Kenneth Fisher in Forbes thinks Y2K will give the stock market a boost this year.
forbes.com
Greater Fools
By Kenneth L. Fisher
WHAT CAN WE LEARN ABOUT THIS YEAR-END FROM 1942? First: that Y2K won't hurt the stock market. It may even drive a nice rally.
What does 1942 have to do with Y2K? Well, 1942 shows how the market works, which isn't in a way that now allows a disaster from Y2K. Those who still fret Y2K's market impact don't fathom the markets, and you simply should be dismissive of them all.
There are two principles here. First, markets don't wait for known events; they move ahead of them. Second, folks who wait for events to drive prices often get trapped and trampled by stampedes.
Which was a bigger risk: Y2K in 1999 or Adolf Hitler in 1941? Yet, in 1942, long before anyone could possibly know with any certainty that we would win the war, the S&P 500 rose 20%. In 1943 it rose 26% more--in 1944, 20% more; in 1945, another 36%, before peaking early in 1946. That last year was largely driven by folks who held back cash waiting for certainty--and then threw in their money, very kindly bidding up prices for those who had bought earlier.
How did the market know to rally in 1942 and 1943, long before definitive news? It's what markets do. They decline before a war or recession or something else ugly starts. Usually, they move with a long lead. They rise long before events improve. Hence the age-old adage, "The market knows." The market is also a "discounter" of all known information. That means whatever we all know, fret, read and cluck about is well priced into markets.
It is what we don't all know, fret, read and talk about that moves markets. It isn't that those things can never be discerned. Often they can. But overwhelmingly folks are blind and ignorant about real market movers.
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Y2K, the most widely hyped "disaster" in history, will probably help the stock market.
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For example, few can see the huge, unaccounted-for flows of foreign money pouring into America that I first told you about in 1997--that have largely driven our bull market since 1996. They just don't know it is happening. (See my columns of Oct. 20, 1997 and Mar. 22, 1999.)
Y2K is the most widely hyped "disaster" in modern history. It is well documented: The only folks who aren't familiar with it are in the upper Amazon basin, rapidly fleeing the rest of humanity. I need not even define Y2K for you to know exactly what I'm referencing.
My July 6, 1998 column detailed why Y2K could not hurt the stock market. But now, with Dec. 31 so close, I'll go a step further and say that the market likely will rise as another Y2K force takes over.
There are just enough investors who do understand how markets work to potentially create a pre-year-end buying stampede. They will sense in coming weeks that a Y2K bust ran out of time and that with year-end the rigid Y2K nuts lose their reason for caution. Those sages may play the Y2Kers for greater fools by getting their own money into stocks before year-end. I am never sure where the market will go in the very short term, but there is more likelihood of a big pre-year-end up move than any other possibility. |
