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Summary and Comments

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1997-07-02 00:00:00


Another Optimist: 6-Month Crash, Then Boom


Stan Graham is an optimist in the y2k programmers' world. He runs a company that does y2k repairs. Of all the regular contributors on Peter de Jager's discussion forum, I regard him as the most optimistic. If you're in the market when 2000 begins, he thinks, you'll take a big hit -- the worst drop in 20 years. After this, he says, expect "business as usual": a market driven by boomers.

I disagree entirely. I don't think there will be anything left of the stock market when 2000 opens, so no one will take a hit. They will have taken the hit -- total. But if I'm wrong, and the hit comes in 2000, it will keep going down all through 2000 and beyond. The boomers will never recover psychologically from this. They have been told by everyone that all they must do to get rich is to keep buying mutual funds and never sell. They will never trust their money to the stock market again.

I include Mr. Graham's comments in order to demonstrate that y2k programmers are not agreed on the extent of the problem. But there are no optimists among them in the current Wall Street meaning of "optimism."

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Date: Sun, 29 Jun 1997 06:58:31 -0700 From: Stan Graham To: Subject: Stock Market, 2000

Though it is impossible to accurately predict the outcome of the impact of the Year 2000 problem on the Stock Market, it is quite possible to project what the likely results will be. In making that projection it is important to recognize some of the key underlying forces at play.

Over the next fifteen years, I believe that there will be little effect. The factors that will continue to drive the market up are demographics, fear and greed. The baby boomers planning for retirement, fear to miss out on the upward move, and desire to make lots of money.

The maturing of Baby Boomers will continue to create an opportunity for the upside on all investments that the consensus believes will make money. Stocks will be a prime target. The Baby Boomers will continue to invest heavily in mutual funds, and pension funds cash rich, will be forced to invest large sums in the market. Against this scenario, there will likely be a world wide shortage of stocks, escalating stock prices further. Price/Earnings ratios will play a less and less important role in the perceived value of stocks. The net is when people make money in the market, more money will be invested. Stock prices will continue to climb.

What is likely to happen in 2000? I believe, a significant downside hit, greater than the market has experienced over the last two decades. The market hates uncertainty. The litigation scenario that is likely to play out will frighten the h... out of investors. Fund managers will be forced to liquidate large holdings for investors that panic in the collective flight to protect their assets. This will undoubtedly drive the prices down significantly.

Therefore, I believe that the year 2000 will be a bad time to be in the market, but later in 2000 and 2001 will likely be a great time to buy stock, if you are willing to hold them for ten years or so.

Remember I am not an investment advisor, and offer these opinions at no cost to you. Therefore I will accept no responsibility if you choose to invest based on my opinion and are sorry later. However, it would be nice if someone who capitalized on my opinion and did well, would send me a nice note in 2001.

Any other points of view?

Regards, Stan Graham

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