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Author: Lokicious Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35361  
Subject: Re: TIPS/Treasuries Inflation Adjustment Date: 9/16/2008 2:00 PM
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If you are so convinced, are you shorting treasuries? The reason I mention this is because of a recent conversation I had with a friend (a very experienced, and very successful, trader who used to work for a national bank trading currency for them - I've mentioned him before on the boards) who thinks that "the mother of all short opportunities" is coming up. He thinks there will be a last gasp to increase liquidity and lower interest rates, and following that we may see slowly increasing interest rates for 5, 10, or perhaps even 15 years. Almost the exact opposite of what occurred to interest rates from the early 80's to the late 90's/early 00's.

Unfortunately, my predictions are always wrong, and the markets never seen to follow what common sense suggests, so I stay away from dangerous strategies like shoring.

But I agree with your friend that interest rates are much too low for the level of debt and have been kept down by a number of unsustainable factors (like he Fed or BOJ desperately pumping liquidity in as if there will never be consequences). And don't forget the SS surplus, which will rapidly reverse itself, I believe after next year (or maybe this year).

By the way, I took another look at Bloomberg, and the CPI differential for 5-year TIPS versus Treasuries was actually down to about 1% point. Makes no sense at all.
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