In his book, At the Crest of the Tidal Wave, Robert Prechter makes some interesting observations that apply to the Y2K situation. Prechter missed his call on the peak of the bull market (he called late 1995), but many whove read the book are confident that he describes the outcome of the next bear market very well.

Prechter has been called a doomsayer because he predicts an enormous bear market. His critics say that he is dangerous. [Sound like Peter de Jager discussing Ed Yourdans approach to Y2K? ]

Prechter replies, This is an emotional, not an intellectual response, to which I reply, nonsense. If the market goes up while you are holding interest-bearing cash equivalents in safe currencies, you might make a little less money. So what? .....The most dangerous statements are made by the permanent optimists. That sounds like the response of the many who are preparing for Y2K --- the most dangerous statements are made by those who dismiss the problem.

In truth then it is those who have been counseling a fully invested position.....that bear the risk of being proven irresponsible. Doesnt that statement apply equally to those who counsel not preparing for Y2K?.....Maybe that conviction will pan out, but what are the human consequences if it doesnt? If this bear market turns out to be a grizzly, >>or if Y2K turns out to be bad<< the ones who opted to issue reassuring statements with no insight to justify them should be recognized as those whose words were truly dangerous and damaging......The question is not one of certainty, but one of preparedness and risk. While the negative result of an error of caution will be virtually nil, the risk of betting against it, both financially and otherwise, is incalculable.

Prechter goes on to say, Remember also that humanity has survived countless crises. As bad as things will get, we are not talking about Armageddon or Doomsday. Expectations for a long period of worldwide pepression, economic chaos and ultimately social unrest do not indicate, as some might infer that one should prepare for a return to the conditions of the Dark ages. >>Unfortunately, as Ive argued many times on this forum, those who dont think it will be a problem at all arent willing to concede any result between there being a speed bump and the End of the World. <<......the one we face at least one degree smaller that the one that produced the Dark Ages, but is beginning from a much higher base. In other words, bad times are relative. >>So are good times.<< No one will be living in a cave. For the most part, modern life will be maintained; only certain areas of the world will suffer the worst.........Even if economic conditions deteriorate to the level of the 1930s, < Prechter makes a strong case that social aspects of our society are tied to the wave-like behavior or the stock market. As the market goes up, people are relatively easy going and non-confrontational. As the economic conditions and the market get worse, behavior gets worse. For this reason, he forecasts at least one major war during the downturn. Thats not too bad ----- unless youre one of the casualties.

Many would take those statements and say, so what? These are the ones who have put the suffering the casualties out of their mind.

At The Crest of the Tidal Wave. is a book about economics that draws many parallels between a stock market crash and Y2K -- at a time when the author didnt know a thing about Y2K. The author simply looked at human behavior and applied it to all aspects of economic life. That same behavior is applicable to Y2K situations.

-- Rocky Knolls (rknolls@hotmail.com), August 15, 1998

Answers

Rocky,

You can call this one the bull, the bear and the bug.

You are doing some heavy duty reading. Some good points in your piece, and I think good parallels also. As to Prechter missing his call on the 'top' that's no really big deal considering the 'unnatural' forces and outright manipulations acting on the market (Fed bailout of the yen, the Crash Committee etc.) It's important to remember that beyond a certain point, as the market goes so goes everything else. The original Dem campaign slogan was "It's the economy, stupid!" Clinton Inc. has ridden the bull quite a ways. It'll be interesting to see how they handle the bear. And I think the bear may show up before the bug... .

LPL

-- Lee P. Lapin (lplapin@hotmail.com), August 16, 1998.