APRIL '99
If you will be spending New Years Eve on a remote island surrounded by fully stocked and well armed friends, 2 diesel generators and a case of the finest champagne you won't need to read the rest of this letter.
For a financial advisor, Y2K is a no win economic issue. If I don't recommend any action and there's a problem I am professionally dead. If there isn't I wont be a hero. If I do recommend taking precautions and nothing happens, I will look foolish and if something does happen, will it have been enough?
With this having been said, I'm going to put my neck on the line at an attempt to give what I consider to be some reasonable recommendations. Think about this advise as being a little bit like insurance, you don't expect to use it but you're willing to pay the small premium in case you need it.
Y2K could be anything from a non event to major disruptions in communication, shipping, power, you name it that would have severe economic impact. Accurate information about Y2K problems are hard to get and part of the problem is nobody knows, there's just a lot of speculation.
Some believe that the disruption in manufacturing, transportation, communications and power will cause a significant fall in corporate earnings leading to lower stock prices. Some believe that small caps will be harder hit than large caps, emerging markets will do worse than U.S. blue chips, whereas others believe the U.S. is more technology dependent than emerging markets and large caps are more internationally sensitive than small caps. Even if you could decide which scenario is going to be correct when do you get out and when do you get back in?
So with all of the information and misinformation available the big question is what do we as individuals do about it to prepare.
I'm not into the move to the country and stock pile food and ammo camp, but it couldn't hurt to have some extra water and can goods on hand just in case. And don't forget extra cash, preferably in small bills (The Treasury is anticipating this). I would suggest enough to last perhaps a week or two and if you are thinking of stock piling anything, start sooner in smaller quantities rather than later in huge purchases, it will be probably be cheaper and easier on you economically.
On the brighter side we can anticipate the end of any disruptions ranging from just a few weeks to perhaps even a year to sort out. The really good news is that at the end of that time the world will have the most upgraded state of the art technology infrastructure in history and there will more than likely be a great economic recovery starting in 2000 or 2001.
I think we will experience many small glitches, but few, if any major catastrophes. However, expect , as usual, the news media to make the most of anything they can find.
I believe that the disruptions in the financial community will be minor and not long lasting. If you want to try to take advantage of a down turn I would suggest accumulating cash reserves of 10 to 20% of your portfolio. Start to accumulate early and obviously keeping an eye focused on the tax ramifications of raising such cash and should be completed probably by August or September. Then be prepared to put that cash to work as early as the last couple of weeks in December and probably the latest would be the second or third quarter of 2000.
Well, there you have it, it will be interesting to see how well my crystal ball did come January 3.
P.S. As usual keep hard copies of all important documents that you would normally keep such as bank records, financial statements, ledgers, brokerage statements, mutual fund accounts, etc.
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