Edward Yardeni and Dennis G. Grabow -- the two most prominent investment alarmists on the Y2K issue -- now have a Y2K problem of their own: explaining why there was not the disruption they so fervently had forecast.
Both said they were surprised by how smoothly the transition to 2000 went on computer-reliant systems and equipment around the world.
"I thought we'd see some disruptions, especially overseas," said Mr. Yardeni, chief economist and global investment strategist of Deutsche Bank Securities Corp., New York.
He said he isn't humiliated by the letdown. "I'm happy to concede I was wrong. The good news is Y2K has been a non-event." He had predicted there was a 70% chance of a recession and a 30% drop in stock prices because of the Y2K computer problem.
"Absolutely, I didn't anticipate the global infrastructure holding" on Jan. 1, added Mr. Grabow, founder of Millennium Investment Corp., Chicago. He said he spent several days around the new year in the MSNBC studio in Secaucus, N.J., as its paid consultant delivering Y2K commentary.
The two men said the lack of problems could be explained away by arguing business and government heeded warnings and took prompt action to rectify potential faults. Certainly many companies and government authorities did so, spending an estimated $450 billion worldwide.
But that explanation isn't completely satisfying. What about the companies or countries that did very little to correct the potential computer problem? Italy, India, Russia, China and Indonesia, which reportedly spent minor amounts, were supposed to have problems. Did so much money need be spent? Potential legal liability many have been a major motivator in this country.
No people in the investment community were known to be as thorough in research of Y2K and its potential consequences for the economy as Messrs. Yardeni and Grabow. But Wall Street analysts in general appear to have ignored the potential problem in their research reports, even though the Securities and Exchange Commission required companies to report their Y2K efforts. Mr. Grabow blames the lack of independence by analysts and their greed to do financing deals as reasons behind their little interest in Y2K.
But in general the Y2K alarm had a limited effect on motivating people. "Clients never bought into my recession concerns," Mr. Yardeni said. "But they agreed my alarm had some impact. In retrospect, I got too caught up in the crusade aspect. I rang it a little too long."
He now thinks the stock market could return 10% for 2000, although he is concerned the global boom and tight labor markets could ignite inflation, causing the Federal Reserve Board to raise interest rates again.
Mr. Grabow had predicted electrical blackouts, a halt to car manufacturing for several months, and world trade disruptions. "When the infrastructure held (on Jan. 1), my estimate of the economic consequences greatly diminished," he said.
He says reports of no problems might be premature; he thinks some Y2K disruptions, like the Feb. 29 leap day, might lay ahead.
"We're not out of the woods yet," Mr. Grabow said. But at this stage, "I'm cautiously optimistic." He won't put a number on the market return for 2000.
In the end, the problem with the Y2K forecast of Messrs. Yardeni and Grabow: both put too many of their eggs in it. That was their Y2K risk.