|
Article:
Economic Survival in the 21st Century - the Three Key Questions to ask by: Henry To, CFA 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. 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
|
