Author: A.T.

ABSOLUTION FROM SOCIAL SECURITY TAX

Ben Tobias-no-relation writes: “In your short list of people who can escape the Social Security system, you left one out: Ordained Ministers (priests, rabbis, etc). With a claim of poverty, they can opt out of Social Security. That along with their parsonage allowance makes being a minister a taxless profession.” Ah, but not a thankless one.

SORRY, DR. SHECKLEY!

University of Illinois chemistry professor Dana Dlott writes: “Your ‘joke’ about the computers was actually a paraphrase of a very short story written by Robert Sheckley. (With all due respect, his was better than yours.) He was the master of the ultra-short story genre, and the story was maybe two pages long. In the story, the head scientist throws a great big switch to turn on the linked computers. When he asks “Is there a God,” the computer says, “there is one now.” The head scientist gets upset and tries to turn the switch off, but then a big lightning bolt comes out of the heavens and fuses the switch together. This story was written I believe in the late Fifties or early Sixties when the big computers were actually big because they were full of tubes.”

E-NVIRONMENTALISM

“Forget paper towels,” writes Rob Myhre, one of the many of you who seem to have found that comment particularly absorbing. “What about newspapers, magazines, and catalogs? Those things must be destroying thousands of times more trees. I’m hoping the Internet will do away with some of this waste. I get the Washington Post, WSJ, and some mags via the Internet now. I’ve reduced the amount of paper I consume very substantially. In some ways, it’s not as convenient, but I can’t stand buying five pounds of paper (the Sunday Post), when I read only a few pages of it.”

Monday: More Phone Savings

BUSINESS REPLY POSTAGE

Boy was I wrong! My only hope is that when I ran this well-meaning but erroneous item this past summer you were sensibly on vacation, enjoying the July sun, having none of it. I wrote then that putting a stamp on a business-reply envelope saves SAVE THE WHALES, or whomever, not just the 32 cents it costs you, but a whopping 76 cents (because of USPS administrative fees). Well, that’s what I was told by someone I thought should know. But apparently I was way wrong — you basically save the whales only about the cost of the stamp. Sorry.

SAVING ON LONG DISTANCE

From Ben Tobias (no relation), reacting to some of my comments on Sprint’s “Dime Lady”: “I went from AT&T to MCI to Sprint and didn’t notice much of a difference until about two years ago I switched to LDDS (the #4 guy in town). Saw an immediate 35 – 40% decline in monthly cost and the bills have stayed there, with excellent service. I’m happy with it — only drawback, no frequent flyer miles.” Commercial accounts: 800-737-8423. Residential: 800-275-0100.

PAPER TOWELS

From Barbara on AOL: “Regarding your comments about paper towels vs. a sponge, I would not use a sponge for any reason. A sponge is a veritable petrie dish for organisms that I don’t want to have in my kitchen or bathroom. I have used paper towels for a year, and find they work just fine for most sponge purposes. Paper towels are so flimsy now that I can’t believe they would cause a disposal problem. Yours for fewer germs, Barbara”

From Dana Dlott, a chemistry professor at the University of Illinois: “Your column on paper towels reminds me of coffee cups. You must have noticed how so many food service places have replaced the Styrofoam cup with the paper cup. The idea, I believe, is better ecology. I won’t mention the paper cup burns your fingers, so you have to use two.

“A couple of years a peer-reviewed article appeared in Science magazine. It analyzed the ecological benefits of paper cups vs Styrofoam cups. In brief, there are none whatsoever. Sure Styrofoam is made of foamed plastic. But the paper cups are bleached (chlorine pollution) and much worse, they have a waxy coating. (Of course they have a waxy coating. Try to take a sheet of paper and make a coffee cup out of it). The waxy coating is at minimum equal to, and quite possibly less ecologically friendly than the Styrofoam.”

RECYCLING OLD COMPUTERS

What to do with that old 286 or 386 or even your not so old 486 now that you’ve moved to the Pentium blazer? I recently suggested sending it to the Computer Recycling Center at 2971 Mead Avenue, Santa Clara, CA 95051.

Writes Paul Bates: “Why not contact a parochial school in your area and give it to them? These schools generally have a very limited budget so your donation will be most appreciated. By doing this you are saving on the postage and cutting out the middle man.”

This strikes me as an excellent suggestion, and indeed, like many of you, I have given computers to local schools, charities, even a passing Russian or two.

But what I may have failed to make clear in that earlier comment was that this place can use even the stuff a local school would be insulted to take. Such as: broken computers. Computers that are really only worth being broken down for spare parts.

So I get this invitation to speak to a ballroomful of insurance executives (which I have to do on my own nickel, lest the trial lawyers who oppose my auto-insurance-reform efforts claim that I work for the insurers) and it seems they have assigned me a topic.

In my own mind, my topic is surely going to be, “How to Fix the Damn Auto Insurance Mess, and Why You Guys Owe it to Your Customers (and Your Shareholders, in the Case of a Mutual Company) to Help.” But that’s not what I see on the fax.

The fax is a little blurry, but as I first run my eye across it, it appears I am to address the question:

“How I Would Ruin an Insurance Company.”

Well, that’s easy!

First, I told them, I would fire the underwriting department. Taking a leaf from AT&T, I’d just have one simple flat rate for all. AT&T offers 15 cents a minute, and they have those funny commercials where the guy just can’t believe how simple it is. I’d do the same thing: young, old, good driver, bad driver — everybody pays the same.

Second (although, in truth, first would be more than enough), I would shift all the company’s reserves from bonds to a couple of high-tech stocks.

Third, I read them a clip from Chuck Shepherd’s News of the Weird column: “In July, according to a fire department official in Pullman, Washington, the cause of a fire in a parked truck was the magnification of the sun through a plastic prism hanging from the truck’s ceiling, onto a stack of papers. The truck’s owner said the prism was a gift from his insurance company.”

So for the holidays, I told them, I would send everyone prisms.

The fax, as it turned out, was assigning me the topic, “How I’d Run an Insurance Company,” which I was much less well qualified to address. But that didn’t matter, because after the part about the prisms I simply segued into “How to Fix the Damn Auto Insurance Mess, and Why You Guys Owe it to Your Customers (and Your Shareholders, in the Case of a Mutual Company) to Help.”

My speech, I will throw modesty to the wind and say, was worth every penny they paid for it.

Tomorrow: Feedback, Updates and Corrections

Not long ago I found myself in Manhattan, which I am not that often, and in a suit, which I am even less often, and actually going out for lunch, which I never, ever do.

And I figured, well, I have this big check to deposit (another all-too-rare situation), so rather than put it in the mail or FedEx or whatever, why not just drop in on the bank and say hello? It’s a small bank with a beautiful town house in midtown Manhattan — Bank Audi — run by none other than Joe Audi himself. Joe belongs to a prominent Lebanese banking family. If you happen to be in Beirut or Paris, you can visit its affiliates, and other Audi family members, there. (I have never been to Beirut, but know I will appreciate this convenience if I ever am.)

I love a bank that gives me a 4-digit account number.

Anyway, I get to the bank through typical bustling midtown traffic — a Monday, midday, people on cell phones checking the stock market, office workers pouring out of buildings to get an early seat at the lunch counter, business as usual — and . . . that’s funny. The bank’s huge wrought-iron-and-glass doors are closed, with newspapers wedged into it and “tried to deliver” slips flapping in the breeze.

Hunh?

I tried the door handle. No dice. I peered through the glass. Not a creature was stirring. No mice.

Oh, boy.

I can’t say I was really alarmed. But I did worry that maybe some key figure at the Bank — perhaps Joe himself — had died, and the Bank was closed for the day out of respect, so all the employees could go to the funeral. That’s what we did with the Tip Toe Inn when my grandmother, who had run it for so many years, died.

“Poor Joe!” I thought.

Or else maybe it’s Lebanese Kwanza or something I just don’t know about. I could see people going in and out of the Citibank branch across the street . . . so why was my bank closed?

And if there had been some scandalous hanky panky of some kind — if Bank Audi had just up and disappeared — would that mean I didn’t have to pay off my loan? This could be very good news indeed.

I pulled out my cell phone (how I love excuses for doing that) and tried calling the bank. I got a recording. The best I could do was to leave a concerned message.

“Hmmm,” I mused, as I walked over to the lunch that had taken me to midtown in the first place. And then, with one thing and another, I sort of forgot about it the rest of the day.

At dinner, the undeposited check still in my pocket, I suddenly remembered. “Excuse me,” I interrupted whoever was speaking, “but is today some sort of Lebanese holiday, do you know, or did my bank just go belly up?”

That’s when I found it was Veterans Day. Everything was open but the banks. The people I saw going in and out of Citibank were just going to and from the ATM machines.

Why does Wall Street stay open when the banks are closed? Simple: they don’t want to lose any trades. (That’s why casinos are open, too.) Banks, on the other hand, are a little less concerned. They know you’ll be back. And I was.

Tomorrow: How to Ruin an Insurance Company

I’m indebted to my friend Peter Vanderwicken for the following insight from a recent issue of Vanderwicken’s FINANCIAL DIGEST. He notes the almost uncanny jinx that “moving to beautiful new headquarters” seems to cast.

Part of it may just be the extra overhead. I was once a child tycoon, vice president of the then fledgling (now extinct) National Student Marketing Corporation, with offices on the 35th floor of the Time-Life Building in New York’s Rockefeller Center. It cost $15 a square foot back then (that would be $62 a foot in today’s dollars), and I thought it was pretty spectacular.

“Not good enough,” felt our leader, who moved us into the brand new $35-a-foot Bristol Myers building on Park Avenue, across from the Four Seasons, only to see our stock drop from $140 (unadjusted for splits) to $3 a short while later. (He would eventually occupy free office space in a federal prison, but that’s a different story.)

So part of the jinx may be the increased overhead, and perhaps management distraction with the move (picking out the sharpest carpets instead of the sharpest marketing plans). But mainly I think it’s just a good contrarian indicator. This is the sort of move a company makes at the top, not at the bottom.

Peter recalls writing about Levi Strauss for Fortune, back when it was about to move from “a funky old building” to “San Francisco’s glitzy Embarcadero Center.” Bang: bad years followed. Or look at AT&T and IBM, Peter suggests, building “their elegant towers on New York’s Madison Avenue — just as their fortunes peaked.”

Well the point of this, as you may well have surmised, is: guess who’s planning a major glitzy expansion? The New York Stock Exchange.

Could that mean that computerized, human-free trading is really about to swamp the Exchange? Or could it be a somewhat scary symbol for the market itself? (I’d think the former more than the latter.) I don’t know, but I’m not sure I’d pick right now as a great to buy a seat on the New York Stock Exchange.

So there I am at the Morris Healy gallery in New York — full disclosure: I’ve never met Morris is, but Healy’s a friend of mine — looking at The Exhibit I alluded to yesterday, when I was trying to figure out what stocks are worth.

The gallery is way over on the lower West Side of Manhattan, and The Exhibit was of the work of Meg Webster, whose medium is food. And other organic substances.

On the main wall facing you as you entered was a 10-foot-square slab of sweet creamery butter. Not counting its backing (plywood?), it weighed 400 pounds — just the butter — which the artist had applied (smeared? spread? buttered?) shortly before.

There was, if memory serves, a slight buttery scent in the air — vaguely like a movie theater, although this butter was unsalted and Ms. Webster (to my knowledge) does not work in three dimensional food, like popcorn, only spreadables.

The work as, as you might imagine, was yellow. But the art stemmed from the concept (I guess), but also from its contours and texture. We are not talking about a thin and even spread here — that might have been sprayed on with one of those low-fat imitation butter aerosols. No, we are talking about thick, textured globs and waves and folds of butter . . . which by now were beginning to sag.

On walls further into the gallery there were smaller works. Chocolate, for example, was done on a five-foot-by-three-foot mirror. It sold for $6,000 and, while essentially brown, did have quite a pleasing and interesting look to it. The chocolate hardens, its contours preserved like those of a dry river bed. (But lest I mislead you, the chocolate was not on parts of the mirror, in some sort of design: the chocolate covered the entire mirror, which you only knew was a mirror by looking behind it or hearing the story from my friend Tom Healy.

You know it’s real art for three reasons. First, somebody paid $6,000 for it. Second, it did look quite interesting — there was something visually quite appealing about the chocolate (and about the butter, though not — to me — about some of the other works, like the one done entirely in blood). Third, Healy went to Harvard.

You’re not entirely sold? Harvard not your be-all-end-all? Well, how about this? Meg Webster, the artist, was spending the summer in Skowhegan, the art colony in Maine; was exhibited in the 1988 Whitney Museum Biennial; and is a sought-after teacher at Yale, among other places.

I liked “Molasses,” also, which went to some lucky buyer for $10,000.

Mind you, these artworks were not under glass — you could reach out and put you palm print in the butter (no one seemed to have done so, so I didn’t either) or lick a little of the molasses (I held my tongue). So how durable were these pieces? What were you really buying? Did the emperor’s butter, I found myself wondering in the most confused of mixed metaphors, have no clothes? (Are these works, I wondered — borrowing a concept from the Eighties and cocaine — “Nature’s way of telling you you have too much money?”)

Tom Healy explained that most of the work is actually quite solid. Chocolate could last a long time. Butter, admittedly, could not. Butter, indeed, was beginning to droop in the summer heat (Morris Healy is air conditioned, but it was still summer in New York) and would soon, as the exhibit wound down, begin to smell. With butter, Tom explained, you were really buying the “concept.” You could have Ms. Webster come and do YOUR wall in butter (just before that special party), and would own the drawing for it, perhaps the photos of it. I think I’m getting this straight, but my mind kept wandering. What happens, I wondered, if globs of the butter actually came loose and slopped off onto the floor? It wasn’t anchored by the nooks and crannies of a giant vertical English muffin slab, after all. That might have provided some grasp. It was simply smeared on a flat surface.

Not to worry, Tom laughed. If that happens, it will be part of the art. The piece will simply be dismantling itself. (Or, as Meg told Tom when this did begin to happen: “it’s erasing itself.”)

So what is 400 pounds of butter worth? Four hundred pounds of beach sand, configured just right by Intel — I think that’s how they make those chips — is, after all, worth millions. Perhaps it is worth the $12,000 it was priced at by Morris Healy, but presumably less, because it did not sell. (Much of the rest did.)

But Meg — and you — may have better luck next time. You, because if you’re in Copenhagen in 1997, you’ll have a chance to see Butter again. Meg, because Copenhagen is a cooler climate. It may be longer before the gallery is pervaded by the faintly rancid smell with which, Tom Healy told me later, the exhibit happily, but none too soon, concluded.

In short: pay any darn thing for a share of Netscape (or any other stock) that you want. If you’re rich enough, or whimsical enough, what difference does it make? You’re not making an investment, you’re participating in a late 20th Century experience.

I’ve been meaning to write this one ever since The Exhibition. It’s just too great.

Yesterday, I wrestled with the question of what Netscape is worth. It’s both easy and impossible to know. (Easy: 55 bucks a share, or whatever it’s trading hands at this instant. Impossible: what’s it really worth?) Today, I want to tell you — finally — about The Exhibition. And the butter.

A stock is worth whatever someone will pay you for it. But its “real” value, investment professionals will tell you, is the discounted value of its future stream of dividends plus the discounted value of any final liquidation. You buy shares in a company because you hope for a share in its profits.

As a practical matter, few exciting companies pay much in the way of dividends at all. And many wind up going the way of the dinosaurs long before their dividend pay-outs can justify their earlier prices. But surely the theory is right: a company should be worth today the sum of all the future payments you will get from it until it dies or is liquidated or is bought out by someone else (in which case the buy-out, 3 or 30 or 300 years from now, would be one final huge liquidating dividend).

You can’t just add up your estimate of all those payments without adjusting for the “time value of money” — a $2 dividend check 10 years from now clearly isn’t worth $2 today. You need to “discount it back” to today’s dollars. To someone who expects a 9% annual return on his money, $2 ten years from now is the same, my pocket calculator tells me, as 84 cents today.

There is much more than could be said about the mathematics of logical stock-market valuation — most of it beyond my competence to say, and none of it whatsoever applicable to the recent valuations of high-tech IPOs, or anything else you’re really interested in.

Part of the paradox is that in many ways the most exciting, valuable companies are those that never pay dividends, on the theory that to do so hurts the interests of the owners two ways: first, taxes must be paid on dividends; second, the owner will not be able to reinvest the dividend with nearly the success that management could if, instead of paying out the dividend, it retained the profit itself (“retained earnings,” is the accountant’s phrase). Better, therefore, to keep reinvesting all profits and acquiring more and more earning power — even if the earnings are never passed on to the owners.

A lot of this has to do with “faith” and “trust,” just as dollar bills themselves merely represent units of “faith.” The bills themselves are just scraps of paper. You can’t eat them; stitched together they’d keep you only a little bit warm. But we take it on faith that everyone else will accept their value — and so we do, too.

So I don’t know what stocks are worth, though my greed and fright glands often seem to think THEY know, and are sometimes right. (The greed gland is located in the pit of the stomach, just behind the appetitum. The fear gland is located in the hindquarters, and makes you run like hell when scared.)

What, then, would you pay for 400 pounds of butter?

Here it is the end of my comment, time for Seinfeld (I’m sorry, but some things take precedence), so I have to ask you to come back tomorrow to hear about The Exhibit. And the butter.

Tomorrow: The Butter. (Really.)

For you high-tech executives and big-dollar investors, I’ve mentioned Mark Anderson’s electronic Strategic News Service. (For a free month: Markrander@aol.com. Thereafter, $195/year.)

I understand only about 15% of it.

A nugget I grasped a few weeks ago was Mark’s opinion that Netscape — though a loser to Microsoft in the browser wars — had cemented its position as a long-term survivor.

“OK,” I e-mailed him. “So Netscape is here to stay. But how would one value it? The stock market says: $4 billion and change (85 million shares at $50 each). Is that crazy high? Crazy low? About right? I’m as interested in how you’d approach the problem as in your answer (though I’m interested in that, too).”

After all, this guy has pretty exceptional credentials and a self-assessed 100% accuracy rate in all his predictions since Day One, so for my $195 a year (OK: there’s a 50% discount for students and journalists, but still!), I’m thinking: forget the future of telecommunications and social organization and paradigms and discontinuities. Is Netscape a long or a short?

I mean, one could grow quite comfortable after just a few years of 100% accuracy in the stock market. Even 90% would work.

“You have correctly anticipated the first part of my answer,” Mark wrote back. (Well, he doesn’t exactly write back: he publishes your letter and answers it for all to see.) “For most of the technology sector, the P/E is almost irrelevant (see Microsoft), and the company valuation is probably secondary in determining price. I tend not to work on valuations much. My assumption is that people are much more interested in whether the price will go up or down over a specific period of time.”

[Let me interrupt to be sure you’re clear what that means. It means: “Who cares what the stock is worth? These days, that’s not something buyers and sellers look at.” In my experience, that sort of attitude — not to pin it on Mark, he’s right to observe it — but that sort of attitude prevails either when there are ridiculous undervaluations, and everyone’s just too disgusted, depressed and scared to think rationally . . . or else when there are ridiculous OVERvaluations, and everyone’s just giddy.]

“I managed to cause a great amount of good-natured amusement a week ago, in a conversation with a small crowd of Wall St. fund managers. I told them where I thought a particular stock would go over the next year or two, and why. The ‘ringleader’ agreed, laughed, and then, turning to the rest of the group, said: ‘He probably doesn’t even know what the P/E is — or care.’ This seemed to absolutely delight him. He was right on both counts.

“As for Netscape, their recent re-positioning will do them well over the next 12 months. I think their price will continue generally to rise (rebound) over this term, despite the devastation of the coming browser debacle. Thanks for writing in. — Mark”

Well, he’s probably right, but I ain’t buyin’ it.

And now it’s 55.

Tomorrow: OK, Then, How About 400 Pounds of Butter?

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?