Well, Here’s a Bright Idea December 2, 1999April 22, 2012 Economic growth for the last quarter was revised from a 4.8% to 5.5%, the strongest in ages. Unemployment is rock bottom. With the economy humming brilliantly and the Fed nervous about inflation, I’ve got an idea — LET’S SCREW IT ALL UP! OK, so the idea is not original with me. It is George W.’s idea. A trillion-dollar-plus tax cut, just at the time in the economic cycle you don’t need and shouldn’t risk fiscal stimulus. What’s so bad about the course we’re on? More and more new jobs, more and more economic growth, low interest rates and the highest homeownership in history . . . a stock market that is already a bit giddy, to say the least, and the prospect of paying down some of the extra $4 trillion or so in national debt we piled up in the Reagan/Bush years (after the last big tax cuts). What’s so bad about all that? And how about ol’ George W.’s spin? He’s not doing this for the thousands of well-to-do folks who sent him $1,000 each. All they’d save is maybe $30,000 or $60,000 a year, poor buggers. No, Reuters reported, “the Texas governor, addressing the Des Moines Chamber of Commerce, laid out a seven-point plan that he said would help all Americans but especially the poor, encourage upward economic mobility and prolong the current economic expansion. ‘We need a tax system that makes it easier, not harder, to join the ranks of the middle class,’ Bush said.” Granted, the poor pay no taxes, but this would surely help especially them . . . how, exactly? And granted, the working poor benefit from hiking the minimum wage and the earned-income credit, which Bush’s party resists. But what’s needed for the working poor to break into the ranks of the middle class is lower taxes on the middle class and the rich, because . . . why, exactly? And granted, a big tax cut now would very likely lead to higher interest rates. That’s not all bad for the rich, who tend to lend rather than borrow. But higher interest rates would actually be good for the average guy, inasmuch as . . . what, exactly? I’m not saying that it would never be appropriate to drop the top income tax rate. I pay it; I’d like to pay less. But I am saying the time to do it is not at the peak of a boom. And that the honest thing to do, when you do do it, is not to say you’re doing it especially to help the poor. You have to assume that since Alan Greenspan opposed the Republican Congress’s $792 billion tax cut (which the President rightly vetoed), he is positively horrified by this even larger one. You should be, too.
Preferred Stocks December 1, 1999February 13, 2017 “For some time, I have been interested in lowering my exposure to the US equity market and I have been looking for interesting yield plays. This, as you know, is an area that is highly out of fashion. I have tried in vain to find a publication, or research, that specializes in preferred shares in America. I have found absolutely no research, newsletters, websites, chatrooms etc that offer insights to the preferred market (I even spoke to Mark Hulbert and he knew of no newsletters focusing on the area). A few focus on convertibles or convertible preferreds, but zero on old fashioned straight preferreds. From what I can tell it seems that there are a number of preferred shares issued by medium sized companies in the States offering pretty compelling yields. What I would like to find would be a quirky newsletter, brokerage house, or some resource that would offer insights. My gut tells me this is an area that offers compelling opportunity. Any thoughts?” — Tobias Brown Preferred stock is not really like stock at all. You don’t own part of the company, you have just lent it money . . . often with no repayment date (!), just the promise of a dividend that will never go up (!!). Yes, some preferreds are convertible into common stock, so you may share some of the company’s good fortune,if it has any. But basically preferreds are like bonds, only they get in line behind bondholders in the event of a bankruptcy. Because of the tax break preferreds give corporations but not individuals (most of a preferred dividend is free of corporate income tax), common sense would suggest –though not prove! — that preferreds would be bid up by corporations to reflect that tax advantage . . . and thus not be a terribly good value for those who can’t take advantage of it. Then again, municipal bonds don’t seem adequately to reflect their tax advantages to high-bracket taxpayers these days. So maybe the market doesn’t work so rationally after all, and preferreds can be a better deal than common sense would suggest. (Likewise, municipals.) And with preferreds getting so relatively little attention, who knows? There could be some good deals out there. I don’t know of any newsletters or resources specializing in preferreds. Sorry. (Do any of you?) But I say again: preferred dividends are fully taxed to individuals, and have to compete with Treasury bonds, which are (a) safer; (b) simpler; (c) often easier to trade without taking a haircut; (d) non-callable; (e) tied to specific maturities; (f) taxed at the federal level but free of state income tax. (And preferreds have to compete with municipal bonds, whose interest payments can be free of ALL income taxes.) So I foresee no stampede toward preferreds.
The New Area Codes November 30, 1999February 13, 2017 I don’t know why people have so much trouble remembering all these new area codes. They’re almost as logical as the original ones. Let’s start with those: 201 (the very first) is New Jersey, followed by 202 for Washington, 203 for Connecticut and, thus, obviously, 204 for Manitoba, 205 for Alabama and 206 for the Seattle area of Washington State (Microsoft has its own area code). Based on that pattern, you can probably intuit the rest. If not, click here for the whole list. A handy place to bookmark, along with its companion alphabetical list. For those of you who like this sort of thing, here is a question that Mr. Crandall, our wonderful tenth grade math teacher (and tennis coach) gave us one day to cut our overweening little egos down to size: 14, 23, 34, 42, 50 — what comes next in this progression? (Scroll down for the annoying answer.) The answer is 59. New York’s West Side subway line stops at 14th Street, 23rd, 34th, 42nd, 50th and then . . . 59th. (Our school was up at 246th Street, so we got to know the subway stops pretty well. But I don’t think anybody got this right.) Meanwhile, the original reasoning behind area code requirements, back in the days of dial phones, was to assign the quickest-to-dial codes to the most populous regions. A number like 919 took a lot longer to dial than 212 or 213 or 312 — and who the heck lived in North Carolina compared with New York, LA and Chicago anyway? Now they are assigned, as best I can discern, by trying them out on focus groups to determine the absolutely hardest to remember, least connected codes possible.
Monday, Wednesday, Friday November 29, 1999February 13, 2017 Last Monday, remembering John Kennedy, I suggested six days in America’s history this past century that were not only of pivotal significance, but also grabbed the national psyche and shook it with fear or grief or joy. I invited you to tell me any I had overlooked, and 99% of those who did all cited the same tragic event. Doug Simpkinson: “I was in my sophomore (high school) biology class when someone said, “Did you hear about the space shuttle? It blew up.” Being a skeptic I of course thought my leg was being pulled. The teacher stopped the class and wheeled in a TV to watch the news. The image of the popcorn cloud of smoke with the tendrils of smoke from the solid boosters careening out of control is burned into my brain as I’m sure it is etched in the minds of many of us.” I’m not sure it was a pivotal date in American history in the sense of marking a turning point. But judging from your many eloquent messages, especially among younger readers, it was hugely sad and memorable. I certainly would agree with this. Several of you mentioned the fall of the Berlin Wall, as well. And Dana Dlott, alone, mentioned “the day in 1947 when John Bardeen invented the transistor at Bell labs” and “the day in the early 1950’s when Watson and Crick solved the structure of DNA.” Yes, people across the land were GRIPPED with excitement and emotion on those two days — crying for joy, hugging in the streets, remembering for all time where they were when they heard the news. (Well, c’mon — what’s a day without sarcasm for a native New Yorker? It;s a day without edge. But I do know what Dana means. These were extraordinary achievements for America and mankind, even if almost no one knew that at the time.) * Wednesday I plugged what appears to be American Express’s excellent new brokerage service. Free for many people! I pointed out ways Amex could still make money, and situations in which you could be charged high commissions — such as with a 15,000-share trade of a $1 stock, where the brokerage commission would be $360 to buy and another $360 to sell (3 cents for each share beyond the first 3,000). Dan Helman: There doesn’t seem to be any reason why you can’t trade 15,000 shares at $1 for free by placing five 3,000 share orders. Hmmm. Hadn’t thought of that. And maybe Amex hasn’t either. [Hong Lee: “Speaking of free stuff, check out profitsense.com. It has links to get free ISP service and how to get paid to surf the net (among other things.)”] * Then on Friday I mentioned the famous salad oil swindle of the early 1960s that almost did American Express in. “It turned out.” I wrote, “that those tanks filled with millions of gallons of salad oil, collateral for an Amex unit’s loans, were . . . empty! Trusting souls, no one had actually looked inside.” Clifford Pearlman: “The tanks were full; it’s just that they were full (up to the last two or three feet) of water, with salad oil floating on top. When the inventory checkers came around, they dropped a weighted line into the tanks to see how full the tanks were (a mid 20th century version of Mark Twain), and when they pulled out the line, the weight at the end was covered with salad oil.” Tomorrow: The New Area Codes
Burp November 26, 1999February 13, 2017 I’m alive! The salad dressing didn’t kill me! I refer to Wednesday’s column about American Express and my six-year-old blue cheese dressing, knowing that only a handful among you will recall the famous salad oil swindle of the 1960s that brought American Express to its knees. (It turned out that those tanks filled with millions of gallons of salad oil, collateral for an Amex unit’s loans, were . . . empty! Trusting souls, no one had actually looked inside.) You see? These things are connected. And the connection between American Express and salad dressing, however tenuous, gives me an opportunity to make a point. Rather, to reiterate a point that far smarter souls have made for years — namely, the wisdom of investing in great companies when a grave but surmountable disaster, like an earthquake in Taiwan or a salad oil swindle in New Jersey, lays them low. Anyway, Happy Thanksgiving again. Shouldn’t you be outside playing touch football? Or at the movies? You know, this Internet thing is really beginning to take over your life. (I know. Look who’s talking.)
Three More Things to be Thankful For November 24, 1999February 13, 2017 I was going to make this “four more things” until I heard from John Schmitz, referring to last Wednesday’s column about good things coming in threes. “How about the three R’s — reading, riting and rithmetic?” writes John. “The three bears? The three wise men? The three blind mice? Tic, tac, and toe? The Nina, Pinta and the Santa Maria? I’ve also heard that comedy is most effective when punch lines and stories are grouped in three’s.” And hey — what about Three’s Company? Or the Three-Penny Opera? Or 3Com? Or 3CPO? Or the Tri-Lateral Commission? You see what I’m saying? It always comes back to the Tri-Lateral Commission. So I am dropping the fourth thing to be thankful for, which is that it’s now OK to use cell phones onboard the airplane while still at the gate, on the not unreasonable theory, I suppose, that a parked aircraft is in minimal danger of crashing. This had long been my theory, leading to no small measure of frustration. I am thankful that reason has prevailed. (I am also getting just the tiniest bit worried about brain cancer, and see no harm in buying one of those little wires that dangle from your ear to the phone.) Anyway, three things to be thankful for: 1. Free money for doing nothing. If you’ve ever owned a Toshiba laptop — I’ve owned two — apparently you’re in line for $200-$400 because Toshiba has to pay us $2 billion because . . . well, because . . . I’m actually not going to claim my prize, because it doesn’t feel right. But, as noted over on overlawyered.com, it makes an interesting story. 2. What appears to be the good deal that Prudential is not. Bill Wong: “American Express has a new brokerage account that offers zero commissions on most trades if the account balance is above $100K, and zero commissions on most purchases (not sales) if it’s above $25,000. It seems a very good deal. People always say that there is no free lunch, do you see any catch?” Actually, I don’t. Surely Amex will try to sell you all kinds of things once you’ve opened your account — annuities, for example. But no one says you have to succumb. And it may up its prices one day. But then you can always move your account. In the meantime, it may be worth considering. Amex will make money when you trade bonds or options. It will charge 3 cents a share to the extent trades exceed 3,000 shares ($360 if you went to buy 15,000 shares of some $1 stock, and another $360 when you came to your senses and sold it). It will probably make some money on “order flow” — for directing your trades to market makers who profit from the spread between the bid and asked prices. It will make money when you leave cash on deposit at a relatively low (though competitive) interest rate and/or when you borrow against your account at the somewhat higher (though competitive) margin rate. It will make a little money lending out your securities to short sellers (don’t worry, you won;t even know they are gone). And did I mention it will try to sell you things? But so do a lot of brokerage firms that don’t offer free commissions and that may not give you the sense of security and high level of customer service Amex is likely to. So, while I may be missing something here — I know I’ll be hearing from some of you if I am, and I welcome that — it looks to me like a good deal. I even tried going through the “instant application” process myself (not certain whether I would actually have gone the final click), but the two times I tried it . . . oops . . . it was not working and I was asked to try again later. Overwhelmed with demand? Ironing out kinks? Well, the Internet is still young. And did I mention the fee-free Amex gold card? That saves you $85 a year. And the fee-free checking account? Geez, I think I may try that instant account thing again. (To see for yourself, click here.) 3. You may not have to write down that old inventory after all. I can’t tell you whether they will be able to clone a woolly mammoth from 20,000-year-old frozen DNA, as some hope, but I can tell you that Fat-Free Kraft Blue Cheese salad dressing “Best Bought Before January 8, 1993” and refrigerated ever since tasted just fine when I finally got around to popping the cork today. And, if you find a new column in this space again Friday, it seems not to kill you, either. Happy Thanksgiving!
Talk About Your Nutritional Supplements! November 23, 1999January 28, 2017 Proving yet again that my readers are smarter and funnier than I (I’m very proud of my readers), Scott Nicol writes: “Thanks for the heads up re healthquick.com. Got my orders in. One thing I noticed was that Healthquick was offering gift certificates that were discounted 20%. You can give yourself an easy 20% discount by buying yourself a gift certificate, then buying what you really wanted with the gift certificate. If they didn’t think this offer through and program the web site to stop it, presumably you could also buy a gift certificate with your gift certificate. This gives you a 25% compounded rate of return (i.e. $80 buys $100 in gift certificates, $100 in gift certificates buys $125 in gift certificates, etc). Assuming an $80 initial investment, a market cap of $1B, and 1 minute to complete each transaction, in 74 minutes you could build up enough gift certificates to buy the company (and have almost $187M pocket change, tax free). Not bad for an hour and 14 minutes’ work.” I tried this, but was only able to get half a billion dollars worth of gift certificates — and it took me almost the whole day! (Actually, I tried this but healthquick.com rejected my credit card even before I could buy the first gift certificate — sensing my intent, perhaps? now that would be impressive technology — and I asked myself: Wait a minute. Is this how you really want to be spending your time? Trying to cop some cheap vitamins when THE FUTURE OF THE WHOLE GOVERNMENT IS AT STAKE AND YOU COULD BE OUT RAISING FUNDS FOR THE DEMOCRATIC PARTY? So I clicked the close box, and that, my friends, may be the only reason I do not now own healthquick.com, or at least half a billion dollars worth of dandruff shampoo.) Loose ends from last week: THE MYSTERY QUOTE In writing about Prudential Friday, I quoted this line: “A friend? You want a friend? Get a dog.“ But I couldn’t remember the movie it came from. “The line was from the movie Wall Street,” writes Greg Bandy. “Michael Douglas as Gordon Gecko said it to Charlie Sheen’s character. According to a recent Business Week article, Al Dunlap (Chainsaw Al) often uses this line as well — maybe not as much anymore, though.” LARRY B IS ONE TOUGH CUSTOMER In that same column I tried to trick you into clicking on a link to my book at Amazon, thereby to shake you down not only for the standard author royalty (which, astonishingly, is $20 on a $13 paperback), but also for the kickback Amazon gives its associate web sites (another $20 on each $13 paperback, which Amazon sells for $10.40 plus $3.95 shipping). “Instead of Amazon for $14.35,” writes Larry, “I could buy your book at 1bookstreet for $12.60 or at buy.com for $5.45 (using a $10 off coupon).” [But did he?] “Yesterday, I borrowed it from the library and will read it to see if I want to buy it. I find your web site interesting and useful. I have used several of your links to save money. In fact, www.deal-finder.com was one of the links and it pointed to the buy.com coupon.” You see what a tough business this writing is? Here we’re talking about a devoted fan. But risk $5.45? Not so fast, buddy! (Actually, Larry is a man after my own heart. A penny saved — not spent — is, for those of you with high incomes in high-tax states, fully two pre-tax pennies earned. Libraries are terrific.) Meanwhile: “Onsale.com is better than Buy.com for computer/software stuff,” writes Joe Cherner. “Why? Because Buy.com charges a minimum $10 for shipping while Onsale.com offers free shipping. Product prices are the same.” And Vince Crisci: “Thought I’d pass on another excellent book buying site — bookpricer.com.” And Ralph: “At the risk of seeing you rush out to short more Amazon.com, it might interest you to see BookCloseOuts.com.” Actually, I already noted BookCloseOuts.com in a column this past summer. The books there are so cheap that if Y2K shuts down the power supply, I plan to order tons of books from BookCloseOuts.com and burn them to power a steam engine to generate the electricity to power the computer to go on line and buy more books from BookCloseOuts.com. Move over cold fusion (and Borealis): I think I’ve found the perpetual motion machine.
And You? November 22, 1999February 13, 2017 I was in the pay-phone booth on the main floor of Tillinghast Hall of Horace Mann School, calling the yearbook printer (and feeling very important that at 16 I actually had a reason to make a call to the real world). But instead of reaching the printer, I got an operator saying that my call couldn’t go through because of a national emergency: President Kennedy had just been shot. As no one else at the school was connected to the outside world at that moment, so far as I know, I may have been the first to know. I have a vague recollection of going across the hall to the headmaster’s office to share the sad news. So much water under so many bridges since then — much of it increasingly positive in recent years. (For one thing, the water’s cleaner.) I realize that where you were that day, in many cases, was NBY — not born yet. But it was one of the six most pivotal days of this American Century. My picks: Armistice Day in 1918, ending the First World War; the Crash in 1929; Pearl Harbor in 1941; VJ Day in 1945; the Kennedy Assassination in 1963; the Man on the Moon in 1969. Lots of runners-up (the RFK and King assassinations and Nixon resignation prime among them). But were there any other days marking our history that would have so grabbed our national emotions? Your nominations welcome. Tomorrow: Talk about your nutritional supplements!
Imprudential November 19, 1999February 13, 2017 I’ve been meaning to write this for months, ever since I saw those ads for Prudential Brokerage featuring $24.95 trades. Cheap! OK, so it’s more than the $8 Ameritrade might charge or $19.95 eTrade might charge, but after a point, unless you trade a lot — or in tiny increments — who cares? And if you trade a lot, I would argue you are making a mistake far more fundamental than overpaying for your trades. So $24.95 is pretty good. Sure beats the $200 and $500 commissions we used to have to pay! Plus, it’s Prudential. The rock. But of course it’s not the $24.95 they draw your eye to that makes any difference, it’s the 1.5% a year they shave off your entire portfolio as an advisory fee, if your account is small, or the 1% or so they take if your account is large. Are you kidding me? As I have written over on the Personal Fund web site, over a lifetime, 1% makes a huge difference — let alone 1.5%. If you put away $2,000 a year for 50 years at 8%, you’d have nearly $1.25 million at the end. Not bad. Doing just 1% better, though, you’d come out more than half a million dollars ahead. And that’s with 1%, not 1.5%, and before any brokerage commissions. Or look at it this way. If your savings bank took 1% from the 5% it pays you, that would be a 20% slice! If studies showed that Prudential customers tended to outperform most people by a wide margin, because Prudential knew which stocks would go up the most and which the least, then 1% would be cheap. But what possible reason is there to think this? Is it possible that some huge investment firms do consistently better than average in picking stocks? If so, other big brokerage firms must do worse, no? Everyone can’t be above average — let alone by enough to make up for fees and brokerage commissions and the taxes you pay on gains from trading stocks. Is the idea that Prudential customers tend to do 2% better than average and Merrill’s customer’s do 2% worse? Or don’t they all, on average, over time, do about average — minus the fees. That’s why index funds, which have tiny management fees, almost no transaction costs, and gentle tax consequences, make so much more sense for most people than, say, a brokerage account at Prudential — or anyone else who charges 1% or 1-1/2%. I know. You’re getting more than stock-picking advice from Prudential, you’re getting someone to talk to, and that’s nice. But what was that famous movie line? “A friend? You want a friend? Get a dog.” (Was it Jack Nicholson? Sounds like Jack Nicholson.) Otherwise, read a little paperback book and, for example, the personal finance pages of the Wall Street Journal.
The Ultimate Phonebook November 18, 1999February 13, 2017 Want to ring up the Savoy Hotel in London without having to call information? Get the correct spelling and address of someone whose phone number you have? Find a friend’s number in Baltimore or a business in Beirut? Check it out: www.teldir.com. Meanwhile: Vitamins.com is offering $25 free on you first order (“get the shaving cream,” advises a friend) and HealthQuick.com is offering $15 (“get the contact lens solution or the toothpaste”) and PlanetRx is giving a $25 coupon for non-prescription items when you enter your first prescription order. (Get well soon.) Tomorrow: ImPrudential Monday: Amex’s Good Deal