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Old 02-01-2009, 07:40 PM   #21
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Interesting article:

Bloomberg.com: Worldwide
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Old 02-01-2009, 07:45 PM   #22
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The subject of the article:
Quote:
Feb. 2 (Bloomberg) -- For the first time since 2007, Treasury investors are betting that inflation will accelerate.

The yield on 10-year notes exceeds the consumer price index by 2.74 percentage points, the most since December 2006. The gap between two- and 10-year rates widened at the fastest pace in a year last month as traders demanded more compensation for longer-term debt. Treasury Inflation Protected Securities that signaled falling prices as recently as Nov. 20 show they will increase in the U.S. this year.
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Old 02-02-2009, 10:40 AM   #23
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I purchased several inflation linked bonds and a large inflation linked CD a few years ago in my IRA. These instruments pay on a monthly basis about 2% + CPI. This worked out very well until very recently as inflation has become almost negative. Some of the bonds are now discounted quite a bit due to the low payout.

Although I am 74 and taking RMD (not in 2009 thank goodness) my IRA is liquid enough that I can hold out at least 3 years (including 2009) without being forced to sell any of the discounted bonds or equity.

The bottom line is that you should be careful about buying TIPS or CDIPS or inflation linked bonds if you depend on the payout for living expenses or the payment of your RMD.

Personally, I think that TIPS are a good buy right now if you don't need the income. Vanguard's TIPS fund is paying about 3% real right now.

IMHO, inflation is right around the corner ..... maybe as soon as late 2010, so TIPS and my inflation linked bonds will likely rise in value and my
IRA will be happy once again. In any case, I will hold them until I decide not to.

Cheers,

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Old 02-02-2009, 11:19 AM   #24
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Treasury Inflation Protected Securities that signaled falling prices as recently as Nov. 20 show they will increase in the U.S. this year.
And I agree. What's the catalyst for lower prices? Does anyone really think energy prices will fall much more? Are most people seeing the cost of most of their goods and services going down or up?

Most prices are rising, and in the absence of plummeting oil prices -- combined with the government's determination to fend off deflation and shrinking money supply -- it seems hard not to bet on higher inflation in the long run.
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Old 02-03-2009, 08:53 PM   #25
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I still have a decent chunk of Sallie Mae bonds OSM/ISM which despite all of the bad news still are sending me inflation adjusted checks every month.

I finally bought an Oil ETF which I think will act as an inflation hedge. Plus I like Ha Ha suggestion in another thread for timberland, in particular WY as good way of hedging against inflation.
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Old 02-03-2009, 09:44 PM   #26
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I still have a decent chunk of Sallie Mae bonds OSM/ISM which despite all of the bad news still are sending me inflation adjusted checks every month.

I finally bought an Oil ETF which I think will act as an inflation hedge. Plus I like Ha Ha suggestion in another thread for timberland, in particular WY as good way of hedging against inflation.
I still have my ISM and OSM also. I think we will eventually get par at maturity, but about that I have low confidence.

For those interested in timber there is an excellent blog by a retired forester, woodlot owner and timber oriented stock investor named Brian Fiacco.

The Timberland Blog

Here is a recent excerpt:

"A real increase in future stumpage prices can and should be incorporated into the model if you think it is justified. U. S. Forest Service reports suggest that sawtimber stumpage prices have increased at a real rate of 2% a year over a very long period of time." On the other hand, "An analysis of southern pine stumpage prices by forest economist Jack Lutz reached the following conclusion:

“Our analysis indicates that southern pine sawtimber stumpage prices are mean-reverting, with a 50-year mean of $38.29/ton (based on LDAF data). Those prices have held to that mean through 50 years of timber supply and demand shocks and significant changes in timber harvesting and processing technology. That means we should not expect a significant increase in sawtimber stumpage prices in the near future. This supports the current practice of many timberland investors who are using 0% real appreciation rates in their timberland investment models.”"

So stumpage has increasd over a long time at a real rate somewhere between 0-2%. That doesn't sound so good, right? But remember, stumpage is just what the trees bring standing around at harvest time. Our per ton stumpage value may or may not be increasing in real terms, but it at least keeping track with inflation.

The lion's share of return comes from tree growth. Whether they are just hanging out drinking in the sun and the rain, or whether the tree farmer is intensively promoting their growth, they are growing and steadily increasing the tons of wood we will have available to sell at harvest time!

Weyerheuser in particular has not been this cheap for over 15 years. They definitely have issues, but they also have the trees. One thing I particularly like about Weyerheuser compared to some others is that they have high quality stands, in high quality growing areas like Pac NW and US SE. Some other well known outfits like Plum Creek REIT own good timberland in these areas, but also own a large amount of relative junk in New England and the Upper Midwest.

This is not a recommendation. If the last 8 months has proved anything, it is that anything can happen. And of course the mother of all depressions would definitely put a big crimp in stumpage prices for a good long while.

Other risks involve WY not being able to sell divisions that it wants to sell on its way to becomeing a REIT, and/or having trouble rolling over financing.

According to Mr. Fiacco, timber owning equities, be they be C corps like Weyerheuser or REITs like RYN, have lost much more value over the past year than timberland has lost in the fairly active markets on which it trades.

Ha
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Old 02-03-2009, 10:00 PM   #27
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Originally Posted by clifp View Post
I still have a decent chunk of Sallie Mae bonds OSM/ISM which despite all of the bad news still are sending me inflation adjusted checks every month.

I finally bought an Oil ETF which I think will act as an inflation hedge. Plus I like Ha Ha suggestion in another thread for timberland, in particular WY as good way of hedging against inflation.
I'm there with ya on the OSM/ISM which, thank goodness, pooped out another interest payment in January. I've also been studying TIPS and bought modest amounts at the last two Treasury auctions.

Would you mind sharing which Oil ETF you decided on?

Ha - excellent post on timberland! Thanks.
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Old 02-03-2009, 10:31 PM   #28
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USO I remember somebody (ziggy?) took one for the team back when Oil was 130 or so. I'd do my part when oil was 40. So far I'm basically even.

Speaking of timber last weeks WSJ had a good article

Since many don't have a subscription. I'll post an excerpt of the article.
Quote:
WINCHENDON, Mass. -- Money still grows on trees.
Timberland, which a few years ago became a popular investment among institutions and wealthy folks, has held up amid market massacres for most other assets lately.


Through Sept. 30, the value of timberland rose 5%. When the National Council of Real Estate Investment Fiduciaries reports 2008's final quarter this week, this number is unlikely to move much. That marks a slower pace of growth, yet it is growth nonetheless. In 2007, timber appreciation was a towering 15%.
How can positive returns exist in these dark days of shrunken prices for everything ranging from real estate to commodities to stocks? Oil, after a summer price spike, was down 54% in 2008, while corn lost 11% and copper 54%. (Gold, as a refuge commodity, rose 6%.) Prices for lumber, a key forest product, have fallen by 34% over the past year as housing construction has ebbed.
The answer to this riddle is that timberland is the ultimate long-term investment, with relatively little bought and sold each year -- and demand still respectable for what does change hands. "As long as the sun shines, the trees will grow," says Jeremy Grantham, chairman of Boston money manager GMO and a long-time fan of timber investing. "Timber will never be an orphan."
Timber often is likened to high-grade bonds, meant to be held for 10 years or more. The average annual timberland appreciation for the past decade is 4.1% versus minus 3.8% for the Standard & Poor's-500 stock index. The timberland appreciation figure, which encompasses both the land and the trees, is based on sales and appraisals. After 10 or 15 years, investors cash out when the land is sold.
On top of the appreciation, timber generates regular income. Trees are constantly chopped down and sold for everything from boards to paper mulch, albeit in smaller volumes these days. Cash returns from this "harvesting," as it's called, are now 1.5% of the property value, down from 3% in 2007 and about 5% annually the three years before that.
One of the more interesting quotes was this.
Quote:
"Trees keep growing 4% per year, no matter what happens to inflation, interest rates or market trends," says Dennis Moon, head of U.S. Trust's group overseeing timberland, as well as farm and mineral investments. "You don't have to cut them down this year if that doesn't make sense."
Sounds like the 4% SWR works for trees also.
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Old 02-04-2009, 08:59 AM   #29
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USO I remember somebody (ziggy?) took one for the team back when Oil was 130 or so. I'd do my part when oil was 40. So far I'm basically even.
Me too. Actually, I sold the Feb 31 puts (cash-secured) on USO about 3 weeks ago with USO at 31.50 for a premium of 3.20, so I'm protected to 27.80. I plan to roll the puts (or sell calls if I'm assigned) for the next few months, as I think oil is likely to trade in a range for a while here.

It was the first time I have traded these, and I found the options to be very liquid. I did the trade at Vanguard (since my first 12 trades are free there). I put a limit order in halfway between the bid and ask, and it executed immediately. BTW, to do a trade like this at Vanguard, you have to go through an Associate (not sure why, since you can do a covered-call over the internet). However, Vanguard has changed their commission structure, so the first 12 trades are free even if you use an Associate.
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Old 02-04-2009, 10:45 AM   #30
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USO

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Originally Posted by FIRE'd@51 View Post
Me too. Actually, I sold the Feb 31 puts (cash-secured) on USO about 3 weeks ago with USO at 31.50 for a premium of 3.20, so I'm protected to 27.80. I plan to roll the puts (or sell calls if I'm assigned) for the next few months, as I think oil is likely to trade in a range for a while here.

It was the first time I have traded these, and I found the options to be very liquid. I did the trade at Vanguard (since my first 12 trades are free there). I put a limit order in halfway between the bid and ask, and it executed immediately. BTW, to do a trade like this at Vanguard, you have to go through an Associate (not sure why, since you can do a covered-call over the internet). However, Vanguard has changed their commission structure, so the first 12 trades are free even if you use an Associate.
The 52 week low is $27.73. I don't see much downside risk at this price as a purchase. Are you trading options in a tax-sheltered retirement account?
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Old 02-04-2009, 11:27 AM   #31
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Are you trading options in a tax-sheltered retirement account?
This particular trade was done in a Rollover IRA, which is why I had to put up $3100 in cash per contract sold.
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Old 02-06-2009, 10:43 PM   #32
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Another interesting article:

Signs of Spring in the Credit Markets - Morningstar Bond Squad

Quote:
U.S. Treasury yields rose significantly for the first time since the beginning of the credit crisis. The Morningstar US Treasury Index fell 2.68% in January, which is the biggest monthly decline since April 2004. The factors attributed to the decline included the coming record supply, the repricing for future inflation, and the rotation of dollars to spread products.

...


While the markets remain in uncharted territory, the TIPS market returned to something closer to normalcy. The yield spread between nominal Treasuries and their equivalent maturity TIPS now reflect expectations of inflation after reflecting expectations of short-term deflation in December. In contrast to the negative returns of nominal Treasuries, the Morningstar TIPs Index rose 0.88% in January.
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Old 02-11-2009, 01:02 PM   #33
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USO investors, please see my new thread for some food for thought:

If you like oil, don't buy USO, buy USL
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Old 02-11-2009, 01:07 PM   #34
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Weyerhauser is an interesting timber play with some potential juice. They also sell and develop land through WREDCO. Most of which is current/former timberland that would fetch much more as residential or commercial real estate. I've worked on the engineering elements of a few of their local projects that are massive (but in the pipeline still). So 0-2% real growth in stumpage prices plus whatever they can squeeze out of their real estate sales/development business and/or through land value appreciation.
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Old 02-11-2009, 07:21 PM   #35
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Weyerhauser is an interesting timber play with some potential juice. They also sell and develop land through WREDCO. Most of which is current/former timberland that would fetch much more as residential or commercial real estate. I've worked on the engineering elements of a few of their local projects that are massive (but in the pipeline still). So 0-2% real growth in stumpage prices plus whatever they can squeeze out of their real estate sales/development business and/or through land value appreciation.
This neglects the major element of income generation on the timber side-biological growth of the timber itself. This varies considerably with species, location and tillage. But it will usually add annother 2-5% real to the mix over time.

Ha
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Old 02-11-2009, 08:26 PM   #36
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Moved 100% of bond AA to individual TIPS and rewrote IPS to continue buying TIPS until their value matched NPV of my pension which I'm viewing as a nominal bond fund.
Still buying Ibonds even at a pathetic .7 real
Actively restrain myself from prepaying the mortgage 4.625% for 14 more years.
Changed kids 529 new investment money to fund with more stocks vs very conservative nominal bond fund.
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Old 02-11-2009, 10:17 PM   #37
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This neglects the major element of income generation on the timber side-biological growth of the timber itself. This varies considerably with species, location and tillage. But it will usually add annother 2-5% real to the mix over time.
That goes to show how much I know about the timber biz. I'm only involved with this particular company's development efforts and zero of their timber biz.
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Old 02-12-2009, 11:05 AM   #38
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This neglects the major element of income generation on the timber side-biological growth of the timber itself. This varies considerably with species, location and tillage. But it will usually add annother 2-5% real to the mix over time.

Ha
For a little more color on the above idea here is an excerpt from Pope Resources' earnings announcement. POPE is a pure timber MLP. (Plus a small land operation to sell for highest and best use non-core timberlands.)

"Results for both the fourth quarter and full year 2008 were down dramatically compared to corresponding periods in 2007 because of poor markets for our products and our decision a year ago to reduce harvest volume for 2008 by 35% in the face of expected market weakness,” said David L. Nunes, President and CEO. “Prices for our logs reflect the fact that new housing starts are at a 50-year low and, as a result, sawmill operating rates are also at historic lows. Our Real Estate segment has also experienced a sharp decline in demand for raw land as a result of the current economic climate and constrained credit markets. We expect these difficult market conditions to extend through 2009 or longer, which is why, as previously announced, we plan to hold our 2009 timber harvest at 37 million board feet, a level that is almost 30% below our long-term sustainable level. During difficult times such as these, the liquidity inherent in our strong balance sheet grants us the flexibility and patience to let our trees continue to grow in volume and value while waiting for the business cycle to improve.”

Fortunately for us as investors, the market pays no attention to what is going on underneath, but only reacts to the surface.

A company like WY which also has sawmills, paper operations, etc. is in a tougher position during extreme lows in timber and products because they have a lot more fixed cash costs. Nevertheless, even POPE was running cash flow negative during Q4 2008.

Ha
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Old 02-13-2009, 10:22 AM   #39
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United states oil fund (uso :amex)

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USO I remember somebody (ziggy?) took one for the team back when Oil was 130 or so. I'd do my part when oil was 40. So far I'm basically even.
The volume in USO is soaring but not much is happening to the price.

Do you have any thoughts on this?
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Old 02-13-2009, 10:25 AM   #40
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The volume in USO is soaring but not much is happening to the price.

Do you have any thoughts on this?
I'm suspecting that the contango mentioned above might be a factor. Basically while crude prices are low but the future contracts get more and more expensive as you go out farther and farther, you have a situation where USO can remain in the dumps even if oil rises, and fall harder when oil falls. As long as the contango remains this strong, USO may not even rally with a rally in oil prices, if the farther-dated future rise as much (or more) as the current contract.
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