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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 渡atural 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痴 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痴 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辿iggins that I first heard of the stock market痴 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 妬f 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.



[1] Newsletter issues of 17-Jul-2000, 18-Jun-2001, and 17-Dec-2001

[2] Newsletter issues of 17-Mar-2001 and 17-Jan-2005

[3] Newsletter issue of 21-Apr-2003

[4] Newsletter issue of 19-Jan-2004

[5] Newsletter issues of 23-Apr-2001, 14-Oct-2002, and 20-Oct-2003

[6] Newsletter issues of 24-Feb-2003 and 21-Jun-2004

[7] Newsletter issue of 18泡pr2005

[8] Newsletter issue of 21褒ul2001

[9] Newsletter issues of 11飽ct1999, 18亡ep2000, 19-Niv-2001, and 21邦ar2005

[10] Newsletter issues of 20鋒ov2000 and 15縫ec2003

[11] Newsletter issues of 20-Nov-2002 and 18-Feb-2002