TIPS can be seen as a smart move, but I have hesitated, for the following reasons..
Many think the CPI is total bullshit, perverted more and more with each “revision” as part of a conspiracy to under-represent true inflation so our government can inflate its way out of national debt. Foreigners holding our debt must be tricked into thinking our inflation is lower than actual.
Additionally, the dollar continues its long painful decline on international currency markets.
Here is an example. You hold TIPS for five years. China decides to unlink from the dollar and let the RMB roam free. So let’s say the RMB-$$ exchange rate moves 50% against you. Many respected economists do think the RMB is 50% away from its true unrestrained floating market rate. On a fixed rate control, the commies already allowed it to move 10% in that direction in last 4 years.
Now you cash out your TIPS. Think about what will have happened over that five years to the price of every Chinese made product (pretty much 90% of what’s in our retail stores)? Effectively the value (to buy foreign made goods) of those TIPS funds will have fallen dramatically.
I have friends (Chinese) who are moving money into China, and buying CD’s from Chinese banks. The interest rate kinda sucks, but the long-term exchange rate trend is going to prove out their wisdom.
Over the last five years we have moved over half our assets into China. We own property in China not in America. We have savings accounts in the BoC. I don’t think you want your money in dollar-denominated assets.
You are investing in our government at a time when foreign nations are realizing the US is no longer a credit risk worth investing in! America is a junk bond credit risk.
