Sunday, February 26, 2012

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.


Stagflationary Mark said...

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.

CP said...

Ha! I wasn't even referring to you.

But... I don't like TIPS

Stagflationary Mark said...


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.

CP said...

I can think of fifty things I would rather own than TIPS. But we have talked about this before.