Century Archives - GUJRAT INDIA

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

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 [http://news.yahoo.com/news?tmpl=story&u=/ap/20040828/ap_on_bi_ge/greenspan_32] 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.

The second question that I want my readers to think about is the potential end to the era of cheap energy prices – an era which we have basically 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 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 question: What kind of investor are you? What investing style do you adopt and what investing style are you most comfortable with? Can you be a contrarian and buy when the crowd is 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 yourselves in order to truly make money in investing over the 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? 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 easy solutions. If the average 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 administration during the 1930s) without placing an undue burden 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 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 Europe and Japan suggests a more uniform distribution in the population of those countries going forward – as the birthrate in those countries are now dismally below 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 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. 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 find his or her job 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 climb out of absolute 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 average American will probably disagree, but the trend of globalization and “offshoring” will not stop. 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 trend of the general aging population and globalization will have a profound impact on all Americans. Ultimately, I think all Americans will benefit – although it may not be clear 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. China 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 change all these. A world more equalized economically will also mean a much more secure and less conflictive world.

Now, I want to address a similar concern of all Americans – as the era of cheap energy (basically the cheap 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 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. 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 alternative fuels) for the last twenty-something years. China demand, however, has soared over the last few years. It is now the second biggest oil consumer, having just surpassed Japan for the title. Demand for oil in China has more than doubled over 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 cars in China only totaled 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 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 barrels per person per year – given this fact, oil demand in India could potentially explode over the next decade – barring a huge worldwide economic recession or depression.

I believe my readers should be made aware of the current energy supply/demand situation. Given the above, what is the best course of action for the average American? How about the best course of action if you were the head of a motor company like GM or an airline pilot employed by a legacy airline like Delta? How 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 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 alternative fuels will have to start now. I also believe that the next serious decline will be induced by a combination of an “oil shock” and a rise in interest rates. Readers may recall the relative strength chart 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 bounce around the neckline (the line drawn on that chart) – possibly even 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. 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 about your psychological makeup and how it has affected 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 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 by emotions and always will be. My thinking in starting www.marketthoughts.com has always 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 being 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 buying and holding common stocks during the entirety of a subsequent secular bull market. The average human psyche is just not capable of doing this. Because of this, I sincerely believe that success in the stock market (for most people) during the next five to ten years would involve catching the swings at the right or near-right times. For readers who just cannot resist, I am also going to continue to recommend some common 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 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 market anyway or you are a very disciplined and independent-thinking person. Most Americans just cannot do that – but I am here to help.

A Twenty First Century Christian Review of Napoleon Hill’s "Think & Grow Rich" Part One

Introduction:

In this article I will cover the biblical admonitions regarding the obtaining of wealth, a brief biological sketch of Napoleon Hill, followed by a survey of his ideas on business success. The reader will be amazed at some of Hill’s brilliant and at the same time common sense ideas of obtaining wealth. This section will focus on the positive contribution Hill made. Part two (separate article) I will cover the negative and out right dangers in Hill’s philosophy of success.

To begin this review, I would be negligent as a Christian not to mention the Biblical admonitions against the “deceitfulness of riches” Matt. 13:22 and our Lord’s warning that “you cannot serve God and Mammon” Luke 16:13. As Christians we are instructed to “seek first the Kingdom of God” Matt. 6:33. In case there is any confusion at this point I do not equate money as being evil. The distinction I see is stated by the apostle Paul when he tells us that “For the Love of Money is the root of all evil” 1st Tim 6:10.

If the reader is to take anything away from this review, it should be how to approach the topic of gaining wealth and success and excellence in business by being fully aware of the personal motives behind this desire. Have you been influenced by the ways of this world? Consider this: “For what shall it profit a man, if he shall gain the whole world and lose his soul?” Mark 8:36.

As Christians we should desire success and excellence in our endeavors not only to be a witness for Christ but also to bring glory to God. The Bible gives us instructions on life if followed will not lead to poverty. Negatively, we are neither to be a “sluggard” Prov. 20:4 nor “to love sleep” Prov. 20:13. Positively: “…diligent hands bring wealth” Prov. 10:4 “The plans of the diligent lead to profit…” Prov. 21:5. And finally, from Prov. 31:10-31; is the praise given to the noble or virtuous woman.

To begin this review, let me state up front that I see some positive guidelines for achieving success and excellence in business in Napoleon Hill’s book. Conversely, there are sections and material in Hill’s book that are antithetical to Christian beliefs and practice that the reader should be aware of. First I will offer the briefest biographical sketch and then a survey of some of the positive material in the book. In the concluding section I will point out some of the Biblically speaking problematic areas of Hill’s theories. This review is limited to Hill’s book “Think & Grow Rich” and not to his work in future years, although I will comment on it.

Napoleon Hill was born on Oct. 26th, 1883 and died Nov. 8th 1970. Hill is best known as the author of one of the best selling books of all time called “Think & Grow Rich.” Napoleon Hill is the father of what can be described as personal success or motivational literature. Hill’s biographer, Michael J. Ritt, Jr., tells us that he was born in poverty in a one-room cabin in the town of Pound, Virginia, a rural area. At the age of 13, he began writing for small town newspapers. He used his earnings as a reporter to enter law school, but had to drop out for monetary reasons.

The turning point in his career happened with his assignment, to write a series of articles about famous men and to interview the wealthy industrialist Andrew Carnegie. Hill learned that Carnegie believed the process of success could be explained in a simple formula that could be learned and put into practice by the average person. Carnegie was impressed with Hill and subsequently commissioned him and provided him with letters of reference so that he could interview over 500 successful men and women to discover and publish this formula for success. This project went on for 20 years and culminated in Hill becoming an advisor to Carnegie and the publication of “Think & Grow Rich.” The knowledge obtained from the interviews with the leaders of industry is where you find the value of Hill’s book.

It is amazing on how many of Hill’s ideas are used as quotes for practical encouragement. Some of the more common quotations of Napoleon Hill are:

o Think and grow rich

o Desire is the starting point of all achievement, not a hope, not a wish, but a keen pulsating desire which transcends everything

o Your big opportunity may be right where you are now

o If you cannot do great things, do small things in a great way

o A goal is a dream with a deadline

o Lack of loyalty is one of the major causes of failure in every walk in life

o Perseverance: The majority of men meet with failure because of their lack of persistence in creating new plans to take the place of those that fail

o Every adversity carries with it the seed of an equivalent or greater benefit

o Thoughts mixed with definiteness of purpose, persistence, and burning desires are powerful things

o The majority of men meet with failure because of their lack of persistence in creating new plans to take the place of those which fail

o First comes thought; then organization of that thought, into ideas and plans; then transformation of those plans into reality. The beginning, as you will observe, is in your imagination

o If you’re not learning while you’re earning, you’re cheating yourself out of the better portion of your compensation

o It is literally true that you can succeed best and quickest by helping others to succeed

We find that much of Hill’s book is an analysis of the capitalist system in America and how it works. Hill believed that he had discovered a principle that allows the regular every day people to achieve success. Hill called his success teachings “The Philosophy of Achievement” and he considered freedom, democracy and capitalism, to be important causative factors in his discovery. Hill’s ideas would not work in a Marxist or a centralized planned economy because the tyrannical regulation and taxation would destroy anyone’s ability to strive for success since the fruits of success would be given to others who would squander it, since it had no intrinsic value to them. Hill believed in personal honesty and in not cheating your fellow man or employees. The cheat or dishonest person would eventually be seen for what he is. A leader has to be one of moral and ethical integrity.

Hill believed that you achieve success by doing superior quality work, treating your customers as number one at all times and how anyone can become successful if they overcome their personal shortcomings. Hill also incorporates a lot of good, practical business advice like finding new opportunities created by what we would call today as disruptive technologies. Also key according to Hill, is having a written business plan and not deviating from it, along with not being afraid to make mistakes as long as you grow and learn from the mistakes. If you find your strategy to be in error you must be able to reformulate your plans. Hill believed that most people never succeed simply because a lack of ambition or self discipline. Relating to discipline, Hill said: “If you do not conquer self, you will be conquered by self.” Today there is a course on business success called Personal Mastery which is influenced by Hill’s research.

The beginning of Hill’s philosophy began first with a thought, hence the title “Think & Grow Rich.” First you formulate a plan mentally. It involves desire, belief and passion, (absolutely essential for success) auto-suggestion (a controversial area of his research) obtaining specialized knowledge, (very helpful) using the imagination, (portions of this are very controversial) organized planning, (very helpful) decision making, persistence, the master mind group, (portions of this section is very helpful) the last three areas transmutation, the subconscious mind and finally the brain are also quite controversial and unproven. One thing is certain; ideas most certainly do have consequences. In this respect, business success beginning first with an idea cannot be questioned.

As said, there are many positive ideas in “Think & Grow Rich” such as organized planning, and finding a group of people who think like you, and then turning those plans into reality. Hill was a believer in the fact that all successful people were successful because they are able to find like minded people who think as they do and who could be recruited into a business venture with them. Then their abilities, talents and passion could be utilized for benefit of the business venture. Hill is basically saying: “don’t hang around with people who don’t think like you do.” Stay away from negative people since their negativity will affect you. Our parents were correct in warning us against hanging around with the wrong crowd.

Hill’s business success ideas focused on goal setting and making sure that decisions are carried through with consistency. In the area of responsibility, it means that you are responsible for your own outcomes, and it is important that failures are not something to fixate on. Everyone has failures, and we should learn from them, including figuring out what caused them to happen. Most failures involve a breakdown of vision, or a failure to plan to take advantage of a new situation that may have arisen. An individual that is focused on success should not fixate on failure. We can learn from mistakes and grow. Mistakes can be turned into successes.

Hill’s ideas on leadership are well thought out. His eleven points on the attributes of leadership are excellent and exactly the traits you would hope any business leader would have. Likewise, the ten major causes in failure of leadership are also very perceptive. His 31 major causes of failure are points that are surprisingly accurate reasons for every person who tries and fails in business. His 28 questions for self analysis are helpful to avoid self-deception. However his teaching on transmutation of sexual energy has probably offended or shocked many as sounding sexist. It is accurate according to Hill that sexual energy can be turned into creative energy and not simply wasted in vain physical affairs. It is also accurate to acknowledge that behind every great man one usually finds a great woman.

Some of the many positive things that can be learned from “Think & Grow Rich” can be summarized by citing several of his ideas relevant to business, such as “Failing to plan is planning to fail,” “Perseverance: The majority of men meet with failure because of their lack of persistence in creating new plans to take the place of those that fail,” “A quitter never wins, and a winner never quits,” “It is literally true that you can succeed best and quickest by helping others to succeed” and “The man who does more than he is paid for will soon be paid for more than he does.” Hill’s philosophy of success was grounded in the real world to a large extent as can be seen by his statement that: “Riches do not respond to wishes. They respond only to definite plans, backed by definite desires, through constant persistence,” and “Great achievement is usually born of great sacrifice, and is never the result of selfishness.”

As the reader works their way through the book, they will see that much of Hill’s work boils down to setting goals, and making sure that important decisions are acted upon thus insuring your success. Hill is saying that you must put your plans into action. Hill was a believer that a group of people on the same wave-length and positively focused is substantially greater than a group of disorganized individuals. Of all the successful leaders Hill interviewed, all of them attributed their success to being able to see opportunities, and most importantly, in finding people who can be delegated to help achieve success. It is not enough to work hard, one must also find like minded people, and inspire them to work hard as a team on getting things done.

This idea of recruiting and inspiring individuals so that they be delegated various responsibilities reminds me of what J. Paul Getty once wrote, “I would much rather receive 1% of the efforts of 100 men than 100% of my own.” Much of the material in Hill’s book has been tremendously helpful for those individuals involved with network marketing. To illustrate this Hill said: “It is literally true that you can succeed best and quickest by helping others to succeed.” Those involved in the Network Marketing industry will understand appreciate this concept.

Hill tried to systematize steps to become successful in this book and to a large degree he was successful if one confines his work to the real world or common sense ideas. In my next article I will look at some of the dangers in Hill’s work. Stay tuned!