Life’s Asterisk March 30, 2001July 27, 2019 Quick – want to hear my haikus again? I’m just so pleased with myself. Because my haikus not only follow the 5-7-5 syllable format, they also make the requisite direct or indirect reference to the season. Or did until last week, when icy winter turned to spring. Winter of the bear. What fun is there in bonds? None. Boy needs some action. Priceline – ice ego. Bezos could have a shot, though No more big discounts. Stock market deep freeze, Taxes kept me from selling. I’m an idiot. The only other poem I ever wrote I wrote when I was 23 in what our President might describe as his – or in this case my – young and irresponsible days. Seen through those very wide pupils, it seemed quite brilliant to me. I even submitted it to the New Yorker – yes, the New Yorker — which shows you just how wildly I was hallucinating. It’s not a haiku, it’s simply this: Every day Is a happy day — With an asterisk.* *It*s passing. I even went so far as to explain to the New Yorker – yes, to the New Yorker – that my poem would be best read aloud, because that way the listener wouldn’t know whether ‘its’ had an apostrophe or not – and the great thing about my poem was that it was valid either way. So maybe they should set it with an asterisk instead of an apostrophe. (The New Yorker sent a very polite rejection.) I still like this poem. (Hey! ‘The fog comes on little cat’s feet and having come, moves on?’ I mean, what’s so great about that?) It reminds me that when I start getting anxious about stuff I can’t change, like, say, a bear market, I’m wasting precious time. And back I plunge into my e-mails. Monday: More on Puts
Cheap Suits and Campaign Reform March 29, 2001February 17, 2017 $END CA$H Mike Koltak: ‘My father’s saying was about a kid in college who wrote: ‘Dear Dad: No mon, no fun, your son.’ To which the dad replied: ‘Dear Son: Too bad, so sad, your dad.” CHEAP SUITS Chip Ellis has located the web site for his $150 custom-made suits: thaitailornet.com. His tailor’s English isn’t perfect, but it beats my Thai. Of course, if it’s cheap off-the-rack suits you’re after, then – as I’ve written elsewhere, to Charles’s dismay – you’d want to go to Men’s Suits in New York, 118 East 59th Street, or its alternate location at Fifth Avenue and 47th Street. That’s what it’s called: Men’s Suits. Like a supermarket called, simply: Food. MINI If the automobile – due in the U.S. a year from now – is half as much fun to drive as the web site, I might even break down and buy a new car. (Well, not new new, but in a couple of years, once used models start going on sale.) NOT SUCH A GENIUS AFTER ALL? I met a Macarthur Fellow, recently – one of those guys who get a $500,000 ‘genius’ grant with no strings attached. Paul Lerman: “Did you see the recent New Yorker cartoon? Artist and friend having tea in typical studio with canvases and paints everywhere, he says: ‘My whole goddamn Macarthur is in NASDAQ.'” FISCAL PRUDENCE Rob Greene: ‘The Republicans claim that after the Reagan tax cut, the Democratic congress increased spending – thus the ballooning deficits. The Republicans don’t mention that Reagan failed to use his veto power to curb spending. Clinton, however, effectively used his veto power to control spending, which the Republicans also fail to mention. I am surprised that the Democrats have not brought this point to the forefront.’ CAMPAIGN FINANCE REFORM Matthew Miller knocks it out of the ballpark, as usual. Click here.
Ralph W. Nader March 28, 2001February 17, 2017 Michael White: ‘I would like to suggest that Nader be known forever more as Ralph W. Nader.’ ☞ This is probably more polite than calling him a big fat idiot, and may work just as well. Ralph W. Nader it is. Warren S: ‘In all your rhetoric against tax cuts for the rich you seem to have forgotten about the current state of the economy. Remember just over one year ago when you didn’t advocate a tax cut because it would cause inflation? If I recall, your suggestion was “wait until we need it” (i.e. the economy stalls). Well, the economy has stalled. You don’t really think that a tax cut for the poor is going to help them start businesses and hire people do you?’ ☞ Well, with unemployment near historic lows, I’m not sure things are so bad. And using the surplus to pay down the debt is its own form of stimulus, because it helps to keep interest rates low — say, for mortgages and home building. Still, with the stock market down sharply and the administration talking down the economy and our confidence (like a coach running up and down the sidelines, as John Podesta has put it, shouting, ‘We’re gonna lose! We’re gonna lose!’), some early tax relief may be just what the doctor ordered. But what kind? The current tax structure seems to have worked pretty well since it was enacted, over unanimous Republican opposition, in 1993. Certainly it has worked well for the top 1%, toward whom so much of the Bush tax relief is directed. As Hendrik Hertzberg notes in the March 12 New Yorker, ‘From 1992, the year before a supposedly onerous new marginal tax rate kicked in, through 1998, the most recent year for which Internal Revenue figures are available, the average after-tax income of the richest 1% rose from about $400,000 to just under $600,000, and from 12.2% of the national net income to 15.7%.’ If Warren S. is right – that a tax cut for low-income folks won’t help stoke the employment engine – then I suppose he might argue that only those best off, and most likely to be able to start a business and hire people, should get a tax cut. But somehow, I don’t buy it. Lots of businesses were started, and people hired, in the Sixties, when the top bracket was 70%. Indeed, employment growth under Reagan/Bush was significantly less, when the top bracket was dropped to 28% and 31%, than it was under Clinton/Gore, when it was hiked to 39.6%. People who start businesses do so in part because they know that their main reward, if they succeed, will come in the form of long-term capital gains. Cutting the top income tax bracket will not sharpen that incentive. Nor will an extra $40,000 a year in the pocket of an executive earning $800,000 a year encourage him or her to start a new business and hire new people. (An additional maid, perhaps, but that’s different.) Such a person already has access to capital if he has a good idea for a business. What’s more, this extra $40,000, if anything, reduces the incentive to risk everything and go out on his own. The same holds true for ordinary investors. As the income tax rate falls closer and closer to the long-term capital gains tax rate, the incentive to take extra risk investing in a risky start-up falls, too. Many new businesses will get started no matter what the tax structure is. But on the margin, lowering the top tax rate on ordinary income probably lessens the incentive to take the risk of financing a new business. A tax cut is clearly in the cards. Democrats favor one, too. Just not so big as to keep us from paying down the debt. Not so big as to crowd out other priorities, like education and a prescription drug plan for seniors. Not so big as to risk crisis if it turns out the 10-year budget projections – which we all know are well-intentioned but fanciful – fail to pan out. And not so skewed as to redistribute wealth from the 98% at the bottom to the 2% at the top. How about the Democratic suggestion to cut the 15% bracket down to 10% for everybody? That would save all income tax payers money, including the wealthiest, because the first few dollars of income even the wealthiest report on their 1040 are taxed at 15% and would now be taxed at 10%. So all would get a break, and it would be simple to do quickly. When one surveys all the world’s challenges, opportunities, and woes (Africa is dying! the rain forests are dying!), it’s just very hard for me to rank as a priority the need to shift more wealth to the top 2% of Americans. I’d love to know what Ralph W. Nader thinks about all this. And about our shutting down the Korean peace process. And our reigniting a world arm’s race with our unworkable $450 billion Star Wars nuclear missile shield. And our cutting off family planning aid to impoverished women around the world. And our proposed cuts in the budget for alternative energy sources that compete with oil and gas. And our taking the American Bar Association out of the process of vetting judges. And about arsenic standards and carbon dioxide standards and workplace ergonomics. But now that the causes he champions are being dealt blows day after day, he has vanished from the ramparts.
Selling Puts March 27, 2001February 17, 2017 Pete K: ‘What are your thoughts on selling long-term PUT options on companies that you feel will be fine in a couple of years? For example, Cisco’s January, 2003, 20 puts are priced at $6. I could sell one of these puts and have the $600 premium in my account for nearly two years earning interest. Total exposure on the trade would be $1400 or so if CSCO goes to zero in Jan 03. [The $2,000 he would have to pay when the stock were put to him at 20, less the $600 premium he was paid to take that risk.] I wouldn’t mind owning the stock for a long-term hold if it falls below $20 and is put to me. This would be a small part of my portfolio and I think it is a prudent play given that some stocks are being hammered right now and stand a good chance at recovery in two years’ time.’ ☞ A put (just to bring everyone up to speed), entitles someone to sell 100 shares of stock at a fixed price – $20 a share in this example. You buy one if you think a stock is going down. You sell one if you think it’s going up . . . or if, even if it does go down for a while, you actually wouldn’t mind owning it. If you sell one put, you’d better be ready to pay $2,000 for 100 shares of Cisco, in this example, because that’s what you’ve agreed to do. If you sell 30 Cisco puts with a strike price of 20, don’t be surprised if you wind up paying $60,000 for 3,000 shares of the stock sometime before the put expires. Of course, if Cisco is 21, let alone 41 or 81, the put-holder will not exercise – why should he sell you Cisco at 20 that he could sell in the open market for 21 or 41 or 81? And in that case, the put premium is all yours to keep. Puts are generally not a good idea, whether buying or selling. If you win, the taxman takes a big slice. Whether you win or lose, there is a brokerage commission to pay (or two, if you decide to unwind your position before the put expires). And if you lose . . . well, you lose. Pete: You should only do this on the assumption that you will indeed have the stock put to you. Buying Cisco at $20 a couple of years from now would not be fun if it were selling for, say, $5 a share on the open market, even though you had been paid $600 along the way. Even at today’s terribly low price, CSCO is still valued at $143 billion, nearly double the valuation of Ford and General Motors combined. At $5, it would still be valued more highly than General Motors is today. A mere trifle, but still not nothing.
How Low Can We Go? March 26, 2001February 17, 2017 Michael Joy: ‘I’ve been reading and hearing the talking financial heads say things like “the market needs investors to give up on stocks before it will rebound” and other such bon mots. What on earth do they mean? Seems counter-intuitive.’ ☞ It’s an age-old cycle. A market peaks when everyone is bullish, excited, euphoric, the economic news is great – because ‘there’s no one left to buy.’ I mean, it’s such a no-brainer! Stocks clearly outperform safer investments if you’re patient, and gee, if you can borrow against your house at 4% after tax and compound it in the market at, say, even as modest a goal as 10%, how can you lose? So everyone’s in the market, everyone’s psyched and expecting it to go higher . . . and that’s the top. Seems counter-intuitive, doesn’t it? (I’m exaggerating when I say ‘everybody,’ but you know what I mean.) Well, the other side of it is that once the market starts to go down, people go from euphoric to long-term bullish and then to, well, hopeful that the worst has past . . . to hanging on until their stocks come back to what they paid – they’re determined not to sell at a loss – to disillusioned (why didn’t they tell us it could be this bad?!) . . . to completely disillusioned and disgusted or panicked – and finally they get out while they still have something left. At this point, everyone hates the stock market, and the only stories you hear are filled with woe and gloom (‘look at Japan – after 11 years, it was down 70%!’). And that’s the bottom. There’s no one left to sell. The people left holding stocks are so stubborn, they will not sell. And some others who did sell, and have some cash as a result, venture back. At the top, nobody cares about rational valuations. Everyone’s making money, and you feel like a chump being left out. The last ones in are buying in total disregard of rational value. At the bottom, nobody cares about rational valuations. ‘If I never see another stock again it will be too soon! Feh! Feh!’ The last ones to sell are selling in total disregard of rational value. (For a year or two around 1974, practically every story I wrote concluded, ‘It the world doesn’t end – and it usually doesn’t – stocks are a raging buy. And if the world does end, what difference will it make?’) Is it always this simple and clear? (Or ever?) No. Nor, as the saying goes, do they ‘ring a bell’ at the top or the bottom. But this is the gist of how great swings in the market usually work. And there’s a pretty good case to be made that we haven’t reached the irrational disgust stage. With luck, and with lower interest rates, and with all that 401(k) money flowing in – and with our ‘sole superpower’ status and the stunning pace of technological change (with its concomitant productivity gains) – we may not have to. But we may. So, as always, never keep money in the stock market that you will really need in the near or even the intermediate future. The Dow three years from now could certainly be 40% lower than it is today. I am not predicting that it will be, but it certainly could be. OK: Tommorow We’ll Cover Selling Puts. Today, we have to solve Friday’s puzzle. In the equation SEND + MORE = MONEY, as you will recall, each letter stands for a digit. No two letters stand for the same digit. What digit does each letter stand for? Hats off to the many of you who sent in the correct answer: SEND + MORE = MONEY translates into 9567 + 1085 = 10652. I would definitely stop reading here and go about your business. If you got it right, you need read no further. If you had the good sense not to try, don’t spoil it now. And if you tried but got it wrong, this will only annoy you. Still, for the record, here’s one way to figure it out: We know M can’t be more than 1 because even 9,999 and 9,999 = less than 20,0000. So MONEY must be a five-digit number beginning with 1 (no five-digit numbers start with 0). SEND + 1ORE = 1ONEY That tells us that S = 8 or 9, because there would be no other way to get these two four-digit numbers to add to a five-digit number (even 7,999 and 1,999 wouldn’t make it). So: M = 1 S = 8 or 9 That makes O, in a sort of visual pun, equal 0. It can’t equal 1 (already taken) or higher than 1 (there’s no way that even 1999 + 9999 could equal 12,000 or more). So: S = 8 or 9 M = 1 O = 0 And S has to be 9, because the highest MORE could be is 1098, and how could you get SEND + 1098 to equal at least 10,234 if S were less than 9? So now we have 9END + 10RE ——— 10,NEY Since 9 + 1 already give us the first two digits — 10,NEY – we can simplify what’s left as: END + RE = NEY END +0RE —— NEY Now, it would appear that E, sitting above 0, equals N. But that’s not possible because E and N have to represent different digits, so E must have had to ‘carry the one’ — meaning that N = E +1. E and N must be a pair like 2,3 or 3,4 or 4,5. It would also appear that R, sitting beneath N and adding to E, must be ‘negative one,’ since E is one LESS than N. But negative numbers aren’t possible in a simple addition like this, so it must be must be 9, except that, oops, 9 is already taken, so it must be 8 with a ‘carry the one’ picked up from D+E. So now we have 9,END +1,08E ——— 10,NEY We know all ENDY must all be between 2-7, as the other digits are now taken. So E,N are a series, like 2,3, or 3,4, or … well, at most 6,7. And D + E must add up to at least 10, to result in a carry to the next column. They can’t add to only 10 or 11, since that would require the letter Y to be a 1 or 0, both of which are taken. So it must add up to equal 12 or more. Okay, with the numbers 2,3,4,5,6, and 7 available, you can either D or E is gonna have to be 7, because the next highest two numbers are 6 and 5, and they only add up to 11. So which letter is 7: D or E? Well, it can’t be E because we already know N is one larger than E and that would make N be 8, but 8 is already taken. So D equals 7. 9,EN7 +1,08E ——— 10,NEY With D 7, E has to be 5 or 6, or else D+Y won’t get you above to 12 or more. But E can’t be 6, since that would make N 7 – and 7 is already taken. So E has to be 5, and thus N must be 6. 9,567 +1,085 ——— 10,65Y And that makes Y = 2. 9567 + 1085 = 10652 It is just conceivable – I am not predicting this – that this numerical equation will one day translate into DOW + S&P = NIKKEI. It’s quite close (9505 + 1140 = 13,405). But that’s a much tougher puzzle
Used Car Ad March 23, 2001February 17, 2017 BUY USED CARS Thanks to Paul Lerman for forwarding this supposedly real advertisement from an Irish newspaper: 1985 Blue Volkswagen Golf Only 15 km Only first gear and reverse used Never driven hard Original tires Original brakes Original fuel and oil Only 1 driver Owner wishing to sell due to employment lay-off Photo Attached AND SPEAKING OF SMALL ISLANDS A cruise ship sinks and three men make it to an uninhabited island. The first man, a Christian, tears two branches from a palm tree, creates a cross, and prays to the Lord to be saved from the island. The second man, a Muslim, pulls several fronds from the palm tree, creates a mat, kneels facing Mecca, and prays to Allah to save him. The third man, a Jew, falls asleep under the palm tree. The other two can’t understand how this man could remain so calm and serene, and ask him how he could be so at ease. ‘Two years ago I gave $1 million to the Jewish Federation,’ he explains. ‘Last year I gave $2 million. This year I pledged $3 million. Don’t worry … they’ll find me.’ Monday: ‘Selling Puts.’ But first, a puzzle for your weekend. (Warning: this could ruin your weekend.) In the equation SEND + MORE = MONEY, each letter stands for a digit. I.e., the ‘S’ in SEND may be 0, 1, 2, 3, 4, 5, 6, 7, 8, or 9. No two letters stand for the same digit. Your task: Deduce what digit each of the letters stands for, so that it does, in fact, add up. No higher math skills required.
Plugs and Poesy March 22, 2001February 17, 2017 Gary Wimsett: ‘How about a plug for http://www.corante.com/ (tech news filter)? It’s free, it’s informative, and it’s free.’ ☞ Well, if it’s free and informative and free . . . Alan Rogowsky: ‘After reading your column of some time ago plugging Hamilton Jordon’s book, No such Thing As a Bad Day, I immediately bought the book & sent it to a very dear friend in Baltimore who is suffering from a recurrence of colon cancer – with the admonition that she should make an effort to read it (under the circumstances, even this is difficult for her). Received a letter from her today saying that it has had an amazing effect on her. It has inspired her to be more positive about her health and future – and, significantly, to continue her very difficult chemotherapy. This has made a HUGE and positive difference for her. I suppose you must sometimes wonder to what extent you touch the lives of your readers. Here is a case where you have a made a difference.’ ☞ It’s Hamilton Jordan, of course, who has made the difference – but this is great to hear. A WALK IN THE WOODS I am having so much fun reading – well, listening to the author read me – A Walk in the Woods, by Bill Bryson. I downloaded it with audible.com and am reading it as I walk. You may prefer to listen on cassette as you drive to work, or on the Stairmaster. Or I suppose you could just read it. In a word, this guy, Bryson, set out to walk the 2,150-mile Appalachian Trail. Far better him than us. If you don’t laugh out loud every minute or two, or grin broadly at the wonderful way he expresses himself (‘Daniel Boone not only wrestled bears, he attempted to date their sisters’), it will only be because all talk of bears reminds you of the stock market, and all thought of the stock market makes you feel flu-ish.
Ask Less March 21, 2001February 17, 2017 “He is richest who is content with the least.” — Socrates But forget that. This is not one of those common ‘ask less and ye shall not be disappointed’ columns. It is, rather, a unique ‘Ask Less and ye shall not be disappointed’ column. It ushers in a new free feature of this web site. Wait! Wait! Don’t click yet! Indulge a little haiku and Section 529 frivolity – you do not get this sort of stuff at quicken.com – and then meet me at the bottom so I can explain the new free feature. ‘Oh, not more haikus!’ I hear you cry. Well, yes, more haikus. Deal with it. HAIKUS FOR A CRASH by the estimable Less Antman 1. Lo! A bear market. ‘Time for stocks to return to Their rightful owners.’ 2. Value investor: He sold at Dow 3000, Now thinks he’s proved right. 3. New electric source: A painful shock is given Each time I check quotes. 4. Sell until you sleep . . . Invest this way at 30; You’ll never retire. 5. For one year it’s cash. With five or so, buy I-bonds. Beyond, global stocks. 6. Buy when stocks are down. Also buy when they are up. Buy! Buy! Buy! Buy! Buy! Kim Ness: ‘This week’s TIME has a little blurb about how Section 529 college savings plans are a bad deal because they hurt students’ chances for Financial Aid. Since I’m doing the paperwork on one for a nephew right now, I’d be interested in knowing what Less Antman has to say about this.‘ ☞ Less Antman this, Less Antman that – everybody wants a piece of him. You may recall the scene where Woody Allen is arguing with some stranger about the meaning of Marshall McLuhan’s work. They are in line for a movie. Finally, as they keep topping one another – the stranger wrote his doctoral dissertation on McLuhan – Allen pulls out the final trump card. He goes behind some prop and pulls out Marshall McLuhan himself. ‘Well, I happen to have Marshall McLuhan right here,‘ he crows. And so, ladies and gentlemen, have I the estimable Less Antman. Less writes: ‘What I have to say is what you had to say in The Only Investment Guide You’ll Ever Need (pages 91-92): virtually all student financial aid nowadays consists of loans, which are widely available even to fairly affluent families. Outright grants, on the other hand, are rare, except for students who can throw a football. Furthermore, since the money that has been put into a 529 plan already MUST be spent on the education of the beneficiary, there is nothing really negative about the fact that financial aid calculations assume the money will be spent on the education of the beneficiary.’ ☞ Which brings me, at last, to the new free feature. It is a link, really, and nothing more, but a link to a wide world of expertise – yours and Less Antman’s. You know all those very specific questions you e-mail me that I don’t get a chance to answer? Ask Less! Less has set up a message board for all manner of personal finance questions, and will endeavor to do his best to provide answers and guide the discussion. He charges nothing for this and cannot guarantee the accuracy or efficacy of his answers – and neither can I. But I do know Less to be a very smart, funny, generous, and credentialed soul who always does his best to help. His motivations for taking this on, as best I can tell, are, first, that he enjoys it, and, second, that he might pick up some clients. Mine is to lessen the frustration you feel at having to read canine haikus when what you really want to know is whether, when your wife has a Keogh Plan, you are able to establish a Roth IRA. For the record: I get no part of any fees Less might ever charge a client he acquires though his message board; nor can I take responsibility for his advice. OK. Now you can click. In the future, if all goes well, you will find ‘Ask Less’ every day as one of the permanent options at the top left of this page.
It’s Different This Time NOT! March 20, 2001January 27, 2017 ‘Henry Blodget, Merrill Lynch’s celebrity Internet analyst, may have put the new economy view best on January 10, 2000, when he wrote in a report, ‘Valuation is often not a helpful tool in determining when to sell hypergrowth stocks.’ Mr. Blodget was referring specifically to Internet Capital Group, an incubator of Web companies that was trading at $173.88 then – and $3 a share now.’ – Gretchen Morgensen in Sunday’s New York TimesBlodget was making millions for this, and Merrill was charging its full-service customers accordingly. Click here to see what this lowly column had to say about the same stock on December 27, 1999, two weeks before Blodget’s report. The morals, if you ask me: Full-service brokerage accounts, and their concomitant fees, are nuts for most people. Most people should do their stock-market investing, in the main, through low-expense, no-load mutual funds (index funds, mostly), with the rest, if they buy individual stocks, going through a deep-discount broker. Common sense, a bit of homework, and an insistence on some measure of “value” beat “hot tips” and “hot stocks,” over the long run, almost every time. “It’s different this time” are still the four most dangerous words in the English language. (To see an October 13, 2000, column on that, click here.)
$end Ca$h March 19, 2001February 17, 2017 SAVE THE WORLD – CHEAP! Ed Bessman: ‘Eleven-watt CFLs are only $3.95 at IKEA, Baltimore, MD.’ $END CA$H! Not original with me (why don’t people take/give credit for these things?!). Thanks to Steve Sapka for spotting it: Dear Dad, $chool i$ really great. I am making lot$ of friend$ and $tudying very hard. With all my $tuff, I $imply can’t think of anything I need, $o if you would like, you can ju$t $end me a card, a$ I would love to hear from you. Love, Your $on Dear Son, I kNOw that astroNOmy, ecoNOmics, and oceaNOgraphy are eNOugh to keep even an hoNOr student busy. Do NOt forget that the pursuit of kNOwledge is a NOble task, and that you can never study eNOugh. Love, Dad YOUR DOT COM 1040 Click here.