CPI-Linked Bonds Are For Chumps?
This post is about Argentinian inflation numbers, not U.S. ones, which are relatively accurate. The bogus numbers here are the employment numbers.
The Economist has a long article this week about the Argentine book-cooking of inflation numbers, which are really 2-3x higher than official reports. In fact, the Economist will being disregarding the official numbers in favor of privately estimated ones.
When governments lie about inflation, it is a huge problem if you own CPI-linked bonds.
Proposition for audience: CPI-linked bonds are for chumps.
Think about it; you are letting the debtor choose his own interest rate. What is he going to pick? Duh, a low one.
The incentives are clear - don't be a chump.
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4 comments:
You are so mean to me, lol. I offer a rebuttal.
Be like Dick!
And the couple had between $2 million and $10 million in Vanguard Inflation-Protected Securities fund.
Ha! I wasn't even referring to you.
But... I don't like TIPS
CP,
What's not to like about 5 year TIPS with real yields below negative 1% and being taxed on the inflationary gains each year? ;)
In all seriousness, I would be among the last people to say TIPS are a screaming bargain right now. Using hindsight, I'd reserve that for when I was buying them (and Jeremy Siegel was warning investors to stay away).
I am indifferent now. Real yields were even worse in WW2 though (the world war was not kind to savers). Real long-term growth and real long-term yields are tied at the hip. I think the former is in jeopardy.
I can think of fifty things I would rather own than TIPS. But we have talked about this before.
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