Year: 2001

Or You Could Just Buy a Used Saturn

My one-time profligate secretary, who drove a more expensive car than I did when she worked for me, has become a hot-shot executive out in Chicago making three times what I paid her – and, well, she still she drives a more expensive car than I do. (I drive a 1996 Saturn I bought for $12,000 in 1998.) But I couldn’t be prouder: she bought it used. A five-year-old Acura.

Way to go, Mary!

And then there’s the gal who cuts my hair. (I used to cut it myself to save money, but now I spare no expense — $20 including a lavish tip.) I gave her a copy of my book, and she reports that she has just bought a used Honda. Her boyfriend wanted to go the whole nine yards and buy a new car. She put her foot down . . . and even walked out of the dealership when the salesman stuck at $7,500. Sure enough, he called her at home the next day and it was hers for $6,400. And there’s more! She put $1,300 down and he was trying to get her to take financing that worked out, she says, to a 29% rate. So she persuaded her parents to write a $5,100 check against their home equity line, charging her the same 8% it cost them. (And they still come out OK, because they get the tax deduction.)

Way to go, Jessalyn!

But somebody’s got to buy new cars, I know, if only as a means of producing used ones for me and Mary and Jessalyn . . . and my friends Paul and Dennis did it the new-fashioned way (with a lot of good old-fashioned homework). Listen . . .

Paul Johns: ‘The Internet really changes car buying. We kinda went crazy and bought two cars the last 10 days. My 1989 Toyota Corolla with 134,000 miles needed more repairs than it was worth, so it was time. We traded it in on a Passat. We also had a ’93 Eurovan with a pop top but without full camping equipment/cabinets/furnace, so we traded it on a Eurovan camper. We’re hoping to do a bunch of camping this summer; there are lots of great places to go near here.

‘I checked used car prices and decided that having a new car, with new features and new warranty, was worth the extra money. So we used Carpoint and the manufacturers’ sites to do the research, and Carpoint and Edmunds for invoice estimates (also, Edmunds has a model- and geographically-sensitive estimate on the car’s value in your area).

‘For one of them, we used CarPoint and AutoByTel to get quotes from a few dealers. It was nice to have them calling me with good quotes, competing for my business. And I ended up not having to drive around to dealers and browbeat the sales people. Frankly, they treat you with a lot more respect if you’re referred through these services.

‘We got a very low quote from one dealer that we took to the dealer/salesman we really wanted to do business with. He wasn’t able to match it, but he was able to come close enough that we were entirely happy. It was frankly worth the extra money to do business with the best dealer in Seattle.

‘The last time I bought cars (in 1989 and 1998), the experience was very different. I didn’t have a good idea of what the dealers paid for the cars. I knew nothing of the holdbacks (a percentage manufacturers rebate dealers). So I was in a much weaker position, and the process frankly just wasn’t much fun.

‘So using the Internet – especially the buying services – levels the playing field a bit. I want my dealer to have a healthy business, but I don’t want it to be TOO healthy at my expense.’

☞ Thanks, Paul! For more price-comparison and quote-service sites, try searching on ‘cars’ at Goto.com. To avoid price haggling altogether, buy a Saturn – the price is the price.

Rest in peace, Mrs. Landingham.

Tobacco and Tax Havens

You thought there was no connection Thursday between Joe Cherner’s message (Wal-Mart’s push to sell Marlboros in Mexico) and Spencer Martin’s message (we’d better watch out – France is going to impose their high tax rates on us)? Well, there is one. Vaguely. France may not be interfering with our tax structure, but we are interfering with Korea’s – over tobacco.

‘In line with Seoul’s plans to deregulate the domestic tobacco industry, starting next month foreign cigarettes stand to face a heftier customs duty, 40% higher than the current level. Fearing a possible setback in American cigarettes’ market share in Korea, for the first time ever the United States is requesting Seoul lower those tariffs. . . . A USTR team arrived in Seoul on Sunday to further negotiate the planned hike in cigarette tariffs this week.’ – Chosun Ilbo, Monday, 6/11/01

Why shouldn’t the U.S. taxpayer send a delegation abroad to try to keep our cigarettes attractive to the Korean people? We favor free trade. But in the previous administration, the policy was different. Being highly addictive and frequently deadly, tobacco was considered something to discourage around the world, not promote.

Never fear, Philip Morris: the Bush administration is on the case.

Meanwhile, a world away, comes this word from Florida:

‘I regret to inform you that Governor Bush has announced his veto of $4,587,393.00 of tobacco control enforcement funds. Tobacco control enforcement is a critical component of Florida’s highly successful youth tobacco control program. The American Cancer Society has made adequate funding for the Tobacco Control Program a top priority. I am very disappointed in the Governor’s decision to cut funding for the most successful youth tobacco control program in the country.’ – Ralph A. DeVitto, American Cancer Society, Florida Division

Never fear, Philip Morris: the Bush administration is on the case.

Little Bank, Neat Idea

So I am walking through Central Park on a beautiful June afternoon – the City has never looked better, people are jogging and strolling and biking and blading and lying in the sun getting pink – and along comes a horse-drawn carriage with no sides or top, three lovely ladies and a pinstriped older gentleman making them laugh, straight out of a movie. And who is this gentleman, I realize? David Rockefeller. A great little New York moment.

Before I could shout anything, the carriage had clop-clopped by.

And what would I have shouted? Even before Chase merged with Chemical and then with Morgan, what good was it to be a client of the Chase Manhattan Bank, the Rockefeller bank, if you were not a sheik or a shah or an emir? Or at least a mogul? Were you – little old you – going to pick up the phone and get to talk to David Rockefeller? Shout hello in the Park? I don’t think so.

(Not that he wouldn’t have welcomed it – a very nice man, I am told.)

Whereas at my little Bank Audi, also in New York, it’s not entirely unlikely you would one day run into Joe Audi.

And look at this! Bank Audi’s on-line banking now lets you do just about anything any of the giant banks do – and one thing more. You can now click on a check you wrote and get a printable quality image, front and back, even years after you wrote it. Reason enough to switch to Bank Audi? Mmmm, no. But, at least until paper checks disappear altogether, it’s a pretty neat idea.

*CHECK OUT THIS RETIREMENT SITE*

Paul Lowry: ‘May I refer you to this URL for a handy-dandy Retirement Planner that I visit regularly to ‘plug in’ my numbers and see what results? It has lots of good information for all ages.’

☞ Good one.

Finding the Next Buffett

George Smith: ‘I was reading the latest Forbes and I came across an article by Jim Michaels in which he stated that leadership is more important than the product (over-simplifying). How can a person check on management to see if they are great or not? A stock will reflect it, but by then it is too late to invest.’

☞ All but impossible. You can sometimes spot the real stinkers, and weed them out – a prison record can be a useful tip-off, for example. And you may be able to find the 50-year-old Jack Welches and Warren Buffetts and Hank Greenbergs, and possibly ride their next 15 or 20 or 25 years. (I first wrote about Buffett around 1983. Can someone please tell me why I didn’t by 10 shares of his stock? Or just take me out and shoot me?) But it’s tough to make these calls. Very often ‘the most admired companies’ on Fortune‘s annual list wind up being rotten performers the following year. One more argument for index funds?

Tina Tolins, MD: ‘No, I don’t know “the old expression about bulls, bears and pigs.” Could you enlighten me?’

☞ The bulls make money and the bears make money, but the pigs get slaughtered. Actually, of course, the bears generally get slaughtered, too, both because the market has an upward bias over time and because, even if you’re 100% right, you can get totally wiped out in the meantime. I have a friend who lost, in two days, everything he had worked his whole life for. He shorted way-out-of-the-money Amazon calls, which was a license to print money. Amazon was wildly overpriced already, and there was no risk at all to collecting these call premiums unless the stock jumped, like, 100 points in a week. He was completely right about Amazon – but too early. The stock jumped 150 points that week (or whatever). Come to think of it, this sad experience may also be covered under the ‘pigs get slaughtered’ rubric.

Meanwhile, for every old saw that says one thing, there’s another famous old saw that cuts the other way – in this case, I guess it would be, ‘cut your losses and let your profits run.’ In other words, don’t sell just because something has gone way up. But if I had to choose one saw over another – especially in a retirement account where you don’t pay a tax penalty for selling – I’d chose the former. Because usually, if a stock goes up a lot, it becomes less of a tempting value. And I like tempting values.

Then again, to the extent Jim Michaels of Forbes is right – and Jim, dean of financial journalists, is about the wisest guy around – you might look at it a different way. Let your profits run, at least in some situations, because the management that’s smart enough to be a winner this year may well just keep being smart, and winning, year after year. I.e., to some extent, stock prices themselves can identify good managements. By the time I wrote about Buffett, his stock had climbed from $16 to $300. But still had (at today’s prices) $67,900 to go.

Unfortunately (well, witness Amazon at 250, now 15) it’s not this simple. One more argument for index funds?

REMINDER: SECOND QUARTER ESTIMATED TAXES DUE TODAY.

Maybe We Should Give Orphans Marlboros . . . and Send Them to a Tax Haven

TAX HAVENS

Spencer Martin: ‘I have to object to the idea that the OECD is a trustworthy organization – they epitomize the international bureaucracy of unelected mandarins who want to control things just for the glory of control. The OECD initiative is only about tax havens on the surface. Its main impetus is to implement France’s ideas about eliminating ‘harmful tax competition’ among nations and the need to ‘harmonize’ tax rates across members (at the highest common denominator, of course). Something rather like forcing Florida to charge New York tax rates.’

☞ I doubt we are in danger of having France impose its tax laws on us any time soon – but getting that missile shield in place, and a full outer-space military capability, would be a prudent safeguard just in case.

EL MARLBORO MUCHAHO

Joe Cherner: ‘In the United States, placing cigarette ads at every checkout counter is LEGAL. But Wal-Mart doesn’t do it. ‘The health of our U.S. customers is important to us,’ according to a Wal-Mart spokesperson. (Tobacco addiction kills more than 400,000 Americans each year.) But in less developed countries, where customers are less informed, Wal-Mart pushes Marlboro billboards at every checkout counter (for a picture, click here). Wal-Mart also allows Philip Morris to use its parking lots in less developed countries to host Marlboro Adventure Team attractions where young people put on safety harnesses and try out fun and daring outdoor climbing activities. Wal-Mart’s response? As best I can piece together their point of view after months of talking with these folks, it is: ‘The health of our customers in less developed countries is not our top priority.’ But isn’t the health of ALL children important?’

☞ To learn more, click here.

BETTER OFF IN AN ORPHANAGE?

Now here’s a controversial topic – gay adoption. What do you make of the logic in this editorial from the Chicago Tribune?

He’s . . . Snortling?

The Los Angeles Times did a story last week that questioned the President’s level of engagement. “He’s engaged,’ fumed a Republican senator who participated in the recent budget meeting in the White House Cabinet Room, ‘but it’s all surface engagement – all kinds of wisecracks, snortling and nicknames.”

What has stuff like this to do with your money? Nothing directly. But national and world confidence are important factors in economic well-being. When markets feel secure, they thrive. When they feel shaky, they sometimes stumble. Many believe that the President can get his mind around substantive issues when he applies himself – and some, including a ‘conservative midwestern Republican’ quoted in the story, wish he would.

Meanwhile, the New York Times reported Friday that seven former IRS commissioners, three of them Republicans, have written a letter to Treasury Secretary O’Neill, urging him to ‘withdraw his opposition to a proposed crackdown on … tax havens.” These tax havens are terrific for wealthy people who wish to evade taxes. A manufacturer I used to know told me some years ago that he keeps millions of dollars in a secret account overseas, so it can earn interest and appreciate tax-free. He has three homes in America and none that I know of abroad – he’s 100% American. “Well, but it’s illegal,” I sputtered, naively. “Doesn’t everybody do it?” he replied?

My guess is that very few do it – but enough for the Treasury (and the treasuries of other nations) to be losing billions of dollars (and euros and pounds) that the rest of us have to make up.

The Clinton administration was working with the 30-member Organization for Economic Cooperation and Development to fix this. Reports the Times:

[The OECD] has already persuaded nine countries that it calls tax havens to cooperate with criminal tax investigations and to ease some of their bank-secrecy laws. But many of the countries it regards as offenders, including Panama and Turks and Caicos, have stiffened their opposition since Mr. O’Neill issued a statement on May 10 saying the Bush administration would not support an overly broad effort to impose sanctions on tax havens.

The letter to O’Neill from the seven former IRS commissioners said that “we have never been closer to cracking down on tax abuse through the use of tax havens and that is especially important to the United States.”

Not so fast, seems to be the new administration’s policy on this. Which is good news for the manufacturer I used to know.

We “cannot turn a blind eye to toward cheating in any form,” O’Neill has dutifully averred. And that’s fine. But if the bank-secrecy laws of these countries are maintained, then even the sharpest eye may see no evil.

It is, as I’ve snortled, a grand time to be wealthy in America.

Is Your Mutual Fund Manager Gorgeous? Uh, oh.

Sam Kahn: ‘I know this won’t fly as a submission to the Value Investors Club you wrote about last week, but my favorite recommendation is to buy mutual funds managed by [differently-beautiful] women. Women still have to work harder than men to be successful and [differently-beautiful] women have to work even harder than that. I usually don’t find what I need in a prospectus, but with a little research (sometimes it’s a judgment call), this has worked for me.’

☞ Differently-beautiful was not exactly the adjective Sam used, but everyone is beautiful in some way – especially if they’re earning you better than average returns on your money.

UPDATES:

  • Bob Stally: “Forbes.com has some good and active message boards, including one for Calton.”
  • Last March 14 I told you about some stock picks of a very smart friend. As of Friday they were up, collectively, about 67%. One of them, Jones Apparel (JNY), up 73%, and has also been favored by Warren Buffett. I noticed Friday that some Buffett-controlled entities have recently sold some of their JNY. Since I had it in a retirement account, sheltered from tax, I sold mine as well. This isn’t to say JNY won’t continue to thrive, or even that I’ve interpreted the insider-trading data properly. But you know the old saying about bulls, bears, and pigs.
  • Meanwhile, the Great Atlantic & Pacific Preferred J stock (GAJ) suggested here in January at $12 (now $22), paid its regular 58-cent-a-share quarterly dividend again in May, as it did in February . . . leading me, of course, to wish (at least for now, until something terrible happens) that I had bought much more. But there’s an old saying for that one, too – “would’a-could’a-should’a.” Roughly translated: “Get over it!”
  • The free books went to a teacher in Fort Wayne, Indiana.
  • For more on the vandal scandal – click here.

When You’ll Get Your $300 — and What To Do With It

You could write at great length about all the rotten, dumb and irresponsible parts of the tax bill signed into law Thursday – this is tax simplification? — and thousands of people will, for years to come, as we struggle with its many time-bomb consequences.

But one of the good parts of the bill is simple, fair, and welcome. It lowers the bottom bracket from 15% to 10%, for everyone, retroactive to all of this year.

This will save all taxpayers 5% on their first $6,000 of taxable income if they’re single – $300 – or $600 on their first $12,000 if they file jointly.

In part to ‘stimulate the economy,’ checks for those amounts are being mailed out right away – or as close to ‘right away’ as can be managed when you’re talking about 100 million checks.

Here’s when to expect yours:

If the final two digits of your Social Security are . . .

00-09, it will be mailed the week of July 23
10-19, it will be mailed the week of July 30
20-29, it will be mailed the week of August 6
30-39, it will be mailed the week of August 13
40-49, it will be mailed the week of August 20
50-59, it will be mailed the week of August 27
60-69, it will be mailed the week of September 3
70-79, it will be mailed the week of September 10
80-89, it will be mailed the week of September 17
90-99, it will be mailed the week of September 24

My own guess is that by the time the check finally comes, a lot of people will either have spent the money three times over, or will just be sort of drained from anticipating it. Nonetheless, to many it will be welcome.

Here’s what I want you to do with yours:

  • If you have credit card debt, take this $300 or $600 and pay down that debt! (Tear down that wall, Mr. Gorbachev! It is the personal-finance equivalent.)
  • Otherwise, endorse it over to the Democratic National Committee and send it to me. Think of it as poetic justice.

As the Big Day draws closer, I’ll tell you why and where to send it.

(Those of you who are inspired by the leadership of Trent Lott, Jesse Helms, Dick Armey and Tom DeLay should, of course, consider endorsing yours over to the Republican National Committee instead.)

Or if you just can’t wait to help – or want to address an envelope and stick it up on the refrigerator door in giddy anticipation – here’s the address:

Andrew Tobias
Treasurer
Democratic National Committee
430 So. Capital St., SE
Washington, DC 20003

Please toss in a business card or a Post-It or something with your OCCUPATION and EMPLOYER, as required by law. (Also, optionally, your e-mail address.)

While you await your Treasury check, you can take some vicarious pleasure in knowing that since taking office, our Secretary of the Treasury – who, like you, will be getting the same $300 or $600 – has, in addition, already made what may approach a $62 million gain on his Alcoa stock, according to a report in Salon. (Alcoa has benefited wonderfully, even if California hasn’t, from the Administration’s energy policy.) Secretary O’Neill may not have had much experience on the world financial stage before being tapped for this hugely important job – he may not be an Alexander Hamilton or a Robert Rubin, or in line to be president of Harvard or Yale when he’s through – but the man knows a heck of a lot more about running a business than I ever will, and he knows aluminum.

Contributions to the DNC are not tax deductible. Your contribution will be used in connection with federal elections and is subject to the limitations and prohibitions of the Federal Election Campaign Act. Federal law requires the DNC to use its best efforts to collect and report the name, mailing address, occupation and name of employer of individuals whose contributions exceed $200 in a calendar year.

 

Good Deals

FREE BOOKS LOOKING FOR A HOME

I have here a set of the 20-volume 1931 Funk & Wagnalls encyclopedia (they are small volumes), along with Larned’s 1915 five-volume history of the world. If anyone would like them, just give me your address and I’ll be glad to send them. (Feel free to tell me why you want them, so in case more than one of you does, I can take that into account.)

Joelle: “please, please, PLEASE help me! Here’s the scoop: I work at a PR agency and …wait!…keep reading…(thank you)…I represent LowerMyBills.com.

“I am contacting you b/c you are the voice of personal finance and we need your help. You’re still there? Haven’t lost you? Ok…. We really are a decent, helpful, useful, Web site that can really save people money. It’s NOT a scam. Really! It’s based on the concept that the consumer wins when business fight to get customers by lowering their prices.

“Please keep reading….

“So – we have all these services, like long distance, insurance and options for picking your utility company. Of course, it’s all free to the user. They only need to visit us once to see how great it really is.

“Here’s what we want:  You to write a glowing article in Parade Magazine on how we are saving America’s consumers millions of dollars. You can tell people how we work and how they can save money too. To date, we have saved people either a documented $50 million dollars, or $100 million (if you allow us to get fancy with our numbers).

“Here’s what you’ll get: A nomination from us for the Pulitzer Prize; Our undying gratitude; Satisfaction that you probably helped us all keep our jobs by getting the word out that we exist,

“Are you so excited by my suggestion that you don’t now what to do next???  We really, really, really need/want your help!!! Please???? Pretty please? Check us out – you’ll be sold! Our site is (of course) www.lowermybills.com.”

☞ Hmmm.  Oh, why not.