Editor's note: Because of the holidays, Stock Strategies runs today rather than in its usual Friday spot.
The other day the federal government came out with its plan for monitoring the effects of the Y2K computer bug.
It seems that three blocks from the White House is a room where about 200 people from "the Internet, telecommunications, airline, electric power, financial service, oil and gas, pharmaceutical and retail industries, as well as military and security operatives," will all hang out. They'll also be linked to similar groups in other countries, giving them a real-time view of how crucial systems are holding up as the clock strikes midnight around the world.
Sounds like the kind of stuff a trader could use, doesn't it? Especially when you consider that because the international date line is out in the Pacific Ocean, Y2K actually begins at 6 a.m. Eastern time on Fiji, and then moves west across Asia and Europe, until the ball drops 18 hours later in Times Square. Since the markets are open for at least part of New Year's Eve, having early access to Y2K status reports might -- depending on how it goes -- offer a lot of quick trading opportunities.
The government's Y2K war room is off limits, of course, but there's at least one other source that might be just as good: The
International Y2K Cooperation Center
www.iy2kcc.org, a creation of the
, claims to have people on the ground in most parts of the world, monitoring vital systems and forwarding real-time updates.
Right now, the site is just set up to give background information. But on Dec. 28, it will go live, with a grid listing each country, complete with color-coded boxes for 11 crucial sectors like power generation and telecommunications. Green will mean normal (though spokeswoman Lisa Pellegrin stresses that in many countries that's not the same thing as fully-functioning), yellow will mean operating at reduced capacity and red will mean bad news indeed. Click on the box and you'll get the specifics of what's gone wrong and what is being done to fix it.
Here's the general time line for Dec. 31: At 6 a.m. ET, the new year dawns over South Pacific islands like Fiji, Tonga and New Zealand. An hour later the dateline crosses the western edge of Russia. At 8 a.m. comes Australia, and by 10 a.m. the real test will begin, with Japan and Korea. An hour later come China, Hong Kong, Malaysia, Taiwan and Singapore.
From 3 to 4 p.m., the line passes over the oil-producing countries of the Middle East. At 6 p.m. comes continental Europe, with Britain an hour later. There will be a lag, of course, between the date turning over and actual reports of how things are going, but it's safe to say that at least some news from the Far East will be in before the markets close at 1 p.m. ET (or 5 p.m., if your broker offers extended-hours trading).
For some ideas on what to look for, I checked in with Alex deBethmann, manager of
Asia Pacific Growth and
International Equity funds.
"I don't see a relief rally
if problems are minimal, because foreign stocks haven't traded down in anticipation," he says. Instead, the averages he follows are up between 8% and 21% in this quarter, implying that investors expect business as usual in the new year.
Are they right? Yes and no. "We'll probably see some disruptions. But the key is the ability of these companies to get back to normal operations. That's where you'll get your blip. ... You'll be surprised by the quality of some of these managements."
In other words, if there's trouble, the negative reaction will be followed in a matter of days or weeks by a positive one. "It's going to be a very short, in-and-out trade," predicts deBethmann.
Some sectors to watch:
Asia, in general, and Japan, in particular, are big oil importers, so a Y2K-related slowdown there would cut global energy demand, possibly reversing some of oil's recent gains. That's good for domestic (though maybe not international) airlines, U.S. car makers and most other energy-intensive transport companies. It's bad for oilfield services and pure oil producers.
But if trouble bypasses Asia and hits the Middle East, then oil supplies might tighten, sending prices higher and reversing the play.
Japan, Korea and Taiwan are all big makers of DRAM chips, so "problems that affect their manufacturing sectors might cause a surge in DRAM prices," says deBethmann. That's bad for box makers like
and possibly good for domestic chip maker
(This is me talking, not deBethmann.) The
has allowed the money supply to expand at a 15% annual rate for the past three months, presumably to keep the world nice and liquid going into Y2K. Let the date pass without a problem, and -- assuming the Fed's stated 5% money growth target means anything -- we might see a major tightening in the coming year, which is almost certainly bad news for U.S. stocks in general, and high-priced tech in particular.
In other words, good news on Y2K might actually be bad news for U.S. stocks, while a big mess in other parts of the world might persuade the Fed to leave the money spigot open.
So tell you what: If you come up with some other strategies for exploiting real-time Y2K data, send them over, and maybe I'll pull them together for a column next week. Otherwise, Happy New Year.
John Rubino, a former equity and bond analyst, writes a column on mutual funds for POV and is a frequent contributor to Individual Investor, Your Money and Consumers Digest. His first book, Main Street, Not Wall Street, was published by William Morrow in 1998. At time of publication, he had no position in any stocks mentioned. While Rubino cannot provide investment advice or recommendations, he invites your feedback at
firstname.lastname@example.org. Stock Strategies appears every other Friday.