Notes from the Y2K Conference on Friday in NYC - Part 1: Ed Yardeni
Disclaimer: I am not a reporter and I have horrible handwriting so everything I am writing here from my notes is to the best of my limited ability (gg).
Ed immediately got my attention by saying he used to be an assembly language programmer!
He then gave the timeline for the events leading up to the day the SEC issued their staff opinion (as opposed to a ruling or regulation) that companies should give specifics (as opposed to boilerplate) about their Y2K situation.
Ed reiterated his oft-quoted pronouncement that he has seen enough to conclude there is a 40% probability of a Y2K induced recession as severe as the one in '73-'74. He likens the disruption of the flow of oil to the disruption of the flow of information. Because of the Asia crises, he forecasts that after the OMB issues their quarterly report on 3/15, he will up his probability for a recession to 60%. He thinks the days for a bull market are numbered, but that in the short term we may very well see new highs. However, if investors start seeing risk in SEC filings, the recession could hit as early as '99.
Ed joked about the Feds testifying they are prepared to handle the Y2K crises because they have had experience with natural disasters like hurricanes. Ed said the Feds don't know how to operate a paper-based system.
The #1 concern he has about Y2K is that related problems will limit the supply of electricity. Unlike, for example, ice storms that affect one part of the country, Y2K will be systemic. Thus, if Union Pacific has problems, trains won't be able to get the coal to the various plants that need it. As for nuclear plants, he is not worried about safety problems; he is worried about what would happen if they don't have enough electricity to run, something for which the NRC does not concern itself.
The #2 concern is the FAA. Ed mentioned the story about how IBM told the FAA that the 40 mainframes it gave them that run air traffic are not Y2K compliant. No sense focusing on the software problem here since the cooling system is date sensitive and come 2000 it will stop working and melt down the system anyway! He also predicts that the inability for other countries to correct their Y2K problem will result in no-fly zones around the world. Lloyds may not insure some airlines in 2000 and concerned pilots are meeting around the world.
#3 is Social Security and the IRS. Social Security had the foresight in '89 to start working on their 30M lines of code and predict they will be done next year. Problem is, they just recently found another 30M lines of code they didn't know they had! You can do the math about when they might be fixed.
Ford, BAT Industries and a total of 60 major companies signed a statement to Clinton and the Prime Ministers of Britain and Canada that they were reasonably sure businesses would do OK, but that they don't feel the same way about government, but that because the two interact they might also have problems. Perhaps the government might not be able to pay for necessary code remediation and therefore might be forced to create a national sales tax.
Ed says Credit Unions, where 1 in 4 people have their money, are woefully behind.
In the Q&A, Ed was asked about media coverage and he said when he wrote an article supporting Bennet's bill, the Wall Street Journal would not take it whereas the NY Times printed it right away. He also likes the coverage in the Financial Times and noted that the International Herald Tribune has picked up some Y2K related stories from the Times.
Lastly, he thinks bonds will outperform stocks over the next three years, although, as he said earlier, the market might do quite well short term.
- Jeff |
