I heard a very interesting conversation today, and I thought I'd pass it along to you all. It is a clear indication to me that we are in for rough economic times BEFORE 1/1/00.

First, a little background. I have a good friend I work with who I've tried talk to about Y2K. He is a total DWGI; started deleting my Y2K emails without even opening them about a year ago, so I just quit talking to him about Y2K at all. He and his wife are very well off (she's a doctor), and from what he's told me, they have a sizable stock portfolio.

Anyway, he was talking about his investment strategy today with another coworker who also invests in the stock market. Both of these guys are flaming DWGI's who absolutely deny that the Y2K problem itself will have any real impact. However, what my friend said amazed me, because he and I have basically avoided serious discussions of Y2K for nearly a year.

My friend said he was going to liquidate his stock portfolio in the near term (next few months) and put it into cash or CDs during the rollover. He said that he believes Y2K uncertainties will cause a major decline in the market, and he wants to sit it out and get back in after the bottom is reached. The guy he was talking to said he was going to do the same thing, by 10/1/99 at the latest.

How many other investors have this same plan? Although both of these guys are intelligent, they aren't stock geniuses. If they can see what's coming even from a DWGI viewpoint, how much longer can the market keep from tanking? Another October crash, maybe?

The handwriting is on the wall (street, that is)... the stock bubble is getting ready to burst. Stay in the market at your own risk; as the old saying goes, "it's better to get out a month too early than to get out a minute too late."

-- Nabi Davidson (nabi7@yahoo.com), June 02, 1999

Answers

Your buddy is the kind of person that drives the debunkers crazy. Uninformed beyond reaction and a mindless threat to us all. You won't find him on this forum.

-- Carlos (riffraff1@cybertime.net), June 02, 1999.

Nabi, I think you're right. My dad doesn't believe Y2K will be that big of a deal, either, but he's taking his money out in August. (That in itself should cause a bank run!) ;-)

-- Gayla Dunbar (privacy@please.com), June 03, 1999.

Nabi,

I had the tv on today tuned to CNBC. There was actually a talking head from somewhere who raised concerns specifically about Y2k and it's impending affect on the market. I've always been of the opinion that with Y2k perception IS reality. It doesn't matter if everything is done in time there will be problems.

The irony is that the problems will come from people like your friend who never put any degree of time into understanding the problem. They are the people who will create the "self-fulfilling prophecy" that is so feared. Meanwhile, the minority who had real fears and studied the issues will be far less of a contributing factor.

The markets are already on their way down, IMHO. But I don't know JACK really.

Mike ===========================================================

-- Michael Taylor (mt4design@aol.com), June 03, 1999.

well, I've posted it before and I suppose I will again..."panic will ensue long before the date arrives." I too believe in no later than an October meltdown. How much? Who knows? But a bank run is in the sequence of events as well. It is gonna be a ride this year. And this whole system has been so fragile. Imagine a world economy based on speculative values of companies. And since most were computer related..interesting that computers will help burst the bubble. Irony....

-- rick shade (Rickoshade@aol.com), June 03, 1999.

I have been buying Put option positions in the stock market that expire in January, 2001. When the market crashes, a mere $1000 could turn into $40,000!!! Ask your stockbroker! By September I should have about $15000 in Put Option positions. I plan to retire in January, 2000. This is a chance of a lifetime. DO NOT PASS IT UP!!!

-- freddie (freddie@thefreeloader.com), June 03, 1999.

If everyone is planning on an October crash you can bet it won't happen in October.

If and when the market crashes it may be extremely difficult to liqudate and bring home the dinaro.

Ray

-- Ray (ray@totacc.com), June 03, 1999.

I watched the Ways and Means Committee interview with Alan Greenspan on CNBC a few months ago (which just shows how truly warped I am). A question was posed by a Senator that went something like this:

"Mr Chairman, you have stated that the market was somewhat overvalued and was due for a correction for a while now. Back when the market was in the 7000's, and you have yet to be correct. Yet you still make the same assertion. My question to you is whether you believe the Year 2000 issue could be the catalyst for that correction."

Greenspan gave his trademark pained-looking smile/grimace and simply replied: "I would rather not comment"

Naturally, Greenspan has to be extremely careful about anything he says, but it seems that he could have offered at least some superficial words of assurance or something. Also the fact that the congressman would even pose such a question is interesting.

Sorry I don't have the name of the congressman or anything, but who in the hell records C-Span? I'm not that sick (yet).

People will invariably act in what they perceive as their own best interests, especially financially. There was an article in our local rag about day traders losing their shirts, and an interview with a woman that had lost about everything on tech stocks, but said she wouldn't quit because she knew she could go up again soon. It's like gambling addiction, in fact it really is gambling, and the table's about to go cold. Most people will try to cash out soon when they figure it out.

just my $.02

-- ariZONEa (ZONE_in@rizona.com), June 03, 1999.

I agree with Nabi that there are a lot of folks out there who don't really know that much about Y2K but are planning to shuffle their asset allocation "at the end of the year." I've talked to several myself.

A very plausible scenario is that the really savvy managers will start to do so around August (or have they already started?). The market begins to decline. The alert individual traders decide it's time to strike. The market declines faster. The sheeple who thought they were going to do this, oh say, November, decide that they ought to git while the gittin's good. The market begins to flounder. Now it's all on the front pages. Irrational exhuberance turns to (ir) rational fear. What used to be 7x24 wonderful news about the economy and the stock market becomes 7x24 wailing and gnashing of teeth.

Now, this is the good part -- it'll all get blamed on the Y2K prep crowd, even though they eschewed greed, have long been out of the stock market, and know 5000 times more about the issue than the dolt who was going to move his money out of stocks "just in case."

But hey, I could be wrong. I'm baffled that things have risen as far as they have and stayed up as long as they have.

-- David Palm (djpalm64@yahoo.com), June 03, 1999.

>> If everyone is planning on an October crash you can bet it won't happen in October. <<

I could not agree more. Classically, the market would drift without a clear direction for about a month or six weeks, first. Just enough to take the bloom off any further upside expectations and sow some seeds of doubt. At that point, the market bubble's on a hair trigger.

Everyone is sensitive to October, so I figure on August.

I suspect Greenspan and the Fed Board clearly understand that the devil and the deep blue sea are squeezing them from both sides. They'd love to get out from between but they can't. The credit bubble can't be pushed any farther without making the eventual crash far worse. I expect they'll let the market fall at least 25% before moving rates down even a 1/4 point. They will keep their jawbones active, instead.

Buckle your seat belts.

-- Brian McLaughlin (brianm@ims.com), June 03, 1999.

Nabi,

A good way to go broke is trying to peg market tops or bottoms. There's no telling when this raging bubble will find its pin. I feel sure it WILL, but I'm not willing to predict WHEN. Any time you've made money is a good time to get out (I think it was one of the Rothschilds who said he got rich selling too early). It seems to me to be a good time to be in wait-and-see mode. But I'm more conservative than most (or scared, whichever). There are a lot of visible and invisible forces acting on the market, and too much is unpredictable. I anticipate a long time (months) of vicious volatility before there's a 'bust.' Keep in mind that the 1929 crash took a total of 33 months to play out after the first big fall- that's almost three years of steadily declining stock prices.

Bears get rich. Bulls get rich. Pigs get slaughtered.

Most of those who are trying to wring every drop out of this bubble will get hurt bigtime. Many of them will never have anything to do with the stock market again in their lifetimes, if history follows previous episodes. There's more money in the market than there ever has been in history, and more people have a greater percentage of their "wealth" in the market than ever before. This sets the stage for an absolutely unprecedented disaster, potentially the biggest loss of wealth ever seen in human history.

And just think- you get to watch it all unfold for free!

PS: I'm still adding to my funds- Midas, Central Fund/Canada, Prudent Bear, Rydex Ursa... .

-- Lee (lplapin@hotmail.com), June 03, 1999.

http://www.y2ktimebomb.com/II/TK/tk9912.htm

[snip]

Hedge funds, on the other hand, are more of a concern to this writer. Hedge funds usually allow investors to redeem their investments at the end of the year, with 60 or 90 days notice. As investors become more concerned about liquidity, and moving to the left on the curve, as we approach the Year 2000, they are likely to start sending their redemption notices into hedge funds. In September and October 1999, when hedge funds receive these notices, they will have to start liquidating their portfolios. This in itself could have quite a dramatic impact on the financial markets. Remember Long Term Capital ("LTC") and its forced liquidation of its portfolio this summer? LTC was managing several billion dollars in equity, but had it leveraged up many times (some reports say 50 times), so that it was forced to liquidate a portfolio of almost $100 billion. Most hedge funds are more prudent with the use of leverage, and tend to stay below 5 times leverage. However, with billions and billions of hedge fund equity (the 5 largest hedge funds alone manage $50 billion collectively), there is likely $1 trillion in hedge funds' portfolios. The liquidation of even a fraction of these portfolios could have a severe impact on the markets (even if only 10% of investors redeemed from hedge funds, this would be similar in size to the liquidation of the LTC portfolio). The LTC liquidation was one of the primary reasons why the Federal Reserve cut interest rates three times in the fall of 1998.

[snip]

-- Linkmeister (link@librarian.edu), June 03, 1999.

I think there is a chance the market will float right till the bitter end (December). But August is very, very possible. Any GI not out by July 1 is playing the slots.

-- BigDog (BigDog@duffer.com), June 03, 1999.

Big Dog was right about that one, wasn't he?? :)

-- (Archive@digger.com), January 13, 2000.