SUMMARY - "PIG":
The Contrarian's View is published 11 times per year on a mostly-irregular schedule, and the views expressed are those of the author and editor, Nick Chase. Because nobody can predict the future, results of past suggestions or recommendations are no guarantee of future results. Material in this publication may be freely quoted provided proper attribution is given to its source. Subscription rate: Free on the Internet through the World-Wide Web service at Assumption College. Using your favorite Web-browsing program, Open URL http://nick.assumption.edu. Mailed paper subscriptions, one year for $39 to The Contrarian's View, 132 Moreland Street, Worcester, Massachusetts 01609. There is a limit of 50 paid subscribers at one time; please check for availability before sending any money. Sorry, Visa and Mastercard are not available. Overseas subscription rate, U.S. $54. Unsolicited material sent to us by UPS or by courier other than the postal service is refused and returned to sender! Phone: (508) 757-2881
What are you going to be doing for as living in the year 2001? Unless you're a fix-it man living in a small town, you won't be doing what you do today. If you make your living in financial services, you will surely be doing something else. If you're a journalist, you will be in a new profession. But what? What other useful service can you provide? You have very little time to make the switch. Let me show you why.
We live in a world that depends on a high division of labor. That world has less than three years to go. In one gigantic collapse, the division of labor will implode. This implosion will begin in 1999. It will accelerate in 2000 and thereafter. Those who work in highly specialized fields will find little or no demand for their skills, in the face of an enormous supply of desperate, low-wage competition. Any job classification that did not exist in 1945 will probably not have a lot of demand in 2001, with one exception: computer software programming.
The June 2 issue of Newsweek ran a front-cover story on the looming computer crisis of the Year 2000 -- called y2k (Year 2 K -- shorthand for a thousand). In the week it the article appeared (late May), the Dow Jones Industrial Average set a record new high. (It was beaten a week later.) If investors believed the information reported in the Newsweek article, the world's stock markets would have collapsed. Clearly, people don't believe it. That's why a small handful of people can get out now -- out of the stock market, the bond market, and any city over 25,000.
Not everyone can get out at the top of a bull market. This includes the "bull market" known as modern industrial society. Pull the plug on the local power utility for 30 days, and every city on earth becomes unlivable. What if the plug gets pulled for five years?
How do you rebuild the shattered economy if the computers go down, taking public utilities with them? Without electricity, you can't run the computers. Without computers, you can't fix computers. How can you assemble teams of programmers to fix the mess? More to the point, how do you pay them if the banks are empty?
Chase Manhattan Bank has 250 million lines of code to check and then repair. Citicorp has 400 million lines. All big banks are similarly afflicted. And even if this could be fixed, bank by bank, there is no universal repair standard. Thus, the computers, even if fixed (highly doubtful) will not work together after the individual repairs. A noncompliant bank's data will then make every compliant bank noncompliant. Thus, the world banking system will crash in 2000. When the public figures this out in 1999, the bank runs will begin. You will not have a job in 2000. Count on it.
"It Just Can't Be True!"
You don't believe me, of course. Not yet. But I have published the evidence on this Web site. You can verify what I'm saying. But you still won't believe it. Why not? Because it's too painful. In their new book, The Sovereign Individual, Davidson and Rees-Mogg make a very important observation:
A recent psychological study disguised as a public opinion poll showed that members of individual occupational groups were almost uniformly unwilling to accept any conclusion that implied a loss of income for them, no matter how airtight the logic supporting it. Given increased specialization, most of the interpretive information about most specialized occupational groups is designed to cater to the interests of the groups themselves. They have little interest in views that might be impolite, unprofitable, or politically incorrect (p. 339).My views are all three: impolite, unprofitable, and politically incorrect. Impolite, because I am saying this: (1) those advising you are as blind as an eighth-century Israelite king; (2) they have given you information that will prove to be wildly unprofitable; (3) all the hype about your getting rich -- the world's getting rich -- is a clap-trap. We are heading for a disaster greater than anything the world has experienced since the bubonic plague of the mid-14th century.
Because the year 2000 begins on a Saturday, millions of victims will not be aware of their dilemma until the following Monday or Tuesday. They will pay no attention to advance warnings, such as this one, that they are at risk.
As you read this report, I want you to think to yourself: "How will this affect me? Is my business at risk? Is my income at risk? What should I do?"
The Origin of the Problem
Here is the problem. Over three decades ago, computer programmers who wrote mainframe computer software saved disk space -- in those days, very valuable space -- by designating year codes as two-digit entries: 67 instead of 1967, 78 instead of 1978, etc. Back then, saving this seemingly minuscule amount of disk space seemed like an economically wise decision. This may prove to be the most expensive forecasting error since Noah's flood.
What the programmers ignored for three decades is this: in the year 2000, the two digits will be 00. The computer will sit there, looking for a year. At midnight, January 1, 2000, every mainframe computer using unrevised software dies. If old acquaintances are in the computer, they will indeed be forgot.
Programmers who recognized the implications of this change did not care. They assumed that their software would be updated by year 2000. That assumption now threatens every piece of custom software sitting on every mainframe computer, unless the owner of the computer has had the code rewritten. In some cases, this involves coordinating half a billion million lines of code. (Example: AT&T.) One error on one line can shut down the whole system, the way that America Online was shut down for a day in 1996 because of a one-digit error.
The handful of reporters who have investigated this problem have met a wall of indifference. "We're all using microcomputers now." "This is a problem only for a few companies that are still using mainframes." "Cheap solutions will appear as soon as there is demand." "The software will be updated soon, and I'll buy it then." "If this were a serious problem, we'd have heard about it." Yet this last response is given to someone -- a reporter -- who is trying to tell people about the problem.
I first read about this problem years ago in a book by the pseudonymous author, Robert X. Cringely: Accidental Empires. It is not as though the computer industry has been unaware of it. Only a few weeks ago, I read a Wall Street Journal column on computers that mentioned it. The writer wrote that his editor is getting tired of having him mention it. This is typical. The general public hasn't heard about it, yet editors are already tired of hearing about it. "It's old news." Well, it's new news for most people.
What does it matter, really? We use microcomputers. Microsoft has solved the Year 2000 problem. So have most software companies. Everyone uses desktop computers or, at the largest, minicomputers, right? Wrong.
Governments Rely on Aging Mainframes and Software
On September 24, 1996, Congressman Stephen Horn, who is Chairman of the Subcommittee on Government Management, Information, and Technology, submitted to the full committee a report on the Year 2000 problem. The Subcommittee held hearings on April 16. (Just one day of hearings. This indicates the degree of concern that the government has.) He said that these hearings revealed "a serious lack of awareness of the problem on the part of a great number of people in business and government. Even more alarming was the cost estimate reported to the Subcommittee to remedy the problem, which was said to be $30 billion for the Federal Government alone." Then he announced:
Without greater urgency, those agencies risk being unable to provide services or perform functions that they are charged by law with performing. Senior agency management officials must take aggressive action if these problems are to be avoided.Yet despite Horn's valid warning, nothing visible is happening. He knows this. These agencies must shift hundreds of millions of dollars from their existing budgets to hire outside programmers to rewrite the code that runs these agencies. This isn't being done. More to the point, the longer they delay, the worse the problem gets. You can't just go out and hire programmers who are familiar with the code. As businesses find out what threatens them, the demand for these highly specialized services will soar. (If businessmen don't figure this out in time, payment will come due in January of 2000.)
The Subcommittee's report warns: "This issue may cause banks, securities firms and insurance companies to ascertain whether the companies they finance or insure are year 2000 compliant before making investment decisions." It also says that companies will start demanding contractual warranties guaranteeing against Year 2000 breakdowns.
A memorandum from the Library of Congress Research Service (CRS) has warned that "it may be too late to correct all of the nation's systems." So, the question arises: Which systems will survive and which ones won't? Here are some problem areas, according to CRS:
Miscalculation by the Social Security Administration of the ages of citizens, causing payments to be sent to people who are not eligible for benefits while ending or not beginning payments to those who are eligible;I don't think these are small issues. They will probably start receiving media attention when it is so late in the process that there will be massive foul-ups in coordinating the revisions.Miscalculation by the Internal Revenue Service of the standard deduction on income tax returns for persons over age 65, causing incorrect records of revenues and payments due;
Malfunctioning of certain Defense Department weapon systems;
Erroneous flight schedules generated by the Federal Aviation Administration's air traffic controllers;
State and local computer systems becoming corrupted with false records, causing errors in income and property tax records, payroll, retirement systems, motor vehicle registrations, utilities regulations, and a breakdown of some public transportation systems.
Notice, the biggest one is missing: an international bank run, as depositors demand cash. From that day on, all exchanges will be local: the collapse of the division of labor.
When the computers' clocks think it's 1900, it soon will be.
I realize that there has been tremendous progress in microcomputer power, but does anyone really think that all of the Federal government's forms -- not an infinite number, but approaching infinity as a limit -- can be put on three dozen Compaq desktop computers and run with, say, Lotus Approach or Microsoft Access? And even if they could, how would you re-train all of the bureaucrats to use the new systems? How fast will they learn? How fast do bureaucracies adapt? The Subcommittee's report warns:
The clock is ticking and most Federal agencies have not inventoried their major systems in order to detect where the problem lies within and among each Federal department, field office and division. The date for completion of this project cannot slip.By "cannot," the Subcommittee's report-writer meant "must not." The date can surely be allowed to slip. It almost certainly will be allowed to slip.
Additionally, the task may be more difficult for the public sector, where systems have been in use for decades, may lack software documentation and therefore increase the time it takes from the inventory phase to solution.Did you get that? The software code's records are gone! Remember also that we're not just talking about the United States government. We're talking about every government -- national, state, and local -- anywhere on earth that has its data stored on an unrevised mainframe computer system or which relies on any third-party computer service that uses uncorrected software.
As the year 2000 approaches, word will slowly begin to spread: "After the three-day weekend that will inaugurate the year 2000, there is going to be a hangover the likes of which we have never seen before." For some, it will be a time of celebration. For others, it will be the end of their dreams. It depends on whether they are being squeezed by the government or dependent on it.
But it's not just government that is at risk. It's private industry.
Kiss Medicare Goodbye
Some 38 million people will receive Medicare payments in 1997. In 2000, an estimated one billion claims will be filed, totalling over $288 billion. This, according to a May 16, 1997 report of the General Accounting Office (GAO): "Medicare Transaction System."
Problem: the Medicare system won't make it through 2000. The same GAO report shows why. Medicare claims are not actually administered by Medicare. It's administered by 70 private agencies. These agencies have been informed that their contracts will not be renewed in 2000.
The agency that officially supervises Medicare has plans for one huge computer system that will bring the program in-house. It is the same dream that motivated the Internal Revenue Service for the past 11 years. The IRS announced earlier this year that after 11 years and $4 billion, the attempt had failed.
Medicare now knows that it has a problem with its computers. They are not Year 2000-compliant. So, to make sure that they will be compliant, Medicare has issued an appeal to the 70 newly canned companies: please fix the year 2000 problem for us before you leave. As the GAO report puts it, "contractors may not have a particularly high incentive to properly make these conversions. . . ."
What if the system fails? (What if? Are they kidding? When!) The report says that the Health Care Financing Administration (HCFA), which is responsible for running Medicare, has not made contingency plans. "HCFA officials are relying on the contractors to identify and complete the necessary work in time to avoid problems. Yet the . . . . contractors not only have not developed contingency plans, that have said that they do not intend to do so because they believe that this is HCFA's responsibility."
Kiss the IRS Goodbye
The IRS has 100 million lines of code. Their code is not year 2000-compliant. After the failure of the 11-year project to upgrade the system, Chief Information Officer Arthur Gross announced that getting the IRS year 2000-compliant is the "highest priority for the IRS." The IRS has nearly 50,000 code applications to coordinate and correct. This task will require the IRS to move 300 full-time computer programmers to the new project. (Reported in "TechWeb," April 21, 1997).
For comparison purposes, consider the fact that the Social Security Administration began working on its year 2000 repair in 1991. Social Security has 30 million lines of code. By June, 1996, the SSA's 400 programmers had fixed 6 million lines.
What if the IRS isn't technically equipped to pursue tax evaders after December 31, 1999? What if the IRS computer system isn't fully integrated with all of its branch offices? What if the system's massive quantities of forms are not stored in a computer system that is Year 2000-compliant? More to the point, what if 20% of America's taxpayers believe that the IRS can't get them if they fail to file a return?
In 1999, the IRS may find a drop in compliance from self-employed people. If the IRS can't prosecute these people after 1999, there will be a defection of compliance by the self-employed. When word spreads to the general public, there will be a hue and cry -- maybe at first against the evaders, but then against employers who are sending in employees' money when self-employed people are escaping. Meanwhile, cash-only, self-employed businesses will begin to lure business away from tax-compliant businesses by offering big discounts.
This will start happening all over the world. Once it begins, it will not easily be reversed. The tax system rests on this faith: (1) the government will pay us what it owes us; (2) the government can get us if we stop paying. Both aspects of this faith will be called into question in the year 2000 if the governments' computers are not in compliance.
Big Brother is no more powerful than his software. On January 1, 2000, this strength may fall to zero. Actually, double zero.
If the IRS cannot collect taxes, and if all the other mainframe computer-dependent tax collection agencies on earth do not fix this, what will happen to the government debt markets worldwide? To interest rates? To the government-guaranteed mortgage market?
Kiss them all goodbye.
"No Problem! Trust me!"
There are a few conservative financial newsletter writers who have heard about y2k. They deny its economic relevance. A shut-down of all mainframe computers would mean that newsletter writers will be out of business after 1999 -- a thought too terrifying for them. So, they brush y2k aside with some version of this rebuttal: "Of course, the government may not get its computers fixed." This is supposed to calm you. It should terrify you. Ask yourself:
What happens to T-bills and T-bonds if the IRS computer breaks down and a tax revolt spreads because taxpayers know the IRS will never find them, and that if they pay their taxes, they won't get their refunds?
What happens to money market funds and bond funds that invest heavily in government debt when investors realize that if the IRS can't collect taxes, the government will default on its debt?
What happens to the banks when depositors figure out that the FDIC is bankrupt and that nobody insures their accounts any more?
What happens to your job when the banks close because of bank runs, and no business can borrow money or even write a check to its employees?
What happens to the delivery of food into cities when money fails because the banks are busted?
What happens to the delivery of public utilities when money fails because the banks are busted?
What happens to your retirement fund when ERISA, the government pension guarantee program, goes bankrupt?
What happens to the 38 million people in the U.S. who are dependent on Medicare? (Medicare is administered by 70 private firms that have all been told they will be fired in 2000 when Medicare installs its new computer system, but in the meantime, they have been asked to do the year 2000 repair on their own, to deliver a fixed system to the government in 1999. Does this sound crazy? Of course. It's the government. See my Web site for confirmation of this story: a May 16 government report.)
What happens to 42 million people on Social Security?
What happens to every state government?
What happens to crime rates when the state cannot imprison violent criminals and may have to release those who are locked up because they can't be fed?
What happens to the world economy when this scenario is multiplied across every government?
Kiss your job goodbye. Especially if you're a journalist. I know. I am one. I figure I'll be out of work -- forced retirement -- January 1, 2000. I'm making plans to be in small-scale agriculture. I'm out of debt.
What about you?
Psychological Deferral
Those in authority prefer to defer thinking about this. They are playing Scarlett O'Hara: "I'll think about it tomorrow," followed by, "Well, fiddle dee-dee." Deferral is a normal response to distant problems. The question is: What can we afford to defer? People defer making this assessment. The fact that you have not read much about this looming problem doesn't mean that it isn't a problem. If your employer has not actively sought solutions to this problem, your firm had better not use mainframe computers or be dependent on suppliers that rely on mainframe computers.
Everyone assumes that someone else is doing something to solve these problems. "It's being taken care of." The problem here is the passive voice. Who, exactly, is taking care of it? What, exactly, is this person doing? Is he on schedule? How do you know for sure? Are you taking his word for it? Anyone who takes the word of a computer programmer that he is on schedule is a person of very great faith. If the programmer says "Sorry, I didn't make it" on December 31, 1999, you're dead in the water. Meanwhile, he moves on.
What You Should Do, Beginning Today
First, you investigate whether what I'm saying is true.
Second, think through what happens to you if the local power company and the local water and sewage company shut down in your city for six months. "Who ya gonna call?" Especially if your phone is dead? And if you do get through, how ya gonna pay if your local bank is defunct?
Third, here is my personal strategy. I have adopted a question: "Can I prove on paper that he owes it to me?"
I want hard copy print-outs of everything I do with the government. If you are owed money from Social Security, and you're dependent on this income, contact the Social Security Administration every year and get a letter telling you what you're owed. This is true of every government pension system.
Do you have a copy of your birth certificate? If not, write to your place of birth and get it. Even if that community has not computerized the records, do it now. Even if it keeps the records in a desktop, do it. If word starts to spread, they may be buried in requests in 1999. You want your paperwork completed before word gets out.
Do you have a copy of your college transcripts? If not, get it. The same goes for your work record history. Assume that your records are in some company's mainframe computer. Assume also that the company has failed to update the software.
Do you have a print-out of all of your insurance records? Would they stand up in court? If not, get what you need, now.
Have you spoken with your local insurance agent? Is he fully aware of the problem? Ask him straight out if he has scheduled an update of his software if he relies on vendor-supplied software. He deserves to know what is coming. So do you. (If you want to photocopy this issue to send him, go ahead.)
Think through this problem in advance, before it gets out and creates a banking panic, all over the world. This story will get out eventually. In 1999, when reporters are running around looking for sensational Year 2000 third millennium stories, this one will at last surface. It already has: in Newsweek. At that point, every government bureaucrat whose agency is at risk will start playing the "No problem" game. "It's being taken care of." The bureaucrat's number-one rule is to evade responsibility. No one with any authority is going to admit that his malfeasance in office is going to create a disaster on Jan. 1, 2000. The basic response will be this: "There's no problem here, and furthermore, I'm not responsible when everything collapses next year!"
Keep visiting my Web site for updated information:
E-mail this report to anyone you care about.
In my opinion, probably not. Even though I work with computers for a living, I have not been terribly concerned about the "Y2K" problem, because of the rapid change in the industry. Our mainframe Digital VAX computers use an operating system, VMS, which has had four-digit dates since its very first versions, back in the early 1980s. Our main supplier of application software has been working on modifying its software for some time now. In a sense colleges have already met the Year 2000 problem, because the Class of '00 enrolled last summer, and August 1997 will see the arrival of the Class of 2001. So far, we have had a few glitches and have expanded a few databases, but have had no major problems.
The college is also heavily Macintosh-based, and Apple says the Macs are good to the year 2040.... even the very earliest models produced. Most PCs in use are in student labs, and will almost certainly be replaced with new machines and new software by 2000 just to keep up with the latest stuff (required by courses). So, you can see why I was not terribly concerned.
But after reviewing the information on the various Year 2000 web pages (thanks to a tip from an Internet reader), I decided to do some checking, just in case. Sure enough, the Macintoshes enter the year 2000 with no problem at all; I advanced the date on my office Mac and let it roll into January 1, 2000, and every piece of software, including the shareware web server, continued to run just fine.
The VMS software runs under a special one-year renewable license, so I will not be able to "forward-test" until the spring of 1999; but a check at the Digital Equipment Corporation website indicates that VMS and the "layered products", as Digital calls its software applications, are "compliant". So there should be no problems here.
One would not expect newer PCs to have a problem, because we are so close to the year 2000 that surely no programmer would be dumb enough not to provide for the next century. So, on my office PC I set the date to 12-31-1999 and the time to 23:59 (using DOS commands), shut the PC off, and waited a few minutes. When I turned on the power and it rebooted, the date shown was January 4, 1980.... the most common failure for PCs that exhibit a problem with the year 2000. This PC is less than two years old - running DOS 6.2 and Windows 3.11.
The problem, it seems, is in the hardware clock, which fails to increment the century when flipping from '99 to '00. Even machines being shipped today have this problem, which dates back to a 1984 design flaw. You can set the clock correctly with the DOS DATE and TIME commands, but it will not "roll over" into the new millennium correctly if left alone. I can envision a lot of people rebooting their PCs on New Year's Day two and a half years from now. (Windows 95 and NT apparently work around this problem and enter into the year 2000 correctly.)
Fortunately, on the Internet there is a software fix to help your PC get into the next century, and I installed it. The fix worked fine, and the PC passed a Year 2000 "test" program I ran. But the web server on the PC would not run in the year 2000; I sent an e-mail to the manufacturer (and received a reply; the just-released version works properly).
Imagine my experience multiplied a billionfold in the year 2000. I think that most systems will have been mostly fixed and will mostly run; but there is no question that there will be some failures, and it's a crapshoot whether a business or organization you deal with will be one of the failures. I think the electricity and water will flow, for example, and you will be able to make phone calls; but your bank's ATMs may not work for a few days, or maybe your check-cashing card at the supermarket will be rejected.
People looking at the year 2000 bug curse at the programmers who abbreviated years to two-digit dates back in the 1960s and 1970s. Why did they do such a stupid thing?, you may wonder. Where was their foresight?
As one who was programming early in the 1960s, let me assure you that neither I nor any of my co-workers thought that our code would ever still be around in 2000. (We figured we'd be lucky if we were around in the year 2000.) In fact, nearly every piece of code I wrote (not in COBOL, and not on IBM mainframe computers) was obsolete and discarded within three years. The only programs that I have written that still exist are those I wrote for my own use, such as the one that calculates "Timer's Trend" (now 20 years old). Rapid obsolescence was a fact of life, even in the 60s; for every line of code from the 60s and 70s that's still kicking around, probably 200 lines of code have been discarded.
It's also much too easy to harshly judge the pioneer programmers from today's perspective of multi-megabyte memory and gigabyte hard disk drives. I worked on "the world's first minicomputer", a machine that would fill the average bedroom. It had 4,096 words (about 8K bytes) of core memory, and a "drum" (the predecessor of the hard drive) with a storage capacity less than one of today's high-density floppy disks. This "minicomputer" retailed for $100,000. Core memory was very expensive; about $30,000 to add another 4,096 words. As the name implies, it was made from little doughnut-shaped magnetic "cores" strung by hand on wires by female sweatshop labor in Taiwanese memory factories; but it did have the advantage of retaining information when you turned off the computer, unlike today's semiconductor memory which forgets everything.
So you can see why programmers were anxious to save every byte of memory and storage they could, and why it was so logical to truncate years to two digits. And, considering the high cost of the hardware back then, organizations probably got their money's worth, even with today's expense of getting the programs that have survived to work in 2000. I can recall spending a week trying to save 5 microseconds of execution time in a little subroutine I was writing. But it was worth the effort, for this was a "frame fit" subroutine, used in a system that was the great-great-grandfather of today's CAD/CAM systems; the outline of every image had to pass through this subroutine, which determined whether or not the image would be shown on the screen. Today, machines are superfast and memory is superplentiful; programmers can afford to be careless with resources and suffer no adverse consequences.
The profit motive is a powerful incentive for businesses to track down and fix any year 2000 problems in their systems: Adapt, or die. Either you are ready, or the competition will gobble up your market share. Periodically I check with a friend who works at a large insurance company here in Worcester, the financial backwater of America. She says the company is aware of, and working on the problems, but is behind schedule. Every few months the top brass reorganize the departments, but this has no noticeable effect on speeding up the schedule. Everybody there will probably be putting in megahours of overtime in the last six months of 1999, and if the programmers can keep the managers from interfering they'll probably make it before the ball descends in Times Square. This probably will be a "typical" story at most large, IBM-mainframe-based companies.
I do see a problem for smaller companies that are running, say, an IBM System 36 for inventory control, billing and such. IBM no longer supports the COBOL language or the operating system on these older machines. Even if the source code for the programs still exists, it's unlikely any programmer in the company understands it, and it will not compile and run on a newer machine without considerable modification. So a company whose data processing is still in the stone age, if it doesn't modernize soon by switching over to an entirely-new system, it may well go out of business.
I also see a problem with "process-control" computers, that is, older computers buried inside some kind of automated machine. People have probably forgotten that there's even a computer hiding inside, and won't know they have a problem until the machine dies at the turn of the year (if it is sensitive to dates). Consumer goods, such as VCRs - most will probably continue to work; some may have to have the date re-entered.
By far the biggest year 2000 problem is in the government. There is no competition or profit motive operative here; bureaucrats just club you with the law and regulations instead. The Social Security Administration is probably the furthest along (of civilian departments; the military's progress is, naturally, classified information). Retirees will probably get their checks without interruption, but people planning to retire may be put on hold for a few weeks or months, and the executors of recipients who have died may experience difficulty in returning extra checks or electronic deposits. That reminds me, the Federal government is going to an electronic-only, direct-deposit form of payment for many kinds of payments it currently (also) makes by check, such as bond interest payments... the switchover date is 1999. Talk about being totally dependent on the computers! How many people will feel royally cheated if the government's computers fail to make those deposits in a timely manner when we cross the hundred-year mark?
The Internal Revenue Service appears to be the furthest behind in getting its computers to work in 2000. Earlier this year it said it had failed in an 11-year, $4 billion effort to modernize and integrate its computer systems. Now it is desperately trying to get its existing software to work in 2000 and beyond; I am assuming they won't make it.
If you were to ask me, what is the best way to handle the crossover from December 31, 1999 to January 1, 2000, I would tell you that I think you should treat it as a "discontinuity" in your life. That is, you should have as little business as possible (especially financial transactions) cross over the boundary; complete and close out as many transactions as you can in 1999, and don't begin any new ones until well into January 2000, after you can clearly see what's still working.
I think Gary North's advice about securing any papers you need to prove your identity, such as birth and marriage certificates and divorce decrees, and proof of identity for your minor children, is sound. I especially would get information on paper of any money you have contributed toward retirement systems, including Social Security, and to insurance coverage.
To the extent that you can do this before 1999, I recommend it, because there are likely to be some computer failures that year which will draw media attention to the approaching problem and produce a backlog of such requests. Programmers of a generation ago frequently used "99" as a special signal, or "flag" in programmer's parlance, to signal the end of a stream of sequentially-accessed data, or a piece of data that required special handling. (I can recall doing this myself.) Another wake-up call will arrive on August 21, 1999 when the clocks in most Global Positioning System receivers will "overflow" and lose 1024 weeks (about 20 years). (I don't recommend being out on the ocean in a small boat after August 19). Again, the media will hone in on the failure, and you will see more and more stories on what's likely to happen in 2000.
I would live December 1999, as much as possible, on a cash-and-check-only basis. Try to wipe out all of your credit-card debt before the cutoff date of your November statements. Make sure you keep all of your November financial statements (all kinds), as there may be cases where they're the last you'll see for quite awhile. If you pay ahead on your expenses, do it in November, not December, so you'll have the returned checks and printed proof. (For example, don't make all your charitable donations for the year in the last week of December.)
Be especially careful to have whatever you need to successfully file your income tax in 2000. I would secure whatever paper forms you need from the IRS in 1999, or download them over the Internet. Don't assume that your W-2s and 1099s will arrive on schedule at the end of January 2000.... make sure you can calculate these figures from your existing paperwork, if need be.
As we approach New Year's Day, I would be safely home (not on the road, and especially not using public transportation) with plenty of food, and auxiliary fuel if you have a fireplace or stove. If you have products you are especially fond of or use regularly, have spares on hand in case the company that makes them can't produce them for awhile. (For me, this means stocking up on Teddie Old Fashioned Super Chunky Peanut Butter.) Assume that your bank or the bank's ATM network may have problems, and have enough cash on hand to purchase necessities for the next month or six weeks. Most banks will be OK, I'm sure, but there's no way of knowing in advance whether your bank will be one of them. In fact, this is a good general rule: Assume most businesses will make the transition just fine, but don't assume that you're not doing business with any of the exceptions. I don't know of any good way ahead of time to figure out which will make it and which won't. Treat your preparations as good insurance; you probably won't need it, but you're prepared in case you do.
If you use PCs in your small business, I would "forward-test" as I did on my PC. Don't use live data; copy it into a test area, and do your testing on the copies, which you can dispose of when you're done. If the software packages you're using won't run with a PC's clock set ahead to 2000, contact your supplier today. Time is running out.
I think that when we cross over into the year 2000, there will definitely be some computer problems and business failures, and some failures in networks of computers talking to each other; but organizations which successfully make the transition will quickly fill in the gaps caused by those that fail. But who knows, maybe Gary North is right.... maybe a new Dark Age lies just ahead:
I can see it now.... it is New Year's Eve 1999, and here in Worcester, the financial backwater of America, people are in Lincoln Square celebrating First Night (a celebration of art and culture similar to New Year's Eve public parties in many larger U.S. cities). People are really hyped up about watching the country cross the thousand-year mark. Searchlights pierce the sky; vendors do a brisk hot-food business on a chilly night; several radio and TV DJs are broadcasting live. The countdown to midnight, and the fireworks display begins.... 10 - 9 - ... -2 - 1 -
Midnight! A great cheer; then the power dies.... the lights go out. What happened to the fireworks?.... nothing is there. It is very dark; no searchlights, no building lights, no streetlights.... just a few car headlights, and flashlights shining for people who brought them.
After a few minutes, when it is clear that nothing is going to happen, people start working their way back to their cars for the trip home. This is the most monumental traffic jam that Worcester has ever seen, for none of the traffic lights are working. People eventually arrive home to dark, cold and uninviting abodes; they are unprepared, confused and angry....
I hope the U.S. will engage in efforts and in cooperation to maintain exchange stability so we will not succumb to the temptation to sell off Treasury bills and switch our funds to gold.... We were tempted to sell off.... I believe the U.S. economy has the strength to absorb [a bond selloff] but the effects could be enormous.... It is because.... countries are holding onto the T-bills that the U.S. economy is being maintained. - Ryutaro Hashimoto (Japanese Prime Minister) at Columbia University, June 23, 1997
The abandonment of the gold standard made it possible for the welfare statists to use the banking system as an unlimited expansion of credit. In the absence of the gold standard, there is no way to protect savings from confiscation through inflation.... Deficit spending is simply a scheme for the "hidden" confiscation of wealth. Gold stands in the way of this insidious process. - Alan Greenspan
....the longer Greenspan lets the stock market expand into the greatest financial bubble known to mankind, the worse it is going to be in the long run for this country and for the Fed chairman's own reputation. Greenspan knows what is ultimately going to happen, and he's been warning Wall Street of its excesses for more than two years. But investors, lost in their nothing-can-go-wrong trance, have ignored the caveats of the Fed. They pretty much told Greenspan to go stick it. Eventually, the Fed chairman will need to be courageous and tell people what's really going on: "I, Alan Greenspan, am raising interest rates because you people have all gone nuts and think the stock market is a get-rich-quick scheme. I am here to stop this nonsense." A statement like that would probably do it. - John Crudele
I can't say whether the top will be followed by a crash or a Nikkei-like drop, but the crash scenario has a lot more probability than it did with the Nikkei because the Nikkei fell in the environment of a global bull market. When the U.S. turns down, the World Stock Index will probably be right there with it. - Robert Prechter
Each time I mention the coming meltdown to friends, my wife says, "You keep saying that, but it never happens. When is it going to happen? And why can't the stock market just keep going up just like this forever?" (Spoken like a true novice!)
My replies have been, generally, that this mania is a psychological phenomenon, long divorced from any underlying value and, as such, I don't know of any way to predict just when it will finally peak and crash. There are just too few examples from the past to be able to make quantitative comparisons, particuarly when, in modern times, the amount of debt created to finance the bubble can be so much greater than was possible in the days when gold and silver were money. I have recently seen an estimate that valuations in the current bubble exceed by 30% the South Seas Bubble of 1720, but I can't verify this independently, and must thus depend on the veracity of the analyst who said this.
At any rate, I feel predicting the exact time and magnitude of the ultimate top is not the point. The point is to earn a reasonable rate of return on your investments with reasonable risk, and not to get caught in the débâcle as the great majority eventually will. I do feel that the coming crash/meltdown will be unique, unlike anything that has gone before, and it will destroy the savings of those people who jumped in above Dow 4000 (and maybe even at a lower level).
Just what the meltdown will look like is difficult to say, but I still feel it will include markets closed by the intense pressure of mutual-fund redemptions. Certainly, Alan Greenspan seems to have taken a pass on pursuing the "irrational exuberance" line; and I don't think he'd give up unless he and his "plunge protection team" had a plan in place to attempt to avert a meltdown.
And what is this plan? We can only speculate; but my guess is, the bureaucrats will let the bubble pop on its own, and wait to see if it deflates slowly, as in 1969/70 or in Japan in 1990. If panic sets in, I think the authorities will close the stock and commodities markets, then the Fed will issue forth a gusher of liquidity as it did in 1987, forcing short-term interest rates to, say, under 4%. This will cause "fair value" for stocks (in relation to competing yields) to rise from the current (approximately) 3600 to above 5000, so when the markets are reopened, computerized trading will trigger a massive rally. Then the Fed will slowly withdraw the excess liquidity, as it did in 1987; the process can be repeated, as needed, to avert a panic plunge and allow the market to deflate in a series of sawtooth moves.
I wouldn't give such a plan an automatic guarantee of success. A sawtooth decline is not the same as a 20%-per-year rise forever, and mutual-fund redemptions could simply overwhelm any efforts at interest-rate manipulations (even on the first sawtooth).
Though a rise in interest rates, courtesy of your friendly central bank, is the usual pinprick for deflating stock-market bubbles, it need not necessarily be the instrument of choice this time, particularly if the Fed has adopted a "hands-off" policy. I continue to think the trigger could be political. Everything I have read about the Clinton administration has convinced me it is corrupt to the core, with the so-called "Justice" Department, the FBI and the Internal Revenue Service now thoroughly politicized. With two independent counsels poking around and two Congressional investigations underway, I think it's unlikely that the sleaze will forever be hidden from public view, even though most of the corruption is not being given prominent exposure by the Clinton-friendly mainstream media. Eventually, some seminal event.... an indictment, maybe.... will cause the press to turn on the liars who have put it in an unsupportable position, and the feeding frenzy will be underway. Perhaps the stock market crash will come first, decimating Clinton's supposed popularity and making him attackable; or perhaps the political watershed will arrive first, damaging consumer confidence and triggering the crash. Either way, the downward spiral will be put in motion.... with, perhaps, the Y2K problem delivering the final coup de grâce two years later.
I have had people ask me, how can I continue to suggest that people stay out of the stock market when, in the past few years, I have been so consistently wrong? Well, "wrong" is relative to the amount of risk you're willing to assume. I have told people, if you have a 100% failsafe method or indicator for telling you when to get out of stocks at or near the top, then fine; go right ahead and chase momentum like everybody else, because for you, the associated risk is zero. Or, if you completely trust a "guru" to get you out of stocks before the bear strikes, then by all means follow his or her advice, for to you the risk is zero. As for me, I know I am not clever enough to pick off a market top; I can only deduce whether the stock market (as a whole) is undervalued, fairly valued or overvalued. By the end of 1997, I will have about a 30% increase in my retirement funds (that were already invested) since my departure from stocks. That compares with a (current) more-than-doubling for those who rode the indexes upward. But I also project that the meltdown will bring stocks at least back to fair value (DJIA 3600, currently), which would give a rate of return less than provided by money market funds for the past five years, and generate a loss for funds added since mid-1993, if they had been invested in stocks. So, don't call me "wrong" until the market has gone through a complete cycle and we see who comes out ahead. And certainly, don't expect that "everybody" - or more to the point, you - will be out of stocks when the crash hits. Only a very few lucky souls will do this, most of them by dumb luck; by definition, it must be so.
Original cost: $ 8,090.45
Present value: $ 7,114.62
Increase: $ -975.83 [-12.06%]
The performance of this portfolio and its predecessors ("Hedger's Delight", "Present and Future Income", "Crapshooter's Folly") from January 1987 to the present is +-0.28%, for a compound annual rate of return of -0.01%. COMMENT on "Phoenix": There is no change from the last issue.
B. "Professors' Investment Group (PIG)" - investment club portfolio.
SUMMARY - "PIG":
Original cost: $ 7,580.00
Present value: $ 6,823.24
Increase: $ -756.76 [-9.98%]
COMMENT on "PIG": The PIGs' Web page is at
http://www.assumption.edu/HTML/Faculty/Kantar/WPigs.html
C. Fidelity IRA - real portfolio, includes commissions:
SUMMARY - IRA:
Original (1983-86) cost: $ 8,326.19
Present value: $15,667.93
Increase: $ 7,341.74 [88.18%]
The performance of this portfolio (including its predecessors) from January 1, 1987 to the present is +42.86%, for a compound annual rate of return of 3.41%.
D. CREF Pension plan; I switch between indexed stock/bond/money funds:
Date Sold Bought
13Mar92 stock @ 56.65 MM @ 13.41
29Apr92 MM @ 13.48 bond @ 31.19
19Jun92 bond @ 32.14 MM @ 13.55
29Jun92 MM @ 13.57 stock @ 56.74
24Jul92 stock @ 56.76 MM @ 13.61
29Oct92 MM @ 13.72 stock @ 58.61
23Dec92 stock @ 61.48 MM @ 13.78
16Jan95 MM @ 14.83 equity-index @ 26.44
20Jan95 eq-index @ 26.19 MM @ 14.84
Values, 25Jul97: stock, 134.10; MM, 17.00
Gain, 1988: 18.91%; 1989: 14.48%; 1990: 8.28%; 1991: 27.93%; 1992: 10.20%; 1993: 3.08%; 1994: 4.07%; 1995: 4.80%
Gain, January 1 through December 31, 1996: 5.28%
Total gain since January 1, 1988 (9 years): 145.96%
Compound annual rate of return: 10.52% (My long-term target: in excess of 15%)
Gain shown excludes the impact of additional monthly cash contributions.
Buying CREF stock on January 1, 1988 and holding it gained 249.17%, for a compound annual rate of return of 14.91%.
E. Current unfilled portfolio good-til-cancelled orders: None.
COMMENT on "Timer's Trend": Still very bullish in this blowoff.
NEXT ISSUE - will appear about September 15.
/Nick Chase