Sunday, September 23, 2007

Wall Street to Main Street: News, Views and Commentary: June 19, 2006

Its Monday June 19, 2006, and its the first day of the trading week and it should be an interesting one. Verizon (NYSE: VZ) has taken the bull by the horns as they struck a multiyear deal with PBS TV Stations to carry a wide array of PBS programming on the new Verizon TV Business. The lines are getting thinner and the war between phone companies and cable operators will begin to heat up this summer.

On the heels of that, the new FCC rules that would loosen the noose on major phone companies have been upheld by the U.S. Appeals court. Basically the large phone companies will not have to provide access to their networks in the residential arena. So smaller phone companies that are trying to grab market share from companies like AT&T (NYSE: T) and Verizon will have a tough time of it as the major carriers own the infrastructure that allows for service to a majority of the residential areas through out the country.

Political Front

In the Saddam Hussein trial prosecutors are pushing for the death penalty for Saddam Hussein and three of his former aides for crimes against humanity following a 1982 crackdown on Shi'ites in which hundreds were killed and tortured. So Hussein will rant and rave until the gavel comes down and his fate is sealed.

North Korea plans on testing a missile launch that, fully fueled, could reach as far as Alaska. So both the United States and Japan have warned North Korea against the launch. North Korea is taking advantage of the worlds attention that is diverted to Iraq and Iran to run this test. So this is a developing story.

Here in New York, city lawmakers are coming down hard on the Department of Homeland Security's decision to cut anti-terror funding. This comes on the heels of a report that came out over the weekend that showed that al-Qaida had a plan to attack the NYC subway system in 2003.

Tid Bits

To combat the mighty Ericsson (NASDAQ: ERICY) Nokia (NYSE: NOK) and Siemens (NYSE:SI) have both agreed to a joint venture that will merge their mobile network operations, creating a $20 billion entity. Now the new venture will be called Nokia Siemens Networks and is still subject to regulatory approval, but if this should go through two things will certainly happen, one is that Ericsson will be given a run for their money and two , close to 10,000 jobs will be eliminated. That is the casualty of this mobile network war. It is a smart move for both companies, as the mobile arena is getting tighter. So expect for these stocks to trade higher on this news.

After months of Intel Corp (NASDAQ: INTC) creating historic lows in its trading history. UBS sees value in the company. The upgraded the stock from a Neutral to a Buy and gave the stock a target price of $23 and that is up from $21.Now the question is will the Institutional money begin to flow back into Intel or will the UBS upgrade just entice individual investors to jump on board. The stock closed at $18.30 on Friday.

Now lets take a look at the Microsoft (NASDAQ: MSFT) front, last week Bill Gates stated that he will be stepping down from the Day to Day duties of Microsoft. Now this is definitely getting mixed reactions as he was the visionary behind the company and at one point in time gave a helping hand to Apple Computer (NASDAQ: AAPL) when the company was down on its luck. But times do change, Microsoft, once being a vibrant young company that dared to be different, topping the one time juggernaut IBM (NYSE: IBM) seem to have gotten too big to have that burning desire and vision. With Google (NASDAQ: GOOG) looking to grab software market share from Mr. Softie by giving people what they want but for free seems to be just another nail being driven into the coffin of Microsoft. Now dont count them out just yet, Mr. Softie is coming out with guns blazing against Apples iPod success by launching its own MP3 player. Some think that its late in the game but technology is constantly changing so they still may have a shot, but 10 years or so ago would Mr. Softie have waited so long to be at the forefront of an evolution?, all that we can do at this point is wait and see what the reaction will be to the new product line, the shift in management and whether the software giant will consider splitting the company at some point down the road.

Movers and Shakers

Some major movers in yesterdays trading session included Focus Media Holdings (NASDAQ: FMCN) , we mentioned Focus Media when it hit a ceiling of $68 three times in a row and sent out an alert that it could pull back into the $51 range, which it did. We also alerted our readers that once it found a bottom that their next trip up to $68 would be fierce and create a base in that level. The stock traded up $6.28 on Friday to close at $60.78, the momentum has been building up in the company and you should see it try to reach that ceiling this week. We also mentioned that their United States based mirror image is a small little known company by the name of Impart Media Group (OTCBB: IMMGE), for those that have taken steps in researching and getting involved in the company should listen in on their analyst/investor conference call that is set up for this Thursday. Take a look at their latest press release for call-in details.

Pioneer Natural Resources (NYSE: PXD) made nice movement on Friday, trading up $4.69 to close at $44.31. The company announced about a week ago that they have upped their stake in a ConocoPhillips (NYSE: COP) Alaska offshore project called Cosmopolitan Unit, from 10% to 50%. So the stock moved up along with several other Natural Gas companies but investors had time this weekend to ponder many things that happened in the previous week and Pioneer Natural may be one of them.

Polo Ralph Lauren (NYSE: RL) made moves on the upside on Friday after reports surfaced that the New York based Polo was on the road to striking a deal with JC Penney (NYSE: JCP) in the form of an exclusive partnership. This would give a big boost to Polo and definitely add to JC Penneys bottom line. Polo closed up $2.30 to close at $57.00 on Friday.

Other stocks that made nice moves on Thursday include Martek Biosciences (NASDAQ: MATK) which traded up $2.77 to close at $29.48, Cigna (NYSE: CI) traded up $2.25 to close at $93.45, Winnebago Industries (NYSE: WGO) traded up $2.21 to close at $30.64, Rockwell Automation (NYSE: ROK) traded up $1.71 to close at $67.39 and New Century Financial (NYSE: NEW) traded up $1.69 to close at $47.00.

Neurocrine (NASDAQ: NBIX) traded down on heavy volume on Friday, the stock tumbled $4.19 to close at $15.18 after stating that the company may have to supply the FDA with additional safety data to get the approval from them. This could lead to big delays, as they will undoubtedly need to conduct further clinical studies to get the FDA the information that they need.

After OmniVision Tech (NASDAQ: OVTI) announced great numbers analyst had a chance to review their quartley earnings and question the quality of those earnings. Analyst at both Piper Jaffray and Needham & Co questioned that as well as the companys outlook. So this drove the stock down $3.37 to close at $23.44 on Friday, this was on over 14 million shares traded. Their average volume has been approximately 1.8 million. So once the bleeding stops OmniVision may require a second look.

Under Ten

Some stocks that made moves on the upside under ten bucks include Britesmile (NASDAQ: BSML) for some odd reason closed up 90 cents to close at $3.23 on Friday. Initially the stock gained lots of interest on the heels of a fluff bid from one of their private competitors, which Britesmile graciously turned down. So you can expect the stock to slip back a bit over the coming days after the bump up last week. But who knows perhaps the fluff bid for the company may be backed up by a solid financial group, but that may not be likely just yet.

Orthovita (NASDAQ: VITA) traded up 41 cents on Friday when word got out that the Food and Drug Administration approved its product for controlling bleeding during surgeries. Now this may also pull back a bit even though the run wasnt tremendous it did hit a new 52 week high, which could cause for a pullback.

Wet Seal (NASDAQ: WTSLA) received an upgrade by Matrix Research from a Sell to A Hold, this morning and it should be a welcome upgrade which could give boost to investor confidence in Wet Seal. So look for a tad bit of movement in this one today.

Other stocks that moved higher yesterday under ten bucks included Catalyst Semiconductor (NASDAQ: CATS) which traded up 27 cents to close at $3.89, Memry corp (AMEX: MRY) traded up 23 cents to close at $2.90, Great Basin Gold (AMEX: GBN) traded up 20 cents to close at $1.85 and Novavax (NASDAQ: NVAX) traded up 19 cents to close at $4.71 on Friday.

Analyst Upgrades/Downgrades

Recent Analyst upgrades include aQuantive (NASDAQ: AQNT) was upgraded to a Buy from a Neutral by Merriman, Curhan Ford & Co and to an Outperform from a Market Perform by Piper Jaffray, Martin Marietta Materials (NYSE: MLM) was upgraded to an Outperform from an In-Line by Goldman Sachs, Procter & Gamble (NYSE: PG) was upgraded to an Overweight from an Equal Weight by Lehman Brothers, Vulcan Marterials (NYSE: VMC) was upgraded to an Outperform from an Inline by Goldman Sachs and Monster Worldwide (NASDAQ: MNST) was upgraded to a n Overweight from an Equal-Weight by Morgan Stanley.

Recent Analyst downgrades include Petsmart (NASDAQ: PETM) was downgraded to a Neutral from an Outperform by Credit Suisse, and Michaels Stores (NYSE: MIK) was downgraded to a Peer Perform from an Outperform by Thomas Weisel Partners.

Recent analyst coverage initiations include Vishay Intertechnology (NYSE: VSH) which was initiated with a Hold rating and a $16.50 price target by Citigroup Investment Research, Novacea Inc (NASDAQ: NOVC) was initiated with an Outperform rating by Cowen 7 Co, Warner Music Group (NYSE: WMG) was initiated with an Outperform rating and a $30 price target by Credit Suisse, RH Donnelley (NYSE: RHD) was initiated with an Overweight rating and a $64 price target by Lehman Brothers, the stock closed at $51.55 on Friday and Allscripts Healthcare Solution (NASDAQ: MDRX) was initiated with a Neutral rating by UBS.


Today we are featuring Universal Truckload Services (NASDAQ: UCAL) as our Furious Five feature on the Investors Corner. As our subscribers already know, this will be sent out separately later today to subscribers only.

For our outlook, and other vital information on the companies that we feature as the "FURIOUS FIVE" on Wall Street to Main Street just subscribe for FREE at

We cannot stress enough that investors need to do their due diligence, call the companies, get the information, consult with your investment advisor and if you do not have one consider getting one. Put the same time into investigating these companies as you do when you go to purchase a new television, its only for your protection. When it comes to thinly traded securities stagger your orders or put a limit order in to avoid a run up.

NAMC Newswire Note

Go to the NAMC Newswire for updates at and you can listen to the NAMC Radio for the audio version of Wall Street to Main Street at

To register to receive the Wall Street to Main Street Free Daily Newsletter Click Here or go to our site and click on the Newsletter section. CEOs that want to contact us can do so by going to or call us at 888-463-9237.

Louis Victor NAMC Newswire 888-463-9237

Disclaimer: None of the information contained on the NAMC Newswire constitutes a recommendation by the NAMC Newswire, its journalist, nor its parent company that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific investors or person. Each individual investor must make their own independent decisions regarding any security, portfolio of securities, transaction, or investment strategy featured on the NAMC Newswire or NAMC Radio Any past results are not necessarily indicative of future performance. The NAMC Newswire, its journalist nor its parent company does not guarantee any specific outcome or profit, and all investors should be aware of the real risk of loss in following any strategy or investments featured on the NAMC Newswire or the NAMC Radio. The strategy or investments discussed may fluctuate in price or value and investors may get back less than you invested. Before acting on any information featured on the NAMC Newswire website or the NAMC Radio segment, investors should consider whether it is suitable for their particular circumstances and strongly consider seeking advice from their own financial or investment adviser. Investors are also urged to do their own due diligence before investing in any security.

All opinions featured on the NAMC Newswire or NAMC Radio are based upon information that is considered to be reliable, but neither the NAMC Newswire, its journalist, its parent company, affiliates nor assigns warrant its completeness or accuracy, and it should not be relied upon as such. The statements and opinions featured on the NAMC Newswire by its journalist are based on their outlook at the time of the statement or opinion, and are subject to change without notice. NAMC may at times hold a position in the companies that it features, in these cases appropriate disclosure is made.

Louis Victor is the host of the syndicated radio show and financial newsletter "Wall Street to Main Street" which is featured on the NAMC Newswire Radio. He has been involved in the financial industry for over two decades, on the retail and investment banking ends. He is also well versed in the advertising and marketing industries, which has given him insight into market trends and unqiue companies that may be under the radar.

Day Trading

Day trading is an integral part of the stock market. These traders are always looking to make some quick easy money, and they buy and sell stocks and options for a quick profit, they generally hold their position for short terms, usually less than a day, hence the name Day Trading. The trader buys shares not with an investment purpose but with a quick profit in mind.

The day traders keep buying and selling throughout the day with the intention of a short term profit. The value stock keeps fluctuating second to second throughout the day and as it does, the fortunes of the traders also fluctuate. It is high risk trading and not for the faint of heart.

Many day traders operate with borrowed money, they obtain money at high interest with the hope that their profits will cover the cost of the loan. This is a risky way to try and make a living, resulting in tremendous pressure to succeed. A person operating under this type of pressure seldom makes good decisions, resulting in terrible losses. Which in turn feeds the cycle, borrow more money, higher pressure to win, poor decisions.

Day trading is neither illegal nor is it unethical. But it is risky. You need to keep certain factors in mind before deciding to try your hand at day trading. An investor must be mentally prepared to suffer huge risks and he must be financially capable of making good his losses should the need arise. The trader should only invest only what they can afford to lose. They should not take the house payment and stick it into the stock market.

It has been said, if you can't drive down the road with your car windows rolled down and hundred dollar bills flying out the window and not get upset, then you shouldn't try day trading. Keep in mind, for most traders, day trading is not about investing, it is more like gambling, and is just as addictive. No one can predict how the stock market will react on a day to day basis, so a successful day trader must know how to lock in profits and cut his losses as soon as they can. Typically, this means not carrying their position overnight in the hope that the next day will bring better prices.

Day trading is not meant for the weak hearted, because it can be extremely stressful. It can take up your entire day with monitoring the stock prices. Just don't buy into the hype about easy money, and don't blindly follow any hot tips or leads. You need to do your research before you buy.

John Marston is a self taught trader who has traded online for over 15 years from his home in California. Here is the exclusive Forex Market Trading System that John uses; you can also go to his website at which has a wealth of information about various trading strategies. You can also read his Blog which describes some of his personal trading strategies.

Getting Started with Options Trading

If you are just getting started with options trading, you may feel a bit overwhelmed, since there is a wealth of available options and a multitude of ways to trade these same options. However, if you are determined, you can implement options trading as a successful investment strategy. You only need to realize what your ultimate goal is and what you hope to accomplish.

Since options trading can take on multiple roles in an investment portfolio, it is imperative that you have clear aim and focus before employing this particular method of investing. For example, your goal may be to protect your investment portfolio if the market takes a turn for the worst, or perhaps you have decided that you would like more income from your stocks. Whatever your goal or strategy is, it is essential to have one.

The next step, after deciding what you hope to achieve with options trading, is to begin learning about different options trading strategies so that you can implement a strategy or combination of strategies that will prove effective for your investment goals. There are a many strategies available for trading options, but the ones you implement will depend on what you hope to achieve.

After you have done your research, you are almost ready to begin trading options. Now you will need to choose a brokerage firm. The brokerage firm you choose will depend on the level of personalized service that you will require. If you are not yet quite comfortable with investing, you will do best to choose a firm that will guide you along as you master options trading. If you are pretty comfortable with your knowledge level, then you may choose to go with a discounted firm that does not offer the same level of personalization as the more expensive firms.

Before you begin trading options, you will be required by your brokerage firm to fill out and submit an options trading agreement. This form is used by the firm to ascertain your knowledge of options trading as well as your overall investment knowledge.

Your firm will approve you for a certain level of options trading based on the information you provide on the options trading agreement form. So if you are just getting started, it is probably safe to say that you will not be approved for certain strategies at first. This is because some of the strategies associated with options trading are pretty risky for an unknowledgeable person, and the firm uses this as sort of a built in protection feature, for both the client and itself.

Trading stock options can be a rewarding experience, both mentally and financially. However, in order to gain the most from your options trading experience, you must be diligent about your research and willing to continually expand your trading knowledge.

Daniel Beatty, DVM is an option trader that specializes in trading conservative strategies. He runs an informational website and blog providing details on how to trade these strategies along with reviews of the best option courses and books. To take advantage of this great information and more make sure you check out Dr. Dan's site at

Surviving The Commodity Markets, PART 1 - Trading Guidelines For Different Account Sizes

Of all the important skills in trading, survival is number one. For unless we make it through the inevitable bad times, we won't be around to capitalize on the good. I've laid out some trading account guidelines that specify the account size required to conduct various commodity futures and option trading activities. Stick within these guidelines and you will have an edge on most of the commodity trading public.

The most important factor to success in commodity futures trading is our ability to survive the bad times. The second most important factor is our ability to identify and then take low risk, high probability commodity trades. Conquer these two and you are well on our way to trading success.

Yes, taking low risk, high probability commodity trade recommendations isn't enough. It's up to you to take the next step and follow the account survival guidelines discussed here. By surviving, you will be ready and able to participate in the favorable commodity trades that eventually come along, like buses in the night.

The commodity markets always change from trending to choppy and back again. There will be tough markets. You can count on this. We need to have several methods to cope with this uncertainty. We can never be sure of each individual trades outcome, so we need to put probability on our side to prepare for a losing string of trades.

One way is to have more chips at the table than our competition. A way to simulate this is by trading small breaking our account equity into ten to twenty parts (or more) and never risking more than 7.5% maximum on any one trade or idea. Many professionals with large accounts risk even less, like well under 5% a trade.

The problem with this plan is when we are dealing with smaller accounts. When the commodity trading account is under $20,000, to comply with 5% to 7.5% risk can mean taking on very small positions. Some commodity traders tend to get restless for bigger action and start breaking the rules. For example, with a $10,000 account, we should look to risk no more than $1,000 on each trade. (10%) Even this figure is too high.

If we risk less, like, 5% ($500), then the bad times are more survivable. The thing to remember is you can do all the in and out trading you want. You can grant options, spread options, hedge, buy dips, sell rallies day trade, etc - do whatever suits you. Just keep the risk for each trade down below 10% and preferably at 5% and you increase your chances of success markedly over the reckless plunger.

Next we will talk about actual account sizes and suggested activity.

Part Two of Six Parts - Next

There is substantial risk of loss trading futures and options and may not be suitable for all types of investors. Only risk capital should be used.

Thomas Cathey - 27-year trading veteran heads the managed futures division of Thomas Capital Management, LLC. View his TimeLine Trading market predictions and get his complete, free 44+ lesson, "Thomas Commodity Trading Course".

Main site:

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 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. Lets 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 worlds population, currently consume approximately 25% of the worlds 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 countrys 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). Russias population is projected to continue to decrease at a rate such that the population of Iran will be even higher to that of Russias 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 todays 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 todays 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 worlds 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 worlds 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 worlds top exporter and contains 25% of the worlds 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 worlds 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 todays 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 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.

Henry To, CFA, is co-founder and partner of the economic advisory firm, MarketThoughts LLC, an advisor to the hedge fund Independence Partners, LP. is a service provided by MarkertThoughts LLC, and provides a twice-a-week commentary designed to educate subscribers about the stock market and the economy beyond the headlines. This commentary usually involves focusing on the fundamentals and technicals of the current stock market, but may also include individual sector and stock analyses - as well as more general investing topics such as the Dow Theory, investing psychology, and financial history.