From Andy:

"Made several grand in prudent bear yesterday. Will make several more today. The gold I stocked up on recently when I advised you all to buy at those firesale prices is gaining in value daily. It's still not too late to buy gold - which will be the only means of wealth preservation when the dollar tanks and we enter a hyperinflationary depression next year.

On no account listen to the brain dead moron going by the name of ddecker. Land my ass. there will be so much land and cars and houses up for sale at giveaway prices next year that it doesn't bear thinking about. All those .com yuppies will be going bankrupt by the boatload..."

In Andy's world, "hyperinflation" occurs while "land and cars and houses" are being sold at "giveaway prices." What is wrong with this picture?

Inflation is the general INCREASE of prices. Hyperinflation is simply runaway inflation. [For an excellent historical example, see the Weimar Republic of Germany in the 1920s.] As I pointed out to Andy, it is inconsistent to predict hyperinflation concurrent with a collapse in prices of real property like land and housing.

If you think we're facing an inflationary downturn, you may wish to invest in gold. In the past, gold has been attractive as a "hedge" against inflation... and since inflation reduces the value of currency, increased demand for gold may cause prices to rise. Of course, gold is not the only real property you can use as an inflation hedge. Some of us prefer land or other assets.

Another tenet of Andynomics is acquiring debt to finance Y2K preparations (see earlier posts.) Perhaps Andy thinks debt will be easy to service after hyperinflation. (Pay back debts with "cheap" dollars.) The problem: most credit is based on an adjustable rate. In the face of inflation, interest rates will rise. Remember the recession of the early 1980s. Volcker raised rates to the 20%+ level to "break the back" of inflation. High interest rates also occur naturally as lendors seek to maintain an acceptable real rate of return. I think acquiring debt in the face of economic hard times is utter foolishness... partly because floating interest rates will find you and partly because we may see a deflationary environment.

The Great Depression of the 1930s was deflationary. One of the causes of deflation was a collapse of demand. Factories sat idle because people could not (or would not) buy goods. Prices dropped. Imagine the results for people who had purchased a house for $100,000 and taken a mortgage... to discover the farm was now worth $50,000. By the way, gold is no protection against deflation.

Andy latest find is Ravi Batra. Batra is a "wave" theorist who predicted the "Great Depression of 1990" and "Surviving the Great Depression of the 1990s." He sold about 2 million books and was one of the few people who profited from of his prediction. Batra is also anti-free trade and anti-capitalism. His stance on free trade places him in the minority of economists.

As usual, Y2K pessimism makes strang bedfellows. Oddly enough, Batra is associated with PROUT. http://www.prout.org/Summary.htm

As you can read from the above link, PROUT supports a "one world" government and makes some of the promises more commonly associated with democratic socialism or communism.

http://www.ru.org/artbatra.html

The above link provides a bit more on Batra.

Batra has been wrong since 1977 (when he predicted the collapse of capitalism by 2000.) He provides some interesting thoughts, but long wave theory has few serious supporters. He also advocates what looks like the old wine of socialism with some new labels.

I suppose Andy can forgive Batra his one-world government socialism in light of his dour future views. What amazes me is Batra's staying power. I suppose if he keeps predicting an economic depression, he'll be right... eventually.

For the closet optimists on the forum, you might enjoy a bit of good news:

http://www.scottburns.com/981227su.htm

How does this apply to Y2K preparation? Before you make financial decisions based on Andynomics, you might want to consider the alternatives.

-- Ken Decker (kcdecker@worldnet.att.net), September 27, 1999

Answers

I am a simple person, way too simple to figure out Y2k. I have a little savings that I would love to protect. My mind is on more of a tilt than ever. I think this, I think that, Everything I read throws me into more of a disturbance. I guess my only answer is diversify in everyway. There is no clear answer. Buy some gold, keep some cash, maybe even some other financial vehicles, don't put all your eggs in any one basket. That's all I can figure. Gold to me is only something tangible to hang on to.

-- a mom (totally@confused.com), September 27, 1999.

The only defect that I can see with "Andynomics", and the people that Andy cites as references (who just happen to be economists who take a different view than Ken does), is TIMING. Many of them predicted that the debt-bubble based economic systems would have crashed years ago, but this did not happen due to the powers that be seemingly able to apply enough bandaids to hold things together. (Mexican bailout, Long Term Capital Management fiasco, etc.)

The convergence of recent events -- Ecudorian bond default, plunging value of the dollar against the yen, BOE gold sale fiasco, stock market "correction" in progress -- will definitively show who is "talking the talk" versus "walking the walk".

OHHH, I knew I forgot something else kind of important to pop the bubble -- Y2K. Pop goes the bubble!!

-- King of Spain (madrid@aol.cum), September 27, 1999.

Spain,

Fist, Andy is wrong about falling land/housing prices in a hyperinflationary environment. Second, timing of a prediction is rather important. When your cohorts predict that pollies will die... they are technically correct. We all die eventually. It is another thing entirely to predict Y2K will cause our death. As an aside, PROUT is a pro-feminism... no mud wrestling.

-- Ken Decker (kcdecker@worldnet.att.net), September 27, 1999.

Red,

I enjoyed Scott Burn's review of books on the end of the world or not. It is interesting that he finds that Toffler is an optimist. Toffler may be an optimist about the world not coming to an end, but if rumor is not wrong, I have heard that Toffler thinks Y2K poses serious risks.

Elsewhere, Scott Burns writes that the big boys have regularly missed the boat and passed up opportunities to develop new areas. He cites several examples of technological blindness.

Totally, the examples demonstrate the shortsightedness of companies such as IBM, Xerox, Parker Brothers, and Digital Equipment. Each of these companies, he write, "has been a dominant influence in a major market or technology but failed to find a significant role and lost a major opportunity."

So what about Y2K?

You shouldn't be surprised if their short-sightedness blinded them when it came to anticipating and dealing with Y2K.

Sincerely, Stan Faryna

-- Stan Faryna (faryna@groupmail.com), September 27, 1999.

P.S. link to his editorial on the big boys is as follows:

http://www.scottburns.com/Columns/970615su.htm

-- Stan Faryna (faryna@groupmail.com), September 27, 1999.

Ken --

I agree with you about holding debt in the event of a likely depression. Dumb. I have found your posts about that subject to be very valuable and I hope people are listening (ie, it is possible to disagree intensely about many things but not all).

The economists I have read who are serious about Y2K believe that one of the reasons Wall Street hasn't "dealt" with it is because it offers whiffs of inflation and/or deflation as possibilities or, worse, simultaneous (chaotic) inflation/deflation across widely disparate goods and sectors. That is, it's "out of the box" for analysis purposes. What is your view of that opinion.

To me, this is an even BETTER reason to not load up on debt.

Personally, I think Batra is an idiot, though KOS is right on other scores that the amount of government jiggering of the markets over the past decade or so is not, per se, a knock on earlier predictions. Whether that jiggering was prudent or criminal is something we'll determine over the next decade and Y2K is only one of the factors, of course.

-- BigDog (BigDog@duffer.com), September 27, 1999.

Timing is important, but often unrealistic. If you had cancer, you would want the doctor to tell you. And you would also like a guess as to when it would be terminal. The former is a matter of fact, the latter is obviously an educated guesstimate.

PROUT is pro-feminist ...??? May I ask, what does that have to do with the price of eggs in Yugoslavia?????

-- King of Spain (madrid@aol.cum), September 27, 1999.

King you mean the former Yugoslavia right?

-- todays Tom Sawyer (RUSH@2112.rockon), September 27, 1999.

>> I am a simple person, way too simple to figure out Y2k. I have a little savings that I would love to protect. My mind is on more of a tilt than ever. <<

A mom, I can't blame you. People who devote most of their time and energy to this can't seem to get a much better grip on it than you.

>> Buy some gold, keep some cash, maybe even some other financial vehicles, don't put all your eggs in any one basket. That's all I can figure. <<

Good thinking, if you ask me. But don't forget, the first place to invest is in yourself. If you have 1) skills 2) tools and 3) access to materials, you can create your own wealth. The more diverse your skills and tools are, the more resilient you'll be in any economy. There isn't any safer "basket" to put your eggs into than in your own hands, brain and ability.

-- Brian McLaughlin (brianm@ims.com), September 27, 1999.

Stan,

Of course large, successful companies make mistakes. (Can anyone forget New Coke or the PC Jr?) The decision-making behind Y2K, however, is far different than strategic business decisions involving emerging technologies. With Y2K, a company simply must ask, "What do we need to fix." The problem involves dealing with existing hardware, software... even vendors. This is much simpler (and less risky) than deciding on investing in entirely new technologies or entering new markets. By the way, I predict the Y2K among Fortune 1000 companies will be smaller than the rate among small businesses. Russ,

I think we'll see prices adjust. In a severe recession, the demand for luxury goods will fall... but the demand for staples will remain steady. A pure monetarist would see an inflationary spiral, but I wonder about a possible demand collapse. How can American consumers, stretched to the limit on credit, continue to buy through a real slump? I think a straddle position is wise... no debt, limited equities exposure and a broad asset mix.

-- Ken Decker (kcdecker@worldnet.att.net), September 27, 1999.

"I think we'll see prices adjust. In a severe recession, the demand for luxury goods will fall... but the demand for staples will remain steady. A pure monetarist would see an inflationary spiral, but I wonder about a possible demand collapse. How can American consumers, stretched to the limit on credit, continue to buy through a real slump?"

Yes, I think a demand collapse, broadly, is quite possible.

Obviously, I also factor in the possibility of a "supply" collapse. To me, this is the Y2K wild card and has been all along -- as well as the justification for prepping (cf. people who will die if a particular item such as insulin becomes unavailable -- or inflates beyond the ability to obtain).

I'm not sure what you mean by "adjust" in relation to a chaotic period of pricing where some items might inflate and others deflate and perhaps unpredictably so in different parts of the country or the world.

"I think a straddle position is wise... no debt, limited equities exposure and a broad asset mix."

I agree. I feel gold is still subject to gross manipulation that rules out wisely safe decisions by small investors and that, in general, the mix of a bubble with Y2K uncertainty makes narrow asset investing a total Vegas crap-shoot.

-- BigDog (BigDog@duffer.com), September 27, 1999.

Thanks for the fresh breeze of common sense/wisdom Brian!

-- Mumsie (Shezdremn@aol.com), September 27, 1999.

FYI, Ken, don't be so quick to consider "New Coke" a mistake.

I've heard some info that it was more like a pretty clever marketing campaign for "Coke Classic".

-- Hoffmeister (hoff_meister@my-deja.com), September 27, 1999.

Hoffmiester,

Maybe, you're just as wrong about New Coke as you are about Y2K risks. A few years back, there was an article on the New Coke blunder in the Mckinsey Quarterly. Ironically, New Coke is the classic example of getting it wrong. My other pet peeves: McDonald's changing the french fry oil and going from friend to baked apple pies, Popeye's changing the oil in the beans and rice, and Burger King going to microwaves and grill "flavor".

Red,

You write:

"With Y2K, a company simply must ask, "'What do we need to fix.'"

Well, that's a very interesting point. And I suspect that most Y2K risks are a question of timing: when did they figure out that they really needed to fix things? According to Rubin and Cap Gemini, top companies have only recently understood how important Y2K really is. You'd be very surprised by the documents that I see come across my desk. But I guess that is being downright mysterious and, ultimately, unfair.

You also write:

"By the way, I predict the Y2K among Fortune 1000 companies will be smaller than the rate among small businesses."

Let's get this straight: I'm not one of your adolescent students that can be stumped with a no brainer. And I don't think you mean to treat me as such, it just may an unintentional habit of yours. That's my assumption. Anyway, this proposition is a no brainer. Here's another no brainer for you: minor Y2K problems at Fortune 1000 companies will contribute to the demise of many of those small businesses that you expect to fail.

Then, you write:

"I think we'll see prices adjust. In a severe recession, the demand for luxury goods will fall... but the demand for staples will remain steady."

I agree that a wide collapse of demand is likely in a severe recession (or worse). And you're straddle position seems right on. Wow! Read that sentence again; I can be agreeable. In this context, inflationary spirals seem unlikely. But this context doesn't account for a wide collapse of supply-- especially imported staples. Let's take a glance at monthly imports in the billions of dollars range (based on July 1999 numbers).

Chemicals - medicinal: 1,258 Clothing: 5,557

Footwear: 1,339

Furniture and bedding: 1,292

Iron and steel mill prod: 1,141

Metal manufactures, n.e.s.: 1,229

Paper and paperboard: 1,073

Petroleum preparations: 1,318

Textile yearn, fabric: 1,181

Toys/games/sporting goods: 1,793

Hypothetically speaking, let's say that supply is reduced for Q1 2000 by 25% due (1) directly in part to supply chain disruptions from production to delivery and (2) indirectly in part to national or regional conservation of raw commodities and manufactures. How would such reductions impact import prices and businesses associated with those imports in the U.S.? Globally? Is there a chance of a spiraling inflation of some things?

Sincerely, Stan Faryna

-- Stan Faryna (faryna@groupmail.com), September 27, 1999.

Maybe, Stan.

Of course, that would explain why Coke had delivery trucks already printed with "Coke Classic", before "New Coke" was even released, now wouldn't it?

-- Hoffmeister (hoff_meister@my-deja.com), September 27, 1999.

So, let's see, Hoff, New Coke was a clever, deceptive, deliberately misleading marketing campaign foisted on their investors, their advertisers and their customers as a way of strengthening their other product.

Ah, I see.

Now, about Y2K .....

-- BigDog (BigDog@duffer.com), September 27, 1999.

BigDog! Didn't avert your eyes? Shouldn't you practice what you preach?

Anyway, take it however you want. My old man was head of sales at a large supplier for Coke's (and many other) delivery fleet. Saw the trucks himself.

I think Sergio Zyman (head of Coke marketing) even mentions it in his book:

http://www.amazon.com/exec/obidos/ts/book-glance/0887309860/ref=pm_dp_ ln_b_1/002-0541065-7036834

Haven't read it, so don't know for sure.

Like I said, FWIW.

-- Hoffmeister (hoff_meister@my-deja.com), September 27, 1999.

Hoff -- I said I wouldn't respond to Flint's posts, not yours. As usual, you don't read as well as you claim to. Your posts are still amusing.

-- BigDog (BigDog@duffer.com), September 27, 1999.

Whatever, BigDog. I think that thread speaks for itself.

Anyway, per your comments:

So, let's see, Hoff, New Coke was a clever, deceptive, deliberately misleading marketing campaign foisted on their investors, their advertisers and their customers as a way of strengthening their other product.

Ah, I see.

Now, about Y2K .....

Yes, now about Y2k....

-- Hoffmeister (hoff_meister@my-deja.com), September 27, 1999.

Right, Hoff. The amount of deception on Y2K tracks neatly the deception that you claim Coca-Cola perpetrated on its investors, advertisers and customers.

-- BigDog (BigDog@duffer.com), September 27, 1999.

Actually, BigDog, your statement itself is probably one thing we could agree upon.

The disagreement, I suspect, is just who's behind it...

-- Hoffmeister (hoff_meister@my-deja.com), September 27, 1999.

Hoff,

I'm not going to disparage your father. I'm going to lean more on side of the text book, however. But I'll give your father some benefit of my doubt. Isn't it ironic... that you are willing to believe in personal anecdotes than the official story when it comes to New Coke, but never when it comes to Y2K.

Sincerely, Stan Faryna

-- Stan Faryna (faryna@groupmail.com), September 27, 1999.

Yep, Stan, now there's a toss-up.

Believing my old man

vs.

Anonymous posters on the internet.

-- Hoffmeister (hoff_meister@my-deja.com), September 27, 1999.

Hoffy, did those "Classic" trucks also have "U.N." marked on them? And did you see any black helicopters??

You pollies really do get somewhat extreme at times, you know....

-- King of Spain (madrid@aol.cum), September 27, 1999.

Ken: you said:

Batra has been wrong since 1977 (when he predicted the collapse of capitalism by 2000.)

Counting those chickens are we?

BD: Batra is no idiot. At worst he's one of those "profiteers" we've been hearinf so much about. He has a record of correct predictions as well as a list of failed ones. However, on the 1990 thing, the only thing that put out of the fire was the Fed loading up the hearth with plenty more wood. As Barta predicted in '88: "if we succeed in twarting a depression in 1990, the subsequent inevitable swing in the business cyle will be much worse." We'll see...

Hoff: You need to clarify yourself. Was that the new coke that was controlled by the Clinton Mena, Arkansas cartel, the GHW Bush syndicate, or the CIA?

-- a (a@a.a), September 27, 1999.

Decker -- wasn't that Simon book "The Ultimate Resource" the one about "breed, breed, breed, until the earth bleeds"? (I.e., the more people, the more wealth? Shows you publishers will publish anything, especially combining breeding for "expanding the markets", and establishment economics.)

No, we haven't collapsed yet -- but only because of "heroic" finagling. We've eaten our own seed corn and are now scarfing up eveyone else's. So we have a budget "surplus" (if you believe the accounting that would get a private company's VP of finance locked away for 20 years). What about trade deficits? What about the general financial house of cards? All the authors yo mention were right, in a sense; but they were wrong in their ability to see what an amzing feat of juggling could be accomplished the last 20-30 years. Eventually the bubble burst, or one - then all - of the spinning plates falls. There are more factors of confluence now than even in those previous predictions.

-- A (A@AisA.com), September 28, 1999.

.

-- A (A@AisA.com), September 28, 1999.

What happened to Mr. Decker? He hasn't answered my question and he has apparently skipped the thread?

Sincerely, Stan Faryna

-- Stan Faryna (faryna@groupmail.com), September 28, 1999.