Y2K problem throws a scare into
Wall Street's biggest bull

Make believe for a moment you are Ed Yardeni, chief economist of Deutsche Bank Securities (North America). You are paid vast sums of money to make your wealthy clients richer, and you are very good at your job. Indeed, you may be the best economic forecaster of this decade, so prescient is your analysis.

You have impeccable credentials. You completed your PhD dissertation under professor (and Nobel laureate) James Tobin at Yale University, taught at Columbia University's Graduate School of Business, served as an economist with the Federal Reserve Bank of New York, and held positions at the Federal Reserve Board of Governors and the US Treasury Department in Washington. In private life, you served as chief economist for C.J. Lawrence, Prudential Securities, and E.F. Hutton.

In the late 1980s, when everyone else was moaning and groaning about the coming recession and the size of the deficit, you looked around and saw a world transformed by the end of the Cold War, the technology revolution, and scientific discovery and announced that a ''new economy'' was being born. Fasten your seat belts, you told your colleagues and clients, the Dow Jones Industrial Average is going to take off like a rocket.

You even put a number on it: a 5,000 Dow. Your colleagues said that might be a tad optimistic, which in their view was just two steps removed from out of your mind. But you had the courage of your convictions. You saw the big picture, and the big picture was almost limitless investment opportunity.

And you were right. The Dow did take off like a rocket. Soon enough (1993) it punched through the 5,000 figure with fuel to burn. What next? Ten thousand by 2000, you said, figuring, why not? Ten thousand Dow seemed mighty optimistic, maybe only one step removed from lunacy, but you were unfazed. The productivity revolution, the technology revolution, the genomics revolution, the political landscape, demographic trends, 401-K plans, and mutual fund mania all pointed due north.

Sure enough, the Dow ramped just as you said it would. By that time, the press was eating out of your hand. ABC News called you the best economic forecaster in the country, Barron's sang your praises at every turn. And all the while, the Dow just kept moving up.

There was only one problem. You were not only smart, you were intellectually curious. Smart was fine; eggheads were in on Wall Street. But intellectual curiosity was, let's be honest about it, problematic. It took you to unexpected places.

But you're Ed Yardeni, and you don't care, so you begin to consider the implications of the Year 2000 (Y2K) computer problem. The problem is simple. In much of the embedded memory of the global economy are computer chips and computer programs that think the year 2000 is really the year 1900. A weird glitch, to say the least, but an interesting glitch, given that the new economy runs on computers.

You begin to really study this problem, and the more you look into it, the more freaked out you become. Before long, you transform your website (www.yardeni.com) into a Y2K Red Alert bulletin board. There, you post articles and provide links on how the Y2K computer problem will affect every aspect of economic, military, and social life in the developed and underdeveloped world. You realize that air travel, electric utilities, telephone service, Medicare, just-in-time production capabilities, and ''mission critical'' national security operations might be rendered dysfunctional by the glitch. And that's just for starters. It makes your head spin because you know that nothing much is really being done about it.

But you're Ed Yardeni and so you become, as New York Magazine's Jim Suroweicki called you, a Y2K Jeremiah. This summer, you go before some big shot group and announce that the chances of a Y2K-induced global recession (on the order of the post-OPEC 1973-74 global recession) is 70 percent. In your heart of hearts you probably think it's more like 99 percent. Because the more you learn about this Y2K computer problem, the more immense it becomes.

And then, this week, you walk into your office and scan the morning papers. There on the front page of Tuesday's Financial Times is the following headline: ''Too late to defuse millennium bomb, software group warns.'' The story is based on a comprehensive report by a leading European software consulting firm on the Y2K problem, and its conclusions are grim.

You're Ed Yardeni, Wall Street's greatest bull through much of the 1990s and, because of the Y2K computer glitch, you have become the King of the Bears. With each passing day, you grow more concerned and wonder why more is not being done.

You're Ed Yardeni. You know you're right,
but you hope you're wrong.