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INTRODUCTION
October 17, 1973. One of the most important dates of the 1970s. Can't place the date? Rewind twenty-five some odd years and just imagine that, on that day, you happen to be passing by a secluded hotel in the Middle East, when you notice dozens of limousines and armed guards camped out front. "What's going on?" you ask a bellboy in your best Arabic. He replies (in English, thank-fully), that the ministers of some group called OPEC are having a meeting. "They are going to cut off the oil," he says with a grin, drawing a finger ominously across his throat. The people around you nod solemnly. Being an astute investor, you understand the implica-tions. You quickly send a telegram to your broker in New York and instruct him to sell most of your equities, except of course the oil stocks. You move the proceeds into oil futures and keep the rest in cash. Boy, are you glad you did. The oil embargo that re-sults from the fateful OPEC meeting sends oil prices sky high, shocks world markets and is the catalyst for a global recession. Gas lines form outside service stations. Infla-tion soars as the sudden spike in oil prices raises costs for manufacturing, utilities, transportation and just about every other sector. From its peak in 1973 to its low at the end of 1974, the Dow Jones drops 40 percent in a bear market lasting 23 months. Real GDP drops over 3.4 per-cent from high to low during the same period. Investors who are long the markets get slaughtered. But not you. You make out like a bandit. Fast forward to 1999. You're an informed investor. You know about the Year 2000 Bugãhow computers processing only the last two digits in dates will interpret "1/1/00" as the beginning of "1900" instead of "2000" and could crash at the turn of the millennium. You ap-preciate the economic consequences of world-wide, simul-taneous computer system failures. You even know that the acronym-obsessed digerati have dubbed the Year 2000 Bug "Y2K" for short. And you realize that investors ig-nore this Y2K phenomenon at their own peril, since a wholesale breakdown of information systems could make a simple oil embargo look like a practice drill. So, like other smart investors, you've begun to adjust your portfolio to make sure you don't miss the millen-nium boat, or at least that you don't flounder in its wake for years. Perhaps you've even put together a scheme to make some quick money out of the crisis. You've got a plan, right? If the answer is no, you are not alone. Maybe you haven't sat down to consider the consequences that Y2K will have on your portfolio. Maybe you haven't had time to think about how Y2K will affect prices, interest rates and the economy in general. Or maybe you just don't be-lieve all the hype out there, and you lump Y2K together with all the other apocalyptic predictions swirling about the Year 2000. It is tempting, and perhaps falsely com-forting, to think that other people who created this prob-lem are going to solve it, that the world will go on as usual, and that nothing extraordinary is going to happen in less than a year. If you've picked up this book because you are a little worried that there may be a kernel of truth to all the doom and gloom, and you are genuinely concerned that Y2K could end up eating your finances come the turn of the century, then congratulations. You're already ahead of the game. If you still need some convincing, what we have to say in this book will leave little room for doubt. Come On, How Bad Could It Possibly Be? When most people think about computer bugs, the words "inconvenience" and "delay" often come to mind. Computer problems hardly ever are associated with "cri-sis" let alone "disaster." Send in the computer people, wait a few hours, and problem solved, right? After all, if Y2K is just about two lousy little digits, how could this result in something that could shake the economy to its core? The sad truth is, while the calculations some comput-ers can perform in a single second would take hundreds of humans years to do, they still aren't really very smart. When computers encounter data anomalies, such as un-recognizable dates, they often crash, or get themselves into a loop, or start to spew garbage data. Back in 1996 for example, computer controls at Co-malco Ltd.'s smelters in Australia and New Zealand weren't programmed to recognize 1996 as a leap year. So when on December 31 they were instructed to process the three hundred sixty sixth day of the year, they simply shut the system down. Parts overheated and had to be replaced at a cost of half a million dollars. The Y2K bug will result in date calculation problems similar, though likely more serious and certainly more widespread, than what Comalco experienced with its smelters. Y2K tests conducted at U.S. manufacturing fa-cilities resulted in some alarming results. Take Consolidated Paper, Inc., a company that makes high-end glossy paper for magazines and annual reports. The Wall Street Journal reported that the company has catalogued some 30,000 items that must be checked and that potentially need to be brought into Year 2000 com-pliance. Here is an excerpt from that article that illus-trates the magnitude of the problem: "Dale Wroblewski steps to the controls of a gi-ant paper cutter in the Consolidated Papers Inc. mill here [in Wisconsin Falls] and resets the time to 11:59 p.m. and 30 seconds on Dec. 31, 1999. "Thirty seconds later, the screen goes haywire, displaying the date as 1/01/100 and spitting out a line of gibberish every second. The paper cutter continues to clatter, but Mr. Wroblewski has lost the ability to control its razor-sharp knives or the wheels that are advancing paper at a rate of al-most seven feet a second." The article went on to report that Consolidated had "uncovered winders that won't wind, wrappers that won't wrap and color adjusters that won't adjust, among other prospective problems at its 11 mills in Wisconsin and Minnesota." Even in Consolidated's newest mill, which opened in 1992 at a cost of $492 million, Y2K problems abound: "[O]ne set of computers controls the flow of pulp. A second regulates the fine movements of the paper-making machines. A third minds the boiler and drive system, while a fourth continually monitors the pa-per as it's made, feeding back information used to adjust the other three systems." All of these systems had be checked for Y2K. The price tag on the fix? An cool out-of-pocket charge of $26 million. The Sober Truth. The fact is, any computer or embedded microproces-sor that thinks "00" means "start the century over" will crash or process bad data after January 1, 2000ãor even soonerãunless the problem is fixed. Multiply this over the millions of at-risk systems out there, and you have a technological nightmare. This could be bad. It could be very bad. Computers pervade our society, and our econ-omy is highly dependent upon information technology, as much or more than it depended on oil in 1973. Y2K will be remembered as a pivotal event in the history of technology, markets and the global economy. Such events only occur once or twice in a lifetime. The question you should be asking yourself is whether you want to be ready for Y2K, or just another victim of it. Sure, it's possible that the whole thing could be a bustãthe biggest non-event in recent history. But are you prepared to take that chance? After all, no one will know how bad Y2K will be until sometime after the stroke of midnight at the end of 1999. But if you pay attention to what the experts are saying, the damage could be exten-sive. And sometime in late 1999, it is highly likely that stock prices will move down sharply in anticipation of the crisis as companies and governments start admitting that they have not completed fixes on their computer systems and as the media starts to expose the dangers of Y2K. Already, the New York Times is running full-page fea-ture stories on Y2K, and CNN has begun to air a chilling series entitled "Countdown to the Millennium Bug." An ominous USA Today/Gallup Poll taken in December 1998 revealed that 16 percent of Americans intended to with-draw all of their money from the banks, and another 31 percent intended to withdraw a large sum of cash. Just as Americans lined up at gas stations during the second oil crisis in 1979 in the mistaken belief that oil imports were going to dry up, the likelihood of public overreaction over Y2K cannot (and will not) be ignored. Given the swell of public interest and fear that will mount in 1999, it is hard to see how markets could fail to react as we draw nearer to the fateful hour. If the resulting economic impact is as bad as what came out of the oil embargoãand stocks fall as farãwe are talking about a Dow in the vicinity of the mid 5000s. We certainly hope Y2K will not be this bad; but the one thing we can't say is that something similarly awful has never happened before. By the way, if you feel your portfolio is unprepared for Y2K, you're in good company. The average investor hasn't taken a hard look at how Y2K will affect the econ-omy and his or her investments. But as the end of the millennium draws near, investors trying to stay ahead of the looming crisis are mostly left with unanswered ques-tions. What industries and equities are at risk? How will Y2K affect earnings and share prices? Can investors take measures to protect their assets? What about interest rates and inflation, or (gulp) the risk of a global recession? And can I make money from the crisis? Without this book, to begin to answer these questions you would otherwise need to read, process and make sense of the mountains of Y2K information out there today. You would hear everything from alarming predictions of worldwide Y2K-induced recession to confident reassur-ances that Y2K will be little more than an after-party economic hiccup. The most common refrain you would encounter is that while there will be disruptions, no one can tell you where they will likely occur or how bad they will be. Small help, that. Individual investors trying to get a handle on how Y2K will affect their portfolios un-derstandably have come away with headaches. This book will go a long way toward easing Y2K frus-tration and anxiety for investors. We've gathered vol-umes of information from Y2K experts, industry leaders and top economists, distilled them down, and taken out the techno-speak and the media hype. This book puts the Y2K problem into its proper perspective and provides readers with a simple way to understand and predict the impact of Y2K. We demystify Y2K so that individual investors are able to make informed decisions. Whether you are a cautious investor protecting your nest egg or an aggressive player hoping to multiply your assets, the facts and recommendations on Y2K investing contained in this book should prove invaluable. But Wait, Can't They Just Fix It? A common assumption among investors and the pub-lic at large is that all of the world's Y2K problems will be fixed in time. They won't. There is no anti-virus softsoftware or debugger in existence that can do the job com-pletely. This means that, in most cases, computer code has to be checked line-by-line for two-digit date refer-ences, meaning painful labor costs. Line-by-line checking is not an simple or straight-forward task. Software programs, especially on older "legacy" systems, are notoriously sloppy. The stuff pro-grammers input is often called "spaghetti code" because of its tendency to run around seemingly endless references. Spaghetti code frequently results from "patch and update" programming, where existing programs and software were modified piecemeal to run on more sophisticated ma-chines. Add to this problem the fact that computer program-mers rarely made clear when or how they were using date references in their programs. In computing, a date or other piece of data was often given a variableãa symbolic name that is referred to later in the program. Program-mers could choose whatever variables they wanted. But instead of using clear variable names such as "age of bor-rower" or even "YR," they might use a favorite pet's name or a name of an old girlfriend. Today's debuggers therefore often can't for the life of them figure out what the former programmer was talking about. And many of the old programmers aren't around any longer to help out. Those that are still working are being paid a lot of money to undo the problem they helped create years ago. Other dates are often hidden among other data and are particularly thorny to fix. The New York Times ran a story covering the efforts of Public Service Electric and Gas Co. to rid its millions of lines of computer code of Y2K. One anecdote reveals the difficulty of finding and repairing Y2K bugs: "One day this summer, Mrs. Zavlyanova was inspecting a tiny 523-line segment. A special computer program had already quickly scanned all 523 lines, picking out 18 with numbers that could be dates. One of those lines contained the name of a 25-digit serial number. Suspicious, Mrs. Zavlya-nova zeroed in on this segment and there it was: a millennium bug! Six of the digits in the serial number referred to a date: two for the month, two for the day and only two for the year. Now the question was how to repair it. The utility wanted to expand the serial number to 27 digits, adding two digits to represent the year. But such an expansion was not as easy as it sounded, because it would throw off the position of the other numbers. A number that was in posi-tion 15, which might have stood for, say, a cus-tomer's geographic location, would move to po-sition 17, which the program might react to as if it refers to the meter reader's route number. So expanding the serial number could require changes to many other lines in the programä. "'Y2K work isn't as easy as a lot of people think,' said Mrs. Zavlyanova, who has on her desk a certificate praising her as a top performer. "There are all kinds of complications that come up." Even if many or even most of the Y2K bugs infesting millions of systems worldwide can be found and repaired, often the repair itself creates additional unforeseen diffi-culties and bugs. Some experts predict that new problems introduced by software programmers attempting to fix Y2K problems will plague companies well into the Year 2000. Seemingly harmless changes (such as the one fa-vored by PSE&G in the story above) could produce other glitches unrelated to Y2K. Industries are only now begin-ning to talk in terms of needing "IVV" programs, standing for "Independent Verification and Validation," where the fixes implemented by companies are themselves checked and in many cases fixed. The cost of this process is un-certain, but some experts have suggested that it may be around 25% of what has already been spent. It comes down to this: Bill Gates won't be firing any silver bullets that can kill this technological bugbear. Indeed, it has recently come to light that even venerable Microsoft is not immune from Y2K bugs. Microsoft has admitted the even its Windows 98 operating system would display the incorrect date in the Year 2000 and after in certain "rare scenarios." Only dedicated, line-by-line debugging, coupled with comprehensive testing of all systems, stands a chance of eliminating Y2K from a company's computers and auto-mated processes. For a lot of reasons you'll read about in this book, many companies are not going to make it in time. So Are You Saying The Sky Is Falling? You may already have read or heard some Y2K pre-dictions that are truly apocalyptic in nature: planes falling out of the skies, nation-wide blackouts, food riots, and even nuclear missiles launching accidentally. Survivalist supply stores have had a banner year in part due to millennium bug hype. In some ways, the exaggeration of the crisis has undermined legitimate calls for decisive action from industry and the government. We can't say with absolute certainty that the doomsayers are flat out wrong. In our view, however, most of the hysteria around Y2K is overblown, largely unsupported, and often irresponsible. If everyone bought into them, the ensuing panic would be worse than the problem. Don't get us wrong. There will be Y2K related disrup-tions, ranging from the inconvenient (elevator malfunc-tions, security systems locking out workers) to the worri-some (bank errors, late or missing government checks) to the potentially life threatening (hospital equipment fail-ures, overburdened air traffic control). People will no doubt be talking a lot about their personal travails with Y2K. Like El NiÒo and the O.J. trial, Y2K will be the subject of choice in broadcast and print media, the buzz around water coolers, and the target of comedians' monologues for many months as January 1, 2000 comes and goes. We are also certain that a lot of money will be made and lost as a result of Y2K. The price tag on the Y2K fix alone may top $600 billion worldwide, with another even potentially more massive cost in post-Y2K litigation. The Gartner Group, a respected Y2K consulting firm, places the total cost somewhere between $1 and $2 tril-lionãor around $300 for every person on the planet. There will be business failures, and in some sectors the situation will be quite chaotic. Eventually, though, the situation will right itself, and computers will once again be our silent assistants rather than our lurking assassins. But for a period of time, investors who have the foresight to protect their assets and bet against hard-hit sectors will be thankful they took action. There are, naturally, those critics who pooh-pooh the notion that Y2K will have a serious impact on markets and the economy. Some suggest that the gravity of the situation is being exaggerated by unscrupulous consultants trying to scare corporate America into throwing money at a non-existent problem. We only wish they were right, that all of the money and time being spent is a monumen-tal waste of resources. In general, however, markets and major companies do not make irrational economic choices, especially on such a scale and in so universal a manner. To our knowledge, not a single Chief Informa-tion Officer of any major corporation has come forward and said, "What's the big fuss all about? We don't have a Y2K problem in our systems." To the contrary, most CIOs admit that they wish they could have started solving their Y2K problems earlier, and that the scope of the problem weren't so large. So if others scoff at your interest in and concern over Y2K, remember that you are not alone in your prepara-tions. Every major U.S. company with any sense is con-cerned and is taking action. The Glitching Hour? A common misperception is that the Y2K problems will occur worldwide on January 1, 2000, starting in Australia before hitting like a wave in Asia, Europe, then the Americas. The fact is, glitches relating to the millennium bug will precede the changeover to 2000, and investors should not be caught off guard. Y2K problems actually began to crop up years ago. For example, warranty claims on cars sold in 1996 were rejected at one company when computers insisted that the four-year-or-higher warranty periods in fact had expired in "00"ãnearly 100 years ago. One U.S. television net-work had to rewrite its long term advertising and associated air-time scheduling software because it couldn't accept programming slotted beyond 1999. An insurance company even began to bill newborns for insurance coverage as early as 1977, when the computers examined 23 year pre-paid policies and concluded that further premium payments should be collected starting in "00"ãor 1900. Talk about a lapsed policy. A survey conducted in April of 1998 by Cap Gemini America noted that 37 percent of the nation's largest corporations by that time had already experienced some kind of Y2K related failure. By the end of 1998, Cap Gemini reported that most survey respondents had experi-enced some kind of Y2K failure, and that 98 percent ex-pected more failures through 1999. And early failures of some systems on January 1, 1999 due to computers' confusion over how to interpret "99" (which means "end of file" to some systems) may be a precursor of what we can expect on a much larger scale in 2000. Taxi meters in Singapore stopped working at noon. Some defibrillators and patient monitors used at hospital began to calculate the date and time incorrectly, raising the specter of misdi-agnoses and legal liability. Swedish airport security com-puters failed at midnight, fouling up the issuance of tem-porary passports. These problems are concededly minor and easily remedied, but the fact the date-related foul-ups are already occurring is quite troublingãsomething akin to finding out that indeed there is a fault line running directly beneath your home. It is clear, then, that businesses will spend much of the rest of 1999ãand of course all of 2000 and perhaps be-yondãdealing with Y2K related foul-ups, and that the likely impact of Y2K on markets and economies will be-come more apparent the closer we get to the end of the millennium. We would not be surprised in the least, for example, if the following or similar headlines appeared in late 1999:
Another common misperception is that all of the Y2K problems that haven't made themselves known in 1999 will occur on January 1, 2000, making that a day that will not soon be forgotten. Most experts predict, however, that while the actual day of January 1, 2000 will see scattered occurrences of Y2K, most glitches will be-come evident sometime later as programs fail or bad data accumulates and is discovered. We expect that, just as the world breathes a collective sigh of relief after it is assumed the worst is past, two or three weeks later we all will expe-rience the true, potentially awful impact of the Millen-nium Bug. A Simple Question. If you're like most small investors, you have a lot of your money in one or more mutual funds, either through direct investments or through a 401K or other pension plan. Have you ever examined those quarterly statements you get from your fund manager, the ones that describe in detail the industries and areas in which your mutual fund is invested? If you're like most investors, you get the bro-chure in the mail and promptly toss it. The next time you get one of these statements, read it carefully. Exactly where is your money invested? A mutual fund is typically diversified across U.S. equities and bonds. It might have around 60 percent in stocks, another 30 percent in bonds and the rest in cash and among stocks, a portfolio allocation usually is diversified among sectors. Look okay to you? Well, after you're through with this book, you would never stay invested in a fund like this. This book will show you why sectors like transporta-tion, health care, utilities, banking, telecommunication and even muni bonds should be avoided by Y2K-minded investors, at least until after the crisis is past. If you want some specific ideas on the kinds of portfolios you can construct to prepare for Y2K, you'll find them at the end of this book in Chapters Ten and Eleven. Our Plug on the Bug. Our approach doesn't dwell on individual companies' efforts to beat the Bug, though this is certainly an impor-tant factor. Rather, we believe the real focus should be on how Y2K will impact the complex business systems in which companies participate. Throughout this book, we'll talk a lot about these complex business systems as we ex-amine some key, at-risk industries. We'll show why cer-tain systems are far more vulnerable to Y2K than others, and we'll give you practical advice on where your money should and definitely should not be when Y2K strikes. And strike it will. We predict Y2K will have a serious if not devastating impact on certain sectors of the econ-omy, with spill-over effects on every other sector. We commend you as an investor for taking the first step or considering advance measures. Armed with the informa-tion and common sense advice from this book, investors can and should get through the Y2K crisis safely, and in some cases even make a handsome profit. No Company Is an Island. A lot of attention has been paid to the "Y2K compli-ance" efforts of major corporations. In plain English, "Y2K compliance" efforts means what is being done to debug systems by fixing two-digit date formats in com-puter code, as well as replacing faulty equipment and com-puter chips. Some investors and analysts (including us) have spent countless hours pouring over public SEC filings of major public companies to try and determine who leads and who lags in Y2K compliance spending. When all their research is complete, they might wrongly conclude that companies with the right level of money, foresight and nose-to-the-grindstone debugging and testing will weather the millennial storm. Surveys have shown that investors appear more likely to move their money to companies that have demonstrated that their own systems are Y2K compliant, perhaps in the mistaken belief that no amount of huffing and puffing by the big, bad Y2K wolf will blow down well-built Y2K houses. We wish the problem were that simple. While it is clear that many businesses have done a re-markable job preparing for Y2Kãand would have faced certain disaster had they done nothingãthere unfortu-nately are limits to what a single company in today's in-terdependent business world can do. This is because Y2K is not really something any one company can fix for itself. Most companies are used to dealing with their own problems. They have systems in place to supervise, check and recheck their own operation failures. When serious problems arise with outside vendors and suppliers, compa-nies always have had the option to take their business elsewhere, or as a last resort, to settle the matter in court. The Y2K problem is different. To deal effectively with Y2K, a company must not only turn a critical eye inward, it also must look outward at all of its business re-lationships and then be sure every partner, every link in the system, is fixing its own problems and is also "Y2K compliant," or as close to compliant as possible. In some cases, as where the "non-compliant" partner is the gov-ernment, or where there are thousands upon thousands of independent non-compliant suppliers, this may be next to impossible. Not nearly enough attention has been paid to the threat Y2K poses to companies' complex business sys-tems. A company earning praise from analysts, the media and government oversight committees for its Y2K com-pliance efforts has usually demonstrated comprehensive and well-organized efforts at solving its internal Y2K problems. It started by building a Y2K crisis response team. It then hired hundreds of programmers to pour over millions of lines of computer code to find and fix any pesky, two-digit date references. It has assessed and tested all "mission-critical" computers and equipment with embedded microchips. It has finished upgrading or phasing out any internal system that might go haywire starting January 1, 2000. It has spent tens or even hundreds of millions of dollars and is now resting comfortably on its laurels. Such a company, while admittedly well ahead of most others around the globe, might then assure its share-holders that it is on top of the crisis and that investors have nothing to fear. If you happen to be one of these shareholders, don't be lulled into complacency. More than anything, investors should understand that Y2K is an insidious, fundamental assault upon the com-plex business systems we describe in this book. Whether a company is a Fortune 500 conglomerate or a mom-and-pop corner store, it will have frequent, necessary contact with other parties. Customers, suppliers, vendors, distribu-tors and shippers are the obvious contacts. Companies also rely daily upon utilities, local and long distance tele-phone companies and financial institutions to provide necessary, behind-the-scenes, uninterrupted service. Busi-nesses further count on government, among its many tasks, to enforce laws and regulations, approve new drugs, make our skies safe for flying, collect our taxes and pay entitlements to millions. Further, compa-nies depend increasingly on the global nature of business to tap into new markets, to have greater choices in ven-dors and suppliers, and to benefit from cheaper labor and imports. The true danger from Y2K is that it threatens to disrupt these interactions and all the economic benefits that companies derive from them. This book will provide investors with an in-depth analysis of the kinds of complex business system failures we think have a high chance of occurring as a result of Y2K. In today's world, such failures translate directly into higher costs, lower profits and depressed share prices. Where the risk of complex business systems failures are significant, we will show how conservative investors can avoid getting burned, and how more aggressive investors stand to benefit. The Pain Ain't The Same. One inescapable reality is that Y2K will impact cer-tain business systems much more profoundly than others. Our first task in this book is to identify sectors that are most at risk from Y2K. Of course, the easiest and per-haps most basic question is what preparations, if any, are underway within a sector to diminish Y2K's impact. Sec-tors that are far behind others in their Y2K fixes are going to be thrashed by investors when their lack of readiness becomes more apparent. Thus, at a minimum, investors should be aware of what sectors are Y2K laggards. But our inquiry can't stop there. Most at-risk sec-torsãwith a few notable exceptionsãare doing what they can to beat the Bug. To make determinations of Y2K vulnerability among these sectors, we identify those sec-tors where Y2K will likely cause chaos beyond the nui-sance of malfunctioning elevators, erroneous billing and other operations headaches, or where such commonplace problems actually threaten to fundamentally affect core operations. The vulnerability could arise because of a reliance on what are called "just-in-time operations," the presence of critical bottlenecks in operations, a need for extremely conservative procedures due to safety concerns, or the tendency of the sector to receive more than its share of public scrutiny, just to name a few. From there, the question becomes more difficult, in-volving an analysis of the Y2K risk to complex business systems within a given industry. We have two simple but important points to make. First, business systems at ma-jor companies are nearly completely automated, and hu-man intervention is not only rare, but considered undesir-able. Second, business systems are increasingly interde-pendent, both within and across sectors. We all know that business systems over the past few decades have moved decisively toward computer automa-tion as the norm rather than the exception. The transi-tion has been so universal that we hardly notice how de-pendent we have become on computers as we approach the end of the millennium. Business today is transacted electronically, usually without any need for cumbersome and mistake-prone human intervention. The astonishing speed and computerization of commerce has permitted the development of just-in-time operations, which allow companies to reduce inventories while streamlining pro-duction. Automation has also allowed firms to slash the number of jobs while increasing the productivity of re-maining workers. And entire new industries have been spawned to support our computer-based business infra-structure. On top of automation, businesses have also learned to springboard off other businesses' efficiencies and competi-tive advantages. This is how interdependence begins. Car makers farm out the manufacturing of parts to thousands of smaller, more efficient shops. National supermarket chains import fresh fruit from growers in South America during winter. Phone companies and cable companies merge to bring the Internet and telecommunications to us through our televisions. Mail order companies sell their customer lists to other catalogers, and we get all that junk mail. The result is an ever increasing web of connectivity and a greater sophistication and interdependence among businesses. Automation and interdependence have permitted many companies to do more with less, in many cases meaning increased earnings and soaring stock prices. Companies today, particularly large corporations, are creatures whose lifelines are computerized, mind-bogglingly interdependent business systems. Indeed, as we discuss in Chapter One, computer automation and business interdependence have been the fuel for the economic en-gine of growth in the U.S. But sever the connections, and the engine grinds to a halt. As we show, some sectors clearly are more automated than others, and happen also to be entirely at the mercy of vendors, suppliers, shippers, and various service provid-ers. More ominously, some sectors are completely reliant on the government to get its act together, or they have extensive global operations that are at risk from inaction overseas. In such cases, no matter how much effort com-panies in these sectors put into Y2K compliance, all their work could be for nothing because forces beyond their control will bring about economic ruin. We have identified key sectors of concern to inves-tors and broken them down into Chapters Two through Six, respectively covering air transport, health care, elec-tric utilities, banking and telecommunications. We assess the danger Y2K poses to share prices and earnings of pub-licly traded companies in these sectors as well as point out specific Y2K risks within each sector that lead us to espe-cially disfavor it. Chapters Seven and Eight discuss the global Y2K crisis and the larger economic outlook under Y2K, and Chapter Nine provides readers with some ideas for Y2K opportuni-ties in sectors that could actually benefit from the Y2K crisis. Chapters Ten and Eleven set out our investment strategies. We provide risk-adverse readers with invest-ment strategies for protecting assets from the devastation of Y2K while showing risk takers how to turn crisis into opportunity by building wealth (perhaps significant wealth) during the Y2K crisis. Read Our Book, But Think For Yourself. The Y2K situation is unpredictable in many ways, and no investment guide can give 100 percent assurances. But in our view, it is possible to weigh the relative risks of dis-ruptions across various industries and make investment decisions based on those risks. Could we be wrong? Of course. The important thing to remember is that we think the chances of disruptions or even a meltdown in the industries we've identified are higher than others, and investors shouldãand willãtake that into account. One final word: We recognize that each small inves-tor's situation is different with respect to investment goals and acceptable levels of risk, so we can't give you specific investment advice on when or how much to buy, sell or hold. We provide some sample portfolios and in-vesting strategies at the end of this book, but only you know what use you should make of the information con-tained in these pages. Only a handful of people could have known about the 1973 OPEC oil embargo before it happened. With Y2K, investors can prepare themselves and their portfolios for the crisis. There still is time. Every investor knows that Y2K is out there, just around the bend. This book gives you the second piece of the puzzle by explaining the likely effects of Y2K and providing investment strategies. But only you can complete the plan and take appropriate measures to protect your assets and build wealth through the Y2K crisis. SOURCES Reported in Summary of Industrial and Process Control Systems Conference held in Houston, Texas from May 18-20, 1998, re-marks by Evan Hand, as reported by John Huntress, YEAR2000.COM PARTNERSHIP. Gene Bylinksy, Industry Wakes Up to Year 2000 Menace, FORTUNE (April 27, 1998); Rachel Konrad, Suppliers' Computers a Worry to Carmakers, DETROIT FREE PRESS (April 23, 1998). Katie Merx, Warren Store Wins 1st Year 2000 Suit, THE DETROIT NEWS (September 15, 1998); see also, Rajiv Chandrasekaran, Year 2000 Bug Could Bring Flood of Lawsuits, WASHINGTON POST (May 3, 1998); Douglas Stanglin and Sha-heena Ahmad, Year 2000 Time Bomb: Prevailing Myths Deter Managers from Debugging Computers, US NEWS & WORLD REPORT (June 8, 1998). Scott Thurm, A Blitz of Fixes Helps Factories Prepare for Year-2000 Problem, THE WALL STREET JOURNAL (January 5, 1999). Experts also warn that some programs mistakenly believe that the Year 2000, like the year 1900, is not a leap year, since it is a year ending in "00." But every 400 years there is an exception to the rule. Thus, 1600 was a leap year, and 2000 also will be a leap year, but 1700, 1800 and 1900 were not. Will Lester, Most Americans Believe Y2K Bug Will Cause Mi-nor Problems At Most, ASSOCIATED PRESS (January 2, 1999). See Dr. Edward Yardeni, YEAR 2000 RECESSION? PREPARE FOR THE WORST. HOPE FOR THE BEST., available at www.yardeni.com. Dr. Yardeni is the chief economist at Deutsche Bank Securities for North America, and has predicted a 70% chance of a global recession resulting from Y2K. See Chris O'Malley, Apocalypse Not, TIME (June 15, 1998). Other examples include James Annable, chief economist at First Chicago NBD, and Steve Roach, chief economist of Morgan Stan-ley Dean Witter, both of whom have dismissed the idea of a Y2K recession. See, Economists Debate Global Impact of Year 2000, R. Schilhab, FOX NEWS (July 1, 1998). The most well-known fence sitter is John Koskinen, Special Assistant to the President on Year 2000 conversion, who insisted as late as end of the second quarter of 1998 that "[t]here's not enough real hard data (yet) to make estimates." Wall St. Forecast: Increased Chance of Y2K Recession, B. Belton, USA TODAY (July 1, 1998). See Edward Yourdon and Jennifer Yourdon, TIME BOMB 2000 at Appendix A (Prentice Hall 1998). Barnaby J. Feder and Andrew Pollack, Computers and Year 2000: A Race for Security (and Against Time), THE NEW YORK TIMES (December 27, 1998). Chris Allbritton, The Latest Y2K Bug Worry: Checking the Fixes, ASSOCIATED PRESS (January 2, 1999) (quoting chief techni-cal officer of Sapiens, a leading international Y2K fix-it company). Microsoft Says It Can Correct Y2K Bug In Windows 98 System, ST. LOUIS POST-DISPATCH (courtesy of BLOOMBERG NEWS) (De-cember 8, 1998). The company has made free software available on the net and on CD-ROM to correct the problem. For a humorous survey of Y2K hysteria, see Patrick O'Driscoll, Y2K Bug Could Be A Plague, Many Warn, USA TODAY (July 1, 1998) (describing survivalist web-sites that have sprung up on the net). Feder & Pollack, Note 12. Rod Newing, The Millennium 'Bomb': Systems Are Already Failing, FINANCIAL TIMES (July 1, 1998). Raina Grossman, Percentage of Major Corporations Launching Year 2000 Strategy; As Corporations Add Staff and Increase Budgets for Year 2000 Work, More Than a Third Have Experi-enced a Year 2000 Failure, CAP GEMINI AMERICA (Press Release) (April 8, 1998), available at www.usa.capgemini.com/services /y2k. See Erich Luening, Reports of Y2K Failures on the Rise, CNET NEWS.COM (December 30, 1998) (citing Cap Gemini America 1998 Q4 survey of 110 corporations, 12 industrial sectors and 12 government agencies). Y2K '99 Preview Reveals Weaknesses, NINEMSNNEWS (January 5, 1999). In fact, some analysts have pointed out that we may get a taste for what's in store when certain computers fail on April 9, 1999ãthe 99th day of 1999ãwhich translates into an internal computer message as "9999" on some computers and means "end of data file" in many computing languages. This problem is men-tioned in the guidelines prepared by the Federal Financial Institu-tions Examination Council. Apparently, the same problem may occur on September 9, 1999, which may be read by some comput-ers as "9/9/99." The FFIEC Guidance Document can be found at www.ffiec.gov/y2k/guidance.htm. Another day to watch out for is August 22, 1999, when the U.S. Navy's Global Position System, which is used by the world's planes and ships to navigate and by multinational banks to calculate overnight interest, will reset itself. (According to the Navy, the system began to count out weeks on January 5, 1980, but only counts up to 1,024 before starting over. See www.tycho.usno.navy.mil/gps_week.html.)
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