Comments on: Hot TIPS http://streetwiseprofessor.com/?p=1718 Research (on Financial Markets) Conducted by Other Means Thu, 09 Sep 2010 10:11:48 +0000 http://wordpress.org/?v=2.9.2 hourly 1 By: The Professor http://streetwiseprofessor.com/?p=1718&cpage=1#comment-65031 The Professor Tue, 07 Apr 2009 14:02:31 +0000 http://streetwiseprofessor.com/?p=1718#comment-65031 Matt-- Precious metals add to much volatility to your portfolio. Their prices are driven by myriad factors other than inflationary expectations. Platinum and palladium in particular, in part thanks to erratic Russian supplies, and perhaps manipulation. TIPS give you a better hedge against inflation risk, to the extent that CPI reflects the price of your consumption bundle. Matt–

Precious metals add to much volatility to your portfolio. Their prices are driven by myriad factors other than inflationary expectations. Platinum and palladium in particular, in part thanks to erratic Russian supplies, and perhaps manipulation. TIPS give you a better hedge against inflation risk, to the extent that CPI reflects the price of your consumption bundle.

]]> By: Matt http://streetwiseprofessor.com/?p=1718&cpage=1#comment-65028 Matt Tue, 07 Apr 2009 07:09:41 +0000 http://streetwiseprofessor.com/?p=1718#comment-65028 Why TIPS and not platinum/gold/silver? Why TIPS and not platinum/gold/silver?

]]> By: The Professor http://streetwiseprofessor.com/?p=1718&cpage=1#comment-65024 The Professor Tue, 07 Apr 2009 02:47:24 +0000 http://streetwiseprofessor.com/?p=1718#comment-65024 1. North of 10 percent. 500 percent--not likely. Something like late-70s, early-80s--10-15 pct is my forecast. FWIW. Wide confidence interval around that, though, due primarily to uncertainty about political will of the Fed. That is very hard to gauge ex ante. 2. Inflation will probably not be limited to the USD. Other central banks have also engaged in substantial "quantitative easing." Esp. UK, but other countries as well. Moreover, other CBs would be under tremendous political pressure to inflate so as not to give advantages to US exporters. 1. North of 10 percent. 500 percent–not likely. Something like late-70s, early-80s–10-15 pct is my forecast. FWIW. Wide confidence interval around that, though, due primarily to uncertainty about political will of the Fed. That is very hard to gauge ex ante.
2. Inflation will probably not be limited to the USD. Other central banks have also engaged in substantial “quantitative easing.” Esp. UK, but other countries as well. Moreover, other CBs would be under tremendous political pressure to inflate so as not to give advantages to US exporters.

]]> By: Sublime Oblivion http://streetwiseprofessor.com/?p=1718&cpage=1#comment-65023 Sublime Oblivion Tue, 07 Apr 2009 02:36:03 +0000 http://streetwiseprofessor.com/?p=1718#comment-65023 1. When you talk of inflationary risks (about which I agree), what precisely do you have in mind? 5%? 15%? 500%? Etc. 2. Surely if there is big inflation and debt crisis, investors will drop $-denominated assets and oil prices will stop being denominated in $'s, thus canceling out the benefits for petro-exporters (furthermore, if the US loses the ability to pay for oil imports then its price will drop dramatically and for a prolonged period, and actually hurt the petro-exporters quite a lot). 1. When you talk of inflationary risks (about which I agree), what precisely do you have in mind? 5%? 15%? 500%? Etc.

2. Surely if there is big inflation and debt crisis, investors will drop $-denominated assets and oil prices will stop being denominated in $’s, thus canceling out the benefits for petro-exporters (furthermore, if the US loses the ability to pay for oil imports then its price will drop dramatically and for a prolonged period, and actually hurt the petro-exporters quite a lot).

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