980 look here:

Shadow Government Statistics Alternate Data Series

If you want to see the chart for the real inflation rate if it were done with the same rules as used in 1990 look here:

Shadow Government Statistics Home 2

John Williams sells this info by subscription, hard to dispute, nuf said.
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Old 02-18-2008, 10:12 PM   #110
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I was just funnin' with twaddle, my friend.

You're right, though; it's hard to argue with a website called shadowstats.com...
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Old 02-18-2008, 10:15 PM   #111
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You're right, though; it's hard to argue with a website called shadowstats.com...
Especially when it's sold on a subscription basis.
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Old 02-19-2008, 07:43 AM   #112
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I'll say it again. 3% is irrelevant. Who cares if it's correct or not?

If your personal inflation rate is 10% then TIPS might be a bad deal for you if you're using them to stay ahead of your personal inflation rate.

If your personal inflation rate is 2% then TIPS might be good for you if you're using them to stay ahead of your personal inflation rate.
I disagree. Knowing exactly what the inflation rate is, has serious implications to my FIRE plan. I am buying real Estate. I expect to begin cash flowing within a couple years. An expected 3% per year gain via inflation against a 30 year fixed mortgage is one of my underlying assumptions. 4% over the long haul is much different than 3.
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Old 02-19-2008, 08:24 AM   #113
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I just looked at Morningstar Yields for TIPS Funds. I know it is better to but them from Direct.

Vanguard wins like usual:5.01
Pimco:4.42
TRowe:1.44
Fido:1.96

Without digging in I do not know why TRowe and Fido cannot pay more than that. Vanguard fees are 0.20%.

Hardly CPI+2 which is around 4+2=6% last I heard. If the Government rate of inflation "unfudged" was 5% and I could get that plus 2% I'd be picking up some of those puppies. If I could even the 6%, I might pony up some. I guess cause it's CPI-U, another "fudge job"? I am not buying them at 1.44 or 1.96, I'd be the Nimbus. If they are going to give us inflation plus a market amount (roughly 2% now), they ought to do it! Newbie out.
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Old 02-19-2008, 09:17 AM   #114
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I disagree. Knowing exactly what the inflation rate is, has serious implications to my FIRE plan. I am buying real Estate. I expect to begin cash flowing within a couple years. An expected 3% per year gain via inflation against a 30 year fixed mortgage is one of my underlying assumptions. 4% over the long haul is much different than 3.
I'm slow this morning... how does inflation factor into your 30 year mortgage? Are you simply discounting future dollars by the inflation rate? Wouldn't appreciation matter as well?
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Old 02-19-2008, 10:25 AM   #115
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I'm slow this morning... how does inflation factor into your 30 year mortgage? Are you simply discounting future dollars by the inflation rate? Wouldn't appreciation matter as well?

Lets say for the sake of discussion that Im renting a Townhome for 1000 a month, and my mortgage is 1000 dollars a month. Really simplified but cash flow is even. If inflation is 3% a year and rents follow...what will my Rent be in 5-10 years? mortgage will remain constant.

So, inflationary pressure on Rental pricing is very important to me long term plan.
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Old 02-19-2008, 10:33 AM   #116
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Lets say for the sake of discussion that Im renting a Townhome for 1000 a month, and my mortgage is 1000 dollars a month. Really simplified but cash flow is even. If inflation is 3% a year and rents follow...what will my Rent be in 5-10 years? mortgage will remain constant.

So, inflationary pressure on Rental pricing is very important to me long term plan.
Well, I agree that's very good for modelling and provides a good swag for forecasting. Heck, I do the same thing. My long-term FIRE sheet calls for ROI 3% above CPI-P.

However, it's been my experience that rent follows supply and demand. I've seen contractions locally in rent (large metro) in response to excess supply and I've seen rises rapidly above inflation when I went to school (small uni town). I've also seen landlords not raise rents at all because they didn't want to loose a good long-term tenant and I've seen rents rise faster than inflation to get rid of a bad tenant.

I'm sure locale plays a huge part in it and, for the sake of your FIRE plan, I hope your area is blessed with 5% inflation.

Edit: And, on further reflection, I'm not we're really disagreeing... I'm saying that you need to make sure your investments cover your CPI-P and that's all that matters. You're saying that you're planning on your investment yield rising enough to cover your expenses. At some point, it's the same discussion.
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Old 02-19-2008, 11:18 AM   #117
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I just looked at Morningstar Yields for TIPS Funds. I know it is better to but them from Direct.

Vanguard wins like usual:5.01
Pimco:4.42
TRowe:1.44
Fido:1.96

Without digging in I do not know why TRowe and Fido cannot pay more than that. Vanguard fees are 0.20%.

Hardly CPI+2 which is around 4+2=6% last I heard.
If you want to be a bond investor, you should first learn how to determine bond yields.

Start with Bloomberg or WSJ:

Bloomberg.com: Rates & Bonds

The 20-year today is yielding CPI+1.97%. You can get that right now on the secondary market. You'll also get a similar yield from a fund, if 20-years matches their average maturity.

When you get a quote for a mutual fund yield, you're getting the 30-day SEC yield. Some funds quote it in terms of real yield, some in terms of distribution yield. Both of which are a function of average maturity, and none of which are especially good indicators of the true current yield.
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Old 02-19-2008, 01:43 PM   #118
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I think this is the dream of ERs everywhere. All we want is a risk-free return of CPI+4% for the rest of our lives.

Why doesn't the market offer such a product? [Cue the annuity salesmen. ]
Interesting that you say this. Back in the early 2000s when roughly that was availble from TIPS, I made a post on the Fool REIT board pointing this out. I also said that I would go 80% for these, if it would produce the income that I needed for retirement cash flow, which at the time it would not have.

Everyone just laughed at me: why in the world would anyone want to settle for this? The recent poor market performance of UK inflation adjusted securities was mentioned also. That board has a lot of well informed posters.

To be fair, an extremely good few years for REITs did follow, as well as good years for TIPS. Undiscounted for risk, the REITs did better.

Since then there have been other good deals, not so glaringly obvious perhaps, and with more variability. But it is always the same, "Yeah but..."

It takes boldness to succeed at active investing.

Ha
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Old 02-19-2008, 02:08 PM   #119
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Unfortunately, I'm reading "Beyond Oil: The View From Hubbert's Peak," so
A good book. Reading that several years ago, as well as its predecessor put a few $100K into my retirement fund. In fact, checking today it appears to be the gift that keeps on giving.

About time for me to take a stroll down to the Bay. What a marvelous time to be a senior citizen!

To health and wealth, and the time to enjoy them!

I'll wave amigo.

Ha
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Old 02-19-2008, 02:15 PM   #120
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To be fair, an extremely good few years for REITs did follow, as well as good years for TIPS. Undiscounted for risk, the REITs did better.
REITs had a remarkable run. I think they started with a yield around 7-8% in the early 90's, and they grew dividends at a 5%/year rate. Not to mention the bubbly run up in price.

That kills TIPS, even with a 4% starting yield and 3% CPI growth.

But it's that "risk" thing that can bite. REITs look pretty unattractive right now with a 4.5% yield going into a possible economic slump.

Getting a good handle on risk and asking for the "right" risk premium is the tricky part. It's not just about volatility, especially when considering some of the high yield investments in the current enviroment.
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