I dont have acrobat reader and have not been able to down load it. Can any one help?

-- y2kme1 (y2kme1@hotmail.com), August 13, 1999

Answers

Dr. Edward Yardeni, Chief Economist & Global Investment Strategist

August 10, 1999

Phone: (212) 469-5715 Fax: (212) 469-5725

E-Mail: yardeni@yardeni.com Web Site: http://www.yardeni.com/

THE Y2K REPORTER

Y2K: EYES WIDE SHUT

Seeing Is Believing. Its been awhile since I wrote my last Y2K Reporter, May 10, 1999, to be exact. That doesnt mean I havent been actively continuing to investigate the issue. I have been frustrated by the continuing failure of companies, countries, and governments to provide adequate public disclosure. So much so that Ive worked hard to develop my own sources of information. I held my T-Minus 200 Days conference on June 15, 1999, with some of the worlds top Y2K experts. The one consistent message from all of them was that progress is being made, but serious problems are still likely and contingency planning is essential. This message hasnt changed much since my first conference (T-500) on August 19, 1998. My T-100 conference will be held on September 23, 1999, over the Internet at www.y2kactionday.com.

Another self-initiated source of information is web-based polling. I designed a system that allows any organization to send an e-mail message to their members inviting them to vote in an anonymous Y2K poll. So far, CIO.coms Y2K Research Center, the Information Systems Audit and Control Association, the National Association of Manufacturers, and Peter de Jagers Year2000.com Partnership have all participated. The results of the first series of polls are posted at my polling site www.peoplepolls.com and are discussed below. They are mostly upbeat, but some of the responses suggest that the optimism may not be completely warranted.

Rose Colored Glasses. Two years ago, when I started to research Y2K, I concluded that there was a 30% chance of a global recession in 2000 as a result of Y2K disruptions. I subsequently raised the odds to 70% about a year ago. I noted that I might lower my subjective probability by now if the news warranted such a reassessment. Unfortunately, as documented below, I remain at 70%. I realize that no other economist or investment strategist on Wall Street foresees a recession.

The following table lists the five possible Y2K economic scenarios, along with my subjective probabilities for each of them. The overwhelming consensus view is that it will either be a nonevent or similar in effect to a two- to three-day natural disaster, like a major storm. I think it will be more like an unnatural man-made disaster. Natures disasters are random and geographically localized events. Y2K is potentially a systemic, worldwide event.

Some of my Y2K-optimistic IT friends tell me that I would be less concerned if I realized how close to the edge information technology systems are on a good day. We all know how often our PCs, servers, and networks get weird. But these failures and malfunctions happen randomly, which means the IT folks can scramble to fix them quickly. I respond to my IT friends by asking, if the systems are so close to the edge on a good day, what if Y2K brings several bad days, weeks, or months of nonrandom, multiple, interrelated problems?

Staying Focused. Ive been playing Hamlet with the scenarios in the table below in recent weeks. Ive thought about reversing the probability weights for the mild six-month recession scenario and the severe 12-month one. In other words, I am leaning toward a slightly more optimistic stance on the severity of a recession. After all, the electricity and phone industries say they are ready to deliver their vital services, in the United States at least. However, as documented below, there remain several weak links in the Y2K chain. In my opinion, the two most likely causes of a global recession are breakdowns in the global just-in-time manufacturing system and in the global oil industry. Indeed, Y2K could cause another energy crisis. So I am not changing my probability assessment for now. Ill revisit this matter in October.

Y2K Economic Scenarios Probability

1) Minor disruptions. Business as usual. Only a few problems, which will be fixed rapidly. Stock market unaffected. 10%

2) Same impact as natural disaster. Business as usual within a few weeks. Stock market mostly unaffected. 20%

3) Multiple problems will cause modest 6-month recession. Real GDP down 1%-2%. Stock market down 10%-15%, then soars. 25%

4) Major global recession lasting 12 months, maybe longer. Real GDP down 2%-3%. Stock market down 30%. Flight to quality. Deflation. 40%

5) Depression lasting 2-5 years. Blackouts. Social and political upheaval. Stock market...you don't want to know. 5%

Nearsighted. I am truly amazed by the complacency about Y2K given the lack of good data. I can understand why this is so. There have been lots of positive progress reports in the US from federal agencies, the electric power industry, the phone companies, and the banking and securities industry. Top government policy makers, including Federal Reserve officials, have assured the public that the most they should worry about is a couple of days of disruptions requiring a flashlight, an extra gallon of water, and a box of spaghetti. The press has mostly recounted the happy progress reports, without any further investigation or critical comment. A few reporters set up the issue as an all-or-nothing story. They happily conclude that planes wont fall out of the sky and no one will freeze in the dark. All other, more plausible Y2K scenarios, including my recession forecast, are lumped into the doomsday category and dismissed as farfetched.

Farsighted. I am heartened by the upbeat progress reports. They do not surprise me though, because I expected there would be progress since I first started to investigate Y2K during the summer of 1997. But I am concerned that most of the reports are not independently verified and validated. I am also concerned at the lack of detailed disclosure provided. Even more worrisome is the lack of any good information on preparations around the world. Yet, the public and their policy leaders seem perfectly content to take the casual assurances of the few to conclude that everyone will be ready. I cant do that. Like everyone else, I am hoping for the best. But I think it is a big mistake to plan for the best, rather than for plausible worst-case Y2K scenarios. I am staying as informed as possible and I still am finding lots to worry about.

Seers. My dismissive, dont-worry-be-happy critics have put me in the same camp with Cassandra and Jeremiah. I thank them for the promotion, but Im not that prescient. Besides, both seers had no doubts that they were right and they were. Im not so sure that I am right and I hope I am wrong.

-- PDF (here@it.is), August 13, 1999.

Thank you -thank you -Thank you----------

-- y2kme1 (perfect10@snowcrest.net), August 14, 1999.