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Posted at 7:55 a.m. PST Friday, November 12, 1999

Wall Street nightmares over Y2K bug? Not exactly

NEW YORK(Reuters) - Six weeks and counting to the ``Y2K Bug'' that could stir a lot of millennial anxieties on Wall Street. But the stock market is not behaving as if it is scared.

It's November and the Nasdaq market has zoomed to more than a dozen records this month and the Dow Jones industrial average has recovered nicely after slumping some 10 percent between August and October.

Indeed, there are no signs of panic in the run-up to the year 2000, when millions of computers roll over from 1999 and some may confuse the change to 1900, messing up date-sensitive functions. The concern has been that disruption on a large scale could push the economy into recession, stun corporate earnings and slam the stock market.

Not to worry, say the forward-looking stock investors, taking a roll of the dice that there will be some post-Y2K benefits.

``What we're seeing in the stock market today is part of the melt-up that was supposed to happen after January 1,'' said Marshall Acuff Jr., equity strategist for SalomonSmithBarney.

``Some of the cash that was expected to be put to work after Y2K is now in play and the mutual fund managers who need to deal with their fourth-quarter performance have jumped on the market's momentum,'' he said.

Investors are apparently not worried about a nasty scenario in which Y2K throws cold water on the red hot U.S. economy, and pounds the Dow down 30 percent.

``The way the stock market is behaving says that Wall Street does not see Y2K as a big deal because most economists have spent a lot of time thinking about the computer glitch,'' said Hugh Johnson, chief investment officer for First Albany Corp. in Albany, N.Y.

``The bottom line conclusion is that there will be a strong fourth quarter and flat first quarter of 2000, thus a minimal impact,'' he said.

Experts say the rush by industry to build inventories -- store up survival goods before the hurricane hits -- will be a plus for the economy in the fourth quarter, and activity will slow in the first quarter as inventories are worked down.

But this assumes that everything goes off without a hitch at the start of the New Year.

Edward Yardeni, chief economist for Deutsche Bank Securities, said the Street is being lulled into a false sense of security by assurances from policymakers, such as Federal Reserve Chairman Alan Greenspan and major business leaders, that Y2K will be a non-event.

``The worst-case scenario would be an intense recession for the first six months of 2000,'' he said. ``And, the Dow Jones index could drop to 8,000 by March.''

Yardeni who was one of the first economists to sound the Y2K alarm two years ago, said the risk of a major disruption is still very real.

He worries that the infrastructure of telecommunications systems overseas may have problems in communicating with the rest of the world in the New Year.

And he's not hallucinating about the seriousness of Y2K. ''People still don't fully appreciate the global inter-dependence of the economies,'' he said.

``The U.S. State Department, CIA, and the Y2K International Cooperation Center are not giving people a tremendous sense of comfort and complacency about Y2K,'' he said. ``The reason for the difference of opinions is that Y2K is being painted in two shades of colors, either it will be a non-event or a calamity.'' Yardeni said.

The reality will probably be in between the two.

``It may be closer to a non-event but will be much more disruptive than it has been perceived,'' said Yardeni. ``Even the Japanese prime minister has told his people to prepare for a three-day storm.''

The game plan in Washington is to avoid setting off a panic.

``Absolutely, the American policy-makers don't want to encourage a panic reaction, and frankly, at this point, I'm not an alarmist anymore, just a skeptic,'' Yardeni said. ``Certainly, there is no point in ringing alarm bells at this time.''

What is so scary about Y2K is that it is unprecedented and no one knows exactly what will happen because it has never happened before.

Also, unlike a crippling snowstorm that can cause a major economic disruption in a region of the United States, the millennium thing is global. Glitches in one part of the world can affect other countries because of the interconnection of the global economy.

An estimated $50 billion has been spent by U.S. companies and governments to fix the problem.

While the U.S. financial system will be nearly 100 percent compliant, the big worry is over the readiness overseas.

Experts say that even if foreign financial companies were only 95 percent compliant, that would still cause serious problems on a global basis because of their inter-related transactions. In other words, whatever Bank X does impacts Bank A and Bank C and the problem can quickly spread like wildfire.

``The only stock market event we've had so far that was Y2K-related was last month's IBM announcement that sales of their mainframes might be depressed in the fourth quarter of this year and first-quarter of next year,'' Yardeni said

International Business Machines Corp. warned on Oct. 21 that its big customers were slowing down their spending on new equipment as they concentrated on fixing Y2K.

``IBM and the stock market have since recovered from the bad news but this shows how the world has become complacent about Y2K,'' Yardeni said.

Analysts said Greenspan has done a great job in calming people down, but the Fed chief, as usual, hedged his bets by saying that no one knows for sure what will happen.

So far, people are not running to their ATM machines to withdraw buckets of cash to prepare for the millennium.

Experts say the best thing is for the public not to overreact.

But press coverage of Y2K through year-end could stir up some concern, Acuff said.

``As we get into December, there will be a countdown between Christmas and New Year's but the reality is that as far as the United States is concerned, things look fairly good,'' he said. ''But there may be some glitches and nuisances here and there.''

There may not be a dial tone on the nation's telephone system one minute into the New Year but it's likely to be the results of an overloaded network as millions of curious people check to see if their phones actually work in the year 2000.

That's what Wall Street is hoping for.

-- Homer Beanfang (Bats@inbellfry.com), November 12, 1999

Answers

I wonder what the street makes of the Wall St Journal report recently mentioned by Cory Hamasaki? Something about a possible Jo Anne Effect error?

I mean, gee, it was only one firm with two little computer errors for a total of a measley EIGHTY B-B-B-B-B-B-BILLION DOLLARS! Lost. Gone. Dropped by the computer into the bit bucket (where the data register overflow bits go).

Might make some funds managers sweat a little.

WW

-- Wildweasel (vtmldm@epix.net), November 13, 1999.

Face the facts:

Wall Street is extremely bullish, buying future dreams. All present negative commentary is shrugged off. This mania will continue unabated until an unexpected surprise will cause a massive sell off!

And when this happens, Wall Street will crash in the worst fall in history. Their arrogance will cause their panic and subsequent plummet.

But not yet. The unanticipated surprise is on the horizon...

-- Randolph (dinosaur@williams-net.com), November 13, 1999.