Skip to content
Andrew Tobias
Andrew Tobias

Money and Other Subjects

  • Home
  • Books
  • Videos
  • Bio
  • Archives
  • Links
  • Me-Mail
Andrew Tobias
Andrew Tobias

Money and Other Subjects

Paying Up for Safety

May 6, 2011March 24, 2017

Geez, you take two rotten snow days and the biotechs tank; your dredging stock gets a nice plug here and it tanks (so, too, your paper stock); gold – as if to mock your pre-snow column – tanks; the Canadian dollar, in which you have some of your cash, tanks. The Dow tanks. Where is all this money going? If people are selling all these things, they have to be putting the proceeds somewhere.

One guess: U.S. Treasuries. Have you seen these things?

The three-month Treasury bill was yielding an annualized one-hundredth of one percent interest yesterday. Whoop-de-doo. The three-year note promised not even 0.95% a year. The five-year note, 1.88%.

Clearly, no one is expecting inflation, or they’d never accept rates so low.

The five-year Treasury Inflation Protected Security (TIPS) maturing April 15, 2016, which promises to pay one-eighth of one percent a year above inflation (and Uncle Sam’s perhaps conservative calculation of inflation, at that), was selling yesterday at nearly 103 cents on the dollar, which works out to a yield of minus .47 percent a year.

Clearly, everyone is expecting inflation, or they’d never accept a negative interest rate.

So . . . which is it, kids? Inflation? No inflation?

I suppose the folks who think inflation looms are chasing the five-year TIPS, while those who see us following the Japanese model (loads of National Debt but decades of near-zero interest rates) are chasing the standard five-year bond.

They can’t both be right – at least not both at the same time. (One could be right for a while and then the other.)

Much as I laud recently-issued TIPS as both a deflation hedge and an inflation hedge,* I sold my own short-term TIPS yesterday. And if I owned any standard Treasuries, I would have sold them, too.

Both the inflation-fearers and the deflation fearers may be overpaying in their flight to safety.

One thing neither set of folks seems the least bit concerned about is the creditworthiness of the United States of America. The market is assuming we will not default on our Treasuries. Which is why all hell would break loose if we did.

*They will pay off $1,000 even if the prices of everything have collapsed; they will pay off $3,000 if the prices of everything else have tripled.

Post navigation

← Snow Day
Comedy →

Quote of the Day

"First they ignore you; then they laugh at you; then they fight you; then . . . you win."

Mahatma Gandhi

Subscribe

 Advice

The Only Investment Guide You'll Ever Need

"So full of tips and angles that only a booby or a billionaire could not benefit." -- The New York Times

Help

MYM Emergency?

Too Much Junk?

Tax Questions?

Ask Less

Recent Posts

  • Anyone? Anyone?

    July 11, 2025
  • "PAPERS PLEASE" -- Trump's Very Own Gigantic Police Force

    July 9, 2025
  • 5 Links And A Joke Walk Into A Bar

    July 8, 2025
  • There WAS No Cherry Tree

    July 7, 2025
  • "The Most Popular Bill Ever Signed In The History Of Our Country"

    July 6, 2025
  • Unbelievably Bad -- Literally

    July 4, 2025
  • Repeal The Steal

    July 2, 2025
  • Our Record-High Stock Market

    June 30, 2025
  • Stuffing The Goose

    June 30, 2025
  • Yes! (Plus A Bonus)

    June 29, 2025
Andrew Tobias Books
  • Facebook
  • Twitter
©2025 Andrew Tobias - All Rights Reserved | Website: Whirled Pixels | Author Photo: Tony Adams