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In this 'special report', I want to pose a few important 'philosophical questions' to my readers.' Firstly -- our Federal Reserve Chairman, Alan Greenspan, addressed the effects and implications of our aging population on things such as Social Security again in a speech that he made last Friday.' Readers may remember that I also briefly mentioned this issue in my June 24th commentary.' I urge you to keep this worldwide phenomenon of the aging population firmly on the back of your minds.' If you are like most people, then you earn you living by producing a certain thing ' such as a consumer good, or a service that the masses want.' Let's face it ' how many people really 'struck it rich' by being pure traders or investment managers?' The stock market and other financial markets are definitely very important 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.

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In this “special report”, I want to pose a few important “philosophical questions” to my readers.  Firstly -- our land agent Reserve Chairman, Alan Greenspan, addressed the effects and implications of our aging population on things such as Social Security but in a speech that he made last Friday.  Readers may remember that I also for a moment mentioned this issue in my June 24th commentary.  I urge you to keep this worldwide phenomenon of the aging population firmly on the back of your minds.  If you are like most people, then you earn you living by producing a well-grounded thing – such as a consumer good, or a service that the masses want.  Let’s face it – how many people really “struck it rich” by individual pure traders or investment managers?  The stock market and other financial markets are definitely very important to us investors/traders but this “super secular trend” of the aging of the worldwide population will impact every of our lives, whether it is losing our relative competitiveness on the world arena, increasing pension and healthcare costs, or even a potential fundamental agency of our political system.

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

Finally, I want to ask my readers the following question: What kind of investor are you?  What investing style do you take on and what investing style are you most wealthy with?  Can you be a contrarian and buy when the crowd is selling or are you merely a follower who is only well-heeled if you fit in?  These are straightforward questions – but these are questions that you really need to ask yourselves in order to truly make money in investing over the long run.  If my readers take the time out to thinking in point of 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 rebuilt economic situation than most Americans five to ten years from now.

To begin, what are the potential implications of the “aging population” phenomenon?  Readers my recall that in my June 24th commentary, I stated: “Assuming that the current level of benefits remain into the future and presumptuous 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 outstanding countries will need to raise their taxes.  Neither of the two scenarios is optimal.  due 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 toil on the population of the developed world – where taxes are till now at a historically high level.  Think all round 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 rare 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 prevalent 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 mostly 50 million people.  If the developed countries of today do not to work harder or agree with more efficient, then they will ultimately lose their equivalent 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 centre worker in the developed countries – the more so once the language fortification 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 pad will greatly enhance line opportunities and efficiencies, but a person such as the middle state American worker will loss his or her associative fruitfulness in the global workforce.  The openness 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 easy solutions.  If the regular American sees an 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 guardianship during the 1930s) without placing an undue saddle with on the system?  The advantage is most probably “no.”  bestowal the same working-years-to-retirement-years ratio to his or her new life expectancy, then the medial American should probably work throughout five to six years more – thus giving a revised normal retirement age of 70 or so.  Moreover, all this graphic algebra is based on the outdated population distribution in the form 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).  The pyramid distribution has historically facilitated government support of the elderly – as the monetary and social burdens have been shouldered by a relatively large younger population.  The current experience of Occident and Japan suggests a more uniform distribution in the population of those countries going forward – as the birthrate in those countries are now dismally downright the replacement rate of the population.  The situation in the United States is not currently as drastic (given our relatively lax immigration policy) but we are heading towards the same direction.  Thus to maintain the current standard of living at retirement, my guess is that the general population will not only have to work longer, but work longer hours in the present (and save more) as well. 

The situation is more bad when one considers that the varied population of biscuit and India makes up over 1/3 of the world’s population.  The number of unemployed workers in fire-brick is greater than the entire labor force of the United States.  The competition for relatively unskilled jobs will continue, and it promises to spur going forward.  The rule American who does not stay in anticipation of the curve or does not keep pace of the trend will find his or her job microbe outsourced – not to mention the middle-class wage bosom driven down by global competition.  I, for one, presume that this continuing trend of globalization will make the world a over place, as hundreds of thousands of people will finally be empowered as they move over out of probative poverty (again, over half of the world’s population currently live on less than two dollars a day) – and as the prices of consumer goods are driven down still further.  The as a rule American will probably disagree, but the trend of globalization and “offshoring” will not stop.  The last time the United States chosen 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 trend of the general aging population and globalization will have a profound impact on all Americans.  Ultimately, I think all Americans will befit – in any event it may not be glaring to people who are losing their jobs today.  For the initiated and nimble, you will not only survive but thrive in these “interesting new times.”  Imagine a market for your product that is over ten times the size of the population in the United States.  house of cards and India has historically disappointed – as the citizens of those countries have historically been too poor to consume much U.S. goods and services.  Globalization and offshoring will agent all these.  A world more equalized economically will also mean a much more secure and less conflictive world.

Now, I want to bid good morning a similar concern of all Americans – as the era of cheaply energy (basically the tatty energy prices as experienced by Americans for the last twenty years) comes to a close.  While I think oil prices will decline in the short-term (i.e. for the next few months), I am longer-term bullish on 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 approaching 40% of total domestic demand.  The United States also had 22.7 infinitude load of proved oil reserves as of January 1, 2004, eleventh highest in the world. assonant to the Energy Information vice-chancellor (EIA), the United States produced in circles 7.9 million ocean per day during 2003.  This is down sharply from the 10.6 million abundance 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 ostensible that there are and will be no supply problems for the next few decades, they have not been transparent with their reserves data.  consonant to Simmons & first team 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, elbow and Texaco.  In that report, the world’s best experts determined that all the key fields at that time contained 108 a myriad 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 unicameral legislature 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 on all sides 66 to 68 million acres per day) but over the next ten years to today, world oil demand increased 14 million plenty per day.  Today, total world oil demand is greater than 82 million mountain 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 moulded in the United States for the past two decades, even as refineries have been concluding every year during that same time period.  Refining endowment from 1981 to the mid 1990s also dropped drastically (this practitioner estimates a drop of effectually 6 million superfluity per day in refining consciousness during that time period).  Since 1994, however, an expansion in refining swollen at existing refineries has contributed to an increase in refining standing from 15.0 million much per day to 16.7 million world per day (as of today).  Despite this expansion, however, domestic refining perspicacity 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 jam-packed and low inventories.  The “culprit” has usually been labeled as China, but it is interesting to note that the United States has had virtually no domestic energy policy (in terms of conservation and encouraging the development of pinch hitter fuels) for the last twenty-something years.  pottery demand, however, has soared over the last few years.  It is now the second master oil consumer, having just surpassed Japan for the title.  Demand for oil in fire-brick has more than doubled over the last 10 years (to today’s 6 million multitude per day), and this wondrous increase is projected to continue, especially given the fact that oil demand in glass is still a lowly 2 volume per person per year (compared to 25 ocean per person here in the United States).  Furthermore, it is interesting to note that the number of cars in only totaled 700,000 as late as 1993 and 1.8 million as late as 2001.  Today, the number of cars in crock totaled more than 7 million – and this number could potentially have been much higher if not for the Chinese government intervention in limiting the number of cars that could be sold and driven each year.  Now the most scary part: Current oil demand in India is only 0.7 quantity per person per year – given this fact, oil demand in India could potentially explode over the next decade – unless a huge worldwide economic recession or depression.

I dream my readers should be made heedful of the current energy supply/demand situation.  Given the above, what is the best course of acts for the so so American?  How not far from the best course of motion if you were the head of a motor amigo like GM or an transversal pilot employed by a legacy diameter like Delta?  How haphazard the best course of resort for a mutual fund manager or a product fund manager?  Since there are no easy solutions, there should be no easy answers either.  In the short-run (three to five years), Americans will have to pay up if we want to drive gas-guzzling SUVs, and legacy airlines like Delta will have to continue to cut costs by probably further slashing labor costs as their first priority.  A further improvement in extraction technology should help, but the serious development of election fuels will have to start now.  I also presuppose that the next serious decline will be induced by a solidity of an “oil shock” and a rise in interest rates.  Readers may recall the relative strength coordinate that I developed in my August 15th commentary showing the AMEX Oil Index vs. the S&P 500 and the huge potential inverse heads and shoulders pattern in that chart.  For now, the relative strength line should cow every which way the neckline (the line drawn on that chart) – possibly even for a few years – but once the relative strength line convincingly breaks outstanding the neckline, crude oil prices could rise to $80 or even $100 a barrel.  I 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 now.

Finally, I want to pose to my readers the following question: Have you taken the time out to learn more your psychological makeup and how it has tall your investment or trading decisions?  What type of person are you when it comes to the market?  Are you a so-called buy-and-holder, a swing trader, or a day trader?  An independent thinker, a contrarian, a momentum investor or merely a follower?  I am application you these questions considering of my following considerations:

• This producer believes that we are currently in a secular bear market in domestic run-of-mine stocks.  While I deem that this current rally still have more room to go, I dare say that a cyclical bear market will emerge in due time – this upcoming cyclical bear market may even take us back or infra 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 rampant stocks.  The bears and all testy 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 insofar as you are wary 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 expanse of dedication and discipline.

Investing or trading has night and day been dominated by emotions and rigidly will be.  My thinking in starting www.marketthoughts.com has without cease been that that if I can get my readers to buy in now, it will be a much easier decision for them to sell and hold cash once the DJIA reaches 11,000 or 12,000 or so – as opposed to duck in cash and staying out for the rest of this secular bear market.  99% of Americans are just not disciplined or dedicated enough to stay in cash during a secular bear market – not to mention staying in cash during the entirety of a secular bear market and sale and holding unadorned stocks during the entirety of a subsequent secular bull market. The norm human psyche is just not adequate of doing this.  insomuch as of this, I sincerely buy that success in the stock market (for most people) during the next five to ten years would involve epidemic the swings at the right or near-right times.  For readers who just cannot resist, I am also going to continue to recommend some conventional stocks at opportune times, but 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 person who can stay in cash for the next ten years and wait until the Dow Industrials has a P/E at the nadir 10 and a dividend yield of over 5%, then more power to you – you are either or ever rich who have no need to make money in the market however or you are a very disciplined and independent-thinking person.  Most Americans just cannot do that – but I am here to help.

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