Y2K Chat on AOL

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TheStreet.com's Spencer Ante and Giga analyst Andy Diamondstein chatted about Y2K on AOL, Feb. 18.

PF Trader:

Welcome everyone to another TheStreet.com live event. Tonight we welcome Giga Information Group's Y2K analyst Andy Diamondstein to discuss the Y2K issue and your investments. Welcome Andy!

Andy Diamondstein:

Hi!

Question:

Will Y2K cause a recession?

Andy Diamondstein:

It's hard to say. Any number of things could happen. There is some speculation that a recession will happen but ultimately, this problem could be as good or as bad as people make it. For example, if everybody goes crazy thinking there will be food shortages and stockpiles food, then there will be a food shortage because supermarkets aren't prepared to deal with that. I personally don't think Y2K will cause a recession, but there will be some minor disruptions to services that we're accustomed to receiving without a problem.

Question:

If there is a Y2K problem within the banking system, how much of my money is protected?

Andy Diamondstein:

Any insurance protection that normally covers your money is still in place for Y2k issues. So FDIC, etc. is all still applicable. What you should do if you're concerned about this is make sure that you have a recent copy of your financial records before Jan. 1, 2000. Basically, your last financial statement in Dec. 1999. The thing is, most people keep this stuff anyway. It's also important to recognize that the financial industry is the most advanced in fighting the Y2K bug. Banks and securities firms are doing a tremendous amount of intracompany and intercompany testing to make sure all the systems will work in 2000.

Question:

Do you think it's a good idea to withdraw a significant amount of cash just prior to the millennium?

Andy Diamondstein:

I think it will be useful to have some cash on hand, but not a ton. I don't think you should withdraw that money on Dec. 31, 1999, though. Basically, it will be useful to have enough money to buy food for a couple weeks just in case there is a problem. If you need money for any other essentials, keep that on hand for a few days. Remember that any disruptions that do occur will most likely be very short, so don't withdraw all your money. That won't help anything.

Question:

Do you think most of the Y2K Hype is just that? Hype?

Spencer Ante:

There is a lot of hype, but Y2K is definitely a real problem with real consequences. Also, I would be careful of panicking. The real fear now is that panic will lead to more problems than Y2K itself. These are called second-order effects -- for example, the fed energy reg. commissioner said today that the us gas and oil industries are on track to meet the Y2K problem. More than 82% of companies surveyed said they were in the final stages of fixing and testing their computers. 97% said they would have contingency plans in place by the third quarter of this year. Of course, you might want to take these claims with a grain or two of salt.

Question:

How will my mutual fund portfolio be affected by Y2K?

Andy Diamondstein:

First point I'd make is that it will depend on the makeup of your portfolio. Certain industries may be more affected than others, so it depends where your fund managers are putting your money.

Spencer Ante:

Money managers are definitely. Analyzing Y2K risk some say they won't be changing their portfolios others say they will be.

PF Alix:

Can you tell us a little about the Y2K problem?

Spencer Ante:

For example, some managers recommend putting more money into bonds and other so-called "safe havens" Then again, some Managers say Municipal bonds are a risky investment because local cities are behind in fixing their computers.

Andy Diamondstein:

Some sectors that are ahead of the game in fighting Y2K are definitely finance and insurance and software companies, to be honest Some that are behind are healthcare and transportation. Another thing that will affect stock performance. If there is a recession is the elasticity of demand for certain goods.

Spencer Ante:

FYI: the sec just launched a Y2K database that contains Y2K reports of money managers, broker-dealers and transfer agents. This is a great tool for investors to check up on the preparedness of their investments. It's on the SEC website at www.sec.gov go now! Or after the chat!

Question:

What is the best strategy for investing as we get closer to Y2K?

Andy Diamondstein:

It makes sense to monitor what the companies you invest in are doing to prevent Y2K failures. If you're talking about large companies it is important to recognize that many will have some sort of y2k failures however, the important thing is that they are doing risk assessments to make sure that those failures do not significantly impact critical business operations You should definitely monitor SEC disclosures to see what the companies are doing and also may want to monitor how those companies compare with others in their industries. If one company really leads the industry, then it is possible their valuation could improve relative to the rest of the industry.

Spencer Ante:

Preparedness is the path to shareholder value like Andy said, check those quarterly disclosures on the sec website they are contained in the sec's edgar database.

Question:

What is your assessment of Y2K compliance for the US Electric Utility industry?

Andy Diammondstein:

This is a really tough question, so bear with me :-) Honestly, there might be some problems with the electric industry, but they are not likely to result in prolonged -- that is, more than one day -- outages. It's not exactly clear yet how the government will be dealing with this either. The Federal Emergency Management Assoc. (FEMA) is starting to meet in various regions of the country to set out plans for preventing chaos in the event of Y2K failures. Electric utilities are doing much better now than they were six months ago. A lot of them are beginning to develop contingency plans, such as stockpiling coal, which many use to generate electricity It's probable that if there are problems, they will occur in more rural areas of the country, but the possibility for short outages, brownouts, or rolling blackouts is very real. I suggest you evaluate your circumstances and determine whether it's prudent to consider buying a portable generator. If so, try to get one now. I don't think many people will need generators, but a few (e.g. people with small children) might.

Spencer Ante:

FEMA recommends preparing for Y2K in the same way that you would prepare for a winter storm. Which means you should have batteries for flash lights and radios, plus 3 days supply of food water and a half a tank of gas. Also, take care of your bank and tax records. Make backups -- you might need them to back up your claims if the banks' software goes on the fritz.

Question:

Andy - would you trust Y2K fixes enough to get on a plane on Jan. 1,2000?

Andy Diamondstein:

Well, I've been told I might get mugged if I go to New York, and I still go there. Seriously, I don't think planes will be falling out of the sky on Jan. 1, 2000 but I won't risk it.

Spencer Ante:

Who wants to be on a plane on New Year's Eve anyway!

Andy Diamond:

The more likely scenario is that flights will be delayed because of extra Y2K precautions.

Spencer Ante:

Get out and party!

Question:

The World Bank reported that only 15% of the World's countries are doing anything about this. That sounds scary to me.

Spencer Ante:

Good point. The rest of the world is woefully unprepared compared to the us and a handful of other developed nations. Sun Ceo Scott McNealy recently warned of supply chain risks in East Asia -- he recommended stockpiling computers.

Andy Diamond:

I think another important point is that while a lot of countries are really unprepared for Y2K, they are also not as technologically advanced -- dependent on computers -- as the U.S.

Question:

The marketplace is a global concern. How will trouble in other countries affect the stocks we Americans own?

Spencer Ante:

Hard to say. I would say that a lot of mutual funds are heavily invested in emerging markets. If those economies suffer severe disruptions as a result of Y2K, they could significantly hammer investments again, you might want to consider over weighting your portfolio to us-based investments and/or US companies.

Andy Diamond:

It depends on the extent to which the companies you invest in invest internationally certain banks are considered very good investments because most of their investments are in the U.S. Consult Ed Yardeni's Web site at www.yardeni.com for a good article about which sectors might be more or less affected by Y2K.

Question:

What is exactly going to happen on midnight new years is there going to be a blackout?

Spencer Ante:

One overlooked fact about Y2K is that it is not just a midnight 2000 issue, though many of the bugs will hit on midnight. Lou Marcoccio of the Gartner group estimated that 92% of the Y2K failures will not happen on midnight 2000. Y2K is more like a three-year event that plays out over an entire business cycle.

Andy Diamondstein:

Predict hundreds of thousands of people will blackout on Jan. 1, 2000, most of them probably between 2 am and 4 am in the morning. Seriously, it really depends on where you are.

Question:

Is the problem almost solved do we have enough time to fix it?

Spencer Ante:

Personally, I'm a lot more optimistic about Y2K than I was a year ago awareness has really increased b/c of all the media attention however, a lot of companies will definitely get hit by the bug because they were too late in starting to fix it.

Andy Diamondstein:

So much progress has been made in the last six months that it's hard not to be more optimistic with each passing day. There will definitely be some problems, and some have already occurred, but in all probability most of the problems will be minor. Companies are getting senior executives more and more involved in their Y2K projects and from what I've seen at Giga, and we work with Fortune 1000-type companies, businesses are doing very well and are beginning to focus on backup plans in case their systems do not work. The focus is on business continuity and making sure that if there is a problem, it's time to fix everything, but there is time to make sure that we fix the most important things and have a way to deal with anything that might go wrong.

Spencer Ante:

We'll survive Y2K. The end of the world is not coming, as some of the extremists would have us believe

PF Trader:

Andy, Spencer - thank you for taking the time to talk about Y2K with us tonight!

Spencer Ante:

Wow that was fun! Check out thestreet.com for continuing coverage of Y2K's impact on the financial scene.

Andy Diamondstein:

That was fun. I've seen some people get pretty crazy about the impact of this, but be positive!