BUSINESS WEEK: "Why Ed Yardeni Is an MVP in the Victory over Y2K Bugs, His early and extremely dire warnings most likely helped head off a disaster" : LUSENET : TimeBomb 2000 (Y2000) : One Thread


STREET WISE by Sam Jaffe
January 5, 2000

Why Ed Yardeni Is an MVP in the Victory over Y2K Bugs
His early and extremely dire warnings most likely helped head off a disaster

On the morning of Jan. 3, Edward Yardeni, chief strategist for Deutsche Bank, stood before an assembly of the company's salespeople, brokers, and traders and said: "Now that Y2K has passed uneventfully, I can turn my full attention to the problem of global warming and its potentially catastrophic effect on the markets." The audience sat in dumbfounded silence. "I'm only kidding guys," he said, to a wave of nervous laughter.

It might seem to some that it took courage for Yardeni to even come to the office that morning. After all, he was the Cassandra who foresaw a disruption in the global supply chain because of the Y2K computer bug that would wreak havoc in the financial markets and cause a recession. Now that it's clear the Y2K bug had more bark than bite, you would expect Yardeni to be hiding in his bomb shelter eating canned veggies along with his crow.

Rather than being made a goat because of his way-off-base Y2K predictions, however, Yardeni should be heralded as a hero. After proving his skill as a consistently bullish market strategist during the '90s, he was seemingly wrong about Y2K. Or was he? More likely, his dire predictions about what could have happened might have helped head off a difficult if not disastrous situation.

MULTIFACETED. Every securities firm has a market strategist. It's a strange job -- part prophet, part soothsayer, and part chief salesperson. First and foremost, the strategist must make predictions about the future direction of the stock and bond markets and create a model portfolio based on those predictions. Strategists also must present a public face for their companies, on TV, and in print.

Most strategists consider themselves a success if they can simply claim they aren't wrong. For instance, they say they like the stock market and boldly change their model portfolio from 55% stocks to 60% stocks. If technology shares are hot, they'll talk up tech stocks. If financial stocks are getting burned, they'll warn clients to avoid those. Rarely, though, do you see such warnings while there's still time for investors to act. As a result, most of the literature produced by market strategists is about as valuable as Confederate currency in 1866.

An elite pack of strategists do try to get things right, though. Ralph Acampora, the technical analyst at Prudential; Abby Joseph Cohen, the chief strategist at Goldman Sachs; and Byron Wien, a strategist at Morgan Stanley Dean Witter, are well known for making risky predictions. They are also known for being right, as often as not.

CRACKPOT. Ed Yardeni was a member of that club until 1997, when he started fussing about the Y2K bug. At the time, few people in the business world took Y2K seriously. Yardeni made the jump from market guru to Y2K soothsayer in 1998, when he made his first forecast of a Y2K-induced recession. Suddenly, he was branded a crackpot, and the credibility it had taken him 10 years to earn threatened to evaporate overnight.

He did get people on Wall Street to take Y2K seriously, though. Morgan Stanley's Wien instructed his analysts to assess the Y2K readiness of companies they covered. Other strategists took up the banner, and soon CEOs and CFOs were besieged with questions about their Y2K plans. Corporate America took notice of the Y2K bug and, thanks in large part to Yardeni, had time to fix it.

"He did a great job," says George Bernard, a money manager at Moors & Cabot, one of the people who is supposed to be angry with Yardeni now that Y2K is over. "I liken him to a good insurance company. He alerted the public to a great public danger, and he did it in time for the problem to get fixed." If Yardeni was wrong in the end, in fact, it may be because his alarms helped find the solution to the problem he was predicting.

WORRIED, AGAIN. So, let's say he was right and that his predictions were worth heeding. Maybe someone should listen to what Yardeni is saying about the markets right now. He's worried. Not about a computer bug, but about interest rates. "Once the long-bond yield crosses the 6.5% mark, there's really nothing holding it back from 7%, and then we're sure to see a major Fed raise" in interest rates, he says. "I'm not going to say that just because there weren't problems with Y2K that means that stocks are cheap. They're not."

Yardeni doesn't expect the sky to fall, however. "The market drop we saw on Jan. 3 and Jan. 4 just shows how incredibly sophisticated the individual investor is," he says. "Everyone waited for the new year to take profits so they wouldn't be hit by capital gains taxes in 1999." So does that mean that the selling will continue? "When I talk to my traders, they just can't believe how much new money is flooding into the market every day. There's a lot of cash that will act as a firewall. I don't see a crash coming anytime soon." Those are the words of a man who is likely worth listening to.

Jaffe writes about the markets for Business Week Online

Copyright 2000, by The McGraw-Hill Companies Inc.


-- John Whitley (, January 08, 2000


He may be the MVP when it comes to warning about financial effects, but I think Ed is the overall MVP for increasing awareness of the implications of Y2K in ALL aspects.

Gary North should get the award for most shockingly effective, Michael Hyatt for most courteous, and Paul Milne should get the biggest balls award.

-- Hawk (flyin@high.again), January 08, 2000.

Meant to say Ed Yourdon is the overall MVP. (forgot there were 2 Ed's !)

-- Hawk (flyin@high.again), January 08, 2000.

Apparently we've reached the stage in this project where we punish the innocent and reward the guilty. And this is being done by the same people who distrust "management" for doing the same thing. Where's a mirror when you need one?

-- Flint (, January 08, 2000.

"Guilty" Flint???

Guilty of WHAT?

Guilty of trying to increase awareness of a potentially disastrous problem, and being so successful at it that the World listened, and the problem was avoided?

You're disgustingly stupid when you act like a Polly.

-- Hawk (flyin@high.again), January 08, 2000.

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