Southwest Ranch Financial, LLC
October 2008 Update
The S&P500 is at 1166 on 30-September-2008

This page can be linked to at   ( www.swranch.net/emails/2008-10.htm ).

The Southwest Ranch Financial Market Alert Timing Model is out of the stock market. 

Year to date, the S&P500 index is down -19.3% and the SWR Balanced Portfolio is down -9.3% (with half the stock market risk.)

Here’s the year to date performance of the SWR Balanced Portfolio by asset class.

As of 9/30/08

Market Alert Model
The SWR core model is out of the stock market.

Year Ahead Timing Model
The YAT model is used to indicate periods of buy opportunities within the Market Alert Model’s timing cycle. The SWR Market Alert Model always trumps the YAT model. The YAT model is neutral.

Interest Rate Model
The SWR Interest Rate model is negative on interest rates and long bonds.  

Gold Model
The SWR Gold Model is positive on gold.

Big News
I'm going to change the name of my LLC to Southwest Ranch Financial. The new domain will be www.swranch.net. In a couple months I'll switch my subscriber list to the new domain and connections to my present web site will redirect to the new one.

First some history. The name 'Nogales' is an anagram of Gleason and also the name of nearby Arizona and Mexican towns across the border from each other. The sleepy US town is a ranching community in the high desert. The Mexican town last week had 10 drug war murders in one afternoon with hand grenades tossed at the police.

I've decided it's time to upgrade my image.

When I started the web site I used a pseudonym because I was working as a fraud auditor for a large organization investigating computer network vulnerabilities and project management. I worked with some very good people but learned soon enough that we'd always be prevented from investigating the higher ups. I made a decision to leave asap but had to wait a while to cash out. So, with time on my hands and powerless to change anything, I studied the stock market and wrote computer models to build my portfolio rather than waste time frustrated with bureacratic bufoons. (I fully understand how concientious people in the congressional budget office must feel.) I used the Nogales name to maintain a low profile.

Within a year of my leaving, the police showed up one day in a huge raid and confiscated the records and computers. I had detectives and the press on my doorstep wanting information to prosecute the management. Some of the managers were perhaps petty crooks but most were just incompetents with big budgets.

The Truth About Stocks
The market for stocks is an auction market. They sell for whatever people are willing to pay. Few firms with earnings actually pay out a meaningful dividend to their shareholders. In financial theory, and fact, an investment is worth the present value of the summed future dividend income stream to a be paid to a shareholder. The income stream is discounted relative to actual income paid on competing assets.

Since most stocks will never pay a dividend, the firm is only worth it's book value or market value to another company. Anything above those values is an abstraction. Market values vary widely depending on economic conditions and the present point in the earnings life cycle of the company. Few firms survive even 75 years so buy and hold is illogical for individual issues.

In most cases, a stock's value comes down to a belief system which is very suseptible to reevaluation. Thus stock prices can go very low or be bid very high. In hard times, dividends are cut. For example, most banks will deeply cut or eliminate their dividend payouts before this recession cycle is over. What then is the bank's true value? A big deal is made of Warren Buffett buying shares in Goldman and other firms. He is receiving preferred stock with a fixed dividend whereas the common stock shareholder may never be paid a dime.

"Stocks for the long run", "buy and hold", "stay the course" are stupid slogans. Investors need to employ better methods than buy and hold if they want to make money in the financial markets.

Market Bottom?

I've read from several reputable sources that the sun is about to come out. The leading authorities on CNBC and USA Today say we're close to a market bottom and investors are foolish to sit it cash. Jeremy Grantham says the markets haven't been this cheap since 1987. That doesn't mean it can't get cheaper. First, and foremost, there is Warren Buffett writing in the Wall Street Journal. He said he's buying and with his personal money not just Berkshire's. His opinion article is largely good advice.

"Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over."
Warren Buffett in a Wall Street Journal Article

He is exactly correct about the market always moving higher before the recession ends and before it becomes obvious. Some stocks are indeed good values right now and I'm sure Buffett isn't buying index funds. Most of us haven't got the skill or the time to study individual stocks. I strongly believe the vast majority of investors are better off with index funds and they should wait for the whole market to turn. On the subject of a turn, my stock model is nowhere close to buying the broad market.

Read between the lines in this article where he talks about bonds. Buffett says he's been in bonds until recently. Good timing Warren. But, what does that mean? He says explicitly that the future will be inflationary and implies interest rates will go up - otherwise, why would he exit bonds which lose money when rates rise.

We're witnessing a stealth rising rate environment. Interest rates have risen a lot on all bonds except treasuries. Look at the losses incurred on bonds in the last couple months. Munis are down over 10%; junk bonds down over 25%; TIPS have dropped 9% (that's very good news as I'll explain below).

Did anyone warn you of the rising interest rates that have crushed municipal bonds, junk bonds, and corporate bonds. SWR has been warning all year and not just hinting at it.

Then there's Burton Malkiel, author of the famous book "Random Walk Down Wall Street 9th edition". He says (at S&P 1013) don't sell stocks now - it's too late.

"If you are now approaching retirement and failed to move to a more conservative asset allocation, you should not do so now in response to a time of panic. If anything, well diversified investors should, at the end of each year, consider rebalancing to ensure that your portfolio composition remains consistent with the risk level appropriate for your financial circumstances and tolerance for risk. But this is likely to mean shifting into equities and not out of them."
Burton Malkeil in a Wall Street Journal Article

Thank you Mr. Malkiel for warning everyone earlier that it was time to exit stocks. Did you warn anyone to move to a "more conservative asset allocation"?

"So what should investors do? By all means, young 401(k) investors, and those in their prime earnings years, who are stashing away funds from every monthly paycheck, should stay the course."

The S&P is now 12% lower than when he wrote his don't-sell-now article.

The poor saps who believed "stay the course" and all the other foolish maxims spewed out by Wall Streeters (who make money as a percentage of your money) now have stock portfolios lower than ten years ago. Not to worry, dumbchucks. Stay the course some more!

"It is very tempting to try to time the market. We all have 20/20 hindsight. It is clear that selling stocks a year ago would have been an excellent strategy. But neither individuals nor investment professionals can consistently time the market."

Obviously. Market timing can't possibly work. This is the sort of advice you get from Wall Street and people who get speaking engagements with the financial services industry.

Articles like these are brainwash jobs. They get printed all the time in the WSJ.

Everyone's an expert after the damage is done. I warned everyone in my family and my friends a year ago that the stock market would decline and interest rates would rise. I screamed it out in these eltters every month. My family and many subscribers listened based on the emails I received. I was right on the way up and right on the way down so don't tell me MT doesn't work.

Buffett and Malkiel live in a much different world from the average investor who works a job without permanent tenure or a $5 billion dollar brokerage account. To the average Joe/Jane long term averages about market performance are meaningless. Buffett, Burton Malkiel and Jeremy Siegel have security, lot's of cash and legions of adoring fans and can idle away their time studying market data. Real people need to retire in five years and can't wait for 'reversion to the mean' to give back the 40% they lost believing in stock market fairy tales. To real people, revert to the mean means ashes to ashes and dust to dust.

Most people can't afford to enter the markets at these levels only to lose another 20%. That said, I have no doubt there are excellent values in junk bonds and some dividend stocks and natural resources. I'm not confident enough to say what is good or bad. Should the recession deepen as I believe it will, many companies will go lower still. Be patient. This market isn't about to run away from you. The SWR website will hopefully be a valuable source of market timing information for you.

Is there a way Out For the Stock Market?
Last month I stated that the average investor would be broke in ten years due to market declines, inflation, and failed asset repositionings that only lose more money. Investors must not buy into falling index averages. The stock market may not surpass the old levels for many, many years. Reason: The consumer can't use use debt anymore to boost the economy. People will switch to saving money out of neccessity. The markets may go much lower. Maybe they'll bottom close to the present level but then go sideways for 15 years - it's happened before. Wait until the markets are ready to go up. Let the indexes come to you. Ask yourself a couple questions. How can the stock market surpass it's old highs when the baby boomer generation has just lost a huge chunk of its saved wealth? How will the cash appear to boost corporate earnings when unemployment is rising and when those still employed stop spending and start saving in earnest?

The people in Washington make it seem like they're on the job fixing things. Frankly, I think they're lost at sea and trying to fumble their way to a January exit. The problem is so big that I find hard to believe anyone has a handle on it.

Our Manchurian Candidate president and bribed congress have sunk the nation into a hell hole of national debt and foolish wars. The democrats went along happily as Bush doubled the national debt and started wars with no clear strategic objective. So, why would Buffett start buying US stocks so early and be dumping bonds?

There are trillions of dollars off shore held by foreign governments. China has $1.8 trillion. Maybe Bush's last act is to let them buy up America on the cheap with their cash hoards and thereby prop up the stock market. Foreigners could cut their dollar pegs and drop the dollar and then buy the entire Dow 30. The insiders could then sell out and the middle class would be down and out for good. Sure, it would be a criminal betrayal - would you be surprised? Politicians of both parties are rotten to the core.

The more likely scenario is a gradual general inflation pushes up asset prices across the board. My models should catch this tactic.

Prepare for a Less Stable Future
This is obviously not a typical recession. It will be deep and long. People need to manage their costs and assets very carefully to survive this period.

The first step in preparation is mental. Every study on wilderness survival and living through violent social upheavals teaches the importance of preparation, attitude and and intelligent action to make it out. America's problems have their root in debt, a loss of common sense among the population and the total corruption of the political process. We stopped saving and spent outselves into a hole. We'll pay a steep price for our foolishness.

I believe American's can take three steps to prepare for an uncertain future.

Preparation: Get out of debt. Why pay insurance on two or three cars. Does junior need to attend a private school. There's lots of places to cut costs in our lives. Live simple and be proud of it. Personally, I have never had a car loan. I drive a 14 year old pickup truck. My wife frequently browses at thrift stores. We retired at 51 and live on a ranch sized-spread in the country and have no house payment. We don't spend money as a form of entertainment. Some purchases are expensive but can make money or save money. Some luxuries are fine but we don't buy it if we can't pay cash. I've had that philosophy all my life. I believe every family should have a stash of food and medicine and so does the US government. For information on how to buy and store things check out Mormon web sites or the US government's www.ready.gov. Don't assume it can't happen in America.

Attitude: Dump political allegiances and rigid ideology and affiliations that make you deaf to the truth. The world is as it is. God doesn't favor certain religions or dislike you for not belonging to a church. Don't experience life through a filter of hate and fear. Listening to Rush Limbaugh and Ann Coulter and getting angry at "liberals" is idiotic. These commentators make millions every year pitching rage. Hating all Republicans and believing they've ruined the world and your 401k is a waste of time. Throw out Noam Chomsky's latest lefty book. Guilt plasterers rarely have constructive ideas. Adapt. Register to vote as an idependent as a first symbolic step toward free thinking. Think against the grain. Perhaps those folks who grow their own food and have solar panels might be smarter than you.

Action: Hold assets that are unlikely to suffer extended declines in purchasing power. Don't buy anything you don't understand. Be prepared to see wide swings in your portfolio balance. You better pay close attention to what Prez Obama is pitching in the months ahead. It will be income redistrubution and higher taxes. They'll pay cash out to the millions of people who otherwise will go broke as unemployment rises. Irresponsible homeowners will be bailed out.

You may think I'm a bit paranoid but I assure you that conditions in America are likely to become quite dire as the economy contracts. America's economy in the future will be nothing like the past. For the last generation Wall Street, oil lobbyists and other congressional bribers wrote our nation's laws for congressmen who got them passed in exchange for campaign contributions. It was the golden age of bad government. Congress may actually have to start thinking about the people for once.

Easy money, low rates and reckless bankers pulled the consumer into a spending frenzy. Since 1980 America has over expanded its economy and stock market with excessive spending via debt. Deficit spending worked as long as the incremental tax revenue growth exceed the rate of debt growth. That went into reverse in 2000. Up to now, America could also control its destiny because our debt and all world commodities were priced in dollars. Those days will not last. Our national debt is now out of control and interest rates will rise in the years ahead. Bonds will be money losers. Stocks usually do poorly as rates rise because all investments are discounted relative to rates on safe governemnt bonds. Get out of stock indexes and don't hold bonds.

The key problem for America is we can't easily use deficit spending to lift the economy as in previous recessions. For example, Bush doubled the national debt in 2001 to avert a recession. Doing that again would take the federal deficit to 20 trillion. As it is, the 2009 deficit will be well over a trillion. At some point, the economy will hit a juncture where the politicans will know things could go down for twenty years. Letting that happen will be dangerous socially and defensively. They'll make the decision to print money. It's absolutely essential to be in assets that don't lose to inflation even though it appears a massive deflation is the greatest danger. In a fiat money world, printing is the way out and they'll take it. That's what I would do rather than experience a deflationary depression. Printing eliminates the debt burden both public and private and they'll do it. That means inflation - the biggest enemy of long-term savings.

Timing vs Specific Investments
I started this website in 2003 and have publicly timed the stock market, bond, and gold markets. I've been right every time about the turning points. My model portfolios have done much better than the general market. Asset allocation combined with market timing is the best approach for the average investor.

I've made my share of mistakes when I drifted off the topic of timing and suggested specific non index fund investments. For example, I was wrong about PRPFX and LSBRX. I didn't assume the absolute worst scenario and it cost me. Therefore, in the future, I will preface any specific asset purchase recommendations as "speculative". This means there's no guarantee of success and readers need to do their own research.

What About Gold?
I've often stated that investors should trust their own senses and observations about what's going down. We're in a global recession that's just getting cranked up. Curiously, you can't buy gold coins anywhere on the planet. Some say that's because rich people are buying them all up. If true, who is advising the rich to do that? Why has the US mint and others stopped minting gold coins while demand from the public is insatiable. At the same time, European leaders are talking openly about the need for a new world financial order. Some people say governments are manipulating the gold price and pushing the price down. I have no idea what's really going on.

First let me state what I don't believe to be true. I don't believe that the US dollar will become worthless in the next ten years. I think hyperinflation is possible but unlikely. I don't believe there will ever be a currency called the Amero or that we'll go back on the gold standard. I don't believe we'll have a deflationary depression.

I do believe this administration is criminally incompetent and congress is corrput. They have no idea on how to solve the economic problems facing America. That's not their intention at this time. They need to keep the banking system functioning as a first order of business. The next administration will have the more expensive task of bailing out all the debtors. Meanwhile, the economy is dropping fast.

Longer term, the US currency is in deep trouble. The only thing propping it up is that all the rest of the world's currencies are just as worthless. I do know that holding cash is likely to be a very bad investment over any ten year period. The important thing is to preserve purchasing power until things settle out. Gold preserves purchasing power. Right now, the markets expect price deflation so gold is dropping. This is a short term abberation. Inflation will be higher in the future. That's because Europe, Japan, and America all have a huge public and private debt problem that can't be paid off through economic growth. The growth rates of the last 25 years were expanded by debt and that won't work any more. I suspect they'll coordinate a controlled level of money printing. China will go along with it because people out of work is a social powder keg for them.

The present world financial problems will likely result in a composite currency basket for trade. The world will move away from the dollar as a reserve currency but that process will take quite a few years. Exiting stocks and bonds and holding cash has served us well in the short term. Warren Buffett may not exactly time the bottom of the stock market but I think he knows it's best to invest his money in stuff rather than dollar bills. Stocks are stuff. Bonds are fixed rate dollar obligations and worse than cash. Gold will be around no matter what happens.

Timing is Everything
In this financial environment, you have to be right on the idea and right on the timing. Some very smart people have called this financial turmoil way ahead of time and have still lost. Peter Schiff of EuroPacific Capital wrote an excellent book called Crash Proof and is frequently on TV and he's been warning about it for years. He moved his clients money out of the country to Australian and Canadian dividend stocks only to see these stock markets plummet and the currencies plunge against the dollar. Many clients are down 50% this year. That's not a slap at Schiff - I respect the guy. Who would have thought the dollar would go up when America is the epicenter of debt? I sure didn't.

As of this writing, every asset class has lost money in 2008 except cash. If your portfolio is down less than 15% year to date, send a thank you note to your financial advisor. Going forward, we need to invest in a mix of assets that have a high probablity of doing well regardless of what happens.

Readers know how negative I've been for a year on stocks and bonds and that caution has been proven valid. We've been lucky sitting mostly in cash and avoiding stocks and bonds. But, what if a new currency world order is announced or nations just walk away from the dollar if things get too bad. What will our dollars be worth when the Chinese refuse to buy more bonds. Is there anything besides gold that we can invest in?

We need an investment that will rise if the dollar is devalued and causes more expensive imports and high inflation.

We need an investment that will do well if we get the 5-7% inflation for 20 years that Greenspan predicts.

We need an investment that will do better than tbills in the unlikely event we get deflation with zero inflation.

An Excellent Book
I've just re-read Warren Brussee's book, The Second Great Depression. Originally written in 2004, he has a new publisher and it will be renamed "The Great Depression of Debt" after January. This is an excellent book and mostly because of the way he logically analyzes the data and supports his conclusion. Some people think I'm too negative on stocks. Well, take a Valium before reading Mr. Brussee. He says the S&P500 could go very, very low based his analysis of historical dividend yields (he suggests a possible level on page 50 but I won't spill the beans here) and a depression will last to 2020. That sounds extreme but I can't say he's wrong. He lays out the logic for why we'll have a depression. Essentially, America's private debt levels and demographic trends mean stocks are headed way down.

I love books where the author presents facts to support a conclusion and analyzes the pros and cons of his own logic. This book is a marvelous work in that regard. Brussee is a man with integrity and an excellent mind. He also includes tables showing how much you'll need to live on considering inflation, a pension and social security and it's all inflation adjusted.

Brussee's book is much better than the usual doom and gloom stuff. He says to invest in Treasury Inflation Protected Securities (TIPS) because the government will inflate. US government debt has no default risk but traditional fixed rate bond investments are killed by rising interest rates from inflation. Since the US national debt will be gradually reduced by inflation, he figures TIPS are a much better vehicle. I've been a skeptic on TIPS because they've been unattractively priced for quite a while. However, recent events make this asset class quite appealing. The pricing of TIPS has corrected along with everything else in this market.

How TIPS work
Bonds pay a fixed rate of interest for the duration of the loan term - much like a fixed rate mortgage. If you buy a $1000 bond paying 4% interest then that's your fixed rate. If interest rates go up next year to 6%, your bond will be priced below its issuance value in the open market. That's because nobody will pay you $1000 for a 4% bond when a 6% bond can be purchased for that amount. A 50% increase in interest rates will clobber your bond's market resale value but you'll still get your 4% every year and your $1000 back at maturity. Likewise, if rates fall, your bond will sell for more than $1000.

TIPS are different. With TIPS, we get an inflation protected governement bond. TIPS have two rate components. You get a fixed interest rate at issuance plus the variable inflation rate each year as calculated by the Consumer Price Index (CPI). TIPS are immune to the effects of rising interest rates if caused by inflation.

The difference between the fixed 10 year fixed bond rate and the TIPS rate is called the Breakeven Inflation Rate. It's now at about 1%.

The 10 year fixed tbond rate = 4%
Tips Fixed Rate = 3% @ 10/16/08
4% - 3% = 1% Breakeven Inflation Rate
Actual Sept 2008 inflation rate = 4.9% which will likely go lower in the short term (but might not)

Investors apparently think inflation is poised to fall a lot. They are pricing in a 1% future inflation rate - far below the current actual rate. This has caused the the fixed rate component on new TIPS to soar and approach 3% whereas it was at about 1.5% earlier in the year and got as low as 1% in March. This is close to a historical high for the TIPS fixed since they were first issued in 1997.

The TIPS fixed coupon rate went up because the market tries to maintain an inflation adjusted pricing parity between fixed rate bonds and TIPS. A rising TIPS fixed rate pushed down the price of existing TIPS and the mutual funds invested in TIPS fell. The existing holders of TIPS got clobbered and Vanguard's VISPX share price fell almost 14% from its absolute peak in March. A 1% coupon rate on TIPS was a very bad investment.

The VIPSX share price fell about 8% YTD in 2008 but the investors who owned since the beginning of the year are only down 2.3%. That's because they received the quarterly dividends from the 4.9% 2008 inflation rate. The chart action makes it look much worse than it is. TIPS are a very safe investment.

I've been negative on TIPS this year because their fixed coupon rate was far too low. My research shows that bond holders want to get at least 2.5% over the rate of inflation or they'll sell their bonds. However, the current expectations of 1% future inflation don't make much sense.

Inflation probably could fall for a while and it could hit 1% in 2009 or even 0% due to falling energy prices. However, Yearly US inflation has been under 1% only three times since 1948 and not by much. The average inflation rate since 1950 has been 3.9%. Warren Buffett thinks inflation is headed higher. Greenspan said in his book that it will be over 5% for perhaps the next 20 years. If these very smart guys are right, then we need to be in TIPS.

We can't be certain what inflation rates will be in the future. We don't know how the dollar will fare. The consensus is often wrong. We do know that cash rarely pays more than the inflation rate and fixed rate bonds lose big during stretches of rising rates. Here's the inflation rates by decade from 1950 to 2008.

1950 - 1959: .... 2.1%
1960 - 1969: .... 2.3%
1970 - 1979: .... 7.1%
1980 - 1989: .... 5.6%
1990 - 1999: .... 3.0%
2000 - 2008: .... 2.8%

There's a lot of swing in the CPI rate from year to year.

The TIPS 10 year bond recently offered a fixed 3% rate which is a small spread from fixed tbonds. Plus you get a bi-annual adjustment for inflation. So, if inflation jumped to 6% in 2010, you'd get the 3% plus the 6%. In the meantime, you'll receive the 3% which is higher than tbills and just for waiting.

Consider the positives of TIPS. The government guarantees that your principal investment amount can never fall below your buy point if you buy direct from the Treasury. A negative inflation rate will not be applied to your bond. This guarantee goes to the mutual fund and then to you if you use VIPSX. So, even if inflation goes to zero or below, you still get the fixed coupon percent. If the dollar drops in value some day that event would be highly inflationary as import prices would soar but your variable TIPS rate would also soar thus protecting your investment. If oil goes to $300 that's inflationary; war is inflationary; and Obama's Plan for America will be inflationary. In a low return environment, TIPS offer a positive real return with safety.

What if Herbert Hoover managed to take over Obama's body and we entered a deflationary depression? What if the fixed rate treasury bond fell from 4% to 2%. Bond holders would make money as rates fell. How would TIPS do? Remember, you'd still have, let's say, a 2.8% coupon rate - far above the fixed bond rate. And, negative inflation doesn't affect the prinicpal issuance price of TIPS. A TIPS mutual fund would do quite well.

TIPS are low risk but not without risk. TIPS might fall in value if you buy them when the coupon rate is too low and the rate later moves up a lot - generally a rate below 2% would be my walk-away point. TIPS in the US have only been around since 1997 and the highest coupon rate was 3.4%. We may not ever see that again but who knows. At times TIPS won't be a good investment and fixed bonds will be better. I don't see that happening for many years. When my bond model says to buy fixed income, it might be better to exit TIPS and buy the fixed bond to take advantage of declining rates and the huge capital gains. I'd call that an opportunity risk rather than a financial risk for TIPS.

The idea that we're headed into a long term price deflation environment would mean going against may years of history. Inflation has always risen and really took off since the US went off the gold standard in the early 70s. Naitons like Canada and the EU actually publish an inflation rate target number - currently 2%. The US has $11,000 Billion in debt and a hube consumer debt problem. The Democrats are in charge of the government and the FED is on record stating they'll never allow deflation. OPEC wants higher prices, China needs business and the stock market is in the tank. Personally, I think a yearly inflation rate of 1% over the next ten years is very unlikely.

Are TIPS the Perfect Asset?
For the years ahead, just maybe. Over the last 40 years the average spread between the fixed rate ten year treasury bonds and the CPI has been 2.71%. There's a lot of variability in the historical data. Overall though, the historical data indicates that investors need 2.5% over the rate of inflation to compensate for inflation risk with fixed rate bonds. I believe investors should demand a similar or slightly lower margin of safety with TIPS since they are less risky than fixed rate bonds.

The best time to buy TIPS is

• when there's a narrow breakeven spread between the TIPS coupon rate and fixed long treasury rate thus implying low inflationary expectations
• when the TIPS fixed coupon rate is at least 2.5%

Under these conditions, you lock in +2.5% of real gains each year plus you get long term inflation protection.

Might now be a good time to buy TIPS? I think so if you're willing to wait for inflationary expectations to change. You can view the daily change to the constant maturity TIPS rate here. The rates are current as of the previous day. Scroll to the bottom of the list. I'd buy a TIPS mutual fund when the recent rates are above 2.5%. I might sell the fund if the rate goes below 1.25%. Morningstar did a white paper on TIPS as an asset class in 1999 that technical types will find interesting.

TIPS are not tax efficient if you buy them directly from the Treasury. These are best held in an IRA/401k plan. A mutual fund is quite different and may be appropriate for taxable money but ask your investment advisor. TIPS offer a safe investment for money trapped in a 401k plan if such a mutual fund is offered. Pester your plan administrator to get one. They may not want to offer brokerage services or a commodities fund but inflation protected government bonds should be an easy decision.

Important - don't give up your house now if the government might bail you out. Read this.

Best Regards,
Southwest Ranch Financial, LLC    (www.swranch.net)
Tom Gleason, Manager & Researcher

Author of: How To Invest If You Can't Afford To Lose
Tom Gleason has degrees in finance and information systems. He's worked as a bullion dealer, fraud investigator, real estate appraiser and financial analyst.

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Disclaimer:.
The views expressed are the opinions of Southwest Ranch Financial, LLC. SWR is not a registered investment advisor and nothing published by SWR should be considered personalized investment advice. Investing involves risk and the future performance of the SWR models cannot be guaranteed. You may lose money following the recommendations. Any investment recommendations made by SWR are for informational purposes only and you shouldn't act on a recommendation without consulting with your investment advisor. It's your responsibility to review the prospectus or relevant financial statements.  SWR does not receive any compensation for mentioning stocks, funds, or financial products. SWR may have bought or sold investments prior to publishing its research.

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