Just received the newest "What's New On Dr. Ed's Econet", and it includes this statement...

Y2K: I was recently mentioned in an LA Times story on Y2K as follows: "Edward Yardeni, chief economist for the investment banking firm Deutsche Bank Securities Inc. and one of the most persistent drumbeaters on the Y2K issue, recently revised his estimate for a long global recession due to the glitch, from a 70% chance to 45%. "I've toned down the message partly because progress has been made," Yardeni said. "I would be happy to back off entirely." I still see a 70% chance of a global recession. Previously, I've written that it could be as bad as the 1973/74 downturn. In my Feb. 22, 1999 Y2K REPORTER, I listed five possible Y2K outlooks, which include three recession scenarios and probabilities: 25% for a mild recession, 40% for a bad one, and 5% for a depression. The probability-weighted average is a 3% drop in real GDP lasting about 12 months--a bad recession. Of course, I would be more than happy to turn less pessimistic--and I will do so--if I believe the available data warrants such a change. My aim last year was to raise awareness and alarm to stimulate greater efforts to fix the problem. This year my goal is to promote contingency planning to minimize Y2K disruptions. I tend to agree with my friend Peter de Jager, who believes that doomsday will be avoided, and Peter deserves a great deal of credit for his efforts. Nevertheless, I doubt a serious recession will be avoided.

-- _ (_@_._), March 14, 1999

Answers

The rest of his newsletter...

COMMENT: My favorite stock market model shows that stocks are currently 29% overvalued. And that's using consensus earnings forecasts showing gains of 15% in 1999 and again in 2000. These are unrealistically high, in my opinion. The market is priced for perfection and perpetual prosperity. When the crowd believes that nothing can go wrong that's when things usually go wrong. This is not to say that good things aren't happening. Asia has hit bottom, for now. Japan is slowly restructuring, and the Nikkei is responding positively. OPEC's promised output cuts are lifting stock prices in the energy sector. US growth is booming, while inflation remains near zero. Look for the market to move to 11,000 in an early summer rally. Then, during the late summer and fall, look for possible trouble in disappointing earnings, increasing and spreading Y2K concerns, perhaps another Chinese devaluation, more bad economic news from Japan, a growth recession in Europe, a recession in most of Latin America, and another round of deflation in the commodity pits. A bear market could unfold if enough goes wrong later this year. I'm not rooting for this scenario...just covering your back while you are getting rich in the stock market.

Y2K: I was recently mentioned in an LA Times story on Y2K as follows: "Edward Yardeni, chief economist for the investment banking firm Deutsche Bank Securities Inc. and one of the most persistent drumbeaters on the Y2K issue, recently revised his estimate for a long global recession due to the glitch, from a 70% chance to 45%. "I've toned down the message partly because progress has been made," Yardeni said. "I would be happy to back off entirely." I still see a 70% chance of a global recession. Previously, I've written that it could be as bad as the 1973/74 downturn. In my Feb. 22, 1999 Y2K REPORTER, I listed five possible Y2K outlooks, which include three recession scenarios and probabilities: 25% for a mild recession, 40% for a bad one, and 5% for a depression. The probability-weighted average is a 3% drop in real GDP lasting about 12 months--a bad recession. Of course, I would be more than happy to turn less pessimistic--and I will do so--if I believe the available data warrants such a change. My aim last year was to raise awareness and alarm to stimulate greater efforts to fix the problem. This year my goal is to promote contingency planning to minimize Y2K disruptions. I tend to agree with my friend Peter de Jager, who believes that doomsday will be avoided, and Peter deserves a great deal of credit for his efforts. Nevertheless, I doubt a serious recession will be avoided.

SUBSCRIBERS: In my latest GLOBAL ECONOMIC ANALYSIS, I review my stock market outlook for the near-term and my "15,000 by 2005" forecast. I also explain why it is time to bury the mythical tradeoff between unemployment and inflation. Growth is good if it is based on productivity and disciplined by competition. Low inflation leads to low unemployment.

PUBLIC: You can now find SLIDE SHOWS of charts showing US exports by products and by regions. The latest ECONOMIC SCOREBOARD shows the US is still booming. A selection of ECOFAXES is open to the public. The video clip of my Wall Street Week appearance earlier this year is posted in the Media Center on my home page.

Dr. Ed

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Y2K Corporate Disclosure: http://www.progsys.com/yardeni/y2kfind.asp

People Polls: http://www.yardeni/voxpop.html

-- _ (_@_._), March 14, 1999.

Do you have the url for this comment?

-- moderate (moder@te.com), March 14, 1999.

( @ . );

This post is very helpful.

LA reporter could not add. 25+40+5=70.

The error multiplied with no verification.

Now the BBC are repeating it. Sad Stuff.

Regards,

-- Watchful (seethesea@msn.com), March 14, 1999.

Moderate---You can find this report at the following site: Yardeni@yardeni.com

Sorry, I can't do a link with this thing.

-- Lobo (Hiding@woods.com), March 15, 1999.

Here's a quote from Dr. Ed Yardeni's Web site:

http://www.yardeni.com/y2kbook.html#B1.1

[snip]

As of March 1999, I still see a 70% chance of a severe global recession. I am the first to admit that there is nothing scientific about my assessment. It is not based on a rigorous global economic model. It is simply my own subjective evaluation of the situation, as documented in this netbook. I am assigning a probability to a Y2K recession scenario to communicate my level of conviction and concern.

[snip]

-- Kevin (mixesmusic@worldnet.att.net), March 15, 1999.

Another quote from the same link...

http://www.yardeni.com/y2kbook.html#B1.1

[snip]

Y2K Economic Scenarios Probability

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

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

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

Major global recession lasting 12-24 months. Real GDP down 2%-5%. Stock market down 30%-40%. Flight to quality. Deflation. 40%

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

[snip]

[25% + 40% + 5% = 70%]

-- Kevin (mixesmusic@worldnet.att.net), March 15, 1999.

But notice: the headline and the "sound bites" from the headlines don't reflect the story, and the story doesn't reflect his actual 70% prediction of "at least" a recession from all this.

But what do you think Mr. K. will emphasize? The truth and the real numbers?

-- Robert A. Cook, P.E. (Kennesaw, GA) (cook.r@csaatl.com), March 15, 1999.

And a 30% chance that nothing will happen.

-- Maria (anon@ymous.com), March 15, 1999.

Yardeni Explains the Media Report on His Recession Forecast

-- (seeker@of.accuracy), March 15, 1999.

Troll Maria,

Did you read the same post that the rest of us did?

Y2K Economic Scenarios Probability

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

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

That 30% predicts no recession or depression, but the "bump in the road" or disruptions for a "few weeks" can hardly be called "nothing".

-- Hardliner (searcher@internet.com), March 15, 1999.

Hardliner, you're too much for words. How 'bout this: And a 55% chance of at most a modest 6 month recession.

-- Maria (anon@ymous.com), March 15, 1999.

Troll Maria,

Your second statement, " And a 55% chance of at most a modest 6 month recession.", is an accurate report of Yardeni's predictions.

My real objection to all of these "sound bites", be they 70%, 10% or whatever, is that they attempt to describe a very complex situation in very simplistic terms.

The concept of TEOTWAWKI being a local phenomenon has been discussed here before. To recap, if your power company fails for even a few days at the wrong time, and your plumbing freezes and bursts and ruins all of your posessions and your insurance company refuses to cover "Y2K losses", and so on and so forth, TEOTWAWKI happens for you.

Your neighbor across the street who has an alternate power source, drains his plumbing or in some way prepares for possibilities, experiences a "bump in the road".

Generalizations and simplistic conclusions can kill you. Or worse, maybe just allow all that you've built over a lifetime to be lost and leave you to deal with the aftermath.

-- Hardliner (searcher@internet.com), March 15, 1999.

Hardliner:

I think you hit the nail right on the head. Troll Maria sees exactly what she wants to see.

In addition, I have good reason to believe that Ed's probabilities are "massaged" to conform to his estimate of the worst level of pessimism the public is willing to accept at the moment without creating an large risk to his credibility.

If Ed goes too far, he will be marginalized as just another extremist a la Gary North. This label epitomizes an "unreasonable" viewpoint because experience teaches that typically those who hold extreme views are very unlikely to be objective enough to re-evaluate their position when contrary information becomes available. Ed will avoid this label like the plague even if he must fudge a little concerning his worst Y2k fears.

Roger

-- Dr. Roger Altman (rogaltman@aol.com), March 15, 1999.

Thanks Roger for stating how normal I am. All of us see what we want to see. Hardliner wrote, That 30% predicts no recession or depression, but the "bump in the road" or disruptions for a "few weeks" can hardly be called "nothing". I think that disruptions for a few weeks can be called nothing. Not a big deal, so miniscule that it doesnt even warrant notice, minor termed an exaggeration, or any other way you may find to describe it. It still comes down to NOTHING.

My real objection to all of these "sound bites", be they 70%, 10% or whatever, is that they attempt to describe a very complex situation in very simplistic terms. But we do that every day of our lives. We evaluate everything and act accordingly. You measure your lifes worth and buy the appropriate amount of insurance. Smokers measure their risks with each drag and consider that its worth the risk. People buy lottery tickets based on some evaluation of winning. We all take our chances based on some evaluation.

if your power company fails for even a few days at the wrong time, and your plumbing freezes and bursts and ruins all of your posessions and your insurance company refuses to cover "Y2K losses", and so on and so forth, TEOTWAWKI happens for you. Hardly! First, anyone stupid enough to let their pipes burst deserves the damage they get. People experiencing floods, fires, mud slides, snow storms may loose all their possessions but its not TEOTWAtheyKI. They rebuild. They have support from community and friends. Lose of power on rollover is not TEOTWAWKI on a personal scale. My furnace went out during a major snow storm. I was without heat for three days, a minor nuisance, certainly not TEOTWAIKI.

Generalizations and simplistic conclusions can kill you. Or worse, maybe just allow all that you've built over a lifetime to be lost and leave you to deal with the aftermath. We do this every day. Thinking the guy in oncoming traffic will not cross over into my lane is a generalization I make every day. Does it stop me from going places, of course not. Can it kill me? It certainly can. Why should I treat rollover any different? I am making my preparations based on my evaluation. And I can assure you I won't die because of Y2K.

-- Maria (anon@ymous.com), March 15, 1999.

Maria, I assure you my parents very well *could* die from what you describe as *nothing*. But in Yardeni's context, my parents, dead or not, won't affect the stock market.

-- Brooks (brooksbie@hotmail.com), March 15, 1999.

Troll Maria,

You may not redefine the English language simply to suit yourself. To do so precludes communication.

"Nothing" means no-thing. The absence of all things.

You may say it means, "Not a big deal, so miniscule that it doesnt even warrant notice, minor termed an exaggeration. . .", but that doesn't make it so. If you attempt to view the world from your own unique set of definitions, you will sooner or later find that something or someone doesn't care or agree and you will lose. "Game Over". "No man is an island", etc., etc.

Your argument that, "We all take our chances based on some evaluation.", does not address my point. We certainly do make our own evaluations all the time, but my point is simply that the more information we can evaluate, the more likely it will be that our conclusion is an accurate and appropriate one. Although it is occasionally possible to have too much information, I submit that such is the exception rather than the rule. In the instant case, I would suggest that a thorough reading of Yardeni's entire analysis gives one a far superior set of information on which to base a conclusion than a simple, "70% chance of recession", or "10% chance of a bump in the road". "Sound bites" may suit those with ADD, but they offer little to someone with the capacity for rational thought.

Your argument that, ". . .anyone stupid enough to let their pipes burst deserves the damage they get.", although uncharitable, unsympathetic and essentially accurate, again does not address the issue. Whether or not someone "deserves" what happens to them is a value judgement. Whether or not that someone views the world as the same or different after any particular point is also a value judgement. These two are however, not the same value judgement. If you care to state that the loss of the majority of your posessions, a subsequent "rebuilding" of your life entailing the "support" of "community and friends" and the resulting circumstances would not constitute The End Of The World As You Knew It, you are of course, free to do so, but I can't believe that a majority of people would share your definition. The problem with the term "TEOTWAWKI" is that it means something different to each person who uses it, and so is ultimately meaningless without a prior agreement as to just exactly what it does mean.

"Why should I treat rollover any different?", you ask. TM, the best answer I know is this; First, don't focus on the rollover. A relatively small percentage of Y2K driven events will happen at the rollover. The total number of Y2K events has already begun, and will continue for some time to come. Second, nothing as pervasive as the Y2K design flaw has ever come our way before. There is no experience to rely on, and we must each do as you are doing when you say, "I am making my preparations based on my evaluation."

Although your assurance that Y2K won't kill you is indicative of a healthy level of self confidence, the reality is that all that separates any of us from whatever comes next is a single heartbeat and almost none of us ever knows ahead of time which one it will be or what unique chain of events or set of circumstances will take us to it.

Of all the things that you might find on this forum TM, I will recommend only two as being almost certain. The first is Patrick Shannon's observation that whatever happens will surprise us. The second is Robert Cook's prediction that, "things will fail in weird and wonderful ways."

-- Hardliner (searcher@internet.com), March 15, 1999.

I am amazed that Yardeni does not put more weight on the precarious Japanese situation. They are sitting on the knife edge of fiscal meltdown. Even a "bump" may be more than enough to start the fiscal walls tumbling down. When the Japanese fall (and I view it as when NOT if), the rest of the world is going to be pulled down as well.

-- RD. ->H (drherr@erols.com), March 15, 1999.

TM makes a valid point in that Yardeni's published probabilities leave a lot of scope for a minor Y2K event, globally speaking (I would consider a modest recession a great triumph as would most of us).

However, agree with Hardliner's key point, that TEOTWAWKI may well be experienced by many (millions of) people around the world, even in case of minor recession. No, not perhaps with the precise scenario being jousted over, but many others that are quite realistic given the possibilities.

I still believe the key ADDITION to Yardeni is the 5% depression possibility, a major RED FLAG to his peers and clihas.

I began prepping in early 98 on a personal estimate of 2% for depression. My preps have had as much to do with "defensive driving" with respect to personal skills and planning for a post-Y2K economy as with infrastructure disruptions. I considered that more than good enough reason.

5% more than doubles that estimate over a year later, with only 9 months to go.

What is most true is that, over all, strangeness will rule. TM's self-confidence in her ability to adapt will be vital (as will Hardliner's and mine). We'll all find out next year whether something more was needed ....

-- BigDog (BigDog@duffer.com), March 15, 1999.

I said, "We all take our chances based on some evaluation." Bad choice in word "some", I meant some kind of. Smokers have a ton of info about the effects of smoking, yet continue to smoke. How they reach their conclusions is beyond me. I know more than most on the effects of Y2K and my conclusion differs from yours. It doesnt mean youre right and Im wrong, just different. Well find out soon enough. (Big Dog beat me to that line)

and the resulting circumstances would not constitute The End Of The World As You Knew It, you are of course, free to do so, but I can't believe that a majority of people would share your definition

Thats too bad. All my possessions do not encompass my world. My world is made up of family and friends and the relationships I build with them. My possessions may bring me some comfort but they do not (and never will) create my world. I can get along without these things and I can regain whatever possessions are taken away for whatever reason. The only thing that I can imagine that would end my world is bad health for my family or for me. An old friend just lost a teenage son. This hurts me more than any possible, imaginable calamity from Y2K.

-- Maria (anon@ymous.com), March 15, 1999.

But Maria, death *is* a possible, imaginable calamity from Y2K, just more likely for the very young and very old. It's exactly why I am preparing.

-- Brooks (brooksbie@hotmail.com), March 15, 1999.