The Good News About Y2K (by Mike Adams)

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The Good News About Y2K

Mike Adams

November 19, 1999

(Part Five of a Five-Part Series)

I have good news about Y2K. Sit back, because this may come as a shocker. The good news is that you can ride out Y2K by preparing for it. Those preparations fall into two categories: physical and financial.

It's fairly easy to prepare for potential physical disruptions: simply have extra food, water, cash, medicine and heating supplies tucked away. These steps have been recommended by the American Red Cross for months. I currently recommend that all Americans have a 30-day supply of these items, just in case.

Financially preparing for Y2K is also easy: reduce your financial risk now! How do you do that? First of all, either sell all your stocks or purchase "put options" on those stocks to insure your gains. I've recommended my readers diversify their equities by purchasing government T-bills, purchasing physical gold, holding cash, purchasing consumable supplies, or investing risk capital in bear-market investment vehicles (such as put options on the S&P).

The important thing, financially-speaking, is to be prepared for the following scenario:

50% drop in real estate prices.

A 50% drop in the stock market.

A six-month layoff from work.

This is just a guideline, not a prediction, but it demonstrates the importance of financial preparedness.

Let's take Matt Jones (a fictitious name) to demonstrate how quickly your financial situation can change if Y2K causes a recession or depression. Matt Jones is a software engineer earning $50,000 annually. After taxes, he takes home $30,000. He owns a house worth $200,000, and he owes $160,000 on his mortgage. He has $50,000 invested in the stock market and $10,000 in credit card debt. So far, he has avoided paying off his house because he wants to use the money to make more money in stocks.

Matt doesn't believe Y2K is any big deal. The government told him Y2K was fine, and he believes everything the government tells him.

Suddenly, Y2K hits. The real estate market drops 50%, the stock market drops 50%, and he finds himself laid off from work for six months. What happens?

First, consider the house: his $200,000 home is now worth $100,000. But he owes $160,000. His friendly neighborhood bank doesn't like having a $160,000 exposure on an asset only worth $100,000, so it urgently contacts him and asks him to pay enough money to bring his loan down to 80% of the value. 80% of $100k is $80k, and the difference between $160k and $80k is also $80k.

That means Matt must come up with $80,000 in 30 days or lose his home. Suddenly, Matt isn't too happy. He never knew this could happen. His bank certainly didn't tell him, and his government told him everything was fine.

Matt decides to sell his stock to try to raise the money needed to save his home. But his $50,000 in stocks are now only worth $25,000 thanks to the stock market drop. He sells anyway (what choice does he have?).

Now, Matt finds himself out of a job, too. His $2500 monthly take-home pay is gone. His credit card payments are now over-due. Now he thinks maybe he'll just sell the house to avoid bankruptcy. But that's difficult, too. Everybody else is trying to sell their house! He might be lucky to get $75,000, which would just barely pay off the bank and the credit cards. Things are looking bad.

Let's look at the situation here: Matt now owns no stocks, has no income, and owes another $55,000 to the bank just to keep the house he thought he bought. He can no longer live off his credit cards because he can't make the payments. Within 90 days, Matt will be forced to file for bankruptcy. He will lose his home, his credit, and his savings. And unless he finds another job (in a depressed economy), he will be in serious financial trouble.

HERE COMES THE GOOD NEWS

Now I promised this column contained good news. The good news is that you don't have to be Matt Jones. You can prevent this from happening by taking some prudent steps:

Pay off your credit card debts and stop buying until Y2K has passed.

Stop risking capital in the speculative stock market. Sell your stocks and pay off your house.

Own everything free and clear (if you can).

Set aside enough savings to make at least twelve months of payments on your house.

Invest in your own skills and education so that you're able to find other employment in case your existing employer is disrupted by Y2K failures.

Stop listening to stock brokers, bankers and television advertisements that tell you to mortgage your house to 125% and risk everything in the stock market. This is a fool's game plan that only enriches THEM, not you.

Diversify your equities. Consider owning some 1/10 oz. American Gold Eagle coins. Divide your bank deposits among more than one bank (spread risk). Use TreasuryDirect to invest money directly in the U.S. Treasury. You can't go wrong if you loan money to the guy who owns the currency printing press (that is, unless the whole system collapses, but I think that possibility is remote).

By following these strategies, you will dramatically reduce your financial risk during the Y2K rollover (and through the year 2000). Yes, you may miss out on some profits in the stock market. You may lose some interest on your bank deposits. But these are miniscule compared to the importance of being on solid financial ground. Remember: sometimes the return OF your money is more important than the return ON your money.

EVEN MORE GOOD NEWS

I also have good news about what happens after Y2K. The Year 2000 problem stands ready to shake up our economy and force the stock market down to rational levels. Even though this is painful in the near-term, this can only be good for the long-term growth of our nation. (Only a fool would support the notion that a highly-speculative, greed-driven stock market is good for the long-term economy of any nation.) Once reason is restored to our equities markets and amateur armchair investors are finally scared away, the stock and commodities markets can go back to doing its important business: Namely, spreading risk, rewarding innovation, and punishing poor business decisions.

As I wrote in an earlier column, Y2K may also shake up the IRS. Should the IRS suffer mission-critical failures, we may be forced to resort to a far simpler tax system -- such as the National Retail Sales Tax. The benefits of such a tax reform, of course, are tremendous: a massive influx of overseas capital to U.S. businesses, an uplifting of freedom for the population, no more wasting $6 billion annually in tax compliance costs, no more loopholes for the ultra-wealthy, no more taxes on your personal savings, no more tax avoidance by tax cheats, and so on. Y2K also stands to shake up politics in a major way. Neither Republicans nor Democrats have brought the true story of Y2K to the American people (other than, perhaps, Senator Bennett and Congressman Horn -- both Republicans). As a result, BOTH parties will be blamed for any disruptions that occur. This opens the door to a third-party candidate who can vault onto the scene and proclaim, "See? This two-party system got you into this Y2K mess. I will get you out of it..."

Perhaps most importantly, Y2K disruptions will teach humanity an important lesson: that any time we surrender personal responsibility to machines, we run the risk of paying a heavy price for it. After all, computers have greatly enhanced the centralization of bureaucratic power. Today's tax system, for example, would not be possible without computers.

One of the many things this country really needs, in my opinion, is a decentralization of power coupled with a sharp spike in personal responsibility. We'll be healthier, happier, and freer under a system that doesn't need a mainframe mega-computer to track consumers' bank transactions or welfare payments. And if Y2K can bring that about, that's good news.

THEY SAY GOOD NEWS IS BAD NEWS

It really strikes me as odd that many people consider this good news to be bad news. These people consider an end to the bubble stock market as a bad thing for the country and the economy. This shows their short-term perspective. I have news for these people: their definition of "the economy" really means, "equities inflation." No population of any country -- not in the entire recorded history of mankind -- ever prospered in the long term by trading pieces of paper with higher and higher numbers on them. And that is exactly what's happening today in the stock market.

The sooner this market comes back to reality, the better off we'll all be in the long run. I think Greenspan agrees with me. This is why, I think, he has declared war on Wall Street by continuing to raise rates. Bullish investors are thumbing their noses at Greenspan and accusing him of being "against economic growth." In fact, I think Greenspan is doing the right thing here. He must work to bring the market back in line with reasonable expectations and justifiable P/E ratios.

The good news is that Y2K may do it for him.



-- Uncle Bob (UNCLB0B@Tminus42&counting.down), November 19, 1999

Answers

Good advice though a little too late, except for selling off stocks!

-- Diane (cptlauthor@aol.com), November 19, 1999.

Mike Adams has some good thoughts - but, he leaves out other Very Important scenarios. If this were just a matter of stock and real estate values dropping, and some layoffs, he might have a plan.

As discussed in other threads, the whole Banking System is corrupt. The FED is at the Top of the List.

What will banks do with 50 or 60 million houses? Who they gonna sell them to? The remaining people with jobs? You've got to be kidding. A forclosed house becomes a liability to a Bank. That's why Chase Manhatten "restructured" their 70 billion dollar Brazilian Loan in the 1980's, so instead of Brazil being behind on their repayment ( a Liability), they now became "current" (an Asset).

How are Banks going to forclose on 50 to 70 Million homes?????

Forget paying them their fiat money. If it gets that bad, there won't be Banks and money won't be what it is now.

I say yes, cash out - but use the money for Tangible things that will be of value either way. If the economy and banks hold, sell what you bought to pay off your indebtedness.

-- Gregg (g.abbott@starting-point.com), November 19, 1999.


Uncle, where did you get the 50% drop in stocks and real estate? I have a lot of trouble with that. You call that a RECESSION or depression? I call that a DISASTER. If I believed that this scenario were likely, I would be wise to sell off all my real estate holdings, including my primary residence. "Matt Jones" should do the same thing. Paying off part of his mortgage would not keep him from losing his home, along with everything else he's worked hard for. If he took all the money out of stocks and paid off his $10,000 credit card bill, and with the remaining money paid down his real estate loan, he'd still owe $120,000 on his house, and have no job.

As a matter of fact, no matter what he does, short of selling his house BEFORE this disaster, he won't be able to raise the $80,000 the bank is demanding.

All in all, if your scenario is real, the problem will no longer be one of economics. It will be, as I said earlier, a total disaster.

AKL

-- Al K. Lloyd (all@ready.now), November 19, 1999.


My house dropping to a value below what I owe the bank is my problem. The whole town dropping below the value of what we owe the bank is the banks problem. Don't follow the advice

-- Noone (noone@none.com), November 19, 1999.

SoCA needs to keep in mind the property values could go into a free fall. We saw that happen after the big L.A. riot. Whole blocks of houses were up for sale. And it took years for any recovery.

-- Paula (chowbabe@pacbell.net), November 19, 1999.


Al K. Lloyd...

I didn't write this, as I posted, it says that Mike Adams wrote it.

I am a Real Estate Appraiser in SoCal. Socioeconomic factors do influence the value of real property. Areas with REO (lender owned) properties set the market value. Areas with textbook arms-length transactions set the market value. Real Estate Appraisers report the value conclusion based upon the sales transactions.

My feeling is that if things hit a 5-9 next year the .gov will put a moratorium on foreclosures until the dust settles. The missed payments will be rolled to the end of the individual loans. When values increase refinancing will begin in earnest. This would be a strain on the banking industry as a whole, but, not as big of a strain if the .banks or .HUD had 25mil to 50mil of bad loans in inventory. In addition, .gov will probably take my social security surplus to help subsidize .banks until they get their fat asses over the proverbial "bump in the road".

-- Uncle Bob (UNCLB0B@Tminus42&counting.down), November 19, 1999.


Very optimistic. The structure will survive. I find that cheering!

-- Mara (MaraWayne@aol.com), November 19, 1999.

Hey Folks:

This is a 5-7 on the Y2K scale. More to the point, this is what a gruesome correction of the biggest equity bubble in US history would look like (Y2K aside). Nothing at all beyond my imagination. You think Tokyo is worth as much as it was in 1989? The market drop will occur as (1) heavy margin buyers (hedge funds with 50:1 leveraging) start getting hit with margin calls (forcing sales), and (2) JQP starts getting forced to sell that AOL, EBAY, INTC, MSFT etc. because that new car, boat, and house were bought using loans on the logic that, "Hey, I'm rich! I own AOL, EBAY, INTC, MSFT, etc. so those loans don't scare me one bit."

I wouldn't whistle past this graveyard. This may be best case scenario before we are done. I have become very bearish (Y2K aside again).

-- Dave (aaa@aaa.com), November 19, 1999.


"It's fairly easy to prepare for potential physical disruptions: simply have extra food, water, cash, medicine and heating supplies tucked away. These steps have been recommended by the American Red Cross for months. I currently recommend that all Americans have a 30- day supply of these items, just in case."

THIRTY DAYS?!? 19 months of stored food is much more like it IMO. Then there's the matter of having it where 1) the uniforms can't find it, 2) where no neighbors find it, and 3) being where no uniforms or neighbors lay hands upon you or your family and beat the location of your food out of you. He forgot that part as well.

www.y2ksafeminnesota.com

-- MinnesotaSmith (y2ksafeminnesota@hotmail.com), November 19, 1999.


This is going to play out real interesting. My father use to tell me stories about the Great Depression. One thing I remember him saying is that people were loosing their houses because they could not afford to pay the property taxes, now those were hard times. Many people are leveraged for many reasons, if this turns out badly, as most on this thread think, we will experience an economic jolt! You can bet, the media and others will be doing their best to deny any issues in the economy, that may help for a while, but if we hit the big "D" start learning how to become self sufficient, cause we all may be cutting back big time on the way we live. If this is a 5-7 I am sure you can expect 50-70% decline in real estate, 50+ in all markets, massive layoffs, bankrupsies, etc... Do not forget, the stock markets today are coinsidered to be in a mania (bubble) for that matter, real estate in many areas this also holds true. To get back to reality, you could shave 30-40% off today and that may get things back to a normal state. I am still seeking information that would allow me to be a bit more optimistic about this, cannot seem to find it? Good luck.

-- Rich (Rluck@aol.com), November 19, 1999.


just heard why the Anasazi disappeared :

they were not Y1K-ready...

-- Perry Arnett (pjarnett@pdqnet.net), November 19, 1999.


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