THEME: AGING BOOMERS/PENSIONS
Some numbers from Justin Lahart, CNN

Then came the crash. According to calculations from Credit Suisse First Boston's accounting group, pension plans of companies in the S&P 500 went from being overfunded by $250 billion at the end of 1999 to being $225 billion underfunded at the end of 2002. Companies like General Motors and IBM were forced to pony up billions of dollars just meet their plans' obligations. So far this year, pension costs have trimmed Honeywell's earnings per share by a quarter.

And now? Credit Suisse First Boston reckons that, despite this year's stock market gains, at the end of the year S&P 500 pension funds will be underfunded to the tune of $247 billion. Pension costs will rise from this year's estimated $19 billion to $26 billion -- which comes to about 5 percent of what analysts think S&P 500 earnings will be in 2004.

Congress is busy crafting get-out-of-jail-free cards for companies with big pension shortfalls. Last week the House passed a bill, now headed to the Senate, that would reduce the big pension payments that airlines must make by 80 percent. Congress will allow companies, as it did last year, to calculate the present value of future benefits using high-grade corporate bond yields rather than the (lower) 30-year Treasury yield. This will reduce their costs.

Pension funds borrowing at cheap rates and investing in stocks can support the market in the next few years, but within 10 years when the boomers start withdrawing in earnest, the 401K plan will prove to be devastating to the developed countries. The only real solution will be to engage the youngest and most underdeveloped economies. The youngest and MOST underdeveloped being Muslim countries and Africa. China is benefitting now and hence hurting Mexico. But in the time frame of 20 years, the Islamic countries will be a vast pool to be tapped.

THEME: FREE TRADE
The Empire of the Sun strikes back...

Japan notified the World Trade Organization in Geneva today that it would assess tariffs of 10.7 billion euros, or $12.6 billion, on American-made goods. Tariffs on steel imports will make up about 45 percent of that amount. The rest of the tariffs will affect clothing, leather goods and other products.

"We set the amount equal to the American tariffs," said Nobuyuki Sato, a deputy in the Tariffs Bureau. The tariffs will take effect in 30 days, Sato said, if the United States measures are not removed.

Given the volume of trade between the world's two largest economies, the penalties are largely symbolic. More telling, less than 1 percent of the nearly three million tons of steel that Japan imported last year came from the United States.

THEME: GOLD
From NYT, speculators are buying, hedgers are pulling back...

A third force of note is speculators. They have been betting heavily that gold will rise. Look at the net of the futures contracts to buy and sell gold outstanding on the Comex division of the New York Mercantile Exchange on Sept. 2. The net equaled almost 123,000 contracts to buy about 12.3 million ounces of gold, the biggest weekly position by far in the Commodity Futures Trading Commission data going back to 1983.

But since then, these positions have been trimmed, with the net buy contracts totaling 93,160 as of Nov. 18. While this is the ninth biggest weekly net position, the fact that it has shrunk may be another reason why gold has still failed to break through $400.

Another positive for gold that has been tempered is the proposal for a so-called exchange traded fund for gold. Sponsored by the World Gold Council, this exchange traded fund would allow retail investors to buy gold easily through their brokers in amounts as small as a tenth of an ounce. Some analysts argue that the price of gold may already have run up in anticipation of this buying. But the Securities and Exchange Commission has not yet approved the proposal. "I am sure getting tired of waiting," lamented John Hathaway, a gold fund portfolio manager at Tocqueville Asset Management.

It is also not a bad idea to listen to analysts who argue that a small amount of gold in a portfolio, something under 5 percent, can be an effective way to diversify one's investments, regardless the outlook for gold.

Even a small shift in everyone's portfolio to Gold will make a massive difference. ETFs will help speculators trade via their stock accounts. If the commodities boom continues into next year, look for a rash of new hedge funds to be set up to take advantage of this trend. NYT times adds legitimacy to this argument...