Cap and Trade Part Two: How We'll Profit

By: The Growth Stock Wire Wednesday, July 08, 2009 12:36 PM

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By Matt Badiali

We got hundreds of responses to last week's cap and trade essay. Plenty of readers were shocked by how much the new bill will cost you, me, and every American family... Not J.M., who writes, "Ask me if I am surprised. Congress (as well as local governments) treats us as cash cows, which in fact we are."

Some readers didn't like questioning our government's huge new tax policy. R.R. writes, "Matt's article on the energy legislation is a political rant and fear mongering."

And D.B. gripes, "I wish I could cancel and get my money back when I read your Republican and Libertarian views. Why don't you just stick to providing investment advice and leave the environmental commentary to scientists?"

Well, D.B., I'd be sad to see you go. But thanks for cutting to the chase: how to profit. It's time to talk about the best ways to recoup some of those huge new energy costs.

Three sectors are set to prosper from cap and trade legislation...

First, the big trading banks. As reader B.F. put it, "Let me get this straight... the 'trade' part of cap and trade is going to be run by the same financial geniuses who brought us indefinable derivatives?" Yep. This legislation creates a brand new financial instrument: carbon credits. One carbon credit equals the right to emit one ton of carbon dioxide to the atmosphere. These credits are already trading on the Chicago Climate Exchange.

As author Matt Tiabbi pointed out in a must-read Rolling Stone article, Goldman Sachs (GS), the venerable Wall Street financial institution, seems to profit handsomely no matter the boondoggle. Carbon credits will be no exception.

Another broker that's set to win big on carbon trading is Amerex Energy, which began trading commodities like heating oil and gasoline in 1978 and is now trading carbon credits. Amerex' parent is GFI Group (GFIG), a $750 million financial derivatives company. When cap and trade passes, Amerex and its peers will have the inside track on the market.

After the financial companies, you have to consider green energy stocks. As coal companies whither and die, alternative energies will do well. If you're not a stock picker, a conservative way to play this idea is with a basket of clean energy plays like the PowerShares Wilderhill Clean Energy Fund (PBW). But I'd focus more on the one single realistic way we can generate massive amounts of clean electricity: Nuclear.

Nuclear is the only power source large enough to take up the slack from coal. Your speculative ideas here are uranium producers and infrastructure builders. For long-term money, the companies that own and operate existing nuclear power plants are the best choice.

They'll benefit from rising electricity costs – their fuel cost won't climb, so their margins will. Second, they'll benefit from selling carbon credits to the market. These companies generate electricity without making carbon dioxide. Suddenly, they're going to get paid to keep on doing it. (Maybe there is a free lunch after all!)

Here's a list of the top 10 publicly traded nuclear power producers by nuclear megawatts produced:

Company Symbol MWs

Exelon EXC 15,267
Entergy ETR 9,948
Tennessee Valley TVE 6,695
Dominion Resources D 5,478
FPL Group FPL 5,112
Duke Energy DUK 4,809
Constellation Energy CEG 3,620
Progress Energy PGN 3,299
Southern Co. SO 2,633
Public Service Enterprise PEG 2,376
These companies will be the best place to make long-term gains and protect yourself from the massive tax bill coming your way soon.

Good investing,

Matt Badiali

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7/9/2009 5:34:14 AM by Noah Folks, this bill is about the trillion-dollar business of trading carbon credits. Nothing else. The whole concept of buying carbon credits as a large energy consumer is that they allow you to excuse yourself and your inefficient energy use into a virtual, or imaginary, state of compliance. That is to say, you are not exceeding your carbon allowance on paper because you paid a fee. You buy the credits, you use them to lower the carbon requirement, and you get a pass. But think about it. You do not really comply in the sense of a clean-air, real-world, anti-pollution reality. That is to say, you are not exceeding your legal carbon allowance because you were allowed to use the monopoly money that the carbon-cops sold you. They sold it to you so you could buy them off. But the actual level of pollution and carbon-emissions are not reduced. If you're saying wait, I thought that reducing carbon-emissions was the goal, join the crowd. We're being sold a bill of goods under the guise of a bill of goodness. Shame on us if we buy. It's a bit complicated. That's the idea. Once you figure it out, your jaw hits the floor. The "trade" in cap and trade is where Wall Street comes in. And it's where they make out... like bandits. Again. You see, the federal government just seems to want a country full of energy-efficient entities. That is the hook. They only seem to. What they really want is your money. But they realize you are very tired of giving it to them. That's why they've hired Wall Street to do the job in the form of carbon-credit trading. While everyone is busy worrying about government-run health care, they've farmed out to the private sector the one thing government does well: stealing money from the people it purports to serve. Do not let this bill pass the Senate. Reply Rating: (2) (0)

Folks, this bill is about the trillion-dollar business of trading carbon credits. Nothing else. The whole concept of buying carbon credits as a large energy consumer is that they allow you to excuse yourself and your inefficient energy use into a virtual, or imaginary, state of compliance. That is to say, you are not exceeding your carbon
allowance on paper because you paid a fee. You buy the credits, you use them to lower the carbon requirement, and you get a pass.

But think about it. You do not really comply in the sense of a clean-air, real-world, anti-pollution reality. That is to say, you are not exceeding your legal carbon allowance because you were allowed to use the monopoly money that the carbon-cops sold you. They sold it to you so you could buy them off. But the actual level of pollution and
carbon-emissions are not reduced.

If you're saying wait, I thought that reducing carbon-emissions was the goal, join the crowd. We're being sold a bill of goods under the guise
of a bill of goodness. Shame on us if we buy.

It's a bit complicated. That's the idea. Once you figure it out, your jaw hits the floor. The "trade" in cap and trade is where Wall Street comes in. And it's where they make out... like bandits. Again.

You see, the federal government just seems to want a country full of energy-efficient entities. That is the hook. They only seem to. What
they really want is your money. But they realize you are very tired of giving it to them. That's why they've hired Wall Street to do the job in the form of carbon-credit trading. While everyone is busy worrying about government-run health care, they've farmed out to the private sector the one thing government does well: stealing money from the people it purports to serve. Do not let this bill pass the Senate.

Rating: (2) (0)

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