Author: A.T.

I had my fiftieth birthday Sunday, which was a little silly because in reality I’m only 37. But I felt that if everyone wanted to go to the trouble of throwing me a big surprise party and being even nicer to me than usual, who was I to look 100 gift horses in the mouth?

I am lucky to have friends of many stripes, ages, ethnicities, sexual orientations, financial strata and the like, so it was a pretty great mix, which I stress because otherwise what I’m about to describe might make it sound as if I’ve got a lot of super-rich corporate mogul friends, when in fact I’ve got just two or three. My poor friends, who vastly predominate, are rich in other ways.

But they don’t have planes.

And the point of today’s comment is to tell you that one of my super-rich friends — who does have a plane — said, when we were finishing up our visit in Washington (and knowing I was headed up to New York): “Why don’t you take the plane? It has to go up to New York anyway.”

(It had to go up to New York anyway to pick up a lovely woman friend of his who would otherwise have had to make her way down to Washington on the shuttle.)

Now, because he is someone really terrific whom I’ve loved a long time, I have also long given him the benefit of my financial guidance (notwithstanding the fact that he could buy or sell me 100 times over), which is why, I feel sure, his plane is only a G-2. (That’s Gulfstream II, to you.) It is my good influence, I feel sure, that has kept him, thus far, from adding his name to the waiting list of people down for G-5’s, which cost something like $29 million each “green” (unfinished inside), plus perhaps another $6 million to fix up. By sticking with his trusty old G-2, which nonetheless dwarfed all the other jets at the Signature terminal at National Airport as I climbed on board, I figure he’s saving $20 million-plus, at the sacrifice of just a little fuel efficiency, seating capacity and range. But sacrifices, I keep telling him, build character.

Anyway, the point of all this is to tell you (other than the fact that I’m 37, not 50, no matter what you may have heard) what’s so special about riding in a private jet.

I had never quite put my finger on it before.

I had ridden in private jets several times before, but generally where I was just a passenger. This time, I was the only passenger (with two pilots up front and a steward to see to my needs). It was my plane. King for a day. (Well, 48 minutes. “Can’t you go via Chicago or something?” I begged.)

It was exhilarating, to say the least. Kind of like having your living room be able to fly at Mach 0.8. (And, yes, horribly wasteful, in the largest sense, but not waste of my doing, since the plane was going to New York anyway, and since it may have been my seat on the Delta shuttle which, by my not taking it, kept Delta from having to add an extra section — a whole extra Boeing 737 — to transport the one passenger whom they might otherwise have had to accommodate with an extra flight.) And I finally realized what it is that’s so special about having your own jet.

I had never quite focused on it before, perhaps because in most of my few previous such adventures I had gotten to the plane way early (I can’t help myself) and then waited for the Big Shot, whoever he was, to arrive.

What’s so special about having your own private jet?

It’s not that you don’t have to empty your pockets before passing through a metal detector or show photo I.D. (“you do?” asked my friend, incredulous, when I explained how airline security had tightened since last he’d patronized a commercial airline). It’s not even that there’s no chance your bags will be lost, or long in coming off the plane. It’s not that the food is better, though it is. (“Even better,” I should say. By and large, I like airline food.) No, what is so special is that, just like in the movies, you get on the plane, sit down, and within about 10 seconds, the door closes, the engines start — with all those thousands of horses galloping around inside — and there is that wonderful noise that, from inside the plane, sounds like the quiet whisper of pure power.

(Again, no value judgments here. I realize this image will appeal more to conservatives and libertarians than to liberals. Still, no one could fail to be excited. It’s just that the liberal’s excitement is tinged with guilt.)

But think about it. Even in first class on the classiest airline in the world, you get on the plane, you sit down, and you wait. Half an hour later (if you arrive at the airport as early as I always do) — at the soonest — the engines start.

I like that half hour, too, although most of it is spent hoping no one comes to take the middle seat. I like almost everything about flying so long as I can get an aisle or an upgrade to first. But the notion that this huge, sleek multi-million-dollar machine was sitting on the runway, waiting for me . . . and that when I sat down, the engines — nnnnnnyyyyyyyyyyeeeeeEEEEEEEEEEE!!! — would go wild . . . .

OK, you get the picture. I have just two more things to say. Three. Well, four.

1. The coffee was amazing. French-pressed decaf. A short circuit in the microwave used to boil the water caused the thing to explode before we took off, permeating the cabin with burnt plastic fumes, but no lasting harm was done, and it added to the excitement.

2. Corporate chieftains, it’s become widely agreed, are in many instances now grotesquely overcompensated. My suggestion: Forget stock options and multi-million-dollar pay packages. Pay them all a million dollars, tops, but let them keep their planes. Not one of them would quit. These things are just too great.

3. Even a liberal is allowed to enjoy a G-2 every 37 years without guilt.

4. Thank you!

Tomorrow: Nervous Lobsters

Michael Simpson writes to offer a few sensible “on the other hands” with respect to my thumbs down on Visa and MasterCard debit cards (the kind that suck cash out of your checking account the instant you use them).

“The first point is about float. I certainly understand that time is money. However, 99.9% of the American public would not know what to with the money for the 45 days of float on a credit card. Most people lack planning and discipline. They make the charges and they still spend the money in their bank account. With the money coming out of your bank account, it is gone along with the temptation to spend it on something else.”

Good point.

“The second point. What are you doing with $18,320 in a checking account anyway? [I had used the example of someone who, through fraud, had had $18,320 sucked out of his checking account.] There are many places where that money would be better placed. I rarely have more than $600 in my checking account at any one time. Money comes in, I pay my bills and make additions to my investments. This minimizes the draw down a thief could make on your account. I also think overdraft isn’t that great idea.”

Well, that was $320 in the checking account and an $18,000 credit line on overdrafts. I agree that using overdraft privileges is a bad idea, because you immediately begin racking up (typically) 18% nondeductible interest. But I’ve always enjoyed having them. Still, you make a second good point.

“The third point. Even if a thief is making little purchases, an individual should still be diligent in looking at charges. I could certainly see this as a problem when you are married and share a checking account. That is why my wife and I have separate accounts.”

Ah. But do you see any contradiction between your first point, in which you said that most people lack discipline, and this one, where you say that all it takes to spot unauthorized charges is a little diligence? And what of married couples who do share checking accounts — the majority I should think?

“The last point in favor of the cards. My wife and I went to Europe and were able to get up to $1000 a day in cash advances at Western Union on the ‘Visa’ card. There were no charges because Visa was picking up the tab. No fee charges whatsoever! If you use the ATMs over there, you are limited to about $300 a day and are charged fees. We could have used a credit card, but we were over there for three months. We would not had an easy means of getting the credit card bills paid. We paid the credit cards off before we left and had the mortgage and car payments paid by my parents. The utilities were also pre paid. My company was paying my paychecks directly into my account here at home. The card gave us significantly better access to our cash.”

Well, that’s a good point, too. (See below.) You have come close to convincing me . . . but nothing would make me give up my frequent flier miles. The credit cards I use all give me float, a little more protection against fraud, and frequent flier miles.

*

“I agree that there are risks to the debit card,” writes Swastik Lahiri, “but I have found one useful feature that makes the debit card worthwhile over the traditional ATM card. I love to travel, and when I graduated from college I went backpacking thru Europe with only a few articles of clothing, a Eurail Pass, some traveler’s checks, a VISA card, an ATM card, and my Let’s Go Europe book. I was able to use my ATM card in London and Holland, so I thought I would start using my traveler’s checks so that I wouldn’t have to worry about carrying them around. I figured I could use my ATM anywhere. By the time I got to Spain, I had exhausted my checks and went to use my ATM. To my surprise I could not find a single ATM machine that accepted my card. I had to use VISA to get a cash advance, but I only took out a little bit thinking that once I got back to France I would be able to use my ATM again.

“Well, I couldn’t use my ATM in France either, not even in Paris! To make matters worse I ran out of money (except for my checking account which the ATM accessed) and I missed the last train-hovercraft of the day back to London. I ended up sleeping at the train platform in Paris waiting for the next train scheduled to depart 12 hours later. Except for being woken up and told to move every couple of hours by the police it wasn’t too bad.

“Once I got back to London everything was fine, I was able to use my ATM and I got back to the US without any other hassles. But if my ATM back then had been a VISA debit card (as it is now), I could have used it to get cash advances in Spain and France where my ATM didn’t work. Furthermore I wouldn’t have been charged the cash advance fees (2%) and the interest (18%) which starts accruing immediately on cash advances.

“With my new ATM (VISA debit card) I really don’t need to carry traveler’s checks anymore. I went to India this Christmas with only my VISA card and my VISA debit card. I didn’t have any problems getting money whenever I needed. The ATM machines wouldn’t take the card but the banks were happy to give me a cash advance against my debit card. I still use my VISA card to get the 30+ days of free money plus I get miles on American Airlines so that I can continue to travel often, but I have really come to love my VISA debit card (aka VISA check card).”

And love conquers all.

*

Finally, this from Robert D: “I am confused about your April 1 column panning debit cards. I understand your points; but a while ago you seemed to be positively jubilant about Citizen’s Trust’s E*Fund Money Market account with its high interest rate, free checking and . . . Debit card (which rebates 1% of purchases). I have been amazed at how aggressive banks have become in showering everyone (including recent bankruptees — which seems most suspicious and ill advised) with credit cards. I am trying to winnow down my collection of credit cards to one or two and I had planned on having the E*Fund card be part of the set. I mean, if they are going to pay me 1% of what I charge and 6% on everything I don’t spend, that has got to be a good deal, right??”

The 1% you speak of isn’t rebated direct to you. The E*Fund is a money market fund that allows you to write checks against it — and pays a higher rate of interest than most money market funds because it does offer the debit card. The more its participants use it, the better the yield the fund is able to pay all its shareholders. But no one says you have to use it to get the same yield everyone else does. You could cut it into credit-card linguini the moment it arrives. So the fund is good, but as I think I mentioned in that column, I would continue to use my frequent-flier-mileage cards.

“I became an investor (as opposed to a saver) 12-15 years ago.” writes Jim Taylor. “I keep reading advice columns that talk about keeping equity investments in non-retirement accounts and income investments in retirement accounts. The logic given is that in a retirement account you lose the capital gains tax break when you withdraw. Has anyone actually run the numbers on this? It seems to me that the higher historical returns for equities would offset the tax disadvantage. My gut feeling is that taxes push people’s hot buttons. It seems that the more money people have, the more they will go out of their way to reduce or avoid taxes….even if it means they get less after-tax income.”

Well, you’re right and wrong in my view. First, of course, it’s quite true that people have lost a fortune, over the years, trying to avoid taxes. So it’s certainly possible to go overboard with this.

On the other hand, Warren Buffett would be worth barely $2 billion today — if that — instead of his current $15 billion and change, had he racked up exactly the same compounded return, only exposed the gains to taxation once a year rather than buying and holding. So there is definitely something to be said for taking taxes into account in your investment strategy.

Beyond that, the answer to your question is very easy and very hard. The easy part is doing the numbers. The hard part is knowing what assumptions to use. What’s your tax bracket now — and what do you think it will be when you’re 60 and 70 and 80 and 90? How heavily will capital gains be taxed? What rate of return will you earn on equities going forward?

If you could make 25% a year on equities over the long haul, then the tax-sheltered account would fare magnificently. You’d be right: Forget what those dumb columnists tell you. Buy and sell all you like under the tax shelter of an IRA, avoiding any tax until you withdraw the money, racking up spectacular returns along the way. Why settle for 8% in your IRA when you can get 25%? Or even 10%? (Except that if the 8% is safe and the 10% isn’t, maybe the 8% is not so bad after all?)

Here’s the thing. If you plan to have any high-income producing assets, whether high-rated corporate bonds or REITs or utility stocks — then the columnists are right. Those are best kept in the retirement account, by and large, because you defer the income tax and get the government’s share of the income working for you, too.

Equities, meanwhile — especially the riskier ones and nondividend payers — should be held in your own account, because they are already tax-deferred. Their appreciation is not taxed unless you sell them (see Warren Buffett, above). What’s more, if you do have big gains, they will likely benefit from a capital gains tax break when you finally sell them. Within a retirement plan, by contrast, they will eventually convert to higher-taxed ordinary income as you withdraw the money.

What’s more what’s more: if you’re the charitable type, you can use highly appreciated securities to your advantage tax-wise — if you own them in your own name but not in a retirement account. And what’s more what’s more what’s more: those stocks that crash and burn (and we all have some) can provide a tax benefit in your own account. In a retirement account, it’s wasted.

So.

If you had to put 100% of your money one place or the other, it could make sense to put it all in a tax-sheltered account. But for those of us lucky enough to own securities both in retirement plans and directly, taxes make the following proposition very fair, in my view: keep your riskier securities in your own name and your safer, higher-yielding ones in the tax-deferred account.

Or as the sailors say, navigating those buoys: High of Flight: Own Outright. Safe Old Nerd: Tax-Deferred. (Well, something like that.)

A Harvard B-School alum visited recently and mesmerized me with stories of some of the many businesses he’s started in the last 30-odd years. One is a pizza parlor in Yaroslavl.

Yaroslavl is about four hours north of Moscow — a city of 600,000 people, a rough-and-tumble economy. (Competition isn’t waged with price wars, but wars. One Yaroslavl store was bombed four times in a single year, my friend says; fortunately it was not his store.)

If you go to Yaroslavl, you shouldn’t have trouble finding his pizza place. For one thing, he’s sublet part of it to a Ben & Jerry’s. So just look for a Ben & Jerry’s. (The U.S. government provided some financial encouragement for Ben & Jerry to build an ice cream plant north of St. Petersburg — which is to say, if I remember my geography, — the North Pole. Having more capacity than the local area could consume, it sought outlets in places like Yaroslavl.) Another way to find my friend’s pizza place in Yaroslavl is that it’s the ONLY pizza place in Yaroslavl.

Let me leave you hunting the streets of Yaroslavl looking for Ben & Jerry’s for a minute while I tell you about the plan to buy a dacha. Back in 1994, my friend toyed with buying a dacha. A dacha is like an American “country place,” except, typically, without electricity or plumbing. (Khrushchev’s had both, but I’m talking about the typical dacha.) Ah, but if there are a few square meters to grow vegetables! (And how better to fertilize them than through a lack of plumbing?)

Not that this Harvard MBA needed a place to grow vegetables. Ultimately he got himself an apartment instead. But he liked the idea of owning a dacha, and particularly liked one he found for $1,500. (Remember: this was Russia in 1994. Everything’s more expensive now.) The place needed a LOT of work, so he contacted a local fellow and asked what it would cost to do everything.

The Russian sized up the job, sized up my friend, sized up his own situation, and said, “Not counting materials, I will do the job for a case of vodka.”

This is supposedly a true story. And when you consider that a whole house/shack was being offered for $1,500, perhaps the estimated labor cost was more or less in line.

Anyway, my friend’s next question, naturally enough, was: “How much for the materials?”

The man started pacing the place again, measuring things, adding things up. Finally he returned to my friend. “For another case of vodka,” he said, “I will steal them.”

And that might have been the end of it. We could all have visited my friend in the renovated dacha that $1,500 and two cases of vodka bought. But the deal, even if he would have gone through with it on this basis, fell through. The dacha, it seems, was owned by an elderly woman with mental problems who was in a sanitarium. Her children were hoping to sell it off and raise some cash. It turned out that the woman’s doctor had different ideas. Russian doctors get paid almost nothing. But like many Russians, they find ways to make ends meet. This particular doctor had persuaded the woman to convey the deed to her dacha to him, in return for which he would provide medical care for the rest of her life.

So my friend didn’t get the dacha. Meanwhile, the pizza business has become impossible. In the early days, a few years ago, before the government got its hooks into everything, he was getting huge bags of ruble dividends. (Pizza proved popular in Yaroslavl. Once he managed to locate four metric tons of tomato sauce and had taught a local farmer to make good cheese, it was a piece of cake.) But local taxes have been raised to the point that you can’t make any money without cheating the tax man, which my friend won’t do. He’s selling out to his Russian employees for a pittance. He took those rubles to GUM, which stands for gosudarstveniy universalniy magazin, which means Government Universal Store — the giant department store in Red Square, opposite the Kremlin and catty-corner to St. Basil’s. And where you or I might have gone crazy in GUM buying Russian dolls-with-dolls-within-dolls (matryuzhki), he used his rubles to buy stock in GUM itself. GUM stock back then was 1-1/2 bid, 2-1/2 asked, and you could buy shares right there in the store. My friend bought quite a bit of GUM at 2-1/2. Not long ago, it was $28.

So he got squeezed out of the pizza business before making much dough, but with his pizza-purchased investment in GUM up 11-fold, all was not a total loss.

My friend hasn’t been back to Russia in some time. Instead of a dacha in Yaroslavl, he’s building a 200-year-old house in Vermont. The way you do this, he explains, is by traipsing around New England (and as far as Pennsylvania, to date), hunting for bits and pieces of early American homes. When complete, his new old home will be substantially more comfortable than a Yaroslavl dacha, a great deal more expensive, and a hop and a schuss from Stowe.

I’ve been sitting on this message from a young Motorola engineer for nine months now. If he’s right, you’ve just saved yourself nine months’ of waiting. Even if he’s wrong, it’s still an interesting message:

I am writing in response to your comment regarding selling a loser stock. I have recently encountered just such a situation. I work in the semiconductor business and I strongly believe in the future of the industry so I try to look for battered semiconductor related stocks. That is not hard to find these days. Two months ago I found what looked to me like the perfect stock, IDTI. They are an excellent company with several semiconductor products. Yet many people consider them to be strictly a memory maker, since they derive a large portion of their revenues from SRAMs. The company was trading in the $15 dollar range, up from $11 a month before but down from highs in the $30 just six months before. Looking at the quarterly reports the company has a book value of ~$9 per share with over $4 per share in CASH. I thought the downside risk was small, while the upside potential for the long term, as well as the short term was huge.

With that in mind I bought 400 shares at $14 3/4. During that time memory prices continued to decline along with the book-to-bill ratio. Thus semiconductor stocks began to fall. I took advantage of that by buying 290 more shares at $13 1/2. Unfortunately, soon after, IDTI warned analysts that they were not going to meet expectations though they still expected to make 15-21 cents per share. The reaction was merciless. The stock plummeted to $10 per share, it has recovered somewhat to $11 today. However I was wondering what I should do. I still believe in the long term prospects of the semiconductor industry, and particularly IDTI. I wasn’t going to sell my shares for $11 today when I thought I got a bargain at ~$15 a month ago. I don’t need the money any time soon so I am content in waiting until it recovers which I believe should happen in a year, maybe two. Yet I really want to take advantage of the incredible bargain that is available today. Unfortunately, I don’t have the cash to buy any more shares today. So I thought that perhaps options could play a role.

My strategy is as follows: Write (sell) a put at a strike price of $10. Collect the premium. In nine months when it expires if the stock is worth more than $10 my options will not get exercised, and I will have profited the premium (without having put any money down). However, if it is worth $10 or less and I get exercised I will purchase the stock at $10. As long as it happens a few months from now I will have the money to invest, but if it gets exercised before then I would have to dip into my savings in order to cover the option. The benefit in getting exercised is that I will have done nine months from now (ideally, if it gets exercised, it will be in nine months) what I wish I could do today: buy IDTI at $10 per share.

The only problem with my strategy is that my broker won’t let me write a put unless I have $10,000 in my account. Since I only have $5,000 in the account, I need to double my money before I can execute my plan. If that happens, then IDTI would have to have gone up, since it is a bulk of my assets, thus it wouldn’t be the bargain that it is today; consequently, I wouldn’t want to pursue the option strategy anymore. Regards, Swastik.

Got all that? Here we are nine months later, and IDTI is 10-1/8, last I checked. (In the intervening months, it dipped to 7 and a fraction and got somewhere north of 11 for awhile.) Had Swastik been allowed to execute his “put” strategy — taking in a couple of hundred dollars in return for agreeing to buy 100 shares of IDTI at $10, should the price drop below 10 — he would most likely have gotten to keep that couple of hundred bucks. At expiration, IDTI was above the $10 strike price of the puts, so the owner of the put would not have wanted to sell IDTI shares to Swastik at 10.

But just because it would have worked out OK, with hindsight, doesn’t mean his strategy was a particularly good one. His income from the puts, had he been able to sell them, would have been completely taxable; so after tax and commission, he might have gotten $120 for taking this risk. But what if at the end of the nine months IDTI had been at 7, as it was mid-term? Then he would have been forced to buy the shares at 10 and immediately suffer a paper loss of $300. (At that point, a day or two before the puts were likely to be exercised, it might have been smarter to buy them back on the open market to establish an immediate tax loss, while buying the actual shares of IDTI separately, at 7, for a hoped-for eventual long-term capital gain.)

I like a stock that’s down from 30 to 10. I know nothing about IDTI beyond what Swastik has told me, but — being underweighted in technology stocks and unable to resist a gamble — I bought a few shares. If it looked good to Swastik at 14 3/4 nine months ago, I’ve saved 30% (sale! all merchandise reduced 30%!) and skipped nine months of misery.

I certainly don’t recommend your doing likewise. No, you should wait another nine months and buy a little at 7. That way, you’ll get a further 30% knocked off the price and skip a further nine months of misery.

Recently I described “spiders,” traded on the New York Stock Exchange (symbol: SPY). Basically, spiders are synthetic securities that represent your interest in one-tenth of the value of the Standard & Poor’s 500 Index. They’re a way to do just what you would do with an index fund, only a little easier (just call your broker to buy or sell), with a few other minor advantages and disadvantages.

“Spiders look interesting to me as an alternative to Vanguard’s index fund. What’s not clear to me is dividends — do spiders also have dividend income or just capital appreciation?” — Jim Taylor

Yes, Spiders pass through dividends.

“You mention Forbes regarding Spiders. Are those of us who invested in things like the Vanguard version of the S&P 500 in grave danger of being whacked with capital gains taxes if we hold tight and the thundering herd sells?” — AASLCS

Interesting point. Index funds are very “tax efficient” because typically they just buy and hold. If the stocks in the index go up, there’s no tax on the appreciation because they don’t sell. Yes, some shareholders are redeeming shares, but more, typically, are buying new ones, so net-net, Vanguard and the other index funds haven’t had to sell to meet redemptions.

But what if more people redeem their shares than buy new ones, as may have been happening during the recent market downturn? The fund would then have to sell a little stock — or a loot if the redemptions were severe — and thus realize capital gains if, as has been the case recently, the stocks they hold are a lot higher than they were when purchased. Those capital gains then get passed on as a tax liability to the mutual fund shareholders.

It’s important to say that this is not likely to amount to a whole lot of taxes for most people. It’s no reason to bail out of index funds. On the other hand, Spiders would seem to have an advantage in this regard, because someone else’s selling won’t trigger realized capital gains — only your own. You have more control over the tax consequences. So unless I’m missing something here, that’s an advantage of Spiders I hadn’t thought of.

“I have a Ceres IRA account. I enjoy investing my IRA $ in individual stocks, but right now I want to be out of the stock market completely. As you know, uninvested Ceres money only earns around 3% in their cash account. Is there an equity-type vehicle I can purchase through my Ceres account that acts more like a money market fund and less like a stock? I’m looking for something to purchase through my Ceres account that is very liquid, has low volatility, and offers a virtually guaranteed 5% – 6% return. Then when Money Magazine’s monthly stock prediction improves from its current “down arrow” rating, I’ll start buying normal stocks once again.” — David Matt

Can’t you buy Treasuries through Ceres? Maybe 2-3-year notes? But unless the amount you’re talking about is large, I wouldn’t put too much time into trying to get 2% more (which after tax would amount to even less).

Also, have you looked into REITs (real estate investment trusts)? They’re hardly risk-free; but real estate may be closer to its recent bottom than to some future top, and many of these stocks yield 6% or more. It’s a good area for you to research.

“I found your junk mail story [about the Discover Card checks] amusing, but for a different reason. For the last eight months or so I have been getting an interest-free loan from my credit card companies due to these convenience checks. As it happens, two companies (Chase and First USA) sent me these junk-mail convenience checks, but WITHOUT a transaction fee and with the usual grace period. I had to read the small print multiple times, but there was no catch! Well, I had about six of these checks from each credit card company, so I’ve actually been paying one credit card with another using these checks, and accumulating the money in a Money Market account. A few months ago, I even made some short-term equity investments with this money, and I still can’t figure out how these banks are making any money.” — Daniel Roitman

They’re not — with smart cookies like you.

Does everyone see the opportunity here? If a credit card company sends you some checks it encourages you to use “just like real ones,” there are usually two catches. The first, as with the Discover offer I wrote about, is that it costs something to use them — so the banks make money if you do. In the case of the Discover offer, there was a 2.5% fee even if you paid your balance in full on time. Not so, apparently, with the checks Daniel was sent.

What Chase and First USA (and all the other credit card companies) hope is that you won’t pay your credit card balance within the grace period. In which case, everything starts accruing interest — the money you wrote those checks for, plus all your other charges, even if you normally pay those on time. So that’s the second catch.

But in Daniel’s case, let’s say he has a high credit line and wrote one of these Chase Manhattan Visa credit card checks to his own money market account, for $5,000. He deposits this $5,000 in the money market and it begins earning 5%, or whatever. Then, when he gets his credit card bill, with this $5,000 charge reflected on it, he uses one of the checks from his First USA credit card to pay off his bill in full within the grace period. So that $5,000 is still sitting in the money market account earning interest. Now, a couple of weeks later his First USA credit card bill arrives, reflecting the $5,000 he used to pay off Chase. He uses a second Chase check to pay off First USA.

Eventually, when the checks run out, he withdraws the $5,000 — which may now be $5,150 with interest — and pays off his credit card.

This is quite different from kiting checks, which is illegal. A check kiter is someone who writes a check with insufficient funds — but keeps it from bouncing by depositing a check from another account with insufficient funds — and keeps moving them around hoping that, because of the delay in clearing, none of them will bounce.

Here, Chase and First USA were apparently enticing cardholders to borrow more by running an interest-free “sale.” They are gambling that most people won’t pay their balances in full within the grace period (even if you’re just $5 shy, interest accrues on everything, plus everything new that you charge).

I’m not suggesting you risk getting all tangled up with this just to beat the card companies out of a few dollars in interest. But when the checks they send are truly free of transaction fees and interest if paid off within the grace period — and if you’re sure you will pay off the balance on time — then congratulations: you’ve been offered a short-term, interest-free loan.

(One friend of mine has been doing something similar with the Visa card America Online offers. He has a $17,000 credit line and got some of these checks. After checking to be sure there was truly no fee or interest, he wrote himself a $17,000 check which he put to work earning interest in his money market account and pocketed $170 worth of free time on AOL, taking care to pay off the $17,000 credit card balance within the grace period. So in his case, it was an interest-free loan and almost six months’ free time on AOL.)

Be certain to haul out your magnifying glass and read every iota of fine print in these offers before attempting something like this. You don’t want to start borrowing at 18% accidentally, and you don’t want to get into a billing dispute even if you would eventually win — it’s not worth the hassle.

Please don’t focus on the fact that this is a cheap lawyer joke. (Or the fact that this is tax day — file form 4868 with a check approximating the tax you owe to get an automatic penalty-free extension to August 15.) Focus, instead, on the fact that this is the 300th daily comment I’ve written and yet up until now, as best I can remember — and despite the scads of them that various of you have sent me — I have not yet recirculated a single cheap lawyer joke.

In part this is because many of my best friends are lawyers. In part it is because even many lawyers who are not my friends do fine, honest, necessary work.

Still, at $295 an hour — and given the occasional unctuous, greedy snake that manages now and then to slither under the Bar — perhaps a little ribbing every 300th comment or so comes with the territory.

To wit:

Three lawyers and three MBAs are traveling by train to a conference. At the station, the three MBAs each buy tickets and watch as the three lawyers buy only a single ticket.

“How are three people going to travel on only one ticket?” asks an MBA.

“Watch and you’ll see,” answers a lawyer.

They all board the train. The MBAs take their respective seats, but all three lawyers cram into a restroom and close the door behind them. Shortly after the train has departed, the conductor comes around collecting tickets. He knocks on the restroom door and says, “Ticket, please.”

The door opens just a crack, and a single arm emerges with a ticket in hand. The conductor takes it and moves on.

The MBAs saw this, and agreed it was quite a clever idea. So, after the conference, the MBAs decide to copy the lawyers on the return trip and save some money (being clever with money, and all that). When they get to the station, they buy a single ticket for the return trip. To their astonishment, the lawyers don’t buy a ticket at all.

“How are you going to travel without a ticket?” says one perplexed MBA.

“Watch and you’ll see,” answers a lawyer.

When they board the train, the three MBAs cram into a restroom, and the three lawyers cram into another one nearby. The train departs.

Shortly afterward, one of the lawyers leaves his restroom and walks over to the restroom where the MBAs are hiding. He knocks on the door and says, “Ticket, please.”

Oh, wait. That’s not the joke I meant to recirculate. This is the one:

One day, a man was walking along the beach and came across an odd-looking bottle. Not being one to ignore tradition, he rubbed it and, much to his surprise, a Genie actually appeared.

“For releasing me from the bottle, I will grant you three wishes,” said the Genie. The man was ecstatic. “But there’s a catch,” the Genie continued. “What catch?” asked the man, eyeing the Genie suspiciously. The Genie replied, “For each of your wishes, every lawyer in the world will receive DOUBLE what you asked for.”

“Hey, I can live with that! No problem!” replied the elated man. “What is your first wish?” asked the Genie.

“Well, I’ve always wanted a Ferrari!” POOF! A Ferrari appeared in front of the man. “Now, every lawyer in the world has been given TWO Ferraris,” said the Genie.

“What is your next wish?”

“I could really use a million dollars…” replied the man, and POOF! One million dollars appeared at his feet. “Now, every lawyer in the world is TWO million dollars richer,” the Genie reminded the man.

“Well, that’s okay, as long as I’ve got MY million,” replied the man.

“And what is your final wish?” asked the Genie.

The man thought long and hard, and finally said, “Well, you know, I’ve always wanted to donate a kidney….”

Apologies: to those of you who are lawyers, related to lawyers, or aspiring lawyers; to those of you who have already heard these; and to whoever actually hatched them in the first place (like most Internet ephemera, these two have been floating around unsigned).

“I am looking into buying a share in a company that wants to drill a gas well in NY State. I was wondering if you had any experience with this and might point out some things I should look at closely. I plan on putting their prospectus in front of my lawyer and my broker, and doing a little investigation on my own. I can afford the $5000 a share as high risk capital, but I don’t want to throw money away. They only need $100,000 to start drilling and they have $20,000 already. If you could spare me a few minutes, please let me know what your thoughts are.” — Paul Fischer

Well, Paul, I fear it’s not a lawyer or a broker you need to consult so much as a geologist. My guess is that if these folks have no money, there’s a reason. And if they’re trying to raise it from people with no experience in this, there’s a reason for that, too. It may not be that they’re crooks or anything but well-meaning. But why go with unproven rookies? (I am assuming they are unproven rookies, or they would have $100,000 of their own, or prior investors eager to back them for more.) If this were an exciting speculation, wouldn’t someone closer to the situation have grabbed the deal for him/herself? Of course, I know NOTHING about this deal. But sometimes that’s an advantage.