I have received a little criticism regarding my liking for TIPS. Much of it falls along the lines of James Grant’s criticisms of the securities, given that the government controls the definition of inflation, it can discriminate against TIPS holders.
Inflation as it pertains to TIPS has been running at a rate of 4% year-over-year. I think that level will rise from here. For those that are not constrained to fixed income investing, you can speculate in a variety of commodities and similar investments. Have fun. But for those that have to invest in fixed income, TIPS should be attractive, given the low rates on nominal Treasury Notes.
I realize this involves speculation on future inflation and interest rates, but the margin of safety versus a 2-2.5% yield in short Treasury Notes makes TIPS compelling to me.