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Monthly Discussion
Six Years of Trend Detection
This Newsletter
has been in operation for six years but has now come to an end. In this last
issue I present an overview of the most important topics discussed during the
last six years. Because the trends investigated have generally been long-term
trends they are expected to be valid for some time into the future.
General Trends
Natural gas replaces
oil[1]
In the large
energy picture natural gas has been and will continue to replace oil as a
primary energy source. The rate of this replacement has fallen short from what
had been forecasted 15 years ago but nevertheless this substitution will continue
into the future because natural gas has higher energy content (i.e. more
hydrogen atoms per pound) than oil does.
When will
hydrogen come?[2]
Hydrogen is the
fuel with the highest energy content and consequently will eventually become
the ultimate fuel for humans. However, it does not constitute a primary
energy source because energy is required to produce it. Today most hydrogen is
produced by burning oil (and/or gas). But for the enormous quantities of
hydrogen that will be required in the future nuclear energy is the most likely
primary energy source to be used. It is no surprise that nuclear energy is
slowly but steadily coming back. It will eventually replace natural gas.
Hydrogen is overdue according to the
trend of a “natural” evolution toward fuels with higher energy content. The
amount of hydrogen used today as fuel is well below what it should be, so there
is some catching-up to be done. Watch this space, particularly in view of
recent efforts to produce hydrogen efficiently and cheaply from sunlight.
Supersonic
travel[3]
Supersonic air
travel has also fallen behind its 15-year-old forecasts and perhaps not
independently of the slowdowns mentioned above for natural gas and hydrogen.
After all, supersonic airplanes need a high-hydrogen-content fuel (i.e. liquid
gas or liquid hydrogen) and therefore their deployment has to await the
development of the corresponding engine technologies.
Magnetic
levitation trains (Maglevs)[4]
With the Shanghai
express put into operation on January 1, 2004 Maglevs were on schedule
according to the 15-year-old forecast made in Predictions. Maglevs are
expected to grow in order to substitute air travel in large-volume short air
routes. It took 50 years for railroads to go from 1% to 50% of their
development; it will take Maglevs a comparable amount of time and furthermore
Maglevs are not at the 1% level yet!
Western
economies[5]
The rate of growth
of American GDP has been slowing down since the mid 1990s and that of the
European Union is not doing better. That is because many large-scale
industrialization processes in the West (the construction of highways, the
construction of natural-gas pipelines, the growth of car populations, the
replacement of steamships with motors, the spreading of computers, etc.) have
reached completion all of them more or less at the same time. As a consequence
growth in the West cannot be at the levels it used to. But in the East (for
example in China) many of these processes have a long way to go before they
saturate, which puts China’s economy in a very competitive position.
The Kontradief cycle says that another
high-growth phase is due around the mid 2020s. But in view of the remarks of
the previous paragraph, the upcoming boom will be much more important in China
than in the West.
US involvement
in Iraq[6]
There are many
similarities between the US involvement in Viet Nam and in Iraq both in the
size of the timeframes and in the rates of development. The only difference is
in the absolute numbers. American casualties in Viet Nam reached 45,000 whereas
in Iraq they are expected to be ten times less.
The end of the
Internet rush[7]
The number of
Internet users has stopped growing worldwide. In developed countries this
number stopped growing because all people prone to become Internet users have
already done so (68% of the American population 45% of the European
population). In the rest of the world the number of Internet users is only 8%
of the population and yet it is not growing! That is because infrastructures
(electricity, telephones, education, etc.) are missing. It will be a long time
before people there become Internet users.
Rate of change
in our Lives[8]
The accelerating
rate of change in technology, medicine, information exchange, and other social
aspects of our life have misled many people who became alarmists and are now
drawing conclusions about runaway trends, imminent singularities, catastrophes
and the like. In a study of the appearance of turning points in the evolution
of the Universe (the 28 most significant cosmic milestones) I have concluded
that the Universe's complexity has been growing along a large-scale
natural-growth pattern that has just reached its mid point. The rate of change
in the future will therefore be slowing down from now onward, albeit very
gently. Complexity's life cycle peaks during the lifetime of people born in the
mid 1940s. It so happens that we are traversing a time in the world's history
that witnesses the largest amount of change ever.
We happen to be positioned at the world's
prime!
Stock-Market Trends
This newsletter
has carried discussions on many stock-market issues. Below I summarize the
conclusions that will be valid only in the long-term future.
The Price of Oil[9]
It was pointed out
during the early days of the Newsletter that energy is the ultimate food for
life, which makes the price of oil something next to being sacred. Doubling the
price of bread in a large poor country could result in a popular uprising, or
trigger a revolution. Society on the other hand has ways of safeguarding its
survival. It has been argued that society possesses wisdom that surpasses the
wisdom of its individual members. It then makes sense to expect that society
manage to maintain the price of primary energy rather stable over time.
The price of primary energy has been seen
to flare-up in synch with Kondratief’s cycle, see Exhibit 3 below. In between
flare-ups the price of energy is confined to a reasonably stable window, say
$20 - $40 1996 dollars per barrel. The price of oil may seem excessive
recently, but when accounted for inflation and the weakness of the dollar, it
conforms to the above thinking.
Similarly for stock-market crashes. They
have their time in the Kondratief cycle and whether they are catastrophic like
in 1929 or more ephemeral like in 1987, the next one should be around 1940.
The Kondratief Cycle
Exhibit 3. Taken from the discussion of Newsletter issue of November 19, 2001, this graph needs no updating. It leaves no room for a near-future real flare-up of the price of oil, like that of 1981.
The Halloween
indicator[10]
It was
in Beating the Dow by O’Higgins that I first heard of the stock market’s
seasonal behavior, namely that 85% of gains with the DJIA (just capital gains,
not dividends) occur between October 31 and April 30. Since then I have
confirmed and monitored the evolution of this seasonality. It still works
today. I exploit it myself to halve my exposure to the whims of the stock
market. But beware of the EMH (see below), by the time that many investors try
to exploit this asymmetry of the stock market, the effect will evaporate.
The
Efficient Market Hypothesis[11]
The
Efficient Market Hypothesis (EMH) argues that all information available is
already reflected in the price of the stock. It essentially says that there can
be no secret successful schemes in the stock market. EMH comes in several
versions. In its strongest wording it says that no matter where you get your
information, it will sooner or later prove useless in obtaining
better-than-market-average investment results.
In its ultimate application the EMH could be behind
the grandfatherly advice “if you hold out long enough, the market will reward
you.” Have investors exploited this pattern sufficiently to render it useless?
Yes, there is some evidence in that direction. Record numbers of investors have
rushed to the stock market during the last 10-15 years and most of them are
stubbornly holding onto their stocks waiting for the market upturn. This could
be part of the reason the market has been and will remain horizontal for an
extended period of time, see long-term forecast (red line) in Exhibit 1.