Inflation Analysis: Why Spaghetti With Chicken Livers Is A Bargain In 2017

Summary

  • A Charlotte restaurant offers a unique look at inflation over 54 years.
  • Think gas prices were cheap in 1963? They still are.
  • The stock market has been the best hedge against inflation since 1963. Is that a positive thing? Or an omen?

Anyone who drove a car before the 1973 gas crisis fondly remembers gasoline at 25 cents a gallon. That’s what it was selling for back in 1963. Those were the days! But in reality, gas prices are almost as cheap today as they were in 1963.

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Breaking News: U.S. Treasury Holds I Bond’s Fixed Rate At 0.0%

Summary

  • I Bonds purchased from May to October 2017 will earn a composite rate of 1.96% for six months.
  • If you haven’t bought I Bonds in 2017, I suggest waiting until October.
  • Terms for EE Bonds didn’t change – their value still doubles after 20 years, making them a very competitive investment for the right buyer.

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Going Negative: 5-Year TIPS Auctions With A Real Yield Of -0.049%

Summary

  • Returns for this new TIPS will slightly lag inflation over the next five years.
  • The negative yield is an omen that the markets see a troubled economy ahead.
  • The inflation breakeven rate came in at 1.82%, a little higher than recent numbers.

Yes, that is a negative number, and it means that returns for investors in CUSIP 912828X39 will slightly lag inflation over the next five years.

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I Bond Dilemma: Buy Now, Buy Later, Or Split The Decision?

Summary

  • Buy before May 1 and get a higher variable rate; buy after May 1 and possibly get a higher fixed rate.
  • Waiting will cost you short term, and it might take about 4 years to break even.
  • But I Bond investors are always eager to get a higher fixed rate. Should you divide your purchases this year?

Investors in US Series I Savings Bonds are in an interesting ‘limbo’ period right now, leading up to the May 1 reset of the I Bond’s variable and fixed rates.

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New 5-Year TIPS Auction Is Suddenly Looking Like A Loser

Summary

  • Real yields have declined sharply in recent days, dropping the 5-year yield to 0.03%.
  • When the 5-year TIPS yield approaches zero, I Bonds and bank CDs become attractive alternatives.
  • Inflation expectations have been declining over the last month, even as demand for TIPS rises.

The U.S. Treasury on April 20 will auction $16 billion in a new 5-year Treasury Inflation-Protected Security (CUSIP 912828X39). The coupon rate and real yield to maturity (after inflation) will be determined at the close of the auction.

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Inflation Dips In March, I Bond’s Variable Rate Will Fall To 1.96% On May 1

Summary

  • At the May 1 reset, the I Bond’s variable rate will fall from 2.76% to 1.96%.
  • We don’t know yet what the new fixed rate will be. Will it rise to 0.1%? Still possible.
  • Should you buy I Bonds before May 1 to get the higher variable rate? Or hold out for the higher fixed rate? Tough call.

This decline in the variable rate sets up an interesting decision for I Bond investors: Buy before May 1 to get the 2.76% variable rate for six months, or wait until May 1 to see if the I Bond’s fixed rate – currently set at 0.0% – will rise to 0.1% (or higher).

>>Read my full analysis on SeekingAlpha.com

Also, I have updated my Tracking Inflation and I Bonds page with these new numbers.

And here are the May CPI indexes for TIPS.

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I Bond Investors: April May Be Your ‘Decision Month’

Summary

  • Inflation report on April 14 will set the I Bond’s six-month variable rate, taking effect May 1.
  • Right now, it looks like the new six-month variable rate could be lower than the current 2.76%.
  • However, it’s possible the May 1 fixed rate – which stays with the I Bond forever – will rise above the current 0.0%.

The idea with I Bonds is to build a large inflation-protected cache, as part of an overall portfolio that includes stocks, bonds, nominal Treasurys, TIPS, bank CDs, mutual funds. The difficulty is that there is a $10,000 per person per year purchase limit on I Bonds, so to build a large stockpile you have to buy them every year. And then the question is: When do you make the purchase?

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