Holding or investing?

[cute fuzzy bunny]

Ok then, we all know what Ted does with his spare time when he's not writing about finances

re: stuff written before...I thought I'd read the majority of stuff on here, but I probably didnt go back past the beginning of last year (2003) for freshness. Buying commodity futures would scare the pants off me. The "New Era" fund looks interesting but they appear to suffer some style drift...2.64% in WalMart? Plus i'm really stuck on sticking with vangard funds. Perhaps one of my "minor asset reallocations" this year will be to put 5-10% into the energy fund.

I'm still a little stuck on Tips. If the benefit is the inflation protection associated with higher interest rates, and the higher interest rate/inflation bogeyman is imminent and scary enough to make Tips attractive to buy at this time in significant amounts, why wouldnt one wait until the inflation/interest hits, then buy into Tips at a likely more favorable yield? What would be the benefit of an inflation adjusted bond like Tips vs the short term corp fund, which at 3% yields more than tips now...and if interest rates rise would take a short term NAV hit, followed by NAV recovery and a higher yield curve as interest rates rise...? That 2% yield just isnt turning my head, and even with an inflation adjustment to the principal (thats a taxable event in that year to boot), I cant see it as anything except better than buying treasuries. Or is that the point? If you're buying lots of treasuries, this is better because it'll preserve the below-inflation yields?!?

 

[wabmester]

Take a look at the real yields of bonds during periods of high inflation, and you'll see they can go negative. So, two likely outcomes if you wait for inflation to hit before you buy TIPS: your existing bonds will crater (and new issues may not compensate fully for inflation), and TIPS will command a premium which could lower their real yield (although not below zero).

 

[unclemick]

Vanguard's target retirement series fund for those already retired holds a whopping 25% Inflation protected securities. I don't think they called Ted but they're in screaming agreement.

The Walmart holding of New ERA is an 'inflation play'- they buy 2% of everything China exports to us - at a pegged currency to the dollar - at least that's the explaination I read. ? - I don't understand it either.

 

[wabmester]

My last water stock is PSC(Philadelphia Surburban) - the others I had were bought by European co.'s.

That's interesting. It looks like the french (Suez and Vivendi) went shopping for US water companies. They have us by the short hairs now -- it's only a matter of time before they take revenge for "freedom fries"

 

[wzd]

RE: TIPS - See http://www.clariden.ch/publications/focus/ifoipf0703e.pdf for a recent pro-TIPS article.

Also, since "The historical real yield on Treasury bills, which do track inflation and do therefore provide roughly 100% inflation pass-through, has averaged roughly 0.8% since we went off the gold standard in 1931.", 2% is a good historical real return. Yes, I know that recent years have provided a 3% real return (see above URL), but there is no guarentee that will return. Here is a chart I found (from http://www.pimcofunds.com/commentary/mgr_billGross08012003.jsp):

which shows historical real returns since 1953. The rate on a TIP is the real return for the next 10 years. A 2% real return for 10 years will look good anywhere on the chart except for the 80's decade.

I'm still mostly in equities and some corperate bonds from when I set up my 72t plan. TIPS will be a component after the bonds mature and my fixed income % drops. Hopefully the bonds will still be selling for a good real return.

Wayne

 

[gopherfan]

Advocating developing the Alaska oil fields as a solution is basically a cop-out because the oil there is only a fraction of a year's usage by the U.S.

Hello, I was lurking on this board and just wanted to correct this statement. I was watching the History Channel last week and they had a show on the Alaskan pipeline. They said that the ANWR oil reserve is "estimated" to be larger than the fields that have been supplying the pipeline for over 26 years. I just did a quick google search and estimated the Alaska pipeline has supplied about two years worth of domestic oil usage at TODAY'S usage level. http://www.ncseonline.org/NLE/CRSreports/natural/nrgen-25.cfm

 

[Ted]

 I just did a quick google search and estimated the Alaska pipeline has supplied about two years worth of domestic oil usage at TODAY'S usage level.  

Even if this is correct, it doesn't change the basic conclusion that developing the remaining oil reserves in Alaska would provide only a "band aid" solution to a really serious economic problem. Having lived for 59 years now, and being interested in history and anthropology, I regard two years in the history of a country as nothing but a fleeting moment.

I think that there is adequate technology and adequate political will to develop the ANWR fields with an acceptable level of risk to the environment there. But I think that it is foolish to do so in order that suburbanites can do their commuting and shopping in SUVs, take vacations on yachts and in motor homes, commute 30 miles per day to work, etc.

Whether ANWR is developed or not, the cost of acquiring new oil will continue to rise. If this "cost" were simply a matter of dollars, I would be somewhat sympathetic to the argument that the free market would work to balance consumption with supply. But the greater problem is that the "cost" involves exercising some control over the political affairs of godforsaken parts of the world, which is what led to 9/11 and the subsequent cost in American soldiers' lives in Afghanistan and Iraq and who knows where else in the future. I think about those costs every time I fill my (modest sized) car's tank with gasoline.

 

[Ted]

 It looks like the french (Suez and Vivendi) went shopping for US water companies.   They have us by the short hairs now -- it's only a matter of time before they take revenge for "freedom fries"  

This sounds like the concerns that were expressed during the 1980's that the Japanese were "buying out America." Actually, as Japanese investors discovered, when somebody invests in a foreign country, it is the foreign country that has them by the short hairs. Through a combination of regulation and devaluation of the money supply (not to mention outright appropriation of assets in the extreme case) it is rather easy for a country to limit the profitability of investments by foreigners.

This is particularly true of water companies, since they are utilities whose rates (and thus their profits) are regulated by every state.