By Brett Arends
“Madness.”
That’s how a friend of mine, a veteran money manager with an excellent track record, described the inflation situation and the bond market at the moment.
Oh, and that comment was made before the latest dismal inflation report , which is even worse than the headlines suggest.
Yes, the “annual” rate is 9.1%, the worst in decades. But that’s almost irrelevant at this point, because it only tells you how much prices have risen since a year ago—not how much they are rising now.
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If you look at the most recent data, prices rose from May to June at 1.3% — equivalent to an annualized rate of 16.8%.
Yikes.
It’s no surprise stocks were down and predictions of a recession were up . But where does that leave retirees, other senior citizens, and anyone else who is on the wrong end of rising prices and wants to protect themselves?
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That’s where the “madness” comes in.
While inflation has skyrocketed in the past year, the cost of inflation insurance has collapsed.
Pretty much everything that professional investors buy if they expect inflation has gone down, especially since January.
Real-estate investment trusts, for example as measured by the Vanguard Real Estate ETF /zigman2/quotes/202931846/composite VNQ +1.15% , are down 21%.
Gold /zigman2/quotes/200593176/composite GLD +0.40% is down 5%.
Natural resource stocks — such as GNR /zigman2/quotes/207739257/composite GNR +0.80% — are down about 8%. (Though commodity futures, for example via the Invesco DB Commodity Index Tracking ETF /zigman2/quotes/205569319/composite DBC +1.60% , are still up.)
The simplest and most obvious security that people buy to protect themselves against sustained inflation is an inflation-protected Treasury bond. It’s issued by the U.S. government and guaranteed to adjust the effective interest rate to keep up with the CPI.
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