Year 2000 Lunacy, and how to profit
The first in a series
By Jon DeBry,
Last Update: 4:00 PM MT Jan 19, 1999I've just heard the
craziest rumor yet about the Year 2000 problem. The rumor goes like this - there is
a utility company whose computers are encased in concrete, and when the clock strikes
midnight on December 31st, the power grid will go down. You better move to Montana
now before everyone else does! Now of course no reasonable person would believe this
(what, is it impenetrable concrete?), but rumors of this nature may whip up the Year 2000
hysteria to a fever pitch. Couple this with the high level of corporate spending on
computer systems, surely to be followed by a lull, and you have possible cause for
convulsions in our financial markets.
But before you go and buy that ranch in Montana, let me lay out the reasons
why I think that, come January 1st, 2000, the problems encountered will be exceedingly
minor - a few failures here and there, but nothing that will materially affect our
financial system. Let me also say that I don't pretend to know everything about the
Year 2000 - who knows how a nuclear reactor's software will respond? Who can know
everything?
The stock market is not worried
Performance of Y2K index vs. S&P 500 |
The stock market - the greatest bookie of all time - says that the Year 2000 problem is
not a big deal. The billions of dollars and thousands of Ph.D’s devoted to investment
analysis have given the thumbs-down on Y2K stocks - they have trailed the market since
about September 1998 (see the chart to the right).
On the other hand, the stock market as a whole is hitting all-time highs - hardly what
you would expect if the economy were headed towards disaster.
Dow Jones Utility Index |
The utility stocks, one of the most oft-cited groups of supposedly non-prepared
companies, are in an uptrend, and not far from their all-time highs (see chart). If they
weren’t prepared for Y2K, the insiders, analysts, friends, neighbors, etc. would be
selling like crazy, and the stocks would be going down.
Most proponents have a vested interested
Some of the most vocal proponents of a Y2K disaster will benefit from your preparation
for just such a disaster. One of the more popular books on Y2K investment strategies
recommends gold, and then just happens to mention that the author’s friend sells
gold, and here’s his phone number! A spokesperson for a local computer manufacturer
says he doesn’t know what your computer will do post-Y2K - it could freeze up, not
run, or be just fine, oh, and he happens to have a computer to sell you. A radio
commercial has sounds of sirens wailing and babies crying, and says you better prepare for
Y2K. They’re selling emergency supplies. And of course, a lot of the hot air comes
out of Y2K companies themselves.
It’s being fixed
Most every organization in the world is now familiar with the problem, and is taking
steps to address it. Most companies already have a large staff of programmers on the
problem. The last thing a large corporation wants is to explain to its shareholders why it
was not Y2K compliant.
But, you say, what about third world nations, where they can’t afford to upgrade
their systems? Well, most of the economies of Asia have imploded in the last two years,
and the U.S. economy is humming along just fine. Third-world economies aren’t that
important to the U.S. And again, people will find a way around the problem.
It's human nature
It's only human nature to get excited about a coming "calamity". It's
deeply embedded in our genes to be worried about Armageddon. Books on the 'Coming
Depression', or the 'Coming stock market collapse' have always been best-sellers (see the
Bible). People have a natural pre-occupation with disaster, and this has fed the Y2K
phenomenon.
Common sense
In the end, this is just a computer bug. It can be fixed!. If a company
is not Y2K compliant, they will either work around it, fix it, or go out of business. They
just have to hire some programmers. There will be plenty of programmers from
just-completed jobs available.
Say, for example, a utility company loses power on January 1st and the lights go out to
millions of people. You can be guaranteed that the President of the United States will
order an army of programmers and engineers to fix it immediately, regardless of cost!
Or say, for example, that United Parcel Service is out of commission due to Y2K.
I’ll use Federal Express. The economy has survived UPS being out of commission due to
a labor problem and General Motors shutting down due to a labor problem.
Use of dates over-emphasized
There may be hundreds of computers in your car, but how many know what the date is? How
many care if it is 1900 or 2000? Will your airbag not deploy if it thinks it is 1900?
A lot of computers don't know or care what the date is.
Experience
I have done some contract Y2K testing, and I only found a few inconsequential problems.
My computer worked fine, along with Windows 95, Outlook 95, Microsoft Word, Microsoft
Excel, Internet Explorer, and many other programs that I use (Now I know that this
doesn’t mean that the large mainframes at the big corporations with the 30 year old
code will work).
After upgrading two accounting packages, my company is entirely Year 2000 compliant.
All of the companies my business relies on - US West, Questar, etc. have indicated
to me that they will be compliant by about mid-year. My previous employer, Reuters,
has had a Year 2000 plan for years, and will be compliant. Any serious businessman will
get himself compliant or go out of business!
DeBry's Y2K Hysteria Index
Having said all this, I still think the hype and hysteria surrounding the Year 2000
problem may provide us with some good investment opportunites. In an attempt to
measure Y2K hysteria, I've created my own index, which factors in Y2K stocks, gold stocks,
the overall market, and consumer confidence. Any measure above 0 indicators more
hysteria than Jan 1, 1998, and any measure below 0 indicates more reason. I'll be
updating this weekly.
Next week
The hysteria, along with the corporate spending created by Y2K, should give us some
nice investment opportunities, which I'll be profiling next week <JD>
Do you have the inside scoop on a company that WILL NOT be Y2K
compliant? Am I out in left field? Give me some feedback!
For an excellent web site with an opposing viewpoint, see http://www.year2000.com. |
