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Don’t spend that penny all at once!

December 9, 2010

Real returns turn positive by one basis point.

When Rocky was a little kid, his miserly Uncle Scrooge would hand him a shiny penny, and intone, “Don’t spend it all at once!”

The mathematically-proficient, (but economically ignorant) child would reply, “But Uncle, how do I get change back from a penny?”

After a trip to negative 0.62%, the 5-year Inflation-Index Bond (“TIP”), closed yesterday at a whopping, positive, (drum roll please): 00.01% yield!  That’s ONE BASIS POINT positive yield. Break out the champagne! Savers can now retire early! Not.

When Rocky lends money to the US Treasury, he likes to receive more money than he lends (after inflation).   He’s excited that Uncle Sam will be handing him a shiny new penny!

[Disclosure: Rocky is less bearish on Treasuries. But he’s not bullish on Treasuries. He also notes that his bond market strategy discussed in this post is working nicely at the moment.  https://onehonestman.wordpress.com/2010/11/22/less-exposure-same-return/   ]

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