Why I don’t like TIPS

One simple reason – when I’m buying a derivative, I don’t want the payer to be in control of the underlying.  IN ENGLISH:  The government gets to pick the formula for “inflation” when paying you for how much inflation has gone up.

In case you don’t know what TIPS are, in short, they’re a note or bond you buy from the US government whose payout goes up when inflation goes up.  So some advise owning some of these to protect yourself against inflation.  This sounds great in theory, except when you read about stories like the government counting the “price” of cars in the “cars for clunkers” program being $4500 less than than before. This is artificial deflation and screws over those with TIPS.

So back to the main point – no way I’m lending someone money and letting that person control the interest rate charged whenever they want.

-Tim

Reblog this post [with Zemanta]
Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: