Author: A.T.

Remember all the talk about converting to Roth IRAs? As The Wall Street Journal and others have ably pointed out — but it may warrant my repeating in case you missed it — the recent market drop has this silver lining: If you do qualify to convert your existing IRA to a Roth IRA (because your 1998 adjusted gross income is likely to be below $100,000), it’s now less taxing to do it. Why? Because the tax is based on the value of the IRA at the time of the conversion. If the value of your IRA has dropped 20% or 30%, so has your tax bill! (Or nearly so.) Hence, conversion may be worth another look.

There’s also this nice amendment to the tax law. If you convert thinking your income will be under the $100,000 ceiling and — nuts! — you get a nice bonus, you are allowed to UNconvert without penalty so long as you do so before your 1998 tax return is due (i.e., April 15). So it’s not the gamble it might have been.

For free software aimed at helping you decide whether to convert or not convert, you might check out www.owlsoftware.com.

Goldman Sachs market strategist Abby Cohen and I were on "Face the Nation" last Sunday talking about the stock market collapse — she, because she’s one of the most highly regarded analysts on the Street, and I, because Peter Lynch was unwilling to screw up his Labor Day weekend — and I have two things to report.

The first is that I’m not really as pessimistic as I may have sounded. I did mean, and do believe, that anyone who’s in the market on margin should sell enough to get off margin (and that anyone in the market who runs credit card balances or pays 10% on a car loan is, in effect, in the market on margin, only paying high non-deductible interest). But that’s always true. I did mean, and do believe, that people should not invest money they may NEED in the next five years, possibly even longer — but that’s always true. And, finally, I did mean and do believe that anyone in the market should pay special attention to transaction costs and fees — easy to overlook when the market is going up 25% a year, but a terrible drag on performance at any time, and painfully so when the market is actually stagnant or going down. And that’s always true as well. (It’s never smart, in my view, for example, to pay a 2% or 3% annual "wrap" fee to have some venerable brokerage firm manage your money — it’s insane.)

I even did mean and do believe that we probably haven’t seen the bottom yet. But on that point I would have liked to bold face and italicize the caveat: "Needless to say, I don’t have a clue where the market’s headed." Hunches, yes (more often wrong than right, I’d say), but a real clue? Nah.

So Abby was a lot more confident — not to say she was issuing any guarantees — in her expectation of a market back at 9300 by year’s end than I was/am in my hunch that we probably haven’t seen the bottom.

And sure enough, with the Labor Day Weekend over, the market opened up 380 points. So maybe we have seen the bottom, though my hunch … well, you know my hunch.

But over the long term, one should certainly be excited by and optimistic about our nation’s and our world’s prospects. We have to do a lot of things right to keep from blowing it — mainly, we have to resolve our conflicts peacefully, or as nearly so as possible — but the power of technological advance holds out the possibility for extraordinary gains in productivity and prosperity.

The second thing I wanted to say is that I got a lot of e-mail from friends snickering over Abby Cohen’s presumed unstated interest. Namely, that Goldman Sachs hopes to go public next month, so of course Ms. Cohen is, consciously or subconsciously, touting the market.

But interestingly, and to her credit, this may be dead wrong. Ms. Cohen is not a partner at Goldman Sachs; she is an employee (albeit a highly regarded, senior one). Which means that while the partners will, in effect, be "sellers" when Goldman goes public and would not mind seeing a strong market for their offering, Ms. Cohen will in effect be a buyer in that her stock options will, one presumes, be tied in some way to the opening price. The lower, the better.

So Abby Cohen may be right about the market or wrong about it, but she’s not bullish just to pump up her Goldman stock — she doesn’t own any.

From Dana Dlott: “Hewitt Associates has introduced an index that tracks 401(k) activity – www.hewitt.com/401kindex.”

The index is based on more than a million employees of 40 big companies that allow daily switching among investment options. The idea is to get a sense of what people in general are doing from how this sample behaves. One thing I noted: Where a decade ago my recollection is that 60% or more of 401(k) money (I think more, actually) was invested in safe fixed-income stuff, now that’s down to under 30%. In other words, people have been getting the message that for really long-term money, and that’s what retirement money is, the stock market is the place to be. Over really long periods, stocks always outperform safer investments (barring periods like 1917 in Russia or 1949 in China).

The paradox, or at least the nagging worry, is that it is this very huge shift of 401(k) funds into stocks that has helped fuel the bull market, and it’s a shift that must at least be nearing, if it hasn’t reached, its extreme. (The theoretical extreme would be 100%, but I doubt we’d ever get all the passengers on the boat over to starboard.) So what happens if people begin shifting some of their money back out of stocks?

One mitigating factor is that new money is being poured into 401(k)s with every new paycheck. And some of it, doubtless, will always go into stocks, even if not at the same rate as today. So even as some people may be shifting 401(k) money out of stocks (passengers shifting back to the port side), at least some of that money will be replaced from the flow of new 401(k) contributions.

Well, this Web site offers a glimpse of how some employees have deployed their retirement money and how they’re allocating new sums every month.

(I assume you know the original of the word posh – it comes from Port Out, Starboard Home, which apparently afforded the best views or breezes or something to the wealthiest passengers, and was thus requested when booking passage. Now one of you will have to tell me whether this would have been the British or American passengers, since to the other group, soph would have been the desired booking. The point is: Where we collectively choose to stand on the financial ship affects the way it leans.)

From MNB, just before the market break: “Well, I am all ready to run off and short Amazon.com (and AOL for that matter). One lingering question, though. Most likely Amazon.com is overvalued by the market, but what if some big guy like Borders Books comes in and buys amazon.com to secure a larger online presence? I think Internet stocks will eventually fall out of favor, but I am worried that a company like amazon.com will be taken over for a significant premium before then.”

Borders is too small to buy Amazon. But be very careful shorting it. As I suggested yesterday, these guys are pretty smart. Conceivably, Amazon will become one of a handful of global Internet retail access points – you need something (anything!), you go to Amazon – with, say, 50 million active users. At that point, five years from now, it could certainly earn $100 after-tax profit from each one, let’s say, which comes to $5 billion a year. At 20 times earnings, that would be a $100 billion market cap, or about 15 times what it is today.

There are a lot of things that could go wrong with this scenario (most of them all coming under the heading competition), but unless/until some do, you could have the stock just keep climbing.

So … don’t short it on MY account!

[But I hope you did, because it was 115 when you wrote me this and 73 in the midst of last Monday’s big drop.]

Flash Update: Second ship comes in? You have to understand, I wait years for these things. And most of my ships sink. So I was as astonished as anyone a couple of days ago when Calton Homes (CN) – which I described here August 13 at 60 cents a share – announced it had reached a definitive agreement with Centex to sell its core business for about $1.70 a share. According to the September 2 press release, Centex will pay $50 million and assume all CN’s debt. CN will trade its only asset (so far as I know) – the home building subsidiary – for this $50 million. At which point perhaps the CEO will blow it all somehow; but with 11 million shares himself, I’m guessing he’ll at least try not to. And now back to our regularly scheduled programming:

* * *

Is it possible Amazon is my first true love/hate relationship? Love the company, hate the stock? Probably not, because “hate the stock” is too strong after it has dropped 60 or 70 points. I just think it’s still way risky and overpriced. But I have such admiration for how well this pipsqueak has managed to “do it right” – and I am short so few shares – I can’t say I’d hate to see it break through all the likely upcoming obstacles to a touchdown. (To see what such a future would look like for Amazon, see tomorrow’s column.)

I consider that a long shot, but when did Americans not root for the long shot?

That said, check out www.bookblvd.com which will lead you to the lowest online book prices around – often from a company called A1 Books. And note that you shouldn’t have to type barnesandnoble to get there – someone told me “bn.com” works just as well. When I tried, it didn’t; but if it doesn’t ordinarily work, what is Barnes & Noble thinking? For a fraction of the millions they’re spending on ads, surely they could buy that URL and make it synonymous with barnesandnoble.com. I know it’s moot once you bookmark the site, but I’m convinced a little thing like this is a BIG thing to the lazy among us (which is 90% of us) and to the uncertain spellers (40%).

Anyway, here’s the latest smart thing Amazon has done – as amply and amusingly chronicled in The Wall Street Journal two or three weeks ago, but in case you missed it. Rather than just list the top 10 or top 100 sellers for the past week, Amazon (and only Amazon) has taken to ranking ALL books – and updating those rankings hourly for the top 10,000 (daily for the next 100,000; monthly for the rest, which run up past 1 million).

So here’s what’s so smart. I love Barnes & Noble, yes. Barnes & Noble has been very good to me. Barnes & Noble even has my latest number in a few of its windows and featured at 40% off on its Web site. (No, it’s not about money – don’t ask/don’t tell.) But the Barnes & Noble Web site doesn’t yet have this ranking gimmick.

• So guess where authors quickly become addicted to going on the Net? Precisely. We’re like little over-the-counter CEO’s addicted to checking our own stock prices – which in our case is the Amazon rank. I’ve seen my investment guide ricochet from 235 to 1,400 and back to 639 in a matter of hours. One night, when I saw it slipping, I couldn’t resist – I clicked and bought one. Sure enough, an hour later I was back up a bit. (Amazon’s computer assigns weight not just to sales but – even more – to how recent those sales were. A sale 10 minutes ago counts for much more than a sale yesterday, let alone 10 days or 10 months ago.)

• And guess where at least some authors are going to send their friends to order their books. That’s right.

• And guess to what sales-ranking list thousands of newspaper and magazine articles will likely refer (as others refer to the Fortune 500 or the Forbes 400 rankings). That’s right, too.

And that’s why Amazon is so smart.

On top of which, once the software was written – a process I expect took one bright guy or gal the better part of a day – this little gimmick is a trivial expense. The computer just does it.

Barnes & Noble and Borders (and A1 Books and the on-line music/video/software stores) may well come up with great ideas of their own and leapfrog Amazon. For example, Barnes & Noble has begun awarding frequent flier miles via an outfit called ClickRewards (see www.clickrewards.com). But sometimes small size can be a plus. You can just sense the guys at Amazon are having fun.

As I was while their stock was dropping from 140 to 73.

A little more than a year ago, in July 1997, the Templeton Russia Fund had zoomed to 53 from 22 where I had recommended it (and 13 or so, where I had previously recommended it), and now a reader wanted to know what to do. My advice was not terrible – you can read it for yourself – but neither was it remotely on target.

TRF briefly jumped to 64-3/4, then collapsed to back into the high 20s, to a more rational level when things seemed reasonably hopeful in Russia. Now that they don’t, it has collapsed into the high single-digits.

Writes my wise, modest friend Gennady:

“It is a bloody mess here. I won’t bother you with the economics since you probably know that already. The issue lies with the fact that it is suddenly dawning on everyone that a) nobody cares, b) nobody is in charge and c) everyone is corrupt. People are less and less inclined to pay the little taxes they have been paying. Fewer and fewer organisations expect to survive the storm. The veins of the country are clogged. You cannot transfer money between banks since there is no assurance of your instructions being executed and you not losing the money. Cash is king again. The Duma appears to be ready to confront the president all the way and it is probably better for the country if they do. The new/old prime minister [Chernomyrdin] appears a downright idiot on TV when he blames the 5-month long reign of the Kirienko government for all the current ills.

“Western press compares what is happening in Russia to Brazil and Mexico of old and Asia of new. I think the real danger is that they do not understand Russia. It is nothing like Brazil or Thailand. When I was growing up there was no third-world poverty in Russia. Medicine and education were available. Russians will not go into the conditions many developing countries send their people into. Thus, when the government turns on the ruble presses (to pay wages and the bank deposits they guarantee so vociferously) and the hyperinflation hits, I am not quite sure if social unrest is out of the question. Today’s situation does somewhat mirror 1917: a weak executive branch confronts a disorganized legislative branch.

“The financial markets are dead, probably for a while. My friends at Credit Suisse First Boston [the leading investment bank working in Russia] say that there is nothing for them to do in Russia short-term, probably something to do long-term. What they cannot yet tell is if there are any medium-term prospects. The next few weeks will be quite telling. Will Yeltsin be forced to resign? Quite a possibility. Is he willing to confront Duma all the way? In his debilitated state not very likely. Will [Moscow] mayor Luzhkov become the next prime minister (and eventual president)? Possible. Will he then install his head of sanitation services in charge of defense and head of parks and recreation as economics minister. Undoubtedly.

“There is an old Chinese curse: may you live in interesting times. I will keep you informed.”

A.T.: I must say I’m less excited by TRF at 9 today than I was at 15 when it was first offered (or 13, when it first dipped). The problems are so big, and the initial wave of hope and fresh energy that might have become self-propelling seems to have given way to disillusionment. That said, Russia may yet hang together. It has enormous natural resources and a well-educated people. If they could ever get their act together, the appreciation in investments there would be enormous. And the biggest gains will come to those who took the bet when few others would. So for very patient, very speculative chips – and just a few! – Russia is a place to consider. By the time things begin to look up (a time which may not come, or at least not before all current property ownership is wiped out), some of the early gains would already be gone.

The more important question, of course, is not whether we can make a few bucks betting on or against Russia. It’s how these 147 million people can get back on a just and prosperous track – important not just for them, but for the security and prosperity of the rest of the world as well.

If things get bad enough, maybe they’ll enact a low, simple, collectible tax and persuade people, via carrots (patriotism) and sticks (have you ever seen a Russian prison?) to pay them. And no, it doesn’t have to be a flat tax. It would not be complex to have the Russian billionaires pay at a higher rate than the coal miners.

If things get bad enough, maybe they’ll enact some laws for property ownership and enforce them.

If things get bad enough, maybe the Russian robber barons – seeing their fortunes and their country threatened – will, Joe-Kennedyesque, rise to the level of statesmen instead.

But maybe they won’t.

For those who doubt the severity of the problem, Alan Light suggests “How To Explain Y2K To Non-Believers” — at www.y2ktimebomb.com/Tip/Lord/lord9834.htm.

Krishna Kunchithapadam certainly doubts it. He writes: “I enjoyed your article on preparing for 2000. However, I do not agree with your prognosis. The best way to describe the hype surrounding the Y2K problem is through a joke:

“A man observes his neighbor spreading yellow cream on his lawn every day. He finally asks why. The neighbor says, ‘To keep away elephants.’ The man replies, ‘What do you mean? There’s no elephant around for thousands of miles.’ The neighbor winks knowingly, ‘Works like a charm, doesn’t it?’

“Y2K is a little like that. If you thought people took El Nino’s name in vain for any and every meteorological problem in sight, just wait till 1st January 2000. One of two things is going to happen:

• “Every (and I do mean every) problem will be blamed on Y2K, and not on general programmer or human/corporate incompetence as it should be. Today, if you walk into your bank and get bad service, you can complain to the manager and, perhaps, get some remedy. Post-2000, the same incompetence will be blamed on Y2K, and damned if anyone is going to sympathize with your dissatisfaction.

• “Or, every one of those Y2K ‘consultants’ is going to stand up and loudly proclaim that their doomsaying and ‘solutions’ worked. And they get to laugh all the way to the bank to deposit the fat checks they get for doing nothing more than drink coffee, and write silly books. ‘Works like a charm, doesn’t it?’

“There is some deep psychology in the Y2K phenomenon. The fact that company X is spending Y billions has little to do with ‘solving’ anything (or with the gravity of the situation), and much to do with avoiding culpability in lawsuits between 2000 and 2005 (say). I can bet that this cost will far exceed the paltry Y billions that a company spends (or claims to spend) now.

“Y2K has become the uber-act-of-god of the millennium, the ultimate anti-panacea, if you will. Everybody can absolve themselves of blame by pointing their finger at others, or else at some incomprehensibly vast, insidious, and pervasive abstraction. And if everybody gets ‘hit,’ no one feels like a sucker — there is comfort in numbers. It is this psychology that we see at work, not the ‘problem’ itself.

“Legitimate Y2K problems are of two kinds: (1) programming ‘bugs’ and (2) user-interface problems.

“Type (2) problems are common, even rampant — my checks all say ‘____ 19__’ for the date field. Most ‘date’ entry forms have just two ‘boxes,’ not four. However, these are the easiest problems to fix. Nobody is going to refuse my check just because I strike out the ‘19’ and write ‘20xx.’ Imagine the IRS refunding your tax payment because the check/1040 has the printed ‘19’ crossed out. Sure, the IRS claims it has a problem and needs to modernize its computers — any excuse to increase its budget. Ditto for everyone else crying for a Y2K budget.

“Type (1) errors are the serious ones, but none of them are visible to the average person on the street. Most of today’s computer users were not even born when type (1) errors were caused. And, here is the important thing to know: the errors happened because they were easy to cause. Programmers either took the easy way out of a software engineering task, and/or did not plan for their systems to exist to 2000 (short-sightedness and premature optimization). Both of these approaches were facilitated by programming in COBOL (incidentally, the biggie culprit in Y2K), but the reverse is true with pretty much every other programming language in use (then or now).

“A vast majority of the systems that a person is exposed to today (Internet software, word processors, etc.) is not written in COBOL. Almost every type (1) Y2K problem is confined to programs written in COBOL. Fixing these problems is made difficult because the source code for these software systems is no longer available. Incidentally, the problem is not the lack of knowledge of COBOL (as is usually reported in the media, along with stories of grizzled old-timers coming out of retirement to save the world, a la Armageddon — more psychology). Any competent CS grad student armed with a COBOL language reference can fix all Y2K problems in a matter of days, IF the source code is available.

“Specifically, both of the supposed Y2K problems you mentioned in your article are emphatically not Y2K.

“First, embedded processes have never, to my knowledge, been programmed in COBOL. In pretty much every other candidate programming language for these systems, it is not only not easy, but actually excruciatingly difficult to allocate no more than 2 digits for the year part of a date. Although I have no illusions about the laziness and short-sightedness of most programmers (being a student of computer sciences myself, and having seen my fair share of shockingly bad code), it is orders of magnitude more difficult to cause a Y2K problem in a language like C than it is in COBOL. So much more difficult that I can confidently say that a Y2K problem does not exist in such an embedded system.

“Moreover, just ask yourself, what is an embedded processor in charge of switching lines doing managing dates at the granularity of years. These systems work at times scales of seconds, minutes, and (at most) hours. One might as well say that these processors keep track of the difference between day and night, the change of the seasons, world time zones, daylight savings time, and (shudder) the ascension of Mars and Saturn as per some new-age horoscope.

“Here’s more psychology — Y2K hype no longer has anything to do with the real world, it has become the domain of sci-fi doomsday plots. Here’s how the game is played. Friend A suggests a widget (the more obscure and removed from everyday affairs, the better). Friend B now concocts a doomsday story about how the widget will break down because of Y2K and bring an entire planet to a grinding halt. Plausibility alone matters — facts are a hindrance and will be stubbornly ignored. Pithy remarks about the inter-connectedness of the cosmos, chaos theory, and butterflies in Hong Kong working in concert with El Nino.

“Your second example, about cooling fans in a mainframe, is even more off base. No processor ever determines if ‘20 minutes have elapsed’ by subtracting the current year from 1900 (or 2000 or whatever). These systems do subtract a constantly changing value (the current ‘time’) from an epoch value — but for a number of technical reasons, a problem will occur, if at all, sometime in 2036 or 2037 or some other equally non-millennial year (computers being binary, 2000 is not as ‘special’ to them as it seems to humans; conversely, what is ‘special’ in computerese is a seemingly random date for a human). It does not matter whether the computer/fan in question was built yesterday or during the 1960s. Serious programmers are more worried about the Y2036/Y2037 problems (and have already come up with standards and transition schemes to solve the problem long before it becomes a crisis).

“Want more psychology? Y2K, being the ultimate anti-panacea, has the power to paralyze the mind, and turn humans into helpless slaves of technology run amok. Why else would anyone [A.T.: i.e., me] suggest that a power breakdown would cause gas stations to stop working (and presumably lead to long lines of cars stranded on the highways)? Come on, people, ever heard of a siphon? Ever considered that an empty juice-can can also transport gasoline? Or did your circadian clock also throw a fit because of Y2K?

“It seems as if even the most resourceful human will suddenly, on the eve of 2000, stop thinking and sit motionless before the Y2K menace.

“All Y2K hype that I have seen has this property — superficiality. The supposed disaster is based on a number of ludicrous events that even a mildly thoughtful analysis would reveal are irrelevant to the situation at hand. Or else, there are plenty of solutions, trivial ones at that, available at hand.

“Sure, there will be some Y2K problems. However, almost none of them will be as ‘visible’ as the media hype makes them out to be. Of course, media hype helps float ‘solution companies’ and ‘consultants’ and even ‘Y2K stocks’ (let’s start a Y2K index and trade options on it). Almost none of the problems will cause a global catastrophe. [A.T.: Does this mean that only a handful will cause global catastrophe?] What is more, all of the problems are easily solvable.

[A.T.: Well, this is the point addressed in the article I referred to up top — “How to Explain Y2K To Non-Believers.” The article explains that the problems are easily solvable — just very numerous. Its author, Jim Lord, likens the problem to polishing a basket of marbles by Friday. He hands you the basket, a rag — what’s the big deal? It’s boring, but that’s it. Except, he says, picture not a small basket of marbles, any one of which is easily polished, but the Grand Canyon full of them. That’s a lot of marbles to polish by Friday, he says, or even by 2000.]

“There is just one thing that needs to be learnt from the Y2K ‘problem.’ However, the lesson is for software engineers. And there is good reason to believe that such lessons were learnt by the 1980s — the rest of the world is about 20 years too late with the story.

“Still, I am sure that the Y2K frenzy will continue — after all, this is a world that predominantly reads (and believes) the astrology pages. Post-2000, ‘yellow cream’ will be proclaimed a success by one and all. As for myself, I plan to fly (simply for the sake of flying) on 1st Jan. 2000 — what is more, I am going to get my air-ticket dirt-cheap. Nyah-nyah to the chickens-little of the world.”

A.T.: Well, I am fairly certain Krishna is right about one thing: He will get that airline ticket dirt cheap. (Of course, as a precaution, the FAA might require airlines to scale back flights by 60% the first week of January, which might drive up the price of seats — nothing is certain when it comes to predicting the future.) And I certainly hope he is right about the rest. But as noted, I’d still take at least the same sensible precautions one takes in anticipation of a power outage (i.e., in hurricane season), and maybe a few more. And I wouldn’t wait until November 1999 to do it.

You have so many really smart and self-assured technical people, like Krishna, making one case or another — and they disagree. I do believe the scariest scenarios are highly unlikely, if only because there are so many very smart people in government and industry working on the problem. As long as we have the power and communications grids largely working, as I expect they will be, improvising the rest is a relative piece of cake. But I forwarded Krishna’s e-mail to a friend who is orders of magnitude smarter than me and whose opinion, given his credentials and background, must be credited at least as heavily as Krishna’s. He responded:

“Krishna is either ill-informed or in denial. An unknown fraction, ranging from about 0.2% (Gerstner estimate) to perhaps 7% (the highest knowledgeable estimate I’ve seen), of embedded processors do have a Y2K problem because of two-digit year-date fields. It has nothing to do with COBOL. Embedded processors have also caused quite a few well-documented hardware failures all over the world: no myth. Nor does the legacy code issue — which is mainly COBOL as it relates to mainframes but includes many (even very modern) apps, BIOSs, and operating systems in PCs — have anything whatever to do with preprinted checks or other forms filled out by hand. I’d suggest you ignore this guy.

“My wife, by the way, was told last Tuesday that her driver’s license had expired because although you could see by looking at it that it expired on her birthday in 2000, a computer in California just read the ‘00’ and thought it meant 1900. Fortunately, there was a human being there too.”

A.T.: I think one can fairly reasonably conclude that the problems will not be catastrophic unless the whole world panics and makes them so (unlikely). But beyond that, no one knows. Could there be business failures and a recession? Certainly. (Young readers may be interested to know there were once recessions fairly regularly even without unprecedented global technology problems.) Could there be power outages for a few days while things are getting sorted out and brownouts or pockets of blackouts for a few months while the entire grid is being brought back up to full inter-connected capacity? Certainly. Might gas lines be pretty long during any such power outages even if siphons and empty juice cans are called into service? I should think that, too.

(Might a terrorist or two have infiltrated the tens of thousands of people working to solve the problem, hoping instead to plant a few whopping problems? One shudders to think.)

So I find myself in the odd position of recoiling at and largely scoffing at the flood of gloom-saying, exploitative newsletters and newsletter solicitations I just got in the mail last week (Howard Ruff headlined his: “MILLENNIUM MELTDOWN: We Turned Our Lives Over To Hal . . . And He’s Going Nuts!”), but not entirely. If we take the problem seriously enough, it probably won’t be that much of a problem. Those who dismiss it all as hype, on the other hand, are taking unnecessary chances. How hard is to stock up on water, tuna, and a little emergency gear? These things are always worth having anyway.

More on this in a few days — many of you have sent me very interesting feedback. I’m learning a lot! (Maybe hold off on sending more until you see if I cover what you were going to add?)

I was going to run more on Y2K today, but I have noticed some activity in the market of late. (Truth to tell, I generally write these things a few days in advance, which is why if, say, an earthquake destroys Los Angeles, my comment the next day might be on the travesty of breakfast cereal serving sizes. [Have you noticed that it basically takes three or four “servings” of cereal to equal one actual, genuine, human-size serving?])

As best I can scope it out, the trend in the market these last few days has been: down. And volume Monday was 2 billion shares, when you combine the NYSE and NASDAQ numbers. Of course, it is Tuesday morning as I write this, and by the time you read this Wednesday, the market could have gone up or down 1,000 points. But right now, I’d have to say: down.

But that is about all I am certain of.

I do think this drop is long overdue — I thought Greenspan was no fool, and certainly no Cassandra, when he mentioned “irrational exuberance” a year and a half ago, when the Dow was 6,000 … so for it to have given up this year’s gains is no astonishment.

I also note that the decline is both typically overplayed and underplayed on the evening news. There is much talk of a 1364 point drop in August, “the largest monthly drop in history,” but of course points mean nothing. It’s like people who talk about how the New York City subway used to be 15 cents, cluck, cluck, without also noting that corporate V.P.’s back then were thrilled to earn $20,000. It’s the percentage drop, not the point drop, that is the only relevant measure.

But if the newscasts tend to exaggerate the decline in the Dow by clinging to points (gotta make it dramatic, after all), they underplay the decline by clinging to the Dow. The Dow is down about 20% from its all-time high of 9300 earlier this summer, but the average little stock is probably down 50% from its high of the year. And 50% begins to smart.

So is this a great time to buy?

No.

It’s a great time, as always, to begin or continue a lifetime program of steady periodic investments in the market. For youngsters, a decline like this is great news — the worse it gets, the better the bargains.

But just because American Express is down from 101 to 78 last I looked (not a small one- or two-day drop for a blue chip), it’s still up from 26 a few years ago, and it’s still possible that in a bad economy, some Amex card holders might not be able to pay their bills or take as many vacations as they used to, etc.

The fact is — as always — one can make a strong case for how great the future could be (and why, thus, this is a great time to invest in it) or a strong case for how awful things could get (so run for the hills and wait a while).

The fact also is — as always — no one can tell you with any assurance which will be right. Something will happen, so at some point some people will look very prescient. And, to be sure, some of the rest of us will be wrong for very much more sophisticated reasons than others. (One of the most brilliant, eloquent, wise and gracious men on Wall Street, Jim Grant, has been spectacularly wrong for about a decade now — but maybe Vindication Now Looms.) But the future is too complex to guess with any assurance how it will play out here or abroad, especially in the relatively short term. (In the long term, being an optimist, I say it will turn out well.)

Hence — as always — you should have no money in the stock market that you will need to spend in the next few years. For truly long-term money, now is a much better time to be in the market than a few months ago (i.e., better to buy Citicorp at 101 than at 175; better to buy Golden Books Family Entertainment at 1-and-change than at 11-5/8). But by no means should you be complacent. Citibank could just as easily go to 50 as to 200, if you ask me; Golden Books seems hell bent on zero, though I hope not. (The lawyers have already begun to sue.)

It is now, I think, time for a joke. I worry about this joke, because it is vaguely (very vaguely) sex-related. I don’t want to offend anyone. But dicey times call for dicey jokes.

From around Dave Davis’s water cooler: A man with a winking problem is applying for a position as a sales representative for a large firm. The interviewer looks over his papers and says, “This is phenomenal. You’ve graduated from the best schools; your recommendations are wonderful; and your experience is unparalleled. Normally, we’d hire you without a second thought. However, a sales representative has a highly visible position, and we’re afraid that your constant winking would scare off potential customers. I’m sorry … we can’t hire you.”

“But wait,” the man says, “If I take two aspirin, I’ll stop winking!”

“Really? Great! Show me!”

So the applicant reaches into his jacket pocket and begins pulling out all sorts of condoms: red ones, blue ones, ribbed ones, flavored ones … finally, at the bottom, he finds a packet of aspirin. He tears it open, swallows the pills, and instantly stops winking.

“Well,” said the interviewer, “That’s all well and good; but this is a respectable company, and we will not have our sales people womanizing all over the country!”

“Womanizing? What do you mean? I’m a happily married man!”

“Well, then, how do you explain all these condoms?”

“Oh, that,” he sighed. “Have you ever walked into a pharmacy winking and asked for aspirin?”

Tomorrow: Y2K — How Real Is It?

Is it one more reason to be concerned about the market?

And one other thought. I just walked outside and saw a monarch butterfly. Where I am, they begin to come out in force for the next couple of weeks. The air is fresh, the hurricanes, thus far, have missed, the market is a mess, as are some of the world’s economies. But the monarch butterfly is so awesome. All the more so if you believe those crazy stories about their coming from caterpillars (yeah, right, like buses that turn into Learjets). Don’t get so deep into the market, either financially or psychologically, that you fail to notice the butterflies.

We’ve been talking about stocking up for Year 2000, just in case some temporary shortages should appear. Probably won’t, but might, and it’s good to be prepared. But, as I mentioned yesterday, it can also be a good investment buying by the case. I have been saying this for a long time, and the example I’ve always used involves a case of wine.

This example has sort of evolved. The first time I used it was in 1978, on the Tonight Show. Say you bought a $10 bottle of wine for dinner every Saturday night but could instead get a 10% discount buying by the case. You’d "make" 10% on the extra money you tied up. And you’d "make" it in just 12 weeks — a bottle a week for 12 weeks equals one case of wine — which works out, I explained, to "better than a 40% annual return."

I didn’t explain how much better. I figured 40% was dramatic enough. Where else can you earn 40% tax-free? (Uncle Sam doesn’t tax you for smart shopping.)

As the years passed, I found people were having trouble understanding this little shtick of mine. Why is it 40% if I just got a 10% discount?

So I tried explaining it in a little more detail. What actually happens, I explained, is that instead of going to the store and laying out $10 for one bottle, you are laying out $108 for 12 bottles — $120 less the 10% discount. Which means you are laying out $98 more than you otherwise would have. That extra $98 is your "investment." By keeping at most that much extra tied up all year, you save $1 a week on wine — $52 a year. And "earning" $52 a year by tying up $98 is earning 53%.

So now I was up to 53%, an even better tax-free return.

This confused people even more. That first $98 is gone, they would tell me, and now you have to come up with a new $98 to buy your next case of wine.

But think about it. If you were someone who planned to spend $10 every week on wine — $520 a year — and who would have LOVED to save 10% buying by the case but just couldn’t scrape up enough money all at once to do it, how much financing would you need?

Would you have to go to a bank and ask for a $400 line of credit in order to be able to change your buying habits?

No, you would need only a $98 credit line — and you would only fully draw it down that very first week. After that, you would replenish it by $10 a week (the $10 you used to spend on wine by the bottle), which means that after 12 weeks, when you needed to buy the next case, you would not only have replenished the full $98, you’d actually have an extra $12 to work with (the money you saved buying by the case). So now you’d have to draw down only $86 of your $98 credit line.

In other words, to finance this change in habits you’d need a maximum credit line of $98. But you’d only actually draw down that much the very first week. Within 10 weeks, you’d have paid the balance down to zero, then run it back up to $86 in the 13th week to buy your next case of wine, then paid that off in 9 weeks, then run it back up to $74 to buy your next case — and so on. On average, over the course of the year, you’re using far less than the full $98 to finance this change in buying habits.

So the return on your decision to tie up that $98 at first, and then gradually less, is actually much greater than 40% or 53%.

If my good friend Less Antman has keyed all this into his Hewlett Packard financial calculator right — and I’ve never known him to err — it works out to an annualized 177% rate of return (though try explaining THAT in 40 seconds on the Tonight Show).

It’s still only $52 you’re earning — $1 a week by getting the 10% discount. But applied to all your regular shopping, it can be the best "investment" in your portfolio.

Next step: Find a vintage you like equally well that’s $8 a bottle.

From Ken Kidd: It’s nice to see someone finally talking about what we all hope will be not happen. I am a programmer involved in some of the Y2K testing. Because of my involvement, I became very concerned several months ago about how to make emergency preparations. As a result, a friend and I have compiled all the most practical information that we have been able to find into a emergency preparedness guideline that we are currently publishing and selling for $5.00 plus shipping and handling. It provides useful information on what you can do.

In your column, you mentioned wanting a bike-powered generator. I have designed and built one that will work for emergency situations just like what you are describing. I currently am selling the plans for $10.00. The construction is fairly simple and can be built for around $200.00. The construction can be built using a crescent wrench, a pair of pliers and a couple of screwdrivers. It gives you information that you can use even if you get caught trying to make your preparation at the last minute, or even worse, right in the middle of it. If anyone is interested, e-mail me and I will give you the information to order — kdkidd@hotmail.com

A.T.: But wait! You may not need to build your own!

From Jesse Lunin-Pack: I’ve known about the y2k problem for a few years now. I work for a Fortune 100 financial services company, and we are spending absurd amounts of money to update our computer systems, so I assumed that everyone else was as well. My confidence, however, was shaken when I read a recent article in Wired Magazine about y2k programmers who were “headed for the hills” with guns and canned goods to ride out the storm.

I’m not ready to give up all I know and become a survivalist, but I have to admit that life in New York City without power, running water, heat, or reliable food distribution is a scary thought. I have not quite decided how to prepare yet. Check out USENET if you want to hear what the real reactionaries have to say on the subject (misc.survivalism and comp.software.year-2000 are good places to start).

Finally, as to the bike-powered electric generator: There is a company called Zap Power Systems that makes electrical drives for bicycles. (It sort of turns bikes into electric Mopeds. Pretty cool product actually.) The interesting thing is that you can reverse the system and recharge the batteries either by coasting down a hill, or by setting your bike up on a trainer and pedaling it like an exercise bike (or so says the marketing literature).

You can check out Zap at www.zapbikes.com. By the way — they are a public company. OTC symbol is ZAPP. I don’t currently own their stock, but I’ve been thinking about it. Any thoughts?

A.T.: Well, I checked the site and you have to love this company. I would not buy the stock — the risk factors in the prospectus are all too real — but I sure would root for it. (The Web site seems to be offering shares for $6 that are now trading on the open market for $3.75. I assume that if I had followed through and subscribed for shares, they would have written back that the offering has been completed — not clear why the Web site does not reflect this.) The company’s “Zappy” — you stand on it as you cruise along at 12 miles per hour to the office — is a $699 hoot-and-a-half, if you have to buy a gift for the guy who has everything or want to buy one for your child and have him beaten up every time he arrives at school. It actually could make sense instead of a second car in some limited situations. The New York Times pictured a cadre of executives riding their little Zappy’s someplace last week (a staged photo, but still). And the company has several other pollution-friendly “vehicles” as well.

Meanwhile, John T writes, “Here’s your bike generator” and points me to http://popularmechanics.com/popmech/sci/time/9809STTNM.html, wherein I find another reference to ZAP and a little historical flashback to a French exercise bike circa 1914 that did the same thing — there is little new under the sun. (One exception: fat-free WOW! potato ruffles. Don’t eat too many, but you really have to try them.)

Mike Rutkaus downloaded and searched the index for Home Power Magazine (http://www.homepower.com/) and found some bicycle/power related articles. Even more interesting to those of you in windy places may be the wind-powered generators. Mike goes on to write:

Wow! AT recommending storing food/water/etc.! I listen to this every night on short-wave radio programs (Bo Gritz, Jeff Bennett, Dr. Sam Solomon, and others), but YOU saying this!

PS – I suppose you could charge 2 nicad C cells by connecting them directly in the proper polarity to existing bicycle lighting generators.

A.T.: Thanks, Mike. The thing is, I think there’s a low probability we’d need any of this, but the nice thing about being prepared is that it’s also a good investment. I’ve been pitching “buying in bulk” for 20 years, just because it’s often a great investment. (Six hundred thirty columns or so ago I explained how buying wine by the case, at a 10% discount, instead of one bottle at a time, could be a 177% return on investment. For those of you who may have missed it, I will reprise it again tomorrow.)

Legs getting tired? Want to read more about the nation’s power grid? Alan Light turned me on to this excellent, beautifully written column by Dick Mills, an expert in software for the electric utilities: Dancing On the Rim of the Canyon.