From today's Ft Lauderdale Sun-Sentinel business section.

The year 1999 is turning my friend, Herman Geltenfelter, into a basket case. I stopped by his home and the place was a mess. Stock prospectuses and investor guides littered his table. Survival manuals on shotguns, bottled water and gasoline cans lie on the floor. "I feel like I'm sitting on a time bomb," said Herm, deep worry lines creasing his brow. "I'm nervous as a cat that Alan Greenspan is going to raise interest rates and cause the market to tank. And now they're saying the Year 2000 computer problem could bring on a worldwide recession that'll force me to camp out in the mountains." "Hey, man," I replied, "don't flip out, at least not yet. No one knows whether the Federal Reserve is going to boost rates, but if the economy keeps getting hotter, it might. For example, new home construction is up and unemployment is way down, but industry still has lots of capacity to grow before we'd see any inflation threat." "OK," said Herman, with a sigh of relief, "so the jury's still out on that one. But the market can't keep flitting above 9,000, can it? Everybody I know -- except my broker -- says the Dow is due to take a big hit this year. If that happens, I'm a dead duck. Every dime I own is in stocks." "Listen," I said. "If you're panicky about a big drop in the market, move some of your money into FDIC- or government-guaranteed investments like bank CDs, Treasuries or Savings Bonds. Your stocks have had a great run over the past eight years, and the Fed's three rate cuts last year helped reduce your borrowing costs, besides. Mortgages, for instance, are still down around 6.75 percent, and the cost of a $16,000 new car loan for four years has fallen by $102. "As for your broker, he mostly makes commissions off stocks, not FDIC-insured CDs," I emphasized. "Chances are he doesn't personally invest in what he recommends to you." "Yeah, but -- " "No buts about it," I interrupted. "Fact is, you and millions of other Americans have gotten spoiled by 17 to 20 percent returns, and your broker has been riding the same rocket. Good things don't last forever, yet the U.S. economy remains incredibly strong. Our stock value has soared by 31 percent in the last year-and-a-half, while other countries', like Russia, have plummeted by as much as 86 percent." "Yeah, but what goes up has to come down someday, right?" Herm asked. "Right. But nobody yet knows the timing -- or the reason," I pointed out. "Wall Street used to work mainly with numbers, but now it works with feelings and emotion. If the Fed hikes rates by a quarter percent, it won't be the amount of the cut that will set the Street off, it'll be the emotional reaction to Fed action." "But other economies, like those in Japan and Brazil, keep falling like dominos. Even if the U.S. economy is as solid as a rock, won't we get belted, too, by the Y2K problem at the end of the year? Some guys are predicting a worldwide recession," said Herman, with a nervous twitch in his voice. "Nobody knows," I explained. "Their reactions range from, 'Sure, there'll be some glitches -- but that's about all,' to guys who swear Armageddon is around the corner." "So how in Sam Hill do I protect myself?" queried Herman. "The first thing you do, old buddy," I said, "is ask your bank and your broker, in fact everybody you're doing business with, to tell you how they're testing their systems for Y2K. If they insist they have no problem, you switch to another outfit pronto." "Hey, that's scary." "Maybe, but maybe not," I said. "One expert says one out of three banks doesn't yet have its Y2K act together. Better to be safe than sorry." "That's all there is to it?" Herm asked. "No. You should update and make copies of all your vital records. Ask your institution what might happen to you in a worst-case Y2K scenario, and, if there's a real foul-up, whether they'll assume the liability." "In other words, I should cool it on the rate fears for now, and go with the guys who are ahead in the Y2K race?" "You got it, Herm," I replied, as I watched him toss his survival manuals into a wastebasket. Robert Heady is the founding publisher of Bank Rate Monitor and is the co-author of the book The Complete Idiot's Guide to Managing Your Money.

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-- Online2Much (hard@work._), February 22, 1999

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