ISM/OSM yet again

[youbet]

This has been a truly awful investment, but from where I sit at least although I don't want any more exposure to it, it could be OK at current or even higher quotes.

This hasn't been my "most awful" investment of the downturn, but it's been the most interesting........

 

[haha]

This hasn't been my "most awful" investment of the downturn, ........

I am sorry to hear that. I have one worse too. What burns me about Sallie is that I got out whole in the initial J.C. Flowers inspired blowup. But I hadn't learned my lesson, so I came back in in much smaller size, and at a lower price.

But not small enough size, or low enough price.

I think I was seduced by the idea of its being a bond.

Ha

 

[youbet]

I think I was seduced by the idea of its being a bond.

That's the deal with me too. For example, silly me bought some BAC common shares a while back to watch it. It's down a far greater percentage than my ISM and could easily go to zero while ISM will likely have some residual value after a SLM default. Yet, I find ISM more frustrating. I agree with you, the frustration is probably because it's a bond and was rated A when I made the purchase.

I think we have a while, maybe a year or more, before any gov't change of rules (elimination of subsidies) and gov't direct competition might force SLM into default on it's debt. So the adventures ain't over yet!

 

[haha]

Interesting price action today

Today SLM closed down 2.74%, JSM 6.37%, OSM 9.4%, and ISM 16.08%.

ISM is is at price parity with OSM.

I think ISM/OSM are being hit from two directions- people who are afraid of SLM's business getting Obamafied, and people who think there will never again be inflation.

I'm out of money so I can't buy any more, but ISM/OSM seem unbelievably cheap to me. Just getting back to par would make a 4-bagger.

Obie has bitten off more than he can chew-2 wars, health care rework, save the banks, change the tax structure, privatize student loans, get people back to work, cripple the oil industry, re-governmentize IRS collections, somehow get people to work and goods to market on green fuels. Meanwhile, preside over the mother of all deficits.

God had less to do at creation time.

So it could be that even if SLM loses the FFelp program funding and subsidies, they might retain the originations and servicing on a contract basis. Plus there is a large run-off book of loans.

And the student loan industry might win outright; they did the last time around. Clinton may not have been the orator that Obama is, but he had top drawer political skills and he still lost that battle.

ISM/OSM dividend will be pitiful this month. With very low CPI numbers the yield is mostly in the accretion of discount- and thus of course less of a bird in hand.

ha

 

[youbet]

Today SLM closed down 2.74%, JSM 6.37%, OSM 9.4%, and ISM 16.08%.

Only a few hours after your post, SLM is up 12%, ISM 7%, OSM still flat for the day...... What a roller coaster! I was somewhat intrigued by heavy insider buying at SLM a few days ago. Key players bottom feeding on their own stock. Are they smart or dumb..... ? Dunno.

I think ISM/OSM are being hit from two directions- people who are afraid of SLM's business getting Obamafied, and people who think there will never again be inflation.

As you've probably noticed from my posts in other threads, I think the next 2 - 3 years will bring inflation and I'm trying to prepare. I've been slowly picking up a few TIPS at auction and some of the TIP ETF. ISM/OSM pays better. But this is supposed to be safe money. Any additional exposure to the SLM game would move it from "interesting" to "threatening."

I'm out of money so I can't buy any more, but ISM/OSM seem unbelievably cheap to me. Just getting back to par would make a 4-bagger.

My feelings too. It's like owning a volatile stock except it has a maturity date! If it makes it to maturity and pays PAR, the cash register rings big time.

Obie has bitten off more than he can chew-2 wars, health care rework, save the banks, change the tax structure, privatize student loans, get people back to work, cripple the oil industry, re-governmentize IRS collections, somehow get people to work and goods to market on green fuels. Meanwhile, preside over the mother of all deficits.

God had less to do at creation time.

I agree. I think he's making a big mistake and putting us constituents at risk by swinging for the fence on everything right out of the gate. His philosophy of wanting to have us endure all the pain upfront while he has a lot of political capital contains much risk. I'm pulling for him, that's for sure. But it's a risky situation. I have few folks locally to discuss it with other than DW as most friends/relatives are Barack worshippers reacting to any objective policy discussion that isn't 100% pro Obama like a born again Christian who just heard you cuss the Lord.

So it could be that even if SLM loses the FFelp program funding and subsidies, they might retain the originations and servicing on a contract basis. Plus there is a large run-off book of loans.

Well, that would explain the insider buying.

ISM/OSM dividend will be pitiful this month. With very low CPI numbers the yield is mostly in the accretion of discount- and thus of course less of a bird in hand.

I haven't calculated the yield for the last couple of BPS inflation announcements. I'll do that and post. But, like you, I already know the numbers will be low.

Despite all the bad stuff happening to SLM, I still question whether Obama would let SLM bond holders go belly up due to a change in govt policy. Seems like the wrong message to send. OTOH, it wouldn't affect many votes, so maybe he could care less.......

Pelosi, however, would probably celebrate the opportunity to change the game so that private investors suffer. She seems to relish tha sort of thing. Vindictive lady having her day in the sun.

Edit: Here's a good read. http://community.investopedia.com/n...ma-RDS-SLM-EZPW-FCFS0304.aspx?partner=YahooSA

Student Loan Industry
Sallie Mae (NYSE:SLM) was hit with news that the Obama budget would eliminate federal government guarantees on loans made by private companies. Currently, 81% of the company's loan portfolio is guaranteed by the federal government, but beginning in 2010, all federal student loans would be made directly to student and not through private lenders. Sallie Mae could still make loans privately to students, but without federal guarantees, the default rates would be much higher, threatening its business model.

 

[FIRE'd@51]

I haven't calculated the yield for the last couple of BPS inflation announcements. I'll do that and post. But, like you, I already know the numbers will be low.

I have a spread sheet that updates the numbers when I enter the new CPI number each month. For OSM I get (on PAR of 25):

Mar 3.07%
Apr 2.09%
May 2.00%

ISM is 5 basis points higher.

Of course, based on the current price, the yield is about 4 times as much.

The February CPI release is March 18 which will determine the June interest payment.


Edited to correct numbers - copied wrong cells from my spread sheet

 

[youbet]

Thanks! Is there a way you could share that template with me? I'm still doing it with a pencil and calculator.

 

[FIRE'd@51]

Thanks! Is there a way you could share that template with me? I'm still doing it with a pencil and calculator.

Not sure how to do that - it's in LOTUS 1-2-3

 

[youbet]

Not sure how to do that - it's in LOTUS 1-2-3

Check for my PM

 

[clifp]

Wow Lotus 1-2-3. I guess you don't spend a lot on software upgrades...

 

[youbet]

Wow Lotus 1-2-3. I guess you don't spend a lot on software upgrades...

I noticed the other day that Lotus 1-2-3 was available on a freeware download site. I was there looking for OpenOffice.

 

[FIRE'd@51]

I think ISM/OSM are being hit from two directions- people who are afraid of SLM's business getting Obamafied, and people who think there will never again be inflation.

It's interesting to note that JSM, which is not inflation-adjusted (and thus, has a substantially higher current yield), but of equal credit quality to ISM/OSM has not fallen as much since the possibility of Obamification was announced. This seems to support the inflation part of your argument.

 

[RustyShackleford]

Has anyone recently calculated the yield on their ISM/OSM ?

I had an Excel spreadsheet set up, where I plug in my info
as well as the CPI numbers, and see how the computed yield
compares to inflation each month plus the 2% or 2.05% real
yield. Once I got the number of days in each month in there
right, things agreed pretty much spot-on to the hundredth of a
percent.

That was for 2007. I just put in the numbers for 2008, and the
bonds seem to consistently be paying a yield that is 0.02% too
low. But for these first 3 months of 2009, things seem to be
correct again.

Oh well, I should be thankful it's paying anything ...

 

[FUEGO]

That was for 2007. I just put in the numbers for 2008, and the
bonds seem to consistently be paying a yield that is 0.02% too
low. But for these first 3 months of 2009, things seem to be
correct again.

They may have screwed up calculating and paying the coupon. They did it twice before with ISM/OSM (in 2007 or 2008 IIRC).

 

[FIRE'd@51]

Has anyone recently calculated the yield on their ISM/OSM ?

I had an Excel spreadsheet set up, where I plug in my info
as well as the CPI numbers, and see how the computed yield
compares to inflation each month plus the 2% or 2.05% real
yield. Once I got the number of days in each month in there
right, things agreed pretty much spot-on to the hundredth of a
percent.

That was for 2007. I just put in the numbers for 2008, and the
bonds seem to consistently be paying a yield that is 0.02% too
low. But for these first 3 months of 2009, things seem to be
correct again.

Oh well, I should be thankful it's paying anything ...

Using the latest CPI-U number (February), my spreadsheet says 2.24% / 2.29% on par for OSM / ISM for the June payment, only about 18 basis points higher (on par) than the April/May average.

To me, this begs the question if it would make sense to switch ISM/OSM to JSM (6% yield on par) for the next few months to collect a significantly higher interest payment (~17% at the current price), then switch back if/when inflation begins to pick-up. The credit risk is the same. The main differences are that JSM pays quarterly and that JSM matures in 2043. JSM is also callable at any time now but that would be great in the unlikely event it should happen. Of course, the main risk is that OSM / ISM outperform JSM between now and when one actually switches back, but the securities have pretty much tended to move together, driven primarily by credit issues.

 

[haha]

Sallie to Hire 2000 in USA

Sallie Mae Moves Overseas Jobs to U.S. | Financial Services | Financial Articles & Investing News | TheStreet.com

I'm thinking that there is deal behind this. ISM/OSM are the only good sized positions I have that could go poof, so anything that may make them more secure is good news to me.

Ha

 

[FUEGO]

Sallie Mae Moves Overseas Jobs to U.S. | Financial Services | Financial Articles & Investing News | TheStreet.com

I'm thinking that there is deal behind this. ISM/OSM are the only good sized positions I have that could go poof, so anything that may make them more secure is good news to me.

On-shoring. Nice. The labor market is working.

Or there is a deal behind all this...

 

[haha]

On-shoring. Nice. The labor market is working.

Or there is a deal behind all this...

Well, surely they wouldn't spend all the money to do this unless they had some assurance that there would be work for these hires to do.

I hope.

Ha

 

[FUEGO]

Well, surely they wouldn't spend all the money to do this unless they had some assurance that there would be work for these hires to do.

I hope.

We are talking about the same SLM, right?

 

[FUEGO]

Anyone besides me not get interest payments from OSM on May 15?

Based on my calculations, the interest payments should look like:
May - 2.03%
June - 2.236%
July - 1.616%
August - 1.263%

Sallie Mae debt rating bumped down to Ba1, ie junk, by Moody's due to potential pain from changes in student loan lending that may or may not happen next year.

 

[haha]

Anyone besides me not get interest payments from OSM on May 15?

Based on my calculations, the interest payments should look like:
May - 2.03%
June - 2.236%
July - 1.616%
August - 1.263%

Sallie Mae debt rating bumped down to Ba1, ie junk, by Moody's due to potential pain from changes in student loan lending that may or may not happen next year.

No dividend was even declared this month. So it is not a problem with your receiving the payment; there is no payment.

I haven't been projecting the payments. Could you tell me your data source? First we need to be sure that a pyment is in fact due; then figure out why it was not declared.

Intesting that both IS and OSM are up today. Also JSM, the non-inflation adjusted exchange traded debt security is up to $11.

Ha

 

[clifp]

I noticed no payment also. I started to panic, and than reminded myself that we are dealing with Sallie Mae, and it wasn't too long ago that they overpaid us for our ISM/OSM and actually reversed a payment.

I've seen nothing on the website, that explains why no payment was made. So either the CPI was sufficiently negative to wipe out the 2% base interest or SLM screwed up.

 

[FUEGO]

No dividend was even declared this month. So it is not a problem with your receiving the payment; there is no payment.

I haven't been projecting the payments. Could you tell me your data source? First we need to be sure that a payment is in fact due; then figure out why it was not declared.

From the OSM prospectus - May 2009 interest rate = (Jan 2009 CPI - Jan 2008 CPI)/(Jan 2008 CPI) + 2.00%.

I came up with 0.03% for the CPI change plus 2% = 2.03% or ~$0.042 per share (par = $25/sh).

It is small change to me, but I'd like to find out if either my math is screwed up or SLM is defaulting on their bonds (even odds on which is true ).

 

[haha]

I noticed no payment also. I started to panic, and than reminded myself that we are dealing with Sallie Mae, and it wasn't too long ago that they overpaid us for our ISM/OSM and actually reversed a payment.

I've seen nothing on the website, that explains why no payment was made. So either the CPI was sufficiently negative to wipe out the 2% base interest or SLM screwed up.

I just saw Fuego's post, and I found the section of both ISM and OSM prospectuses that specify what month sets the index. ( The third prior month, as announced on the 2nd prior month, for interest accrued Apr15 thru May15, and paid on May 25. They even give an example of figuring interst fro the May period.

That means January 09 over 08, and that figure is positive, and like Fuego for the May pmt on OSM I get $.042288.

So we should have been paid. I asked my broker to run it down; if he can't I will call this cowpie of a company and try to find out what is going on.

When it comes to invesment, there is no such thing as small change to me. I want to know where my money is, and moreover why is it not in my account? On time.

Ha

 

[FUEGO]

I checked BLS data for the CPI-U non seasonally adjusted data. This is referred to as Bloomberg CPURNSA (CPI Urban Non seasonally adjusted I think). I went and double checked vs. bloomberg's CPURNSA and it gives the same CPI-U NSA numbers as BLS.

There is a 4 month lag between CPI data and the rate that applies. From the prospectus: "For example, for the Interest Period from and including February 15, 2006to and including March 14, 2006, CPIt will be the CPI for November 2005 and CPIt-12 will be the CPI for November 2004." So Nov 05 CPI correlates to March 15 2006 interest rates. Hence Jan 2009 CPI correlates to May 15, 2009 interest rates (and payment).

I just checked my April OSM interest payment and it is correct to the penny at $0.0444 per sh. This is 0.0914% interest for CPI plus 2.00% fixed over 31 days.

May 2009 OSM payment should be $0.04171 per sh. That is 2.03% interest over 30 days.

To the poster that was a tiny bit off each time when comparing calculated vs. actual ISM/OSM payments - double check that you are using daily accrual instead of interest rate divided by 12. They apparently accrue interest daily on these, so periods with 30 days pay a tiny bit less than 31 day periods. And the mid-month payment is tricky - May payment includes the end of April, so the May payment period is only 30 days (in spite of May having 31 days).

Anyone want to give SLM investor relations dept a call on hehalf of the ER forum class of ISM/OSM holders? Just ask them where da money is at.