If not y2k, what will pop bubble.com?

greenspun.com : LUSENET : TimeBomb 2000 (Y2000) : One Thread

I will admit the possibility that y2k glitches may be messing up a lot of stuff behind the scene, and it may get worse, etc. etc.

Yet, we have to admit that since so much infrastructure is around, updates can zip through the internet, programmers can be flown in, food and be purchased to sustain them, etc. etc. Face it: we do not have to deal with Gary North's breakdown in the division of labor.

As I mentioned in passing in another post, there is a great danger to the bubble economy of the United States. That threat is successful y2k remediation.

Recently, a lot of money has gone into US Treasury bonds and into the US stock market from overseas, mainly Europe and Japan. The idea was that the US was a good y2k haven. If any country could get it right, it was the US.

Now we have the apparent success world-wide. (perhaps not world wide: the BBC reported that the phones are down in Bangladesh; but maybe Bangladesh does not count as a real country).

This means there is no more need for holding this money in the US. Inflation (best monitored by the US 30 year bond yields) is going up. Dollar inflation will eat up any returns. So the European money is flowing out of America. When those dollars leave the bond market, they lower bond prices (which raises yields). When those dollars leave the stock market they lower stock prices. The higher bond yields are bad for the dollar. The dollar does poorly in the exchange rates. This in turn accelerates the outflow of money which in turn ...

Once this process starts, it will be very hard to stop. Today, the bond yield kept climbing, while stock prices (the Dow) fell.

The fun really starts when the American fund managers see what is happening and start heading for the exits.

What can Greenspan do? He can have the Fed buy some of the Treasury bonds to get them off the marketplace. This process itself is very inflationary (it converts the treasury debt into increased money supply). He can call in the PPT and try to hold up the market. He can ask other countries to buy more dollars to support the dollar.

The sizeable trade deficit gives Greenspan hardly any manouvering room. He may have sailed the rapids of y2k, but he cannot relax until this whole situation is diffused.

The huge short positions in precious metals, the yen carry trade, and other leveraged financial structures do not help at all.

My investment advice is to bet against the dollar. This is the classic doomer portfolio. But remember: the doomer portfolio will win because of the complete world-wide success of y2k remediation (the polly wet dream).

That is what you call irony.

-- David Holladay (davidh@brailleplanet.org), January 03, 2000


A dream yes. Consider that while many computer systems have indeed been turned on, perhaps as much as 70% of all the software has yet to have any real world test. We have printed no gov't checks. We have printed no corporate checks. Barely done any wire transfers. Have exercised less than one third of the systems in the USPS. Have collected no taxes. Have calculated no dividends. No month end processing. Barely any year to date. AND have delivered none of this to the end recipients to get their critique of the things we have not done yet. BTW: heard anything from IRS? If not, when will you start to think that they have a problem or two? Feb? March? April? Have any direct deposits? Have any benefit checks? And what impact on the collective mood if problems are perceived? It is becoming increasingly apparent that they will not be reported, so they will have to be directly felt. Then we might see some social issues arise. The bubble will be going about that time.

-- pliney the younger (pliney@pompei.com), January 03, 2000.

What will pop the bubble? Well, time of course. Time. Or, to borrow a phrase, tick tock....

-- Me (me@me.me), January 03, 2000.

I thought I made it clear in my opening sentences that I was aware of the possibility of massive problems lurking in the background.

I should say that the perception that y2k has been beated world-wide will/is causing a huge flow of investment out of US financial instruments. The existence of real y2k problems in American computers can only compound this process.

Here is my bottom line: all you doomers searching for every bug and glitch as proof that you are right, pay attention to the long bond interest rate. Pay attention to investment flows. Pay attention to the stock market. This is where you get to see the real cracks in the rosy picture of perfect bull market with no inflation/new economy B.S.

I want to show you that the perception that everything is fine in computer land may lead to a financial crisis in the US.

-- David Holladay (davidh@brailleplanet.org), January 03, 2000.

me: Why do you think the NASDAQ will tank within two weeks? Surprise rate increase from Greenspan?

-- dinosaur (dinosaur@williams-net.com), January 03, 2000.

Hey David,

The Fed was buying treasuries massively in the last 8 weeks prior to roll-over. M2 increased at an annualized rate of 15% in the last couple of months. As far as I know the only way the Fed has for directly injecting liquidity is buying Treasuries. Now it is clear that this is VERY INFLATIONARY.

Usually if you are trying jump start the economy this is what you do. However, the motive here is hard to see. The current acount deficit is over 300 billion this year which is very inflationary in itself. The world is floating on dollars and the safe-haven mentality has been one of the big reasons that they haven't been cashed in.

Japan has 290 billion in dollars and it could buy treasuries but it doesn't seem inclined to do it. They are in somewhat of a bad spot because if they do start selling dollars they will cause a drop in the dollar and raise the Yen which will hurt their recovery and diminish the value of their holdings. So they seem to be on the sidelines.

The group that isn't on the sidelines is the other Asians that have dollar denominated investments. They are interested in investing in the Nikkei or Hang Seng where potential returns are greater than on the NYSE or NASDAQ. This is where the dollar selling is taking place and also where lots of dollar conversions are coming from.

There is a lot of foreign holding of US Treasuries that is less justified now that the Polly wet dream as you call it has apparently come true. I agree with your bet against the dollar scenario so much that the reason I bought gold was because of it's historically low price and the oversupply of the dollar. Y2k had very little to do with that investment.

-- William R. Sullivan (wrs@wham.com), January 03, 2000.

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