Author: A.T.

DEFLATION

Recently, I sketched a few of the big positives and negatives — four each — I thought could affect the market. Writes Roger Dankert: “If worldwide automobile production capacity in the year 2,000 is 80 million cars/year, and effective demand is 59 million cars/year (according to morning Baltimore Sun), who loans the money for customers to buy the extra 21 million cars or do they not get made? Of course prices can fall somewhat to help clear the market, but more likely production will have to be shut in. I don’t see deflation or excess capacity on your list. Do you have an antidote?”

Yes: Growth.

But you raise an important and completely valid point.

On the one hand, of course, factories don’t have to produce everything they’re capable of for companies to stay afloat. And the least efficient plants can get shuttered — one or more auto companies could get swallowed up and “downsized” by the acquirer. That wouldn’t be the end of the world.

But the real question is, how good a job will the world do of providing the economic climate for increased demand? Imagine all the Russians and Chinese, etc., who would like cars. If these economies can get onto (or in the case of Asia, back onto) a strong growth path, the demand will be there. If not, it’s going to be some tough times.

My own feeling is that when push comes to shove, we will not go down the path of trade wars, protectionism, etc. that could lead to a global recession, deflation, pushing-on-strings and all the other rotten stuff that could go with it. But you’re right: it’s a possibility.

* *

THE SOCIAL SECURITY PROBLEM

“Just a quick comment regarding the Social Security Number ‘problem’,” writes Michael Rosner. “Since these ‘numbers’ really don’t count anything, there’s really no reason that the digits have to be numbers. By using letters as well, the number of sequences available becomes (26+10)^9, or over 101,000,000,000,000. Not a likely population to be reached any time soon. Even excluding the letters ‘O’ and ‘I’ to avoid confusion with the numbers ‘0’ and ‘1’, the number is still over 60,000,000,000,000. Plenty of room. Of course, all of our legacy programs will need to be adjusted to allow for Social Security ‘Alpha-Numerics.'”

Clearly this problem is far off and, in any event, nothing compared with the Year 2000 problem we’ve been talking about.

* *

CROATIA

“Incidentally,” I quoted Dan Scott, “most Bosnians speak Serbian, a relative of Croatian.” Now comes Tomislav Peric: “I’m sorry, but Dan Scott is wrong. The Bosnians are now attempting to ‘create’ their own language. Only linguists will decide whether it is a ‘real’ language. Prior to that, Bosnians (Muslims and Croatians) spoke Croatian. They used, and continue to use, Latin letters such as used in English. Muslims and Croatians are a clear majority, about 70%. They do NOT speak Serbian. The Bosnian Serbs speak and write Serbian, using Cyrillic letters. P.S. My family has lived in the same Bosnian village for 200 years.”

Tomorrow: The Day They Couldn’t Fill the Fortune 500

Making the Internet rounds, in case you missed it:

“The Jewish people have observed their 5758th year as a people,” the Hebrew teacher informed his class. “Consider that the Chinese have observed only their 4695th. What does this mean to you?” After a reflective pause, one student volunteered, “Well for one thing, the Jews had to do without Chinese food for 1063 years.”

(With respect to Jewish humor generally, and the Jewish parrot joke in particular, if you missed it, please click here.)

From William Richmond: “Tell Walt Lamphere that I fail to see how getting my money out of the markets now is going to help me after 2000. If the financial meltdown is going to be so severe that our economy and government collapse, the dollar won’t be worth anything anyway. And as for buying gold and silver . . . Let’s just say that I think people will scoff at the idea of using heavy metals as a means of exchange after the so-called financial apocalypse. It’d be too inconvenient.”

From Thorsten Kril: “If there are enough people like Walt, it may indeed make sense to buy silver now. And then sell it in December 1999, just in time before the big crash of a couple of ATMs and VCRs. Wouldn’t be too surprised if Warren would do just that.”

From Wayne Arczynski: “If the world’s banking system were to collapse due to the year 2000 problem, do you actually believe the governments would allow Warren Buffett or anyone else to take their silver? Perhaps you should be looking at the true hard currency for the year 2000, Satellite Bandwidth.”

A.T.: And here I thought frequent flier miles were the true hard currency. (And no, I don’t think the banking system will collapse, but I do think there could be — could be — a recession, lower profits, lower stock prices.)

From Dan Nachbar: “I can’t resist adding my 2 cents. The Y2K problem has been well known within the computer business for decades. I first heard of the Y2K problem when I was an undergraduate computer science student in 1981. My database teacher, a chap named Mike Stonebraker, predicted in lecture that at least one Fortune 500 company will go out of business because of a Y2K problem. Today, I think his assessment is probably right. I do not believe that broad economic chaos will result. Most healthy companies will figure out a way to fix the problem or limp along until they get it fixed. But there will be some companies that simply don’t have the cash or credit on hand to rewrite all of their software from scratch. Their management will be like deer in the headlights. To their credit, the SEC realized that these cash poor companies will prefer to keep quiet about their troubles. So, the SEC recently issued new disclosure guidelines for publicly traded companies with regard to Y2K (see http://www.sec.gov/rules/othern/slbcf5.htm). So watch those annual reports for a whole new set of red flags.”

From Dennis Peterson: “Just read your column about that ‘tongue-in-cheek leap year computer problem.’ Actually, the whole leap year issue is causing some concern in Y2K circles. The problem is, most programmers knew that every 100 years it’s not a leap year — but many of them didn’t know that every 400 years it IS a leap year. So on Feb 29, 2000, we may get another round of failures.”

From Iowa: “I forwarded your column to a friend who works programming computers for banks, and here is his reply: ‘Yes, there will be some problems, but the rest of the hype is hogwash. We functioned without computers before and some businesses may have to until they fix their problems. The gov’t is probably going to be in the worst shape. This is going to be survival of the fittest. The businesses that solve their Y2K problems now will survive. Those that don’t will die off. Where I work, we installed our Y2K upgrade last September. The bank-side will be installing soon. If people are worried about losing their money, make sure they go to a financial institution that uses M&I software. If the general public is smart, they will have all of their finances clearly documented by 12/31/99. This way they can prove what’s in the bank should something go wrong. Why else would we get a bank statement? People with more assets will have to do more work, but it is a bitch to be wealthy! I had to reply, because I am tired of hearing about it. If the Y2K brings us to the end of the human race, then we didn’t deserve to be around.'”

A.T.: Why do I not find this more comforting?

From Howard, who works for a company that’s in the Year 2000 business: “There was recently a request to make Dec. 31, 1999 (a Friday) a trading holiday so that companies could run the programs to close the 1999 books while still in 1999. Apparently, the request has been denied. Well, the financial industries are ahead on fixing the problem, but this decision seems like a lot of hubris. If there are still problems in the computer systems, there is a much greater chance that running the year end closing programs while the current date is still in 1999 will succeed than waiting until the year 2000 to run them. It will be interesting to see.

“If you read the various computer press you regularly see things that indicate that even now somewhere between 50-75% of companies have NOT yet begun to fix their code. Conservative estimates easily have 20% of the companies not completing their conversions by 2000. So, here is a question, what would happen if a random 5% (random because we will not really know who fixed their Y2k problem until we roll into 2000) of publicly traded companies (and non publicly traded companies) cannot do business coming into 2000? This is not a doomsday scenario, but a fairly conservative possibility based on people just not having stepped up to do the work. GM has trouble when one of its suppliers is on strike, what happens if 5% of its suppliers cannot ship. Seems like we could be in for deep trouble.

“Personally, I think I am going to ‘time’ this market as we head from 1999 to 2000. Seems like there is a much greater chance that the market will be tumbling as we head toward and into 2000 then of having a spectacular year. Do you have an opinion on how an investor might want to deal with the uncertainty of this problem? Will public discussions on this be productive as year 2000 approaches or will they be more likely to generate a run on the market? Do you consider taking the possible Year 2000 problems into account in an investment strategy a good idea or just another attempt to time the markets response to an externality that we cannot be sure about?”

A.T.: Well, public discussions will be productive to the extent they galvanize everyone into sensible contingency plans. Businesses and government agencies need to think through what their own software problems might be and how to minimize the impact of glitches or delays others might cause them. Individuals will be saving their paperwork and perhaps building up a little reserve of the type they might if there were fears of a power outage. I’m 95% confident there will be no horrendous problems, but one reason for that is that people will make these kinds of plans and will back up their data even more carefully than usual at the end of 1999. And so on.

I also think that, with the market at record highs, it would be unwise to be in stocks on margin (if you have a car loan and own stocks, in a sense, you’re in on margin). I also think that this is a good time to be sure you have adequate liquid emergency money (what if there’s a flood? a medical problem? a job layoff? your child needs a lawyer?) — which you should always have before you invest in stocks. “Timing the market” is impossible to do successfully over the long term, especially if you have taxes to pay on your gains in order to do it (whatever advantage your brilliant timing provides is likely to get more than eaten up, over the long run, by the drag of those taxes). But that doesn’t mean you should always have 100% of your assets in the stock market no matter what. Between Asia, Year 2000 and Iraq, I’m not sure it’s all smooth sailing ahead. I certainly don’t have all my money in stocks. Then again, there are powerful positive trends in place as well: see Where Are We Now?.

Given the low interest rates, people figure money has to keep going into the stock market — where else could it go? And there’s a lot to that. But one place it could go is to paying off debt. And if the market should ever drop sharply, some people will seek the comfort of fixed-rate guaranteed investments . . . at just the moment stocks are beginning to look attractive again.

Anyway, the short answer (as you can see) is: I don’t have a clue. If you’re young and have begun putting $200 or $1,200 a month into the market, directly or via an index fund — keep it up! Over a lifetime, you’ll be glad you did.

About the only original idea I can add to this discussion is the need we will all soon feel for words that rhyme with millennium. (Surely you will not be allowing the moment to pass without sharing poetic sentiments with your loved ones.) I hereby offer you plenty o’ ’em, as in:

Will there be problems in the millennium?
Probably not!
But there’s always a chance there could be plenty o’ ’em.

(Caused, I might add, by shortsighted programming long before Pentium.)

“I love the replicator! Now, in order to make this happen tomorrow rather than in ten years, you need to get the bar code scanners in the homes of millions. The potential market is so huge that the supermarket checkout scanner manufacturers would probably be willing to cut a deal on the price of a home version. Also, nationwide trained delivery people would eat up a lot of capital. Why not leverage the delivery people who go every day to every door in the country already? Yes, US Postal’s finest men and women in blue. The USPS is quite entrepreneurial as government agencies go, and their cut of the revenue from this operation might allow them to start delivering envelopes for free, which, together with their new delivery products, would keep the USPS vibrant and relevant in the age of electronic communication.” — Andrew Hoppin, UC Berkeley

“I think the package delivery system suggested by your reader is a great idea! I like the overhead trolley system the best. Imagine how much fun children can have smacking at the packages with sticks as they come floating by. It’ll be like a giant piñata system for kids! Or even better, if you do run out of shampoo, why not go out to the end of your driveway and grab one of the boxes coming by! You can look inside for some shampoo and if nothing is there, you can put it back on the trolley. But, if you do come across some shampoo, just squeeze out a little, and put it back, no one will miss a little dab of shampoo!” John T.

“Boy do I love those two ideas — the replicator/Internet ordering/FedEx delivery idea and the refrigerator & freezer mail slots. Now that’s service. I’m not very old (33), but I do remember we had an insulated metal box by the back door to receive milk deliveries. The milkman came at an early hour, and the milk stayed cool until Mom got up and retrieved it. Sometimes the best new ideas are old ones. Now what can you do to make them reality? BTW — which mail slot does the Domino’s pizza get thrust into — maybe we need a warming oven slot too? (I’ve heard that you can order pizza over the Internet now.)” — Mary Longacre

You see what makes this country great? You start with a harebrained idea (mine), and through careful analysis and flashes of inspiration, tweak it until it becomes the next Tickle Me Elmo.

“I have a comment about your piece on finding the buyers. I thought the market makers were charged with and responsible for providing an orderly market for their securities. That means buying when everyone is selling and selling when everyone buys. To offset this risk, they charge (often criminal) spreads on these issues and hedge their exposure with options. (And they also run customers’ stops and limits to get more order flow, but that’s another story.) A good market maker shouldn’t have to halt trading in a stock if he’s providing adequate liquidity. And gaps should be kept to a minimum as well, except for the ones associated with news breaking when the market is closed. Am I missing something here regarding the role of market makers?” — Loren Siebert

Well, there are a couple of distinctions to be made here. The first is between “specialists” and “market makers.” The New York Stock Exchange, which is an auction market, works much as you say (except perhaps for the criminal part). Because there’s only one specialist firm for each stock — a very privileged position — specialists do assume the responsibility you describe. And some fulfill it more faithfully than others.

In a dealer market, on the other hand, there are as many market makers in a stock as want to be. They have no obligation to preserve an orderly market; they just do their best to offer attractive prices (to snag the trade) while making as much money as they can.

The second distinction is between routine trading and “an event.” You will recall that the questioner asked, When a stock is shocked by bad news and there is a torrent of sell orders, where do the market makers find all the buyers?

In routine trading, there is some stock at 40-1/4, say, and a seller comes in with 20,000 shares and there are no buyers at the specialist’s post (those round “islands” on the floor of the New York Stock Exchange, like atolls in the Pacific), the specialist will buy the 20,000 shares at, say, 40-1/8 or 40. He’s put up $800,000 of his own money. If he’s lucky, a buyer will soon appear to whom he can sell the same shares back for an eighth of a dollar more — he’s made $2,500 on his $800,000. If sellers keep coming without buyers, he’ll keep inching the price down in an orderly way as he buys more. Later, he’ll sell back the stock he’s acquired. He may have to do that at 38-1/2, if the sellers have just kept coming and coming and it’s taken a while for buying interest to show up — in that case he might have acquired 100,000 shares at an average price of 39-1/2 which he sells at an average price of 38-1/2 for a $100,000 loss (I’m just making these numbers up, to give you a sense of it) . . . but don’t cry for the specialists. They do OK.

The same thing happens in reverse if there are buyers but no sellers. A specialist may have shares in “inventory” he can sell. But once those are gone, he keeps selling shares he doesn’t own, knowing he will soon be buying them back.

But what of a sudden influx? The specialist’s obligation to make an orderly market does not extend to suicide. If there’s a “torrent” of sell orders, he will notch the stock down in a rapid series of tiny steps . . . or if there’s a large imbalance, he may ask for a brief halt either for news to be disseminated and/or to give potential buyers a few minutes to appear. Faced with orders to sell 2 million shares, the specialist is not going to buy them at 40 or even 36 and risk $80 million or even $72 million of his own money. He goes through the process of issuing “indications” that I described. Pretty soon, the market has found its new, lower level, and then the orderly trading resumes.

So the answer to your question is . . . yes and no.

#

“Please elaborate on the concept of the ‘specialist’ at the NYSE as mentioned in your column today. Does someONE actually have responsibility over each stock traded on the exchange? I guess I don’t quite understand the human dimension behind all the numbers.” — Mark

Well, it’s not one man or woman — and if he or she is out sick, the stock doesn’t trade. But close. Specialist firms tend to be quite small, and actual people do stand at their posts all day, heavily wired with their now-computerized “book” of good-til-canceled buy and sell orders, making a market. Each NYSE stock is traded at just one “post,” with just one specialist firm. Each such firm typically has charge over something like 10 to 40 stocks (don’t hold me to the exact number, but that’s the ballpark).

“Dear Andy: Please write a column urging stockowners to pay attention to the proxy statement booklets they get this time of year, and then vote their shares accordingly. I know you once wrote that you just tossed the proxy statements (and I presume the proxy ballot). Please reconsider. There really are important things being proposed. As a matter of fact, you could sponsor resolutions yourself. All you need is $1000 of stock held for one year.” — Carl Olson, Chairman, Fund for Stockowner Rights

Thanks, Carl. Good point. But do you have any anecdotal evidence or otherwise of cases where it’s made a difference? With so few people voting (and most stock held by their pension fund), if a measure gets 3% or even 23%, does management really take note?

To which Carl persuasively replied:

“Dear Andy: Here is some good data for you. As you may know, the SEC is considering a proposed rule change to make it much harder for stockowners to propose items for votes at annual meetings. A massive battle is on. You can see it at the SEC web page www.sec.gov under the proposed rules, including hundreds of comments (including mine as chairman of Fund for Stockowners Rights). This is a quote from the SEC presentation:

Based on the information provided to us by IRRC [Investor Responsibility Research Center in Washington, D.C., which analyzes issues to advise stockowners how to vote], we understand that in the period January 1, 1997 to date [July], 19 proposals obtained shareholder approval out of a total of 234 submitted to shareholder votes. Nine were proposals to repeal classified boards. Nine sought redemption of companies’ shareholder rights plans. [Poison pills]. One focused on ‘golden parachute’ payments to executives. Even if a proposal does not obtain shareholder approval, however, it may nonetheless influence management, especially if it receives substantial shareholder support. A proposal may also influence management even if it is not put to a shareholder vote. We understand that in some instances management has made concessions to shareholders in return for the withdrawal of a proposal.

“In my own case, I proposed that Occidental Petroleum Corp. adopt a confidential voting policy. In 1991 it got 54,000,000 shares in favor; in 1992 it got 71,500,000, and in 1994 it got 111,400,000 (versus 93,000,000 against). The board finally adopted a watered-down one. The same thing happened at The LTV Corp. Oftentimes it takes a multi-year approach in order to build support. Another example is the Fleming Companies (food wholesaler). Another stockholder has been able to have passed proposals in both 1996 and 1997 to eliminate the poison pills.

“This coming season of annual meetings has a lot of exciting matters.

“1. At Occidental Petroleum and LTV, I have proposed that the stockowners should be told how much financial backing the auditors have for their opinions. You may have seen that the Big Six now have LLP after their names. This means that the individual partners are NOT liable for the misdeeds of the other partners. Thus, for the Big Six, security in the amount of $3 billion to $5 billion has been removed from the stockowners of an audited firm. We ought to know. This issue right now is up for an appeal to the full SEC.

“2. At AT&T, a permanent confidential voting policy.

“3. At Lucent, GM, Ford, and BellSouth, an anti-slave labor policy (not just sweatshop, but real forced labor, such as the massive ‘laogai’ system in China that Harry Wu is exposing). ”

OK, Carl. I’m not sure I’m against slave labor, but I’m no fan of poison pills. I’ll try to vote more often. Keep up the good work!

(This is a joke. I am against slave labor.)

Writes Dave: "Inventory the contents of your wallet! I lost mine somewhere yesterday and spent the good part of the morning reconstructing its contents mentally. Then, I was off to the races: closing checking accounts, canceling a credit card account, etc. I remembered, too, that I had saved a note from my mother in which she had described how to use her calling card (‘Hello, Mom, Happy Valentine’s Day and please call your credit card company and have them issue you a new number.’). What else was inside? A few business cards (other people’s), my frequent flyer card, driver’s license (expired), health insurance card (circa 1995), two employee I.D.’s, and my current bus pass. All this from memory. But what else was inside?"

The simplest way to do this is dump the contents onto the nearest Xerox. Another handy way: set up a word-processing document or a weekly reminder (if you use a "reminder" program that allows lots of text) called WALLET and just keep a current listing there.

If you have some items automatically charged to your credit card or checking account each month, don’t carry that credit card (or checks from that checking account) in your wallet. That way, even if you do lose your wallet you won’t have to hassle with changing your bill to a new card.

You lost your wallet? How?! To me, losing a wallet is like losing a kidney. You just don’t do it.

(I know: famous last words.)

From Larry Jensen: “I’m sorry that they haven’t chosen to use your Clickle buzzword, but there has been progress on this front. Last month Digital Equipment Corp. (now Compaq, if I’ve got my merger trading cards straight) started beta-testing software for ‘The MilliCent™ microcommerce system.’ The basic concept is exactly the same as you described, with a bit more flexibility: it allows web sites to charge variable fees for content – as small as 1/10th of a cent – either for single-time usage or for longer subscriptions. You can read all about it, and download the software (a plug-in to your web browser) along with $10 of free scrip, on their web site at www.millicent.digital.com.”

From Bill Densmore, president of Clickshare Service Corp.: “See www.clickshare.com for more information.”

From Timothy Lash: “Why wait until next decade for the replicator? See www.streamline.com today. It’s pretty close to what you describe.

From Jim L’H.: “I like your idea of the replicator and was thinking along similar lines myself. Don’t worry, I’ll let you claim credit if you want. But for this to work, we really need to make our goods transportation system more efficient. Having a person getting in and out of a behemoth truck, driving all over town burning fossil fuel is outdated and unnecessary. Here’s my idea.

“Let’s make a small-package trolley system. String lines, or better yet have underground tubes that go to every home on every street. Little pods would zip along the lines, or through the tubes carrying small packages. My hospital has this for medical chart delivery. Just scale up the infrastructure. Then when you order your shampoo and other sundries, the person at the sundries warehouse puts your order in a pod, gives it your address and sends it down the line. It is automatically controlled and programmed to find the most efficient route to your home. When it gets there, you unload it, put in your recycling, and send it on down the line again. Theft would not be a big problem. First, a thief wouldn’t know what he was getting, second, it is most likely low value anyway, and third, the system would be rather inconvenient to break into (high in the air, or underground in tubes). And of course the pod would be digitally protected to open only at your house. You can claim credit for the clickle and the replicator, but this one is mine. However, I will cut you in if you can think up a catchy name for it.”

Well, one name I can think for it is: stupid. But then you can reasonably have said the same for my clickle and replicator, so I think I’d rather call it visionary. We could get the guys who designed the Denver Airport baggage system to work on this, and soon shampoo or a bottle of aspirin could cost no more than it does in a hospital — $16.

I love the idea, but I think it needs a little work.

“When a stock is shocked by bad news and there is a torrent of sell orders, where do the market makers find all the buyers? I can imagine some answers to this question but would like the inside story.” — Derek Deer

The buyers come from two places, basically. First, with most stocks there is a book or backlog of “good-til-canceled” orders to buy and to sell. Say the stock was 40 and someone’s been holding out to buy 5,000 at 39-1/4. Someone else put in an order to buy 200 shares at 34-1/2 and forgot all about it — but it’s still in the broker’s computer. Right there, we have “found” buyers for 5,200 shares. For an actively traded stock, there would be hundreds or thousands more such orders. (There would also be some stop-loss orders lodged in the computer, triggering some automatic sells as well, adding to your torrent.)

Second, the same news that attracts the sellers jolts the much larger number of non-owners of this stock. For every one institution or individual holding Oxford Health, say, would there not have been 100 times as many people who didn’t own it? So out comes this news, and suddenly the owners who see it feel sick and yell “Sell,” but some of the non-owners are thinking that maybe there’s a way for them to take advantage of the panic. A certain proportion may figure, Gee, these troubles will pass, or at least there’ll be a little bounce . . . so if it was 40 a second ago, maybe I’ll put in to buy some at 28.

The real answer is that the buyers are “found” by the price at which the market “clears.” (With a very thinly traded stock, the market may not clear — e.g., you won’t sell your house for a dime less than $120,000, no buyer is willing to pay more than $102,000, so your house sits unsold. But if you did put in to sell it “at the market,” you’d get $102,000. The buyer would be “found” by the pull of the new lower price.)

With a New York Stock Exchange-listed stock, the specialist will provide a little (itty) bit of buying power, too. More to the point, the company may alert the Exchange that important news is coming out and trading may be halted to allow its dissemination. Or the specialist may receive a huge imbalance of orders and ask for a similar brief halt. During that time, the specialist will be issuing “indications” of where he plans to open the stock for trading . . . which in turn may cause people to enter new orders or adjust or cancel old ones. Finally, he sees that 32 is about the price at which supply and demand balance, so he opens the stock for trading there . . . and now a lot of potential sellers are saying to themselves, heck no. I’m not selling at 32 — which significantly cuts down on that torrent of supply. And enough buyers are thinking that, at 32, the market just might be overreacting, and this is a good opportunity to buy.

This is also what makes horse races. And it explains why some people actually liked that horrible Austin Powers movie. (Well, no it doesn’t. But I feel better for having said it anyway.)

ZAIDE ON THE INTERNET

“My favorite thing about your concept of a Clickle is that it sounds like Yiddish. I’ll bet my late Zaide (olov hashalom) could even have related to it! ‘Ich hob geshikt finf clickle oy’fn Internet….'” — Dr. Steve Rosenbach

I speak no Yiddish, but I’m guessing olov hashalom has to mean “rest in peace.” It is from meshugganah insights like this that the Rosetta Stone was ultimately translated.

PAY OFF CAR LOAN OR INVEST?

“My wife and I, 40 and 45 years old, have about $300,000 in 401Ks and regular mutual fund accounts, $80,000 home equity, and no debt except for our mortgage and a car loan. We’ve got some cash, and can’t decide whether to pay off our $8000 8% car loan, or try to invest the $8000 in something that would make more than 8% after taxes. I see some bond mutual funds yielding 10 – 13%. What would you do?” — Bruce

Unless there are prepayment penalties, pay off your car loan.

The bond funds only “yield” that much because interest rates have been falling, which makes the value of the bonds they hold go up. The actual yield — interest payments less management fees — will be much lower unless they are investing in wildly risky bonds. Of course, interest rates could continue to fall, though not below zero I think, but they could also rise. With the car loan, not having to pay 8% is the equivalent of a guaranteed tax-free 8%. Outstanding.

SOON WE’LL BE OFFERING THE CROATIAN TOUR

“Hi, Andy. When you said your agent sold the Croatian rights to your book, did you mean the rights to sell the book to Bosnian Croats or to sell the book in Croatian in Croatia? If you meant the latter, then I am surprised that you are surprised! There is a vast class of very wealthy people in Croatia, and most of the country, except for the southern coastal resort towns, was barely touched by the war. Zagreb, the capital, has been a prosperous cosmopolitan city for quite some time, with a cost of living comparable to that of most US cities. People in Croatia seem eager to adopt anything American, and there is no reason that market investing should be any different! Croatians are quite well off as an immigrant group in this country as well. I’d say there could well be a market for the book in Croatian except for one thing — most Croatians with money already speak excellent English.” — Andrew Hoppin