The Great Yardeni
"If I'm wrong about Y2K, I'll just check into the Betty Ford Clinic for delusional economists, publicly state that I'm on industrial-strength Prozac, and then ask for forgiveness," Ed Yardeni joked this past September. Yardeni, who is chief global economist for Deutsche Bank Securities in New York (he previously held the same job at C.J. Lawrence, Prudential Securities, and E.F. Hutton), was the most respectable of all the Y2K doomsayers, his credibility greatly enhanced by an accurate record of boldly optimistic financial forecasts through the 1990s. (Never mind that he wrongly predicted a recession following the 1987 stock-market crash and that he failed to see the 1990-91 recession coming.) For the last couple of years, Yardeni was quoted regularly in the financial press and appeared regularly on the tube predicting that computer glitches in early 2000 would cause the worst global recession since 1973. This past fall, Yardeni downgraded his prediction from a "12-month or longer recession" to a "very intense recession" of six months that would bring the Dow down to 8,000, but he continued to put the likelihood of Y2K-computer-glitch recession at 70 percent, up from his initial, more cautious prediction of 30 percent.
Now it appears that Yardeni was not just wrong, but spectacularly wrong. But if you go to his Web site and listen to his Jan. 3 conference call (scroll down to the pink area and click on "Millennium Meltup or Meltdown?"), you won't learn that Yardeni is in rehab, or that he's on anti-depressants, or even that he's asking forgiveness. Rather, you'll hear the opening strains of the second movement of Beethoven's Ninth Symphony, followed by Yardeni's somewhat brusque acknowledgment that things don't appear to have gone as badly as he'd planned. If a few additional days go by and no widespread computer failures present themselves, Yardeni told investors, "you'll be able to read my lips. I'll just say, 'I was wrong.' " Attempting to be gracious, Yardeni added, "I have no problems" with the growing likelihood that Y2K will end up being "a non-event." But "in retrospect, I certainly don't regret that I did my small bit to raise awareness" of the Y2K problem. (Come again? Computer experts can argue they raised awareness and thereby prevented problems, but financial experts can't; they just predict what's going to happen to markets.) Switching back to reluctant mea culpa mode, Yardeni continued,
I may have spent too much time trying to be a contrarian here. ... [Chatterbox translates: "I'm sorry."] But I think that one aspect of my job is to do some contrary thinking every now and then. [Chatterbox translates: "I'm not sorry."] I guess I could just tell you what you already know, just kind of regurgitate the consensus view. [Chatterbox translates: "I'm glad."]
Chatterbox doesn't mean to kick a prominent Wall Street analyst when he's down. Rather, he recites these details to raise a larger question: Do purveyors of extreme predictions ever pay a price when their predictions prove wrong? Commenting on Yardeni's Y2K Chicken Little stance a little over a year ago to reporter Eric Reguly of the Toronto Globe and Mail, Sherry Cooper, chief economist at Nesbitt Burns (and, according to Reguly, "no slouch in the self-promotion department herself"), said, "It's a good gamble on his part. As long as there is some Y2K disruption anywhere, he can claim to be right." In fact, there appears to have been no significant Y2K disruption anywhere, but allow Chatterbox to make a bold prediction of his own: Yardeni will still be eagerly sought after by financial journalists and CNN bookers, because in Yardeni's particular market niche it's better to be vivid than to be right.