Author: A.T.

From Elliott: “I noticed that State Farm is being sued for forcing their customers to use generic parts when they bring their car in to be serviced. Do you have any thoughts on this matter? I noticed that Nader, et al., are backing the Insurance Companies on this one.”

And rightly so. Ralph may be a Big Fat Idiot when it comes to personal-injury auto insurance, as I’ve argued at length elsewhere, but he’s very much on target if this is indeed his position on replacement parts. Generics are usually a better buy when it comes to many consumer items — it’s just wiser shopping. So if State Farm — a mutual company with no rich shareholders who profit from screwing consumers — thinks it’s in the interest of its customer/owners to hold down costs by specifying generics, it probably is. (All the parts, as I understand it, have to meet quality tests.) Otherwise, you give GM, etc., a monopoly — only GM can sell genuine GM parts — and monopolies are not consumer friendly.

If there’s a demand for a policy that would cover “only parts from the original manufacturer,” insurers should offer it (some already may), and consumers who want to pay the extra cost should be free to choose it.

Ah, the rush. I get so excited writing about auto insurance. Tomorrow, back to less exciting topics.

From cheery old Lubenovic: "What kind of financial strategies/tactics would you recommend for a worldwide recession or … depression?"

This would be so easy if you knew for sure a recession/depression were coming. It’s a possibility, of course, but by no means something you can "count on."

If you could, you would sell all your stocks and real estate and buy puts. (Puts leverage your pessimism much more than selling stocks short directly — and have the virtue of limiting your loss to 100% rather than leave it open-ended if you are wrong.) And/or you would put a good chunk of your money into U.S. Treasury securities. And you might put a few bucks into silver dimes, just to have some walking around money if the value of paper currency were ever called into question.

And then, when things seemed worst and most hopeless … when stocks were being given away at prices that would look good unless the world ended altogether … you would trade most of your profits in those puts and Treasuries and buy like a bandit. Because I can say with the confidence of a man who knows you will not be around to rebuke me if I am wrong: the world will not end.

But here’s the catch with a disaster strategy: We may already be a good deal of the way into that disaster. Just ask that sliver of the globe that lives East of Prague all the way on out to the Pacific and Hawaii. So it may be that the world is poised to reinflate and grow, that interest rates will rise, puts expire worthless, and Treasury bonds (at least those of the long-term variety) sink like a stone.

My guess is that the true path lies someplace in between those two scenarios. We will not have a worldwide depression, but the easy years are behind us for a while. A quarter-point drop in the fed funds rate — swell surprise though it was — may not be enough to turn the world economy around.

Hence it makes sense, I think, to spread your money — if you’re fortunate enough to have enough to spread — over the "four prongs" I have written about from time to time: some cash/liquid money first (money-market funds, T-bills, whatever); an inflation hedge in case the world reflates (your home, stocks over the long run, though inflation would kill most stocks at first); a deflation hedge (long-term Treasuries); and a "prosperity hedge" in case we really have already hit bottom (stocks). How you best weight these prongs depends on your own circumstances (80-year-old widows and 29-year-old eye surgeons are not the same) and your own view of what might happen (or at least your own view of how unhappy you would be if certain things happened, so you can try to stay within your tolerance for pain).

What will happen?

All I know for sure is that no one knows. If things get bad enough, prudence could even come back into fashion. That, no doubt, will be the bottom.

“As a fixed-income trader,” writes Sarah, “I’ve always understood your $10 bottle of wine vs. $108 case example” [wherein one can technically earn a 177% tax-free return on one’s money], “and I certainly put those principles to work in my own shopping (thank you www.NetGrocer.com ) but NOT ON WINE.

“If I buy 12 cans of Starkist Tuna fish when it’s on super sale, I cheapen up my per can cost substantially. Same with the 12 pack of toilet paper. But if I buy a case of wine, we drink twice as much! (Basically we have wine with tuna, wine with pizza, wine with everything.) Some items simply cannot be effectively stocked!

“Conversely, my fiance said over dinner last week: ‘Your garden has saved us a fortune.’ I immediately knew what he meant. It wasn’t that my tomatoes and peppers were any less expensive — after fertilizer, soil, etc., I broke even or spent a little more. But staring at all that fresh produce made us find reasons to eat in rather than racing for the nearest take-out menu (ah, Manhattan) or going out. Life, and saving, works in odd ways.”

A.T.: Ah, Manhattan, and ah the million-dollar-plus apartments that have terraces for a garden. Or Billy Joel’s old apartment that a crazed real estate agent once showed me in the daft hope I might actually abandon my $41,000 long-ago digs for this unusual one-bedroom-with-a-greenhouse on Central Park South that was a steal at little more than $1 million but came with a $50,000-a-year maintenance fee.

But however they grow this stuff, Sarah makes a charming point.

Which brings me to the recent cover story in the Boston Globe Sunday magazine profiling Edgar Dworsky. Every worthwhile movement needs its extremists, and the more crazed penny-pinchers among you might enjoy reading about him, as I did, and how he beat the Wiz (this one left me with mixed feelings), by clicking HERE.

Dave Davis sends us this “actual exchange between an attorney and an expert witness during a trial (source: Massachusetts Bar Association Law Journal).” Perhaps it speaks for itself.

Q: Doctor, before you performed the autopsy, did you check for a pulse?

A: No.

Q: Did you check for blood pressure?

A: No.

Q: Did you check for breathing?

A: No.

Q: So, then it is possible that the patient was alive when you began the autopsy?

A: No.

Q: How can you be so sure, Doctor?

A: Because his brain was sitting on my desk in a jar.

Q: But could the patient have still been alive nevertheless?

A: It is possible that he could have been alive and practicing law somewhere.

MORE FUNNY NEWS

“Since you enjoy www.bobsfridge.com/skew.htm, may I suggest The Onion, www.theonion.com? It is also a parody news site, but adds editorials, reactions from ‘the man on the street,’ and may be a little funnier. It is ‘R’ rated for language at times, but seems to be an equal opportunity basher, no one (or party) is safe from their satire. Has a bit of advertising clutter, but the price is right – free.” – Chuck McDannald

AOL 4.0 — Much Better

I know you will think I’m a feeb for using AOL — me and 13 million other technologically challenged souls. Yes, it’s cheaper and faster to use any of a myriad of ISPs (Internet Service Providers), but … well, it’s a long story. So, while I certainly would not suggest you switch from a cheaper, faster service to AOL, I did want to let you know that AOL 4.0 finally gets it right — or sufficiently right that I’m happy using it a lot more than I used to. In case you’re an AOL user who hasn’t bothered to upgrade (which you can do online — get it started before you go to bed, then wake up and finish), do it. It’s much better than the old AOL, both for e-mail (finally, a fairly decent address book function) and for the Web.

YadayadayadaDAAA, YadayadayadaDUHHHH

From Dr. Steven Rubin: “It’s clear from today’s column that you’re not a New Age music fan. The music you’re referring to is a track called ‘Adiemus’ from a CD called ‘Pure Moods’ (Virgin Records); not only are the rest of the cuts not nearly as irritating, but I look for that CD for ‘relaxation music.’”

Does Anyone Remember MYM?

“I would like to get an updated version of Managing Your Money for Windows 95. I have been using version #11 on DOS. I once tried the Windows and it really screwed up my whole program. Things I didn’t even have were listed. Please e-mail some info!!!!” – Bev Wertheimer

A.T.: MECA is out of the retail software business, and I am five years out of MECA. (When the company was bought out, one condition — sadly — was that my contract be bought out, too. Mope, mope.) I happily use the DOS version 12 of MYM which, like version 11, is far superior (in my mind) to the Windows version. I plan to keep using it (with lots of backups, etc.) until Bill Gates does something that makes me finally switch to Quicken. But MYM DOS runs fine under Windows 95.

I do print out all my data each year, alphabetically and by date and by budget category, and might do it more frequently if I ever felt my data were threatened.

If I ever do switch to Quicken or something, I imagine I’d do it January 1 of some year and keep all the old stuff on a DOS-compliant computer. Surely there will be some of those for a long time.

Note to non-MYM users: As good as MYM DOS is, you would be nuts to switch to it (and it’s not available, in any event).

Erich (who deserves his last name attached, but did not include it) writes: “Regarding Internet investing scams, how about the SEC requiring web sites which give out investment advice to display a link that people could click that would give them information on avoiding investment fraud? It could be a link which would take people to a site at the SEC. The link could contain a list of frequently asked questions, a description of some of the more popular investment frauds and so on. It would not be very intrusive, yet it would provide an easy way to tell if a site is in compliance, because sites which did not display the link could be automatically deemed to be out of compliance. People might easily ignore such a link, but it is one of the more efficient, free-market and easily enforced ways I can think of to consistently remind investors to check the validity of investment advice.”

A.T.: If you like this idea – I do – why not print this out and mail it to:

Office of Investor Education
S.E.C.
450 Fifth St., NW
Washington, DC 20549

Or forward it to help@sec.gov.

If they’re looking for investment writers who would be happy to help assure that the link they develop is investor-friendly, I know some who’d be happy to do it free of charge.

From Gilman Miller: “You wrote recently of a couple who never earned more than $70,000 a year, yet retired a couple of years ago, aged 62 and 60, with a net worth of $3 million. Assuming they both worked for 40 years, they retired with more money than they ever earned working! And that is assuming the 70k combined income peak was a constant (which it surely was not) and that they paid no taxes on that 70k (which they surely did).”

A.T.: Since the average after-tax income over their lifetimes would have been a lot lower than $70,000 (salaries were a lot lower 40 years ago) – maybe just half $70,000 on average, after tax – Gilman notes that they retired with more than double their entire lifetime earnings.

Gilman Miller: “The problem,” he continues, “is that most people would see this and either assume it was untrue, or that they lived in miserly denial for 40 years, or that they lucked into buying Berkshire Hathaway back when you first wrote about it. In other words, that this is unattainable to most of us or simply not worth the sacrifice. It is attainable and it need not rule out having fun and even indulgences. Keep spreading the gospel and the rule of 72!”

A.T.: Put $4,000 a year into a Roth IRA and manage to compound it for 40 years at 12% and you will have $3 million. Of course, $3 million 40 years from now likely won’t buy what $3 million does today, which is why you will want to save and invest even more if you can (and to fully fund your 401(K), if one is available to you). But Gilman makes a good point.

That Rule of 72 he refers to, for those new to it, is simply that you can estimate how fast money will double by dividing its rate of growth into the number 72. Money growing at 4% takes 18 years to double, at 7% just a tad over 10 years, at 12%, 6 years. (“Why does this work? No one knows,” I once wrote. “It’s a rule.” Whereupon all the mathematicians descended on me like e-mail pigeons in a cyber version of Hitchcock’s The Birds.)

Enough with the gloom and doom already. (If you missed them, the last three columns have been about Year 2000.)

Faithful reader Bill Nagler offers us this important news:

While leading the Friday evening services, the Rabbi noticed a member of the congregation, Bernie, walk in with a St. Bernard. The Rabbi, horrified, asked the Cantor to continue the service and went over to talk to Bernie.

Rabbi: "What are doing here with a dog?"

Bernie: "The dog came here to pray."

"Oh, come on." says the Rabbi.

"YES!" says Bernie.

Rabbi: "I don’t believe you. You are just fooling around; that’s not a proper thing to do in temple."

Bernie: "It’s true!"

"OK," says the Rabbi (thinking he would call Bernie’s bluff), "then show me what the dog can do."

"OK," says Bernie. He nods to the dog.

The dog proceeds to open up the barrel under his neck, removes a yarmulke, a tallis and a prayer book, and actually starts saying prayers in Hebrew. The Rabbi is so shocked he listens for a full 15 minutes.

When the Rabbi regains his composure, he is so impressed with the quality of the praying he says to Bernie: "Do you think your dog would consider going to Rabbinical school?"

Bernie, throwing up his hands in disgust, says, "YOU TALK TO HIM! He wants to be a doctor!"

I promise to get back to some jokes, but Y2K is sufficiently important I thought we should give it one more day before moving on (temporarily).

Have you begun making harmless contingency plans and laying in an emergency supply of essentials you probably won’t need — but just in case you do? Now, when it’s easy, is the time to do it.

From Brian Schiel: “I’m working as a contractor on a Y2K project at the University of Michigan. This is my second Y2K project, and you can count me among those in the Y2K alarmist camp. You’ll find an excellent paper about the embedded systems Y2K problem at www.tmn.com/~frautsch/y2k2.html. It explains, better than anything else I’ve read, why embedded systems are going to cause more and more problems as we approach the Year 2000.”

From Craig Hagstrom: “All programmers agree the Y2k problem is simple. I recently worked for a company that went broke waiting for companies to flood in to us, bearing code to fix, but they never came because fixing the code is too easy to need outsourcing. It’s not the fix, but the testing that kills you.

“It’s grimly funny to hear a computer science major tell you how simple it is to fix, when their system consists of perhaps 4 programs running against a database of 200 test records spread over half a dozen tables and using 3 record definitions. That’s the kind of sample database you get when you buy Microsoft Access, or similar PC databases tool. They can patch their 4 programs, write and run a quick program to expand a field in their database, and they’re ready to go again. And they can shut down their little application any time they want to, to do such a restructuring.

“The problem gets big when you have 500M records spread over 200 tables using 150 record definitions, all on a system that cannot be out of action for more than 30 seconds at a time. The FAA … law enforcement … the phone company. Scaling up from the preceding paragraph, such a system might take (say) 5 weeks of pure run time to restructure the database and load new versions of the programs. But if the system has to keep running at the same time, then you’re looking at perhaps 6 months just to PLAN the changes, another 4-6 months to plan how to test the thing, and two or more years to implement. The problem is exponential, which is why the IRS has tried 3 or 4 times to rewrite its systems and failed every time. It’s too darn big.

“We are about to hit panic mode in the world of commerce. As the first big failures hit unprepared companies, the rest will get religion real fast. (Go read Cory Hamasaki’s description of the Jo Anne effect at www.kiyoinc.com/current.html) Since there isn’t enough time left, you’re going to see hurried fixes that are not tested at all. You are going to see an amazing amount of fear in the next year, with managers grasping at any possible escape. The major disruptions from year to 1/1/2000 will come from (1) Y2k errors involving forward-looking date calculations, and (2) simple programming errors from rushed and untested Y2k ‘fixes.’”

From Jerry Holsinger: “While you claim that there are intelligent and knowledgeable people on both sides of the Y2K problem, the only ones that I know of on the ‘it’s all hype side’ sound pretty naive when you read what they write.

“For what it’s worth, I have a Ph.D. in E.E. from MIT and have been involved with hardware and software development for over thirty years, though I am not a programmer. I have software that I developed to manage my own investments which has severe Y2K problems. As a result I have enough background to understand why Y2K has the potential to be a severe worldwide problem, which I believe it will be. I also know from first hand experience how hard it is to get non-technical people to understand and believe that Y2K is a serious and real problem.

“Please do not spoil your outstanding effort on the Y2K problem by publishing further information that only makes the work of people who are serious about the problem that much harder.”

From Ken Shirriff: “Interestingly enough, my bank’s online access is not Y2K compliant. Their web code is written in JavaScript and can’t be more than a year old, but they didn’t deal with Y2K. The web page asks for the date as 6 characters MMDDYY and rejects any request that has YY < 70. The code has the comment: ‘check that year is not before 1970.’ Obviously this will break in 2000 if they don’t change the code by then. (The bank, by the way, ignored the email I sent them about this.) The two points of this example are: a) It’s easy to write non-compliant code in any language, not just Cobol. b) People are still writing non-compliant code for applications such as banking, even with all the attention on the Y2K problem lately.”

Continuing yesterday’s comments …

From Walt J: [In answer to someone who had said Y2K is mostly hype by overpaid consultants out to whip up hysteria to drum up business …]

“Blaming consultants for so-called Y2K hype is the intellectual equivalent of blaming doctors for disease, meteorologists for hurricanes, geologists for earthquakes. These are the folks who have worked with the problem the most — and they would make far more money if they shut up and just let things fail than by pointing out the magnitude of the problem.

“There will be failures, and a tiny number of them can have devastating consequences because the number of coded dates and embedded systems is so damn large. Anyone familiar with the software metrics literature (e.g. Capers Jones) knows how fragile most software is, and how difficult it is to fix.

“I’m almost out of the stock market, except for some serious hedging (LEAPS – both puts and calls) and some formerly out-of-the-money OEX LEAPS — puts — that have become very profitable in the last few weeks. In this market, the best offense is a good defense.”

[A.T.: LEAPS are long-term options. Pretty much like regular options, but extending out a year or two instead of just a few days or months.]

From David Eddy (some of whose work can be found at www.y2ktimebomb.com): “A fundamental problem with computers/systems is that they’re really seen as an impediment to advancement thru the management ranks. Techies only go so far. And when the managers see themselves advancing without understanding even the basics of systems, the learned message is that systems & techies are just commodities to be swapped around like used cars.

“When I entered programming fresh out of college in 1970 at a Boston insurance company (though I am eternally grateful for the solid technical training & experience I gained) it was screamingly obvious that business management there had abdicated responsibility for the systems. And over the past 28 years things have really only gotten worse. So now the maintenance bill is coming due for this structure we’ve been building non-stop for 50+ years & there’s no sinking fund, no plans & no one really understands where the critical weak points are.

“Big problem. Bummer.

“No question that the hype surrounding the speculation about what will or will not happen come January 1, 2000 (personally, I’m thinking things will be very quiet) is out of control & will get MUCH worse.

“And this is not to deny the fact that Y2K is a major problem. Just ponder these numbers:

– 12,000 IBM MVS mainframes (‘big iron’)
– 40,000 IBM DOS/VSE midrange
– 400,000 IBM AS/400 midrange
– 500,000 DEC VAX midrange

“That’s just the hardware [that all needs to be checked out and fixed as needed] & ignores vendors such as Wang, Data General, Prime, Computervision, Hewlett-Packard, AT&T, Perkin-Elmer, Control Data, Bull, and dozens of others.

“One final item. Have you ever spoken with a software development person who’d actually worked on an on-time, on-budget project? Seen even MightySoft deliver products on time?”

From Roleigh Martin: “One of your letter writers is very ignorant in thinking embedded processors do not pose a problem. I’ve written widely on the problem. Please see my published articles, speeches, web pages, at my web site: http://ourworld.compuserve.com/homepages/roleigh_martin

“Also, visit the G-8 Countries Y2K Virtual Conference on Y2K (link at my home page) — I’m one of the 30 some invited Y2K experts worldwide participating in this conference that resides on the internet on an ongoing basis.”

From Terri Reid: “One of things I like most about explaining Y2K is the fact that people can find out for themselves. When I first heard about Y2K, I was a little frightened — it seemed almost overwhelming — then I decided to do a little digging on my own. I e-mailed the public affairs office of my local electric company — a little company here in the midwest called Commonwealth Edison. The public affairs official e-mailed me back and asked me to call him later that week. (I’m a freelance writer in the area, so I had a little bit of clout.) I called him — he wasn’t in, so I left a message. He returned my call the following week and told me that he couldn’t talk to me about it over the phone — but the ‘gals in the Rockford office’ were typing up a letter for me. That really perked up my interest. I thought, if there was nothing to worry about — if they were Y2K compliant — he could talk.

“I finally received a letter from Comm Ed stating that they were aware of the Y2K problems in their system (Oh, goody!) and they were working to correct them. Their goal is to have the problems fixed by 3rd quarter 1999 (I suppose they couldn’t say 4th quarter because people might begin to panic). Then, as I was talking to the city reporter for our local paper — who happened to have interviewed this P.A. guy in person — he commented that he was told, sure we might have the problems fixed, but we won’t have done any testing yet. Comm Ed also announced last month that they are trying to sell all of their power plants by spring of 1999. Hmmmmmm, kind of convenient — don’t you think?

“Anyway, my New Year’s 1999 plan is to sit at home and watch Dick Clark’s smiling face as the ball slowly makes it way down in Times Square and then wait for the T.V. screen to go black. I’m making sure I have plenty of candles, wood for the fireplace and a generator full of gasoline. My best advice is — check it out for yourself — that’ll really make you jump into action.”

A.T.: Well, candles, firewood, tuna, a generator — I think these are sensible precautions. They make us all stronger — bought today, not in December 1999 — as households, neighborhoods and a nation, even though most of the stuff will likely go unused. (But they’re also good for hurricanes, tornadoes, ice storms, Homer Simpson-like industrial accidents — you name it.)

I don’t see a whole lot of reason for most of us to panic. I would like government agencies and businesses all to be quietly panicking, however … or whatever level of concern is the closest to panic that still allows you to think and act rationally. I hope every police department, every fire department, every phone company, every railroad, every power company (especially those!), and all the rest are quietly but fervently working their brains out right now to make Y2K as close as possible to a non-event. (And not just here: planetwide.)

From Richard Routh: “I enjoyed your article ‘How Real Is Y2K?’ published on September 03, 1998. I used to think about Y2K as does Krishna Kunchithapadam when I first heard about the problem. I used to think as you do when I had spent only about 100 hours studying the Y2K problem. The more I studied (about 1000 hours now), the more convinced I became that we are headed for an unavoidable and complete societal infrastructure meltdown. My background includes: (1) Ph.D. in computer science, (2) former adjunct advisor to Reagan’s Cabinet on Artificial Intelligence issues, (3) last six years spent as CEO of an advanced computer technologies company (The GINESYS Corporation). It is interesting to note that those who have studied the problem the most are either the most concerned, or they are greatest advocates of emotional, irrational, platitude-ridden arguments of euphoric hopefulness (denial). Kinda scary, isn’t it?

“If you spend time re-assuring people now that they do not need to take RADICAL steps to provide for their families’ survival, I predict you will spend the rest of your life regretting the misdiagnosis the way a physician does when he misdiagnosis cancer as something minor — only in your case, you have a much larger audience. Please proceed with caution.”

More tomorrow.