If only it were true that tips provide 100% safety or even "real" dollars.
Given that many people have ripped CPI's accuracy in calculating inflation and found that it may be anywhere from 1-3% short of reality...I would say that tips offer neither 100% safety nor "real" returns.
In case anyone missed the dialog on CPI, the index leaves out some rather important items, allows for "substitution" of items (for example, if steak gets too expensive, it allows a substitution of hamburger), and it includes "mystery" changes where an items value can be hand adjusted higher to compensate for other expenses going higher. For example, even though computers have gotten cheaper, CPI calculations for those have been fudged to show a 30% higher "benefit" due to the computers being faster this year than last. Pretty bloody unlikely.
Check out these links to Bill Gross' analysis on CPI:
http://early-retirement.org/cgi-bin...s_board;action=display;num=1097697752;start=1
Quote:
"TIVO probably wouldn’t help much when it comes to the con job perpetually foisted on the American public about the low level of inflation. “Inflation under control” – (ex food and energy of course) shout the carnival barkers. “The CORE is running at just under 2%,” the barkers shout with glee because a low CORE number tells us that we can continue to run monetary policy with negative real interest rates and fiscal policy with $400 billion dollar deficits. A low CORE number allows us to pretend that American productivity is the best in the world, that the dollar should be strong, and that the markets, by golly are going up. No matter that a gallon of gasoline is over 2 bucks or that a half gallon of milk will set you back $3.69; the CORE is under 2%. Still as Todd Heft, a 44-year-old salesman recently quoted in The Wall Street Journal said, “People have to buy groceries and drive to work. It’s not realistic to strip out food and gas prices.” Ah the core, the core, the core. Semper Fi to low inflation, I guess.
My quarrel though is not just with those who are fixated on the core CPI or the core PCE, but with those who support what we know as hedonic adjustments. Talk about a con job! The government says that if the quality of a product got better over the last 12 months that it didn’t really go up in price and in fact it may have actually gone down! Why, we could be back to Bernanke deflation real soon if the government would quality adjust enough products. For instance, prices of desktop and notebook computers declined by 8% a year during the past decade, The WSJ reports but because the machines’ computer power and memory have improved, their hedonically adjusted prices have dropped by 25% a year since 1997. No wonder the core is less than 2% with computers dropping by that much every year. But did your new model computer come with a 25% discount from last year’s price? Probably not. What is likely is that you paid about the same price for hedonically adjusted memory improvements you’ll never use. Similarly, government statisticians manipulate the price increases for cars and just about any durable good that comes off an assembly line but find it difficult to extend that theory to underwear or a pair of shoes. Perhaps that’s next. Talk about Uncle Sam getting into your shorts!"
His relevant conclusion:
"Deceptive hedonic/substitution adjustments also serve a government burdened not only with hundreds of billions of annual deficits as far as the eye can see, but ladened with a demographically aging U.S. workforce rapidly approaching Social Security time. By fudging on inflation, they pay less and the amount could cumulatively run into the hundreds of billions over the next few decades. They disserve, of course, all of those who receive social security, as well as other private pensioners dependent on an accurate accounting of prices paid. They disserve buyers and holders of TIPS – inflation protected securities – which adjust inadequately to a faulty and near fraudulently calculated CPI that one day could total billions of dollars per year for TIPS holders. And they disserve all owners of U.S. Treasury obligations – including foreign central banks and institutions – who mistakenly assume that they are earning a real return over and above inflation, and that the dollar upon which they are denominated is justifiably strong because of GDP growth and productivity numbers that are pumped by hedonic magic to resemble the Arnold Schwarzenegger of 1980 instead of his verbal “girlie man” analogy of today."
