[mattduke]

The herd is waking up to the fact that TIPS are a cruel joke, played by the perpetrators of inflation upon their victims. Actually, TIPS have been instrumental in providing a supposed alternative to gold, maximizing their holders' inflation losses. For those that refrained from owning gold due to fear of confiscation, your wealth has already been confiscated. link

[Cashmere]

The best part of TIPS is that you pay taxes on the premium additions.
Quick primer.
You buy your TIPS for 10,000.
Rate is 1%
Inflation is 10%.

So, instead of just paying you your 11% profit, which would make TIPS something other than the sh-t sandwiches they are, what they do is "raise" your principal to account for the inflation.
So you get your 1% payment in the mail and your "principal" is raised to 11,000.
So you think, "great! my principal has been protected from inflation."

2 Problems:
1. The government uses CPI or same variant thereof to determine inflation, so if real inflation is, for example, 13%, then you actually took about a 2% loss on your money.
2. You have to pay taxes on the "increase" in your principal. I'm not 100% sure, but I'd guess the "income" is treated as "ordinary" income, which means you'll pay your marginal tax rate.
Figure 25% marginal tax rate for your average American household, so you owe 250 bucks tax on the TIPS even though you didn't sell it.

So here's how it works . . .
You drop down 10 grand on Jan 1.
On Dec 31, you get a check for 100 bucks, and you owe tax of 250 bucks. You've also lost 2% to inflation.
Year 2, you get a check for 110 bucks, and you owe tax of about 275 bucks. You also lost 2% to inflation.
Extrapolate that out 10 years or more.

Really an "inflation protection" device for the ultra stupid.

[jlw61]

I've always maintained that, in a democracy, big government is a tax imposed on most of the population by the ill informed.

[Cashmere]

I've always maintained that, in a democracy, big government is a tax imposed on most of the population by the ill informed.

Doesn't this translate to:

I've always maintained that, in a democracy, big government is a tax imposed on most of the population by most of the population.

[americandream]

I've always maintained that, in a democracy, big government is a tax imposed on most of the population by the ill informed.

Doesn't this translate to:

I've always maintained that, in a democracy, big government is a tax imposed on most of the population by most of the population.

Touche!

Nature will cull said herd in due course.

No doubt they will go down squealing whilst taking taking no responsibility whatsoever for their propensity to follow unthinkingly (in other words, to be scammed, breed like rabbits, consume voraciously, unquestioningly worship all sorts of dubious superbeings, to indulge in fantasy, to endlessly debate obscure points, you name it, these specimens have an amazing ability to assimilate said herdlike behaviour with relish).

[allenwrench]

The gov says inflation is low...it must be true?

It is in the gov favor to keep the inflation figures low so they do not have to pay high % rates on inflation adjusted bonds. This is what is scary. The gov has lied so much they are starting to believe their own lies now.

Much of the stock market was / is fueled by the proliferation of new funds. Without the constant creation of funds to fill their portfolios the stock market would be at lower levels.

http://stockcharts.com/charts/historical/djia1900.html

But when I think of the stock market I think of Charles Ponzi. The man credited with inventing the first pyramid scheme.

http://en.wikipedia.org/wiki/Charles_Ponzi

We live in a society of compulsive gamblers and not investors. Watch CNBC and see the Ponzi scheme in action with all the BS they throw at you.

I marvel at the billions lost every day with the sub-prime debacle and how it is replaced at a blink of an eye. The government doesn't have to even print out the money, they just magnetize a silicon chip to create billions.

Fueling the problem of consumption is the games the Federal and World banks play with interest rates. They manage the economies in ways to fuel consumption and mask the real trend. You know the story..cries for Federal bankers to lower interest rates...so the stock market can go up...fueled by spending of the consumer.

It is drug habit that Greenspan got us hooked on and we just can't get away from.

Our economy is not based on sustainable health - it is based low interest credit to encourage compulsive spending, debt and living a life of constant consumption with a 'disposable mentality' when it comes to durable goods.

All this consumption to artificially fuel our economy to make our retirement funds only go up contributes to more and more global warming and the depletion of our natural resources. Then the governments juggle the numbers to make the inflation figures seem artificially low, so everyone's retirement portfolio will make them happy so they will continue to buy and consume more...and on it goes....IT IS ALL WE KNOW

[BigTex]

TIPS aren't bad as part of the bond part of a portfolio in a tax deferred account.

Obviously, you're not going to get a real inflation adjustment, but these bonds complement traditional bonds well.

Check out David Swensen's (Yale Endowment Manager) thinking on this topic.

As Mark Twain said of Wagner: "It's not as bad as it sounds."