June 5, 2012 – Is the Greek Crisis Similar to the Y2K Fiasco?

This article was prepared solely by Larry Short who is a registered representative of HollisWealth®, a division of Industrial Alliance Securities Inc. (iA Securities), a member of the Canadian Investor Protection Fund (CIPF) and the Investment Industry Regulatory Organization of Canada (IIROC).The views and opinions, including any recommendations, expressed in this article are those of Larry Short alone and not those of HollisWealth®

Do you remember the worry we all had about the Year 2000 problem, otherwise known as the Y2K problem?

For those that would like an in depth review, check out chapter 5 of my book, but for our purposes here, let me provide a quick summary and draw your attention to similarities with the current Greek crisis.

I really started hearing in earnest about the impending crash of all computer chips at 12:00:01 am on January 1, 2000 during the meltdown of September 1998. It was a terrible time for investors because we had just come through the Asian currency crisis, the bankruptcy of one of the largest hedge funds ever – Long Term Capital Management – run by two Nobel Prize winning economists, and Russia, a G-7 nation, had just gone bankrupt in a sudden and dramatic fashion. The stock markets were still down some 30%+ from their recent highs in 1998.

Of course that crisis was called the worst financial disaster in history in the same way that the 1987 crash had been labeled. In my book I quote a few notable economists including Edgar Greenspan who had commented that the fear during the 1998 crisis was the worst they had ever felt, and he lived through the 1987 crash.

So, to have a problem affecting all of the world’s computer chips thrown on top of this disaster – well, I mean, how could the world economy not collapse? Nuclear power plants, regular power plants, bank records, cars, trains, planes – anything that had a computer chip in it was subject to failure. So real was this problem perceived to be that China ordered the programmers who were supposed to fix the computers on their airliners to be on those very planes in the air at the magic hour. Talk about work pressure.

And what happened?

It got fixed.

This was simpler said than done. It was a monumental effort taking years to conquer and cost billions of dollars. And the stock markets? They soared.

Ironically, there was a follow on situation caused by the Y2K problem that I discuss in the book but that is another story.

So, what has this to do with Greece? We have known about the Greek problem for at least two years now, billions have been thrown at the problem and it appears that it is now coming to a head.

Will it cause a fizzle like Y2K or something more ominous? My expectation is a short term upset followed quickly by a relief rally. There will be headlines similar to the one of September 1, 1998 when Russia went bankrupt proclaiming that the bull market is dead. (The stock market rose 109% from the date of that headline to March 2000.)

History does not repeat but per Mark Twain, sometimes it rhymes.

See chapter 5 for more elaboration.