TIPS as Cautionary Step

The market reaction to the election of Donald Trump is much different than the pundits had predicted.  The conventional wisdom prior to the election was that if Trump won (which was thought to be highly unlikely) the market would tank, the dollar would collapse, and interest rates would fall as investors fled to the safety of bonds.

So here we are on Inauguration Day and the pundits have been wrong on every count.  The impact of this on most of our client portfolios has been quite favorable in the near term, but the issue that confronts us, as always, is what happens next.

We clearly do not know that answer and never will but with all the uncertainty of a new administration, our inclination is to pull back.  We therefore advised our clients to give up some potential gain, and re-balance to provide an added measure of safety to most portfolios.  The first major step in this process occurred today with the purchase, at auction, of the new US Treasury Inflation Protected Security (TIPS).  These securities will provide about four times the return of the present money market funds, as well as increasing in value as inflation rises in coming years.  Based on the results of the auction, LFS was not alone in purchasing these securities -- 13 billion dollars worth of TIPS were purchased today.  LFS was responsible for 1.9 million of that total.

We certainly hope the added caution will prove to have been unnecessary, but...

Check out this WSJ article for more insights.