Friday, February 19, 2010

CPI and the CPI Floaters OSM & PFK/Discount Rate Hike/Goodrich

1. Dividends and Interest: For those interested in Aegon and ING hybrids, the WSJ dividend page shows that regular quarterly dividends were declared by both firms on several that I own, including AEB, AEH, AEF, INZ, IGK, and IND. That information will remain at that web page until later today. Most likely before the end of this year, I will pare my holdings of ING hybrids by selling 100 of the 200 of IND.

In addition to those securities going ex dividend soon, I noted that the following securities owned by me also had dividend or interest declarations on that same page: KO (dividend increased from 41 to 44 cents; EMO (Entergy Mississippi First Mortgage bond); MI; METPRA (Met Life floating rate preferred); PZB (TC with Limited senior bond); STL; TRST; and OSM (Sallie Mae CPI floater).

OSM's March 2010 interest payment will be $.0736 per share. Now, I have to admit that I came up with a slightly different number for March when I did the calculation last December, which was $.079958. Item Number 3: CPI & CPI Floaters So either the OG made a math mistake or SLM did, and LB asked whether that was really a choice. This was my earlier calculation from that post:

November 2009 NSA CPI: 216.330
November 2008 NSA CPI: 212.425
Difference: +3.905
Divided by 212.425= .01838
Add the Spread (.02 for OSM; .024 for PFK)= .03838%
Multiply .03838% x par value of $25=$.9595 on an annualized basis
Divide by 12 months since the interest is paid monthly: $.079958 per share for March 2010

The prospectus says round to the nearest fifth decimal place. I did use the correct data points for the November 2008 and 2009 non-seasonally adjusted CPI. The LB checked the calculation, unfortunately at 6 a.m. this morning, and found that the prior calculation appears to be correct at $.079958, so I can not account for the difference of $.006. Headknocker instructed the LB to get the CEO of SLM on the phone, he wants to discuss this discrepancy.

2. CPI For January 2010: The CPI rose .2% in January after seasonal adjustment. Consumer Price Index Summary The index increased .3% without seasonal adjustment. Without seasonal adjustment, the CPI rose 2.6% over the last 12 months. Core inflation, which excludes food and energy, declined .1%.

The fact that SLM and I do not agree on the computation for March will not keep me from doing the calculation for May 2010. My calculation for April can be found at CPI.

The non-seasonally adjusted CPI number for January 2010, which is used in this calculation, can be at the St. Louis Federal Reserve site: research.stlouisfed.org/fred2/data/CPIAUCNS.

Calculation for OSM May 2010 Payment:
January 2010: 216.687
January 2009: 211.143
Difference=5.544
Divide by 211.143 & Round to 5th decimal=.02626
Add the .02 Spread for OSM (.024 for PFK)= .04626
Multiply by $25 par value= $1.1565 per year
Divide by 12 months= $.09638

3. FED Raises Discount Rate by 25 Basis Points to .75%: Bernanke signaled this rise last week when he mentioned that the Fed wanted to widen the spread between the benchmark federal funds rate and the discount rate. The Fed also made it clear that an increase in the discount rate, the one charged to banks for emergency loans, would not reflect a change in the Fed's monetary policy. FRB: Press Release--Federal Reserve approves modifications to the terms of its discount window lending programs--February 18, 2010 Still, many investors view this 25 basis point move in the discount rate as a symbolic pivot move to a change in monetary policy. NYT I would tend to agree that the move is a baby step in the direction of ending the abnormally low federal funds rate.

4. Goodrich (own Senior Bond only): I mentioned yesterday that I bought the TC DKF which has a long term senior bond issued by Goodrich as the underlying security. For many of the OGs out there, Goodrich might be associated with tires, as in Goodrich and Goodyear. GR is an aerospace firm: Reuters.com For 2009, the company reported net income of 597 million or $4.7 per share on sales of 6.686 billion. Exhibit 99.1 I do not recall the year, but the currently configured GR divested its tire business.

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