How to make money on cap and trade

Cap and trade (of anything) is the next financial bubble. One thing is true about all bubbles (ask the Dutch about tulips) and that is: "the first in, win" and the last out get screwed.

Cap and trade sets of up a market for trading greenhouse gas "allowances". This means that there will be a market for futures and futures markets will also provide the opportunity for index type investments. Those investing in all these vehicles will seek to hedge their upside and/or downside risk providing for the creation of collateralized obligations and offsetting credit default swaps.

Sound familiar? This is Financial institution's dream come true- a gift from the US Gov.

My point is... get in now... establish your position...and don't be greedy. When wall street and the USGov team up, you've got to be "in the game".

If you make a ton of money you won't care that your electric bill grew by 50%, US manufacturing completely shut down, and gasoline is $8.00 a gallon. In fact, you will facilitate the whole process by being one of those individual investors that is helping provide liquidity to those efforts to remake America.

The informed will make money, the poor will get tax credit offsets and those in the middle and those frozen in the headlights will foot the bill.

------------- I hate long posts but if you want to know how this all going to work:

I read the legislation, so let me bottom line it for:

1. Each year the USGov decides how much "man made" greenhouse gases can be introduced into the atmosphere by citizens and companys for which the USGov has jurisdiction (call this "the allowance").
2. Some of "the allowance" is allocated to citizens and companys. They will not get enough of "the allowance" to actually operate in a given year.
3. The rest of "the allowance" is given to Agencies of the USGOV or Non-Governmental Organizations who do not actually emit greenhouse gases but can "sell" their portion of "the allowance" to those that have been "underallocated". They will no doubt sell 100% of their "allowance" because they don't need an allowance to begin with. Get it?
4. The combination of 1, 2 and 3 above are a simple formula for taxing everyone in line #2.
5. These taxes are then either (1) passed on to the consumer or (2) avoided by curtailing production in the US [loss of jobs].
6. While reduction in greenhouse gas emissions can be measured, the affect on global warming cannot since there are too many other variables at play. Hence, the success at raising taxes is a certainty; the reduction in global warming is not.
7. Only Western Europe and the US are pursuing these policies. China and India are not since they have several billion people to keep happy.

We need a failure Czar

The US government has 15 "Czars" in the executive branch ("Car Czar", "Compensation Czar", etc.). I would much prefer "Car Pope" or "Compensation Pope" so we could presume some degree of infallibility when they speak Ex Cathedra.

Speaking of infallibility. If "we learn from our mistakes", don't you think that failure is too important to leave to chance?

If I am "too big to fail"; does that mean I am "too big to learn"?

And speaking of education, wasn't it Benjamin Franklin, that great British separatist who noted, "The only thing more expensive than education, is ignorance"!

But I disagree. Ignorance is the domain of the innocent (ex: little children). We are really talking about stupidity and stupidity comes with experience.

This is why "History Repeats Itself" or better-- People repeat history.

So now I offer you some history about what happens when there are too many Czars with too much power, who answer to no one:

• In January 1905, an incident known as "Bloody Sunday" occurred when Father Gapon led an enormous crowd to the Winter Palace in Saint Petersburg to present a petition to the tsar. When the procession reached the palace, the national police force opened fire on the crowd, killing hundreds. The people were so aroused over the massacre that a general strike was declared demanding a change in government. This marked the beginning of the revolution and the country was paralyzed and politicians grew desperate to keep their positions of power.
• Rumors where then circulated that food and fuel would soon be in short supply and inflation was mounting. Strikes increased among formerly self-sufficient citizens who were forced to take low-paid, government jobs mostly in the military. The media, typically friendly to the government, feared for their existence and spread public distrust of the regime so that they would be seen on the side of the people who, by now, had organized themselves into well-armed regional militias.

It didn't go well for the Tsar; so what can we learn from his mistakes:

1. Don't allow the people to arm themselves,
2. Maintain control of the media,
3. Get the bankers on your side by giving them lots of money,
4. Don't leave community organizing to chance, fully fund it so you can control it,
5. Make sure the people are less afraid of you and more afraid of something else (like pensions, flu, healthcare) -- maintain "rock star" status if you can (see point 2 for help),
6. Find your semi literate, mystic Grigory Rasputin equivalent before it is too late.

Customer Segmentation on a Global Scale

If you are an important customer, you expect special treatment. And you should get it. It is good for you as the buyer and it is good for the seller.

Most "good" customers are those that drive volume purchases. The seller usually offers a discount to the buyer and, in turn, the buyer buys large volumes. Both buyer and seller win.

Sometimes the key customer doesn't get a discount but rather some other consideration. Perhaps a rebate to be delivered at a later time. Perhaps preferential treatment that is hard to value but valuable none-the-less because it is not available to "lesser" customers.

China is the United States' most important customer when it comes to buying US government debt.

Why did Pelosi go to China? Why did Geithner go to China? Who will be next to pay a "sales call" to this most revered customer of US Debt.

Have you or your broker or your pension or your 401K bought any treasury bills lately. Do you think they (you) are getting the same deal as China? Are we all paying the same price? Are we all getting the same advertised, published return on investment?

What am I thinking here? I am quite sure we are all paying the same price and we are all getting the same benefits regardless of who is big and who is small. I mean after all, isn't it really all about fairness and a "level playing field"?

When is the next auction, I heard they are serving General Tso's Chicken....

BTW you've got to watch this if you like General Tso' Chicken...
http://www.ted.com/talks/jennifer_8_lee_looks_for_general_tso.html

Should I buy GM?

FINE PRINT: What follows is a work of fiction. Any references to persons, legal entities or governments (living or dead or undead) is purely coincidental. The following is for entertainment purposes only. Any information that follows is neither a solicitation to buy or sell securities. The writer of this article may or may not own such securities at the time you are reading this article. And, don't be a complete idiot-- do your own research before you buy financial instruments of any kind.


Buying the stock:

(1) All the people who are going to own the stock after bankruptcy intend to sell it for cash. The government says it want's out. The Labor Union intends to sell the stock to pay for medical benefits. When there are more sellers than buyers a stock goes down.

(2) I heard Bob Luntz (Former Chairman of GM) on TV (2009.06.02) and he said GM will do well because the US dollar is weakening and this makes GM more competitive. When a Chairman is counting on currency for success you know this is a problem.

(3) He further indicated that the new breakeven point for GM is 10Million cars per year. Since "we" haven't been making any cars with "our" plants idled and "we" are cutting "our" product line in half and "we" are dramatically shrinking "our" dealer network; I couldn't exactly figure out how this is going to happen. He further implied that with 2million new drivers on the US roads each year; achieving breakeven was within reach. What do you think of a former Chairman focusing on breakeven rather than profitability? Emphasis mine: If you are a US taxpayer then you own GM; if you are not a US citizen but your country buys US Treasuries you are an effective owner of GM too!

(4) GM is now a referendum on Obama. Therefore this must be successful. Same with Chrysler. But not the same with Ford who didn't need mother's milk. If Ford is successful and GM is not... well, you get the picture.

(5) The Chinese are buying Hummer. Perhaps the recent visit by our Treasury secretary sealed the deal. I am sure they paid as much for Hummer as Fiat is paying for Chrysler. But I seriously doubt you will be able to find ANY reliable information on the terms of the sale or related recourse liabilities assumed by the US government (er... I mean GM corporation).


So my final anaysis is 3 sell signals; 1 buy signal; 1 neutral.

In any case, there are so many better places to put your money, why buy a car company? Did you throw money at the airlines when they were/are going bankrupt?

Should you buy a GM Car?

Yes... but only if it is a Saturn. ;-)