Author: A.T.

One reason some neophyte investors are relatively unworried about the possibility of falling stock prices is, as a few have told me, that’s what they’re paying the mutual fund manager to do — spy the future and sell before prices fall too much.

What they don’t understand is this simple fact: most mutual funds are always pretty close to fully invested in stocks. It’s rare for an equity fund to have less than 90% of its assets invested in the market. So if the market drops 40%, so, in all likelihood, will the fund. (Well, conservative "low-beta" funds will drop less, aggressive "high-beta" funds will drop more.)

If you think the market is overpriced, it’s your job to pull out of the fund, not the fund’s job to pull out of the market.

Having said that, of course, there are lots of reasons not to hop in and out of funds, especially in a taxable account. Stock market money should be long-term money; 25% and 40% dips, should they occur (and they always used to) are just part of the game. If you’re in it for the long term, it’s usually futile or counterproductive to try to "time the market."

Still, with the U.S. market having tripled or so in the last five years, it wouldn’t be imprudent, especially within tax-free accounts, to switch a bit of money into an overseas index fund that invests in a market, like Asia, that’s gone on sale.

Two questions on deflation. The first, in appropriately deflated lower case:

w. buffett, j. templeton, and other well-respected investors are rumored to be buying us bonds. is the possibility of deflation, similar to the asian situation, the reason? do you think such a deflation is likely? if so, what might trigger it? are you buying bonds? thanks jbrimi

The second, from Professor Dana Dlott:

Have you ever given any thought to deflation? My concern stems from several events. First, a few years ago I bought a house a bit more expensive than I can afford. I reasoned, as do millions, with a little bit of inflation, I am in great shape.

About that time I read a biography of William Jennings Bryan. You may remember from history about the famous “Cross of Gold” speech and the “free-silver” movement. It was never explained to me very well in US History. This was during a period of deflation, which was common in the 18th and 19th centuries. The probable reason for deflation was the economy was expanding rapidly but the money supply, based on gold, was not. The ravages of deflation were terrible. If you owned a farm and had a mortgage, pretty soon the value of the farm dropped below your mortgage debt, which triggered the banks to foreclose. You were just working hard, farming and making money, and BAM there went the farm. It didn’t help the banks any, either, to have all this bad debt and farm land.

The “free-silver” movement was about using silver for coinage, to expand the money supply to counter this deflation. The “Cross of Gold” speech was about how the Wall Streeters and Washingtonians were crucifying the average person by keeping to the gold standard.

I wasn’t really worried about deflation because I reasoned the government could just print more money. But recent events have me worried again. First I heard an interview with one of the Federal Reserve Governors. He said to the Federal Reserve Board, the desired rate of inflation was zero. That was a bit of a shock. I was taught a little bit of inflation was good because people like getting annual raises and the money supply should expand a bit. If the targeted inflation rate is actually ZERO, then errors in this targeting could easily lead to deflation.

In addition, now I am reading the Producer Price Index has fallen for the 7th straight month. [This e-mail came in late August.]

Any comments or insights? Am I crazy to worry about deflation? Nobody else seems to worry about it, or even mention it. It would be disastrous for a lot of people in debt.

Well, my first comment and insight on deflation is that, yep, it would be disastrous for a lot of people in debt.

My second thought is that you can’t push effectively on a string, which is why lowering interest rates or printing more money can’t necessarily be counted on to stave off deflation. Interest rates in Japan have long been close to zero, but if people and businesses are scared to borrow, you can’t force them to. And printing more money doesn’t necessarily bid up prices because of what’s known as the “velocity of money.” The Fed can inflate the money supply by purchasing Treasury securities and “paying” for them with new out-of-thin-air dollars it’s printed. (These days, a lot of the “printing” would involve nothing more than electronic ledger entries.) But the behavior of individuals and consumers can counter that if they choose to sit on more of their money rather than spend it — to keep higher checking and savings account balances, and use new cash to pay down debt rather than bid up the prices of Cabbage Patch dolls. The velocity of money — the speed with which dollars fly around the system and the amount of transactional work each dollar does — slows down.

That said, I think deflation is unlikely and that, yes, the Fed’s tools are potent indeed. The world’s learned a lot since, and from, the Depression, most particularly about the money supply and the importance of avoiding trade wars.

(Trade wars are one thing that could trigger deflation. Gloom and doom — we are emotional animals, after all — are another. Picture a period of falling profits brought on by global overcapacity, layoffs, increasing competition for work leading to underbidding, people getting scared and selling at any price to pay off their debts and raise some cash, which leads to lower stock prices and more gloom and, as Franklin Delano Roosevelt said: “All we have to fear is fear itself.” So it certainly could happen. And it’s wise to have some of one’s money in a deflation hedge like Treasury bonds. But I, for one, being an optimist, don’t see this as likely.)

The Fed must always talk about a sound dollar and shooting for zero inflation. This gives people confidence in the future and reason to make the kinds of long-term arrangements and investments that build the future. Because interest rates sit on top of inflation expectations, this kind of talk from the Fed keeps interest rates low.

People forget: From 1880 to 1965, there was no such thing in this country as a home mortgage over 6%. Treasury bonds yielded from 1% to 3%.

With the prime rate at 8.5% and long-term Treasuries yielding a bit above 6%, the Fed has tremendous room to stimulate the economy with lower rates if deflation fears became more widespread.

In an ideal world, the Fed would have people a little worried about inflation and a little worried about deflation, but basically confident that the dollar will be sound, prices stable, and that the Fed will and can do whatever’s required to keep it that way. And, yes, I suspect the Fed would be secretly pleased with a wisp of inflation — a sort of hidden psychological/social lubricant that keeps people happy — so long as they were publicly perceived to be fighting it.

So, finally, what about buying bonds? If Buffett and others are, it would be because it’s so much more attractive to earn 6% on your money for a year or two than, say, nothing — let alone to lose 25%. Now, you may say the U.S. stock market couldn’t possibly go down 25% (or 40% or 60%), and you may be right. I still own lots of stocks for which I have high hopes, too. But for the market to fall 25% from 8000 would bring the Dow back to 6000, a level so impossibly high it was barely dreamed of by most people two or three years ago.

Clearly, though, Warren Buffett et al. are not selling all their stocks to go into bonds, and neither should most of you.

(Nor need you buy 30-year bonds, which expose you to interest-rate risk. Unless you do want to make an aggressive bet on falling interest rates — in which case you should consider long-term zero-coupon bonds to get the most oomph from your bet — it’s probably wisest for most people to stick to Treasuries that are 3-5 years from maturity. You’ll get almost as high a return on your money with a lot less interest-rate risk.)

The future is bright, even if most mutual fund holders are likely to be deeply disappointed over the next decade, given the sort of annual returns they’ve been telling pollsters they expect to earn.

One last thing. Did you know that The Wizard of Oz was actually about William Jennings Bryan and the Cross of Gold (follow the yellow brick road) and such? I was astounded to learn this, but as I hope to elaborate for you one of these days — unlike, say, the Procter & Gamble Satan thing — it appears to be real.

I actually have nothing against America Online. On balance, I think it’s pretty great. But there are those who do have a nit or two to pick. Well, revenge is at hand. Not that AOL is likely to leave this loophole open long after reading this (which you will also find I’ve used as my November column in WORTH). But “if you or anyone you know” has ever been annoyed by AOL, “I urge you to get pencil and paper ready,” as they say.

Here’s the deal. When you boot up AOL and get hit with that ad for AOL’s Visa card — which you have to click “OK” to get past — fake ’em out. Accept the offer. At least that’s what one rich friend of mine did.

When his no-annual-fee card came, he signed up for the “automatic pay” feature, which automatically debits his checking account at Chase at the last possible moment and pays off his balance. Then he took one of the “convenience checks” they sent — a convenient way to get yourself deeper in debt at the introductory rate of 5.9% for six months and 17.9% thereafter — and wrote it to himself for his $20,000 limit, depositing it to his interest-bearing checking account at Chase.

He’s got it down to a science by now. He deposits the check the day after the billing cycle ends, so it takes a month even to show up on his Visa bill, and then another month or so before, at the last moment, Chase automatically zaps the $20,000 back to Visa, paying his balance in full before any interest begins to accrue. (With most cash advances and convenience checks, interest begins to accrue right away. Not so, as of this writing, with the AOL Visa card.) Then he writes himself another check for $20,000 and starts all over again.

As a result, at no cost whatever, he gets:

• The interest on $20,000 that he keeps in his Chase account more or less all year — about $1,000 worth.

• A waiver on the $25 a month Chase would charge for his account if he didn’t maintain a high average balance — worth another $300 a year.

• Some 20,000 “points” every two months redeemable for time on AOL at a penny a point — 10 free months (unless they hunt him down like a dog and find some excuse for canceling his account, but I’d hate to see their legal bills if they did).

I must tell you I sympathize with AOL in this. Whatever they’ve done wrong, they’ve done a lot right for $20 a month. But in my friend’s case, they’re more or less paying him $1,300 a year to use the service — and giving it to him free for what should soon amount to the end of time.

As so often happens in this space, the really good stuff comes from you. The comment I wrote about my frustrating credit card experience — being charged a $20 fee for being 3 days late on a $55 payment, and then being chastised by the customer service rep, to boot — elicited lots of feedback, a sampling of which I shared yesterday. But near the end of this stream of messages came one from a person I’ll call Deep Plastic who really seems to know. It seems GM isn’t the company that issues or services the GM Visa card. Deep Plastic works for the company that does:

I read with a great deal of interest your experience with the GM Gold Card. As an employee of Household Credit Services (the bank that underwrites your GM Gold Card), I can assure you that you are not alone in your “Credit Card Billing Rage.”

In 1996, telephone representatives waived more than $40 million dollars in late fees – income that flows directly to the bottom line. As a result, Household now insists that at least one of the following four criteria be met in order to waive late fees:

1. You must indicate in your original conversation that you never received a statement the previous month, or;

2. You must have at least $2,500 in purchases within the previous 3 billing cycles, or;

3. You must have accrued at least $30.00 in finance charges within the previous 3 billing cycles, or;

4. Your account must have been opened within the last 6 months.

If none of the criteria are met, the reps generally are not allowed to waive the late fee. Essentially, your account is considered unprofitable, and as such, Household isn’t too concerned if you threaten to close your account.

As a courtesy to you, I am going to credit your account for the late fee. You will see a credit on your next month’s statement. In exchange, I will ask that you please let your readers know that it isn’t GM who manages the credit card. They only handle the rebate points. All credit card functions are handled by Household. I own GM stock, and I’m tired of the bad rap GM gets for the stupid policies of Household. (I say stupid, because it takes Household approximately 4 days to post a payment to an account once the payment is received. Household does not back-date the payment, therefore a late fee is assessed even though 90% of the time they had the payment on time). In Household’s defense, they have added so many new portfolios in the last couple of years, their systems are just simply overwhelmed.

Also, in the event you use any of the information here, please do not use my name or E-mail address. I am attempting to put my husband through grad school, and I really need the job!

Other credit cards that Household manages very badly: the Ameritech Complete Card, the Ameritech Platinum Card, the Pacific Bell Savings Card, and the U.S. West Savings Card.

Tomorrow: Getting AOL to Pay YOU

The first thing to say — as you’ll read in what I found to be some fascinating detail tomorrow — is that it’s not GM we should be primarily mad at. But I didn’t know that when I wrote about being charged $20 for being two or three days late on a $55 payment. (It turns out I may not even have been late — the company we should be mad at just likes charging the $20.)

You didn’t know it either when you responded. And boy, did you ever respond. A sampling (with some good general advice from Dorothy Mallonee at the end):

Don Hauge: You are so lucky to be able to vent publicly. If that had happened to me, I would have been just as mad, but I wouldn’t have been able to tell thousands of people about it. At least when you vent, someone at GM might actually read about their own stupid policy and change it. When I vent, the only one who hears it is my wife.

I am indeed lucky to be able to vent publicly. One of the great things about the Internet is that it makes it easier for all of us.

Dr. Tom Novinger:

You paid the $20?

You paid the $20?

You paid the $20???!!

How could you? Didn’t we grow up in the sixties, when we were all protesting over things like free speech, free love, taxes and the war in Vietnam?

Being lucky enough to vent publicly, I figured I’d protest that way. And then catching up on the past week’s Wall Street Journal, I saw something to suggest that my friends the trial attorneys — who do some excellent things for consumers despite the things for which I criticize them — may soon put a stop to crazy late charges. “Attorney Finds a Way to Battle Bill’s Late Fees” (October 6) describes Washington, D.C., attorney Philips Friedman’s attempt to fight late fees by using contract law. The idea is that being late with a payment is a violation of your contract — but contract law limits the damages to the actual harm done. And it would be very hard for a credit card company to argue that my being a few days late on a $55 payment has somehow cost them $20.

T.F. Gazda, “steelworker & consumer”: It seems I’m going through “deja-vu” reading your newsletter here…. I’ve had the exact-same experience — but with DISCOVER CARD (you know, “the card that pays you back”). I’m HAPPY to say that DISCOVER CARD SERVICES have a much more palatable group of “customer service team members” . . . in every case where there was a “slip up” (of my accord), they reversed the charges willingly. Their card is the ONLY one I use! THAT’S a GREAT COMPANY!

I don’t have ANY respect for GM or its products . . . being in the steel industry, I’ve seen our prices (steel sheet) DECLINE over the past 10 years, while it seems GM’s prices have increased at a rate greater than inflation, & they BEAT ON US for lower prices (“what about inflation fellahs?” . . .). I’ll NEVER EVER buy a GM vehicle, just for this reason. That company is BULL-HEADED & too big & working with management’s-style of the 1960’s (or was it the 1760’s? ) . . . . Fred Flintstone must be their CEO . . . I’m just so aggravated by their LACK of true customer focus that I had to put it on record . . . . I own a Dodge & a BMW. General Motors WILL lose — they just can’t see it yet (dinosaur company). Unload your stock in them. Get a Discover Card ASAP, & cut your losses on that silly GM card . . . . GM isn’t WORTH it — & there are far-better cars on the road.

Well, I’m keeping my stock, but with more qualms (though as you’ll read tomorrow these turn out not to have been GM customer service reps at all).

Rafal: I had the same thing happen to me when I missed the pay-by date on my MBNA Platinum Plus card by a single day (I had been out of town for about 10 days and had forgotten to pay the bill before leaving). Not only did I get charged the $20 or $25 late fee, I was also charged a ludicrous amount of interest (MBNA uses some horribly evil method for computing interest expenses). One would have thought that for a card that advertises itself as a step above a gold card, they would be willing to bend the rules for a cardholder with a pristine payment history. Guess that’s where the American Express people still have their niche well carved out. American Express allows you to call in payments, which has saved me on occasion when I realized that the payment was due in 2 or 3 days. I simply made out a check, dropped it in the mail, and at the same time called Amex to let them know it was on the way. No hassling with late fees, no guilt, and everyone’s happy. For this alone, I’m willing to shell out the annual fee on my Amex Gold card (and the fact that Amex is still one of the most pro-customer credit companies when it comes to disputes and other billing oddities. This has saved me from unscrupulous mail-order merchants once or twice).

Alan Silverstein: Today’s GM Credit Card Rage column was identical to the experience with my GM Gold card when I called to protest the same late fee. I pride myself on a virtually perfect credit rating and was not about to let “late mail” cause me to have to pay $20 when one payment came in a day late. I too got on with a GM service rep — and I am nice by nature in situations such as these, rare as they are — and immediately found the same confrontational attitude as you did. I have dealt with many service reps over the years on a variety of credit card issues (this new “late charge” that the industry has been levying caught me by surprise, as it apparently did you as well). Regardless of the other issuers, I have found that only with the GM service center have I almost immediately been put on the “defensive.” Virtually all other card issuers will let you slide when it is apparent based on your history that any lateness is clearly an aberration, and is not recurring. Not so with GM. I immediately closed out the card, with the service rep almost “daring” me to do it. I have also advised many an underling to relay common customer difficulties to higher-ups, but have always felt that these messages fall on deaf ears. I lost my points, but I will not buy a GM product until I see that they have “reformed.”

In light of what you’ll read tomorrow — these are not GM reps or GM’s policy — it’s amazing GM has allowed its reputation to get hurt so badly with this.

Tony Levelle: I once worked for a major credit card company writing technical manuals. They treated their workers worse than anyone I’ve ever seen. Stress illnesses were endemic. A friend went to the doctor with headaches, nausea, and constant vomiting. This was so severe that she was dehydrated by the time she made it to the clinic. “Oh,” the doctor said, “You must work at (major credit card company). I’ve seen several people with these symptoms.” Anyway, I feel that bashing credit card companies is a Good Thing. Keep it up. They won’t change, but I’ll feel better.

Perhaps it’s just this stress that led Deep Plastic, tomorrow’s source, to crack.

Rich: These people are idiots sometimes. Don’t they realize that the average dolt (that deserves to pay the $20) will not even have the common sense to call up and complain? It would be in their best interest to just waive it for anyone that calls. Meanwhile, I’m still waiting for Nation’s Bank to send me a letter. Last month they sent out a statement saying that their Blockbuster Visa card would no longer be giving the 1% in Blockbuster Bucks. They are doing this to “improve service” and are “investigating other alternatives.” Yeah, right. Lunacy abounds.

John Dobrinski: I spent six months trying to get GM to remove a several hundred dollar charge on my card that was done by an unknown person charging an airline ticket. I could not believe the incompetence of the customer service dept. The GM card customer service also has three different departments throughout the country so when you call the 800 number you might get any one of the three offices. They also do not give out their last names or phones so you cannot get hold of the person again. By the way, when I wrote to GM in Detroit complaining I was told the card is not affiliated in any way with GM.

True, except that GM made the deal with the company that services the card, and GM has its name and logo plastered over everything. If it’s the GM card, it’s the GM card. If they really have no control over the servicing company, they were nuts to sign a deal like that.

Rich Stehnach: My wife and I have purchased two Oldsmobile Silhouette minivans using the $4400 in credits earned from our GM Gold Card. With GM’s decision to limit us to $500 a year instead of $1000 a year in earnings, we certainly no longer feel as compelled to spend our next $50,000 on GM products. It’s clear to me but obviously not to GM that they’re probably viewing the billions that GM Card holders have accumulated in credits as a huge liability rather than the potential trillions in sales awaiting them an asset. The shortsightedness of corporate America should never be underestimated.

MK: We also once had a payment arrive late to the GM card, (I think in ’95) and indeed at that time a simple phone call did waive the interest and fees. You are correct in getting this steamed over the $20, and the fee is not only unjustified, but stupid for GM and the GM card.

All this illustrates a basic truth about life, and why the free market is only the “best system on earth,” and not a “perfect system.” You see, we all live on a planet that is by and large populated by idiots. If 90% of potential consumers of anything are willing to put up with unreasonable fees, or exorbitant prices, or shoddy workmanship, or poor quality, then the providers of the product or service can probably do all right only selling to them. We each have a duty, at least as fundamental as participating intelligently in our democracy, to participate intelligently in that most democratic of all human systems — the free market. When anyone of us forgoes our responsibilities as consumers, we diminish all the other consumers in our society by misallocating resources towards expensive or shoddy or unjustified goods and services.

You see? You’re not just fighting fer yer own twenty dollars, Jimmy (picture Ma Joad borrowed for a Frank Capra movie on credit card rip-offs, with either Jimmy Stewart or Henry Fonda in the role), yer fightin’ fer all the people. But while it might not be as noble as all that — the point of Adam Smith’s invisible hand is that you don’t have to be noble, you can just be out for yourself — it’s true: a market works best when information is clearly disclosed and consumers are intelligent in assessing it.

Bill Fletcher: Not only do they now clip $20 for a “late fee” — but don’t look now . . . some cards have removed the – once 10 day grace period – once 5 day grace period – so there is now NO grace period. This is with both of my credit cards. And I am getting the statements only two weeks before the due date. They can easily hold the posting of the payment one or two days so it’s getting very hard to even get them the payment on time if you have the time to run from the mail box to your checkbook and back again (and who does have the time). I’ve made my calls to them — Bank of America and Wells Fargo — and my “Sean” said “we’ve had to do it because people are taking advantage of the grace periods.” Need I say more?

I think Bill refers here not to the ordinary grace period — no interest charged if you pay your bill in full by the due date, which most cards still allow — but an extra little grace you’d get to avoid charges if your payment came in a few days after the due date.

Rick Lafford: I’m like you in that I tend towards used cars and drive them mostly to the end. My current is a 1990 Camry bought from National in 1992 for $11,000. Still going strong at 173,000 miles.

So why did I ever fall for that GM rebate-on-new-cars-only card in the first place? I guess it was the 5% that got me. Not my brightest move — though you never know. One of these days I might go crazy and buy a new car. Do they still make Buicks? When I was growing up — well, you should just have seen the looks on all our faces that day when my Dad brought home a brand new Buick. (Well, it was the 50s.)

And finally, more good advice from Dorothy Mallonee: “I feel qualified to comment, both as someone who’s had a fair amount of congress with customer service personnel as a consumer, and someone who’s been on the other end of the phone. I was a service rep for ‘the telephone company’ for 13 years, and have spoken to — and, I hope, helped — a fair number of customers.

Some pointers:

1. Know what you want. Your best bet is to make clear not just that you’re angry, but what action will satisfy you. Be reasonable, of course, but stand firm.

2. Everyone has a boss. Although this varies by organization, the front-line people are often all too eager to kick you upstairs. The first-level supervisor usually does not want you to escalate. Play these cards for all they’re worth, and never hesitate to escalate ever higher.

3. Co-opt the person you are dealing with. Use every cheap trick you know to create the illusion that you and your new ‘friend’ are a ‘team’ trying to reach a mutually-agreeable goal. [This also works well if you ever find yourself the hostage in a kidnapping. — A.T.] For example, shamelessly use plural pronouns to discuss ‘our problem’, and ‘what we can do about it’.

4. Keep venting to an absolute minimum. You have no idea how anger can affect people who have to listen to it many times during the day. It frightens some people and others simply become angry in turn. Anger sounds very personal to the rep on the other end of the phone line, even though you know the rep is usually just a functionary with little more control over the situation than you have. So vent, but use your dog or your co-workers, and try to keep your interaction with the rep as calm and business-like as possible. The points you score with your booming voice or your razor wit will rarely carry the day. [You mean sarcasm doesn’t make people love me? Uh, oh!] Stay focused on the problem and your expected solution.

Tomorrow: Deep Plastic Reveals All – The Inside Story

Thursday in this space you will find the inside story of the GM Visa card (and some others serviced by the same credit card service company). Deep Plastic reveals all.

But wait. It seems people are not only angry with GM. They’re angry with Ford, too.

Writes Edward M.: I have read your comments on the $20.00 late fee on your GM card. But that is nothing compared with what Ford has done to me and other likewise situated credit cardholders. They have canceled their rebate program as of the end of this year. Now, they have a right to cancel their program, but not to the present owners to whom they have agreed to honor this program! If they want to cancel this program, I do not feel that they have a right to renege on their agreement to existing cardholders who are using it to accumulate credits for five years. I have complained to the State of Florida, Dept. of Consumer Services, who have written Ford Motor Co. four or five times. Ford has not even had the courtesy to respond once. I am now trying to find a lawyer who will file a class action suit to force this firm to live up to its agreements.

Writes Jim L’Heureux: With a Ford Visa card, I’ve been getting the 5% rebate good towards a new car for just about 5 years now and have almost maxed out at $3500. Just recently Ford announced it would end the program on Jan 1 1998. In addition, rebates will be rescinded after a five year period. For example, rebates I earned in 1992 will be deducted from my "account" after the five year anniversary of those charges. I think the rebate expiration feature has been in place the entire time, I just didn’t care because I would continually "renew" them with new charges.

This leaves me with a big dilemma. I had planned on replacing my ’87 Escort in a few years. I thought that I would be able to get a new car at a fairly reasonable cost with the rebates included. Now I have to weigh the declining value of my rebate vs the expected lifetime of my Escort. Any suggestions for making that decision?

I have actually considered buying a new, low-end car on Jan 1 with my rebates and then reselling it immediately. Obviously, I could not realize the full value of my rebate, due to taxes and the "used" nature of the car. However, at least my rebates would be utilized. I would pick a low-end car to limit the amount of taxes and the "used" car discount.

What do you think?

A: Buying and reselling immediately won’t work and is too much effort . . . unless you can find someone who’s basically in on the deal from the beginning. Your cousin or a co-worker wants a new car (you’re too smart; you’ll buy a used one — perhaps even his). So you let him pick out the one he wants, agreeing that you’ll take title to it to use your $3,500 (but it will be his cashier’s check that pays for it). Then you’ll transfer title to him. The cost of that in fees and taxes will depend on where you live, but should still leave you a good "profit."

But literally buying a car and then trying to sell it to a stranger? You’ll get killed.

Have I mentioned my new book? Well, my new book is a bomb. Or so the United States Postal Service fears because it weighs slightly more than a pound. As many of you know — and possibly because of our good friend The Unabomber — one can no longer drop a book or anything else in the mail if it weighs more than a pound. All that advertising about "priority mail" for up to 2 pounds at just $3? Well, that’s fine, but if I drop my book in the mail to someone priority mail, it comes back to me with a notice that any item weighing more than a pound must either have a postage-meter strip (presumably so they can trace the source of the postage if it has not been blown to smithereens) or else be handed to a postal employee at the post office personally, during postal business hours.

That means walking or driving to the post office, waiting in line, and walking or driving back. Hellooooooooooo Fedex!

(What with the potential of the Internet to eliminate the middleman — but not the physical delivery — I recommended FedEx a couple of times in this space 18 months ago when the stock was half its current price. It’s a much less compelling buy now, having doubled, but it does remain intriguing: FedEx is efficient. And unlike UPS, its stock is publicly traded.)

Is the idea that letter bombers, having decided to kill or maim someone and having built a bomb to do it — not a decision taken casually — will get to the mailbox, see they have to go to the counter, and give up? (Yes, the lines at the Post Office are long, but they’re not that long.) Might not someone this heinous be able to steal a $3 strip of postage from some mail room? Or just go to the Post Office, as I did, and mail the thing?

As best I could tell, no dogs sniffed me or my book as I handed it over; no X-ray machine radiated it; no camera homed in on the address label and then my face. So in what way was this package made safe by my having to waste half an hour taking it to the Post Office?

Here’s my free-market suggestion. Let’s X-ray any packages above a pound that are left in postal drop-boxes. Any found to be bombs would be destroyed; the other 99.99999999% could be sent on to their destinations. To cover the cost, let’s add a $1 surcharge to the rate for packages left in drop-boxes. Wouldn’t you like the option of paying an extra $1 to save half an hour? And couldn’t this become a nice little profit center for the Post Office? Win-win. We save time, they make a profit.

Or here’s another way to do it. Why not have the Post Office offer $3 meter strips, or "registered" stamps, to people like me who have no postage meter. You could go and buy 10 or 20 at a time, paying with a credit card and showing a photo ID. The computer would match your credit card to the numbers on the meter strips or the special serial-numbered stamps, so the package could be traced back to you just as if it had come from your own Pitney Bowes. You’d still have to go to the Post Office in person to buy a new batch when you ran out, but nine times out of ten, you’d just affix one of these babies to your package and off it would go.

Just a suggestion.

Incidentally, Amazon.com is now selling the book for 40% OFF — or was last week, anyway. I was so excited, I bought ten more. Now I have to figure out a way to mail them.

Yesterday I ran a letter from Mary, who says all she really asks of her mutual funds is that they do at least as well with her money as she could do in a money-market savings account. Anything beyond that, to her, is gravy.

Although I doubt she was entirely serious in this — and it sounds as if she has enough money not to have to worry much in any event — clearly, she’s not expecting a lot.

Not so most investors. You probably saw it, but if not it’s worth highlighting the table the New York Times, and perhaps other publications, ran last week. It came from Montgomery Asset Management, which had surveyed 750 mutual fund investors as to the level of annual returns they expected their mutual funds to provide them over the next year and the next decade.

In fact, Montgomery has been gathering this data quarterly since the start of 1997, and if the data is to be believed and the sampling techniques trusted, investors are becoming more euphoric by the month. It’s as if St. John’s Wort had been added to the national water supply, if not something stronger.

In January, investors said they expected to see their returns top 15% for the next year and 21% annually for the decade ahead. In April, they were only a hair more upbeat, but by July their ten-year expectation had climbed to top 25% and in October — drawing the notice of the New York Times and others — they were looking for a gain of about 22% for the year ahead and annual returns of 34% in the coming decade.

The first thing to say is that if this is the case, there will almost surely be a tremendous number of disappointed investors ten years from now. No way is the Dow headed for 149,000 in ten years (today’s level compounded at 34%). Even the icon of investment success and nation’s second richest man, Warren Buffett, has not been able to compound money at that rate — and suddenly, going forward, we expect this to be the norm?

The second thing to say is — AEIEIEIEIE! Which may be misspelled, but is roughly what the cavalry used to say when they spotted 20,000 Indians coming over the ridge.

Another applicable phrase might be: irrational exuberance.

This is not to say there will be a crash, or that our outlook in America is not bright. But one sure sign the market is not poised for unprecedented appreciation over the next decade is that so many people apparently believe it is.

I forget what the opposite of a “Type A” personality is (Type Z?), but here is a woman who would appear to be both wonderfully relaxed about life, and honest. And I’m not just saying that because I am her love slave for life for having added significantly to my already vast fortune. (Typically, on hardcover books the author gets 15% of the retail price less a small-concealed shipping charge, though only 10% on the first 5,000 copies and 12.5% on the second 5,000 copies. On paperbacks, 5% to 10% of the retail price.) She writes:

OK, OK. After only mild suggestions, I purchased your book on-line through your hyperlink. I got it in the mail yesterday and began reading it this evening. It promises to be as entertaining as your Investment Guide, which I read under the Caribbean sun. Not that I have made any particularly outstanding investments over the years, but I did enjoy the book and have given a number of copies away. I am going to the hyperlink right now to get a couple more copies for friends that I talk money with. Not that any of us spend very much time on money matters, but it has become a “fun” topic over the years. The kidding about the ones that got away and the ones we rode to zero. Such as you may have missed IBM at 50, but you managed to get some great Barton wallpaper.

Actually I wonder if I am the only person that has found a few stocks to lose money on in the last few years. I do not think so, but few people admit it.

I believe that I have a realistic performance threshold for funds or brokers. The funds should do as well as if I had gone fishing and left the money in a money market savings account. Is that just too difficult? Actually, the last couple years have been fine, but over the long haul some of the accounts have not come close to passing that arduous test under my careful tending. Pretty scary.

Mary A. Block
devoted fan, but bad investor

I run this letter partly because I promised Random House I’d find 101 ways to plug my book, and so far I have inflicted on you only 83. Eighteen to go. But also because I thought you might find Mary’s attitude interesting. Either it mirrors your own, and makes you feel better for not being alone (I’ve never heard of Barton wallpaper — do they make wallpaper, or did this just become the best use for their stock certificates? — but I have managed to lose money in any number of stocks these last few years) . . . or else it gets your blood going (Type A that you are, like me), angry that she allows herself to be taken advantage of by poorly performing brokers (she’d have been a lot better off picking the stocks herself and paying deep-discount commissions) and poorly performing mutual funds (she should have gone with a no-load, low-expense index fund) . . . or else it gets you racing to find her e-address, hoping to sell her something with a high commission (which is why I have disguised her name).

It takes all kinds in the stock market, and I fear that some of those who are nicest, like Mary, may provide more than their share of fuel for the great money machine. Then again, it sounds as if she isn’t hurting, and she’s having a good time. Hard to beat that.

Tomorrow: Scary Expectations

Real estate can be an appealing investment, but slum properties pose their own special challenge. As some of you know, I own a few such properties, purchased with the hope that we might be able to fix them up and improve the neighborhood. You know: do well by doing good, and all that.

It’s a long story (see: Chapter 2, “Never Buy Real Estate Over the Phone“), and from an investment standpoint, you would almost surely be better served by buying shares in a publicly traded real estate investment trust. However, rather than reprise the whole thing here, I thought I’d just give you today’s slice:

Today, my property manager reported to me, was the day the sheriff came to put the people in Apartment 4 out on the street.

This is something no one feels good about, for all the obvious reasons, plus one more: if the sheriff is coming, that means no voluntary accommodation could be reached. (Usually we just work something out with the tenant and swallow our losses.) And that means the full formal eviction process was necessary, adding at least another $375 to our cost.

The tenant in Apartment 4, I’m told, was a heavyset white woman, a recovering addict, referred to us by the Human Resources Service (a government agency).

We are certainly not above renting to recovering addicts, who need a place to live too, and when H.R.S. sent her around we apparently rented her a small one-bedroom apartment — $350. She agreed to live in it alone, and reviewed with us and signed our standard list of good-neighbor rules. Rules like: no drugs, no loud noise that disturbs the neighbors, and so on. Not long after she got the key, I’m told, her boyfriend moved in, and we got reports of the frequent coming and going of strangers — the kind of activity that appeared to be drug-related.

The city of Miami relies largely on landlords to rid their buildings of drug activity. The city appears overwhelmed by the prospect of doing it through police action. If a building is cited repeatedly for harboring drug activity, what eventually happens is that the city (believe it or not) tears the building down. One two-story apartment building on our block suffered just this fate. It’s now a vacant lot.

Anyway, in a constant battle to keep the neighborhood on a gradual uptrend . . . and not eager to see our building bulldozed . . . after two months we asked the tenant to leave. But sensing she might not, we plunked down the $375 to go through the formal two-month eviction process. That meant losing a good chunk of rent, because we’ve found that tenants, while being evicted, do not pay. So instead of getting $1,400 for the four months she would be there before we could get the apartment back ($350 times 4 months), we would get $700 less our $375 in eviction fees, or a net of $325, less the cost of water and sewer and taxes and insurance and management, repairs and, of course, the mortgage.

This is a tough way to earn a profit, and leads some landlords to abandon their properties, which is one reason neighborhoods remain mired in decay.

Anyway, that’s the background. Here’s the new twist. It seems that if, at the final stage of the eviction, when the sheriff comes to actually put people out on the street, the address on his work order varies at all from the address of the property, the whole process goes back on hold for at least another two weeks.

This is presumably done to assure that sheriffs don’t go around evicting people from the wrong apartments — a practice no one could favor.

Knowing this, our tenant and her cohorts apparently removed the address from the front door of the building shortly before the sheriff was due to arrive. Pried off the little metal numbers.

Fortunately, our guys spotted this and, unbeknownst to the tenant inside, quickly spray painted the numbers back on.

When the sheriff came, minutes later, and knocked at Apartment 4, he was met with complete ignorance. You have the wrong address! This is not such-and-such number! We don’t know what you’re talking about!

And had our guys not restored the address just in time, that would have been the end of it, for two weeks, anyway.

Instead, everyone went out to the sidewalk where the numbers did indeed match the work order. Five people were evicted from this small one-bedroom apartment.

(Often, in a situation like this, the air conditioner would have left with them, costing another $350 or so, but in this case, perhaps not expecting to have to leave for another two weeks, they took only what was theirs.)

What exactly were five adults doing in our one-bedroom apartment at 11 on a weekday morning? I don’t know for sure. But a good guess might be that the apartment was being used as a place to do drugs. Not to sell them, necessarily, but a place crack addicts could come use them and crash, in exchange for a small fee or a cut of the crack.

My property manager called H.R.S. to report what had happened. H.R.S. told him there was nothing she could do, and that, if asked, it would now set about trying to find the woman we had evicted another apartment — another chump landlord. That’s their job.

(Given that our tenant and her boyfriend knew to remove the street address from the building shortly before the sheriff was scheduled to arrive, we got the impression they may have been around this block before. And with taxpayer-funded H.R.S. help, it looks as though they’ll be around it again.)

I’m less angry about any of this than sad. On one level, of course, one can and should blame the addicts. Weren’t they listening when Nancy Reagan told them to JUST SAY NO? But one should also blame the pushers and, when you think about it, the absent fathers or rotten schools or overwhelmed teachers . . . not to mention the lack of midnight basketball programs and big-brother/sister programs and church programs and good jobs — or any jobs, in some cases . . . some dismal combination of which led these five adults, who were children once, to be in that one bedroom at 11 a.m. on a Friday morning.

Maybe the answer is just more cops, prisons and homeless shelters. But how vastly much more efficient if we could find the resources to prevent the problem in the first place (or at least a larger chunk of the problem than we’re preventing now).

From your feedback to prior columns, I know some of you feel government — at any level — has no rightful role in any of this (except the prisons) and that left to their own devices, the good people of Miami will solve this problem by themselves. I don’t see it. Rather, I see the affluent sections of the city simply breaking off from the problem areas — as Aventura, a few miles from my little slum, seceded from Miami not long ago — so as to be able legally to say, “not my problem.”

Well, that’s not the right solution.