The Contrarian's View

Vol. XIV, #2, September 30, 1999

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

Y2K DOG & PONY SHOW

The panelists included: A PR flak from Massachusetts Electric, the power distribution utility for our area; the local police chief; information technology chiefs from a local savings bank and the local hospital; a Massachusetts Bankers Association representative; and an IT person from Bell Atlantic. The moderator (somebody I already knew, from when he was on the WCUW Board of Directors), is a financial planner.

The format of the "seminar" was extremely rigid: Each panelist had five to ten minutes to speak about Y2K progress in his or her area, then the panelists would respond to written questions from the audience. (No one-on-one confrontations were to be permitted.) As the presentations progressed, it quickly became clear that the panelists had a two-fold agenda to push: (1) The lights will not go out, but if they do, it won't be for long; and (2) your money is safe in the bank, so DO NOT PANIC and pull all of your money out of the bank, and ESPECIALLY do not pull it out right at the end of December, and if you should be stupid enough to pull it out you will be burgled or victimized by a scam artist.

As you might expect, the local officials spoke the most succinctly and gave the most meaningful information. The hospital person went into some detail about which systems had been tested and repaired or replaced (information, medical and mechanical), and when he was finished it was clear to me that the hospital had done its homework and would clearly be ready (with its internal systems) for whatever should happen in early 2000. I certainly would have no further questions there.

Likewise, the police chief made it clear that all of the police and fire systems had been tested and (for those few which did not work in the roll-ahead) replaced, and that shelters would be open, if necessary, for people who lose power and/or heat. Specifically, the 911 emergency phone system had been tested and would work in 2000.

The Bankers Association rep gave a lengthy spiel on how the banking industry is heavily regulated, and the regulators were leaning heavily on banks to be ready in time; he also said only seven banks (unnamed) were rated "unsatisfactory" by the Feds, none of them in Massachusetts, and that even they would be ready by year's end. His discourse did not add to the info I had already gleaned from the press and the Internet, nor did it seem productive to ask him any questions, as it was clear he would not deviate from the official line.

More helpful was the IT person from the local savings bank, who (like the other locals) went into some detail about what systems had been remediated and about the testing, including interoperability (that is, the interfaces with others in the banking system). They sounded ready.

The Bell Atlantic rep basically just offered assurances that they were "Y2 ready" and that "you will get a dial tone on January 1". (However, can I complete the call?) But she did say they were 99% remediated and independently certified compliant, which is the next best thing to a warranty as far as I'm concerned, and I know from reading the press and the Internet that the larger phone companies are nearly done, so again this was not particularly an area of concern for me.

I got the least warm-and-friendly feeling from the electric utility rep. She gave a "stock" spiel (reading from some report, I think) and spoke in bureaucratese. She said the utility was "Y2K ready according to NERC standards", which didn't do too much for me, since the NERC standards have as many escape "holes" as Swiss cheese. Essentially she said, whatever they could think of that might give a problem at rollover, they tested it (spot checking, not every item) and if it failed, it was fixed. If they didn't think something would be a problem, it wasn't tested. I had entered the meeting thinking that losing electricity on January 1 was unlikely; when she was done talking, I felt there were at least 20% odds we would lose power for at least brief periods. One thing I did learn is that if a problem originating outside New England starts cascading through the national grid, the New England grid can be cut off from the national one at the New York state and Quebec provincial borders.

The moderator gave a brief summary of progress in the (non-bank) financial industry, and also a summary of the recently-released Senate report, particularly highlighting the lack of progress overseas, with some countries (Russia, Brazil, Japan) virtually basket cases. This was the only cautionary note given by any of the speakers.

The only whack we in the audience could get at the panelists was through the written questions, so I framed mine carefully. It was directed at three of the panelists - Mass. Electric, Bell Atlantic and the local savings bank - and it was a multipart question, all parts to be answered by each panelist: (1) What is your total Y2K remediation budget? (2) How much of this have you spent to date, and over what period of time? (3) How much do you plan to spend before 2000?, and (4) How much will you spend after January 1, 2000?

As you may surmise, the best way to measure real progress (and cut through the platitudes) is to follow the money. If an outfit says it's "on target" or "will be ready by xx date" but it's spent only half its budget with less than 100 days to go, then you know it's not going to make the deadline. Unfortunately, the moderator botched the question, so different panelists answered only pieces. The Bell Atlantic person said their total Y2K budget was $100 million; the electric utility rep didn't have the foggiest idea what their total budget was, which exposed her as the PR flak she is. The best answer came from the savings bank person.... he didn't know the total amount spent, they just spent whatever it took to fix the problem.... but they had finished, and the only money they were currently spending on Y2K was for these seminars.

Now that's the answer you want to hear: If an organization is no longer spending money on Y2K remediation, then you know they are done and ready. I assume he was telling the truth, so I was satisfied.

Toward the end of the responses-to-written-questions period, a woman jumped up with a lengthy follow-on question to her written question, which apparently wasn't answered to her satisfaction. The gist of her question was, we are told to prepare for Y2K as if for a winter storm, but nobody will say just how to prepare. The moderator brushed her off, saying that wasn't the purpose of the seminar. (Indeed, it wasn't!) And that was the end of the show, because it had reached the end of the two-hour slot allotted for it on cable TV.

I walked up to the woman and told her I could probably answer her question. She said, that's OK, she already knew the answer, it's just that she had been to a number of these things and she was disgusted with their canned format. (A Y2K groupie!)

OK, here's your quiz question for the month: What's wrong with this seminar?

Yes, the format was too rigid; yes, the vocal woman should not have been put off. But that's not what I'm thinking of.... Look again:

The wrong people showed up as panelists.

Banking, telephone, Wall Street, insurance.... These sectors of the economy are generally acknowledged to be leaders in Y2K-proofing their systems. The banking industry claims to be 99% compliant, as do the major telephone companies. Wall Street has run interoperability tests that showed 97%-plus success (one can argue about the quality of the tests or whether 97% is enough, but the point is, they're close to done). Insurance-company figures are harder to come by, but most of the biggies finished last year and spent 1999 testing.

In other words, the seminar (which was organized by the financial types) was designed to put people to sleep. Sure, today's money is mostly electronic, therefore it's important that the power stay on and that financial computers keep running properly so that the electronic money keeps flowing. The financiers desperately do not want you to convert your electronic money to cash, because doing so is intensely deflationary (there's no leverage factor in cash) and would destabilize or bankrupt the system. Now, the financiers are probably justified; your electronic money is probably safe with them, as long as it is backed by a government guarantee.... that is, the power of the money-printing presses. They think they're ready for Y2K, so it's important to them to "prevent" panicked withdrawals by the public.

But such a seminar gives an unbalanced view of the problem. Imagine, instead, what would have been the result if the panelists included the electric utility PR flak (hopefully, with more knowledge), an oil importer and refiner, a small-auto-parts maker, a railroad representative, and the Italian counterpart of John Koskinen.

I had hoped that by now it would be possible for me to sort out Y2K fact from fiction, and get a clear idea of just how bad Y2K will be. Ain't gonna happen. There are many self-reported success stories, but few independent certifications and even fewer guarantees or warranties being issued.

I can still try to make an intelligent guess, based on what I've read to date. If everybody is telling the truth, I would estimate that in the U.S. and Canada, the organizations successfully completing their mission-critical Y2K repairs, or implementing successful workarounds, will be in the low 90-percent range; that is, only 1% to 6% or 7% of organizations will go under because their own remediation or contingency efforts failed. And you may not notice them go under; they'll be disguised as quick mergers or corporate fire sales.

Note the big if. Do we have evidence that everybody is telling the truth? Not demonstrably, except for those situations independently certified or where warranties are issued. Do we have evidence that they're lying? Unfortunately, yes. The FAA is a case in point; it claimed it was done last year at this time, then claimed successive stages of "doneness" throughout 1999. They claim they're ready now. Cory Hamasaki, through geekvine information, says the FAA is about two-thirds done. Even if the FAA deploys all of its new, Y2K-compliant systems by year's end, the new systems are slow as pigs (slower than the systems they replace) and have already snarled air traffic where they've been put to work. (My point here is not whether the FAA will make it, because I don't know; it is that they continually lied about their progress.)

I remain disturbed by the discrepancy between what is presumably the true state of remediation efforts, as I've attempted to glean it from geekvine stories, and what is being self-reported by corporations and governments. We seem to have a situation of people telling their managers what they want to hear, and this gets magnified up the line to the public spokesperson who may even think that he or she is telling the truth, but it doesn't reflect reality.

I am also troubled by the "winter storm" analogy that's being propagated as the official line, because it implies you should prepare as if for a physical disaster. Unless you should happen to be in the minority who lose electricity, or safe water, or sewer, or experience an interruption in the delivery of food, or are in the way of an urban riot, Y2K will not be life-threatening. Y2K as a physical threat is a hit-or-miss proposition; you take your chances (and its random and unpredictable nature is a good argument for making some preparations for your health and safety). But Y2K is, for sure, an economic hazard that will affect everybody, not just the unfortunate who happen to be in the wrong place at the wrong time.

Why an economic hazard? Because (1) the increasing use of computers has permitted the division of labor and increased specialization that feeds economic growth, and to the extent the computerization breaks down, the old inefficiencies return; and (2) Y2K is systemic; the failure of one organization or function directly affects other organizations which rely on it. Early next year, as the failures occur and "holes" appear in the flow of goods and services, market forces will prevail (as long as governments don't interfere) and others will step in to fill the breech, but the replacement process is, at least in the short term, less efficient that what existed before the breakdown.

I would expect, at a minimum, a severe recession from Y2K, and the onset of a depression is a real possibility. And the sitting-duck targets for this recession or depression are a highly-overleveraged economy and a stock-market mania, capped off by $51 trillion (globally) of derivatives, all contracted on the assumptions of "new-era" economics where nothing can go wrong, and if it does, government will fix it.

Physical preparation means: Stored food, bottled water, fuel for the fireplace, batteries, candles or lanterns, small cookstove, blankets, perhaps a generator and some means of self protection, an arrangement with friends in the country to retreat there as a "bug-out" place if it becomes necessary. If one were to assume (given its past record) the government is not telling us the whole truth about Y2K, then it's appropriate to take the "official" recommendations and multiply by 3 or 4 as the risk for which one needs to prepare ("3-day storm" becomes "two weeks"). How much you prepare is like deciding how much insurance to buy; it's a personal decision, based on what you think are probable outcomes for your situation.

Economic preparation means: Out of debt to the greatest extent possible, out of the stock market, assets in the safest vehicles available, preferably those with government guarantees (T-bills, FDIC-insured bank CDs, U.S. savings bonds, Treasury-only money-market or bond funds), extra cash on hand in case shortages develop and prices rise, accurate and up to-date financial (and personal) records, savings to draw on should you lose your job. Everybody should prepare for Y2K's economic disruptions, because everybody will be affected.

And how much longer do you have? There have been ongoing Y2K (and Y1.999K) failures all year.... my wife and I have experienced a half-dozen of them ourselves, and I've written about some of them in The Contrarian's View..... but they're "noise level", not yet enough to capture the public's attention. The consultants (such as Gartner Group) who estimated the rate of failures are so far right on the mark.... they said failures could be taken in stride into the fall, with (looking ahead) a rapid acceleration in December, about 10% of failures right as we enter 2000, and the bulk of the failures in January and February 2000, as they reach "critical mass" and weigh on each other. After June 2000 the rate will drop off, but there will be some failures until well into 2001. In short, Y2K is all about economic degradation (and possibly physical and infrastructure degradation, especially overseas) in the first few months of 2000; this is the scenario for which I think you should be preparing.

So, we have two months of "noise level" left; you should be prepared for the scenario you envision by the end of November (but don't put it off! Start today). In December, especially toward the end of December as the failure rate increases, once the mainstream media and the public finally "get it", it will be too late for you if you aren't ready. Avoid the rush; panic early.

Simple Words
by Cory Hamasaki

I'll use simple words:

1. Stuff's gonna break.
2. We'll be surprised.
3. It's unpredictable.
4. It can't be fixed in the time remaining.
5. Kosky (leadership in general) is clueless.
6. On Day 500, it was too late.
7. Fix on failure will take, weeks, months.
8. There'll be an economic hit.
9. Get ready for something different.
10. Kosky (leadership in general) is doing the wrong thing.
11. The press is setting things up for a panic.
12. General Y2K writership doesn't understand large systems.
13. The problem is legacy, enterprise systems, not the embeddeds.
14. Buy stuff you use anyway.
15. Get in shape, see your dentist.
16. Form alliances. Seek out good people.
17. Have a plan.
18. Have a backup plan.
19. Ignore the hysterical screaming that "ALL's WELL."
20. Have a few good books to read, I recommend "CRC Handbook"
21. Have some cash, a couple months of "walking around money."
22. Be ready to take care of someone else.
23. Develop a secondary skill (in case your profes- sion fizzles.)
24. Develop a secondary business (in case you lose your job.)
25. Eat grains, beans, vegetables (the Ornish diet.)
26. Treat people well (you might need their good karma.)
27. A fine quality assault rifle can always be sold for cash later.
28. Gardening is fun.
29. Water comes out of the tap at almost no cost now. Fill a container.
30. I know several families who have experienced extended power failures. It happens.
31. Learn about medicine, useful now, useful later.
32. Have a few laughs.
33. Eat a donut.
34. Don't let them tell you what to do. Don't live by their rules.
35. Do the best you can.
36. Be kind. But do point out that the pollies are butt-heads.
37. Hedge your bets.
38. Take a chance on life, tell that beautiful girl/guy that you think s/he's stunning; maybe in the next scene, you'll be smoking a Camel, inhaling French style. The silk sheets will be rumpled, the Mediterranean village outside the window glows in the afternoon light, Catherine Deneuve's bare back stirs, she stretches, "Maurice, you were wonderful, I'll call the driver to take us to the yacht; my husband, the Count, will want you to be our guest for dinner. He'll want to invest millions in your company."
39. Change the oil in your car.
40. Get ready. Something horrible is about to happen.

Millennial Tub-Thumpers
by Gary North

QUOTES FOR THE MONTH

Central banks do not respond to gradually declining asset prices. We do not respond to gradually rising asset prices. We do respond to sharply reduced asset prices which will create a seizing up of liquidity. But you almost never have the type of 180-degree version of the seizing up on the upside. If indeed such an event occurred, I think we would respond to it. - Alan Greenspan

No matter how the Fed responds to the bubbling in the market from here on, one thing is clear to me, it has missed its timing. A bubble is already very big and there has been a Fed failure to understand and to recognize the significance of the bubbling for economic and financial behavior. Alan Greenspan.... intimated that once a bubble bursts, the Fed has the capacity to deal with it. Nevertheless, I believe the response by the Fed to a busting of the bubble is a very difficult judgement call. If the market responds to an easing of policy, and rallies again, as it did, for example, last year, excesses in the financial markets are upheld and a bigger bubble is surely likely to emerge.... Unfortunately, when you miss your timing, whether it is in personal, in business or in financial life, there's always a cost to bear. When official policy, when monetary policy misses its timing, we all have to share that cost. - Henry Kaufman [September 22, 1999]

People today almost unanimously believe that government, the IMF, the World Bank, the Japanese central bank and the Federal Reserve system have potent and magic powers to shape macroeconomic forces. The cause of this error is once again the belief in extramarket causality. In fact, it is the interaction of millions of people that sets interest rates and regulates the economy. The power of financial "authorities" to manage markets and economies is like the power of the Wizard of Oz: smoke and bluster. Faith in these wizards is little different from pre-civilized people's accordance of similar powers to witch doctors. Like the ministrations of a witch doctor, the typical result of "policy," if there is any result at all.... is to make things worse. - Robert Prechter [in his new book The Wave Principle of Human Social Behavior]

Since the start of the year, I've argued that the bull market in stocks was turning into a speculative bubble. I must admit that this insight is a cop-out for an investment strategist. It is a bear's way of remaining bullish: "I'm not sure how much higher stock prices might soar, but they will eventually crash." - Ed Yardeni

I know, as a technical recruiter, that the number of job orders, especially in the manufacturing sector, has decreased. The time involved to make a placement has grown quite a bit since the first of the year. I don't know why manufacturing is slowing down, except for the big hit from the Asian economy. - Jon Williamson

There is almost no one left in America to pose critical questions about economic fundamentals.... The only miracle about the American economy is the consumer's amazing propensity to borrow. - Kurt Richebacher

America is a nation which has so outstripped its own productive capacity that it has seen the current account balance deteriorate from a deficit of around 1.5% of national product just four short years ago to 3.7% today. It is a nation where household debt has risen from two thirds of income in 1987 to over 82% today, where the level of mortgage debt as a proportion of income has been raised to a new height of 62% from 38%, where consumer credit is well over a trillion dollars, where over a third of 'savers' borrow against their 401(k) retirement nest-egg. Americans are consuming capital on a vast scale. They have become a nation of Tomorrow Eaters. - Sean Corrigan

Whether it is home equity loans, or loans using collateral such as stocks, options, or even hotels, office buildings, or golf courses, our system has developed a dangerous propensity for monetizing asset inflation. Indeed, the more asset prices have risen, the more keenly our financial system has focused its lending to the asset markets. And the greater the focus on asset lending, the greater the inflationary bias and the greater becomes the asset bubble. With rising asset prices, more can be borrowed and spent throughout the economy, which only encourages greater excess and even higher asset prices. - David W. Tice

We will not have any more crashes in our time. - John Maynard Keynes [1927]

While the crash only took place six months ago, I am convinced we have now passed through the worst - and with continued unity of effort we shall rapidly recover. There has been no significant bank or industrial failure. That danger, too, is safely behind us. - Herbert Hoover [May 1, 1930]

The 1929 crash exposed in addition the naivete and ignorance of bankers, businessmen, Wall Street experts and academic economists high and low; it showed they did not understand the system they had been so confidently manipulating. They had tried to substitute their own well-meaning policies for what Adam Smith called `the invisible hand' of the market, and they had wrought disaster. Far from demonstrating, as Keynes and his school later argued - at the time Keynes failed to predict either the crash or the extent and duration of the Depression - the dangers of a self-regulating economy, the degringolade indicated the opposite: the risks of ill-informed meddling. - Paul Johnson [in Modern Times]

Whether a school is successful or unsuccessful as measured by academic test scores depends more on the students than on the teachers. Students have to do the hard work of learning. Teachers only guide them. Children with below-average intelligence quotients are never going to equal the test scores of children with above-average IQs. Children who come from a dysfunctional family are never going to perform as well as children who come from a supportive family environment. Students who are unmotivated to learn will never equal the results of those who are highly motivated. And there's nothing teachers can do about it, though many try hard. - Charley Reese

One year ago, Australian gun owners were forced to surrender for destruction 640,381 personal firearms (including semi-automatic .22 rifles and shotguns.) This program cost the Aussie government more than $500 million, and produced heart-stopping photos as veritable boneyards full of Browning A-5 shotguns and other beloved collectors' items were surrendered up to be crushed by steamshovels in a kind of steel-and-walnut charnel field. Now.... based on a full 12 months of data: Australia-wide, homicides up 3.2 percent. Australia-wide, assaults up 8.6 percent. Australia-wide, armed robberies up 44 percent (yes, 44 percent.) In the state of Victoria, homicides-with-firearms are up 300 percent. Up until the government gun grab, figures for the previous 25 years had shown a steady decrease in homicides with firearms, as well as armed robberies.... - Vin Suprynowicz

Like everything else, guns have pluses and minuses. Accidental deaths have to be weighed in the balance against the lives saved both by armed interventions and by the deterrence created when an intended victim turns out to have a gun. Just the knowledge that many citizens in a particular community are authorized to carry concealed weapons takes a lot of the fun out of being a burglar or a mugger. It is a matter of plain fact -- no matter how much these facts are ignored in the media -- that violent crimes have declined immediately and dramatically in virtually every case where local gun-control laws were modified to allow law-abiding citizens to readily obtain permits to carry concealed weapons. - Thomas Sowell

Gun control? It's the best thing you can do for crooks and gangsters. I want you to have nothing. If I'm a bad guy, I'm always gonna have a gun. Safety locks? You will pull the trigger with a lock on, and I'll pull the trigger. We'll see who wins. - Sammy "the Bull" Gravano [Mafia informant]

CLINTON QUOTES FOR THE MONTH

[Clinton] came in one day and told me that Hillary had found out, had heard from some friends that he'd been doing cocaine. And that she said, "Hey, you better stop it." And I said, "Well, what are you going to do?" And he said, "Well, I'm going to stop it." But this wasn't until, I'd say about the mid-'80s. So she was aware of his drug problem, as, like I said, as were many others.... It was very common knowledge in Arkansas by a number of people, including his wife, that he was a user of cocaine. - Gennifer Flowers [August 26, 1999]

We have it on extremely reliable authority that according to the Secret Service, the president has used cocaine in the White House theater. The impression is that it continues to this day. - Larry Klayman [Judicial Watch Chairman]

I have now heard confirmation from three different sources who are very close to the Clintons that Bill has no intention of leaving the White House! At first I thought it was just right-wing paranoia. But a powerful woman friend of mine in entertainment (who must remain nameless!), who is a friend of Hillary's 'special friends,' was at the White House recently for a holiday. She said that Clinton spoke openly about finding a way to circumvent the Congress and the Constitution and find a way to stay on for another term, or stay president indefinitely. Incredulously, she asked how he was going to swing this feat of magic, and she said he got the most chilling, evil, demonic look in his eye that she had ever seen come from a human being, and he said, 'World War III.' This same story I heard from my lady friend, and another relation of the Clintons, was recently confirmed in an article by Ralph Forbes. It seems Clinton has been running this scheme past a number of his inner circle, and is actively seeking ways to implement his goal. - Sean David Morton [publisher, The Delphi Associates Newsletter. Nick's comment: I doubt this, but print it here so you can make up your own mind.]

The American military is in a death spiral. Because the present administration caused it to go into a death spiral, it will be up to the next to pull it out. If the next is headed by Al Gore, it's probably all over for the armed forces. The death spiral is the result of the increasing aging of the equipment. It will result in a crash in 2010 unless procurement financing is increased dramatically, starting right now. At that point, in 2010, America's armed forces will have worn-out, obsolete equipment, and the replacements will still be years away.... You can bet that America's enemies know this, too. - Charley Reese

Over the past seven years, I have learned a bit of what it feels like to be a dissident journalist working in an undemocratic country. Not long after I began writing critically of the president (including the first book to challenge the Clinton myth), my life started changing. I was no longer invited on certain shows. A local NPR station talk show host banned me from his program but refused to tell listeners why (He's gone, but after a one show reprieve, I find myself banned again, apparently by management). I was scheduled to appear on C-SPAN, as I had done a number of times pre-Clinton, but late on a Friday the host called to say that the company had decided "to go in a different direction" for the Monday morning program -- media talk for "someone upstairs didn't want you." Later this host lost his job. When I gave what some people thought was a helluva good speech at an anti-war rally during the NATO summit, the talk was removed by C-SPAN from its taped coverage. When I mentioned to a Washington Post reporter that I thought I had been blacklisted there, she replied off-handedly, "I suppose you have." Those inclined to write all this off to paranoia should consider this: I'm a native Washingtonian who covered my first story here as a conventional reporter in 1957 and have been an alternative hell-raising journalist for the past 27 years. Only in the last seven years has anything remotely like this happened. And only in the last seven years have at least a score of people asked me whether I was worried about my personal safety. Something has definitely changed and it ain't me. - Sam Smith

Having worked for a number of years as both a reporter and editor for the mainstream media, as well as having freelanced for many major newspapers, I can say from personal experience that the media all too often not only fail to do their job, but tend to cover up that failure by subsequently discrediting anything that refutes the official version of events (as I once noted in a column I wrote on the media's continued acceptance of the Warren Commission's conclusions as fact and refusal to acknowledge any contradictory evidence). - Bill Bonvie

There is something perverse about the media. The reporters cannot seem to focus on the relevant point of the story. Or is it the viewers, on whose behalf the reporters analyze? We hear about the agony of the Kennedys. But John's parents are dead. What of the Bessettes? Why is their agony something for a background report, an afterthought? They had three daughters. Now they have one. "Oh, isn't it a Godsend that Jackie is dead and did not live to see this?" How many times have I heard this? How that must comfort the parents of the dead daughters. The media are powerful at setting the agenda and the tone for just about everything. Their tone is maudlin for the famous and thoughtless for the unfamous. - Gary North

One reason America has been moving so effortlessly into a post-constitutional, post democratic era has been the willingness of the mass media to terrorize the public with stories and images of a country out of control. The work that more primitive societies once did with government ministries and state broadcasting is now done voluntarily, primarily by television networks. Programs glorifying extreme police actions are daily fare, sending the subliminal message that control by cop is a normal form of government and anesthetizing viewers against violence much as is done with troops to ready them for battle. - Sam Smith

Y2K QUOTES FOR THE MONTH

Even the heartiest optimists concede that the international [Y2K] situation looks negative. They just don't seem to grasp the idea that the United States will be seriously impacted. This defies logic, empirical evidence and past experience. At what point does the light bulb go on? At what point does Y2K denial become Y2K reality? - Paul Mladjenovic

I have been in meetings in Tokyo for the last week, and have met some very high-up people in industry and government, which has given me a lot of critical information about the risk posed to the world economy by the world's second largest economy.... The government has had a Y2K campaign running since summer 1998, and have done a lot of the right things, but until last week, no-one had told them that Y2K affected PCs at all.... Only one bank has even started checking their PCs.... In meetings with some of the key PC manufacturers, it became clear that they have NOT tested the BIOS for Y2K issues (just like the US situation in 1997) ....many companies are not telling the truth [about Y2K] - but this is mostly from ignorance rather than a deliberate policy. However, having told an untruth, they must confess if they subsequently wish to change their tune - and THAT results in a loss of face. - Karl W. Feilder [founder and president of Greenwich Mean Time]

We can't surprise people. There are going to be Y2K failures on New Year's Day.... People ought to prepare, but they ought to prepare early. - John Koskinen

A couple of weeks ago I met with the branch manager of a bank in which I have an account, on some non-Y2K related business. After completing the business I casually asked about the bank's Y2K compliance. The manager replied that the bank felt there would be no problems with the bank's systems, that much work had been done and the systems were checking out pretty well. I then asked what the bank planned to do about other bank's systems that may not be compliant. Specifically I asked how the bank would protect its ostensibly compliant systems from corrupt incoming data from other systems. He said that incoming data can be blocked out to protect the integrity of a system. I replied that if you block all questionable data, you destroy the overall interconnected system and essentially destroy the banking system. How can this be dealt with? I received a blank look for a second or two as he processed this query and saw a bunch of Error messages on the personal computer system in his head. His answer was that he knew of no way to deal with this, that any widespread data blocking would destroy the system it was intended to save.... "Then what is the answer?" I asked. "There isn't any that I know of," said the banker. You can guess what I did when I left his office. - Cody Varian

For you people who are undecided, Banks are terrified. The ABA says that Citigroup spent almost a billion dollars fixing something and the article didn't say that they were done. Since this is T minus 135 days [on August 18] including weekends, holidays, sick days, and uh-oh, maybe a project manager will be up on charges of exposing himself or will decide to take early retirement, you gotta wonder how Citigroup expects to slam the last brick into place juuuust in time. How did they do it? How did every other bank in the world manage to time things so that their last brick slams into place juuuuust in time? And what's really odd is that they started at different times. They expended different amounts of effort. Some claim to have spent less than fifty million bucks. Chase says 363 million, Citigroup is on record at 950 million. It's like a turtle, a panther, and a meat bee are in a race to Boston, one starts in Florida, another in Kansas, and the third from Alabama. Somehow they all end up at the finish line within moments of each other? I'm as gullible as the next person but come-on, someone is faking the results. - Cory Hamasaki

We can print more money than Americans can withdraw. - John Koskinen [February 17, 1999]

Social Security started ten years ago. They've been lauded up and down for being early, planning and executing the remediation, and praised on TV, the printed press, over an over for being Y2K A+, verified compliant. In the face of all this, I've consistently written that they weren't done. That I've had insider, geek-vine reports that Social Security was still working on Y2K and that there was a disconnect between the word from the trenches and the clueless yip-yap from the talking heads. I've maintained that there would be Y2K failures at Social Security, probably not show stoppers but problems and failures none the less. I based this on insider info, whispered words from geeks who are still cranking code at Social Security, and 30 years of knowing how complex enterprise systems respond to unusual conditions. Now we have a series of interesting events, 1) the GAO, the pit bulls of the government, are tearing at Social Security on Y2K mis-statements, 2) Social Security's Y2K Tsarina retires 4 months before the big, write your own ticket to the presidential ball, party, 3) A public failure, your benefits expire in 1900, makes the Worshington Post. - Cory Hamasaki

SSA is still patching their source code. I've seen the incorrect comparison where YYDDD is compared to YYYYDDD in SSA code. - Cory Hamasaki

I know for a fact that we're going to have some problems in Indiana - Connie Kay Nass [State Auditor]

I received an inquiry from a law firm asking if I want to be an expert witness in the coming Y2K litigation and what my rate is. Pay me now or pay me later, is that it? - Cory Hamasaki

I know a mainframe ISV/service bureau that is goin' fix-on-failure for their 75,000 COBOL, PL/I and assembler programs. Yes, some programs are fine, wouldn't need fixes; some programs are only run once in a decade; some can be forcibly retired. Some will break and take not just the bureau down but will take their clients down too. - Cory Hamasaki

If you want to know why the press ignores y2k, here's why. Y2K threatens the credibility of the government and the solvency of the banks. It threatens the cushy jobs of reporters, and their pensions, too. So, it's not a story. But, like Waco, it will be when the truth can no longer be suppressed. But expect no apologies from the mainstream news media for their deliberate suppression of massive quantities of negative evidence. There is one thing that always gets spiked by the media: their collective conscience. - Gary North

Actual press release: "Anastar Inc., a Silicon Valley company, is introducing a new product that doubles as a bright Christmas tree-top star as well as backup lighting in case of a Y2K power outage." And if you make that tree out of bread sticks with salad greens for leaves and tofu ornaments, you'll have an emergency food supply, too. Gives me that warm, holiday feeling all over. - Diane J. Squire

STOCK MARKET OUTLOOK

If we take the Dow peak in the last week of August as the "average" of the tops, that means (by counting out the six to eight weeks from bubble-top to crash that has historically prevailed) the next crash will arrive in mid- to late October. As I write, the Dow and S&P have marginally broken both their 50-day and 200-day moving averages; again, using historical precedent, a crash lies two to three weeks away, or mid- to late October. Caution: these are not hard and fast rules, only historical precedents. Once the market (indexes) decline 11% to 13% below the peak reached in the mania.... about 9950 for the Dow.... the crash can come at any time.

As to the nature of the crash: First, disabuse yourself of any notion that the stock market is a "free" auction market.... free of government or other manipulation. It's "free" only as long as prices go up (or appear to go up), or go down in an orderly way. As soon as panic appears, and liquidity quickly dries up as happens in any panic, you can expect the Fed or its agents to act big-time.... as happened in 1987 and in the mini-crashes of 1989, 1997 and 1998 (and which have led us directly to the present moral hazard). So a full-blown panic will occur only with a failure of government, either a failure to act, or a failure to act forcefully enough, or where the force of panic is so overwhelming that no government action can right things.

There are, I think, three possible outcomes to the incipient crash. First is a rerun of 1997 and 1998.... the market tanks, hits its limit and shuts down; liquidity rapidly dries up; the Fed (or some institution acting on its behalf) aggressively buys index futures, driving the underlying stocks sharply upward when the market reopens; it injects liquidity into the system; and we're off and running again (as in 1998) to an even bigger bubble. Normally this would lead to an even bigger bust in the fall of 2000, except next January we would be faced with the financial wrestling match of the millennium: "Fed vs. Y2K".

The second possibility I see is similar Federal Reserve intervention, but ultimately failure; stocks would swing wildly upward on each injection of liquidity, only to fall back as investor pessimism and panic overwhelm the efforts. Stock prices would reach "fair value" (still around Dow 3600) by the end of the year, entering 2000 to receive their Y2K kick-in-the-teeth. I dub this the "earthquake and after-shocks" scenario.

The third possibility is that when panic strikes the Fed is so overwhelmed that it realizes it's useless to intervene; or it does intervene, but its efforts are simply overwhelmed by the panic. In this scenario the market crashes, then rolls over and plays dead for about a month.... very similar to the pattern in 1929.... and then it would normally recover into the spring of 1930 - er, sorry, I mean 2000 - except for the Y2K beast, in its lair, waiting to pounce.

All of these scenarios I see as possible are merely discussions of the path taken; the destination remains the same, well below 3000 on the Dow, perhaps back into triple digits if a bonecrushing depression takes hold. Someday, stocks will again be a bargain and can be bought and held for the "long term" (more than a decade). Hopefully, that day will arrive before I retire and certainly, I hope, before you're ready to retire. In the meantime, if you're still foolish enough to own stocks (which mirror the averages, not gold or other special situations), during the panic you should expect the market to be shut down and/or your mutual funds to suspend redemptions or redeem "in kind", shipping you stock certificates instead of cash.

Speaking of gold, I see the central bankers were finally clever enough to figure out it makes no sense to sell their only real asset into a depressed market. With central-bank gold sales suspended for five years (or at least, they promised to suspend sales) an enormous short-covering rally ensued, with bullion soaring 20% in a few days' time.

After years of excess liquidity from the Fed and years of excessive trade deficits, we now see the consequences, which can arrive abruptly. This year, the "yen-carry trade" (borrowing at low rates in Japan to invest at higher rates in the U.S.) was smashed by the declining dollar; now the game of shorting gold has been ruined by the central bankers.

In my opinion, this is the turn of the tide for gold; it's in a bull market. Before it's over, we could see the gold price above $3000 per ounce. Look at it, not as the price of gold going up, but as your dollars going down, because that's what's happening. Are you ready for a few years' rerun of the 1970s, as Y2K-induced inefficiencies make themselves known as increased prices for goods, while financial-asset prices collapse? Looks like a recipe for higher gold prices to me. Gold is a thin market; it will take only a little public interest (a few percent of investors) to cause bullion prices to soar.

PORTFOLIO REVIEW

A. "Phoenix" -real portfolio, begun on October 1, 1995.

SUMMARY - "Phoenix":

             Original cost:         $ 8,090.45
             Present value:         $ 6,023.43
             Increase:              $-2,067.02 [-25.55%]

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 -15.58%, for a compound annual rate of return of -1.31%.

COMMENT on "Phoenix": No change from the last issue. (Cash balance is not up to date; in fact, is woefully out of date.)

B. "Professors' Investment Group (PIG)" - investment club portfolio.

SUMMARY - "PIG":

             Original cost:         $ 8,675.00
             Present value:         $ 8,886.75
             Increase:              $   211.75  [+2.44%]

C. Roth rollover IRA - real portfolio, includes commissions:

SUMMARY - IRA:

             Original (1983-86) cost:  $ 8,326.19
             Present value:            $11,782.27
             Increase:                 $ 3,456.08   [+41.51]

The performance of this portfolio (including its predecessors) from January 1, 1987 to the present is +7.43%, for a compound annual rate of return of +0.56%.

COMMENT on IRA: There is no change from the last issue.

D. CREF Pension plan; I switch between indexed stock/bond/money funds:

Date           Sold            Bought
13Mar1992          stock @ 56.65      MM @ 13.41
29Apr1992          MM @ 13.48         bond @ 31.19
19Jun1992          bond @ 32.14       MM @ 13.55
29Jun1992          MM @ 13.57         stock @ 56.74
24Jul1992          stock @ 56.76      MM @ 13.61
29Oct1992          MM @ 13.72         stock @ 58.61
23Dec1992          stock @ 61.48      MM @ 13.78
16Jan1995          MM @ 14.83         equity-index @ 26.44
20Jan1995          eq-index @ 26.19   MM @ 14.84
30Oct1997          MM@ 17.24          bond@47.56 (27.17%)
30Oct1997          MM@ 17.24          i-i bond@26.12 (27.17%)
11Feb1998          bond@ 48.84        MM@17.52 (27.17%)
11Feb1998          I-I bond@ 26.23    MM@17.52(27.17%)
16Jun1998          MM@ 17.84          TIAA Traditional (45.87%)
23Sep1999          MM@18.99           I-I bond@27.56 (circa 1/2)
Values, 30Sep1999: stock, 179.11; MM, 19.00; bond, 51.79;
inflation-indexed bond, 27.62; TIAA current yield in SRA, 6.75%

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%; 1996: 5.28%; 1997: 5.38%; 1998: 5.72%
Gain, January 1 through March 31, 1999: 1.318% (5.45% annual rate of return)
Total gain since January 1, 1988 (11.25 years): 177.65%
Compound annual rate of return: 9.50%   (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 456.55%, for a compound annual rate of return of 16.49%.

E. Current unfilled portfolio good-til-cancelled orders: None.

COMMENT on "Timer's Trend": The July 20 SELL signal is still in effect.

______________________________  TIMER'S TREND  _________________________________
Mon 19 Jul 99        .  #  .       |11187.68  |+.                *
Tue 20 Jul 99        #  I  .      {|10996.13  |+.            *
Wed 21 Jul 99        .  &  .       |11002.78  + .            *
Thu 22 Jul 99        #  I  .       |10969.22  |-.           *
Fri 23 Jul 99        #  I  .       |10910.96  | -         *
Mon 26 Jul 99       #.  I  .       |10863.16  | .-       *
Tue 27 Jul 99        . #I  .       |10979.04  | .-          *
Wed 28 Jul 99        .# I  .       |10972.07  | .-          *
Thu 29 Jul 99     #  .  I  .       |10791.29  | . -    *
Fri 30 Jul 99       #.  I  .       |10655.15  |~.~-*~~~~~~~~~~~~~~~~~~~~~~~
Mon  2 Aug 99        #  I  .       |10645.96  | . -          *
Tue  3 Aug 99      # .  I  .       |10677.31  | . -          *
Wed  4 Aug 99      # .  I  .       |10674.77  | .  -         *
Thu  5 Aug 99        #  I  .       |10793.82  | . -             *
Fri  6 Aug 99      # .  I  .       |10714.03  | .  -           *
Mon  9 Aug 99        #  I  .       |10707.70  | .  -          *
Tue 10 Aug 99     #  .  I  .       |10655.15  | .  -         *
Wed 11 Aug 99        . #I  .       |10787.80  | . -             *
Thu 12 Aug 99        .# I  .       |10789.39  | . -             *
Fri 13 Aug 99        .  &  .       |10973.65  | .-                   *
Mon 16 Aug 99        .# I  .       |11046.79  | .-                     *
Tue 17 Aug 99        .  &  .       |11117.08  |-.                        *
Wed 18 Aug 99        .# I  .       |10991.38  | -                    *
Thu 19 Aug 99        .# I  .       |10963.84  | -                    *
Fri 20 Aug 99        .  I# .       |11100.61  |-.                        *
Mon 23 Aug 99        .  I #.       |11299.76  |-.                             *
Mon 23 Aug 99        .  I #.       |11299.76  |-.~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~*
Tue 24 Aug 99        .# I  .       |11283.30  |-.              *
Wed 25 Aug 99        .  I# .       |11326.04  + .               *
Thu 26 Aug 99        #  I  .       |11198.45  |-.           *
Fri 27 Aug 99        #  I  .       |11090.17  |-.        *
Mon 30 Aug 99     #  .  I  .       |10914.13  | .-  *
Tue 31 Aug 99      # .  I  .       |10829.28  |~.~*~~~~~~~~~~~~~~~~~~~~~~~~ 
Wed  1 Sep 99        .# I  .       |10937.88  | . -             *
Thu  2 Sep 99     #  .  I  .       |10843.21  | .  -         *
Fri  3 Sep 99        .  I  #       |11078.45  | . -                *
Tue  7 Sep 99        .  &  .       |11034.13  | -                 *
Wed  8 Sep 99        .# I  .       |11036.34  | -                 *
Thu  9 Sep 99        .  &  .       |11079.40  |-.                  *
Fri 10 Sep 99        .  I# .       |11028.43  + .                 *
Mon 13 Sep 99        #  I  .       |11030.33  |-.                 *
Tue 14 Sep 99      # .  I  .       |10910.33  | -              *
Wed 15 Sep 99      # .  I  .       |10801.40  | .-          *
Thu 16 Sep 99      # .  I  .       |10737.46  | . -       *
Fri 17 Sep 99        . #I  .       |10803.63  | . -         *
Mon 20 Sep 99       #.  I  .       |10823.90  | . -          *
Tue 21 Sep 99    #   .  I  .       |10598.47  | .  -  *
Wed 22 Sep 99      # .  I  .       |10524.07  | .  -*
Thu 23 Sep 99    #   .  I  .       |10318.59  *~.~~-~~~~~~~~~~~~~~~~~~~~~~~
Fri 24 Sep 99     #  .  I  .       |10279.33 @| .   -       *
Mon 27 Sep 99        #  I  .       |10303.39 @| .   -        *
Tue 28 Sep 99      # .  I  .       |10275.53 @| .   -       *
Wed 29 Sep 99       #.  I  .       |10213.48  | .  -      *
Thu 30 Sep 99        .# I  .       |10336.95  | . -          *
Fri  1 Oct 99      # .  I  .       |10273.00  | . -         *
======================================================================== 

NEXT ISSUE - will appear about October 29.     /Nick Chase