I have little doubt that you join me in being tired of the market's extreme volatility during the past year. With the thinnest bits of news seeming to spark nosedives and ascents of the broader averages, it becomes clearer each day that if we don't take one specific step, and take it quickly, the equity markets will continue to make Six Flags' fiercest loop-de-loop rides seem tame.

A comprehensive energy policy is the key, my fellow Fools.

An economic shrapnel barrage
I know, I know, our economy and the markets have been hit by all sorts of shrapnel of late. Housing has collapsed, with sales and prices continuing to slide. Somewhat as a result, the nation's financial institutions are trudging through muck and mire, and more will likely be added to the list of ultimate failures. And the U.S. greenback, which actually has been in retreat for most of this decade, has helped the overseas sales of our bigger domestic companies, but not much else.

For the most part, however, these are cyclical items, created by our own human excesses, and clearly subject to healing over time. The one item I haven't mentioned -- skyrocketing energy prices -- is only somewhat responsive to our ministrations. But if we don't do what we can to generate a comprehensive and timely energy policy, nothing else will really matter, inflation will run amok, and economic stability will remain at best a dream.

A slow, steady slide
Think about it. Big Oil companies like ExxonMobil (NYSE:XOM), Chevron (NYSE:CVX), and ConocoPhillips have all recently boasted fat upstream profits, lower downstream results from squeezed refinery margins, and flat if not declining liquids production.

The last-mentioned item is the most important, indicating that, despite the companies' best efforts, they simply can't stop their production from sliding. Their fields, many of which were discovered years ago, are experiencing withering flow rates.

Unfortunately, that's representative of the world's production circumstances, which seem to be stuck at about 86 million barrels of crude output a day, while worldwide demand marches steadily upward. And if you think a slow reduction in U.S. demand will affect global crude prices meaningfully, think again. While we're slowly shifting to more energy-efficient vehicles and driving less, car sales and the numbers of drivers in places like Russia, China, and India continue their steep upward climb.

A necessary solution
If you think all this seems to be a destructive and dangerous set of circumstances, you're absolutely right. Especially if you factor in the greater percentage of the world's crude that's now in the hands of nationalized oil companies, many of which are displaying progressively sharper elbows. So how do we keep these negatives from destroying our economy and with it our equity markets, simultaneously cutting into our hard-earned retirement capital?

It'll be hard to do, but it'll be absolutely impossible without an energy policy that's based upon a combination of conservation, increased drilling and production, increased dependence on natural gas (especially as a transportation fuel), development of all manner of alternative energy forms, construction of nuclear plants, etc., etc. However, we seem determined to be our own worst enemy on this score: President Bush has said that, "We cannot let another year go by without addressing (energy) issues together in a comprehensive and balanced package." Is that a quote from yesterday? Nope, try 2001.

The effect on your portfolio
But rather than watching idly and wringing our hands, I have an immediate investment prescription: I'm inclined to concentrate my oil patch investments in oilfield services and natural gas stocks. As I indicated above, the major integrated companies are watching their production fall steadily, and some are spending more on share buybacks than on replacing production. If those trends continue unabated, we'll be using the word "liquidation" with regard to these behemoths before long.

As such, I'd set my sights on such companies as Schlumberger (NYSE:SLB), and its services brethren, along with deepwater drilling twins Transocean (NYSE:RIG) and Diamond Offshore (NYSE:DO). And finally, with natural gas almost certain to increase in overall energy importance, it's difficult to see how you can go wrong with Chesapeake Energy (NYSE:CHK) and its independent natural gas peers.

Chesapeake Energy is a Motley Fool Inside Value recommendation. Kick the tires on the value-focused service free for 30 days.

Fool contributor David Lee Smith doesn't own shares in any of the companies mentioned. He does welcome your questions or comments. The Motley Fool has a disclosure policy.