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8:30 AM EST Friday, May 5, 2006: Cinco de Mayo. I'm in a tiny quandary. On the one hand, the US economy is doing spectacularly. Consumers are buying. Productivity is booming. Productivity powers profits. And profits are booming. Share prices are rising.

On other other hand, I hear "gloom and doom" concerns from knowledgeable friends who worry about the dollar and the U.S.'s inability to reign in its profligate spending.

I don't buy "gloom and doom." It's a horrible way to live. My grandfather, who had come from the old country, couldn't speak English and didn't trust nobody (especially banks) put his savings in his mattress (literally). By the time, our family fished the money out of the mattress, it had lost most of its value to inflation. And it stunk. I remember the odor today. Think 30 years of sleeping on paper money and never once washing the mattress.

I do buy being prudent. The U.S. is profligate. It cannot forever sustain its present deficits -- federal budget and overseas trading. I can't put my money into my mattress. For one thing, my wife would kill me if I made a hole in our new $5,000 mattress. But I can move more money into two countries which are managing themselves with intelligence and restraint -- Canada and Australia. Both have mega-commodities that are in high demand by a devouring world, especially China and India.

I bought some more Canadian Oil Sands Trust yesterday. I have some syndicated real estate in Canada. I need to find a better way of investing in Australia. I'll be there next month for my father-in-law's 90th birthday. I'll research more when I'm there. By the way, my Vanguard International Value Fund (VTRIX) continues to perform beautifully.

The trigger for this "dollar gloom" thought today was yesterday's news that the Senate had ignored President Bush's veto threat and easily passed a $109 billion emergency spending bill for war and hurricane recovery costs that also brimmed with favors for farmers, the fishing industry, and the states of Hawaii and Rhode Island. The two-week debate that preceded yesterday's 77 to 21 final vote was marked by an election-year surge in targeted spending on behalf of constituents and special interests, despite repeated warnings by fiscal conservatives about a swollen budget deficit.

The Senate added money to rebuild a highway in Hawaii; protect riverbanks in California; upgrade a hurricane barrier in Providence, R.I.; and compensate New England shell fishermen for their losses from a red tide outbreak. The Senate also took steps to make farming less risky by offering compensation for virtually any scourge, including drought, flood, wildfires and pestilence.

The best (and only) argument for buying on margin: I've always said NO to buying on margin. It's too risky. It whipsaws you. Etc. However, I have finally discovered one sound argument: From today's New York Times:

Kenneth L. Lay, former chief executive of Enron, was forced to sell millions of dollars in Enron stock in 2001 because of demands from his brokers, not because of a lack of faith in the company, a finance expert testified yesterday. Christopher Barry, a finance professor at Texas Christian University in Fort Worth, told jurors that the sales of stock were "forced sales."

"My opinion is that Mr. Lay was obligated and forced into the sale of his stock because of the margin calls that hit him," Professor Barry testified in federal court in Houston.

Professor Barry was called by Mr. Lay's defense lawyers as an expert witness and has been paid about $865,000 so far for his work on the case.

Amazing. Lay pays this college professor at least eight years of salary to feed this crap to the jurors. Lay and the professor expect the jurors to believe it. Amazing. Truly amazing. The government, by the way, alleges that Mr. Lay sold Enron shares in 2001 because he knew the company's finances were in trouble, even as he told investors and employees that the company was doing well.

The Case For Prepaying Tuition. This is really neat. From the May 8 issue of BusinessWeek:

It's one way to give away money tax-free, as a recent IRS ruling makes clear

Grandparents have long written checks to cover college and private school tuition for their grandchildren. And why not? It's a way to transfer thousands of dollars -- private school tuition alone averages $17,000 a year for 12th graders nationally -- to younger generations for a worthwhile purpose, while avoiding gift and estate taxes. Now, a recent Internal Revenue Service ruling lends support to individuals who'd like to transfer even more tax-free by prepaying years' worth of tuition. "We're seeing more individuals as well as schools who want to do this," says Susan Frunzi, a partner at New York law firm Schulte Roth & Zabel. "College and private school tuition is so expensive. Prepayments are a big help even to upper middle class families."

Strictly speaking, the IRS "private letter" ruling applies only to the taxpayer who requested it -- in this case, a grandparent prepaying several years' tuition for six grandchildren. But advisers say that if others follow the ruling's guidelines, which echo a similar private letter ruling from 1999, they're likely to receive the same favorable tax treatment.

You don't have to be a grandparent or even a relative to prepay a child's tuition. Be aware, though, that you risk forfeiting money if a student drops out or transfers to another school. This is the reason prepayments make the most sense for older people who have a need to transfer money out of their estates quickly, says Janine Racanelli, managing director at JPMorgan Private Bank (JPM).

You can give away up to $1 million during your lifetime tax-free. On top of that, you can transfer up to $12,000 a year tax-free to as many people as you like. On every dollar you give away after that, though, the federal government imposes a gift tax of up to 46%. When it comes to gifts to grandchildren, anything above $2 million is also subject to a "generation-skipping" tax, which is generally up to 46%.

But tuition payments don't count. Based on the IRS ruling, a grandparent can prepay as much tuition as he or she wants to and still give each grandchild $12,000 a year tax-free. Some caveats: You will have to pay the school directly, and if you foot the bill for expenses aside from tuition -- such as room and board -- you will have to use up some of your $1 million lifetime or $12,000 annual gift tax exemptions.

By prepaying many years' tuition, grandparents can also transfer substantial sums from their balance sheets, thereby reducing their taxable estates. Currently, the federal government levies a tax on estates worth more than $2 million. (Some states, including New York and New Jersey, impose their own taxes on smaller estates.)

Under the IRS private letter ruling, the benefactor agreed to pay tuition for future years at today's rate and to cover increases as they arise -- or the parents would become liable. In addition, the ruling requires that the money be "nonrefundable" to escape taxes, says Blanche Lark Christerson, a managing director at Deutsche Bank Private Wealth Management.

In practice, many private schools have forwarded unused tuition prepayments to another school when a student has transferred, says Sarah Daignault, executive director of the National Business Officers Assn., an organization that serves financial officers at private schools. You can always ask a school to agree to such terms in a contract or letter of agreement. Brooks School, a private boarding and day school for students in grades 9 through 12 in North Andover, Mass., currently has tuition prepayment agreements with two families. Both provide for any unused money to be transferred, in the event that the students switch to other schools, says business manager Jim Pugh.

But the IRS ruling doesn't make clear whether the agency would look favorably on such an arrangement. "The risk is that if you die, the IRS may say you never gave up control over the money if you retained the right to redirect it to another school," says Christerson. "In that case, the money would return to your estate." To find out for sure, you would have to request an IRS private letter ruling of your own.

The National Day of Mourning occurs each year on May 5th and is known, of course, as Sinko de Mayo.

Have a great weekend. Hug the family. Get more exercise. Eat less.

Harry Newton

This column is about my personal search for the perfect investment. I don't give investment advice. For that you have to be registered with regulatory authorities, which I am not. I am a reporter and an investor. I make my daily column -- Monday through Friday -- freely available for three reasons: Writing is good for sorting things out in my brain. Second, the column is research for a book I'm writing called "In Search of the Perfect Investment." Third, I encourage my readers to send me their ideas, concerns and experiences. That way we can all learn together. My email address is . You can't click on my email address. You have to re-type it . This protects me from software scanning the Internet for email addresses to spam. I have no role in choosing the Google ads. Thus I cannot endorse any, though some look mighty interesting. If you click on a link, Google may send me money. Please note I'm not suggesting you do. That money, if there is any, may help pay Claire's law school tuition. Read more about Google AdSense, click here and here.
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