Silicon Babylon: Ed Yardeni's Millennial Obsession - the Street.com
By Cory Johnson - West Coast Bureau Chief - 4/9/98 11:46 AM ET
thestreet.com
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ATLANTA -- Like two straight lines drawn in perspective, the Ed Yardeni of today is so far from his point of origin that it's nearly impossible to connect him to the Ed Yardeni of the past. And what happened to him last summer only accelerated the separation.
In June 1997, a quick study of the Year 2000 problem left Yardeni, the chief economist for Deutsche Morgan Grenfell, shaken by the potential global economic implications. "I figured that I should give a heads up to my institutional client base," he says. "But when I looked at all the variables, it started to come together to me that this could be a major problem. What if even a small percentage of the world's computers went down due to their inability to recognize dates at the turn of the century? So I came to the conclusion last summer that there was a 30% chance of a global recession by year 2000."
This was an alarming call from a well-respected Ivy League economist of a major global financial institution. Had he lost his marbles? None of his colleagues across the aisle shared this view -- with the notable exception of Morgan Stanley's Byron Wien, they hadn't even mentioned the problem. For his part, Wien anticipated that a "silver bullet" solution would eventually diminish the Y2K threat.
But outside of Wien, Yardeni suspects that some of his colleagues sneered. An afternoon broadcast of CNBC last fall was typical. When one commentator brought up Yardeni's Y2K view, reporter David Faber sneered: "C'mon. Year 2000? That guy just wants the market to go down."
Such widespread criticism forced Yardeni to dig even deeper, and as he did more and more research, his conviction grew. He continued to write about the matter in his weekly economic analysis. Still, few paid attention. He renamed his normally staid economic report "The Y2K Reporter".
He launched a Web site, yardeni.com. It garnered a collective yawn. He cited the growing shortage of COBOL programmers needed to fix much of the Y2K problem. He testified before Congress, raising his estimated Y2K recession scenario to 40%.
He started weekly conference calls about the subject -- only a handful of people called in. And with each rejection, his fixation grew more intense. "It's gotten to a point where the Year 2000 issue isn't just on my mind," he says. "I seem to be almost obsessed with it."
The mainstream press, however, anxious for a Y2K quote from someone above crackpot status, began to give Yardeni some attention. The Capital Markets Report called him "The Paul Revere Of Y2K." But still, he's out there all alone. "Why me?" Yardeni says. "It does bother me that I seem to be the world's leading expert on the macroeconomic effects of the Year 2000 problem. I don't say that egotistically, I'm very concerned. Why isn't anybody listening?"
Yardeni looks at mountains of hard figures to make his Y2K-induced recession call, but he also factors in human nature. "Remember what happened to Oxford Health?" he asks. "The company was growing faster than it could handle. The [information technology] guys in the boiler room were saying: 'We just can't keep up with you. We have to slow down.' But the guys in charge said: 'Don't bother us with this technical mumbo jumbo, just make it work.' The guys in the boiler room couldn't keep up and eventually the company -- and the stock -- melted. We're all just too busy with prosperity to get this project done and we have to admit that it's just not going to get finished."
But he's also wary of the companies administering to Year 2000 ailments. "I'm sorry to offend all these tool vendors," he says. "But this isn't hard to do, to change the dates in code. It's as trivial as changing a light bulb. But it's as if you have to change all the light bulbs in Las Vegas in one afternoon. And imagine if one of those light bulbs is defective, and in a chain reaction, every other light bulb in the city is defective. That's what we're dealing with here."
Yardeni's blood starts to boil as he discusses the subject. He starts off a conversation in calm, measured tones, with an easy smile. But as he gets into it, his sentences become more punctuated and quicker. He begins to speak with an urgency. The listener starts to feel as if he'd rather grab you by the shoulders and shake you into understanding.
"I'm not talking about the end of life on planet Earth," he says. "I'm not talking about an asteroid hitting the planet Earth -- 90% of the problems are going to be fixed. But they're not all going to be ready. We really need leadership. We need a global czar, we need Stalin here, we need somebody that will break kneecaps and shoot people in the back of the head if they don't get this done."
Yardeni has taken to comparing the coming recession to the 1973-74 oil-crisis recession. "In that downturn, real GDP fell 3.7% in the United States over a five-quarter period," he says. "I estimate that an identical drop starting in 2000 would reduce real GDP by $300 billion."
Yardeni knows from crisis. He was born in Israel two years after its founding. His father landed a job as an IBM engineer and moved the family to Silicon Valley. There, young Ed learned to speak English by watching Leave It To Beaver. He was twice elected his high school's class president, but unlike so many San Jose, Calif., classmates, Ed's father was urging him to study computers, even back in 1961. Yardeni ended up working in England as a programmer writing Assembler code at a General Foods facility.
Yardeni went on to get a degree in economics and politics from Cornell, a master's in international relations from Yale and a economics doctorate, also from Yale, where he studying under Nobel laureate James Tobin. Stints at the Federal Reserve, E.F. Hutton and Prudential Securities built his resume, but gutsy calls on the market built his reputation.
After the 1987 crash, Yardeni went against the grain to predict the Dow would rally to 5000 by 1993. He missed it by two years, but in 1995, when the Dow hit 5000, he predicted a rise to 10,000 by the turn of the century. As a baby boomer, he looked at his friends and colleagues around him and saw that they were starting to cover their
debts, lay off the heavy investments in toys and start to save for their retirement. That investment, and the continuing increases in productivity that Yardeni has also predicted, has continued to make Yardeni know what he's talking about.
But with Y2K, he's put that all on the line.
This week he came to Atlanta to address a special executive session of the Brainstorm Year 2000 National Symposium. "Do you know what Alan Greenspan says about Year 2000?" Yardeni asks the crowd. "He says it will cause 'inevitable difficulties.' And that's all he says. You see at the Fed, there's a long tradition of letting the Fed governor in charge of a project comment on it. And Y2K falls under the purview of Fed governor Kelly. And governor Kelly says that 'our experience with national disasters, with hurricanes and storms, will be helpful in this matter. By the way, he says, the Federal Reserve knows how to operate a paper-based system.' How's that for inspiring confidence?"
"Ed Yardeni has guts," says William Ulrich, analyst with Triaxsys Research, a Y2K research firm. "This could ruin his career. Corporate America doesn't always want to listen to those of us who talk about Year 2000 for a living, but Yardeni brings an entirely different viewpoint. His financial market perspective is one thing corporate executives understand. And it's so clear that he feels a responsibility -- a passion -- to get that message out."
The quiet economist is, it seems, forever transformed by this mission. And like the Energizer Bunny, he just keeps on going. "An Office of Management and Budget report on March 10 said that the Federal Aviation Administration was in risk of significant failure, but that they were working on contingency plans," says Yardeni. "What the heck should the FAA do as a contingency plan? What do they do when the screen goes blank? I got news for everybody, there is not manual backup for IT. What are we talking about -- pin maps, binoculars?"
He knows that it seems like he's going off the deep end, but he goes and goes and goes. "Maybe I should just be put on industrial strength doses of Prozac, maybe I should be checked into Betty Ford Center for The Year 2000 obsessed," he says. "But this notion that we can't tell the people what they need to know because they might get panicky -- well they should be panicked. Don't worry about their feelings. And don't worry about me. I've already ruined my career, but I am studying COBOL programming at night."
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Silicon Babylon is an occasional column by West Coast Bureau Chief Cory Johnson. He welcomes your feedback at cjohnson@thestreet.com.
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Cory has NEVER been a Y2K believer ... one thing he neglected to mention in this article was that Yardeni upped his projection of a global recession from 30% last summer to 60% now.
But at least Cory's finally writing about it without sneering ...
Cheryl |
