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Re: Seems ISM is taking a bit of a beating this week...
Old 02-25-2007, 04:14 PM   #41
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Re: Seems ISM is taking a bit of a beating this week...

Ah I found it...could have sworn it was countrywide, but couldnt see anything on that:

Charlie, from a year ago: "My biggest holding is a CD from Std Fed Bank that pays CPI + 2%.
I also hold J. Hancock (CPI + 2%), Principal Life (CPI + 1.8%) bought
at 90, Household Financial Corp (CPI + 2.38% and Boeing (3 mo T-bill
plus 2.05%)."
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Re: Seems ISM is taking a bit of a beating this week...
Old 02-25-2007, 04:16 PM   #42
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Re: Seems ISM is taking a bit of a beating this week...

Quote:
Originally Posted by youbet
Rusty.... Nice analysis, thanks for the effort.
I had my own selfish motives, because all the hand-waving and algebraic analyses
are nice, but I thought the spreadsheet was a good sanity-check ... but thanks.

Quote:
One question. Since the inflation component of the tips interest would be added to principal and compound at 2.375% + inflation, why add it to a money market and assume 1% + inflation? Minor detail, but..........
I'm not adding the inflation component to the MM fund; that can't be done in real life
anyhow. If you look at my numbers, I'm simply doing what the Treasury does, growing
the principal with inflation and paying out coupon * principal. I'm only putting the coupon
payment into the MM.

But for ISM, yes, I *am* putting the inflation component into the MM fund. Yes, I suppose
one could reinvest it, but not automatically and commission-free (theres's no DRIP, at
least at Schwab), so the hassle and commission wouldn't be worth it (to me) except maybe
one or a few times per year as you suggest. But it's not like anyone is going to take the
ISM interest and spend it on lottery tickets. I assume I'll invest it in something worthwhile,
where it'll compound - and that worthwhile thing may or may not be more ISM, depending
on its price and whatever else becomes available. So in looking at the total return of
ISM, I'm simply assuming something semi-reasonable is done with the interest, and the
conclusion (of ISM vs TIPS) is valid even if that reasonable use of that money isn't
putting back into more ISM. Make sense ?

Inflation + 1% seemed like a reasonable hack at MM rates. If you just fix them at
today's 5%, and if inflation is significantly higher than that, then TIPS and ISM will
perform equally (or TIPS may even be slightly ahead), I guess because it would really
be hurting you to just dump the ISM interest into the negative real-return MM fund.



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Re: Seems ISM is taking a bit of a beating this week...
Old 02-25-2007, 04:31 PM   #43
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Re: Seems ISM is taking a bit of a beating this week...

Quote:
Originally Posted by Cute Fuzzy Bunny
I wouldnt own TIPS because I'm not fond of the idea of paying the taxes on the inflation adjustment and not getting it. My interest for this chunk of my portfolio is an inflation boosted income stream that only costs me tax-wise for whats being distributed to me. The lack of compounding without reinvestment sucks a little.
Yes, and in a high-inflation environment the TIPS coupon might not provide enough cash flow to pay the taxes due (depending on your bracket). At least that can't happen with the ISM structure.

Of course, this is why most people hold TIPS in non-taxable accounts.

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Re: Seems ISM is taking a bit of a beating this week...
Old 02-25-2007, 11:59 PM   #44
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Re: Seems ISM is taking a bit of a beating this week...


See another attached spreadsheet. It shows taking a lump-sum and investing it
in ISM at today's price. Then take an inflation-adjusted payout, with an initial
withdrawal rate of about 3.75%. The payout comes from the ISM interest, and
the remainder is invested in a m'mkt fund with APY 1% better than inflation.
The m'mkt fund is added to the matured value of the ISM bonds and hopefully
this is equal to (or greater than) the inflation-adjusted value of the initial
investment (the number 'surplus'). Of course, when inflation is below 1.2%
or so, you end up borrowing money from the fund, but it all holds together
over various assumptions of inflation. As pointed out earlier, you're probably
better off DRIP'ing the excess interest if commissions aren't a problem and prices
are good; it's just easier to analyze with the m'mkt fund.

Seems like an eternal inflation-adjusted SWR of 3.75% on a "safe" investment
is pretty good. (Assuming, of course, that's there something out there just as
good in 11 years).

Attached Files
File Type: pdf ISM_SWR.pdf (14.7 KB, 8 views)
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Re: Seems ISM is taking a bit of a beating this week...
Old 02-26-2007, 09:45 AM   #45
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Re: Seems ISM is taking a bit of a beating this week...

Quote:
Originally Posted by RustyShackleford
See another attached spreadsheet.
Thanks! Both are very interesting and helped me understand the pros and cons of ISM and TIPS.
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Re: Seems ISM is taking a bit of a beating this week...
Old 02-26-2007, 12:08 PM   #46
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Re: Seems ISM is taking a bit of a beating this week...

Further confirmation that ISM/OSM are a smoking good deal. The below is a new issue offering I saw today at Schwab being sold by SLM (same issuer as our fave bonds). The below are 4 year bonds that are being sold at par (plus a fistful of dollars under the table to Schwab) at CPI+2.7%. At current prices, ISM and OSM yield about 4% over CPI.

Additional Text Field: Inflation Protected MTN: Initial Coupon 5.24% = 2.54% (year over year cpi-u percentage change, beg 12/06) + 270bps (fixed spread), re-sets monthly



SECURITY DETAILS
Cusip: 78490GAN7
Maturity Date: 06/15/2010
Coupon Rate %: 5.24
Coupon Type: Variable (based on CPI-U), rate resets MONTHLY.
Coupon Frequency: Monthly
Dated Date: 03/08/2007
First Coupon Date: 04/15/2007
Next Coupon Date: ---
First Settle Date: 03/08/2007
Exchange: Over the Counter

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Re: Seems ISM is taking a bit of a beating this week...
Old 02-26-2007, 12:23 PM   #47
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Re: Seems ISM is taking a bit of a beating this week...

I have some ISM already but added OSM today. This generally means you can wait and pick some up cheaper now that I'm running short on cash to invest.

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Re: Seems ISM is taking a bit of a beating this week...
Old 02-26-2007, 12:41 PM   #48
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Re: Seems ISM is taking a bit of a beating this week...

Quote:
Originally Posted by brewer12345
At current prices, ISM and OSM yield about 4% over CPI.
Brewer.....how are you coming up with this number? I'm not questioning that it's correct. I just can't duplicate it and am trying to learn. Or, can anyone else help?
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Re: Seems ISM is taking a bit of a beating this week...
Old 02-26-2007, 01:06 PM   #49
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Re: Seems ISM is taking a bit of a beating this week...

Quote:
Originally Posted by youbet
Brewer.....how are you coming up with this number? I'm not questioning that it's correct. I just can't duplicate it and am trying to learn. Or, can anyone else help?
At a price of 21.30, here's what I calculate for YTM's:

Inflation ISM OSM
0% 3.70% 3.77%
1% 4.80% 4.86%
2% 5.89% 5.96%
3% 7.00% 7.06%
4% 8.10% 8.16%
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Re: Seems ISM is taking a bit of a beating this week...
Old 02-26-2007, 01:39 PM   #50
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Re: Seems ISM is taking a bit of a beating this week...

Quote:
Originally Posted by FIRE'd@51
At a price of 21.30, here's what I calculate for YTM's:

Inflation ISM OSM
0% 3.70% 3.77%
1% 4.80% 4.86%
2% 5.89% 5.96%
3% 7.00% 7.06%
4% 8.10% 8.16%
Interesting, went and added OSM to my little spreadsheet (that I posted yesterday
to show ISM beating TIPS). I found that OSM (when trading at the same price
as ISM) has about 30bp better yield than ISM. The OSM of course has maturity
value identical, and the m'mkt fund (where I dump the interest) is slightly smaller
due to the slightly smaller coupon and one year less time; but it's more than made
up for by the year-earlier maturity (so it's the 10th root, not 11th, of the ending
value divided by the beginning lumpsum).

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Re: Seems ISM is taking a bit of a beating this week...
Old 02-26-2007, 01:50 PM   #51
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Re: Seems ISM is taking a bit of a beating this week...

Quote:
Originally Posted by youbet
Brewer.....how are you coming up with this number? I'm not questioning that it's correct. I just can't duplicate it and am trying to learn. Or, can anyone else help?
Just looking at the yield analysis screen on my bloomberg terminal.
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Re: Seems ISM is taking a bit of a beating this week...
Old 02-26-2007, 01:56 PM   #52
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Re: Seems ISM is taking a bit of a beating this week...

I acquired my ISM position at the end of last year at an average price of 21.20. My thinking is to buy OSM now, so long as the YTM is about the same. By having 50% in each, I can "arb" from a long position in either one if a significant spread opens up.

I'm hoping the prices drift a bit lower as retail investors dump ISM/OSM to get in on the new "high-coupon deal" Brewer mentioned.
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Re: Seems ISM is taking a bit of a beating this week...
Old 02-26-2007, 02:13 PM   #53
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Re: Seems ISM is taking a bit of a beating this week...

Arbitrage? Spreadsheet modeling? Buying on the dips?

You guys get pretty excited over a bond with a current yield of 4%.

I just stick ISM and OSM in my bond ladder and forget about them for 10-11 years.
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Re: Seems ISM is taking a bit of a beating this week...
Old 02-26-2007, 02:17 PM   #54
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Re: Seems ISM is taking a bit of a beating this week...

Quote:
Originally Posted by wab
Arbitrage? Spreadsheet modeling? Buying on the dips?

You guys get pretty excited over a bond with a current yield of 4%.

I just stick ISM and OSM in my bond ladder and forget about them for 10-11 years.
Agreed, but I know that if I can get a real after tax return of 4% plus CPI I am meeting my return hurdle for my goals. ISM/OSM in an IRA meets this mark with very little risk, so I am a happy buyer at these prices.
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Re: Seems ISM is taking a bit of a beating this week...
Old 02-26-2007, 02:24 PM   #55
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Re: Seems ISM is taking a bit of a beating this week...

Quote:
Originally Posted by brewer12345
Agreed, but I know that if I can get a real after tax return of 4% plus CPI I am meeting my return hurdle for my goals.
Personally, I like your sector bets better. Sort of the everyman's version of Yale's high-volatility/high-return/low-correlation approach.

What else you got for us?
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Re: Seems ISM is taking a bit of a beating this week...
Old 02-26-2007, 02:26 PM   #56
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Re: Seems ISM is taking a bit of a beating this week...

Quote:
Originally Posted by wab
What else you got for us?
Not a lot at the moment, but there will almost certainly be attractive pickings among the wreckage of the mortgage landscape later this year.
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Re: Seems ISM is taking a bit of a beating this week...
Old 02-26-2007, 02:37 PM   #57
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Re: Seems ISM is taking a bit of a beating this week...

Hmmm - don't cha just love those male hormones!

I still have my old STON and EGLE. A few putzers and perhaps a kayak when the snow melts in the spring.

Got ER covered with Target Retirement Series.

Some hobby stocks and a little lagniappe if the 'big one' is picked.

ER doesn't get better than this.

heh heh heh - and if it ever starts to 'feel' like w*rk - I'll pick up my marbles and go home.
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Re: Seems ISM is taking a bit of a beating this week...
Old 02-26-2007, 03:40 PM   #58
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Re: Seems ISM is taking a bit of a beating this week...

One problem with these issues especially ISM is they are thinly traded. My order for 1,000 @21.30 got only partially filled 200 shares. To completely replace my TIPs portfolio will require buying every share over 3 days.

Ok so all you pump and dump guys talking up this stock, here is your opportunity.
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Re: Seems ISM is taking a bit of a beating this week...
Old 02-26-2007, 05:08 PM   #59
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Re: Seems ISM is taking a bit of a beating this week...

Sell you a couple of thousand for $23...?
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Re: Seems ISM is taking a bit of a beating this week...
Old 02-26-2007, 05:39 PM   #60
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Re: Seems ISM is taking a bit of a beating this week...

Quote:
Originally Posted by clifp
One problem with these issues especially ISM is they are thinly traded. My order for 1,000 @21.30 got only partially filled 200 shares.
Where was the bid-ask spread when you put in your order? I notice that the day's trading range was 21.30 - 21.40, so I'm guessing you probably put your order in on the bid side, in which case I'm not surprised you didn't get your whole order filled. I'll bet if you took the offer you could have easily purchased 1000 shares. I'm not saying these things are all that liquid, but you can have trouble buying even a liquid issue on the bid side.
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