Author: A.T.

This is the old joke promised in yesterday’s brief comment. I’m not great at remembering jokes, but here’s more or less how it goes. I apologize to those of you who know it.

This group of scientists at Princeton (it just feels right to me that it should be Princeton) decided they would try to answer the ultimate question. So they commandeered the university’s largest computer and asked it: “Is there a God?”

Of course, the question was phrased, ultimately, in a nearly endless stream of ones and zeroes representing state-of-the-art algorithms from theoretical physics and transcendental mathematics, but that was what it boiled down to: “Is there a God?”

Well, the computer chugged and chugged for a while but then spit out an error message: “not enough processing power” to derive an answer.

Anticipating this, the scientists had already begun negotiations with colleagues around the world, and managed to arrange for a hook-up of virtually all the world’s supercomputers, for the better part of an hour, to work on the problem in parallel.

Nothing like this had ever been tried before, but it was, after all, the Big Question.

The hour passed, during which time commerce around the world ground to a halt, as credit card transactions couldn’t be approved anywhere, and then out came the message: “not enough processing power.”

Wow. So then the scientists hooked this whole effort into the Internet, temporarily commandeering all the processing power of all the tens of millions of PCs in the world, as well.

Again! “Not enough processing power.”

One last attempt. They added to this already extraordinary global brain all the chips in all the appliances and carburetors and digital watches — all that stuff — in the entire world. (Don’t ask me how. This is a joke.) “Is there a God?”

And the answer came back:

“There is now.”

Tomorrow: What’s Netscape Worth

So “the network IS the computer,” as they say, or shortly will be, and we will have in our little finger as much computing power as 100 Isaac Newtons strung together in an intellectual chain gang.

(Today, I’m told, according to last month’s Fast Company, the world’s “computing capacity” approximates that of 100 trillion human beings.)

Ah, but can all that computing power tell a really good joke? With just the right shading and timing and inflection? I DON’T THINK SO.

Maybe that’s the ultimate fate of our species: to be the court jesters to a ruling class of supercomputers.

Tomorrow I will do my best to render the old joke that naturally flows from this thought. Do you know the one I mean?

Last week I had a private e-exchange with a man of many bucks (recently inherited) but few words:

Cryptic Cyberspaceman: “Which is better, a stock that appreciates at the rate of 4% a year and pays no dividends, or one that has a 10% yield but no appreciation?”

The stock that yields 10%, if it will do so forever, is better than the one that will grow 4% forever. If nothing else, you can take your 6% after-tax from the dividend (if you’re in the 40% federal-state-local bracket) and reinvest it. So each year, the value of your holding grows by 6% instead of 4%. Why do you ask?

Cryptic Cyberspaceman: “ZF (the Zweig Fund) pays about 10% and seems rock steady. It’s traded like a stock but acts like a cross between a mutual fund and a money-market. Do you know it? Own any of it?”

The Zweig Fund is fine. I don’t own any of it, but once did. It’s a “closed-end” mutual fund that, like many others, is traded on the New York Stock Exchange, just like GM.

It’s a perfectly good choice, but don’t mistake it for a true money-market fund. Yes, it’s stated goal is to distribute 10% a year (2.5% a quarter) and, yes, Marty Zweig (whom you may have seen on Wall Street Week) is a smart veteran, better than most at limiting risk. But in an extended bear market, I doubt you’d see those 10% pay-outs uninterrupted. Or if they were uninterrupted, you might well be getting your own capital back — i.e., the fund would be liquidating assets, at depressed prices, to keep paying the distribution. That’s not a return on your money, it’s a return of your money.

Just be sure you’re buying this or any other closed-end fund at par or a discount to net asset value.

Cryptic Cyberspaceman: “Hunh?”

With a regular “open ended” mutual fund, you buy shares direct from the fund manager, who takes your money and puts it to work with everyone else’s; and you redeem your shares from the fund manager. (Yes, some brokers can now do this for you, as a considerable convenience. But behind the scenes, that’s still how it works.) The funds are “open-ended” in the sense that they ordinarily keep selling shares to anyone who wants to buy. There’s no limit to how many investors, and how much cash, they may attract.

Closed-end funds, by contrast (also sometimes called “publicly traded funds”), gather a set pool of money in a public offering, and that’s it. The pool may grow as the fund’s holdings appreciate, but the only way to get into the fund is to buy shares from someone who wants to get out. I.e.: call your broker.

If a lot of people want to get in and not too many are keen on getting out, the price goes up — sometimes to a premium far above the value of the underlying assets of the fund. More typically, they sell at a discount, especially in a bear market. (So there you have a double whammy: the underlying value of the fund has dropped with the bear market, and the discount has widened, to boot.)

You’ll find a list of closed-ends and the premium or discount at which each most recently sold every Monday in The Wall Street Journal under the heading “Closed-End Funds.” (There’s probably a free place to get this on the Internet as well, but I haven’t found it — please chime in and I’ll post it next time I do an update.)

Closed-ends selling at, say, a 10% discount let you control (and reap the benefits from) $1 worth of stock for 90 cents.

The only problem is that, unlike owning that $1 worth of stock directly, there’s a management fee deducted from the fund each year. So a 10% discount may be wholly appropriate. Then again, if the manager is good enough, the value he adds may justify the fee, or (as hoped) more than justify the fee.

Some closed-ends are perceived to have such lousy managers, and/or high expense ratios, the discounts can widen to 30% or 40% in a bear market. Marty Zweig, on the other hand, is generally perceived to be worth what he costs. The Zweig Fund usually trades just a little below — or above — the underlying value of its securities (“net asset value” or “NAV”).

Which is a lot of background to a simple cryptic question. My short answer would be: ZF is fine, especially for someone in a low tax bracket. But ordinarily I prefer to buy closed-ends in the midst of a bear market, when their assets are cheap and their discounts are wide.

Of course, since we will never again have a bear market — or inflation, panics, or worries of just about any kind, other than what to wear — I guess this is all a little academic.

Oh, and one other thing: Never buy a closed-end fund on the initial public offering, no matter how eager your broker may be to sell it to you. You will pay a built in underwriting commission that does you no good whatever. Just wait a few weeks or months: ordinarily, closed-ends fall to a discount.

Monday: Does Your Computer Have a Sense of Humor?

And that’s whither, I hasten to point out, not wither. My natural take on the market, always, is that it will tend, over time, toward sensible valuations. The stuff that’s wildly overpriced these days will get clobbered, sooner or later; the rest may have some setbacks, but will for the most part tend to appreciate over the long run as it more or less always does.

I recognize that this is useless blather, so let us turn to two people who really know.

The first is Elaine Garzarelli, of whom I have written before, back when she thought, last Spring, the Dow was headed to 7,000. Now — well, a few weeks ago — arrives “an urgent warning from Elaine Garzarelli, who’s predicted every bear market crash of the last 20 years.” It is a bulk mailing from Elaine Garzarelli’s Private Circle (A Strictly Limited Membership Program), and right there on the outside of the envelope, in case you don’t want to spend the $149 a year to join that exclusive circle, is pretty much all you need to know: “SELL!” it says. “Garzarelli’s System Flashes Major New Signal. Details Inside.”

Inside we learn that not only has she called every bear market of the last 20 years, she has done so with “zero false alarms.” This is only the 4th sell signal of her career. And for $149 you can find out “What surprising factor has triggered this new SELL signal, and why it startled even Elaine.” But when you think about it, why bother? If she’s so good at this (and I’m not saying she isn’t), are you really going to second guess her? Are you really competent to evaluate whether she should have been startled, or whether she’s interpreting the implications of that surprising factor, whatever it is, correctly? If so, maybe she should be paying YOU $149. So it’s enough to know you should “Sell all U.S. stocks and stock funds.” Urgent. (To subscribe: 800-804-0938.)

But just before you do (although if you got the same Private Circle bulk mailing I did, you’ve presumably already sold, and paid all those taxes), here’s the November mailing from good ol’ F.X.C. Investors Corp. in the borough of Queens, New York (718-417-1330). F.X.C. stands for Frank Curzio, and I’ve been a paid-up subscriber for many years. Not to say it’s made me rich or anything. He’s just such an unlikely, unWall Street-like guru, with such an earthy approach, I couldn’t resist. In the last few years he seems to have acquired a copy editor, which has robbed his writing of some of its charm, but in any event I’m straying from the point.

The point is: “Approximately $100 billion annually will be invested in stocks and bonds throughout the next 10-20 years. As such, the market may double every five years. Dow Jones 12,000 by 2001 and Dow Jones 24,000 by 2006.” (He goes on to say that the blue chips appear pretty rich compared with the “secondary issues,” where he sees better value. So if the Dow is set to quadruple over the next decade, investments in some of the offbeat little issues Frank likes could do even better.

Which of these two gurus is right? And over ten years could both be right? (A plunge followed by a rebound and beyond?)

I don’t know, and no one else does either. But I do know that if you are going to lighten up in hopes of averting a downdraft, you should do it mainly in your tax-deferred retirement account (if you have one) so as not to see a big chunk of your assets eaten up in taxes. I also know that if you have money in the market on margin, or money you might need if you lost your job or got sick or your car broke down, you are taking a dumb risk.

And I know — or I think I do — that the economic future looks exceedingly bright. And that that, sadly, can be the worst time of all to invest in stocks. But not always.

Got it?

Tomorrow: Zweig (and Other Closed-End Funds)

I’m writing this early on election day, so maybe it will be one of those embarrassing DEWEY BEATS TRUMAN! deals (and you can frame this web page to show your grand kids), but:

CLINTON BEATS DOLE!

Not knowing the Congressional results, or any of the rest, I’d just like to suggest a couple of things.

First, as I’ve suggested before, despite its not being fashionable: we were lucky to have two such good and competent candidates to choose from. Unfortunately, it’s become the nature of the game for each side to try to demonize the other, but the fact is that these are both extraordinarily able, experienced men of good will, both of whom wanted to do a good job for the rest of us.

Second, the drumbeat of “scandals” surrounding the President is mostly hokum. To me, Hillary’s commodities scandal is a good example. Even the least financially savvy among us can snicker at the knowledge that she must have done something wrong. But as I’ve written before, other than being too defensive about it, this simply turns out not to be true. She didn’t. Likewise, the Clintons’ Whitewater investment and the Vince Foster suicide. These scandals turn out to be non-scandals — and yet, throw enough of them out there, relentlessly, and they begin to take on a life of their own.

Not to say the Clintons are perfect — or the Doles either, for that matter. Perfect is a pretty tough standard to live up to. And not to say the FBI files matter shouldn’t be looked into — someone screwed up (but why are his political enemies so sure it was the President?). Or that campaign finance reform is not badly needed (but it’s badly needed on both sides).

For those who disagree with the President’s ideas on social and economic policy, there’s naturally the strong disposition to believe anything that would “prove” he’s a bad guy — and thus discredit those ideas. We want to believe the worst about the people we disagree with.

And even the rest of us, not wanting to appear naive, tend to assume the worst.

But my own instinct — having through dumb luck had an opportunity to observe the First Couple a little bit back when they were merely Arkansas’ first couple — is that most of this stuff is simply without substance, overblown, or, with respect to his private life, really none of our business.

So if your man won — congratulations. And if he lost — well, I just want to suggest that it may not be as bad as you think. After all, the last four years haven’t been that terrible.

Tomorrow: Whither the Market

This comes from Brooks Hilliard, an independent management consultant. It has absolutely nothing to do with today’s election, so let me take a moment to remind you to VOTE. (Sloth and apathy, not to mention ignorance and cynicism, may be upon the land — but not upon the readers of this web site, I’m happy to say.)

If you liked the frozen chicken story [Brooks writes], you’ll love this one, reputed to be an actual radio conversation recorded by the Chief of Naval Operations, 10/10/95 (I can’t vouch for the veracity of the claim, however):

#1: Please divert your course 15 degrees to the North to avoid a collision.

#2: Recommend you divert YOUR course 15 degrees to South to avoid a collision.

#1: This is the Captain of a US Navy ship. I say again, divert YOUR course.

#2: No. I say again, you divert YOUR course.

#1: THIS IS THE AIRCRAFT CARRIER ENTERPRISE. WE ARE A LARGE WARSHIP OF THE US NAVY. DIVERT YOUR COURSE NOW!!!

#2: This is a lighthouse. YOUR CALL!!

There’s no question California’s auto insurance system is broken. Premiums are too high, benefits too low. More dollars go for legal costs when people are hurt than for medical care, and there’s tremendous fraud—California drivers are three-and-a-half times as likely as Michigan drivers to claim “whiplash” after a minor accident.

So, yes, California’s auto insurance system could hardly be worse.

But Prop 213 is not the answer.

Part of it is trivial but worthy—the part that would deny criminals the right to sue if injured in the course of committing (or fleeing) a crime. Who could fail to be outraged knowing that today a carjacker can actually sue you for injuries he sustains while speeding off in a stolen car?

If this is all Prop 213 did, it wouldn’t accomplish much—statistically, cases like this amount to nothing—but would still be worth a YES.

The real thrust of Prop 213, however, is entirely different—and mean spirited. It’s not directed at a few fleeing bank robbers, but at millions of low-income families. It says that low-income drivers—who simply cannot afford insurance today because the price is inflated by unnecessary legal costs and fraud—are somehow to blame for this situation. It implies that they are little better than felons.

That’s just not fair.

If they’re hurt, Prop 213 would prevent their suing, except for their actual damages. And as a practical matter, it’s not at all clear they’d be able to sue even for that when the damages are relatively modest — there’s may not be enough money in it to interest a lawyer to take the case.

Had the initiative specified that people who could afford coverage but didn’t buy it were penalized, that would be one thing. Were auto insurance costs not bloated by $2.5 billion in high-priced legal fees and billions more in fraud, and thus affordable, THAT would be one thing. But to tell someone earning $12,000 a year that he or she must buy unaffordable auto insurance (rather than feed his kids) is just plain mean.

It’s true that if Prop 213 passes auto insurance rates would probably drop a little, maybe 3%-5%. But is that minor saving worth depriving millions of hard-working lower-income people of the right to sue if injured?

Prop 200, the auto-insurance reform initiative many of us backed last March, would have deprived virtually everyone of the right to sue another driver (except a drunk driver). But the “pay-off” for that was enormous. By cutting out the lawyers and fraud, Prop 200 would have cut premiums far more than 3%-5%. More to the point, your benefits, if seriously hurt, would have soared.

The RAND Corporation’s Institute for Civil Justice estimated that under Prop 200, someone who today buys just the legal minimum $15,000 in liability coverage—which doesn’t even protect them, just whomever they might hit—would actually have saved 17% on average buying Prop 200’s “standard” coverage, which provided up to $1 million per person in benefits no matter what, even if you couldn’t prove the other driver was at fault (or catch him). It would also have provided universal injury coverage to every child under 18, and to every pedestrian (including kids on skateboards and tricycles or darting out from between two cars). THAT was a trade-off worth making. (As many of you know, faced with the loss of $2.5 billion a year in fees, the lawyers did what they had to to defeat it.)

Prop 213, by contrast, is a lousy trade-off. It’s like cutting “government waste” not by cutting government waste at all, just taking school lunches away from poor kids.

Let’s make auto insurance affordable by cutting out the legal fees and fraud, and then expect everyone to buy it.

I wouldn’t do this if one of you hadn’t actually asked me to, but one of you actually did, so here’s how I think you Californians and Floridians should vote Tuesday.

Floridians: Vote YES on Amendments 4, 5, and 6. The sugar billionaires are doing everything they can to mislead us. I have absolutely nothing against billionaires per se; I actually know a couple. But these particular billionaires, on this particular issue, are not acting in the public interest. The Everglades are worth risking a penny-a-pound sugar tax. The real question is why we continue price supports for sugar. That’s why it costs more than it should.

Californians:

Vote NO on Proposition 211. It’s the Bill Lerach-financed proposition that is so bad, so pro-lawyer that even President Clinton joined Bob Dole in coming out against it, despite Democrats’ traditional ties to trial attorneys and Lerach’s huge personal contributions to the Democratic party. Basically, Prop 211 would make it even easier to bring frivolous and extortionate lawsuits against companies whose stocks have dropped sharply. Trust me: it’s too easy to do this in California right now; Prop 211 swings the pendulum further in the wrong direction. It aims to repeal at the state-court level what Congress overwhelmingly recently passed at the federal level, over the President’s veto. (Joining in the override were not only every Republican on the planet, but such Democrats as Ted Kennedy, Dianne Feinstein and Barbara Mikulski.) I could take a lot more space to describe what I see as the ins and outs of this, but the short form is: don’t let Bill Lerach buy himself a law. It would help him, hurt California and investors.

Vote YES on Prop 215 and allow medical use of marijuana. All sorts of serious people, from George Soros to countless doctors and nurses, have come out in favor of this — if you’re interested in some of the reasons why, click here.

Vote NO on Prop 213. In truth, if you’re an insured motorist, it’s in your short-term self-interest to vote YES, because if it passes (and unlike 211, it probably will), your auto insurance premiums will probably drop 3%-5%. But it’s mean-spirited and the wrong solution. Tomorrow I’ll tell you why I think so.

A lot less clear to me is Prop 209. Ward Connerly makes a sensible and principled argument for ending affirmative action (to put it in short-hand). I believe the opponents’ argument is stronger. If I were a California voter, I’d vote NO — but I’d hope policy-makers take seriously the “mend it” portion of the President’s “mend it, don’t end it” line.

Happy Halloween. I hate Halloween. Now on to the news:

If you click here, you’ll find yourself at the web site of WNET-TV, New York’s public TV station. Specifically, you’ll be at The Future of Money “program.” I know, because I played a (very) small role in it.

I happen to be a fan of Public TV (oh, no — another of his liberal causes!), and I think WNET has done about as good a job with this web site as anyone could, given the current technology. But imagine how much better web sites will be when there’s audio and video all streaming onto your screen at the speed of . . . well, television.

My point is: if you’re dead, what good are you? We need you healthy, happy, and vigorously clicking on this web site every morning so the Big Cheese keeps paying me.

That’s why I shared my cold remedy months ago, and why I now offer you everything you need to know — for yourself or your grand-ma-ma — about flu shots. Where to get ‘em and when (soon!), who needs ‘em, how to maybe get ‘em free — even what to do if you have the flu. All courtesy of the U.S. Government.

To your good health.