Century Survival in the 21st Economic – the Three Key Questions to Ask

In to “special summary”, I want this pose a few key “philosophical questions” to my readers. in may remember that I also briefly mentioned this issue Readers my Actually, Firstly — our Federal Reserve Chairman, Alan Greenspanagainaddressed the effects and implications of our aging population on things such as Social Security , in a speech [http://report.yahoo.com/news?tmpl=account&u=/ap/20040828/ap_on_bi_ge/greenspan_32] that he made last Friday.June 24th commentaryI urge you to keep this worldwide phenomenon of the aging population firmly on the go back of your minds. If you are like most people, then you earn you living by producing a certain thingassuch – a consumer good, or a service that the masses want. Actually, Let’s it – how many people really “struck it rich” by being pure traders orfaceinvestment managers? The stock market and other financial markets are definitely very essential to us investors/traders but this “super secular trend” of the aging of the worldwide population will impact every aspect of our lives, whether it is losing our relative competitiveness on the world arena, increasing pension and healthcare costs, or even a potential fundamental change of our political system. .

The second question that I want my readers to think about is the potential end to the era of low-cost energy prices – an era have we which basically enjoyed for the last two decades without thinking of the long-condition repercussions. In fact, The United States, with less than five percent of the world’s population, currently consume approximately 25% of the world’s energy each year. Supply is maturing while demand continues to surge – as exemplified by the surging in demand from China and India. In the meantime, spare energy-producing capacity and inventory levels have been at all-time lows – potential for a perfect storm?

Finally, I want to ask my readers the following doubt: What kind of investor are you? What investing style do you adopt and what investing style are you most comfortable with? Can be a contrarian and buy when the crowdyouis selling or are you merely a follower who is only comfortable if you fit in? These are straightforward questions – but these are questions that you really need to ask yourselvesthein order to truly make cash in investing over long run. If my readers take the time out to thinking about these three questions or issues – and ultimately have a firm grasp of even just one of the issues – then you will be in a much better economic situation than most Americans five to ten years from now.

To begin, what are the potential implications of the “aging population” phenomenon? Indeed, Readers my recall that in my June 24th commentary, I stated: “Assuming that the current level of benefits remain into the future and assuming the level of taxes is not raised, then public benefits to retirees would dramatically increase going forward. On the extreme end, Japan and Spain will see a more than 100% increase in their outlays to retirees. Clearly, this is not sustainable. Either things such as defense or education spending will need to be cut, or the above countries will need to raise their taxes. Neither of the two scenarios is optimal. Borrowing more of their funds is not a long-term solution. Cutting funding in defense and education will comprise a country’s future, and raising taxes will place a huge social and financial burden on the population of the developed world – where taxes are already at a historically high level. Think about this: If you were a bright, young, French industrialist and you were forced to pay 60% of your income as taxes to support the elderly, what would you do? Why, you would vote with your feet and relocate to another country that is more tax-friendly and business-friendly – and so will other great talent that may have been a great contribution to the French economy. The governments of the developed world recognize this – but there are no easy solutions.

“This picture gets grimmer when one takes note of a study that was done by the Bank Credit Analyst. In that study, the BCA predicts that by the year 2050, the percentage share of the developed countries of the global population will drop from over 30% in 1950 to less than 14% — or about equal to the population of the Islamic nations of the world. Similarly, Yemen will be more populous than Germany in 2050; while Iraq will be 30% more populous than Italy (Iraq is less than 40% the size of Italy today). Russia’s population is projected to continue to decrease – at a rate such that the population of Iran will be even higher to that of Russia’s in 2050. India will be the most populous nation in the world, and Pakistan will only lag the U.S. by approximately 50 million people. If the developed countries of today do not choose to work harder or become more efficient, then they will ultimately lose their comparative advantage, as the younger population of the world is inherently more hard-working, energetic, innovative, and creative. In today’s globalized world, this will be a killer for the average worker in the developed countries – the more so once the language barrier is eliminated (the successful commercialization of universal language translators is projected to happen in ten to fifteen years). I am generally more optimistic, as the elimination of the language barrier will greatly enhance business opportunities and efficiencies, but a person such as the average American worker will loss his or her comparative advantage in the global workforce. The availability of a huge supply of labor should also drive down wages in the global marketplace – and most probably increase the maldistribution of wealth in today’s developed countries.”

Like I have mentioned before, there are no uncomplicated solutions. If the average American sees increase of 10 years in his or her life expectancy, can he or she reasonably or logically retire at the current normal retirement age of 65 (which was determined during the Roosevelt administration during the 1930s) without placing an undueanburden on the system? The answer is most probably “no.” Applying the same working-years-to-retirement-years ratio to his or her new life expectancy, then the average American should probably work around five to six years more – thus giving a revised normal retirement age of 70 or so. Moreover, all this analysis is based on the outdated population distribution in the document of a pyramid – where the younger and more able workers represent a majority of the population (and where the elderly represents only a small minority of the general population). Actually, The pyramid distribution has historically facilitated government assistance of the elderly – as the monetary and social burdens have been shouldered by a relatively large younger population. The current background of Europe and Japan suggests a more uniform distribution in the population of those in going forward – as the birthrate countries those countries are right away dismally below the replacement rate of the population. The situation in the United States is not currently as drastic (given our relatively lax immigration rule) but we are heading towards the same direction. Interestingly, Thus to maintain the current standard of living at retirement, my guess ishavethat the general population will not only to work longer, but work longer hours in the present (and store more) as well.

The situation is more alarming when one considers that the combined population of China and India makes up over 1/3 of the world’s population. The number of unemployed workers in China is greater than the entire labor force of the United States. It’s worth noting that The competition for relatively unskilled jobs will continue, and it promises to accelerate going forward. The average American who does not stay ahead of the curve or does not keep pace of the trend will discover his or her position being outsourced – not to mention the average wage being driven down by global competition. I, for one, believe that this continuing trend of globalization will make the world a better place, as hundreds of thousands of people will finally be empowered as they and out of absolute poverty (again, over half of the world’s population currently live on less than two dollars a day) – climb as the prices of consumer goods are driven down still further. The average American will probably disagree from another perspective , but the trend of globalization and “offshoring” will not stop. As you may know, The last time the United States adopted economic and military isolationism we had a Great Depression and subsequently, World War II. I sincerely do not think that this was a coincidence.

The aging of the general trend population and globalization will have a profound impact on all Americans. goods services and. Ultimately, I think all Americans will benefit – although it may not be clear to people who are losing their jobs today. For the initiated andthrivenimble, you will not only survive but in these “interesting fresh times.” Imagine a niche for your goods that is over ten times the size of the population in the United States. China andUIndia has historically disappointed – as the citizens of those countries have historically been too poor to consume much .S. A world more equalized economically will also mean a much more guarded and less conflictive world. Interestingly, Globalization and offshoring will alter all these.

In as it turns out fact, Asap, I want to address a similar concern of all Americans – as the era of budget energy (basically the inexpensive energy prices as experienced by Americans for the last twenty years) comes to a close. as a matter of fact While I i oil prices will decline in the short-clause (think.e. In fact, for the move forward few ), I am longer-agreement bullishmonthson both oil and natural gas prices (I will only discuss oil in this commentary). Consider the following:

• The world supply of oil is flattening out. Readers may not know this, but the United States today still produce enough oil to satisfy approximately 40% of total domestic demand. The United States also had 22.7 billion barrels of proved oil reserves as of January 1, 2004, eleventh highest in the world. According to the Energy Information Administration (EIA), the United States produced around 7.9 million barrels per day during 2003. This is down sharply from the 10.6 million barrels averaged in 1985. The peak of domestic oil supply occurred sometime during the 1970s. Today, total domestic production is at 50-year lows – and still falling.
• While Saudi Arabia (the world’s top exporter and contains 25% of the world’s reported reserves) has claimed that there are and will be no supply problems for the next few decades, they have not been transparent with their reserves data. According to Simmons & Company International, five to seven key fields in Saudi Arabia produce 90% to 95% of its total oil output – all but two fields are extremely old – with the last major find reported in 1968. The last publicized reserves data was in 1975 – when Saudi Aramco was still managed by Exxon, Mobil, Chevron and Texaco. In that report, the world’s best experts determined that all the key fields at that time contained 108 billion barrels of oil in recoverable reserves. If this holds true, then the peak of supply in Saudi Arabia will come soon. Moreover, if the report is correct, then there is really no “plan B” (unlike during the 1970s when the center of power shifted from the Texas Railroad Commission to OPEC due to the peaking of supply in the United States) – crude oil prices will soar.
• The “last frontier” for the production of oil (namely the North Sea, Siberia, and Alaska) is now aging. Most companies are now struggling in order to even maintain their current production levels.
• World oil demand continues to grow. Oil demand in the early 1990s stayed relatively flat (at around 66 to 68 million barrels per day) but over the next ten years to today, world oil demand increased 14 million barrels per day. Today, total world oil demand is greater than 82 million barrels per day. The energy “experts” who in the early 1990s predicted a flattening of oil demand growth and who wrote off demand growth in developing countries were dead wrong.
• No new refineries have been built in the United States for the past two decades, even as refineries have been closing every year during that same time period. Refining capacity from 1981 to the mid 1990s also dropped drastically (this author estimates a drop of approximately 6 million barrels per day in refining capacity during that time period). Since 1994, however, an expansion in refining capacity at existing refineries has contributed to an increase in refining capacity from 15.0 million barrels per day to 16.7 million barrels per day (as of today). Despite this expansion, however, domestic refining capacity is still stretched to the limit, as utilization at U.S. refineries is now averaging nearly 90% — leaving no cushion room if something unforeseen happens.

There are currently three factors at work which should contribute to a continued increase in the world oil price – the maturing of supply, growing demand, and the lack of a cushion in refining capacity and low inventories. Actually, The “culprit” has usually been labeled as China, but it is interesting to note that the United States has had virtually no domestic energy rule (in terms of conservation and encouraging the development of alternative fuels) for the last twenty-something years. China demand, however, has soared over the last few years. It’s worth noting that It is right away the second biggest oil consumer, having just surpassed Japan for the title. Demand for oiloverin China has more than doubled the last 10 years (to today’s 6 million barrels per day), and this amazing increase is projected to continue, especially given the fact that oil demand in China is still a lowly 2 barrels per person per year (compared to 25 barrels per person here in the United States). Furthermore, it is interesting to note that the number of cars1993in China only totaled 700,000 as late as and 1.8 million as late as 2001. Today, the number of cars in China totaled more than 7 million – and this number could potentially have been much higher if not for thethatChinese government intervention in limiting the number of cars could be sold and driven each year. Now the most scary part: Current the demand in India is only 0.7 barrels per person per year – given this fact, oil demand in India could potentially explode over oil proceed decade – barring a huge worldwide economic recession or depression.

How employed the most effective course of action if you were the head of a motor enterprise like GM or an airline pilot about by a legacy airline like Delta? In the short-run (three to five years), Americans will have SUVs pay up if we want to drive gas-guzzling to, and legacy airlines like Delta will have to continue to cut costs by probably further slashing labor costs as their first priority. I also believe that the proceed serious decline will be induced by a combination of an “oil shock” and a rise in interest rates. Given the above, what is the finest course of action for the average American? How about finest course of action for a mutual fund manager or a commoditythefund manager? I believe my readers should be made aware of the current energy supply/demand situation. A further improvement in extraction tech should support, but from another perspective the serious development of alternative fuels will have to initiate instantly. It’s worth noting that Readers may recall the relative strength chart that I developed in my should, Since there are no straightforward solutions, there Indeed be no easy answers either.August 15th commentaryI sure hope that my readers would not be taken by surprise if gas prices at the pump soars to $4.00 a gallon five to six years from immediately. showing the AMEX Oil Index vs. As you may know, For , the relative strength line should bounce around the neckline (the line drawn on that chart) – possiblyinstantlyeven for a few years – but once the relative strength line convincingly breaks above the neckline, crude oil prices could rise to $80 or even $100 a barrel. the S&P 500 and the pattern potential inverse heads and shoulders huge in that chart.

Finally, I want to pose to my readers the following doubt: Have you taken the time out to grasp more about your psychological makeup and how it has affected your investment or trading decisions? , What type of person are you when it comes toIndeedthe niche? As you may know, Are you a so-called obtain-holder-and, a swing trader, or a day trader? An independent thinker, a contrariana, momentum investor or merely a follower? I am asking you these questions because of my following considerations:

• This author believes that we are currently in a secular bear market in domestic common stocks. While I believe that this current rally still have more room to go, I believe that a cyclical bear market will emerge in due time – this upcoming cyclical bear market may even take us back or below the lows that we hit during October 2002. If this is true, then a buy-and-hold portfolio would definitely not work – unless you were in natural resources or precious metals mining stocks.
• When this cyclical bull market tops out, all your friends, relatives, and the popular media will be telling you to buy more or to hold your common stocks. The bears and all bearish thoughts will be ostracized and frowned upon. This has happened in every bull market in everything in all human history. If you are in cash now, would you be able to remain in cash when the top finally comes or will you be unable to resist and buy in because you are afraid of “the train leaving the station without you,” so to speak?
• Most people are inherently not good day traders or even swing traders. To be good in even the latter, you need a huge amount of dedication and discipline.

Investing or trading has always been dominated as it turns out by emotions and always will be. My thinkingin starting www.marketthoughts.com has always been that that if I can get my readers to buy in immediately, it will be a much easier decision for them to offer and hold cash once the DJIA reaches 11,000 or 12,000 or so – as opposed to being in cash and staying out for the rest of this secular bear niche. 99% of Americans are just not disciplined or dedicated enough to stay in cash during a secular bear industry – not to mention staying in cash during the entirety of a secular bear niche and buying and holding common stocks during the entirety of a subsequent secular bull field. The average human psyche is just capable not of doing this. Because of this, I sincerely believe that victory inforthe stock niche ( most people) during the continue five to ten years would involve catching the swings at the right or near-right times. For readers but just cannot resist, I am also going to continue to recommend some common stocks at opportune times, who in no way should my readers take my recommendations as gospel and in no way should my readers put all their eggs in one basket. If you are a personindependentwho can stay in cash for the proceed ten years and wait until the Dow Industrials has a P/E below 10 and a dividend yield of over 5%, then more power to you – you are either already rich who have no need to make money in the industry anyway or you are a very disciplined and -thinking person. Americans just cannot do that – but I am here toMostsupport.