Quite a while back a reader left a comment about what I thought sounded like an interesting fixed income product; SLM CPI Linked Note (OSM).
While I can't be certain that comparing OSM to iShares TIP Fund (TIP) is the best possible comparison I want one inflation product for clients and I would pick one over the other, I chose TIP. Structured products, which this sort of seems to be, have a lot of moving parts and are very difficult to fully understand. I am not sure why OSM is lagging and I am not sure if I could figure out why on my own and you probably don't need to spend time figuring out.
The important thing is that I heard about it, I watched it for many months and concluded it is not for me. It matures in ten years and probably matures at its $25 par value but if you want to own it for that you need to make sure about the price at maturity and you need to be willing to hold it as I suspect it could still go down.
Yesterday a reader asked what the term overbought means. Well as I think of it there are two meanings. Whether something truly is overbought comes from looking at oscillators, not something I do. With a tip of the hat to Helene Meisler at RealMoney the term is used a little more often that is really applicable. Most folks, me included, will say that a stock or a market or whatever is overbought after it goes up for what seems like longer than normal.
The reader asks how can something overbought because for every buyer there is a seller. Well not exactly. Part of being a specialist or market maker is the expectation that you will need to commit capital to facilitate trades every now and then, maybe more often than that phrase implies. Maintaining fair and orderly markets means stepping in on either side of the market at any time. Further if a stock starts moving up (to keep the context all the same) a lot during the day there are more buyers as buyers are willing to pay a higher price thus clearing out the sellers for the time being.
Yesterday's Land of the Lost Post certainly drew more attention than I would have expected. Thank goodness for bad television, eh? For the last couple of months I have been TiVo-ing Kung Fu every Sunday on channel 255 on Directv; talk about bad television! All things considered Kwai Chang Cane never should have snatched the pebble from Master Khan.
3 comments:
I called ishares yesterday to ask about the TIP interest payments which have been nill since December. Last year they also had a 2 month hiatus, I believe.
When looking at the underlying bonds they hold, I had thought the break was due to coupon periods-- as well as less inflation. DUMB, not understanding that this was not specifically related to TIP's interest payments to fund holders. Clearly, I had not done the right amount of research before purchasing.
Anyway, a lovely lady named Valeria (first time I've heard that name) told me that the index used, CPUI--urban inflation, for TIP has actually declined since november(???)and the underlying bonds' significant price drop did not allow interest payments. She said maybe in March they could resume.
It's hard for me to see inflation ANYWHERE as negative for the last few months, but now at least I will pay more attention to the correct index.
She told me many people had called about this. I suggested they put out a newsletter or something on their website, to explain the way the fund worked concerning interest and give any "tips" about when, or if, interest would be distributed or at least how investors could project the potential.
She heartily agreed and said her next stop was to discuss the idea with management.
A
off topic, but wanted to share this:
Mebane Faber wrote an excellent paper on a simple market timing quant strategy. http://ssrn.com/abstract=962461
Personally I believe market timing is a great risk reduction technique, even if you don't toggle 100% from long to cash.
"A trend is a trend is a trend, But the question is, will it bend? Will it alter its course through some unforeseen force And come to a premature end…?" -- Sir Alec Cairncross
I wish I knew Alex...I wish I knew.
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