In this " special report " , I want to pose a few important "philosophical questions " to my readers in the first place - . Our Federal Reserve Chairman , Alan Greenspan , addressed the effects and implications of an aging population on things such as social security again in a speech that he made last Friday . Readers may recall that I briefly mentioned this issue in my June 24 comment I urge you to securely store this global phenomenon of population aging on the back of your sentences If you're like most people , you earn your living by producing a certain thing - . . as a consumer or . a service that the masses want Let's face it - how many people really " hit the rich" by being pure traders or investment managers , the stock market and other financial markets are certainly very important to us investors / traders , but these " super secular trend " ? the aging of the population worldwide will affect every aspect of our lives , whether it is losing our relative competitiveness on the world stage , increasing pension and healthcare costs , or even a potential fundamental change in our political system .
The second question I want my readers to think about the possible end to the era of cheap energy prices - an era in which we actually enjoyed for the last two decades without thinking of the long-term consequences . The United States, with less than five percent of the world's population, which is currently annually consume about 25% of the energy in the world . Supply is maturing , while demand continues to surge - as illustrated by the increasing demand from China and India . In the meantime , spare energy - producing capacity and stock levels are at all-time lows - potential for a perfect storm ?
Finally, I want my readers the following question : What kind of investor are you? What investing style do you take and what investing style you are most comfortable with ? Can a contrarian and buy when the crowd is selling or are you just a follower who is only comfortable when you fit in ? These are simple questions - but these are questions that you really need to ask to make in investing in the long -term real money yourself . If my readers take the time to think about these three questions or problems - and ultimately have a firm grasp of even one of the problems - then you will be a much better economic situation than most Americans five to ten years from now .
To begin with, what are the possible consequences of the " aging population " phenomenon ? Readers my recall that in my June 24 commentary , I said, " Assuming that the current level of benefits will remain in the future and based on the level of taxation is not an issue , then the public benefits for retirees would forward increase dramatically going . at the very end , Japan and Spain will see a more than 100 % increase in their spending on pensioners . Clearly, this is not sustainable . Either things like defense or education spending should be cut , or the above countries need to increase their taxes. Neither scenario is optimal . Borrowing more of their money is not a long term solution . Cutting funding in defense and education will be the future of a country life , and raising taxes will place an enormous social and financial burden for the population of the developed world - where the taxes are already at historically high levels Think about this : . If you're a bright, young , French industrialist and were forced to 60 % of your income to pay taxes to support the elderly, what would you do Why , would you vote with your feet and move to another country that is more tax-friendly and business - friendly - and so will other great talent that a major contribution to the French economy may have been the governments of the developed world recognizes this - . but there are no easy solutions .
" This picture is grimmer when one takes note of a study conducted 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 world will fall more than 30 % in 1950 to less than 14 % - . or approximately equal to the population of the Muslim countries of the world Similarly Yemen are more populous than Germany in 2050 , while Iraq will be 30 % more populous than Italy ( Iraq is less than 40 % of . the size of Italy today) Russian population is expected to continue to fall - . at such a rate that the population of Iran even higher to that of Russia, in 2050 India will be the most populous country in the world , and Pakistan will only lay the U.S. with about 50 million people . If the developed countries of today do not choose to work harder or be more efficient , they will eventually lose their comparative advantage , as the younger population of the world is inherently more hardworking , energetic , innovative and creative in the globalized world of today, this will be a killer for the average worker in the developed countries - . especially when the language barrier is eliminated ( the successful commercialization of the universal language translators expected to happen in ten to fifteen years ) I am . generally optimistic , such as the abolition of the language barrier will greatly enhance business opportunities and efficiency, but a person like the average American worker is losing his or her comparative advantage in the global workforce . availability of a huge range of labor should also drive down wages in the global market - and probably increase the maldistribution of wealth in today's developed countries " .
As I have said before, there are no easy solutions . If the average American sees an increase of 10 years in his or her life , he or she can in the current normal retirement age of 65 retire reasonably or logically ( which was established during the Roosevelt administration during the 1930s ) without placing an unnecessary load on the system? The answer is likely to apply to his or her new life the same work "None. " - Year - to - pension - years - ratio , the average American should probably work around five to six more years - making a revised normal retirement age 70 years or so . Moreover, all these analysis based on outdated distribution of the population in the form of a pyramid - where the younger and more able workers representing a majority of the population ( and where the elderly represent only a small minority of the population) . The pyramid distribution has historically facilitated government support of the elderly - as the monetary and social costs are shouldered by a relatively large younger population . The current experience of Europe and Japan suggests a more even distribution of the population of these countries are moving forward - as the birth rate in those countries are now eerily below the replacement rate of the population. The situation in the United States is currently not as drastic ( given our relatively lax immigration ) , but we are moving towards the same direction . So to maintain the current standard of living in retirement I think the general population will not have to work , but work more hours in the present ( and save more ) only longer as well.
The situation is alarming when one considers that the total population of China and India is more than one third of the world population. The number of unemployed in China is greater than the entire population of the United States . The competition for relatively unskilled work will continue , and it promises to accelerate going forward. The average American who does not stay ahead of the curve or not to keep pace with the trend will find his or her work outsourced - not to mention the average wage is driven down by global competition . I , for one, believe that this ongoing trend of globalization, the world will , as hundreds of thousands of people will finally be empowered as they climb out of absolute poverty (again, a better place more than half the world's population lives on less than two dollars a day ) - and as the prices of consumer goods are further driven down . The average American will probably disagree , but the trend of globalization and " offshoring " will not stop . The last time the United States provided military and economic isolationism we had a Great Depression and later World War II. I honestly do not think this is a coincidence .
The general trend of aging and globalization will have a profound impact on all Americans . Ultimately, I think all Americans will benefit - although it is not clear for people who lose their jobs can be today . For the uninitiated and limber , you will not only survive , but thrive in this " new interesting times . " Imagine a market for your product that is more than ten times the size of the population in the United States . China and India has historically disappointed - as citizens of countries that historically have been too poor for many goods and services U.S. consume. Globalization and offshoring will all change . A world more economically equalizer also means a much safer and less conflictual world .
Now, I want a similar concern of all Americans hold - as the era of cheap energy ( basically the cheap energy prices as experienced by Americans for the last twenty years ) comes to an end . While I think oil prices will fall in the short term ( ie for the next few months ) , I am long-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 . Readers may not know this , but the United States today produce enough oil to about 40 % of total domestic demand. The United States also had 22.7 billion barrels of proven oil reserves from January 1, 2004 , eleventh highest in the world . According to the Energy Information Administration (EIA ) , the United States produced about 7.9 million barrels per day in 2003 . This is down sharply from the average 10.6 million barrels in 1985 . The peak of domestic oil supply somewhere in the 1970s . Today , the total domestic production is at 50 -year lows - and still falling .
While Saudi Arabia ( the world's top exporter and contains 25 % of the reported world reserves) and has claimed that there will be no supply problems for decades , they have not been transparent data with their reserves . According to Simmons & Company International , five to seven key areas in Saudi Arabia produce 90 % to 95 % of its total oil production - all but two fields are very old - the last major discovery reported in 1968 . The reserves data was last published in 1975 - when Saudi Aramco was distributed by Exxon , Mobil , Chevron and Texaco . In that report , best world experts established that all important areas at the time contained 108000000000 barrels in recoverable reserves . If this is true , then the peak of supply in Saudi Arabia will come soon. Moreover , if the report is correct, then there really is no " plan B " ( unlike in the 1970s when the center of power shifted from the Texas Railroad Commission to OPEC due to the peak of supply in the United States) - crude oil prices will rise .
The " last frontier " for the production of oil (namely the North , Siberia and Alaska ) is now aging. Most companies are now struggling to even maintain their current level of production .
Global demand for oil continues to increase . Oil demand in the early 1990s remained relatively flat ( around 66-68000000 barrels per day ) , but in the next ten years to today , global oil demand increased by 14 million barrels per day . Today , the total global demand for oil exceeds 82 million barrels per day . The energy "experts " who predicted in the early 1990s, a slowdown in the demand for oil and who wrote from demand growth in developing countries were dead wrong.
No new refineries have been built in the United States in the past two decades , even as refineries are closed each year during the same period. Refining capacity from 1981 to mid- 1990 also dropped dramatically ( this author estimates that a reduction of about 6 million barrels per day of refining capacity in that period ) . Since 1994 , however, an expansion of refining capacity in existing refineries has contributed to an increase in refining capacity of 15.0 million barrels per day to 16.7 million barrels per day (from today ) . Despite this expansion , however, the domestic refining capacity is still stretched to the limit, as used in refineries in the U.S. is now averaging nearly 90 % - leaves no cushion room if something unexpected happens .
There are three factors at work that will contribute to a continuous rise in the world price of oil - the maturation of supply, growing demand , and the lack of a cushion in refining capacity and low inventories . The "culprit" is usually labeled as China , but it is interesting to note that the United States virtually no domestic energy (in terms of conservation and encourage the development of alternative fuels ) has had for the last twenties. However , China 's demand has skyrocketed in recent years. It is now the second largest oil consumer , who just surpassed Japan for the title . Oil demand in China has more than doubled in the last 10 years (until today 6 million barrels per day ) , and this huge increase is expected to continue , especially given the fact that the demand for oil in China is still a humble 2 barrels per person per year (compared to 25 barrels per person here in the United States) . It is interesting to note that the number of cars in China alone amounted to 700,000 as late as 1993 and 1.8 million as late as 2001 . Today , the number of cars in China totaled more than 7 million - and this number could have been if not intervene for the Chinese government in limiting the number of cars that can be sold be much higher and driven each year . Now the most scary part : Current oil demand in India is only 0.7 barrels per person per year - given this fact , the demand for oil in India potentially explode in the next decade - barring a massive global economic recession or depression .
I believe that my readers should be aware of the current energy supply / demand situation are made . Given the above , what is the best course of action for the average American ? What about the best course of action if you are the head of an engine company like GM or a pilot employed by a legacy airline like Delta ? What about the best course of action for a mutual fund manager or a commodity fund manager? Since there are no easy solutions , there should be no simple answers not . In the short term ( three to five years ) , the Americans will have to pay if we want to drive gas-guzzling SUVs , and legacy airlines like Delta will have to continue to save money by cutting labor costs is likely to continue as their first priority. Costs A further improvement of the extraction technology should help , but the serious development of alternative fuels will have to start now . I also believe that the next serious decline is caused by a combination of an " oil shock " and a rise in interest rates . Readers can the relative strength chart that I developed in my August 15 commentary shows the AMEX Oil Index versus the S & P 500 and the huge potential inverse head and shoulders pattern recall . In that chart For now , the relative strength line bouncing around the neck ( the line on that chart ) - possibly even for a few years - but once the relative strength line break convincingly above the neckline , crude oil prices could rise to $ 80 or even to $ 100 a barrel . I hope that my readers would not be surprised if the gas price at the pump increases to $ 4.00 per gallon five to six years from now .
Finally, I ask the following question to my readers : Have you taken the time to learn more about your psychological makeup and how it is your investment or trading decisions affect learning ? What kind 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 just a follower ? I ask these questions because of my following considerations :
This author believes that we are currently in a secular bear market in domestic ordinary shares. While I believe that this current rally still more room to go, I think a cyclical bear market will come 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 certainly not work - unless your mining stocks in natural resources or precious metals.
When this cyclical bull market tops out , will tell you to buy more or to hold your shares . All your friends , family , and the popular media The bears and all bearish thoughts will be ostracized and rejected . This has happened in every bull market in all throughout human history . If you would be able to stay in cash now , in cash at the top end comes or you will not be able to resist and buy in , because you are afraid " to leave the train station without you , "so to speak ?
Most people are not naturally good day traders or swing traders . To be , even in the last , well, you need a huge amount of dedication and discipline .
Investing or trading was dominated by emotions and always will be . My thinking in starting has always been that if I can get to buy now , my readers will continue to sell a much easier decision for them and cash when the DJIA reaches 11,000 or 12,000 or so - as Unlike those in cash and remain off for the remainder of this secular bear market. 99 % of Americans are simply not disciplined and dedicated enough to stay in cash during a secular bear market - not to mention stay in cash in the whole of a secular bear market and the buying and holding of shares during the whole of a subsequent secular bull market . The average human psyche is simply unable to do so. Because of this , I sincerely believe that success would mean catching the swings to the right or nearly right moments . Within the next five to ten years in the stock market ( for most people ) For readers who just can not resist , I will continue to have a number of common shares recommend appropriate times , but in no way should my readers take my advice as gospel and in no way should my readers already their eggs in one basket. If you are a person who can stay in cash for the next ten years and wait for the Dow Industrials has a P / E below 10 and a dividend yield of more than 5 % , then more power to you - you either already rich who do not need how to make money than in the market or you are a very disciplined and independent thinking person . Most Americans simply can not do - but I'm here to help .
Henry To , CFA , is co-founder and partner of the economic consultancy , Market Thoughts LLC, an adviser to the hedge fund Independence Partners , LP . is a service provided by MarkertThoughts LLC, offers twice a week designed for a comment about the stock market and the economy beyond the headlines to feed subscribers. This comment is usually focused on the fundamentals and technicals of the current stock market , but also individual sector and stock analyzes - as well as more general investing topics such as the Dow Theory , investing psychology , and financial history .
No comments:
Post a Comment