Author: A.T.

A while back, I asked you to send me your credit card stories for an article I’m doing. Scores of you responded – I got just what I needed. With luck, the result will appear in PARADE in a couple of months.

One last favor on this, though. About two weeks ago, I was lying in bed, the “Today Show” helping me to wake up – I could swear it was the “Today Show” – and out of the corner of my eye … on the news segment, not one of the interviews … I saw a story about a dog, whose name I believe was Nicklaus Arnold, who had two credit cards. One of them was a platinum card.

Naturally, I concentrated my sleepy mind on this story about this dog whose owners marveled that they hadn’t even included his date of birth or social security number in his application – and the dog got the credit cards.

Shots of the dog, some kind of dark-haired little terrier, and the tag line, if I got this right, quoted a spokesman from First Union Bank: “We have no problem with this as long as he pays his bills on time.”

I didn’t rush to my desk or to the phone or anything; I figured it would be easy to grab the details later, either through a friendly producer at the “Today Show” or else by calling First Union’s PR department.

Well, no one at the “Today Show” has any recollection of this story, and neither does anyone at First Union. Nor does a Lexis-Nexis search turn up any pooches with plastic, let alone platinum. But I swear I wasn’t dreaming. It could have been CNN, I suppose, or some other channel. And maybe it was First USA, not First Union. But ever since I bluffed my way through the essay exam in Philosophy 1 (“Is this examination real or a dream – how do you know?”), I have been keenly aware of the distinction between dreaming about dogs with credit cards and dogs who actually have them. And this dog had two.

So here’s the favor: Did any of you see this? I can’t imagine you’ll remember specifically where you saw it (it was July 9th or thereabouts) … and it may only have played in the New York area, if it was a segment on the local “Today Show” news (so I don’t expect a lot of you to have seen it) … but just knowing I am not losing my mind would be helpful.

Failing that, if your own dog has a credit card, please let me know.

Here’s one I’ve been saving up for more than four years, only now realizing its true relevance. It’s not really about drivers’ licenses; it’s about the Internet and the future of communications.

First, the exchange. You may have read it on CompuServe.

From John, a disgruntled citizen, addressed to “All”: CAN GOVERNMENT FORCE YOU TO CONTRACT WITH A THIRD PARTY? (i.e. Auto Insurance, Health Insurance Alliances, etc.) NO! This is also specifically prohibited here in the Republic of Arizona by our Constitution. Are you aware that the Federal Courts have decided that it is UNCONSTITUTIONAL to require a person to obtain a driver’s license, auto registration or mandatory insurance in order to travel on our nation’s roads, highways and waterways. See Chicago Motor Coach vs. Chicago Volume 169 of the Northeastern Law Reporter, p. 22 (in your local law library) where the court stated that “Travel is NOT A PRIVILEGE requiring licensing, vehicle registration OR FORCED INSURANCE.” Also see Sheer vs. Cullen Vol. 481 Federal Reporter p. 945; Vol. 11 American Jurisprudence (1st) Constitutional Law, Section 329, p. 1135, which states: “The right of the citizen to travel upon the public highway and transport his property thereon, by horse-drawn carriage, wagon, OR AUTOMOBILE, is NOT A MERE PRIVILEGE, which may be prohibited at will, BUT A COMMON RIGHT, which he has under the right to life, liberty and the pursuit of happiness.” [Emphasis added]

Just so you know, my wife and I do carry liability insurance, BUT only because we need it for asset protection. We do not license or register our cars, and we have revoked our driver’s licenses. Instead we carry a Sovereign Travel Permit (a photo ID imprinted with our affidavit #, as recorded in our local county recorder’s office) issued to ourselves, by ourselves, as is EVERYONE’S right under Common Law.

We know this information is correct, as I’ve already been pulled over twice by law officers for expired plates. As soon as they saw my affidavit, there was no ticket, no warning, just a “Have a nice day, sir!” Why are YOU letting the government steal your money in the form of driver’s license fees, vehicle registration fees (hundreds of $ every year in some states), etc.?

A.T.: Pretty scary, no? But soon there was this reply.

From Craig, a deputy attorney general who, fortunately, happened to be passing by the CompuServe forum: Just in case anyone else had decided to throw away his license and registration, I spent a few minutes today looking up the cases cited in the message to which this is a reply. Chicago Motor Coach v. Chicago, a 1929 case decided by the Illinois Supreme Court, is a case about whether the City of Chicago could require the Chicago Motor Coach Company to get a license from the city to use public streets when the company already had a certificate from a state agency. The court said that Chicago didn’t have that power. The case contains this statement, “The Legislature may prohibit by general law the operation of motor vehicles upon the highways of the state. …” It says later, “Even the Legislature has no power to deny to a citizen the right to travel upon the highway and transport his property in the ordinary course of his business or pleasure, though this right may be regulated in accordance with the public interest and convenience.” John quotes the court as having said, “Travel is NOT A PRIVILEGE requiring licensing, vehicle registration OR FORCED INSURANCE.” That sentence simply doesn’t appear in the case I read. Perhaps it’s missing because of some strange typo. It would be surprising if the court had said it since the case had absolutely nothing to do with drivers’ licenses, vehicle registration, or forced insurance.

As for the other case John cites, Sheer v. Cullen, it’s a case in which a court said the IRS had unlawfully fired an IRS agent for failing to produce certain documents when the IRS tried to audit its own agent. John doesn’t explain how this case relates to his beliefs about the Constitution and driver’s licenses, auto registration, or mandatory insurance.

Our library doesn’t have a copy of the other source John cites, American Jurisprudence, 1st edition, since the first edition was replaced long, long ago, by the second edition. I was thus unable to check the quotation. (The quoted language is a slightly surprising statement to find in a legal treatise since it seems to imply that citizens have direct rights under Constitutional law to “life, liberty and the pursuit of happiness.” The quoted language is from the Declaration of Independence, not the Constitution.)

In any event, though I can’t give legal advice, I would suggest that people might be acting in a rather dangerous manner to their own liberty and property to ignore their state’s laws on automobile registration, operation, and insurance.

A.T.: All of which leaves me, and perhaps you, wondering: How can someone bright enough to make legal citations and find his way to a CompuServe forum be so nuts? And, more to the point, how are we to tell truth from fantasy in the great new world of cyber-publishing?

I attended a panel discussion a few years ago that included such bright lights as Rich Jaroslavsky, who headed The Wall Street Journal On-Line, and Esther Dyson, who lived down the street from Einstein when she was a little girl (suggesting that genius may be contagious), and one of the few things on which these cyber-seers seemed to agree was the increasing, not decreasing, importance of “editorial input” on the Internet. Sure, they said, anyone can publish anything on the net. But with zillions of choices, people will thirst more than ever for editors to do two things: direct them to the good stuff and certify its accuracy. So don’t give up on the old brand name publishers just yet.

From “Tony”: I agree with your correspondent, that software development is moving offshore rapidly. Having worked in Silicon Valley for thirty years, I’d like to add a couple observations. (Please withhold my name if you use this. I still have to earn a living. Most of my work colleagues are foreign engineers in the situation I describe.)

1. “There is a lack of trained engineers in the US.”

Well, sort of… There are many trained US engineers available whose only sin is being over fifty. Companies favor younger foreign engineers. They are cheaper. And because they need a green card to work in the US, the company – as their sponsor – has enormous power over them.

2. “(Indian) government sponsored education.”

During the Cold War, the US government sponsored higher education through loans, military schools, and state colleges. This sponsorship, and Cold War technical research, is the basis for the current technical revolution. The Internet itself is an offshoot of Defense Department research to build a secure communications network.

Now, as we reduce sponsorship of education, foreign governments increase theirs. A middle class US engineer comes out of college heavily in debt. He or she must compete with a foreign engineer educated at government subsidy. The result is fewer US students, a stream of high paying jobs flowing offshore, and fewer good jobs in this country.

I live in a semi-rural, working-class neighborhood. When I talk to my neighbors it seems to me that they work twice as hard to make a living, and are generally closer to bankruptcy than any time in the past thirty years.

From Jeff Houston (in San Francisco): I don’t quite agree with the author’s assertion that software design will shift to other countries. Some of it will, but the truly innovative and new ideas in software engineering will stay in the U.S. I have been a software programmer in the U.S. for over 15 years. I’ve come to the conclusion that the reason the U.S. is ahead of the game in software design is because of our culture. People born and raised in the U.S. are familiar and can deal with constant change, one of the main ingredients in Technology. In fact, change is encouraged here (which is not always a good thing). This is not always true in other cultures. Many cultures discourage change.

It’s my belief that only those cultures that encourage constant change and freeflow/abstract ideas can excel in software design. Software is always improving and to improve on an idea requires the ability to think abstractly. U.S. citizens are encouraged to think differently, and act independently – a key ingredient in innovative software engineering.

Sure, cultures that do not have these traits can still write software. Programmers can be given direct tasks and will write programs specifically following the instructions they’ve been given. But truly innovative ideas in software engineering will only come from those cultures that encourage people to think abstractly.

I must say that I am not familiar with India’s or Israel’s culture. It may be that these cultures already have these attributes and therefore may excel in software design. But I do know that the U.S. has this great advantage. I hope all this doesn’t sound racist. By no means is it meant to be.

From Heshy Shayovitz: I tend to agree with the reader who wrote that in the future technology companies will have most of the operations outside the US. Recently I was speaking to friend who’s developing a program for the health care industry. He told me that usually when he hires programmers, they leave after 6 months. He spent a lot of that time training them, so now they go to another company for a few thousand dollars more. So what has he done about it? He has a programming team in – yes you guessed it – India. He says that he pays them the equivalent of what he would pay a US worker in benefits (health care, etc). I’ve heard various variations of this. So what does this seem to point to? Maybe something similar to what happened in the automobile industry – some foreign country(ies) will take the industry away from the US. Maybe India. You never know – they are now a nuclear power.

On a similar note: I don’t believe that there will continue to be a shortage in qualified technical people in the US. Even though universities aren’t graduating enough “computer people,” lots of programmers I know didn’t major in it. Actually some friends have come over to me to ask me which computer courses to take (I’m a computer consultant), so they can get into the field. In addition, once the Y2K deadline passes, some of those programmers will have to go elsewhere.

And what do we (and the Indians) do once the software largely learns how to program itself?

Joe Robinson: I imagine that the roaring bull market has made a number of your readers rich (on paper anyway). I would like to see some discussion of how this affects the limits your reader should maintain on our automobile liability insurance (i.e. involvement in one accident where your reader is found at fault, and he could “lose the farm”).

As a fledgling engineer nine years ago, I bought insurance with 100k/300k limits on liability. I thought this was too high of an amount, but was assured by the agent that it was considered the “minimum” for a professional to protect his assets. Now with rising medical costs, a wage-earning spouse, a house nearly paid for, and a stock portfolio generally rising with the market, I wonder if this is enough.

A.T.: How rich you are has relatively little to do with the limits you need, Joe. If you had only 15 cents but wanted to protect it, then — in theory — you’d need as much coverage as if you had $15 million. Why? Because liability coverage isn’t geared to your net worth, it’s geared toward compensating people you hurt. So if they require $600,000 to patch them up (and replace their lost wages, compensate them for their pain and suffering, and so on) — or win it in court — you need $600K of coverage no matter how high or low your assets.

As a practical matter, though, it’s rare that a plaintiff in one of these cases tries to go beyond the insurance. If you have a $20,000 net worth, they’d take the $100K and probably (probably!) not try to get the rest.

But if you’re a rich doctor or lawyer, they’d expect you to carry more, and if you didn’t, might well sue you for it and go after a portion of your future income, to boot. So in that sense, the more affluent you are, the more coverage you need.

The 100k/300k coverage you refer to will pay up to $100,000 per person, with a maximum of $300,000 per accident even if you’ve mowed down an entire tour group. Since you do have assets to protect, you should have $250K/$500K coverage plus at least a $1 million umbrella policy.

Umbrella policies are usually cheap and cover you not just for jumbo auto liability claims but for other non-professional liability as well — like serving your guests tainted sushi (assuming you did it accidentally) or failing to clear the ice off your front steps. (Thud.)

WEBS’ SITES

“Could you point me toward more information concerning WEBS? I currently own shares in the Vanguard Asia Pacific index fund, but one of your columns got me thinking that I would be better served by simply buying WEBS for the same countries that VPACX covers. One more question: can you tell me an easy way to find the net asset value for closed end funds?” – Josh Kloepping

A.T.: WEBS — which are baskets of stocks designed to represent the market of a particular country — all trade on the American Stock Exchange. Their three-letter symbols all begin with EW (Japan is: EWJ). Barron’s lists the NAV and discounts/premiums of closed-end funds each week.

ADRs

“How do I go about buying foreign stocks? I am somewhat new to this. I am interested in Adidas AG, from Germany, which I am told is traded as an ADR on the New York Stock Exchange. I don’t understand what ADR means, or what to do to buy.” – Bill McSorley

A.T.: ADRs are American Depository Receipts. To buy, just call any broker. That’s the point of ADRs: to make it easy for U.S. investors. They trade just like U.S. stocks, in American dollars, and typically represent one or two shares of the foreign stock. A depository institution like J.P. Morgan holds the actual foreign shares and takes care of paying out the dividends.

Alternatively, you can instruct your broker to buy shares “on the Frankfurt” or on whatever exchange your foreign stock actually trades. Many brokers aren’t set up to do that — and will charge you more for the trouble if they are. This is what you’d need to do with a stock for which there are no ADRs.

Alternatively-alternatively, if you were rich, you could set up a brokerage account in Germany or Uganda or wherever and do your trading via your local German or Ugandan broker. But this is, at least for now, difficult and impractical for most people; your account wouldn’t be covered by SIPC insurance or other U.S. regulatory oversight; you’d have to check an extra box on your Form 1040 about maintaining an account overseas; your balances wouldn’t automatically be swept into a money market fund to earn interest; you wouldn’t be able to see your account on-line — and I’ll bet they’d charge you a lot more than $8 a trade.

I had proposed an eighth day of each week that only I would get to enjoy. The rest of you would be frozen; I would have a chance to catch up.

Jeffrey Schwarz: Do you think one day a week would be enough? Would you, like me, wake up that day and say “Hey, everyone’s frozen! I can take my time about this” and then loaf around and accomplish nothing?

A.T.: There is that risk.

Vincent DeHart: Gee, Andy, but unfortunately for you, the eighth everyone-else-is-frozen-but-me day of the week already exists, but you’re unaware of it because you are among the frozen. I’d let you in on it, except, you know, liability and nondisclosure and all that. I’m truly sorry, but look upon the bright side. The price I pay is aging over twelve percent faster than everyone else.

A.T.: Who said anything about aging faster? This was not part of my plan.

Russell Turpin: “You would have Monday, Tuesday, Wednesday, Thursday, Friday, Saturday, Sunday but then, while you were frozen, I would have Andyday. Is that too much to ask? (And no, I would not mess with you while you were frozen.)”

Oh, but you would! You would use that extra day to do investment research, putting the rest of us a little bit behind you, or to rest from the exhaustive research that you do the rest of the week, putting the rest of us that much behind in our sleep, or … Well, almost regardless of what you did, it would give you just a bit of competitive advantage over everyone else. You may not think of this as messing around with the rest of us while we are frozen, but these changes to the social environment are important.

As long as it was just you, it wouldn’t be that bad. The overall social environment would remain much the same, except that your edge would be that much more. You seem a nice fellow, so I really don’t mind your being just a bit ahead of the game. With my luck, though, John Travolta will be the first celebrity to buy an extra day each week, and I never cared for him.

The big problem with this is that celebrities tend to pass these secrets around amongst themselves. No, Andy, I don’t completely trust even you with something *this* big. First, you would tell Warren Buffett (and who could complain about that?), but he would tell that smarmy investment banker friend of his, who would tell both his mistress and his boyfriend, and soon everyone would have it except for those of us who are neither famous nor bedding the famous. The celebrity gap would become just a mite wider, and it is already quite wide enough. So I’m sorry: you can’t have an extra day each week unless the rest of us get one, also. It falls under the one-pants-leg-at-a-time rule.

A.T.: Well, excuse me! Who ever said anything about Travolta, or selling these days? Buffett already has one anyway.

From Sue Hoell: You already have Andyday. It occurs when others are sitting in front of their TV sets focused on ballgames. They are essentially frozen, while you and I have an opportunity to catch up.

From a retiree: “What do you think of Market-Index Target-Term Securities for a tax-sheltered account? I just read a brief article discussing the advantages of MITTS over options to protect one’s principal in securities. If they are a reasonable investment for one already retired, where should I look to obtain the details of each?”

A.T.: Investment firms are constantly looking for creative ways to get their MITTS on people’s cash, and most of these ideas are — to steal a joke from my wise friend Less Antman — NUTS (New and Untested Terrible Strategies). MITTS aren’t the worst idea in the financial universe (selling naked puts is the worst idea), but they are very expensive insurance against a very unlikely scenario.

Briefly, MITTS are derivative securities — a manufactured product like gefilte fish, which is not an actual fish (“I caught a gefilte fish!”) but derived from fish. They promise to pay at maturity an amount no less than they were issued for — and no higher than some specified ceiling. Just how well you do within that range depends on the performance of some market index. As an example, Merrill Lynch’s Technology MITTS were issued in August of 1996 at $10 per unit and promise to pay between $10 and $20 to the holder at maturity in August of 2001, depending on the performance of the CBOE Technology Index. No downside risk (ignoring inflation) in exchange for limited upside potential.

So far, so good, but there is more to it. The payoff is not based on the increase (if any) of the index over its price in August 1996, when the securities were issued, but on the increase over 112.5% of the index, so that the buyer gives up the first 12.5% of appreciation. Also, since the index doesn’t reflect dividends (which are admittedly small, but might make up 1% a year over that time), the owner also gives up around 5% more. Thus, you are giving up about 3% per year over the 5-year life of the product. If owning the stocks directly might have earned you 10% a year, now you will earn more like 7%. You will have $1.40 for each dollar you started with instead of $1.61.

And you are limiting your gain to an absolute maximum (in this example) of 14.87% a year, which is what $10 growing to $20 in five years represents.

The insurance MITTS provide is expensive because the stock market rarely loses money over a five-year period. (In fact, notes my friend Less, a mixture of 50% U.S. stocks and 50% international stocks has never done so, even with a start year for the investment of 1929.) Of course, going forward, anything’s possible. (“In the entire history of this city,” you can just hear the San Francisco real estate agents reassuring prospective buyers in 1905, “there has never been an earthquake that caused really serious losses.”) So there could come a time MITTS buyers have the last laugh.

To play it safe in retirement, consider putting equal amounts into a broadly diversified U.S. stock portfolio or index fund … a broadly diversified international portfolio or index fund … and a short-term bond fund.

From Derek Deer: “Why are spiders so much more popular than diamonds? (Today’s trading volume was at over a 10 to 1 ratio). Both have similar expense fees of .18%. The long term performance of both indexes (as well as the NASDAQ) are [sic] very similar. Does it have to do with distribution of dividends?”

A.T.: Two reasons, I would guess:

First, spiders (the nickname for a “stock” with the symbol SPY that basically gives you a tiny piece of all the stocks in the Standard & Poor’s 500 index) were invented first. The folks who wanted a way to trade the equivalent of an index fund took a liking to them, got used to them, and have no particular reason to switch.

Second, the S&P is a much broader, more sensibly calculated index than the Dow (which diamonds – symbol DIA – mimic). So for those who seek true market-weighting, spiders make more sense.

(The Dow is only 30 stocks compared with 500 for the S&P, so it’s less representative of “the market.” And it is calculated without regard to logic, which makes it less representative still. To make the point, imagine a day on which 28 of the 30 Dow stocks are unchanged, but two others move up and down $3 each. A $30 stock in the Dow rises $3, which is to say 10%, and a $100 stock in the Dow falls $3, which is to say just 3%. The 10% and 3% moves are considered equal – $3 is $3 – and the Dow, in this example, closes unchanged. It becomes all the less sensible if that $30 stock happened to have 2 billion shares outstanding, meaning that it had a $60 billion market capitalization that just gained $6 billion … and the $100 stock had just 100 million shares out, giving it a $10 billion market cap that just dropped $300 million. As far as the Dow Jones Industrial Average is concerned, it was a wash: the $300 million loss and $6 billion gain are considered equivalent. This is not to say the stupidity of the way the Dow is calculated doesn’t largely cancel itself out, or that Derek is wrong: The various indices do tend to move largely in tandem. Nor is it to knock Messrs. Dow and Jones, who would have been hard-pressed, sans pocket calculators let alone computers, to calculate it differently. But still.)

So now Russia wants $20 billion from the West, and I say: Give it to them. (Well, lend it to them.) Not to say $20 billion isn’t a good chunk of change. It is, for example, nearly a third the market cap of Dell Computer. If Europe split it with us (not a good time to ask Japan to chip in), it would be the equivalent of every U.S. and European household lending Russia a hundred bucks.

Nor would there be any guarantee of repayment or success. Russia could still go down the tubes. But Russia — like Mexico, which we recently helped with an even larger bailout that surprised the naysayers by working out well — is not going away. And a prosperous, more-or-less democratic Russia is spectacularly in our self-interest. Especially when you consider the alternative.

So what are things like in Russia these days?

I have this recent report from my wise and good Russian-born friend Gennady:

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It is July 4th as I am writing, about 65 degrees and raining. Sounds lousy, but not too bad of a weather for Moscow. As I threatened, I will perform the cathartic process of expounding on paper (I mean Word 95) my take on this country and its people.

It has been 3 years since I moved back here, which in a country in upheaval is a very long time. Russia is a big subject to cover so I will try to break it up into somewhat more manageable subjects.

Men

Russian pop music is very sappy. A typical male song will be a cry-fest to his beloved, extolling everything about her, vouching his love to the very end. The lyrics tend to be embarrassing. It is also common for a man to beat his beloved. In 1996 in this country, 40% of the murders were husband killing wife. Furthermore, since so many men are alcoholics, it is up to the women to provide for the family. This is a country with machismo turned upside down. The men claim all the perks that come with it but want none of the responsibilities.

Women

Many times I have told my parents how grateful I am that they took my sister out of this country. It has often been pointed out that Russia is always represented by a woman’s figure, a Motherland, as opposed to, say, Germany, which is associated with a male, a Father. All the war victory statues have a woman representing Russia. Women are truly the sufferers and the heroes here. As much as the communists have been claiming equality for women, it is almost jarring how unequal the sexes are. The proverbial glass ceiling here is made of concrete. Bear children, clean, cook, repeat.

Sex

This is a very open society when it comes to sex. The puritan forbidden mystery of it so prevalent in the US is nonexistent here. Promiscuity reigns. People start having sex early and indiscriminately. Furthermore, it extends across all social circles. Sex between young teenagers is not limited to the inner-city youth. There is also a clear separation between sex and family. People marry young in Moscow, typically between the ages of 18 and 24. I imagine it’s even younger in the provinces. And then they start affairs. What is interesting is that the affairs are not too clandestine and there is never any feeling of remorse attached. Women cheat on their husbands quite a bit as well. The process is mechanical, devoid of any emotions and I suspect is mainly a way to deflate some of the boredom that surrounds. In all my years of working in the US, only once did I know of an office romance. Here it borders on ridiculous. In our organization, I have a feeling that all single people have gone through all possible boy-girl permutations. Since availability of apartments for these trysts is limited, they stay late and “do it” in the office. I am also aware of two married men who are cheating on their wives with girls who work in the office.

Trust No One

Pathological liars. This city is filled with them. Particularly, from what I hear from friends in financial circles, they reign in the government sector. Since the country never had a history of building structural business relationships, it is every man for himself and people don’t care what bridges may be burned in order to make (or steal) a fast buck. Here is a story from my friends at [an investment bank] of how George Soros lost on the order of half-a-billion paper dollars here: About a year ago he invested $1.2 billion for a 25% stake of a company called Svyazinvest, a holding from the old Soviet days that rules the Russian telecom industry. The jewel of the holding was a large (almost 50%) stake in the Moscow telephone system. Several months after the payment for Svyazinvest was made, it turned out that there was a small print in the regulations of the Moscow telephone system that allowed an investor who pumps $125 million into the company to force an issue of shares equal to the outstanding number. Out of nowhere, a company called Sistema (actually an arm of the Moscow mayor) appears which “invests” real estate “valued” at $180 million and forces the issuance of the stock. This dilution forced immediate plummeting of the Svyazinvest stock. My friends at [the investment bank] are screaming that it is obvious that due diligence by Soros’s Russian advisory firm was not performed. Furthermore, they are pointing out that now, even though they have been working with the Moscow telephone system for years, there is a new unwritten rule that all financial transactions are to be done through that advisor. Pretty, isn’t it? [I.e., might the advisor been in on the scheme from the beginning?] What is sad is that these “events” discourage new investment.

Nevertheless, there is a lot of direct investment going on. A client of ours, a system integrator, decided to build an ISP [Internet service provider] company. Before they opened an office and hired anyone, a Swiss investment company came in and bought a 50% stake for $10 million. It is commendable because I believe the brains to deliver high-tech solutions is where this country can excel. Lots and lots of smart geeks here.

Business

When I got here three years ago, it was truly messy. Since we do niche marketing in a high-tech industry, that is the industry I was able to observe. Technology companies would form, haphazardly hire people, give them something to do and when the going got tough would randomly fire some employees to save on overhead. About a year-and-a-half ago I was sitting in the office of a co-owner of a network of computer stores. With 7 stores and an annual revenue of about $50 million, this company is easily the largest technology retailer in the city. This president pulls out an NEC annual report and tells me he would like us as their marketing agency to produce something similar. I ask him why he wants it; after all a financial report is something you produce for the market and the shareholders. He responds that it would be “nice” to show to prospective vendors, key clients, etc. I said, fine, let’s see the financials of the company and we will do something. At this point, the gentleman points at the safe standing in the corner and explains that his financials consist of three items: his list of outstanding bills, his list of outstanding invoices and the cash! To this day they are not sure what the profit margins of the company are.

In this country, since the days of communism, employee hiring has been a crucial task. Well, let me tell you, I have become resigned to the belief that it is next to impossible to find qualified help in the business environment. Incompetence reigns and not only in advertising. As I speak to people in various industries, I inevitably hear a complaint of how difficult it is to find anyone with drive and a self-starter spark. In every industry, from finance to store management, the boss always has to be there because the employee will slack off/not come to work/be unhelpful to customers, etc. After three years I am yet to find a native that I can hand an account over and be confident that the account is led appropriately. Even if the person is responsible, he will lack abilities to plan and initiate ideas. I believe that this is one of the major contributors to the fact that the country is held back. Whereas America was built by hordes of entrepreneurs, in Russia the trickle of such entrepreneurs is sneered at and held back by the lazy masses. I constantly compare our Russian clients versus the multinational ones. With the local clients, haphazard unplanned behavior reigns. If this week the business is down, let’s cut the advertising and cancel the seminars for the next month or two. This behavior shocked me two years ago when I first confronted it and it still does because the companies’ managers have hardly become more professional.

Corruption

You have heard all about it and I have become pretty much inured to it. Last week, however, I was able to understand just a little more. People always wonder why no laws of any merit can pass the Duma and the Federation Council. Finally, a communist deputy explained: it is all vested interest, with a twist. For example, say someone wants to introduce a law that empowers tax inspectors to raid and collect taxes at the customs area. To do that, authority needs to be consolidated under the taxation department banner. Say it can be proven that this consolidation will triple the revenue intake. Well, supposedly such an arrangement can never pass because the customs authorities will have to give up their powers. What that means in real terms is that someone will be losing bribe revenues. That person will immediately run to his protection in the Duma, who are also on the payoff, and a way will be found to kill the initiative. It is truly every man for himself and a total Mexican standoff arises. As a result, the only time the Duma votes as a block is on highly political issues, like condemnation of government policies, etc. When it come to internal matters, it is all divide and conquer.

The New Russians

Almost everyone in this country is poor, but the “new Russians” are obscenely rich and decadent. Another toy for them opened about two months ago: a super-super expensive restaurant. A “tsar’s dinner” is prix fixe at $650.

At the same time, the country is broke. Here is one that just came up yesterday: Our organization rents space from MGU (Moscow State University). We rent two floors in a complex of buildings right in the center, a block from the Kremlin’s main entrance gates. It seems that the government and the city of Moscow have not been paying MGU the subsidies as provided by law. As a result MGU has been unable to pay the electric bills for several months now. Yesterday the city of Moscow cut the electricity off to the entire complex!!!!

Values

This summarizes what I think about people in this country. You may have noticed as you have traveled that Europeans consider Americans a bit square and a bit naive. They think Americans are all alike, are not very astute, and are devoid of sarcastic spark. I must agree with that. I must also point out that at this point in time Americans are much more willing to listen to ideas, accept others and, more importantly, lack this idiotic European feeling of superiority. Here in Russia there is a dichotomy of values that are instilled in the young generation. On the one hand, people look around and, if they have any brains, can see they are living in a rat hole. On the other hand, they grow up firmly believing that they are the smartest, strongest, most powerful … The result is that people here totally lack in self-reflection. They refuse to acknowledge that they today cannot build the best cars, best rocket ships, fastest microchips. It is always “we have the smartest teachers, scientists, doctors… but they are not paid well enough to perform the miracles they are capable of.” It is never “we need a Marshall plan to rebuild our PEOPLE.” And until you admit that your country is covered in [filth] because the PEOPLE, ALL OF THEM, are [dumping] on it, you cannot come up with a comprehensive plan to give it a shower. So, my advice to the snobs who laugh at America, is to maybe try to learn a little. And maybe acquire the respect for hard work.

The Inscrutable Russian Soul

There is one thing that nobody understands: how can people work in horrible environments (miners, transportation workers) for 10-11-12 months, not get paid and not riot, or at least refrain from coming to work. As someone pointed out, when a trade union strikes, it is usually for wage increases. Only in Russia, they call a strike to protest wage non-payments. [So there may not be respect for hard work, but there has to be a lot of respect and compassion for the hardships average Russians have endured for … well, for centuries.]

Crystal Ball

What has changed and what do I think is coming? After three years I am finally starting to understand what Russians mean when they say that this country will never be built according to a Western model. They are probably correct when they say that it was wrong to build this country on the US model. American economic model extracts the highest price for success. It is probably true that the transition from the Soviet model should have been less harsh, more gradual, closer to the French or German systems. I hear frequent complaints of this nature. It is too late, however. I am at this point convinced that this country, if lucky, is due for a long painful transitional period. In my own experience everything here takes longer than planned or expected. I think the improvements will take a long time and I am convinced that before the factories start working the people will have to change. The cynicism and the laziness will have to be replaced by something else. People will have to develop a spark in their eyes and a bit of an optimism and enthusiasm. It is pretty funny, but I observe that even in the gym the people are going through the motions in a listless manner. This country does have a lot of extremely smart people who are not realizing their potential and are not benefiting the country. And that is sad. Hopefully, some day very, very soon they will start realizing that potential.

From S. Fox: “I was brought up to distrust the stock market. But a good friend of mine at Merrill Lynch has been trying to get [me] to try it out for awhile. In the long run (I am only 26), would I be better off putting some in the market, or putting extra cash I have into my house?”

A.T.: In the very long run, stocks will way outperform houses, for the most part. Except that, wait — maybe not. A house might appreciate at 3% a year, but if you bought it with only 20% down, then your cash investment is appreciating at 15% a year. (Right? You paid $20,000 in cash to buy a $100,000 house. It appreciates $3,000 — 15% of your $20,000 investment.) Not bad compared to the historical 10%-or-so return from stocks (appreciation plus dividends).

But you’re not comparing buying stocks with buying a home — you’ve already bought one. You’re comparing buying stocks with paying down your mortgage, or else with making some home improvements (I’m not sure, from your message, which). Paying down the mortgage is like getting 8% risk-free, if it’s an 8% mortgage — not bad at all. Remodeling the kitchen or putting in a pool is less likely to provide a positive return when you sell, but may well increase your enjoyment of the home while you live there (once the inconvenience of living with the construction and the frustration of dealing with the contractor have lifted and your blood pressure returns to normal).

But there’s little question that it would be terrific for you to get into the habit/discipline of putting $100 or $500 every month — whatever you can comfortably afford, gradually increasing it as your income allows — into one or two low-expense, no-load mutual funds, or directly into stocks. A lifetime of steady investing is something you will almost surely be happy, years from now, that you embarked on.

But never borrow to invest. Pay off your credit card balances and car loans (but not your low-interest, tax-deductible home mortgage) first.

And keep your expenses and transaction costs low. Sorry to be the heavy with your friend at Merrill Lynch — I know he/she means well and has to eat, too — but feeding him is an unnecessary and unwise expense that over the years will drag down your investment performance. (For more on all this, go to the library — lest you feed me — and get my book, The Only Investment Guide You’ll Ever Need. I think it will answer a lot of your questions.)