Author: A.T.

RETROBOX.COM

Looking for a cheap used laptop? Check out retrobox.com. They buy used machines by the hundreds from big companies that are upgrading, then wipe the hard drives clean (including the operating system) and sell them to you. You install Windows ’98 or whatever and, with luck, have a machine that would have thrilled the pants off you three years ago when it was new, and can still handle most routine chores. My friend Stampp Corbin came up with this idea.

DRYER LINT

I put on one of those Saks Fifth Avenue T-Shirts I know all you guys are now wearing (see Ode to an Undershirt), and it felt great, as usual. Thick strong cotton. But it felt so great I suddenly realized the contrast — that the ones I had been wearing lately actually hadn’t been feeling this great. A little skimpy, even. Did Saks’ quality vary? Did they have one shirt for summer and another for winter?

“Dryer lint,” said Charles.

I squinted at him, uncomprehending.

“Dryer lint. The one you have on must be new. Each time you wash them, they get a little thinner. Where do you think dryer lint comes from?”

Oh. My. God. In 52 years I had never realized this. I had always assumed dryer lint was like condensation; it just formed out of thin air. But of course! It’s your sheets and towels and clothes! From now on, I’m hanging it all out the window.

VITAMIN F (as in flunk)

Sara Wolfson: “I would just like to relate my own experience with Vitamins.com and their $25 off special. I placed my order on 11/19 and got a confirmation notice telling me it would take 2-4 days to come. By11/29, no order had arrived. I called the 800 number to complain and was told they were backed up a week due to overwhelming response to this great offer. They had sent an incorrect confirmation notice, but told me my order had actually been shipped 11/24. A supervisor tells me I will get my stuff on 12/2. And lo and behold! It’s not here! I have sent 2 e-mails to the supposed headquarters which I was told is in Virginia and have received no response. Meanwhile my supply of a supplement which my son, who has a rare disorder, takes is completely gone. I ordered it way in advance so I wouldn’t have this problem and I started ordering off the Internet because my son takes high doses and it costs a fortune. Oh well, some lovely vitamin company here in town will be glad because now I will have to give them my business. Hey, it will be that much better of a tax deduction for me, right?”

You know all those clever, poignant or deeply personal PS’s you’ve been appending to your e-mails? That final thought that leaves them with just the feeling you want? “PS — In case you can’t, just let me know and we’ll haul out the Spam! Ha, ha, ha.” . . . “PS — No matter how all that sounds, or how angry it makes you now, please understand where it’s coming from. I love you more than life itself.” . . . “PS — I forgot the most important thing. Come at 8 sharp and don’t tell Karen. It’s a surprise!”

Well, I’ve got bad news for you. No one has seen any of them. They fall below the bottom of the screen, and when people get to the sign-off of your e-mail — “See ya around, dude.” — they don’t click “Scroll Down.” They click NEXT.

Now do you see why your friends have gradually been falling by the wayside? Why no one seems to be reacting to your missives in quite the spirit you expected? Rejoice! A solution is at hand.

I hereby proclaim and decree that the Post Scriptum of a physical letter be replaced by the e-Prior Signatorum. You write it just the same way . . . “PS — On the off-chance you didn’t realize it, Jack, I am joking.” . . . only you put it above the signature instead of below.

I’ve been doing this for several weeks now and find my social life gradually returning to normal.

Tomorrow: Dryer Lint

[Great site: mapquest.com — whether you need to print directions to the party, e-mail them to a friend, or just find a zip code (9-digit, naturally). Awesome.]

Will Belke: “You recently suggested we should not cut taxes now because we will over-stimulate the economy. So if we don’t cut taxes in good times, and we will never cut taxes in bad times because the government needs the money to support the less fortunate during those periods, when do we cut taxes?”

Actually, bad times are a good time to cut taxes. It stimulates the economy and gets people spending and working again, tipping the national mood from fear to . . . well, if not greed, let’s say “better spirits.” Yes, government expenditures rise in recession and revenues fall. Combined with a tax cut, that can mean a year or two of sharp deficits. But that’s not imprudent, any more than it’s imprudent for a family to dip into savings when one of the breadwinners is in between jobs. The trick is to accumulate the savings in the first place — or, in the case of the national debt, to pay it down enough in good years so there’s room to run it back up some, if need be, in bad years.

Will continues: “It seems if we are going to cut taxes and reduce the pressure on the middle class, now is the only time. And I know the rich are going to get to come along too, but it is not a crime to be rich. As a matter of fact some of the greatest Americans ever have also been wealthy. Rich people are not by definition evil.”

No, we’re not. But we sure do have a pretty good deal, much as we complain. Yes, it costs an arm and a leg to run a yacht these days — look what you have to pay the oarsmen! And look how much more tax you pay than the oarsmen, even though you have no kids in public school and they all have three. Heck, they should be paying more tax than you!

But somehow I’d still rather be sipping my gin and tonic on deck than rowing.

So although I entirely buy Will’s notion that it’s no a crime to be rich, I don’t accept his premise that cutting taxes on the middle class necessarily means that “the rich are going to get to come along too” — that in order for each middle-class family to pay a couple of thousand dollars less, my friend Steve Forbes must pay a couple of million less. You could actually leave his tax bracket where it is.

One thus gets into this endless — but worthy — debate over two things.

First, how much of our spending should be public versus private. Do we need a public police force, public roads, public schools, social safety nets for the indigent? Where do you draw the line? And once we do draw the line, how do we manage the public part most efficiently, to waste as few dollars as possible? (I don’t buy the notion that public efforts are always less efficient than those of, say, a private nonprofit. Before it even starts to do any good work, the private nonprofit needs to hire a development staff to raise the money to pay for the fundraising required to pay the development staff and arrange for the black-tie dinner or the direct mail campaign — costs that a taxpayer-funded service can avoid.)

Second, once we decide what we do want to fund collectively, through taxes, how do we spread the burden? If you do it partly with an income tax, should everyone pay an equal sum? An equal percentage of income? The answer is part economic (some arrangements may produce a healthier economy than others) and part philosophical (people have differing notions of what’s fair).

To the government in Eisenhower’s day, a top federal income tax bracket of 90% apparently seemed fair (not that many of the few to whom it applied failed to find ways to avoid it). It was in that environment that Steve Forbes’ dad Malcolm built a terrific business. Kennedy lowered it to 70%. It was in that environment that we had a long economic boom. Reagan lowered it first to 50% and ultimately to 28%. The gap between rich and poor widened. The National Debt soared. Bush bumped the top federal bracket back up a little to 31% and the debt continued to soar but the economy was weak. Clinton hiked it to today’s 39.6%. (The marginal rate, because of the way certain tax benefits phase out as income rises, is even a bit higher.) But the economy has been great, and home and car loans — as much a “tax” to the middle class as any other — fell sharply.

It’s always tempting to cut taxes. And both the President and Democrats in Congress did favor a tax cut about half the size of the one the President vetoed. But here was my question last week that provoked Will’s comment (and many more acid ones): If Geo W’s stated goal is to help low-income folks break into the middle class, and to give the middle class a break, why also give a massive tax break to the rich? We’re actually not suffering as badly as you might imagine.

Tomorrow: An E-mail Edict

PREFERRED STOCKS – PART II

R J Kirsch: “Re your comment concerning newsletters concentrating on preferred stocks, see Richard C. Young’s Intelligence Report published monthly by Phillips Publishing, Inc., 7811 Montrose Rd., Potomac, MD 20854-3394, 800-301-8968, email: ryoung@phillips.com. Preferreds are one of his three favorite investments (treasuries & Dow 30 stocks are the other two). Four times a year Young provides a special four-page list of recommended preferred stock buys (he calls it his “Monster Master List” of preferred stocks; it’s better than it sounds).”

Eric: “It’s been ages since I have looked at preferreds. I do remember an older colleague pointing me to Chrysler preferred [when Chrysler was going bankrupt and before Uncle Sam bailed it out]. Cost about $3 a share if I remember right and had about $21 due in back dividends, which the market had decided would probably never be paid. Too bad I was too poor to have bought some! Do preferreds still accumulate dividends in this fashion?”

☞  Yes, if they are ‘cumulative preferreds,’ meaning that unpaid dividends accumulate. People who bought these Chrysler preferreds hit the jackpot – especially if they were convertible cumulative preferreds (I don’t remember), meaning they could be converted into common stock.

Tobias Brown: “What intrigues me about preferreds is the fact that everyone seems to be shunning them, including the intermediaries. If you look at expected rates of returns for the Dow over the coming five years and also look at the preferred yields for quite decent companies [8% or more], it seems on the face of it to be extremely interesting. However, I can find zero information out there, including simple stuff such as historical spreads between treasuries and preferred yields, etc. I have always found that in information vacuums in financial markets often opportunities lurk.”

☞  Indeed.

Steve Samuels: “The very best way to buy preferred stocks or for that matter any type of bonds funds right now is in a closed-end fund. The ability to buy bonds at 80 to 85 cents on the dollar right now is as attractive as I have ever seen! With rates up in ’99 (as in ’94), bond funds discounts have become larger than ever. Why pay retail?”

☞  The only problem here is that the closed-end fund charges a management fee. If it were 1% and the fund’s bonds yield 8%, then you’re really only getting about 85% of the bonds’ or preferreds’ yield passed through to you. So that could be one justification for the discount. (Newcomers: a closed-end fund is one that sells a set amount of shares — $100 million worth, say – and then shuts its doors. From then on, buyers and sellers of the fund meet in the marketplace, and the price at which the shares trade hands is set buy supply and demand, just as with a stock. So even if the fund has $10 a share in underlying assets, its shares may trade for only $8 or $8.50. With a regular, open-end mutual fund, the shares aren’t traded between investors, investors buy directly from, or sell directly to, the fund, at Net Asset Value – the full $10. Closed-end funds are also known as ‘publicly traded funds.’)

Bill Frietsch: “There appears to be a real bargain these days in closed end junk bonds. I’ve recently purchased the Pactholder Hi Yield bond fund (symbol PHF, ASE) for about $12, yielding about 14%. For years this fund sold at a premium, now it’s at a 10%-plus discount. I realize that, by definition it’s risky, but is it anymore risky now than in the past when it sold at a premium? Other closed end junk bond funds are selling at similar ‘bargain’ prices.”

Jeff Splitgerber: “Vanguard offers a Preferred Stock Fund (VQIIX) that has been an excellent performer through the years. My corporation has owned this fund since 1993 and I have found it to be more stable than individual Preferred Stocks. Vanguard also keeps me up to date on DRD and related issues that were a target of reduction by the Clinton Administration a couple of years ago. As you pointed out, Preferred Stocks are best suited to corporate ownership due to their tax benefits. Morningstar rates it at 4*. Check out at http://quicktake.morningstar.com/Funds/Snapshot/VQIIX.html.”

AND AREA CODES – PART II

Robert Doucette: “Lockheed-Martin has the contract and the responsibility to select where and when new numbers are assigned. The best new number is for Eastern Florida including Cape Canaveral, their new area code is 3…2…1.” (As in . . . LIFT OFF! . . . notes Dr. Stephen Rubin.)

Maryl Curry: “I recently was given a phone number of a friend in Costa Rica. It was: +506-234-0432 (including the “+” sign.) But when I dialed it (adding a 1- before the number as I was taught in school) it didn’t go through. You have, in your world wide travels, had occasion, I assume, to make calls to another country. What’s the secret? What DIDN’T they teach me in school?!”

☞  1 is the country code for the US. 506 is the country code for Costa Rica. When you dial 1 first, the phone system assumes you are calling a number in the US. To call abroad from here, you would dial 011 to set up an international call, plus 506 and then the number (which I have cleverly disguised above so that if anyone tries calling, they won’t bother your friend, they’ll bother someone else).

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.

“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.

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.

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