Happy 2000. Got cash?greenspun.com : LUSENET : TimeBomb 2000 (Y2000) : One Thread
05/26/99- Updated 09:19 AM ET Happy 2000. Got cash? Doomsday forecasts change investment choices for some
By Sandra Block and Susan Decker, USA TODAY
Alan Loomis, a railroad conductor in Los Ojos, N.M., isn't taking any chances on Y2K.
To protect himself against the impending change of the millennium clock on Jan. 1, 2000, he's moved most of his investments into short-term Treasury bills, "the safest, most liquid investment you can be in today," he says. Because he suspects his brokerage firm hasn't immunized itself against the Y2K computer bug, he bought his bills directly from a Federal Reserve bank.
That hasn't allayed all of Loomis' Y2K anxieties. He's worried that computer glitches at his bank will prevent the Fed from electronically transferring the proceeds from his Treasury bills to his savings account. That means he'll have to get the money through the mail, he says. And he doesn't believe the U.S. Postal Service is ready for Y2K, either. Still, he says, "it's the lesser of two evils."
Loomis, who ordered an electric generator in January, may seem extreme, but when it comes to his investments, he's hardly alone.
On Jan. 1, computer programs that aren't updated could recognize the digits 00 in dates as the year 1900, instead of 2000, a glitch that could affect everything from elevators to e-mail.
Fearing a Y2K-triggered market meltdown, many investors say they're planning to move money out of the stock market in the coming months. Some are moving it into bonds and money market accounts; others are stashing it in coffee cans and sock drawers. A USA TODAY/Gallup Poll earlier this year found that 55% of those surveyed believe it's likely banking and accounting systems will fail because of Y2K-related problems.
For that reason, financial analysts are warning that the fourth quarter - historically a bumpy period for stocks --could rattle even the most stalwart of long-term investors.
"There is every reason to believe that there will be significant turmoil in the market" during the fourth quarter, says Harold Evensky, a financial planner in Coral Gables, Fla., and author of Y2K and Your Money. "There are fundamental reasons, and there are emotional reasons."
Evensky, like most financial advisers, says long-term investors should ignore blips in the market, Y2K-related or otherwise. But a few of his clients are having a hard time coping with the uncertainty the end of the millennium brings. For those individuals, he recommends shifting 20% of the money they have in stocks or stock mutual funds into bonds until next March.
"The rational thing to do is nothing, but people aren't rational," he says. "They're human. Our job is to help people deal with their humanness."
Timing is everything
Predictions of worldwide economic collapse are nothing new. But unlike a lot of the apocalyptic stuff you see in some supermarket tabloids, Y2K is a real problem with genuine economic consequences.
The government and private industry are spending billions to adjust computer systems, and some analysts forecast only minor inconveniences on Jan. 1. But worriers can find plenty of support for their worst fears. Deutsche Bank Securities chief economist Ed Yardeni, who predicted in 1995 that the Dow Jones industrial average would hit 10,000 before the turn of the century, believes there's a 70% chance Y2K will trigger a global recession.
Some investors see that as an opportunity. Scott Cowan, 37, a computer software engineer in Portland, Ore., says Y2K offers a rare chance to time the stock market: He's planning to move money in his 401(k) out of stocks and into money market funds in mid-August.
"Fear is the big thing. Fall is the time," he says. "It's going to happen anyway, so you should get out and get back in when it's low."
Likewise, Jim Vaillencourt, 39, a computer programmer in San Antonio, intends to take his money out of the stock market in July or August. He expects a 20% to 30% drop in the Dow Jones industrial average. When that happens, he'll be ready to buy his favorite stocks at depressed prices, he says.
"I think the media hype is going to start in September or October," he says. "I'm going to pull it out, then put it right back in. If it doesn't go down, I don't lose anything."
Bryan Lloyd, 25, a credit analyst in Wayne, N.J., also expects a downturn in the market later this year "since the market tends to react negatively to uncertainty, and there's a lot of uncertainty about Y2K."
Lloyd isn't putting any new money in stocks, opting instead for short-term bond funds and money market funds. If investor panic causes stock prices to fall, he plans to jump into the stock market, he says. "I'm expecting that there may be a lot of buying opportunities."
Cowen believes the stock market will hit bottom in early January, while Vaillencourt and Lloyd expect a revival by March.
Other investors aren't so optimistic. Bill Muir, 47, who owns a dry cleaning business in Redding, Calif., already has sold his stocks and invested his money in precious metals. He believes the market could fall as much as 80% and stay that way for a long time.
"We're in that same type of scenario as 1929," he argues. "Y2K will be the straw that breaks the camel's back." The market, he says, "will be imploding on itself, with everyone heading for the door, and it will be a very small exit."
That kind of talk unnerves Richard Kullander, 37, a real estate agent in Cedar Rapids, Iowa. A fan of legendary stock picker Warren Buffett, Kullander believes in buying shares of good companies and holding them forever. Until recently, he gave little thought to how Y2K would affect his portfolio. That changed after he went on a trip with a group of retirees.
"They're running out and buying generators and containers to hold water. One lady said she was going to fill her bathtub up on Dec. 31," Kullander says. Even more worrisome, he says, the retirees plan to pull their money out of the stock market and their banks.
"These people are expecting a disaster, so they plan accordingly," he says. "It's going to be a self-fulfilling prophecy."
Kullander says he probably won't make changes in his portfolio as Y2K approaches, but he's not ruling it out. "I don't think it's going to sway my investment strategy," he says. "But if I feel there are enough people out there who are going to overreact, it might make sense for me to take my money off the table to take advantage of huge swings."
If fourth-quarter turmoil is likely, how long will it last? Some analysts say the decline could be short, particularly if most of the Y2K doomsday forecasts prove false. "Come January, once people see the sky's not falling, you'll see massive inflows to the market," says David Kay, a financial planner in Dayton, Ohio. "That will drive the market to new highs." Similarly, Scott Kahan, a planner in New York, believes money from 401(k) plans will continue to drive up the stock market in early 2000, preventing a prolonged slump.
Investors have shown themselves remarkably resilient to market tremors the past few years. When the Standard & Poor's 500 index plummeted 19% between July 17 and Aug. 31, 1998, most investors bit their lips and stayed in the market. Short, sharp dips in the stock market have become so common that most investors shrug them off.
Still, some financial planners say Y2K could test investors' resolve. "Earlier market blips were blamed on profit taking or cycles," Evensky says. "With Y2K, there's something specific. Those are the kinds of things that will scare people out of the market and keep them out."
For some, a prolonged bear market has a positive side. "We will probably have to have economic difficulties to get back to family values," says Loomis, the railroad conductor in Los Ojos. "I'm very positive about life in general and believe the Good Lord is leading us in a good way." Getting data Information is power. Here are some places to get more information on Y2K:
The Federal government's information line: 1-888-872-4925. On the Internet, visit www.y2k.gov or www.consumer.gov. The Federal Deposit Insurance Corp., which insures bank deposits, 1-800-934-3342, or www.fdic.gov. The Securities and Exchange Commission, www.sec.gov. The Investment Company Institute, a trade group for the mutual fund industry, www.ici.org.
-- Arlin H. Adams (email@example.com), May 27, 1999
What a Statement ? "The rational thing to do is nothing, but people aren't rational," he says. "They're human. Our job is to help people deal with their humanness." I can here him now......no,no,no don't do that it'll bounce back. I thought you were in for the long haul. Your not being rational now.
-- kevin (firstname.lastname@example.org), May 27, 1999.