Is this the Last Month Before Y2K Panic Sets In?:
Editor's Note: HSL is written by the world's highest-paid investment consultant, Chevalier Harry Schultz (Guinness Book of Records- International Editions: 1981-1997). The HSL was the leading gold advocate in the early 1970s, when it called the Great Gold Bull market. Interestingly, HSL is again bullish on gold.
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Y2K Last Chance?
Yes, this may be approx your last chance to prepare for whatever is going to happen to the overly chip-dependent world in the final quarter of 1999 & all of 2000/2001. Why am I sounding an alarm bell in July, when "everyone knows" Y2K worries are centred on Jan 1, 2000? It's another case of what everyone knows isn't worth knowing.
A preparedness-panic is probably just around the corner, ie, in Aug-Sept-Oct, which could be as profound as the Y2K problem itself. Why? 1. A worldwide list will be released of unsafe (non-compliant) airports; this will be a majority. 2. A similar list will contain non-compliant banks, who will be cut off from US bank system (to safeguard US banks), which will scare the teeth out of people. 80% of non-US banks may be black-listed. These lists will be leaked. 3. If Global Positioning Satellite switching on Aug 22 defaults, emotional panic is guaranteed. If U aren't prepared ahead of these 3 items, it may be too late to start. ••Other news will leak; see below. ••A private report shows 20% of programmers (who should know) will withdraw most bank money, & polls show 70% of public will take some. Banks can't survive that much withdrawal, so my predicted cash rationing will come into effect—which will create more fear. Lines will form outside banks to get their cash ration. ATM machines will have small quotas. If cash rationing is delayed, bank runs could force many bank closures. This would be global.
All that would lead to a rush to stock up on everything. Shortages will occur, which will lead to more panic. ••Use your imagination re the effect on stock mkts. ••At the moment, insurance companies are refusing to insure airliners for Y2K damage & airlines can't fly without insurance. If this isn't resolved soon, no planes will fly. ••It is a global-given that the US is the most Y2K-compliant. Yes & no. The US has more computer systems than any nation, is more computer-dependent, is thus more vulnerable than any other nation. Conventional wisdom here may be 100% upside-down. ••Note the chief pooh-pooh artists are banks/brokers. They have most to lose. They use ridicule to shame the public into docility. Eg, Morgan Stanley's Ms. Wang says "We don't think Y2K will make the sky fall or cause a bear mkt." See the association? If U agree the sky won't fall (it can't), then U must agree to no bear mkt. (PS: In their April report, MS admits its own Y2K system has been fixed but not tested & can't vouch for its connected vendors).
Banks face a problem of their own making—fractional banking system—using loan leverage they would decry in stock mkts. Banks also face cascading cross-defaults in Y2K flowing from the need for daily settlement between banks, which any glitch will trigger. Public demand for cash (a natural self-protect instinct) is just 1 of their 3 problems. In essence, banks live in hope no one notices the emperor has no clothes. ••The following report (from www.gold-eagle.com) implies we're going back to 1965, maybe 1937. A reporter interviewed oil company insiders who spoke on condition of anonymity. Transport of crude oil from the wells to refineries is at risk in pipeline systems via SCADA embedded chip systems worldwide. Refining is at risk due to software, hardware—esp embedded systems, & loss of power & communications in refineries & on delivery systems.
Says most systems are inaccessible, like offshore wells in depths of several thousand feet of water. BL: most oil well embedded systems were never & will never be checked/tested for Y2K; it's a virtual impossibility. Even if they did, most parts no longer available, & no replacement system could be installed by Jan 1. Fail rate is big enough to shut down almost every large well in US, Saudi Arabia & Gulf states, plus most offshore platforms. An alternative is to shut down refining now, if power to be unstable. In cold climes, takes 90 days to complete a turnaround. Another 30-90 days for production to resume. Could be 6 mos between power & low temps, oil refining could be near nil for 12 mos. Also, oil is needed to make power! No oil, no power, no trucks, no trains, no food delivery. A precautionary refinery shutdown would mean food shortages before Jan 1.
The 1974 oil embargo triggered an awful recession. This will likely be more so, as Y2K affects everyone. To think the world can avoid a sharp recession in 2000 is dreaming. •Y2K ignorance is rampant. Denial is raging. Why? Dr. Gary North explains: "It's inertia. The masses are used to a status quo. When the forces of change impinge on them, they show a counter- force equal in proportion to the force of change. The more they hear doom, the heftier they say: can't be true." •Again urge U download GN's free Y2K articles daily (www.garynorth.com). It's a lifeline! And get his Letter (US fax: 1.410.783.3438. $129). GN is a Y2K hero. •Y2KNewsWire interviewed 3 major food suppliers & some independent Y2K consultants & programmers. Seems Y2K programmers suddenly make up a larger % of customers ordering 1-year food supplies. They're also telling their stories. 3 COBOL programmers are heading out after their Dec paycheck, to Australia, New Zealand & Arizona.
They say: "Don't believe what U're told about compliancy." They're from telecommunications, power utility, rail. One said: "We're professional liars. We're not telling our bosses how bad it is as we've seen how whistle blowers are treated. There are big disincentives to being honest with management." ••Friend CH faxed an amazing bulletin sent to banks by US Fed Reserve of San Francisco. Advises banks to sell their T-bills & borrow from the Fed discount window to raise cash for coming public cash demand. They correctly refer to this as a "systemic crisis." For every $ taken out of a bank, 100 electronic $'s disappear from the system. Fractional banking giveth & taketh. This is highly deflationary. In anticipation, the Fed is liquifying the system now, which explains money supply rise, M1,2,3.
This gives false impression of inflationary pressure. Fed is preparing for banks asking for currency from Fed, banks getting Fed loans to pay for currency & lines of depositors wanting cash. A crunch will come when computers create gridlock. Then Fed plan will come unstuck. Dr. Gary North says: "There'll be deflation on a scale never before seen. Cascading cross-defaults are a threat like no other in banking history." The FFIEC is giving banks software & service providers, & bank Y2K summary ratings. But this must be kept secret, says Fed. This to prevent people wanting all their money back if they see all is not honey & syrup. ••I've got approx 1,500 fax pages on my desk of Y2K input. Am not sure I'm giving U the best bits in just 1 page of HSL. 1500 into 1 doesn't fit easily. But I hope I've given U enough to see the true Y2K big picture. I suggest U use the rest of July for preparation. July may be it! As I said last time, we don't know the odds of a meltdown & it's silly to try. What matters is what's at risk, ie, your life & all your chips. ••Dear readers, U are running out of soon.
Harry Schultz
ihsl.com
hsl.mentor@skynet.be
Tel +32 (for Belgium) 16 533 684 -- Fax +32 16 535 777
Postal address: HSL, PO Box 622, CH-1001 Lausanne, Switzerland
24 July 1999
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