A Year 2 Kill
Originally published at About.com - January 25, 1999. The original article
had a lot of links to articles and websites. Most have since disappeared but
some remain and are worth checking out if you're curious. I have retained this
article in these archives because of their historical interest.
True story: A mom was looking for her nine year old daughter and couldn't
find her. After searching the house, she finally found her sitting in her
bedroom with the lights out in the darkness. "Whatever are you doing sitting
here in the dark?" asked Mom. "
"Practicing for the Year 2000 computer crash," came the reply.
It's only January and already apocalyptic visions of the millennium are
scaring the bejeebers out of nine year olds. Not just nine year olds either. A
quick look through the Internet will reveal that doomsday scenarios are alive
and well and multiplying like flies.
On the other hand, there are many sober and reflective sites that, while
not spelling out the end of the world as we know it, do argue that we may
encounter some serious disruptions in our personal lives as a result of the
so-called Y2K bug. And there are others who don't think Y2K amounts to much of a
problem at all.
Where does the truth lie? Should we be worried? What can we do to protect
our investments? Can we, in fact, profit from Y2K?
We won't know with absolute certainty until the Year 2000. You might say
we have a Year 2 Kill before we find out. But in the meanwhile, I'll give a
brief overview of the problem with links so you can explore the question in more
depth yourself. And I'll wrap up with what some financial analysts are saying
about Y2K's possible impact on investments.
An Overview of the Y2K Problem
There has been so much written about Y2K you could start now and read until
the Year 2000 and still not read it all. So I'll keep this brief. Back in the
sixties companies started computerizing their operations. The machines were
large cumbersome beasts called mainframes. These expensive machines did not come
with ready to run programs. They were custom programmed for individual
businesses. Memory was expensive, so programmers cut corners by using only the
last two digits for the year in dates.
These programmers figured their programs would be obsolete by the Year 2000.
Unfortunately, many of these old computer programs are still in service. When
the year 2000 arrives, they will think it is the year 1900. This will cause all
sorts of problems. An excellent article by Peter de Jager in the current
Scientific American explains the problem (and possible solutions) in some
On top of that, there are billions of miniature computers called embedded
chips. About 1-4% of them have date functions. Many of these chips employ the
same two digit short cut so these chips will encounter the same problems.
What sort of problems? Nobody really knows. The suggestions run the gamut
from the phone company billing you for 100 years of service to planes falling
out of the sky because a scheduled computer-automated function does not happen.
Can the problems be fixed? Some analysts say yes. Others say the problems are
too large and too all-encompassing to fix.
There are two distinct camps on the Y2K analyst landscape. One camp is
actively working to make corrections, rewrite code, replace old computers with
new, make emergency plans and so forth. They acknowledge the problem is serious
and potentially catastrophic. And they are pro-actively working to minimize the
outcome. These are the moderate Y2K analysts.
The other camp argues that it is impossible to fix the problems. First they
argue that there are not enough programmers to go through millions of lines of
code. Secondly, they say there is not enough time to test all the embedded
chips. They predict the complete failure of our banking system, our
communications systems, our energy supply, and even our food supply. They argue
that the only thing people can do to ensure their safety and survival is to
retreat to the wilderness with a huge collection of supplies and cash and armed
to the teeth. They predict the "end of the world as we know it" and even have a
website called that. I call this camp the apocalyptics.
Then there are sundry analysts in between.
Awareness of the problem was first brought to the attention of the general
public by a Canadian, Peter de Jager, in an article called Doomsday 2000
published in ComputerWorld in September 1993. With seven years to the
millennium, de Jager wanted to alert people to the problem and spur some
remedial action. But corrective measures were slow in coming. Just like kids who
wait to the last minute to do their homework, business and government waited
until the last minute to start fixing things. Last year the remedial work got
under way in earnest.
Meanwhile, others started joining in the chorus of Y2K warnings. Ed and
Jennifer Yourdon wrote a book called
Time Bomb 2000, published in 1998 and revised for 1999. A software
engineering consultant like de Jager, Yourdon's credentials are impressive and
this lends some weight to his views on the subject. He is a pessimist who thinks
we'll see runs on banks, electrical power failures, a long term stock market
collapse and more. His website is filled with
his writings and links to other resources (update note: the website is still
there but the articles aren't).
Ed, however, is hardly the most apocalyptic Y2K pundit. While a pessimist,
Yourdon does think the Y2K problem can be alleviated, if not fixed outright. The
trophy for Best Doomsday Prophet goes to Gary North, an historian.
North not only holds the most pessimistic views on Y2K, he believes the
problems are unsolvable in nature. As he puts it, "I'm saying that it's over.
Right now. It cannot be fixed." The problem, he says, is systemic so we better
head for the hills. North has over 3000 pages on his website to support his
arguments. But some have questioned his motives.
Steve Davis is the co-author of
Y2K Risk Management, a book looking at legal and insurance issues
and contingency planning for Y2K. His expertise is at developing emergency and
community preparedness programs. Davis also hosts an extensive Y2K website
"dedicated to understanding and minimizing the impact of the Y2K problem". His
website includes a page debunking the Doom and Gloomers. He believes they are a
"threat to society" as "their hyperbole may lead to public panic".
Davis points out that North is a leading spokesman for a fanatical religious
movement called Reconstructionism that longs to see the collapse of the U.S.
government so it can be replaced by a strict theocracy. He quotes North as
saying "So, of course I want to see Y2K bring down the system,
all over the world. I have hoped for this all of my adult life. In my
view, Y2K is our deliverance".
Other articles critical of North have appeared in Wired
Reason magazines and they bear out Davis's assessment. Even de
Jager slams the apocalyptics in an article called Failure as Evidence of
Effort. "These folks are not folks who have misread the news and
incorrectly painted too bleak a future," he says. "These folks are using Y2K
very cleverly and deliberately to create a state of panic".
As to the other apocalyptic pundits, Davis argues that there
certainly are elements of profiteering and hucksterism, citing an article called
The Millennium Bug and the New Industry of
Hysteria by Michael Theroux of the Borderland
Sciences Research Foundation.
Davis does not say much in response to Ed Yourdon, however.
But electrical engineer Richard Mills does. He argues that Yourdon's chapter on
potential failure of electricity generating plants is factually flawed. See his
Comments on Time Bomb 2000. Mills's credentials are extensive and includes
vast computer experience as well as electrical systems expertise. He is now a
regular contributor to another Y2K website, Westergaard Year 2000.
David-Robert Loblaw, a systems analyst in Toronto with a large
IT firm has put up a website called The
Year 2000 Bug Computer Hoax. He links to many
articles skeptical of Y2K. In fact, the MIS people and engineers where I work (a
major television broadcaster) all think Y2K is overblown and not a big deal. At
the Comdex show in Vancouver recently I did a straw poll and asked people
whether they thought Y2K would result in major long term disruptions, major
short term disruptions or minor disruptions. The results were 3, 3, and 12. Of
the three forecasting major long term disruptions, two were selling Y2K
remediation products, so you might say they had a vested interest.
Perhaps the last word should go Peter de Jager who started the
Y2K ball rolling. De Jager thinks we are far from being ready for Y2K in an
article in the January Vancouver Computes magazine. There are three main sectors
that we should be concerned with. The financial sector, says de Jager, is ready.
(Whew! Ain't that a relief!). The telecommunications sector is ready in that it
will be able to provide service. They may have a problem with billing.
Utilities, however, are not ready according to de Jager. He
says there is little likelihood of global power outages, however, local failures
are likely. He suggests preparing for a four to six week disruption even though
it may not happen in your area.
In the "Failure" article cited above,, de Jager notes that Y2K
problems have already started developing. "The good news," he says,
"which we hope will repeat itself time and time again, is that all the reported
problems were fixed within a single day".
He believes that a stockpile of a month's supply of food is prudent, even
without Y2K. "There are areas all over North America that are affected by
hurricanes, earthquakes and floods, and people in these areas take reasonable
precausions. I don't think the year 2000 problem demands from us anything more
than that." Good advice.
Profiting from Y2K
One could, of course, profit from Y2K by joining the Y2K bandwagon and
hustling all sorts of esoteric stuff such as Y2K Soap (a combination hand soap,
shampoo, dish detergent and laundry detergent all in one. Rather like Amway's
LOC!) or a Y2K Survival Kit (a gag gift item - check out this funny website),
beef jerky by the case, or the survivalist's favorite items after guns -
the proverbial Grain Grinder and Bag of Wheat (the grain grinder in the picture
looks amazingly like the one I bought in the late 70s after reading Howard
But the smarter (and easier) way to profit from Y2K is to understand how it
may affect your investments and plan accordingly. Currently many analysts think
the stock markets are overvalued in the first place. Sometimes the markets just
need an excuse to do a complete reversal. Y2K may afford such an excuse. Dr. Ed
Yardeni, chief economist for Deutsche Bank Securities in New York, has an
extensive website on what he believes will be the economic effects of Y2K. He
estimates a 70% chance of recession.
Sunday I attended the 1999 Vancouver Investment Conference organized by
Cambridge House International. One of the speakers was John Buckmeyer who spoke
on Y2K. Buckmeyer does not buy into the doom and gloom scenario, nevertheless,
he cited reports that estimate 15% of businesses will fail because they won't be
Y2K ready. In his newsletter, The Millennium Advantage, he argues that
a 36% - 75% decline in the markets is quite probable.
As an example of the seriousness of the situation he said Chevron had the
most honest of the Y2K disclosure documents yet available. In it Chevron says it
has identified 350 mission critical systems and 1200 third party relsationships
that are mission critical. It is actively working at remediating them, but will
not be able to get them all before year end and expects to continue remedial
efforts into next year. While it believes any problems will be localized, it is
unable to assess the probability of significant disruptions and "such
interruptions could prevent the company from
being able to manufacture and deliver refined products and chemicals products to
Buckmeyer said we "don't need to fear Y2K so much as reaction to Y2K." He
thinks mass psychology could play a more dangerous role in producing a market
downturn than Y2K itself. His advice - get out of equities.
In his newsletter he lists two possible Y2K portfolios. One is 100% in money
market instruments. The other is a mix of 60% money markets, 15% precious
metals, 15% Y2K solution providers, and 10% speculative resource markets.
Buckmeyer also mentioned an American hedge fund that is investing in Y2K
solution providers and will also short the market at the appropriate time. The
fund is called Home State and can be reached by phoning 1-888-Y2K-FUND.
For me (since I like equity investing), the most interesting option is
looking for companies that might profit from Y2K. Buckmeyer mentioned three -
Cognicase, a Montreal based IT solutions provider and trading on the TSE as COG
and on the NASDAQ as COGIF; LGS Group, a Montreal based IT and Management
consulting firm trading on the MSE as LGS.A; and Group West Systems, an IT
solutions provider based in Burnaby, B.C. with offices and affiliates in
Ontario, Manitoba, Massachusetts and California. The company is traded on the
VSE as GPW and has just been conditionally approved for listing on the TSE.
An extensive list of companies that stand to benefit from Y2K is listed on
Peter de Jager's Year 2000 site. It includes many American companies and a
number of Canadian ones as well. De Jager, in association with the American
Stock Exchange, even created a Year 2000 Index which trades as YTK. Canadian
stocks on de Jager's list include Cognicase, Cognos, Geac, Group West Systems,
LGS Group, and Millennium Communications (MLU on the ASE). American companies
include such well-known names as Bell Atlantic, Compaq/DEC, EMC, IBM, MCI
Worldcom, NCR, Oracle, Peoplesoft, Sun Microsystems, Sybase, Symantec, and Wang.
EMC has also been recommended by momentum analysts Carlton and Timothy Lutts of
the Cabot Market Letter.
Buckmeyer also suggested that precious metals stocks would spike upward
sharply if there is a general market decline. This was a view echoed by precious
metals analysts at the Vancouver Conference. In fact, it was suggested by one
that they would spike up much more quickly and much higher than they did last
year when the market declined.
So there you have it. Food for thought, and maybe some profitable ideas.
Y2K is a touchy issue to many. Certainly the doomsayers love to denounce
anyone who disagrees with them as ignorant Pollyannas, while the folks on the
other side are quick to point out the element of hysteria to the doomsday
scenario. What's your view?