E-Mail exchange with a J. P. Morgan Analyst

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Thought I'd share an exchange with an analyst from J. P. Morgan who I have kept abreast of Y2K through the year.

He wrote: What's your take on the situation? Why wasn't it as bad as people thought?

-[snip name]

My response:

Here's my take for what it's worth.

1. The embedded chip problem was never easy to get one's arms around. Even the pros were in serious disagreement. Dale Way (head of the IEEE task force) said embeddeds were not the problem and that power would stay on in every country (much to the shock of many pessimists.) Turns out he was right. It appears as though the large sums of money spent (a) solved the minor problems, and (b) was probably misspent to a significant degree.

2. Because of the over estimate of the chip problem, I infer that potentially severe oil problems may not be anywhere near as catastrophic as projected. With that said, there have indeed been documented embedded chip problems (which I can assure you will not make it to the evening news). If I were in your position I would chase down my oil analyst/colleagues and have them double check on the integrity of the wells/refineries/pipelines/other basic delivery mechanisms. I wouldn't be totally shocked if there was a serious behind the scenes hustle going on to bring stuff back on-line.

3. Dale Way as well as some awefully experienced big-iron programmers, while curious about the chips, never rested their case upon the chip problem. This past weekend really tested virtually none of the mainframes and interconnected system. As neatly stated previously, "End-to-end testing begins on January 1st [3rd actually]".

Here are some rhetorical questions that linger:

1. Did the agencies like the IRS fix their 62 million lines code? There is no compelling evidence yet that I know of. The same question can be applied to any agency or company that hasn't yet been forced to put up or give up.

2. Will the 90% of the computers/software packages that failed to be listed as "mission critical" erode productivity?

3. Did half the countries of world waste a trillion dollars fixing a non-problem or will the other half that is currently in "fix-on-failure" mode ultimately headed for a blow out? This last question seems to be acutely germain to an analyst such as you following [snip name of a DOW company] stock.

I must confess that I (and many smarter than I) were shocked by how smoothly this weekend went, but I sincerely believe that we are just beginning to see whether the economy will die a "death by a thousand cuts". I do know that, at this point, trying to follow it in detail will cause such a demise for me.

One last point, of all the Cheesy Wall St. rags that one can subscribe to, I find Barron's the only pallatable one. This week Abelson's editorial showed a plot of the NASDAQ's P/E over a decade. This is documentation of the bubble that seems unassailable: the P/E has risen from 25 in the mid '90s to 170. By my math, we need an 85% correction -- 85% correction -- in the NASDAQ to get back to parity with 1995. These punks on TV who contest this will simply have to eat a big bucket of shit to learn their lessons. (Yes, I have some spite for these goofballs.) Send me a FAX number and I'll send you a copy of the plot.

I sincerely believe that neither a soft landing nor even a bumpy landing is possible. I will continue to short the market and hold my shares in a gold holding company.

-- Dave (aaa@aaa.com), January 04, 2000

Answers

So is this "Bubble" catch-all-keyword going to take the place of "Y2K" among the alarmist population now that the Y2K crisis has largely fizzled? Who will be your "Bubble" leaders, or are you keeping Yourdon, North, etc in that capacity?

-- Bemused (looking@you.people), January 04, 2000.

Dave-The IRS has a shitload more than 62M lines of code. In the MANY hundreds of millions. MOST of it is toast. Of the companies with automated remediation tools called in for a look see and estimate NONE would touch it. Spaghetti code.

-- Queen Midas (pby@aol.com), January 04, 2000.

Bemused -

Nah, we'll let the talking heads on CNBC take over. After all, Liz Claman and Maria Bartiromo are much more fun to watch than Ed Yardeni (sorry, Ed.).

They (and some of their guests) have used the "B" word ever so often in the past few weeks. Ah, but what do they know, eh? Just a bunch of "doomers"...

-- DeeEmBee (macbeth1@pacbell.net), January 04, 2000.


Ah, so what are his oil flunkies saying then???

(waiting for punch line...)

-- Hokie (Hokie_@hotmail.com), January 04, 2000.


Hi Dave,

Couple thoughts: 1) If a line of bad code isn't executed it doesn't do anything.. so bad date routinese never executed don't do jack except take up space and demonstrate sloppy design. 2) A non compliant date is only relevant if it is used for something (in remediation work for example, we left some mmddyy dates alone - they weren't part of a key, a sort, or used in compares - they part of time stamps. If some auditor wants to to have a ka-nip-shit because the transaction log time stamps go from 99 to 00, I really don't care.)

Good Luck jh

-- john hebert (jt_hebert@hotmail.com), January 04, 2000.



DeeEmBee,

Fair point, the "Bubble" is actually a valid concept. It's just that I see it morphing in places like this forum into, basically, the same thing "Y2K" became; a rallying cry for people who find conspiracies and evidence of doom under every stone.

It's in danger of becoming the Next Big Thing, a replacement concept for Y2K among those people. They will make a lot of noise, create discussion forums, lure in gullable followers and then move on to the next end-of-the-world scenerio after the stock market adjusts itself and the "Bubble" reveals itself to be a just a predictable, understandable, and not-very exiting market concept.

If you are a day trader making money at the very top of the bubble when it bursts, you probably won't be too happy for a couple months (if you stay in business.) That's about it. No need for everyone else to fill their basements with Beans and put gun turrets in the yard.

Late Summer 1998 was the last bubble to burst. Stocks took a good dive if you remember; there were immediately a lot of ads in the WSJ and elsewhere offering ways to "preserve your wealth", aimed at once giddy neo-investors who might want to spend a lot on commissions and fees converting their stocks to bonds and such. The market didn't crash. It's not going to crash. We will see corrections, we *should* see corrections, some bigger than Summer '98. It's a healthy thing.

If there is a real concern it's in having a bunch of alarmist reactionaries move en-mass from Y2K hype to financial-market hype. It would be like the professional equivalent of having Uncle Buck move in.

Sorry if I'm being flip, rude, etc... Just had to work a lot this weekend preparing for an event that was already fixed and prepared for here (guess what said event was...) when I could have been watching football.

-- Bemused (looking@you.people), January 04, 2000.


Bemused -

Noted. If you've been following the Forum for very long, there have been numerous threads on the market's behavior, and the "bubble" (or "Tulip.com", as some analysts characterize it) seems unlikely to become The Next Big Thing around here. It's really much easier to debate/discuss the stock market, since it (unlike Y2K) has a track record. Y2K was almost too big to scope (cf. the Naval War College's work), which lead to some serious angst. Compared to Y2K, the stock market is very much a known (though very unpredictable) quantity.

Do I sense some concern that the "amateurs" might panic and drive the market lower than is warranted? Golly, where was all that hand-wringing about the "non-professionals" when the market lost its collective mind last year? You like orderly markets? You ensure that they don't develop mouth-drying standard deviations.

No one did that, because "momentum" made lots of folks rich and Mr. Greemspan apparently was more worried about Y2K and liquidity than about overall market stability. No sad songs then, if the "greater fools" finally decide to leave, and are noisy about their exit. The market giveth and the market taketh away.

-- DeeEmBee (macbeth1@pacbell.net), January 04, 2000.


DeeEmBee,

This link kinda illustrates my point:

http://hv.greenspun.com/bboard/q-and-a-fetch-msg.tcl?msg_id=002ELz

-- Bemused (looking@you.people), January 05, 2000.


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