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Re: Put some spending cash in CDs or in I bonds?
Old 02-17-2005, 07:31 PM   #21
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Re: Put some spending cash in CDs or in I bonds?

Whoops...Nords stepped in front of me while I was off changing the baby...

I've read the "cpi is ok" articles, but it comes down to this:

What they're saying in essence is "yes things are getting more expensive but you're getting more for your dollar, so thats ok".

Uh...I must be missing the whole idea of inflation then, where you're trying to measure the increased cost of a good or service.

Is that my beef is better, my car having airbags or my computer being faster going to make me feel better about my "inflation adjusted" security not buying me the same goods and services 10 years from now as they do today?

Nope.

As far as Bill G goes, there are exactly 3 guys I listen to without hesitation when it comes to money. Gross, Bogle and Buffett.

As far as these columnists and other experts go...how much money have they made and what level of financial assets have they been trusted with? Mmm hmm...

My favorite bit comes at the end of the first columnists article where he notes that Greenspan has already acknowledged that he thinks CPI is wrong, but that it overstates rather than understates by a percent.

Ok, so we have an acknowledgement from the top of the Fed food chain that they're not doing it right - that the calc is favorable to people needing inflation adjustments isnt relevant. And we can probably guess that something will get "fixed" to drop the current calculation by one percent. This is what we used to call "softening up for the blow".

Oh well...I suppose we'll all know for sure 5 years from now...
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Re: Put some spending cash in CDs or in I bonds?
Old 02-17-2005, 08:16 PM   #22
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Re: Put some spending cash in CDs or in I bonds?

Thanks Nords. Two out of three of your links
support the notion that the official CPI is an
honest, if imperfect, attempt to measure inflation.

I stand pat.

Cheers,

Charlie
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Re: Put some spending cash in CDs or in I bonds?
Old 02-17-2005, 09:58 PM   #23
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Re: Put some spending cash in CDs or in I bonds?

Quote:
Thanks Nords. *Two out of three of your links
support the notion that the official CPI is an
honest, if imperfect, attempt to measure inflation.

I stand pat. *

Cheers,

Charlie
I may be wrong, but I read Nords post as being ironic. How could anything that references the credibility of the federal government be anything other than ironic?

My working hypothesis is to look favorably on the opposite of whatever the government says, especially if they have a horse in the race

Remember the WMD in Iraq?

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Re: Put some spending cash in CDs or in I bonds?
Old 02-18-2005, 05:36 AM   #24
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Re: Put some spending cash in CDs or in I bonds?

Call me gullible.

I generally give government the benefit of the doubt.

Except perhaps for spies(they supposed to lie) and sex.

Otherwise they make the same 'honest'? mistakes as the rest of us.
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Re: Put some spending cash in CDs or in I bonds?
Old 02-18-2005, 06:14 AM   #25
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Re: Put some spending cash in CDs or in I bonds?

Quote:
I may be wrong, but I read Nords post as being ironic.
You got it, Mikey. A Google search on <hedonic CPI> turns up thousands of hits, all of which can be mined to "prove" either side of this reciprocated diatribe.

My personal cynicism is that there's too much self-interest at stake for the government to NOT manipulate a statistic that they have a monopoly on measuring. With our best interests at heart, of course.

Sorry, Charlie, enjoy your moral victory while contemplating the hedonic value of your new car hybrid golf-cart vehicle and your steak high-nutrition protein patty. And we didn't even get started on the subject of medical care's contribution to the CPI. Oh, wait, life extension at any cost must be another hedonic benefit, right?
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Re: Put some spending cash in CDs or in I bonds?
Old 02-18-2005, 08:28 AM   #26
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Re: Put some spending cash in CDs or in I bonds?

Quote:
P.S. *How are CD rates set in the first place? *I
* * * *would imagine it is some weenie pouring
* * * *over the same data that is used to measure
* * * *current CPI and projecting in the future. *Do
* * * *you mistrust TIPS as well? *Those rates are
* * * *priced by auction with an implicit assumption
* * * *about future CPI made by the aggregate. *
Hahahahah! Not even lose, my friend. CD rates are set by each individual bank offering them, based on how badly the bank needs funds at each maturity bucket, what the market requires, and (to put it bluntly) exactly how lazy and inattentive their customers are.

Banks as a whole may well follow CPI, but more likely the CD rate is related to the rate on the assets the banks are buying with the funds spits out. Asset rates in turn are related to treasury rates and risk premia. Treasury rates are strongly influenced by inflation expectations. So in a rather circumspect way, CD rates are likely related to CPI, but its probably a reationship with a fair amount of noise.
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Re: Put some spending cash in CDs or in I bonds?
Old 02-18-2005, 08:36 AM   #27
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Re: Put some spending cash in CDs or in I bonds?

Quote:

Although I have a couple thousand shares of Nortel & Sun in a separate account, the equities in our retirement portfolio are hardly risky (not even that volatile). *35% is in Tweedy, Browne Global Value (TBGVX), 30% is in Berkshire Hathaway (BRK.B), 20% is in the S&P600/Barra Small-cap Value ETF (IJS), 10% is in the Dow Select Dividends ETF (DVY), and the rest is cash. *For the last year Tweedy has been rising faster than we've been selling. *And if value investing doesn't work for the next four decades then we might as well be buying bullion & shotgun shells.

...

As the years roll on and our income picture clears up, perhaps we'll become more conservative and keep a larger cash stash. *We might move further into dividend-paying stocks or even bonds. *Or, if our withdrawal rate gets down to 2-3% and our portfolio outperforms the mortgage, maybe we'll keep the equities until we're in our 90s. *But we'd rather deal with volatility risk now to beat inflation.

Wow, a leveraged portfolio in payout mode with a 30% allocation to a single stock! You definately have gazungas, my friend.

Given the pensions, I actually think that the whole shebang makes some sense. I guess I can think of a couple of questions which you can feel free to ignore if you like:

- Any particular reason for a 30% allocation to Berkshire? I know a lot of people like the company, but...

- How much does Tweedy charge? I think that one of the things well worth noting in a payout portfolio is that small changes in expense ratios can materially increase potential WR and/or survivability (another reason to find good rates for your cash stash).

- I can't figure out DVY. I know a lot of retail investors like the dividend stream, but it seems like you are prone to end up with some unintentional sector bets and some of the wacky things that the people that run that ETF do.
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Re: Put some spending cash in CDs or in I bonds?
Old 02-18-2005, 08:47 AM   #28
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Re: Put some spending cash in CDs or in I bonds?

I have been an optimist my whole life and have
avoided the clutches of cynicism thus far. Call
me gullible but, like unclemick, I give the gov the
benefit of the doubt until they prove otherwise.

As for hedonic adjustments of the CPI, I see that
as an attempt to improve the overall accuracy ....
and according to the links, they are mostly a wash.

I just can't buy into the conspiracy theory of an
evil government manipulating the CPI ..... sorry.

Back to the original discussion of CDs vs. I-Bonds,
it seems to me that the banks are going to set CD
rates to be profitable over the time period of the CD.
That means taking a guess at inflation. CDs have to
compete with treasuries, I-bonds, etc for the investor
dollar. CD rates will be set to achieve the bank's
profitability and market share goals, but not one
basis point higher than necessary. My point is that
the banks use the same CPI data along with current
financial rates to set their CD rates.

I don't understand your logic that CDs will beat
I-bonds because of a manipulated CPI. Both are
driven by the same basic data..... faulty or not.

The simple fact is that I-bonds beat CDs if inflation
is higher than the consensus forecast over the
duration of the CD and lose if inflation is lower.

Step up and place your bets, gentlemen.

Cheers,

Charlie
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Re: Put some spending cash in CDs or in I bonds?
Old 02-18-2005, 11:20 AM   #29
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Re: Put some spending cash in CDs or in I bonds?

I think the fundamental problem is that this should be a simple calculation.

You have a bunch of stuff, how much more does it cost from one year to the next to buy the same functional abilities?

That so much crappola has been introduced into the formulae that we cant even agree on whether they're accurate or not is the telling sign.

When someone makes something harder to understand, either they've got nothing else to do with their spare time, or they've got an agenda.

As far as giving the government the benefit of the doubt until they do something to make you doubt their credibility...err...give me a break? Do you want the 10,000 item list or the 100,000 item list of less-than-truths?

How about this one...the one that made me stop listening to greenspan...where last year he advised that everyone considering buying a home get themselves an adjustable mortgage instead of fixed...KNOWING he's got every intention to raise rates to the point where that adjustable mortgage will cost more than a fixed.

Lets look at this a different way...forget that a lot of credible people think the cpi is underestimating inflation by a percent and greenspans already given the message that he thinks it overestimates by a percent (and therefore we can expect that to be 'fixed'). Social security recipients have been living off of CPI adjustments for a while now. I know plenty of people in their 70's that count on that check. They tell me their money doesnt buy as much as it did a decade ago. There is small comfort that the goods and services are "better" because some 20-something in DC wrote a white paper on hedonic adjustments that says so.

The car still just gets you from here to there. The computer still just gets your email and your web pages.

Throw one last thing into the mix: the big bugaboos for inflation are usually energy and wage costs. Given outsourcing and RFID tags replacing a lot of your retail employees, older workers working longer and the fact that we're stomping over middle eastern countries at a rate of one per year...I dont see the higher wages or uncontrollable energy costs creating any excuse for inflation.

Cutting to the chase...if we see 5%+ returns from ibonds in the next 5 years, I'll eat my hat. And its not a tasty looking hat either.
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Re: Put some spending cash in CDs or in I bonds?
Old 02-18-2005, 11:33 AM   #30
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Re: Put some spending cash in CDs or in I bonds?

Quote:
Wow, a leveraged portfolio in payout mode with a 30% allocation to a single stock! You definately have gazungas, my friend.
He used to climb into a little skinny tin can with a nuclear pile at one end and explosives at the other, and if that wasnt enough, it was then plunged hundreds of feet below the surface of the ocean. The idea being that people who dont like us would then look for it and try to drop explosive charges on it.

The gazunga level is therefore well established. ;)
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Re: Put some spending cash in CDs or in I bonds?
Old 02-18-2005, 11:40 AM   #31
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Re: Put some spending cash in CDs or in I bonds?

TH, you keep circling around the issue. Why do
you think CDs will outperform I-bonds? Just
having a hard on against the CPI does not cut it
as far as I am concerned since, IMHO, both rates
are driven by essentially the same data. Whether
you like the data or not is irrelevant as far as I
can tell.

Cheers,

Charlie
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Re: Put some spending cash in CDs or in I bonds?
Old 02-18-2005, 11:56 AM   #32
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Re: Put some spending cash in CDs or in I bonds?

Quote:

He used to climb into a little skinny tin can with a nuclear pile at one end and explosives at the other, and if that wasnt enough, it was then plunged hundreds of feet below the surface of the ocean. *The idea being that people who dont like us would then look for it and try to drop explosive charges on it.

The gazunga level is therefore well established. ;)
With all due respect to Nords' years of tin can diving, there is a big difference between high financial risk tolerance and being nucking futs.
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Re: Put some spending cash in CDs or in I bonds?
Old 02-18-2005, 12:00 PM   #33
 
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Re: Put some spending cash in CDs or in I bonds?

I'll take both thank you.

I do see a big difference. CDs are issued by thousands of banks and credit unions at different rates and terms. Rates vary widely, for example Penfeds 5 year CD pays 5%. Citibank pays 3.78%. They are both using the same external 'data' projections (aside from their own internal finances.)
Savings bonds have one issuer. Some CDs are competitive with Savings Bonds (in my view, a better value), some are not.

I don't trust the government. Government's lie. So do the politicians/managers who are trying to justify their own value. I'm not expecting Snow to say 'that 2nd tax cut was a mistake, we're digging ourselves deeper and deeper into debt'. Or Cheney to admit that most of our expectations and plans regarding Iraq have gone awry. 'They' even covered up the cost of the medicare drug bill. Why should I trust them with the CPI data?
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Re: Put some spending cash in CDs or in I bonds?
Old 02-18-2005, 12:23 PM   #34
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Re: Put some spending cash in CDs or in I bonds?

I'm with JB.
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Re: Put some spending cash in CDs or in I bonds?
Old 02-18-2005, 12:26 PM   #35
 
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Re: Put some spending cash in CDs or in I bonds?

Hey JohnBlake...........in God we trust; everyone else is suspect

TH, you hurt me to the quick. You only listen to Gross,
Bogle and Buffett? What about me? Is this going to hurt my chances to be Pope?

JG
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Re: Put some spending cash in CDs or in I bonds?
Old 02-18-2005, 12:53 PM   #36
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Re: Put some spending cash in CDs or in I bonds?

Setting aside the issue of trust in the CPI, I would
have a very hard time choosing between a 5 year
CD ladder at Penfed vs. I-bonds. Why? Because
after playing the game for 5 years you get a 5 year
rate at an average maturity of 2.5 years. OTOH, you get insurance against higher than expected inflation and the ability to cash in the I-bonds after 1 year with only a 3 month penalty.

You young puppies were making love to your hands
the last time real inflation reared its head. You have
no idea of the havoc it can play. The idea that the
gov can artificially hold the CPI to 3.5% is absurd,
IMHO, of course.

Cheers,

Charlie
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Re: Put some spending cash in CDs or in I bonds?
Old 02-18-2005, 02:08 PM   #37
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Re: Put some spending cash in CDs or in I bonds?

Quote:
*OTOH, you get insurance against higher than expected inflation and the ability to cash in the I-bonds after 1 year with only a 3 month penalty. *

You young puppies were making love to your hands
the last time real inflation reared its head. *You have
no idea of the havoc it can play. *The idea that the
gov can artificially hold the CPI to 3.5% is absurd,
IMHO, of course. *

Cheers,

Charlie
Tell 'em Charlie. Let's return to the golden inflationary days of 1978-1980. That ought to make believers of 'em and mebbe grow hair in their hands.

Allen Greenspan believes that inflation is a curse and he acts accordingly. But Ole Allen can't stay around forever.
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Re: Put some spending cash in CDs or in I bonds?
Old 02-18-2005, 03:11 PM   #38
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Re: Put some spending cash in CDs or in I bonds?

A foretaste of things to come?

http://www.bloomberg.com/apps/news?p...28&refer=rates

Cheers,

Charlie
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Berkshire & Tweedy.
Old 02-18-2005, 04:17 PM   #39
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Berkshire & Tweedy.

Quote:
Wow, a leveraged portfolio in payout mode with a 30% allocation to a single stock! You definately have gazungas, my friend.

Given the pensions, I actually think that the whole shebang makes some sense. I guess I can think of a couple of questions which you can feel free to ignore if you like:
- Any particular reason for a 30% allocation to Berkshire? I know a lot of people like the company, but...
- How much does Tweedy charge? I think that one of the things well worth noting in a payout portfolio is that small changes in expense ratios can materially increase potential WR and/or survivability (another reason to find good rates for your cash stash).
- I can't figure out DVY. I know a lot of retail investors like the dividend stream, but it seems like you are prone to end up with some unintentional sector bets and some of the wacky things that the people that run that ETF do.
Gazungas-- perhaps, but the pension cashflow helps a lot. We definitely have a healthy respect for inflation and a long time to live with it. (I wish I'd saved my "WIN" button!)

Berkshire's a single stock about as much as America is a single political & demographic entity. Our Berkshire allocation started out at 20% and I can't for the life of me come up with a logical reason to rebalance. (We bought our shares between 2001-03 and we feel like real newbies next to those who bought in the 90s, 80s, or even 70s...) What's a better investment? Who's a better manager? Who has a bigger mutual fund (or ETF) with cheaper expenses, lower turnover, more tax efficiency, and a better record of beating the S&P500? Aside from Carly Fiorina, who else's company will have a higher breakup value after the CEO steps down? Er, lemme dismount my soapbox and point you to Robert P. Miles' latest "Warren Buffett Wealth: Principles and Practical Methods Used by the World's Greatest Investor". (http://www.amazon.com/exec/obidos/tg...glance&s=books) About the only Miles recommendation I can't bring myself to follow is to margin the rest of our investments to buy more BRK. (The annual report will be posted 5 Mar at http://www.berkshirehathaway.com/annual.html.)

TBGVX is 1.39%-- higher than most funds but about par for global funds. (Much of the expense is dollar hedging.) The ER had actually dropped over the last five years to 1.37% but popped up this year. Turnover has been single digits for over three years yet has also popped up to about 12%. But, hey, maybe they're ready to move out of the Netherlands & Switzerland and into new pockets of value. http://www.tweedy.com/global/gvfundfacts.pdf Over 30% of our holdings are unrealized gains (we bought between 1996-2001).

The kid's college fund is over half BRK and another 30% TBGVX. Over a quarter of that portfolio is cap gains and they'll all be taxed at the five-year rate.

I'm also intrigued by DVY-- and gratified by its runup-- but the recent expansion to 100 stocks may drag it down. We have a moderately tight sell stop and we're waiting to see what it does.

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Actually we're fondly referred to by our naval brethren as "nucking fukes"...
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Re: Put some spending cash in CDs or in I bonds?
Old 02-18-2005, 05:13 PM   #40
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Re: Put some spending cash in CDs or in I bonds?

Nords, I am well aware that the cult of WB is alive and well, but I don't swing that way. Different strokes...

On DVY, the stories I could tell you... Suffice it to say that the management of some of the companies that DVY holds find the ETF very perplexing.
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