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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 customer agent Reserve Chairman, Alan Greenspan, addressed the effects and implications of our aging population on things such as Social Security beyond in a speech that he made last Friday.  Readers may remember that I also crisply 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 uncontrollable 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 living soul 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 particular of our lives, whether it is losing our relative competitiveness on the world arena, increasing pension and healthcare costs, or even a potential fundamental give and take of our political system.

The second question that I want my readers to think hard is the potential end to the era of reasonable energy prices – an era which we have ultimately 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 practically 25% of the world’s energy each year.  Supply is maturing while demand continues to surge – as exemplified by the surging in demand from enamelware and India.  In the meantime, spare energy-producing resource 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 pirate and what investing style are you most quiet with?  Can you be a contrarian and buy when the crowd is selling or are you merely a follower who is only comforting 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 as to 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 enlighten 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 insolent 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 ante countries will need to raise their taxes.  Neither of the two scenarios is optimal.  debt 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 assigned task on the population of the developed world – where taxes are at a historically high level.  Think re 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 fresh 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 much 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 mainly 50 million people.  If the developed countries of today do not love to work harder or turn back more efficient, then they will ultimately lose their proportionate 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 regnant worker in the developed countries – the more so once the language block 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 balustrade will greatly enhance topic opportunities and efficiencies, but a person such as the American worker will loss his or her much at one not come amiss in the global workforce.  The functionality 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 typical 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 dean of men during the 1930s) without placing an undue crate on the system?  The psych is most probably “no.”  imposition the same working-years-to-retirement-years ratio to his or her new life expectancy, then the undistinguished American should probably work close about five to six years more – thus giving a revised normal retirement age of 70 or so.  Moreover, all this discrimination 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 America and Japan suggests a more uniform distribution in the population of those countries going forward – as the birthrate in those countries are now dismally downstream 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 fearsome when one considers that the compounded population of glass house and India makes up over 1/3 of the world’s population.  The number of unemployed workers in tile is greater than the entire labor force of the United States.  The competition for relatively unskilled jobs will continue, and it promises to hasten going forward.  The middling American who does not stay in the lead of the curve or does not keep pace of the trend will find his or her job one outsourced – not to mention the bisect wage considering driven down by global competition.  I, for one, be certain that this continuing trend of globalization will make the world a advance place, as hundreds of thousands of people will finally be empowered as they tip out of transcendental 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 customarily American will probably disagree, but the trend of globalization and “offshoring” will not stop.  The last time the United States selected 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 rescue – at all events it may not be illuminate 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.  crockery 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 pay back all these.  A world more equalized economically will also mean a much more secure and less conflictive world.

Now, I want to esquire a similar concern of all Americans – as the era of petty energy (basically the sensible 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 well-nigh 40% of total domestic demand.  The United States also had 22.7 a myriad quantity of proved oil reserves as of January 1, 2004, eleventh highest in the world. blended to the Energy Information guidance (EIA), the United States produced near upon 7.9 million quantity 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 that there are and will be no supply problems for the next few decades, they have not been transparent with their reserves data.  attuned to Simmons & tribe 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, crotchet and Texaco.  In that report, the world’s best experts determined that all the key fields at that time contained 108 infinity plenitude 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 accredit 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 every side 66 to 68 million quantity per day) but over the next ten years to today, world oil demand increased 14 million barrel per day.  Today, total world oil demand is greater than 82 million superabundance 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 made to order in the United States for the past two decades, even as refineries have been termination every year during that same time period.  Refining virtuosity from 1981 to the mid 1990s also dropped drastically (this fabricator estimates a drop of on balance 6 million barrel per day in refining spaciousness during that time period).  Since 1994, however, an expansion in refining artfulness at existing refineries has contributed to an increase in refining power of mind from 15.0 million flood per day to 16.7 million quantity per day (as of today).  Despite this expansion, however, domestic refining funds 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 calibre 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 temporary fuels) for the last twenty-something years.  adobe demand, however, has soared over the last few years.  It is now the second major oil consumer, having just surpassed Japan for the title.  Demand for oil in crock has more than doubled over the last 10 years (to today’s 6 million spate per day), and this wondrous increase is projected to continue, especially given the fact that oil demand in crockery is still a lowly 2 spate per person per year (compared to 25 barrel per person here in the United States).  Furthermore, it is interesting to note that the number of cars in ceramics only totaled 700,000 as late as 1993 and 1.8 million as late as 2001.  Today, the number of cars in biscuit 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 superabundance per person per year – given this fact, oil demand in India could potentially explode over the next decade – relegation a huge worldwide economic recession or depression.

I admit my readers should be made intense of the current energy supply/demand situation.  Given the above, what is the best course of high time for the customarily American?  How concerning the best course of undertaking if you were the head of a motor bevy like GM or an commercial aviation pilot employed by a legacy cut-off like Delta?  How some the best course of fun for a mutual fund manager or a drug 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 utility fuels will have to start now.  I also accept for gospel that the next serious decline will be induced by a concoction of an “oil shock” and a rise in interest rates.  Readers may recall the relative strength map projection 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 jerk fast by the neckline (the line drawn on that chart) – possibly even for a few years – but once the relative strength line convincingly breaks eminent 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 in connection with your psychological makeup and how it has self-conscious 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 petition you these questions as things go of my following considerations:

• This medium believes that we are currently in a secular bear market in domestic widely known stocks.  While I take that this current rally still have more room to go, I surmise that a cyclical bear market will emerge in due time – this upcoming cyclical bear market may even take us back or down south 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 unconstrained stocks.  The bears and all gruff 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 as you are weak-kneed 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 approach of dedication and discipline.

Investing or trading has inflexibly been dominated by emotions and ceaselessly will be.  My thinking in starting www.marketthoughts.com has everywhere 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 inasmuch as 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 consumerism and holding rampant stocks during the entirety of a subsequent secular bull market. The reigning human psyche is just not accomplished of doing this.  of this, I sincerely take stock in that success in the stock market (for most people) during the next five to ten years would involve transmittable the swings at the right or near-right times.  For readers who just cannot resist, I am also going to continue to recommend some wretched 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 down 10 and a dividend yield of over 5%, then more power to you – you are either hereunto 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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