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Author: KenAtPcs Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35400  
Subject: Feb CPI-U up slightly Date: 3/16/2006 9:34 AM
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The CPI-U moved up just 0.2% in February, moderating greatly from January's huge jump.

That brings the next I Bond annualized inflation adjustment (with 5 of the 6 months now available) up to -0.1% (up from -0.5% a month ago).

With only one more month's data to go, it's certainly looking as if the next inflation adjustment is going to be very, very small. (A huge jump in March matching Jan's jump would move the number up to only +1.2%.)

But I'm not in the camp that believes the Treasury is going to mark up the fixed rate to back-up-the-truck levels. I believe the TIPS rates (minus a bit of a premium for I Bond's benefits over TIPS) will be used as a ceiling, so I don't expect a new fixed rate above 2.0% is possible at this time. (Which is not to say that 2.0% fixed wouldn't be wonderful -- I'm guessing 1.6% is much more likely.)

Ken
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Author: Foolferlove Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15794 of 35400
Subject: Re: Feb CPI-U up slightly Date: 3/16/2006 9:47 AM
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That brings the next I Bond annualized inflation adjustment (with 5 of the 6 months now available) up to -0.1% (up from -0.5% a month ago).

With only one more month's data to go, it's certainly looking as if the next inflation adjustment is going to be very, very small. (A huge jump in March matching Jan's jump would move the number up to only +1.2%.)


With oil prices dropping recently, it's going to be hard for the March number to very positive, if at all. I agree that we're going to be looking at a very small inflation adjustment for I-bonds.

I'm hoping for a negative number in march, just to see what will happen to the fixed rate.

FFL

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Author: Lokicious Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15795 of 35400
Subject: Re: Feb CPI-U up slightly Date: 3/16/2006 10:06 AM
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"I'm hoping for a negative number in march, just to see what will happen to the fixed rate."

I'm hoping for a negative number just to see what happens, period. I thought Ken was the one who proved the Treasury did not, in fact, base the fiex rate on I-bonds on TIPS' fixed rate, even back when the numbers looked close (unlike in November). This will be interesting to watch.


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Author: markr33 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15796 of 35400
Subject: Re: Feb CPI-U up slightly Date: 3/16/2006 10:38 AM
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<<"I'm hoping for a negative number in march, just to see what will happen to the fixed rate.">>

I'm hoping for a negative number just to see what happens, period. I thought Ken was the one who proved the Treasury did not, in fact, base the fixed rate on I-bonds on TIPS' fixed rate, even back when the numbers looked close (unlike in November). This will be interesting to watch.


We can hope all we want, but I don't think a negative number in March is very likely anymore. I base this solely on a single data point, and the only one I can measure easily, the price of gasoline at the pump. Gasoline here went from 2.289 on 1-March (I filled up that day and posted about it then) to 2.499 today, halfway through the month of March (that's an increase of 9%). So, maybe March will be 0.6 or 0.8 (or even higher if prices keep ticking up). If that is the case, then the 6-month number will still be less than 1%. And if that is the case, what might be a likely fixed rate for the I-bonds? If they keep it at 1%, then a posted I-bond yield of about 2% may reduce sales of I-bonds to near zero (which I have previously said has no real effect on funding since I-bonds are such a small part of funding overall), even a 2% fixed rate with a posted yield of about 3% won't attract many investors to I-bonds when compared to other alternatives (even a fully liquid money market account will likely earn 4.5% - 5% by then)


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Author: KenAtPcs Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15797 of 35400
Subject: Re: Feb CPI-U up slightly Date: 3/16/2006 11:12 AM
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even a 2% fixed rate with a posted yield of about 3% won't attract many investors to I-bonds when compared to other alternatives (even a fully liquid money market account will likely earn 4.5% - 5% by then)

Unless investors wise up enough to know that a 2% fixed real rate is fairly decent in the current environment. But when you read that sales of I Bonds recently broke records (due to the enticing current rate of 6.7%), the chances of investors suddenly wising up seem slim indeed.

I thought Ken was the one who proved the Treasury did not, in fact, base the fixed rate on I-bonds on TIPS' fixed rate, even back when the numbers looked close

I seem to recall something like that. But even if they don't base the fixed rate on TIPS, that doesn't mean they are oblivious to it. Regardless of how low the advertised rate would end up being, I just don't see them setting the fixed rate above (or even at) the 5-year (or longer) TIPS rate. That's why, at current TIPS rates, I believe a 2% fixed rate would be the absolute highest we'd see, even if that means a 2.5% advertised rate.

But much can change in a month and a half.

Ken

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Author: Lokicious Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15798 of 35400
Subject: Re: Feb CPI-U up slightly Date: 3/16/2006 11:50 AM
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"I believe a 2% fixed rate would be the absolute highest we'd see, even if that means a 2.5% advertised rate."

I think I predicted 1.8%, which probably isn't good enough for me (though I need to do some number crunching if it gets that high to see about the 15% bracket possibility).

In a few weeks I am going to need to decide whether to go for the next TIPS auction, a CD, or hold out to see the new I-bond rate. I think if TIPS are hanging around the 2.25% fixed rate, I'll go for that. If not, it's worth waiting a few more weeks before plunking into a CD to see what I-bonds look like, unless I think yields in general are heading down.


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Author: markr33 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15799 of 35400
Subject: Re: Feb CPI-U up slightly Date: 3/16/2006 1:30 PM
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<<even a 2% fixed rate with a posted yield of about 3% won't attract many investors to I-bonds when compared to other alternatives (even a fully liquid money market account will likely earn 4.5% - 5% by then)>>

Unless investors wise up enough to know that a 2% fixed real rate is fairly decent in the current environment. But when you read that sales of I Bonds recently broke records (due to the enticing current rate of 6.7%), the chances of investors suddenly wising up seem slim indeed.


I agree that the chances of the average investor wising up is slim indeed. But the record sales of I-bonds don't necessarily indicate this lack of wisdom, because despite the current low fixed rate, some investors (including me) may have "invested" in the current crop of I-bonds with a more short-term goal in mind.

<<I thought Ken was the one who proved the Treasury did not, in fact, base the fixed rate on I-bonds on TIPS' fixed rate, even back when the numbers looked close>>

I seem to recall something like that. But even if they don't base the fixed rate on TIPS, that doesn't mean they are oblivious to it. Regardless of how low the advertised rate would end up being, I just don't see them setting the fixed rate above (or even at) the 5-year (or longer) TIPS rate. That's why, at current TIPS rates, I believe a 2% fixed rate would be the absolute highest we'd see, even if that means a 2.5% advertised rate.

But much can change in a month and a half.


I wonder when they actually make the decision? It is likely somewhat less than a month and half, and I think the April numbers aren't available when they make the decision. So maybe not that much can change between now and then?

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Author: Lokicious Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15800 of 35400
Subject: Re: Feb CPI-U up slightly Date: 3/16/2006 3:55 PM
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"Gasoline here went from 2.289 on 1-March (I filled up that day and posted about it then) to 2.499 today, halfway through the month of March (that's an increase of 9%)."

I think I paid $2.30 last time I filled up, which was about 2 weeks ago. Just went by my usual station and it is $2.56 (rounding up, as I always do). I don't know how much this is sabre rattling with Iran and Nigeria, but that's been going on for a while. I'm expecting $3, with no crises, this summer. But I was hoping prices would stay down until spring, so we could have the fun of seeing the reaction to actual deflation for a 6-month period.

I don't know why we aren't seeing more of an impact on consumer spending. My "what are student driving" survey is definitely showing more car-based SUVs and fewer truck-based. Still, all the sub-compacts belong to faculty, but that's because we can't afford SUVs, car or truck based.

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Author: markr33 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15801 of 35400
Subject: Re: Feb CPI-U up slightly Date: 3/16/2006 4:13 PM
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I don't know why we aren't seeing more of an impact on consumer spending. My "what are student driving" survey is definitely showing more car-based SUVs and fewer truck-based. Still, all the sub-compacts belong to faculty, but that's because we can't afford SUVs, car or truck based.

What do you mean by "can't afford"? Just finance it, or lease it, or take a home equity loan, or ....

Mark :-)


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Author: jrr7 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15802 of 35400
Subject: Re: Feb CPI-U up slightly Date: 3/16/2006 4:38 PM
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actual deflation for a 6-month period.

"actual" as measured by the statisticians (aka liars) at the BLS. Most people are actually seeing inflation.

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Author: DrTarr Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15803 of 35400
Subject: Re: Feb CPI-U up slightly Date: 3/16/2006 9:14 PM
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"What do you mean by "can't afford"? Just finance it, or lease it, or take a home equity loan, or ....

PAY CASH! You will get a better return than the next set of I-Bonds.

DrTarr



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Author: Lokicious Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15804 of 35400
Subject: Re: Feb CPI-U up slightly Date: 3/16/2006 10:26 PM
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"What do you mean by "can't afford"? Just finance it, or lease it, or take a home equity loan, or ...."

Mark,

It's an old joke that students drive better cars than faculty. I goes back to when faculty were really badly paid (lower middle class for most full professors, now middle middle class or a bit higher) and there were just a few students with cars, almost all from wealthy families.

Now, most students work 20 hours or more a week and have heavy student loan debt. But very few upper-classmen (and women) don't own their own "car," and about half the underclassmen (and women) have a car on campus (with nowhere to park it if they live in the dorms). And, by observation, not a jalopy among them.

I used to think spending more than you have just for show or to have a good time was a bad idea, but what's another few trillion of debt.


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Author: markr33 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15805 of 35400
Subject: Re: Feb CPI-U up slightly Date: 3/16/2006 10:58 PM
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<<"What do you mean by "can't afford"? Just finance it, or lease it, or take a home equity loan, or ....">>

Mark,

It's an old joke that students drive better cars than faculty. I goes back to when faculty were really badly paid (lower middle class for most full professors, now middle middle class or a bit higher) and there were just a few students with cars, almost all from wealthy families.


There are places around here where the High School kids drive better cars than their teachers! And I can't believe the size of the parking lots some high schools have.

Now, most students work 20 hours or more a week and have heavy student loan debt. But very few upper-classmen (and women) don't own their own "car," and about half the underclassmen (and women) have a car on campus (with nowhere to park it if they live in the dorms). And, by observation, not a jalopy among them.

Even "then", I think it depended on what kind of school it was. Sure at the Ivys, or at the next lower tier schools, the students drove better cars than the faculty, but at the state schools or at the commuter schools, it was rare. Heck, I scraped and scrounged and bought a $500 jalopy in my last year of college, that had more dents and creases than Mick Jaggers face!

I used to think spending more than you have just for show or to have a good time was a bad idea, but what's another few trillion of debt.

Now you're getting with the program. Spend - good. Save - bad. Spend on credit - better. Spend massively on credit - best!

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Author: markr33 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15806 of 35400
Subject: Re: Feb CPI-U up slightly Date: 3/16/2006 11:07 PM
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<<<"I'm hoping for a negative number in march, just to see what will happen to the fixed rate.">>>

<<I'm hoping for a negative number just to see what happens, period. I thought Ken was the one who proved the Treasury did not, in fact, base the fixed rate on I-bonds on TIPS' fixed rate, even back when the numbers looked close (unlike in November). This will be interesting to watch.>>

We can hope all we want, but I don't think a negative number in March is very likely anymore. I base this solely on a single data point, and the only one I can measure easily, the price of gasoline at the pump. Gasoline here went from 2.289 on 1-March (I filled up that day and posted about it then) to 2.499 today, halfway through the month of March (that's an increase of 9%). So, maybe March will be 0.6 or 0.8 (or even higher if prices keep ticking up). If that is the case, then the 6-month number will still be less than 1%. And if that is the case, what might be a likely fixed rate for the I-bonds? If they keep it at 1%, then a posted I-bond yield of about 2% may reduce sales of I-bonds to near zero (which I have previously said has no real effect on funding since I-bonds are such a small part of funding overall), even a 2% fixed rate with a posted yield of about 3% won't attract many investors to I-bonds when compared to other alternatives (even a fully liquid money market account will likely earn 4.5% - 5% by then)


Wow! It was $2.499 on the way in to the office this morning, but tonight on the way home, it was $2.569 at the same filling station!!!


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Author: Lokicious Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15807 of 35400
Subject: Re: Feb CPI-U up slightly Date: 3/17/2006 9:18 AM
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"Even "then", I think it depended on what kind of school it was. Sure at the Ivys, or at the next lower tier schools, the students drove better cars than the faculty, but at the state schools or at the commuter schools, it was rare. Heck, I scraped and scrounged and bought a $500 jalopy in my last year of college, that had more dents and creases than Mick Jaggers face!"

Mark,

I didn't want to suggest that working one's way through college is anything new: heck, my father did it before WWII. But my father lived a no-frills, poverty lifestyle. I can't claim the same level of student poverty c. 1970-1980 (with grad school), but I don't think any of my undergrad friends owned a car, we never ate out, except on very special dates, we bought jeans at the Army Surplus and wore the holes into them, and my great indulgence, bought with summer job money, was a low-end stereo, which wasn't replaced for about 15 years.

I'm sure there's some research on finance and today's college students, beyond anecdote. We do have statistics on debt and work, and the work hours definitely affect school (assigned homework is well under 50% of what I was assigned in college). But in terms of lifestyle, you just don't see signs of poverty (except overcrowded student rentals). Everyone has a cell phone. Everyone wears label clothes. I don't recall seeing anyone bring a bag lunch, instead of stopping at a fast-food joint. The bar scene is much too big to be just the rich kids (which doesn't preclude also having kegs at someone's house). And, I still cherish the image, I guess a couple years back by now, with rising gas prices, of the pretty blonde in her immaculate white jeep almost in tears as she was watching the meter tick up on the pump. I wish I had a photo. If you think of some Dorthea Lange image from the Depression, this would be the equivalent for today's borrow and spend economy.




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Author: markr33 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15809 of 35400
Subject: Re: Feb CPI-U up slightly Date: 3/17/2006 11:39 AM
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I didn't want to suggest that working one's way through college is anything new: heck, my father did it before WWII. But my father lived a no-frills, poverty lifestyle. I can't claim the same level of student poverty c. 1970-1980 (with grad school), but I don't think any of my undergrad friends owned a car, we never ate out, except on very special dates, we bought jeans at the Army Surplus and wore the holes into them, and my great indulgence, bought with summer job money, was a low-end stereo, which wasn't replaced for about 15 years.

I'm sure there's some research on finance and today's college students, beyond anecdote. We do have statistics on debt and work, and the work hours definitely affect school (assigned homework is well under 50% of what I was assigned in college). But in terms of lifestyle, you just don't see signs of poverty (except overcrowded student rentals). Everyone has a cell phone. Everyone wears label clothes. I don't recall seeing anyone bring a bag lunch, instead of stopping at a fast-food joint. The bar scene is much too big to be just the rich kids (which doesn't preclude also having kegs at someone's house). And, I still cherish the image, I guess a couple years back by now, with rising gas prices, of the pretty blonde in her immaculate white jeep almost in tears as she was watching the meter tick up on the pump. I wish I had a photo. If you think of some Dorthea Lange image from the Depression, this would be the equivalent for today's borrow and spend economy.


It is all explained in 2 little words - "Credit Cards". When we went to school thirty years ago, we didn't have access to easy credit, in fact, credit card companies never (hardly?) even entered the schools at all. But today, starting on campus visit days, and orientation day, and throughout the semester, you can see credit card companies hawking their wares constantly. The schools even allow them access in what would normally be a "restricted commercial area" such as near the bursars office. I wonder if there are kickbacks to the schools involved? (I would probably bet that there are kickbacks in one form or another)

In addition, people are generally more affluent today and far more indulgent to their kids than ever before.

A comprehensive study of how such attitudes and changing parenting styles affect the credit markets would be interesting.

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Author: jmcjls Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15834 of 35400
Subject: Re: Feb CPI-U up slightly Date: 3/20/2006 1:47 AM
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It's an old joke that students drive better cars than faculty. I goes back to when faculty were really badly paid (lower middle class for most full professors, now middle middle class or a bit higher) and there were just a few students with cars, almost all from wealthy families.

At my institution, the undergrads all have better cars than the grads. Quite a few even have cars that are better than those owned by the faculty, though most are more on par w/ what the faculty have.

It's no surprise that grad students wouldn't have good cars, but what is surprising around here is how many undergrads drive things like brand new SUVs & vehicles made by Lexus, Mercedes, etc.

jmc

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Author: Lokicious Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15835 of 35400
Subject: Re: Feb CPI-U up slightly Date: 3/20/2006 9:40 AM
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"What is surprising around here is how many undergrads drive things like brand new SUVs & vehicles made by Lexus, Mercedes, etc."

Don't see much in the way of Lexus, Mercedes, etc. in the boring midwest, even among upper middle class adults (might be in the really affluent Detroit suburbs). Macho trucks and truck-based SUVs were the student status thing (mini-vans and truck-based SUVs for married with children adults). I think, with higher gas prices, and the availability of car-based SUVs, that's the new trend.


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Author: jmcjls Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15837 of 35400
Subject: Re: Feb CPI-U up slightly Date: 3/20/2006 1:11 PM
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Don't see much in the way of Lexus, Mercedes, etc. in the boring midwest, even among upper middle class adults (might be in the really affluent Detroit suburbs).

Part of it could be regional. And I should have mentioned that the families of the undergrads at Univ of California @ Santa Cruz are, on average, the most affluent families in the entire UC system (which, obviously, includes UC Berkeley and UCLA.) Even as these students try to fit in w/ the other neo-hippies.

And their sense of entitlement is as inflated as their expectations of the necessity & availablity of new, pricey cars.

jmc

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Author: 2old4bs Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15851 of 35400
Subject: Re: Feb CPI-U up slightly Date: 3/21/2006 5:49 PM
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...what is surprising around here is how many undergrads drive things like brand new SUVs & vehicles made by Lexus, Mercedes, etc.

At one of the NY City Universities (low tuition cost), there are almost no 'luxury cars', but there are lots of SUV's. I think the most telling thing is that there are no 'jalopies'--heck, all of these cars are brand new! We have lots of VWs and Coopers. There are a few poor souls who actually still take mass transit (read buses). Every once in a while I do see a Hummer--for real--And it's not a faculty car--all the faculty park on campus--these are cars parked in the street.

2old


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