Author: A.T.

If you were born in 1947, like me, you’ve probably spent most of your life hoping for things that seemed impossible. Nuclear disarmament, freedom in Eastern Europe, an end to apartheid, democracy and free trade throughout much of the world, cheap air fares, fat-free cheese. Also: low interest rates, low inflation, a bull market, declining crime rates, low unemployment, declining deficits. Not to mention a country at least a little closer to judging its citizens based on the content of their character rather than the color of their skin. (Happy Birthday, Dr. King.)

Needless to say, there’s a long list of problems, too. But those are for the next 1,460 days. Today is a day to enjoy a little — even if you preferred the other guy.

With the departure of Malcolm Forbes some years ago, a man who virtually defined “joi de vivre” for many of us, even those of us a little unsure how to spell it (I took Russian), one might have expected interest in ballooning to fade from the scene. But now come three — count ’em, three! — sets of madmen (the maddest of whom is a set of just one guy, solo, with no pressurized cabin) who propose to circumnavigate the globe by balloon.

I am no stranger to hot air. And I have even inhaled a lungful of helium or two. It makes you talk like this. But to risk one’s life just to end up approximately where you started? When Magellan tried it by boat, he was killed by natives, but at least he proved the earth was round and got a hell of a mutual fund named after him. But now we know the earth is round — smoother than a bowling ball, they say, despite Everest and the Empire State Building — so why is Virgin Atlantic’s Richard Branson leading one such expedition, with two other lesser knowns in hot pursuit? Why risk getting shot down by the North Koreans?

OK, OK, it’s thrilling. To read more about it all, click here.

But why am I telling you this? It is because I hold in my hand a letter written in 1878 by the famous French balloonist Louis Godard to the Mayor of Avignon. Or at least I hope he was famous. When I bought it, I just sort of assumed he was the Godard for whom the Goddard Space Center was named, but now suspect that it was named for the American rocket scientist Robert Goddard, with two D’s. And I just sort of assumed he was famous because, well, I knew the name Godard (Jean Luc Godard, perhaps, the famous French film director?).

But he must have been famous, because look at his letterhead. It’s festooned with engravings of Godard balloons, “with joyous and excited clients as well as professional entertainers and daredevils suspended in some fashion from these wondrous contraptions” (as the catalog copy had it).

I should point out that not quite 120 years after he wrote this letter you could, for the price of a sandwich, pull a phone (the prototype having been invented by Alexander Graham Bell in 1876, just two years earlier) from the seatback in front of you, slide your credit card through, and make a call from 37,000 feet as you make the 4.5 hour trip from JFK to LAX.

But in 1878 — as today — people were enthralled by balloons, and Godard was haggling with the Mayor of Avignon over prices. “Mr. Mayor,” he wrote, “The price quoted you by Montbrison for 800 francs is correct, but that was for an ascent in a Montgolfier in which a descent is made 5 minutes outside of town — which is of interest to no one — and in which an ascent is made to a height of 200 meters.” [Ninety-one years later, man would walk on the moon, but I digress.] “If I have not asked for more, it is because I was pressed not to charge more, but ordinarily these are not my prices.”

Whereupon he lists:

“A simple ascension in a 280 cubic meter balloon capable of carrying the aeronaut — 100F. The cost of gas and travel costs to be borne by the city.” [The first automobile was about a decade away, so gas would presumably have been for the balloon.] “Ascent with a trapeze exercise suspended by one hand — 1,000F. Ascent with a parachute descent — 2,000F and the balloon containing 900 cubic meters of gas carrying 4 persons.” [You might wonder what parachutes were for given the stark absence of airplanes in 1878. Yet they were, apparently, for balloons — the first successful jump from “a great height” — 920 meters — having been made in 1797 by another Frenchman, Jacques Garnerin. I’m going to get my money’s worth from the multimedia encyclopedia that came with my new computer if it kills us.]

“I would suggest to you also to take for 100F some balloons of 5 meters’ height which will descend some 15 or 20 leagues from the city, bearing the names of the cities which commissioned the flight, the letters 50 centimeters in height and each balloon carrying 5 parachutes dropping toys and hard candies — which are a very nice accompaniment to an ascent. I would make a dozen for you if you accept.

“So, Mr. Mayor, there are my prices. If by the end of the week I have not received your answer, I shall consider the matter closed. Please accept, sir, the expression of my deepest respect. Godard, Aeronaut for the Government.”

A hundred years from now, when Bill Gates’ ideas are going to be considered quaint, and today’s Pentium-powered notebooks objects of amusement, will some wiseass autograph collector be quoting his handwritten letters? I think not. Unless I miss my mark, Bill Gates is an e-mail kind of guy.

(Where do you find letters like this? There’s a list of them printed every day. No, wait. That’s NASDAQ. You find these letters via dealers and auctions).

Next Week: What of Mutual Series Now? and Playing the Fool

From Alvin: “Try calling AT&T and ask them to match your lowest rates quoted elsewhere. I did and they came up with 10 cents a minute 24 hours a day.”

OK, I’m too embarrassed — shy — whatever — to do this. But I hope you will, and let me know if you can get the same deal. They’ve made such a point of offering fifteen cents a minute on TV . . . at any time, to anyone, anywhere in the country . . . it would be kind of amazing if you could get them to knock off 33% just by asking.

Separately, the irrepressible Doug Bross, for whom I can’t vouch personally but who certainly seems eager to cut your phone rates, suggests the ATCARD calling card, from a company called ATCALL in Arlington, Virginia. Instead of paying AT&T $1.18 to make an 18-second call from a pay phone — “Leave a message at the beep. BEEEEP.” “Hi, it’s me. Call me.” — ATCARD would charge just a nickel, because its 16-cent rate is chopped up into 6-second increments.

On longer calls, the savings would be larger, though less dramatic in percentage terms. And here I was thinking I was doing pretty well with a card that costs just 25 cents a minute.

According to Doug, there are no surcharges or fees, just a flat 16 cents a minute. “I know people who actually use this INSTEAD of dropping a quarter into the local pay phones,” he says, since for anything under 90 seconds — 24 cents — it’s actually cheaper to use this “long distance” calling card to make local pay-phone calls. “If you’d like further information,” Doug offers hopefully, “feel free to call me at 800-956- 9241.”

Every time I think AT&T stock looks cheap, I think about competition like this and chicken out.

Some months ago, I waxed enthusiastic over My Yahoo. Well, today let me re-wax that one, but shine it even a little brighter. Yahoo now has a clickable “GET LOCAL” near the top of that page (or at the bottom of the general Yahoo “home” page). If you click it, here’s what you get: a place to enter your zip code and then select from all manner of stuff.

Example: MovieLink, which you’ll find in the list on the left. Click that and you can find out what’s playing near you (without that annoying HELLO! AND WELCOME TO MOVIE PHONE! some of us know well). Then, click and get a New York Times review of the movie — and so on.

Weather, restaurants, maps . . . you get the idea.

Many of you are miles ahead of me on all this. But for those websters just feeling their way, like me — check it out.

Tomorrow: More Phone Savings?

Everybody loves the safety of Treasury securities. Everybody from a high-tax state loves the fact that they are local-income-tax exempt, and everybody has to be tempted at the notion of a bond that protects you from inflation, as the soon-to-be-issued inflation-indexed Treasuries will do.

But everyone should be careful, because what’s not commonly understood is the way these bonds are taxed. If you buy them at all, you would want to buy them under the umbrella of a tax-sheltered IRA, Keogh or similar account.

Here’s how it works. Say you buy $10,000 of these bonds and that, when they finally come to market, the “real” interest rate turns out to be 3%. You will get a check for $300 (actually, two semiannual $150 checks, I think). But say inflation the first year is 10%. It won’t be, but this makes the example easy to follow.

The Treasury will acknowledge this by adjusting the principal value of your bonds upward, from $10,000 to $11,000 in this example. (What the market would pay you for the bonds if you chose to sell them in the meantime is another story.) If there were no more inflation from then on, until they matured, you’d get $11,000 at maturity.

The only problem — and it’s a big one — is that this extra $1,000 is taxed as ordinary income, and treated as if you received it this year! You would be expected to pay ordinary income tax on both the $300 interest you received plus the $1,000 you didn’t.

To someone in the 36% federal tax bracket, that would be $360 in tax on the way-off-in-the-distance $1,000 inflation adjustment. So you would have gotten $300 in cash from Uncle Sam and would then have to turn around and pay him $468 — 36% of your $300 interest and $1,000 inflation adjustment.

An interesting form of forced saving, I suppose.

As a patriot, I hope a lot of people buy these bonds. As your financial advisor, I’d suggest you think twice.

Even as part of a retirement plan, you might think twice. The local-tax-free aspect of Treasuries would be wasted, since there’d be no tax at all to pay until withdrawal, at which point withdrawals would be subject to local income taxes. What’s more, while I do think the U.S. stock market is awfully high here, I don’t think Treasuries — even inflation adjusted — are likely to do as well over the long haul as equity investments here and abroad. They’re safer — but you’re paying for that safety.

(Speaking of the Treasury and taxes, don’t forget: Tomorrow is the deadline to send in fourth quarter estimated-tax payments. This applies to you if, through employer withholding plus any prior estimated tax payments, you haven’t yet paid Uncle Sam at least 90% of the 1996 tax that will be due April 15. Exceptions: if the amount you’ve thus far paid Uncle Sam for 1996 equals 100% of your 1995 tax bill — 110% if 1995 adjusted gross income exceeded $150,000 — you’re excused from paying additional estimated tax for 1996.)

Tomorrow: Yahoo for Yahoo!

Mark Wall writes: “Your Paul Warburg piece put me in mind of a question that never quite gets answered and so never goes away. Perhaps you can help. How does one compare a 1996 US DOLLAR with the same unit in any other year? You mentioned that 1933’s $15 equals $180 of 1996’s. How did you figure that out?”

The easy answer: I summoned the Inflator/Deflator module of my trusty old Managing Your Money (DOS Version 12) and just plugged in the numbers. Out popped the answer.

But you may want to know how we programmed Managing Your Money to do this. Basically, we stuck a table into MYM’s innards with each year’s inflation, going back to 1885. If a dollar in 1933 was subject to 10% inflation in 1934 (it wasn’t, but just suppose), then $15 in 1933 would have been the rough equivalent of $16.50 in 1934. I.e., it would have taken about $16.50 in 1934 to buy the same stuff you could have bought in 1933 for $15. Applying each successive year’s change, MYM came out to about $180 by 1996.

What’s interesting of course, in light of the Boskin Commission’s report, is how you measure inflation. Has the cost of living gone up if, by shopping at a warehouse store, you can get stuff for less than you could before there were warehouse stores? Has the cost of living gone up if gas costs twice what it did before, but cars go twice as far on a gallon? Has the cost of living gone up if cars are more expensive but safer? Has the cost of living gone up if steak gets more expensive, but chicken holds steady and you switch to chicken (which health nuts would tell you is better for you anyway)? Has the cost of living gone up if food costs more, but the cost of computing power has plunged?

Some of this is a matter of tinkering with the numbers so that they more accurately reflect the real world. (Because the “basket” of goods regularly priced by the Bureau of Labor Statistics changes so infrequently, many of the downward-plunging prices, like the cost of a megabyte of computer memory, aren’t even included.) But some of it is more a judgment call. I would argue that a safer car is inherently more valuable than a less safe car. Someone else might argue that safety has no value, and thus only the price of the car is relevant. If it’s gone up, the cause is inflation, not “more car for more money.” (Even if it is “more car for more money,” that’s scant consolation to someone living on the edge who simply can’t afford more car, no matter how good the value.)

Movie ticket prices have gone way up compared with 1933. But they’re free on TV and only $2 at the video store . . . has the cost of entertainment rocketed since 1933?

Some of this is taken into account by the statisticians at the Bureau of Labor Statistics, as best they can. But an adjustment in the CPI is long overdue, and — as almost every reputable economist who’s looked at it agrees — it’s not a trick or a scam.

Much has been written about this. If you feel like reading a typical good editorial on the subject, click here.

The good news: a very minor recalibration of the CPI has big, positive implications for our economy. The budget balances easier. (And productivity these past few decades seems healthier and less cause for despair.)

Tomorrow: Inflation-Adjusted Treasuries — Beware

Yesterday, I described a forthcoming book whose author has made a fortune in what he calls the “secret hiding places” of the market — and who kindly shared his latest idea with us.

The case for that stock — NCR — certainly seemed compelling (I bought some), until you read the comments of a leading computer analyst who thinks it’s a screaming short. (I bought it anyway, but chastened.)

Isn’t it interesting how really smart people can have diametrically opposed views?

That reminded me to tell you about a different book, and a different stock. The book is Investment Gurus by my friend Peter Tanous. The stock is (was?) Marvel Entertainment (MRV).

For me, Peter’s book — a series of interviews with 18 “gurus” only a couple of whom, Peter Lynch and Michael Price, you’re likely to recognize — pretty much sets to rest any lingering notions one might have that “you can’t beat the market.” Perhaps you can’t. Perhaps I can’t. But for some of these very smart pros, working at it full time (and delighted to compete with us amateurs), above-average returns clearly are more than luck.

Anyway, there I was reading these interesting interviews Labor Day weekend — which I had to do because I had promised Peter I would write a Foreword to his book, but which I didn’t mind doing, either, because I was learning a lot — and I came to the interview of Laura Sloate. Laura is the only one of Tanous’s 18 I know personally, as a friend. I met her even before she started her own brokerage firm in 1974, Sloate, Weisman, Murray, which now manages more than a billion dollars (remarkable less for the fact that she’s a woman perhaps than that she’s blind).

And there she was talking about Marvel and how she liked it at $14, a price at which billionaire Ron Perelman was buying it too. “And now it’s come down to the $11 area,” she told Peter. “We looked at the cash flows; we looked at the underlying values of the company’s divisions . . . the baseball season should be better than last year — no strike — which will help their trading card business. Ron Perelman is a resourceful guy. He’s got his right-hand man at Marvel, and it’s my guess that at 10-1/2 bucks it’s probably bottomed. So we increased our position. The market won’t believe their story until the turnaround is evident. But in the Spring, these guys got up at a meeting and gave earnings projections by division. Either they want to hang themselves, or they banked those numbers and they’re pretty certain they’ll hit them.”

Hmmm. Wonder where MRV is trading now, I thought as I read this. Would it be cheating, I wondered, to buy some months before this book came out? Some sort of insider trading?

To my surprise, the stock that brilliant Ron and brilliant Laura had bought at 14 — and more of at 10-1/2 — was now 8-5/8. I bought some.

Then, the next time I was on the phone with Laura, I mentioned Marvel. “Oh, we’re out of that,” she said.

“You are?”

It seems she just felt it wasn’t going anywhere and that, while, yes, it was probably undervalued, she had decided not to wait. Indeed, rather than dump her million shares on the open market, which would have depressed the price, she had “shown” them directly to Perelman’s people, who bought them at $10.

This made me very happy. For one thing, it meant that the guys who knew more about MRV’s true value than anyone else — Perelman’s people — were betting $10 million it was going up. For another, it meant that, for once, I was smarter than Laura. (After 23 years, it was about time.)

As those of you who follow these things might guess, I bought more MRV at $4.75, still more at $2.50 and, finally, a few of the bonds at 19 cents on the dollar. A few days later, Perelman put MRV into bankruptcy.

I might do OK on the bonds and the last batch of stock; more likely, I suppose, I’ll lose it all. (Don’t cry for me, Ike and Tina — I had a few good ones last year, too.) But my reason for describing all this is simply to give you the pleasure of feeling superior and to point out what a tough game this is, even when you get to see the manuscript months before anyone else.

Next Week: Thinking About the CPI

I met Joel Greenblatt in 1980 at the Harvard Club in New York — allegedly. I have absolutely no recollection of this but take his word for it. At the time (he claims), he told me he was thinking of writing a book, and I volunteered to take a look.

Comes Mr. Greenblatt 16 years later — or, at least, come the galley proofs of his book, You Can Be a Stock Market Genius (Even If You’re Not Too Smart): Uncover the Secret Hiding Places of Stock Market Profits — with a very charming letter asking whether the offer is still good. Might I write a blurb?

And a blurb he got, too, because for those of us foolish enough to shun low-expense mutual funds — who try instead to beat the averages (and the pros) going solo — this book, due out from Simon & Schuster in March, provides a bit of help.

Mr. Greenblatt has not written it, so far as I know, to attract new clients. He has no clients anymore, he says, having shut down that part of his business and investing only for his own account. Nor has he a pricy newsletter he’s trying to sell you.

Doesn’t need to. If Mr. Greenblatt is to be believed (and I have no reason to doubt him), he has earned in the vicinity of 50% a year on his money for the last decade.

An awesome performance. (It would turn every dollar into $57, pre-tax, or into $14 if federal, state and city tax cut the 50% annual gain to 30% after tax.)

The reason I’m inclined to believe it is that his book makes a lot of sense.

So I sent him a blurb and, by way of thanks, he sent me a stock tip.

I don’t accept gifts from people or institutions I write about, and I certainly don’t accept payment for blurbs. But how do you return a stock tip?

The easiest way, I suppose, is simply not to act on it. But that would have required a level of self-discipline to which I have not yet been able to rise. So — fair warning — I bought some of this stock at 33-3/8 (and plan to buy more if it goes lower this week).

Needless to say, it could certainly work out badly — so many of my little forays and sorties do! — which is one reason I don’t usually write about specific stocks.

Then again, some of you come here every day, often suffering through the most inane musings without complaint, so, for what it’s worth, I wanted to share Joel’s tip with you.

It comes from an area of the market that Joel has become a specialist in: the “spin-off.” You can read lots about this when his book comes out in March, but here’s the essence of it: When a company spins off one of its parts — as AT&T spun off NCR last week — the spin-off frequently represents a good opportunity.

For starters, a lot of people (and institutions) sell the spun-off shares just because they’re a nuisance or because they don’t want to do the work of analyzing them. There you were with 200 shares of AT&T, and now you’ve got these silly 12 shares of NCR in your account (the spin-off gave holders one NCR share for each 16 AT&T), so, to tidy things up, you sell them.

Index funds, meanwhile, must sell, because the spin-off is not part of the index they’re supposed to reflect.

There’s nothing rational about that selling, so it may create an opportunity for you and me. It certainly seems to have done so for Joel.

Another reason to favor spin-offs: at first, few analysts follow them.

And another: generally the management of the spin-off is given a strong incentive, by way of options, to make them work. As part of a larger company, their efforts are less directly rewarded.

And another: sometimes an effort is made to bring the spin-off out at a low price or to “talk it down” at first, so the manager’s option price can be as low as possible.

And there are a few other reasons — although considerable analysis is required to separate the best spin-offs from the average ones from the clunkers. A little luck doubtless helps, too.

All that said, let me give you the benefit of Joel’s analysis, with the caveat, once more, that there are no sure things in the stock market, and very smart, very successful people are frequently wrong. Here’s what Joel wrote me last week:

NCR closed in when-issued trading at 33-3/8 New Year’s Eve. [This is approximately what Joel himself paid for his shares — he waited until it had dropped from around 40.] It begins regular trading today [January 2]. Many index funds that have not already sold should be selling in the next day or two. Management’s substantial option package has been set based on the last 5 days of when-issued trading, just completed. The new management has gotten NCR back to break even in the first nine months and fourth quarter earnings should be a pleasant surprise. NCR will have approximately $7.5 billion in sales in `97 with 100 million shares outstanding. Approximately $1 billion sales in the ATM business and maybe $800 million in data warehousing — both businesses worth at least 1 times sales. With $8 per share in net cash, this totals approximately $26 in value. That leaves a $7 price for the remaining $5.7 billion in sales. This is 12 cents on the dollar of sales. Even rotten companies trade at over 40 cents on the dollar.

The bad news [Joel continues] — I know almost nothing about computer companies. In any case, if it works out, buy me lunch. If not . . . I’ll give you your blurb back?

Joel hopes NCR might hit $50 some time in the next 12-18 months. To order his book for delivery when it’s published, click here and search on Joel Greenblatt.

Note that computer analyst John B. Jones, of Salomon Brothers, described by the New York Times December 31 as “one of the few on Wall Street to look closely at NCR,” thinks the stock is wildly overpriced — even $25 would be too rich, he says. Either he’s right, or else management has done a good job of lowering expectations.

Tomorrow: Another Good Investment Book: One Can Only Marvel

OK, there are a lot of reasons; e.g., I would be almost entirely unqualified for the job. (Contrary to popular opinion — and especially as regards posts as important as Treasury Secretary — competence is one of the criteria.)

But had there ever been any thought of naming me, say, Assistant Under- Deputy Treasury Secretary for Making the Press Releases Snappy and Grammatical — a post I hope it is not boastful to suggest I actually might fill rather well — it was dashed in the summer of 1992 when I attended a fund-raiser for the candidate in Miami.

He was only the candidate, but I knew he would be president, so when a woman handed me her camera and asked me to take a picture, I went into quiz-show mode. (Quiz show mode is when you are asked something you know perfectly well — the capital of Kentucky — but because you are being watched by 100 people in the studio audience and 4 million people at home — you stutter, “Louisville?”)

The woman had a firm grasp around Governor Clinton, and he around her, and both were smiling — but with dozens of others eager for the moment to pass so they could have their moment — and I was fumbling. The natural ergonomics of the camera, where your eye just more or less automatically finds and frames the subject, and your finger just more or less automatically finds the button, was failing me.

“Turn it around, Andy” said the next president of the United States. Even from a few feet away, he could see I was about to take a picture (if I could locate the button) of my right cheekbone.

I knew at that moment I would never have to leave the private sector for government service.

The capital of Kentucky, by the way, is Frankfort.

Tomorrow: A Stock Tip

And I’ve done a lot of stupid ones. But there it was 1992, the President had just been elected, and names were being bandied about for various positions. One was Robert Rubin for Secretary of the Treasury.

A Wall Streeter I respected — I will never say who — told me he thought Rubin would be a disaster; and fearing (stupidly) that the Arkansans might not be Wall Street savvy, I felt the need to drop a note to Bruce Lindsey, who was handling much of the appointment process, and pass that opinion along. Not that I had ever met Bruce Lindsey, let alone Robert Rubin.

The main thing, of course, is that my note had no impact, so no harm was done. But I feel like a complete idiot, because after four years in the job, Treasury Secretary Rubin has been acclaimed worldwide with near unanimity as a superb choice.

Tomorrow: Why Clinton Didn’t Name ME Treasury Secretary