Bloomberg Edge: TIPS Pricing in Deflation

Dear Friends,

In my earlier blog entitled Asset Deflation Strategy dated 12 October 2008, I mentioned that in general, the world is now in an Asset Deflation Era, i.e. a Negative Sum Economy Game.

On 27th October, Bloomberg Edge released the video below entitled "TIPS Pricing in Deflation". There is a difference between the Deflation mentioned in my blog, which is on Assets, as opposed to a Consumer Price Deflation, i.e. the drop in CPI (Consumer Price Index), which measures the price of consumption goods, and not assets.

Generally, a Consumer Price Deflation corresponds to an Economic Recession, although in unusual economic situations, we can experience inflation in a recession, for example, a Stagflation Environment, where both inflation and unemployment are high.

According to the video, TIPS (Treasury Inflation Protected Securities) is signaling that investors are pricing in a deepening recession that will last 5 years. It is very likely that this economic recession will last longer than what most people expect, and thus, you should be very careful to plan for the worse, rather than be optimistic.

Best wishes,

Ooi