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Date: December 14, 2010
Subject: The Writing is On the Wall


This is
G&G Associates Tax & Financial Consulting
e-Newsletter

The Writing is On the Wall

Imhotep (Wisdom To You) G&G Readers,

I have been out of town for the past couple of days and I’m still trying to play catch up. Wanted to pass the warning sign along to you which goes along with what I have been writing to you for months. In short…get your damn money out of fixed assets or you pay or in this case lose big.

The writing is on the wall…but do you know how to read it?

What’s happening…rising interest rates are destroying bond funds, including the world's largest mutual fund – Bill Gross' PIMCO Total Return Fund. The $250 billion fund fell 3% in the 30 days through December 8. The only bond fund that underperformed PIMCO over the same period..?

The Vanguard Inflation-Protected Securities Fund, which fell 3.9%. Did someone say ultra safe Vanguard…?

So rising interest rates are killing bond funds... We're seeing inflation. But the funds designed to profit during inflation, Treasury Inflation-Protected Securities (TIPS), are performing worse than normal bonds. TIPS' principal are supposed to increase with inflation and decrease with deflation. But that's not happening...Why? Because TIPS are a joke for two reasons...

1) TIPS are fundamentally flawed. Investors buy them for protection against a money-printing government. But with each dollar the U.S. government prints, the likelihood it will repay those debts decreases. It's like the government is saying, "Hey, we'll pay you back if you buy Treasurys, but we'll really pay you back if you buy TIPS." In both cases, the issuer is the same.

2) TIPS follow the Consumer Price Index (CPI), which tracks the prices of a basket of goods and services… But the very government that promises to pay out in the case of inflation is the one controlling the CPI numbers. And we don't know where they're getting the info... The CRB Ag index (CRBA) is up 18% the past 12 months. The U.S. Oil Index (USO) is up 6% the last 12 months. Yet the CPI is only up 1.2% in the past 12 months.

Could the Government be lying to us…NOOOO…they wouldn’t do that now!

At the exact time TIPS should be soaring (prices are rising, and interest rates are soaring), they're getting crushed.

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Until the next time,

Ankh Uja Snb (Life, Health, Strength),

Asar Gary Gray
Tax & Financial Consultant, RFC
G&G Associates
757-251-0174 office
866-361-3872 toll free fax
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LEGAL NOTICE: This work is based on SEC filings, current events, interviews, corporate press releases and what I've learned as a financial consultant. Nothing herein should be considered personalized investment advice. It may contain errors and you shouldn't make any investment decision based solely on what you read here. It's your money and your responsibility.



 

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