Friday Reading: Low Inflation for 10 Years?

By TFB

$10 salads, $4 gas, and low inflation by Joe Davis at Vanguard Blog

Vanguard published an elaborate 23-page economic and investment outlook. The analysis says inflation will likely remain well contained for the next several years.

Vanguard emphasized its probabilistic approach in its outlook. They gave a distribution as opposed to a spot or range estimate. They said the probability of inflation averaging above 5% over the next decade is 10%.

The problem with the distribution approach is that there is no way to prove it right or wrong. If I say the chance of inflation averaging 5% over the next decade is 30% instead of 10%, and it doesn’t hit 5% 10 years from now, well I was right because I said the chance was only 30%. If it does hit 5%, I was right again because I said there was a 30% chance of it going above 5%.

I thought we are supposed to ignore all forecasts. I’m going to ignore Vanguard’s outlook as well even though it carries the Vanguard name. Sorry.

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Look past emerging markets bond funds’ sales pitch by Dan Hallett at The Wealth Steward

When you hear about international bonds, they are really talking about emerging markets bonds because the yields in developed countries are just as depressing as in the U.S. The performance of emerging markets bonds has been great in recent years. The current yields are much higher, with a better economic growth to boot. Read why you shouldn’t just jump in.

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A Drive to Bring Back Paper Savings Bonds Languishes Online at New York Times Bucks Blog

I’m not surprised. People who buy paper savings bonds probably don’t know there’s a petition online. I don’t care that much whether it’s paper or electronic as long as I get them when I want them. Some people prefer paper. I wonder if they are also willing to pay more for paper bonds to cover the higher distribution cost. I just don’t see why Treasury should be in the gift certificate business.

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Looming Mortgage G-Fee Increase Puts Time Pressure On Mortgage Decisions by Michael Kitces at Nerd’s Eye View

Don’t rush into a mortgage refinance just because someone told you the mortgage guarantee fee is going to go up. Other factors have a much larger impact than a 0.1% increase in the fee charged by Fannie Mae and Freddie Mac.

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TD Ameritrade Online Cash Services $200 Bonus at My Money Blog

TD Ameritrade is trying to get you to use its debit card and bill pay service. It’s probably not worth it to open a new account just for the $200 bonus, but if you already have an TD Ameritrade account, you might as well take the easy $200.

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Double Check Your Ally Bank CD Interest by Ken Tumin at DepositAccounts.com

Ken reported that a system glitch at Ally Bank made it not pay interest to some customers on their CDs for 2011. According to a reader Ally Bank isn’t able to find out which customers are affected. It will correct the problem only if the customer contacts the bank. If true, that’s pretty bad, isn’t it?

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Car Policy for Less, but Only if You Call by Tara Siegel Bernard at New York Times

Who has the onus of shopping? That’s the question. If you have been paying for the same service at about the same price as before, and you are OK with it, should the business be required to automatically lower your price if it has lowered it to other customers?

Blog of the Week: The Wealth Steward

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Posted on February 10, 2012 under News. Keywords: , , , , , .

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Comments

5 Comments on Friday Reading: Low Inflation for 10 Years?

  1. KD on February 10, 2012
     

    I saw a little line in my renewal documents two weeks ago that said, the pricing policy for my state had changed and could get a requote. I did that and saved 45% on my auto insurance. Yes, that is right . 45%. But I think the mitigating factor here was that I turned thirty and needed to get them to underwrite it once again anyways.

  2. David C on February 11, 2012
     

    “I wonder if they are also willing to pay more for paper bonds to cover the higher distribution cost.”
    This has been discussed before, but it appears that the cost savings probably will never be fully realized: they’re not actually planning on letting go of any employees so the only cost savings would come from the actual printing and mailing of the bonds. And don’t discount the cost of running Treasury Direct… there is a cost to developing, operating, and maintaining their online system (as a software developer I am particularly sensitive to the battles over paying development and O&M costs).

    “I just don’t see why Treasury should be in the gift certificate business.”
    Well, rest assured they’re out of the gift business by going to book-entry (electronic) bonds only. In order to give an electronic bond you have to 1) know the recipient’s SSN, 2) the recipient must have/open a TD account, and 3) you have to get the bond out of your gift box and into the recipient’s TD account before the end of the year (to get the gift bond to count against that year’s annual purchase limit).

    I think electronic is fine if you’re only purchasing bonds for yourself, a spouse, and possibly your own children: but the days of grandparents/uncles/aunts/friends purchasing the bonds would appear to be dead. And if grandparents are locked out… well then the days of TFB and David purchasing bonds could be limited too (“no one buys them anymore, go buy TIPS instead”).

  3. TFB on February 11, 2012
     

    @David C – I remember reading somewhere the largest cost of paper savings bonds is the fee Treasury pays to the banks for aggregating retail orders. Although Treasury had accepted mail orders through Federal Reserve bank, I’m guessing they are handling only a tiny volume there. If they were to shift all paper bond orders to the Fed Reserve bank, Federal Reserve bank is not able to handle the volume. It will look for compensation for the increased personnel cost as well. Taking retail orders face-to-face or by mail is expensive. No doubt about that.

    I won’t be surprised if they end the system. I said before if I were in charge I would end it. It’s just not a cost-effective way of raising debt for the government. I don’t see buying savings bonds as a right. They set how they want to sell them. They are not forcing me to buy. I don’t want to force them to sell if they don’t want to. I thank them for selling me bonds at above-market rates.

  4. serbeer on February 13, 2012
     

    “I thank them for selling me bonds at above-market rates.”

    Why are they above market, TFB?

  5. TFB on February 13, 2012
     

    @serbeer – Because they should have yields similar to a 5-year TIPS. Market rates on 5-year TIPS are negative before inflation adjustments. I Bonds fixed rate is 0%.

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