Author: A.T.

I know for some of you it’s a nightmare, but here’s the way it plays out:

1. The President leaves office January 20, 2001. History winds up rating his performance higher than many expect. Peace, prosperity, a balanced budget, an emphasis on inclusion and education, a vision for the future — not a bad eight years! (The fact that he lost some money decades ago in a real estate tax shelter called Whitewater turned out not to be tremendously relevant to most Americans’ lives after all.)

2. He plays a year of golf and then, too restless for the Supreme Court, becomes junior senator from Arkansas — and through his intellect, energy, people skills and standing, essentially winds up running the Legislative Branch. Not literally running it, of course, but then when did a president entirely run the Executive Branch either? I’m told that in any large organization, the CEO has to lead more than dictate.

2. Then, around age 72, finally tiring of the endless hubbub, he is appointed Chief Justice by President Gore, so he gets to head the third branch of government as well — the ultimate hat trick.

Now, you’re thinking, Whoa! Unless they repeal the two-term amendment to the Constitution, how could President Gore appoint him Chief Justice in 2018?

The answer is — and this surprised me as much as anybody — Al Gore, in some last minute convention maneuvering, actually agrees in 2000 to be Bill Bradley’s running mate.

“After all,” Bradley tells him, “you’ve been the most productive and effective vice president in American history. And after 16 years in the post, you’ll be irresistible. Anyway, the country needs you.”

“Vice President — again?” Gore moans. But, patriot that he is, he signs on, does another great job, and then, finally (after a four-year hiatus when Newt briefly captures the White House), becomes president himself and appoints Bill Clinton Chief Justice. (Bradley, meanwhile, goes on to coach the Knicks.)

No, wait. That’s not right. Who’s kidding whom? It’s Gore/Bradley, not Bradley/Gore. The reason President Gore gets to appoint Bill Clinton Chief Justice in 2018 can be explained in a single word:

Tipper.

Wallace gave me this. Wallace is one of those terrific whirlwinds who stirs up everything around him — cajoling, energizing, shouting (but with a Southern accent, so it’s impossible not to be charmed) — and I think of this as Wallace’s prayer, though in truth someone just gave it to him and he passed it on to me.

Perhaps there’s a Wallace in your life.

Perhaps you’re a Wallace.

In any event:

Dear Lord,

So far today, God, I’ve done all right. I haven’t gossiped, haven’t lost my temper, haven’t been greedy, grumpy, nasty, selfish, or over-indulgent. I’m really glad about that. But in a few minutes, God, I’m going to get out of bed, and from then on I’m probably going to need a lot more help.

Amen.

Bonds are “in” these days, perhaps with good reason. If we have a recession, interest rates could fall further (i.e., bonds will rise — it’s two ends of the same see-saw) and earnings could fall, which could be bad for stocks.

Normally, I shun bonds. Not enough excitement. And I certainly shun long-term bonds when interest rates are low. Too much interest-rate risk. But as I wrote in Worth a while back, there are some long-term bonds I’ve bought — very long-term bonds, backed by a very good credit (well, we’ll see about that), selling at an extraordinary discount.

Specifically, these bonds are the “fives of eighty.” Not the 5% bonds of 1980 or even 1880 but, verily, the fives of 1780, backed by the full faith and credit of the United States. By now, I have a whole bunch of these little suckers, many of them bought for the price of a nice dinner. That’s really about all they’re worth if they’re canceled, as, according to Alexander Hamilton’s report in 1795, all but $90,000 of the approximately $3 million issued were. Most of my bonds, however, issued in denominations between $1 and $20, are among the $90,000 that remained unredeemed. Arguably, they have been accruing interest for 218 years.

On a $20 bond — one of which I managed to buy from a dealer for $45 — the interest comes to $832,333.

“Hello, I’m here,” I have visions of myself saying to the teller at the Federal Reserve Bank in Washington, handing him one of my $20 bonds for redemption.

“Just a minute, Sir,” the teller would say, nonplussed. And while that “minute” would doubtless stretch into decades of litigation — look how long it took the Eskimos in Alaska — my little bonds would be accruing interest at 5% a year all the while.

Then again, they’re only worth what someone will pay for them, which these days is typically a few hundred dollars each.

To do this justice, I have to ask you to back up a second and picture it. There we were, this pathetic little fledgling country trying to fight the British Empire. Any little kid learns the basics — the shot heard round the world, George Washington and the terrible privations of the winter at Valley Forge. You know. But how did we finance all that? Who paid the soldiers? Who paid for the salt petre?

The answer, oversimplified to be sure, is that the Continental Congress printed paper money. It quickly lost value, as paper money printed to finance wars so often does. By 1780, Continental Currency was trading for about a fortieth of its initial value — about two and a half cents on the precious-metal dollar. At that point, Congress officially exchanged a couple hundred million dollars of the near worthless paper money for just a tiny fraction as much sound paper money, guaranteed both by whichever state issued them (each state issued a portion) and, for extra safety and to inspire extra confidence, by the United States of America, and hand-signed on the back by an authorized agent thereof.

Will the U.S. government ever make good on this obligation? I have no idea. Needless to say, I’m not holding my breath. But Hamilton does use words like “absolute obligation” on which “interest is due perpetually until paid” in his report, and the precedent of compound interest is fairly clear. So who knows. The scale of the thing is enormous, but not so enormous as to be impossible. If all $90,000 were presented at full accumulated value (and I like to think a lot of these bonds have been destroyed in fires or lost to floods or tossed out with old newspapers), Uncle Sam would have to fork over about $3 billion — $20 million of it to me — and then take back perhaps $1 billion in income tax on the interest. A lot of money, but not much to maintain the creditworthiness of the United States of America. Of course, at simple rather than compounded interest, I’d be getting about $5,000 instead of $20 million. And if I ever did get any meaningful portion of that $20 million (I don’t want to tip my hand here, but I just might be willing to settle for twenty cents on the dollar), I’d be consumed with guilt — the primary means by which bleeding hearts react to good fortune — and would presumably give most of it away. Still, it’s fun thinking I have $20 million for which I paid about $30,000.

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salt petre: This substance, rumored to have been put into our milk at summer camp to keep us from getting too restless, was an important component of gunpowder in the eighteenth century. For $260 I purchased at auction a Salt Petre Inspection certificate dated June 11, 1776. Back to Text

“Quite a few years ago I read a book by you in which you recommended Mutual Shares. I was finishing my MBA at the time. I began to invest in it and never stopped. I’m 42 now, earn $60K in salary and have never earned more. I am nearing millionaire net asset status and will most probably achieve it long before age 50 — even with the expected attenuated gains from the market in coming years. Compound interest and understanding taxes can take one a long way. A little good advice helps too. Thanks. Please withhold my name if you choose to use this note in your column.”

Listen: I take no credit for this. Almost none of my advice is original; I got it from people like Aesop and Ben Franklin and Charles Dickens. From Mark Twain and Tolstoy. But at this time of New Year’s resolutions, I think it’s worth pointing out that this stuff — slow but steady common sense stuff — really does work. And needless to say, it’s gratifying to see the results.

Live beneath your means today, make a plan for tomorrow, work hard, and, with any luck, you’ll be a millionaire before too long, also.

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Aesop: “Slow and steady wins the race . . . . A crust eaten in peace is better than a banquet partaken in anxiety . . . . It is thrifty to prepare today for the wants of tomorrow.” Back to Text

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Ben Franklin: “Necessity never made a good bargain . . . . There are three faithful friends — an old dog, an old wife, and ready money.” Back to Text

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Charles Dickens: “Annual income twenty pounds, annual expenditure nineteen six, result: happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result: misery.” Back to Text

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Mark Twain: “October. This is one of the singularly most dangerous months to speculate in stocks. Others are November, December, January, February, March, April, May, June, July, August and September.” Back to Text

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Tolstoy: “Buy term insurance and invest the difference . . . pay all your credit card balances in full within the grace period . . . investing 20% or 25% of your portfolio in non-US stocks can actually reduce the risk of your portfolio slightly while at the same time slightly increasing its expected long-term return.” Did you know Tolstoy was actually a financial planner in the Sevastopol office of Shearson, Lehman, Hutton, American Expressski, as it was known back then? No? OK, well did you know he actually did write these words, in 1892: “The more is given the less the people will work for themselves, and the less they work the more their poverty will increase.” Money advice any parent should recall at allowance-negotiation time with the kids. Back to Text

I know a guy who recently spent $1,200 on a scarf. (His rationale? “It was reduced from $3,000.” He actually said this.) Here’s what I recently got for $1,200:

• One blue Fioravanti suit
• One gray Ungaro suit
• One brownish-gray Nino Cerutti suit
• One black Ungaro suit
• Two belts
• Free alterations
• Eleven hundred thirty-six frequent flier miles
• $63.38 in change

Yes, I got a little carried away. I can’t honestly tell you I sit here typing all day in a suit.

And, yes, when I got them home, one of the suits was not a hit. “I don’t like black suits,” said Charles, who, to my relief, liked the others.

But here’s the great part. I had forgotten to buy a tux — that’s what I needed, a tux! — and after squinting at the situation for a minute with a designer’s eye, Charles told me to give him the black suit. Next thing you know, it had black satin stripes on the pants and the collar — voilà! My new tuxedo.

Now, you may think I got all this fine loot so cheap because, having given Men’s Suits a plug or two over the last year, Men’s Suits wanted to do me a favor. Not so. I actually make a point of trying to avoid that sort of thing. When out of the blue two ostrich eggs arrived unsolicited from the ostrich people a while back, one broken, I did not return them — who has time to be that incorruptible? — but I’ve paid for every pound of ostrich meat I’ve consumed, paid for every fat-free cheesecake, paid for all my suits. The alterations were free because, it seems, with even the suggestion of negotiation, all the alterations at Men’s Suits wind up being free.

Indeed, it was not until he had run my credit card through the cruncher that — displaying a copy of my book — I asked (couldn’t resist):

“Have you seen your plug?”

“What plug?” the manager asked.

“Page 159,” I allowed, handing him the book.

“Hey, Harry! Come look at this!” he called to someone who almost surely wasn’t named Harry but whose real name I forget.

“You should give a free book with each suit,” I suggested helpfully.

“Hey, Raoul! Come look at this!” he called animatedly to someone who almost surely wasn’t named Raoul, wisely ignoring my suggestion.

So, OK; when they connected the face on the book to the face with the credit card they threw in free delivery. But that’s as far as it went. And inasmuch as I now have enough suits and tuxes for at least five more years, it’s not likely to go further any time soon.

#

And now for an unrelated but important Public Service Announcement:

Please: Drive VERY carefully tomorrow night. (And at all other times as well.) I need all the healthy readers I can get. Seat belts save lives; driving defensively saves more; plastic surgery is no fun; there are tens of thousands of tragically serious accidents each year — and not a single one was expected by the drivers involved.

Don’t drive too fast, leave PLENTY of room between you and the car in front of you, NEVER drive when you’re too sleepy or have been drinking.

Dave Allman: "I’m 46 with a $250,000 zero basis IRA and the Roth conversion numbers absolutely make sense, if I can meet the $100,000 AGI cutoff. My concern is the "tax risk" of assuming that today’s law will control in 20, 30 or 40 years. It wasn’t long ago that Social Security wasn’t taxable (okay, special case, but point is the same). Any speculation on the risk of paying taxes today only to have to (perhaps) pay them again someday?"

It’s a real risk, though there will be lots of senior voters by then to keep Congress from daring to do it directly. The Roth would never be taxable per se, I suspect. But if they decided that income from your Roth IRA should be counted in determining your eligibility for Social Security or other benefits, say, or in figuring some 21st century alternative minimum tax, it would amount to much the same thing.

The best you can do is make some educated guesses, comfortable in the knowledge that, by and large, whatever choice you make is secondary in importance to the fact that you’re saving in the first place. That’s the big decision, and either way you go — traditional IRA or Roth IRA — you’re making it right.

I wish you a Merry Christmas, I wish you a Merry Christmas, I wish you a Merry Chrissssssssssst-mas — and a Happy New Year!

I would also point out that if you never quite get to itemize your deductions — or if you do itemize, but for barely more than the standard deduction would have entitled you to anyway — you might want to think about the old bunch-things-up-every-second-year strategy. Stop! Don’t send out those charitable gifts this week — send them January 1, 1998. Stop! Don’t pay your property tax this week — pay it January 1. Then at the end of 1998, do make your charitable gifts and pay your taxes before the end of the year. For 1998, you’ll have double the deductions you normally have and might thus get more of a tax break. In 1999, you’d take the standard deduction. In 2000, you’d double-bunch again. And so on. (Naturally, you wouldn’t delay paying property or state income taxes where penalties would be involved.)

Let me be quick to say this idea does society no good whatsoever. But it seems harmless enough, and if it ultimately saved you $1,000 in taxes every second year, I say: Merry Christmas.

And this just in from someone with a cryptic AOL address. Today being the first day of Chanukah, I thought it might bring a smile to faces Jewish and gentile alike. In these politically-correct times, I feel I should preface it by saying I am a trustee of the Shoah Foundation, and it didn’t offend me. So I trust no one else — including aviary-rights advocates — will be offended either. It’s a joke:

Meyer, a lonely widower, was walking home one night when he passed a pet store (perhaps a PetSmart — PETM?) and heard a squawking voice shouting out in Yiddish, “Quawwwwk … vus machst du … yeah, du … outside, standing like a schlemiel … eh?”

Meyer rubbed his eyes and ears. He couldn’t believe it. The proprietor sprang out of the door and grabbed Meyer by the sleeve. “Come in here, fella, and check out this parrot.”

Meyer stood in front of an African Grey that cocked his little head and said, “Vus? Ir kent reddin Yiddish?”

Meyer turned excitedly to the store owner. “He speaks Yiddish?”

In a matter of moments, Meyer had placed five hundred dollars down on the counter and carried the parrot in his cage away with him. All night he talked with the parrot in Yiddish. He told the parrot about his father’s adventures coming to America, about how beautiful his mother was when she was a young bride, about his family, about his years of working in the garment center, about Florida. The parrot listened and commented. They shared some walnuts. The parrot told him of living in the pet store, how he hated the weekends. Finally, they both went to sleep.

Next morning, Meyer began to put on his tefillin, all the while saying his prayers. The parrot demanded to know what he was doing, and when Meyer explained, the parrot wanted to do it too. Meyer went out and handmade a miniature set of tefillin for the parrot. The parrot wanted to learn to daven, so Meyer taught him how read Hebrew, and taught him every prayer in the Siddur with the appropriate nussach for the daily services. Meyer spent weeks and months sitting and teaching the parrot the Torah, Mishnah and Gemara. In time, Meyer came to love and count on the parrot as a friend and a Jew.

On the morning of Rosh Hashanah, Meyer rose, got dressed and was about to leave when the parrot demanded to go with him. Meyer explained that Shul was not a place for a bird, but the parrot made a terrific argument and was carried to Shul on Meyer’s shoulder. Needless to say, they made quite a sight when they arrived at the Shul, and Meyer was questioned by everyone, including the Rabbi and Cantor, who refused to allow a bird into the building on the High Holy Days. However, Meyer convinced them to let him in this one time, swearing that the parrot could daven.

Wagers were made with Meyer. Thousands of dollars were bet (even money) that the parrot could NOT daven, could not speak Yiddish or Hebrew, etc. All eyes were on the African Grey during services. The parrot perched on Meyer’s shoulder as one prayer and song passed – Meyer heard not a peep from the bird. He began to become annoyed, slapping at his shoulder and mumbling under his breath, “Daven!”

Nothing.

“Daven … feigelleh, please! You can daven, so daven … come on, everybody’s looking at you!”

Nothing.

After Rosh Hashanah services were concluded, Meyer found that he owed his Shul buddies and the Rabbi over four thousand dollars. He marched home quite upset, saying nothing. Finally several blocks from the Shul, the bird, happy as a lark, began to sing an old Yiddish song. Meyer stopped and looked at him.

“You miserable bird, you cost me over four thousand dollars. Why? After I made your tefillin, taught you the morning prayers, and taught you to read Hebrew and the Torah. And after you begged me to bring you to Shul on Rosh Hashanah, why? Why did you do this to me?”

“Don’t be a schlemiel,” the parrot replied. “You know what odds we’ll get at Yom Kippur?!”

If you like that joke and are Jewish, like me, you may retell it. If you are not Jewish, maybe not. But my main concern is that whoever wrote it has gotten no credit for it. In hope of finding some attribution, I used the Alta Vista engine to search on “Meyer” and “Parrot” — and it turns out (seriously!) there’s a guy named Meyer who has a parrot, but not a Jewish parrot. When I added Rosh Hashanah into the search mix, I came up blank. Thanks, in any event, to whoever started this thing orbiting. I assume he’s Jewish.

"Is money the root of all evil?" — Dawn M.

Hardly. Shaw had it right. Lack of money is the root of all evil. Once people get a lot of it, they turn into philanthropists, endow colleges, and send their sons off to be inspiring presidents of the United States.

Money itself — the medium of exchange — is of course this miraculous invention that is as fundamental to economics and prosperity as language is to civilization and culture.

It’s not money that causes evil, it’s desire (whether material or sexual or egomaniacal). Not to knock desire; just to say that a "good" person will not allow it to trample basic notions of fairness and honesty. So it’s perhaps the lack of scruples or conscience that’s the root of all evil. A chemical imbalance, no doubt. One day there will be a pill. Or a patch. (Imagine the money in that!) And the truly evil people will find a way to get everybody else to take it, or wear it, but not them. AND THEY WILL TAKE OVER THE WORLD. Except that George Clooney and Nicole Kidman will find those people in the nick of time — I mean WITH JUST SECONDS TO SPARE — and stick patches on them and it will all work out OK.

Trust me on this.

From Siu: "I have seen a couple of cases so far this year that were related to my question. I will use the most recent one as an example. OmniHealth is being acquired by some company announced on 10/17/97 for $35/share cash. Why is Omni’s price still around $31? This puzzles me."

A: It’s because some people must fear the deal might fall through, in which case the stock could fall back to where it was. Incidentally, I think you may mean OmniCare, not OmniHealth. Last I checked, no one was offering to buy it for $35.

Greg in California: I’m new to investing but I understand that the firm of Salomon Bros has been in the bond business for a long time? and provides services to a lot of institutional clients? Their newest funds for individual investors are relatively new so it’s hard to track them for any length of time. My question is: Is Salomon Bros the gurus of the bond world? do they have a reputation I’m not aware of? Their bond funds are sure expensive. Thanks.

A: The only thing Salomon may be more expert in than bonds is making money for themselves. No harm in that, but I would advise going with very inexpensive funds (or, when it comes to U.S. Treasury bonds, the program known as Treasury Direct — call 800-943-6864 at any time of day or night, listen to the end of the recording, and then enter your zip code when prompted to get a local phone number to call during business hours for details).

From Kiruba: "I am an engineering student working on a graduate degree. I don’t know much about investing in the stock market but am thinking about investing some money in it. I have some (very dumb??) questions and wonder if you can help me with them.

1) When I buy and sell shares, do I pay tax only on the profit I make?

A: You pay ordinary income tax on any dividends the shares may pay you. You pay capital gains tax on any profits you realize when you sell. (The profit is figured after deducting brokerage commissions.) If you hold the shares a year or less, the capital gains rate is no different from your ordinary income rate. Lower rates kick in at the one-year-and-a-day mark (i.e., if you bought April 3, 1997, you must wait until April 4, 1998 to sell), the 18-month-and-a-day mark, and, beginning for most people with shares purchased after 2000, the 5-year-and-a-day mark. Note that losses offset gains — you only pay taxes each year on your net gains. And should you have net losses — up to $3,000 can be written off against your taxable income each year, with the remainder "carried forward" to offset gains in future years.

2) If I want to invest in foreign markets, say Hong Kong or Bombay, can I still go through American brokers like Ameritrade if I am scared of trusting my money with foreign brokers?

A: Different brokers have different capabilities when it comes to buying foreign shares. Call and ask. But all can buy US-traded foreign securities, as well as US-traded "country funds" that invest in a basket of stocks in, say, Chile or India or France. And from the sound of it, until you get more money and experience (and maybe even then), this would be a wiser course anyway.

3) As an amateur investor am I at a disadvantage because I don’t get to know of things going on till I see them on the news?

A: Yes and no. Certainly, common sense suggests that it should help to be experienced, knowledgeable and "plugged in" to the business world. You are none of these yet. Then again, studies show that a monkey throwing darts tends to do better than most pros (because the monkey is not saddled with sales commissions, fees, expenses or taxes — he’s normally a hypothetical monkey). So if you’re careful and sensible and patient, you may not be at as much of a disadvantage as you might think. Still, inexperience can’t be a plus. Your main job isn’t to try to outsmart the pros competing with you in the market. It’s to develop the habit of investing something every month, and patiently building your stake.