‘Too much money chasing too few goods.’ Economists don’t like it, it’s too simple, but it’s still the best explanation out there.
Another month, another inflation shocker. What does it all mean?
Let’s get some answers from inflation guru Michael Ashton and his “Cents and Sensibility” podcast. I am a fan of this podcast and Ashton’s work because he has deep knowledge of how inflation works, but can explain complex issues in an entertaining way.
Ashton points out in January there were 10 price categories that inflated at an annualized monthly pace of at least 10%. So why are we still having a debate about “ongoing inflation” — the permanence, causes and symptoms of the nation’s surging prices?
His podcast intro: “Core CPI above 6%; headline at 7.5%. 40-year high after 40-year high. What is the ‘ongoing inflation debate’? The answers here are pretty simple. If you want fewer birds in your backyard, quit throwing birdseed out there.“
Have a listen:
You can subscribe to this podcast in all the traditional ways, or find it here.
Follow Ashton on Twitter at: https://twitter.com/inflation_guy
Who is Michael Ashton?
His audiences know him as the “Inflation Guy.” He is a pioneer in the U.S. inflation derivatives market. Before founding his company, Enduring Investments, Ashton worked in research, sales and trading for several large investment banks including Bankers Trust, Barclays Capital, and J.P. Morgan.
Since 2003, when he traded the first interbank U.S. CPI swaps, and 2004 when he was the lead market maker for the CME’s CPI Futures contract, he has played an integral role in developing new instruments and methods for accessing and hedging various inflation exposures. In 2016, Mr. Ashton published What’s Wrong With Money? The Biggest Bubble of All. He is a graduate of Trinity University and lives in Morristown, New Jersey.
Have a question? Get the Inflation Guy app in the Apple App Store or Google Play, or email InflationGuy@enduringinvestments.com.
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David Enna is a financial journalist, not a financial adviser. He is not selling or profiting from any investment discussed. The investments he discusses can purchased through the Treasury or other providers without fees, commissions or carrying charges. Please do your own research before investing.
If I purchased the 4/15/2025 TIP through Fidelity now
And held it to maturity
Is there any scenario that I would be repaid less than my initial investment?
That TIPS has a coupon rate of 0.50%, so It will be selling at a premium of about 6.5% above par + accrued principal, plus it has an inflation index of 1.10844, so you would be purchasing an extra 10% of principal. The adjusted price would be about $118.26 for about $110.84 of value. The premium price you pay above par is not guaranteed to be returned at maturity. The inflation accrual can also decline if a period of deflation sets in. So, a period of sustained deflation could mean you won’t get your original investment back at maturity.
If I had purchased TIPS 2/15/2052 #912810TE8 through the Treasury Direct Auction in Feb and held until maturity, would I be guaranteed to at least get my original investment back at maturity?
Same thing as the other question, but with a big difference this time: That TIPS sold at a slight discount to par, basically $98.10 for about $100.14 of value, after accrued inflation is added in. So yes, at maturity you would be guaranteed to get back your original investment, plus you will collect 0.125% coupon rate along the way. Future inflation accruals will go up and down with inflation, and won’t be guaranteed to be returned at maturity.
his forecast: inflation will continue to rise next month then decrease due to base effects. it will gradually drop into the 4-6% range and linger there until money growth velocity decreases, sometime in ’23 -’24. he asserts that for money growth velocity to substantially decrease, Fed will need to be actively unloading its balance sheet instead of passively waiting for maturity of its holdings.