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Thursday, January 13, 2011

Bob Brinker's Current TIPS Advice

In Honeybee's excellent summary of Sunday's Moneytalk, she quoted Bob Brinker as saying:
"That means if rates go up then you can expect the net-asset-value of that security to go down......For that reason, especially given the fact that the rates are near zero, I am not, I am not recommending TIPS."
The base rates for 10, 20 and 30-YR TIPS are currently 0.93%, 1.64% and 1.89%, respectively. TIPS pay the base rate PLUS the current rate of inflation.  Only the 5-yr has a negative 0.29% base rate but that means as long as inflation is more than 0.29% per year for the next five years, you'll make money. 

When it comes to inflation, you have to remember that Brinker said higher oil prices are not inflationary. He also said the stock market would go up in 2008 when the price of oil came down. Both statements were flat out wrong as the price of oil is a component of CPI which is the official measure of inflation.  Also, the price of oil crashed when the global economy crashed. The guy is a great entertainer, but some of his understanding of basic economics is as good as Paris Hilton's.

By all accounts, it appears inflation bottomed just below 1.0% and has turned up. The FED announced it made its mission to move CORE inflation ABOVE 2.0%.... With their tendency to get this wrong, I expect inflation to eventually be higher than they target.

You can't lose with individual TIPS if you hold to maturity. The 10-yr still has a positive real return BEFORE TAXES which can be good for IRAs where you can't easily move money to a savings account paying 1.3%:
The US Government said today there is an acceleration in inflation at the producer level, PPI.
Producer Price Index News Release: The Producer Price Index for Finished Goods rose 1.1 percent in December, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. This advance followed increases of 0.8 percent in November and 0.4 percent in October and marks the sixth straight rise in finished goods prices. At the earlier stages of processing, prices received by manufacturers of intermediate goods moved up 1.0 percent, and the crude goods index increased 4.0 percent. On an unadjusted basis, prices for finished goods advanced 4.0 percent in 2010 after climbing 4.3 percent in 2009."
TIPS funds, such as Vangard's VIPSX and Fidelity's FINPX, could show a negative return if interest rates go up without higher inflation but individual TIPS bought from the US Treasury in IRAs and held to maturity will never lose money AND pay a positive, real return.  This is great for ROTH IRAs where I have some.

Good information:
Consumer Reports:  Most Reliable Cars for 2011
Good news for GM according to Consumer Reports.  Bad news for Chrysler.  Honda at the top and Ford not far behind.  Hyundai and Kia excellent value.  Summary, excerpts and video here


  1. so would high yield bonds or junk bonds be good?


    So what fixed income as a hedge?

  3. I currently have shares in a TIPS fund (ACITX) that represents 16.6% of my total investment portfolio. What would you advise I do with these shares?

  4. You will have to call Brinker's show or read his newsletter to get his SPECIFIC advice for junk bonds, hedges and TIPS. Be careful as he said on his radio show he doesn't like Muni bonds in CA but in the fixed income newsletter he is listed as an advisor for, they recommend CA muni bonds for the "tax free" portfolio if you live in CA.

    If you want my recommendations, I only give them in the context of a total portfolio managed for risk profiles I spell out in my literature. For more information on that, see Kirk Lindstrom's Two Investment Letters. One reason is the answers are different depending on your age, what your portfolios are, your goals and your ability (or desire) to handle risk. Another reason is I like to get compensated. :)


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