Is the ‘Fiscal Cliff’ the New Y2K?
The entire world was being held hostage by a clock!
I’ve been around markets long enough to remember the potential derailment of Y2K? You remember that, don’t you? Panic all around as January 1, 2000 approached. That was when computers were going to go haywire or shutdown once the new millenium occurred, accounts were supposed to be whacked and we were looking at the economy potentially stopping. Nobody knew the damage but it could be severe, some said. Oh, there were companies such as TSRI and ACLY who claimed to have the answers, and those stocks among others ran on the hype. In most cases the thought was ‘ok, if we can’t fix our current system we’ll just buy a new one…or three’.
Businesses were flush with cash and high-priced stocks (if no earnings – but that is a conversation for another day) as the markets were at all time highs and going higher. So the purchase of new systems, routers, equipment and software was easy. Even Fed Chairman Greenspan had his worries, he pumped more money in the system as the ‘rumor mill’ hit – many were going to hit their ATM or just make a run on the banks. After all, who could trust anyone?
Well, after all the worry the Y2K scare turned into a non-event. Computers turned on, dates were fine and it was back to normal. You can imagine the talk around the water cooler that next work day. Of course, it wasn’t much longer (a few months) that the tech bubble burst in front of a whole series of events. The Y2K scare turned into nothing more than a ‘wall of worry’ that was talked about endlessly, day after day and as the time got closer so did the panic. We make decisions in our lives that hopefully give us the least amount of pain, and in this case the worry about everything shutting down was unfounded.
Today we have the fiscal cliff to worry about. We are all tired of hearing it, just like in 1999 we were exhausted about the pending IT and financial disaster. There are similarities with the Y2K only to the extent of the unknown and the fear being driven by the event. I understand this is not the same type of issue, but from a psychological perspective there are parallels. The issue is being talked about day in and day out, a million different solutions being presented. The future ramifications of Washington doing/not doing anything are unknown but perceived to be bad if not crippling to the economy.
People are worried, they are scared and with a big election upcoming there seems little they can do to prevent a train wreck from occurring. Preparations are being made for either result, and the effects will be felt around the globe. But unlike Y2K the fiscal cliff issue CAN be solved with action, discussion and agreement. Let’s hope this happens before the clock strikes midnight!
Bob Lang is founder and chief options strategist for explosive options.
