Y2K Research Picks Up

Although Wall Street has been slow to recognize the year 2000 problem as a serious financial and strategic issue, lately it seems to be warming up to the bug. The most obvious sign of the Street's change in attitude is the steady stream of millennium bug research pouring out of the top firms.

Take the recent 20-page

Morgan Stanley Dean Witter

equity research report, for instance. The report, written by U.S. investment strategist Peter J. Canelo and his associate Lorraine Wang, is based on Morgan's review of the

Securities and Exchange Commission's

third-quarter year 2000 preparedness corporate disclosures. Morgan Stanley predicts that Y2K is unlikely to derail the U.S. economic expansion, estimating the chances of recession in the next two years at less than 20%. (Note: When

Deutsche Bank Securities'

chief economist Ed Yardeni made a similar call two years ago, he was dubbed an alarmist.)

Nevertheless, Morgan says that Y2K will exert broad-reaching consequences on corporate, monetary and fiscal policies. The bank forecasts a pickup in IT spending during the first half of 1999 as companies invest in new Y2K-compliant hardware and software. IT spending should fall off in the second half of 1999, but it will pick up again in 2000 as deferred projects advance to the front burner. Lastly, Morgan predicts that Y2K could produce a flight-to-quality effect that would favor the dollar and financial assets in the U.S., which, compared to the rest of the world, is ahead of all its major trading partners. Expect a follow-up Y2K report based on the SEC's year-end disclosures in early March.

'We believe that Asia is way, way behind on the Y2K thing,' says Sun Microsystems CEO Scott McNealy. 'If all of a sudden some core component, some core capacitor or disk drive or keyboard shuts down, big entire components of the supply chain could shut down.'

Y2K Scams Alert

The millennium is a bugger's delight. That's why state regulators have been warning investors to be on the lookout for Y2K scams or other "affinity frauds." Panicky investors, for example, may be persuaded to withdraw money from their savings accounts and put their money in bogus or risky schemes.

"Panic can lead people to make stupid mistakes," says Peter Hildreth, president of the

North American Securities Administrators Association

and New Hampshire's director of securities regulation. "There are practical, common-sense things investors can do to protect themselves."

Regulators suggest the following actions to investors:

Keep at least six month's worth of bank and brokerage statements on hand in case bank records go on the fritz.

Ask your broker what his or her firm is doing to prepare for Y2K and what procedures have been put in place to resolve possible disputes.

Investors should consider asking the companies they've invested in for Y2K-readiness reports.

Investors who use off-the-shelf money-management software should check with the vendor to make sure it's Y2K-compliant.

Sun King Warns of Asian Supply-Chain Risks

Sun Microsystems

(SUNW) - Get Report

CEO Scott McNealy warned the economic cognoscenti at the

World Economic Forum

last week that Asian companies that supply key computer components are lagging when it comes to Y2K. McNealy said the Asian laggards could bungle the box makers' manufacturing processes.

"We believe that Asia is way, way behind on the Y2K thing," said McNealy. "If all of a sudden some core component, some core capacitor or disk drive or keyboard shuts down, big entire components of the supply chain could shut down."

Because of these supply-chain risks, McNealy said it might not be a bad idea to stockpile some computers in the second half of 1999.

Wallpaper Tackles the Millennium Bug

Proof that the Y2K problem may be the ultimate media Rorschach test can be found in the January/February issue of

Wallpaper

, the U.K.-based style mag that was scooped up by

Time Warner's

(TWX)

Time Inc.

in 1997. The five-page cover story, which is titled "Bunker Down: What to Do in Case We Crash," features a diary entry on Jan. 1, 2000 and a double-spread picture of a beautiful couple decked out in

Prada

-esque clothes relaxing in their sleek, hypermodern and well-outfitted bunker.

Among the stockpiled goods: champagne, chocolate and cigars ("Live the life you're accustomed to. Just because the rest of the world is in chaos doesn't mean you have to go without."); mountain bikes (

Cannondale

(BIKE)

, of course); a crossbow ("You're not the violent types, but there comes a time when you have to take care of your own."); dumbbells and Heinz baked beans ("...They'll fetch high prices on the black market.").

Y2K Notes from the Underground

Pete Wilson, the goofy anchor of

KRON

,

NBC's

San Francisco affiliate, last week weighed in on the millennium bug with a pathetic tale of a couple whose Y2K plans backfired in a big way. Turns out one Florida couple, fearing a collapse in the banking system, withdrew their $20,000 life savings and stuffed it in a bucket, which they buried underneath the doghouse in their backyard. Well, lo and behold, one morning they woke up to find their doghouse overturned and their money gone. FYI: The

Red Cross

recommends withdrawing a small amount of money, say a week or two of salary, and keeping the cash in a safe place. The Red Cross, however, never said anything about trusting cocker spaniels.