Some Things I Didn’t Know about John McCain February 29, 2000February 15, 2017 According to the February 14 issue of Time, Senator McCain’s “environmental record would make Teddy Roosevelt cringe,” voting against toxic-waste cleanups, supporting subsidies for mining on public lands — “in 1998 the League of Conservation Voters gave him a zero rating.” Zero is not good. Time quotes Charles Lewis of the Center for Public Integrity, author of The Buying of the President 2000: “The portrait McCain likes is the one of the plain-talking crusader who’s bucking the system. The one many others see is that of a politician who rarely breaks ranks with the special interests that finance his campaign.” I don’t know whether that’s a fair assessment — it would hardly make him unique among Senators if it is — but anyone who thinks McCain is really a closet liberal should know that in addition to his zero environmental rating, he voted against the Brady bill and the assault weapons ban and opposes licensing handguns . . . “has repeatedly voted against minimum-wage increases and equal pay for women,” according to Time . . . and took the anti-choice position 82 times out of 86 votes in the Senate. If YOU believe assault weapons should be widely available . . . if YOU would put mining interests above environmental interests . . . if YOU think it was a mistake to hike the minimum wage from $4.25 to $5.15, giving workers an undeserved boost (or was the argument that we just couldn’t afford it, it would cripple the economy?) . . . then John’s your man. But please don’t call him a closet Democrat. Gary Bauer, in endorsing him, didn’t fall for that, and neither should anyone else. The Senator is a fine man in many ways, but as he says over and over again, he is a conservative Republican. He would very likely work with Trent Lott to confirm four new conservative justices to the Supreme Court, giving us not only a conservative Republican in the White House for four years, but a conservative Court for the next 25 or so.
Three Signs February 28, 2000February 15, 2017 [Hmmm. This was supposed to run February 24. I posted it myself and it just . . . vanished. Thursday was supposed to be “Three Signs” followed by Friday, “Three Sites.” Don’t know what happened. Sorry. But here they are now: THREE SIGNS.] 1. My broker says that after the UPS guy and the FedEx gal drop off their packages every morning, they stop to get stock quotes. This is great — if they are long-term investors and we are widening the circle of ownership and prosperity, so that everyone has a stake in America (and, one day, the world). A little scary if they are hooked on the casino. 2. Goldman Sachs is having trouble recruiting. Once considered the absolute top job out of business school; now a lot of the best and brightest are headed for dot-coms. Who wants to wait 10 years for a shot at $5 million a year when you can grab $5 million in an IPO after 10 months? The thing is, this is what’s known as “a contrary indicator.” Often in the past, the hot field for b-school graduates has been the field that is peaking. 3. An outfit with no sales or earnings (or customers or appreciable assets), Pacific Century Cyberworks — which sports a $30 billion market valuation — is attempting to take over Hong Kong’s phone company . . . and is considered to have a reasonable chance of success. Writes Tony L: “Some days I feel like I’m standing in a money rainstorm, yet somehow manage to stay completely dry. A friend invested his complete 401K fund and everything he could borrow in a $2 stock 8 weeks ago. He urged me to join, and I told him it was lunacy. Tried to point out the risks. Today the stock is worth $10. Several other friends went to work for dot-coms and are today worth seven figures. None of the dot-coms is remotely profitable, yet they are making stock millionaires of people who work there. It all seems to make a mockery of ‘sound’ investment principles.” The future could not be more exciting or the Internet more real . . . but investment success this easy and giddy is unreal. (And there’s an old saying on Wall Street: Don’t Fight the Fed.) So promise me at least this much: You will not invest on margin. Margin loans are way up over last year, and I just hope you are not one of the borrowers. Tomorrow: Some Things I Didn’t Know about John McCain
Three Sites February 25, 2000February 15, 2017 For closed-end funds: cefa.com. Especially handy for checking the fund’s discount or premium to Net Asset Value. I was all set to sell at least some shares in the India Fund, now that they’ve run up so smartly. But according to this site, they sell at a 31% discount to net asset value, so now I’m not so sure. To find out the selling price for homes on your street: dowjones.homepricecheck.com. It takes some trial and error to enter addresses in a way the site recognizes, and many seem to have no data no matter how you enter them. But for the ones that do, it’s pretty amazing. For the directionally challenged: mapquest.com. This site prints out astonishingly detailed written directions from wherever you are to wherever you’re going. (“Descend stairs, open front door, advance four steps to Volvo, enter, back out of driveway . . . “) As one who is covered by the Americans with Disabilities Act for having been born with absolutely no sense of direction — a terrible handicap — I rely on this site heavily. It’s also a good way to find zip codes.
Insuring Your Portfolio February 23, 2000February 15, 2017 “I have a lot of money. The problem is, my money makes noise.” — Anonymous George Fescos: “If I owned, for example, a $200,000 home and did not insure it you would say I was mad. Yet, if I owned, for example, a $200,000 portfolio of stocks and did not insure it (with put options or by selling calls) I might even be called prudent. Why is this?” Could it be because a house that catches fire can easily be worth zero, while an even vaguely sensible portfolio of stocks cannot go to zero? The way to “insure” a portfolio of stocks is generally through diversification, sensible buying (not joining a mania at the top), dollar cost averaging (investing periodically, so you wind up buying more shares when prices are down and fewer when prices are up), avoiding margin (margin loans are at record levels these days, way up from last year), not investing money you might need when prices are low (as I’ve written elsewhere, those who invest when they get a bonus and sell when the roof needs to be repaired are entrusting their investment decisions to their roofs), and patience. Over the long run, stocks should recover from losses. Charred houses, on the other hand, do not rebuild themselves. The problem with insuring a portfolio with options is that options are a less-than-zero sum game, with the “house” taking commissions and spreads. And the riskier the stocks, the more expensive the options. (Which may seem nice when you’re writing the options, because you get a bigger premium . . . but what good is a juicy $30 premium on a $160 stock if the stock goes down to $75 by the time the option expires?) The odds with homeowners insurance are also stacked against you — the insurers do not set their prices to pay out more in claims than they take in in premiums — but the mortgagee will require insurance (heck, it’s not their money). And even if you are mortgage-free, you will probably want coverage. Only the truly rich can afford not to insure their homes. (And even then, they would want some form of liability coverage, lest the butler be shot by the gardener, and YOU be sued for $20 million for your role in hiring, and perhaps arming, the gardener.) The one place you can save some money, over the long run, is in opting for the highest deductibles you can afford. I.e., forgoing the insurance you don’t absolutely need. [For those puzzled by the opening quote of this column — which, characteristic of my steely stylistic discipline bears no relation to the rest of the column — I would just point out this irony: Namely, that noisy money used to be the valuable money, while paper money, silent in your pocket, suffered frequent bouts of worthlessness. Today, “silver” coins aren’t even silver — and wouldn’t be worth much if they were. Indeed, today the only thing more valuable than silent money, or cyber money, is frequent flier miles. One day, the power of the Fed to inflate and deflate the currency will be rivaled by the power of American Airlines to raise or lower the cost of an upgrade.]
Bong, Bong – You’re Dead! February 22, 2000February 15, 2017 The New Yorker turned 75 this week, and all I could think to give it for its birthday was an idea for a cartoon. I assume the New Yorker has already done this idea at some point, but if not — and I could not find it in a cursory search of The Cartoon Bank — here it is: Title: COWBOYS AND INDIANS Drawing: A lot of cowboys milling around a saloon with a lot of guys in turbans My friend Arthur points out that Indians, in the main, do not wear turbans, and that I should perhaps have men in dhotis and/or women in saris. This is fine with me. We need to allow the artist his space. (Or her space if it’s Roz Chast, but this is not the kind of cartoon Roz Chast usually does, and almost all the other cartoonists are men. Why is that?) Arthur further points out that “bongs” are not, insofar as he knows, Indian. (Normally I check the dictionary first and only then, if still stumped, call Arthur. Arthur is one of those people blackballed from shows like “Do You Want To Be A Millionaire?” the way card counters are blackballed from the MGM Grand. But this time, having already called him about turbans, I asked about bongs. A quick check of the dictionary led me to hookahs, which are of Near Eastern origin. The Near East is close to India.) There will be among you several who are either Native American or Indian — or, more likely, neither one, just well-meaning — who will parse the above in search of outrage and insult. None intended! I just thought it was funny. But to make amends, I hereby offer . . . TRULY FREE LONG DISTANCE For calls within the 48 contiguous states, just go to www.i-link.com and: 1. Click on TalkFree. 2. Click on Click Here to Give It a Try 3. Type in your phone number (once; then it remembers) 4. Click on Next 5. Type in the number you want to call 6. Click on Call Almost instantly, your phone rings. Pick it up and listen as, a second or two later, your call goes through. Clear as a Bell. Free. Keep the window minimized in a corner of your screen and you could actually make a lot of calls like this with little inconvenience, basically just repeating steps 5 and 6. No more long distance phone charges! And your son or daughter away at college should certainly have no phone bills for you to pay, now that they know about this. There is a hookah joke in here somewhere, but it’s late and I’m darned if I can find it. (These two hookahs . . . ) Thanks to loyal reader Cory Haney for pointing me to I-link.com.
Reader Mail February 18, 2000January 28, 2017 THE LUNATICS TAKE OVER – YIPPEE! Steve Williams: “I am such a mope. I bought about 4500 shares of CN at about $1.25 or so each on average about a year ago. I sold them all about 2 months ago for about $1.35 each cause I was bored with them. Now they close today at 4 11/16. I want to die. I hate this irrational exuberance.” And yesterday it closed at 5 1/2. I’ve sold most of mine by now, so I’m torn. Because I still have a good bit (at one point, I had a barn full), I should certainly want to see it keep rising. But because I am human, and don’t want to feel like a mope for having sold too soon, part of me certainly wants to see it return to seemingly more rational levels. Worrying about this is what I believe is clinically known as neurotic behavior. (I don’t know much about neurotic behavior, except from observing myself first-hand, but I was always struck by this distinction between a neurotic and a psychotic. A neurotic feels guilty about everything. A psychotic feels guilty about nothing.) Jeff: “You say, ‘I have no clue what CN will do today, but especially if it goes up, I will continue to sell.’ What do you mean continue to sell? If the shares are valued at such a price that you would want to sell some of your holdings, why not sell them all? Are some shares more valuable than others?” Even if I felt I knew for sure what a stock was worth — $20, say, when it was selling at $17 — I would not buy a huge amount at $17 both because I could easily be wrong and also because I know the market often goes to irrational extremes. So I tend to add to a position as it goes down, if I still believe in it (this is generally considered stupid, and often in fact proves stupid: you are supposed to cut your losses and let you profits run) . . . and — by the same token — I tend to sell in somewhat the same way. Granted, until recently, I tended not to hang on past the point I thought a stock was overvalued. (Except where a large tax bite was involved. Then it could make sense to hang on, especially if it were a growth stock that could grow into its rich valuation.) But these days, it’s all but irresistible to keep a little of some wildly priced stock, in part because who knows what these high-tech stocks will be worth; and in part to profit from the mania a little; and because, mainly, I don’t want to feel like a total mope. TOBACCO Tom O’Connor: “You know how when you watch a TV documentary on crime, and they’re interviewing some fantastically evil ax murderer, and he comes off as just the nicest, most reasonable person you’ve ever known, and this creeps you out, way more than it would have had he actually been the raving lunatic freak you expected? I just had that experience on the Brown &Williamson website. They’re so slick, so polished, so pleasant and thoughtful about their place in the world.” Have you seen “The Insider,” nominated for seven Academy awards last week? You won’t find it recommended on the Brown & Williamson website, but it’s dynamite. Bob R: “Just wanted to point out that whether I support prop 28 or not may not have anything to do with my views on tobacco use. The whole idea of taxing to raise the price of cigarettes so that people (mostly low income people or children) can’t afford to use them seems to me like an ‘ends justifies the means’ argument. Being more of a libertarian, I generally vote more on principle rather than getting carried away with expected results. In the first place, the results are never exactly what you expect. And in the second place, I don’t like setting precedents for using evil means which could then be appropriated for other ends. (What’s next? We put a huge tax on gasoline so teenagers can’t afford to drive, thus reducing the accident rate for those under 21?) Driving offers many tangible benefits for young people, and for the economy as a whole. And when done carefully, it’s safe. Smoking, on the other hand, is not safe when done carefully, and tends to diminish, rather than enhance, productivity. I know Bob was kidding, but still — can you name any other legal product that, when used carefully and as intended (even including chain saws and alcohol, used as intended, in moderation, with designated drivers, etc.) leads to widespread illness and premature death? If not, then maybe tobacco reasonably can be singled out for special, but reasonable, treatment. I do think that if we need tax revenue at all, and we do, there’s much logic to taxing the things you want to discourage — like smoking — and go easy taxing the things you want to encourage, like work and investment. THE MARRIAGE PENALTY Sergei Slobodov: “You might be interested to know that Canadian government, instead of invading Maine (as you much feared), is now debating and will surely pass federal legislation (bill C-23) that guarantees equal legal treatment to same-sex couples, including taxes, benefits, inheritance and so on. It stops just short of legalizing same-sex marriages, although this might also be not too far beyond the horizon. All the more reason for Canada to invade Maine. Michael Kjar: “I’ve lived with my partner for 14 years and he cannot inherit my 401K accumulation without taking distributions and paying taxes. We have 10 legal documents between us and a survivorship agreement on the house, yet we still cannot duplicate the benefits of a spousal relationship, especially those that accrue as we grow old together. And don’t get me started about the inequities of medical insurance. “Almost 7 weeks ago, on New Year’s eve, my partner collapsed while we were running in the neighborhood — an aneurysmal brain hemorrhage. After EMS left with him for the hospital, I ran home and tore through the house to get what? My durable power of attorney and my power of attorney for health care, of course! What else would be on my mind at a time like that? If I don’t have the papers, I don’t exist. (Fortunately, Mark survived and is recovering slowly but miraculously.)” Jim M: “Two years ago I was transferred from my Government job in Washington, DC to San Diego, CA. You wouldn’t believe how much money I lost out on for not being married to my partner. First of all, instead of getting per diem for two persons as we traveled across the country we only received per diem for me. Then when we got to California and were househunting, we received half the housing allowance for temporary quarters that straight couples received. The clincher was the reimbursement of the costs of selling and buying our homes. I was originally told that because I was being transferred I would be fully reimbursed for these expenses. However, after I filed my reimbursement claim I got a letter from our legal department asking who the other person on our deed was. After finding out that it was not a spouse or immediate family member they insisted on prorating the reimbursement based on the percentage of the house that I owned based on the deed. Well, when we bought the house back in 1987, I was making about 25% of what my partner made. The mortgage lender insisted that the deed be 25% in my name and 75% in my partner’s name. (We had always planned on changing this but since I knew we would be selling the house we just put it off.) So they reimbursed me for 25% of our $17,000 closing costs resulting in a loss of $12,750. How’s that for a non-marriage penalty? Now they’re attempting to do the same on the closing costs of the new home we just purchased. “PS My best to your better half. “Jim M. “PPS See I even followed you advice of putting the PS before the signature. Of course, that means you probably won’t even see this PS. Oh well.”
Options February 17, 2000February 15, 2017 Joshua: ” I know of your advice on Options (stay away) — but I also know that in the past you have traded them, so I was wondering, with all this volatility in the stock market, wouldn’t this be an interesting time for options?” The problem is that, because of the volatility, they’ve become commensurately more expensive. So it’s still a rotten time to use them. The one place I’ve had a little occasional success with options is with LEAPs — very long-term call options that are traded on some stocks. Mostly it was just luck, but, at least as compared with the more casino-like short-term options, there are advantages. For one thing, your gain, if you have one, will be taxed as long-term if you hold the LEAP more than a year. For another, by its nature, a LEAP suggests less in-and-out trading costs. Holding a LEAP for two years (say) exposes you to just one set of commissions when you buy and sell, one set of spreads between bid and asked. I took a leap of faith when Steve Jobs returned to Apple. The January 2000 LEAPs that entitled you to buy AAPL at $20 cost $4 just each. (Last month, when they expired, AAPL stock was over $100, so the LEAPs were worth $80.) In hindsight, I just wish I had taken a greater leap. LEAPs on highly volatile stocks, or on stocks everyone expects to go to the moon, will be too expensive. Apple back then, fortunately, was a basket case with little hope of success. (As usual, please note that I have at least as many disasters as Apple-like winners. I am an idiot. For example, I bet — with straight stock, not LEAPs — on Golden Books Family Entertainment, which had been taken over by the former CEO of Simon & Schuster. I lost more on that than I had ever earned from Simon & Schuster in royalties.) (And while I’m being parenthetical, it occurs to me to be clear that when on Monday I “recommended” 200 shares of U.S.A. Floral to the fellow who asked what stock to choose as a $500 Valentine’s Day gift, I was being funny. I wish the company well, but meant what I said about its seemingly bleak prospects.)
Those Lovable Tobacco Execs February 16, 2000February 15, 2017 A year and a half ago, Rob Reiner led the charge on California’s Proposition 10, hiking the price of cigarettes in order to discourage pre-teens and teens from becoming smokers. Most of the revenue from the tax was funneled into programs for early childhood development. Prop 10 squeaked through, despite $30 million spent by the tobacco industry to fight it. Since then, tobacco sales in California have dropped 30% and $400 million has gone into programs for children’s health and development. Needless to say, the tobacco industry views this as a very bad thing. It has put Prop 28 on the ballot to overturn Prop 10. I have not been in California to see what the tobacco industry is doing, but if experience is a guide, it is not a forthright, straightforward pitch. That pitch would be: “Repeal the tax hike on cigarettes, because it’s creaming our sales.” Or . . . “Repeal the tax hike on cigarettes because it’s causing people — especially low income people who can least afford a tax hike — to smoke less or quit altogether.” (That’s the paradox of the tax. It falls most heavily on the poor, and thus benefits them the most. More poor people will smoke less or quit than rich people; so more poor people will be moved by the tax to live longer, healthier lives. What’s more, to avoid the tax, a person need “only” — not to suggest this is anything but very hard — quit smoking, in which case he or she not only avoids the tax altogether, but saves an additional $500 – $1500 a year on cigarettes. So at least it’s a somewhat voluntary tax, with big rewards for not paying it.) But I doubt they are using pitches like those. Straightforward and forthright are not adjectives you would put highest on your list when free-associating about Big Tobacco. “About 10 years ago,” writes my friend Joe Cherner, who founded and runs Smokefree Educational Services, “Philip Morris and its public relations firm Burson-Marsteller realized they had a problem. Philip Morris no longer had credibility with the public. “The tobacco industry needed a front group that appeared to be independent that could speak on behalf of smokers. So in 1993, Philip Morris and Burson-Marsteller formed the National Smokers Alliance. The Board of Directors was comprised of high-level Burson-Marsteller employees, notably Thomas Humber who had been handling the Philip Morris account, along with two lawyers from Hunton & Williams, Philip Morris’ Virginia law firm.” Ah, the National Smokers Alliance — like the giant dues-paying membership of the National Rifle Association or the even vastly more giant dues-paying membership of the American Association of Retired Persons. Right? “According to secret Philip Morris documents recently uncovered,” Joe continues, “Philip Morris contributed $42 million to the National Smokers Alliance between 1993 and 1996. By comparison, the National Smokers Alliance, according to its tax returns, received only $74,000 from dues. In other words, the group collected enough dues for at most 7,400 members (dues are $10 per year), a far cry from the 3 million members the Alliance claims to represent. In 1996 alone, Humber’s $450,000 salary was six times the amount of money collected from dues. Brown & Williamson Tobacco Company, for whom Humber previously worked for almost a decade, and Lorillard Tobacco Company are also significant contributors to the National Smokers Alliance.” It’s tough to get a lot of folks — even smokers — to stand up for tobacco. “In 1996, in an effort to recruit more members, the Alliance enlisted the support of talk show host Morton Downey, Jr., a decision which later backfired. After being diagnosed with lung cancer in 1997, Downey held a press conference and exposed the Alliance as a tobacco industry front group.” Whatever ads they’re running in California, I would urge that we not let Big Tobacco overturn Prop 10 by passing Prop 28. Vote NO on Prop 28 — and in case you want to learn more, or kick in a few bucks of your own, click here.
The Marriage Penalty February 15, 2000February 15, 2017 Ahem. The so-called “marriage penalty.” Initially, of course, it was meant as a marriage reward. The man worked, the woman did not. If they married, they got the benefit of lower taxes. Live ye not in sin; take the vows. Now that both spouses in many families work, what was once a reward has become, for quite a few, a penalty. (But not for all. Say CHRIS has $100,000 in taxable income and PAT has none. Unmarried, their combined tax would be about $4,000 higher than if they married and filed jointly — a $4,000 marriage reward. Even if CHRIS earns $80,000 and PAT earns $20,000, there is still a reward of about $1,000 for their hooking up. Only when the incomes are closer does the reward become a penalty.) One way to eliminate the marriage penalty is to pass a big tax cut for double-wage-earning spouses, so they are rewarded for being married whether they both work or not. (This is the $180-billion-over-ten-years Republican plan that just passed in the House. It is so expensive because, unlike the President’s proposal, it not only eliminates the marriage-penalty on dual-income marriages, it increases the marriage reward for single-income marriages.) Another way — to my knowledge not proposed — would be simply to do away with joint filing altogether. Everyone would pay tax on his or her own income, regardless of marital status. There would be no reward; there would be no penalty. If that sounds simple and fair, it ignores the point: we are trying to encourage long-term committed relationships, as healthy for society. The thought being that love alone is not enough. The government should add a little carrot. And that’s fine by me. What’s not fine by me is the penalty on inter-racial couples who would like to marry but cannot because one of them is black or brown or yellow and the other one is white. If they live together like any other married couple, sharing responsibilities, caring for each other, raising kids (or not), building a life . . . but if they are barred by the state from a legal civil marriage . . . why should they be penalized economically? “Almighty God created the races white, black, yellow, Malay and red, and he placed them on separate continents,” a Virginia judge found in 1959, in sentencing an interracial couple for evading state law by marrying up the road in Washington. “And but for the interference with His arrangement there would be no cause for such marriages.” That was 1959. As a nation, we were barely 183 years old, and were still months from putting a man on the moon. It was a primitive time. In 1967, the Supreme Court, declared laws against interracial marriage unconstitutional. So in fact inter-racial couples are not penalized economically. Let me start again with a more current example: gay and lesbian couples. The Vermont Supreme Court recently handed down a decision saying the Vermont legislature must either or allow marriage or find some other way to allow economic equality (a decision that Senator McCain last week on CNBC characterized as “ridiculous”). But for now, in Vermont as elsewhere, there is a penalty. Take the example of friends I’ll call Mike and John. They have been together for 16 years. They are raising an adopted son. They live quiet, affluent lives, made possible by a gigantic number of shares of stock in a company like Dell or Cisco or Microsoft or Intel that Mike was lucky enough to join straight out of college. His net worth is now exceeds $30 million. To Mike and John, the current “marriage penalty” discussion is trivial. Leaving aside their being excluded from the marriage “reward” that might apply in their case . . . and leaving aside John’s not qualifying for a dime of Social Security survivorship benefits . . . consider the small matter of the estate tax. If it were Mike and Jane, a $30 million estate would pass entirely free of tax to Jane. But because it’s Mike and John, the state and federal government would clip $18 million or so from it. Now there’s a penalty.
Love Is in the Air February 14, 2000February 15, 2017 George Fescos: “If I were to give a $500 gift of equities for Valentines day, which should I pick?” Two hundred shares of U.S.A. Floral Products — ROSI. The company has serious problems, but it’s the thought that counts. (Full disclosure: I own a bunch. I expect it to wilt and die. I began the grieving process long ago. I plan to use it as mulch.) And now, launching what may become a Very Bad Poetry™ series, to accompany our Cooking Like a Guy™ series . . . A Valentine Poem Roses are reddish, Violets are bluish, Today is no day For your spouse to act shrewish. Give her some stock Or give him some shares; They may go to zero But who the heck cares? Love is in the air. . Daisies are yellow, Pine cones are brown, Today is no day For your spouse to feel down. Flip her some Intel Or cadge him some Ford. At the sight of the confirm Your spouse will be floored. Love is in the air. . Peonies are purple Carnations are white. Today make ’em feel like A princess or knight. Transfer some Cisco Or even a bond. Whether bald or brunette It will make ’em feel blond/e. Love is in the air. Tomorrow: The “marriage penalty.”