$ depreciation has caused -ve wealth effect at time when real rates of return on US Treasuries are -ve. Do TIPS deliver?

1. RISK MANAGEMENT
How do you measure the risk of your savings not meeting
your retirement needs?
October 29th 2012
www.gnostam.com

2. Price of Barrel of Oil

3. Chart of US Treasuries 5 yr

4. Recent Depreciation of US $
— How much value has $ lost since
2002?
— If had kept its “parity” with:
— Chinese Yuan: Gallon of petrol
$3.10 vs. > $4.00;
— Euro: Gallon of petrol $2.90
vs. >$4.00;
— Yen: Gallon of petrol $ 2.75
vs. > $4.00;
— Swiss Franc: Gallon of petrol How much Gold a $ would by in Mg
$2.50 vs. $4.00

5. One 1963 $ now worth 15.7¢

6. Real Return if invested in
T Bills since 1950

7. Real returns after taxes –ve!

8. Have TIPS kept up with
inflation?
— TIPS are US Treasuries that have their par value
indexed to the Consumer Price index, while their
coupon or interest remains fixed.
— Implied inflation rate, [yield of 30 year TIPS minus
yield on T bond] has been rising steadily. On 29th
October 2012 it stood at 2.51%, while 30 year yield
was 2.88%, so slight +ve return
— But 10 year TIPS have a NEGATIVE return…. Or
-0.76%.

9. Risk Management Solution
— You cannot rely on one asset class to protect
yourself from savings erosion, [inflation and US $
depreciation];
— $ lost 3.56% per annum vs. Swiss Franc from
1/1/2004. Bonds returned approximately 4.95%
pre tax. If paid 25% tax and fees, then the return
would have been equal to inflation, and took more
risk as duration approx 4-5 years, and included non
AAA rated bonds;
— Solution diversify with care….. It works, if you have
a good idea of our risky environment and can
develop …….. A STRATEGY FOR YOURSELF!

10. Thank you for your attention
Gnostam LLC
PO Box 960
Inverness, CA 94937 USA
Tel: 206 384 0069
E-mail:
pcorsano@gmail.com
pcorsano@gnostam.com